A Time for Forgiveness

26 USC 1273 - Determination of amount of original issue discount

This preliminary release may be subject to further revision before it is released again as a final version. As with other online versions of the Code, the U.S. Code Classification Tables should be consulted for the latest laws affecting the Code. Those using the USC Prelim should verify the text against the printed slip laws available from GPO (Government Printing Office), the laws as shown on THOMAS (a legislative service of the Library of Congress), and the final version of the Code when it becomes available. Current through Pub. L. 112-90. (See Public Laws for the current Congress.) (a) General rule For purposes of this subpart (1) In general The term original issue discount means the excess (if any) of (A) the stated redemption price at maturity, over (B) the issue price. (2) Stated redemption price at maturity The term stated redemption price at maturity means the amount fixed by the last modification of the purchase agreement and includes interest and other amounts payable at that time (other than any interest based on a fixed rate, and payable unconditionally at fixed periodic intervals of 1 year or less during the entire term of the debt instrument). (3) 1/4 of 1 percent de minimis rule If the original issue discount determined under paragraph (1) is less than (A) 1/4 of 1 percent of the stated redemption price at maturity, multiplied by (B) the number of complete years to maturity, then the original issue discount shall be treated as zero. (b) Issue price 1

For purposes of this subpart (1) Publicly offered debt instruments not issued for property In the case of any issue of debt instruments (A) publicly offered, and (B) not issued for property, the issue price is the initial offering price to the public (excluding bond houses and brokers) at which price a substantial amount of such debt instruments was sold. (2) Other debt instruments not issued for property In the case of any issue of debt instruments not issued for property and not publicly offered, the issue price of each such instrument is the price paid by the first buyer of such debt instrument. (3) Debt instruments issued for property where there is public trading In the case of a debt instrument which is issued for property and which (A) is part of an issue a portion of which is traded on an established securities market, or (B) (i) is issued for stock or securities which are traded on an established securities market, or (ii) to the extent provided in regulations, is issued for property (other than stock or securities) of a kind regularly traded on an established market, the issue price of such debt instrument shall be the fair market value of such property. (4) Other cases Except in any case (A) to which paragraph (1), (2), or (3) of this subsection applies, or (B) to which section 1274 applies, the issue price of a debt instrument which is issued for property shall be the stated redemption price at maturity. (5) Property In applying this subsection, the term property includes services and the right to use property, but such term does not include money. (c) Special rules for applying subsection (b) For purposes of subsection (b) (1) Initial offering price; price paid by the first buyer 2

The terms initial offering price and price paid by the first buyer include the aggregate payments made by the purchaser under the purchase agreement, including modifications thereof. (2) Treatment of investment units In the case of any debt instrument and an option, security, or other property issued together as an investment unit (A) the issue price for such unit shall be determined in accordance with the rules of this subsection and subsection (b) as if it were a debt instrument, (B) the issue price determined for such unit shall be allocated to each element of such unit on the basis of the relationship of the fair market value of such element to the fair market value of all elements in such unit, and (C) the issue price of any debt instrument included in such unit shall be the portion of the issue price of the unit allocated to the debt instrument under subparagraph (B).

26 USC 9602 - Sec. 9602. Management of Trust Funds

(a) Report It shall be the duty of the Secretary of the Treasury to hold each Trust Fund established by subchapter A, and (after consultation with any other trustees of the Trust Fund) to report to the Congress each year on the financial condition and the results of the operations of each such Trust Fund during the preceding fiscal year and on its expected condition and operations during the next 5 fiscal years. Such report shall be printed as a House document of the session of the Congress to which the report is made. (b) Investment (1) In general It shall be the duty of the Secretary of the Treasury to invest such portion of any Trust Fund established by subchapter A as is not, in his judgment, required to meet current withdrawals. Such investments may be made only in interest-bearing obligations of the United States. For such purpose, such obligations may be acquired - (A) on original issue at the issue price, or (B) by purchase of outstanding obligations at the market price . (2) Sale of obligations Any obligation acquired by a Trust Fund established by subchapter A may be sold by the Secretary of the Treasury at the market price. (3) Interest on certain proceeds The interest on, and the proceeds from the sale or redemption of, any obligations held in a Trust Fund established by subchapter A shall be credited to and form a part of the Trust Fund.

Interest bearing
In accounting, which is the process of communicating financial information about a business entity to users such as shareholders and managers,[1] the prefix interest bearing is used adjectively to simply describe accounts that accrue interest. In contrast the term non-interest bearing is used to describe accounts that do not accrue interest. [2]

Shareholder
A shareholder or stockholder is an individual or institution (including a corporation) that legally owns any part of a share of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself. (Fama 1980). Stockholders are granted special privileges depending on the class of stock. These rights may include:

The right to sell their shares, The right to vote on the directors nominated by the board, The right to nominate directors (although this is very difficult in practice because of minority protections) and propose shareholder resolutions, The right to dividends if they are declared, The right to purchase new shares issued by the company, and The right to what assets remain after a liquidation.

Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirect interest in the business entity. For example, labor, suppliers, customers, the community, etc., are typically considered stakeholders because they contribute value and/or are impacted by the corporation. Shareholders in the primary market who buy IPOs provide capital to corporations; however, the vast majority of shareholders are in the secondary market and provide no capital directly to the corporation. Therefore, contrary to popular opinion, shareholders of American public corporations are not the (1) owners of the corporation, (2) the claimants of the profit, nor (3) investors, as in the contributors of capital.[1]

Management
Management is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively (DOJ/Court System). Management comprises planning, organizing, staffing, leading or directing, and controlling an organization (a group of one or more people or entities) or effort for the purpose of accomplishing a goal.

Resourcing encompasses the deployment and manipulation of human resources, financial resources, technological resources and natural resources. Since organizations can be viewed as systems, management can also be defined as human action, including design, to facilitate the production of useful outcomes from a system. This view opens the opportunity to 'manage' oneself, a pre-requisite to attempting to manage others.

Human resources
Human resources is the set of individuals who make up the workforce of an organization, business sector or an economy. "Human capital" is sometimes used synonymously with human resources, although human capital typically refers to a more narrow view; i.e., the knowledge the individuals embody and can contribute to an organization. Likewise, other terms sometimes used include "manpower", "talent", "labor" or simply "people". The professional discipline and business function that oversees an organization's human resources is called human resource management (HRM, or simply HR).

Human capital
Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labor so as to produce economic value. It is an aggregate economic view of the human being acting within economies, which is an attempt to capture the social, biological, cultural and psychological complexity as they interact in explicit and/or economic transactions. It was assumed in early economic theories, reflecting the context in which the secondary sector of the economy was producing much more than the tertiary sector was able to produce at the time in most countries - to be a fungible resource, homogeneous, and easily interchangeable, and it was referred to simply as workforce or labor, one of three factors of production (the others being land, and assumed-interchangeable assets of money and physical equipment). Just as land became recognized as natural capital and an asset in itself, and human factors of production were raised from this simple mechanistic analysis to human capital. In modern technical financial analysis, the term "balanced growth" refers to the goal of equal growth of both aggregate human capabilities and physical assets that produce goods and services. The assumption that labour or workforces could be easily modelled in aggregate began to be challenged in 1950s when the tertiary sector, which demanded creativity, begun to produce more than the secondary sector was producing at the time in the most developed countries in the world.

Clark's Sector model for US economy 1850 -2009.[1] Accordingly much more attention was paid to factors that led to success versus failure where human management was concerned. The role of leadership, talent, even celebrity was explored. Today, most theories attempt to break down human capital into one or more components for analysis - usually called "intangibles". Most commonly, social capital, the sum of social bonds and relationships, has come to be recognized, along with many synonyms such as goodwill or brand value or social cohesion or social resilience and related concepts like celebrity or fame, as distinct from the talent that an individual (such as an athlete has uniquely) has developed that cannot be passed on to others regardless of effort, and those aspects that can be transferred or taught: instructional capital. Less commonly, some analyses conflate good instructions for health with health itself, or good knowledge management habits or systems with the instructions they compile and manage, or the "intellectual capital" of teams - a reflection of their social and instructional capacities, with some assumptions about their individual uniqueness in the context in which they work. In general these analyses acknowledge that individual trained bodies, teachable ideas or skills, and social influence or persuasion power, are different. Management accounting is often concerned with questions of how to model human beings as a capital asset. However it is broken down or defined, human capital is vitally important for an organization's success (Crook et al., 2011); human capital increases through education and experience.[2] In 2010, the OECD (the Organization of Economic Co-operation and Development) encouraged the governments of advanced economies to embrace policies to increase innovation and knowledge in products and services as an economical path to continued prosperity. [3]. International policies also often address human capital flight, which is the loss of talented or trained persons from a country that invested in them, to another country which benefits from their arrival without investing in them.

United States Secretary of the Treasury

Not to be confused with Treasurer of the United States.

United States Secretary of the Treasury

Official Seal

Incumbent Timothy Geithner

since January 26, 2009

Formation First holder Succession Website

September 11, 1789 Alexander Hamilton Fifth www.treasury.gov

The Secretary of the Treasury of the United States is the head of the United States Department of the Treasury, which is concerned with financial and monetary matters, and, until 2003, also with some issues of national security and defense. This position in the Federal Government of the United States is analogous to the Minister of Finance in many other countries. Most of the Department's law enforcement agencies such as the U.S. Customs Service, the
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Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), and the U.S. Secret Service were reassigned to other Departments in 2003 in conjunction with the creation of the Department of Homeland Security. The Secretary of the Treasury is a member of the President's Cabinet, and since the Clinton Administration, has been a member of the U.S. National Security Council. By law and by tradition, the Secretary of the Treasury is fifth in the United States presidential line of succession, in case of some extreme calamity in the United States. From the U.S. Department of the Treasury website: "The Secretary of the Treasury is the principal economic advisor to the President and plays a critical role in policy-making by bringing an economic and government financial policy perspective to issues facing the government. The Secretary is responsible for formulating and recommending domestic and international financial, economic, and tax policy, participating in the formulation of broad fiscal policies that have general significance for the economy, and managing the public debt. The Secretary oversees the activities of the Department in carrying out its major law enforcement responsibilities; in serving as the financial agent for the United States Government; and in manufacturing coins and currency. "The Chief Financial Officer of the government, the Secretary serves as Chairman Pro Tempore of the President's Economic Policy Council, Chairman of the Boards and Managing Trustee of the Social Security and Medicare Trust Funds, and as U.S. Governor of the International Monetary Fund, the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development." The Secretary along with the Treasurer must sign Federal Reserve notes before they can become legal tender.[citation needed] The Secretary also manages the United States Emergency Economic Stabilization fund. The current Secretary of the Treasury is Timothy Geithner. The Secretary of the Treasury earns $191,300 per year.

redemption
noun 1. an act of redeeming or the state of being redeemed. 2. deliverance; rescue. 3. Theology . deliverance from sin; salvation. 4. atonement for guilt. 5. repurchase, as of something sold. Redemption as a theological concept is found in several different religions. In Buddhist theology it encompasses a release from worldly desires. As a Christian theological term, it refers to the deliverance of Christians from sin.[1] In Judaism, redemption can refer both to the Exodus from slavery in ancient Egypt, and deliverance from exile.

redeem
verb (used with object) 1. to buy or pay off; clear by payment: to redeem a mortgage. 2. to buy back, as after a tax sale or a mortgage foreclosure. 3. to recover (something pledged or mortgaged) by payment or other satisfaction: to redeem a pawned watch. 4. to exchange (bonds, trading stamps, etc.) for money or goods. 5. to convert (paper money) into specie.

Pledge (law)
A pledge is a bailment that conveys possessory title to property owned by a debtor (the pledgor) to a creditor (the pledgee) to secure repayment for some debt or obligation and to the mutual benefit of both parties.[1][2] The term is also used to denote the property which constitutes the security. Pledge is the pignus of Roman law, from which most of the modern law on the subject is derived, but is generally a feature of even the most basic legal systems. It differs from hypothecation and from the more usual mortgage in that the pledge is in the possession of the pledgee. It is similar, however, in that all three can apply to personal and real property. A pledge of personal property is known as a pawn and that of real property is called an antichresis. In earlier medieval law, especially in Germanic law, two types of pledge existed, being either possessory (cf. Old English wed, Old French gage, Old High German wetti, Latin pignus depositum), i.e. delivered from the outset, or a non-possessory (cf. OE bd, OFr nam, nant, OHG pfant, L pignus oppositum), i.e. distrained on the maturity date, and the latter essentially gave rise to the legal principle of distraint. This distinction still remains in some systems, e.g. French gage vs. nantissement and Dutch vuistpand vs. stil pand. Token, symbolic reciprocal pledges were commonly incorporated into formal ceremonies (see baptism page 53) as a way of solidifying agreements and other transactions. The chief difference between Roman and English law is that certain things (e.g. apparel, furniture and instruments of tillage) could not be pledged in Roman law, while there is no such restriction in English law . In the case of a pledge, a special property passes to the pledgee, sufficient to enable him to maintain an action against a wrongdoer, but the general property, that is the property subject to the pledge, remains in the pledgor. As the pledge is for the benefit of both parties, the pledgee is bound to exercise only ordinary care over the pledge. The pledgee has the right of selling the pledge if the pledgor make default in payment at the stipulated time. No right is acquired by the wrongful sale of a pledge except in the case of property passing by delivery, such as money or negotiable securities. In the case of a wrongful sale by a pledgee, the pledgor cannot recover the value of the pledge without a tender of the amount due.

The law of Scotland and the United States generally agrees with that of England as to pledges. The main difference is that in Scotland and in Louisiana a pledge cannot be sold unless with judicial authority. In some of the U.S. states the common law as it existed apart from the Factors Acts is still followed; in others the factor has more or less restricted power to give a title by pledge.

Colonel Edward Mandel House (to Woodrow Wilson found in Wilsons

personal diary/logs - 1913 to 1921 exact date unknown):

Very soon, every American will be required to register their biological property (that's you and your children) in a national system designed to keep track of the people and that will operate under the ancient system of pledging. By such methodology, we can compel people to submit to our agenda, which will affect our security as a charge back for our fiat paper currency. Every American will be forced to register or suffer being able to work and earn a living. They will be our chattels (property) and we will hold the security interest over them forever, by operation of the law merchant under the scheme of secured transactions. Americans, by unknowingly or unwittingly delivering the bills of lading (Birth Certificate) to us will be rendered bankrupt and insolvent, secured by their pledges. They will be stripped of their rights and given a commercial value designed to make us a profit and they will be none the wiser, for not one man in a million could ever figure our plans and, if by accident one or two should figure it out, we have in our arsenal plausible deniability. After all, this is the only logical way to fund government, by floating liens and debts to the registrants in the form of benefits and privileges. This will inevitably reap us huge profits beyond our wildest expectations and leave every American a contributor to this fraud, which we will call "Social Insurance." Without realizing it, every American will unknowingly be our servant, however begrudgingly. The people will become helpless and without any hope for their redemption and we will employ the high office (presidency) of our dummy corporation (USA) to foment this plot against America."

Obligation
An obligation is a requirement to take some course of action, whether legal or moral. There are also obligations in other normative contexts, such as obligations of etiquette, social obligations, and possibly in terms of politics, where obligations are requirements which must be fulfilled. These are generally legal obligations, which can incur a penalty for unfulfilment , although certain people are obliged to carry out certain actions for other reasons as well, whether as a tradition or for social reasons. Obligations vary from person to person: for example, a person holding a political office will generally have far more obligations than an average adult citizen,

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who themselves will have more obligations than a child. [citation needed] Obligations are generally granted in return for an increase in an individuals rights or power. The word "obligation" can also designate a written obligation, or such things as bank notes, coins, checks, bonds, stamps, or securities.

Factoring (finance)
Factoring is a financial transaction whereby a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. In "advance" factoring, the factor provides financing to the seller of the accounts in the form of a cash "advance," often 70-85% of the purchase price of the accounts, with the balance of the purchase price being paid, net of the factor's discount fee (commission) and other charges, upon collection. In "maturity" factoring, the factor makes no advance on the purchased accounts; rather, the purchase price is paid on or about the average maturity date of the accounts being purchased in the batch. Factoring differs from a bank loan in several ways. The emphasis is on the value of the receivables (essentially a financial asset), whereas a bank focuses more on the value of the borrower's total assets, and often also considers, in underwriting the loan, the value attributable to non-accounts collateral owned by the borrower. Such collateral includes inventory, equipment, and real property,[1][2] That is, a bank loan issuer looks beyond the credit-worthiness of the firm's accounts receivables and of the account debtors (obligors) thereon. Secondly, factoring is not a loan it is the purchase of a financial asset (the receivable). Third, a nonrecourse factor assumes the "credit risk", that a purchased account will not collect due solely to the financial inability of account debtor to pay. In the United States, if the factor does not assume credit risk on the purchased accounts, in most cases a court will recharacterize the transaction as a secured loan. It is different from forfaiting in the sense that forfaiting is a transaction-based operation involving exporters in which the firm sells one of its transactions, [3] while factoring is a Financial Transaction that involves the Sale of any portion of the firm's Receivables.[1][2] Factoring is a word often misused synonymously with invoice discounting, known as "Receivables Assignment" in American Accounting ("Generally Accepted Accounting Principles"/"GAAP" propagated by FASB)[2] - factoring is the sale of receivables, whereas invoice discounting is borrowing where the receivable is used as collateral.[2] However, in some other markets, such as the UK, invoice discounting is considered to be a form of factoring involving the assignment of receivables and is included in official statistics.[4] It is therefore not considered to be borrowing. In this case the arrangement is usually confidential in that the debtor is not notified of the arrangement and the seller of the receivable collects the debt on behalf of the factor. The three parties directly involved are: the one who sells the receivable, the debtor (the account debtor, or customer of the seller), and the factor. The receivable is essentially a financial asset associated with the debtor's liability to pay money owed to the seller (usually for work performed or goods sold). The seller then sells one or more of its invoices (the receivables) at a discount to the third party, the specialized financial organization (aka the factor), often, in advance factoring,
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to obtain cash. The sale of the receivables essentially transfers ownership of the receivables to the factor, indicating the factor obtains all of the rights associated with the receivables. [1][2] Accordingly, the factor obtains the right to receive the payments made by the debtor for the invoice amount and, in nonrecourse factoring, must bear the loss if the account debtor does not pay the invoice amount due solely to his or its financial inability to pay. Usually, the account debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections; however, non-notification factoring, where the client (seller) collects the accounts sold to the factor, as agent of the factor, also occurs. There are three principal parts to "advance" factoring transaction; (a) the advance, a percentage of the invoice face value that is paid to the seller at the time of sale, (b) the reserve, the remainder of the purchase price held until the payment by the account debtor is made and (c) the discount fee, the cost associated with the transaction which is deducted from the reserve, along with other expenses, upon collection, before the reserve is disbursed to the factor's client. Sometimes the factor charges the seller (the factor's "client") both a discount fee, for the factor's assumption of credit risk and other services provided, as well as interest on the factor's advance, based on how long the advance, often treated as a loan (repaid by set-off against the factor's purchase obligation, when the account is collected), is outstanding.[5] The factor also estimates the amount that may not be collected due to non-payment, and makes accommodation for this in pricing, when determining the purchase price to be paid to the seller. The factor's overall profit is the difference between the price it paid for the invoice and the money received from the debtor, less the amount lost due to nonpayment.[2] In the United States, under the Generally Accepted Accounting Principles receivables are considered sold, under Statement of Financial Accounting Standards No. 140, when the buyer has "no recourse,".[6] Moreover, to treat the transaction as a sale under GAAP, the seller's monetary liability under any "recourse" provision must be readily estimated at the time of the sale. Otherwise, the financial transaction is treated as a loan, with the receivables used as collateral.

History
Factoring's origins lie in the financing of trade, particularly international trade. Factoring as a fact of business life was underway in England prior to 1400, and it came to America with the Pilgrims, around 1620.[7] It appears to be closely related to early merchant banking activities. The latter however evolved by extension to non-trade related financing such as sovereign debt. [8] Like all financial instruments, factoring evolved over centuries. This was driven by changes in the organization of companies; technology, particularly air travel and non-face to face communications technologies starting with the telegraph, followed by the telephone and then computers. These also drove and were driven by modifications of the common law framework in England and the United States.[9] Governments were latecomers to the facilitation of trade financed by factors. English common law originally held that unless the debtor was notified, the assignment between the seller of invoices and the factor was not valid. The Canadian Federal Government legislation governing the assignment of moneys owed by it still reflects this stance as does provincial government legislation modelled after it. As late as the current century the courts have heard arguments that
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without notification of the debtor the assignment was not valid. In the United States, by 1949 the majority of state governments had adopted a rule that the debtor did not have to be notified thus opening up the possibility of non-notification factoring arrangements.[10] Originally the industry took physical possession of the goods, provided cash advances to the producer, financed the credit extended to the buyer and insured the credit strength of the buyer.[11] In England the control over the trade thus obtained resulted in an Act of Parliament in 1696 to mitigate the monopoly power of the factors. With the development of larger firms who built their own sales forces, distribution channels, and knowledge of the financial strength of their customers, the needs for factoring services were reshaped and the industry became more specialized. By the twentieth century in the United States factoring was still the predominant form of financing working capital for the then high growth rate textile industry. In part this occurred because of the structure of the US banking system with its myriad of small banks and consequent limitations on the amount that could be advanced prudently by any one of them to a firm. [12] In Canada, with its national banks the limitations were far less restrictive and thus factoring did not develop as widely as in the US. Even then factoring also became the dominant form of financing in the Canadian textile industry. Today factoring's rationale still includes the financial task of advancing funds to smaller rapidly growing firms who sell to larger more creditworthy organizations. While almost never taking possession of the goods sold, factors offer various combinations of money and supportive services when advancing funds. Factors often provide their clients four key services: information on the creditworthiness of their prospective customers domestic and international, and, in nonrecourse factoring, acceptance of the credit risk for "approved" accounts; maintain the history of payments by customers (i.e., accounts receivable ledger); daily management reports on collections; and, make the actual collection calls. The outsourced credit function both extends the small firms effective addressable marketplace and insulates it from the survival-threatening destructive impact of a bankruptcy or financial difficulty of a major customer. A second key service is the operation of the accounts receivable function. The services eliminate the need and cost for permanent skilled staff found within large firms. Although today even they are outsourcing such backoffice functions. More importantly, the services insure the entrepreneurs and owners against a major source of a liquidity crises and their equity. In the latter half of the twentieth century the introduction of computers eased the accounting burdens of factors and then small firms. The same occurred for their ability to obtain information about debtors creditworthiness. Introduction of the Internet and the web has accelerated the process while reducing costs. Today credit information and insurance coverage is available any time of the day or night on-line. The web has also made it possible for factors and their clients to collaborate in realtime on collections. Acceptance of signed documents provided by facsimile as being legall y binding has eliminated the need for physical delivery of originals, thereby reducing time delays for entrepreneurs.

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By the first decade of the twenty first century a basic public policy rationale for factoring remains that the product is well suited to the demands of innovative rapidly growing firms critical to economic growth.[13] A second public policy rationale is allowing fundamentally good business to be spared the costly management time consuming trials and tribulations of bankruptcy protection for suppliers, employees and customers or to provide a source of funds during the process of restructuring the firm so that it can survive and grow.

Reason
Factoring is a method used by some firms to obtain cash. Certain companies factor accounts when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts; in other industries, however, such as textiles or apparel, for example, financially sound companies factor their accounts simply because this is the historic method of finance. The use of factoring to obtain the cash needed to accommodate a firms immediate cash needs wil l allow the firm to maintain a smaller ongoing cash balance. By reducing the size of its cash balances, more money is made available for investment in the firms growth. Debt factoring is also used as a financial instrument to provide better cash flow control especially if a company currently has a lot of accounts receivables with different credit terms to manage. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customer's bank." [14] Accordingly, factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with factoring the receivables. Therefore, the trade off between the return the firm earns on investment in production and the cost of utilizing a factor is crucial in determining both the extent factoring is used and the quantity of cash the firm holds on hand. Many businesses have cash flow that varies. It might be relatively large in one period, and relatively small in another period. Because of this, businesses find it necessary to both maintain a cash balance on hand, and to use such methods as factoring, in order to enable them to cover their short term cash needs in those periods in which these needs exceed the cash flow. Each business must then decide how much it wants to depend on factoring to cover short falls in cash, and how large a cash balance it wants to maintain in order to ensure it has enough cash on hand during periods of low cash flow. Generally, the variability in the cash flow will determine the size of the cash balance a business will tend to hold as well as the extent it may have to depend on such financial mechanisms as factoring. Cash flow variability is directly related to 2 factors: 1. The extent cash flow can change, 2. The length of time cash flow can remain at a below average level. If cash flow can decrease drastically, the business will find it needs large amounts of cash from either existing cash balances or from a factor to cover its obligations during this period of time. Likewise, the longer a relatively low cash flow can last, the more cash is needed from another source (cash balances or a factor) to cover its obligations during this time. As indicated, the

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business must balance the opportunity cost of losing a return on the cash that it could otherwise invest, against the costs associated with the use of factoring. The cash balance a business holds is essentially a demand for transactions money. As stated, the size of the cash balance the firm decides to hold is directly related to its unwillingness to pay the costs necessary to use a factor to finance its short term cash needs. The problem faced by the business in deciding the size of the cash Balance it wants to maintain on hand is similar to the decision it faces when it decides how much physical inventory it should maintain. In this situation, the business must balance the cost of obtaining cash proceeds from a factor against the opportunity cost of the losing the Rate of Return it earns on investment within its business. [15]

How does international factoring work?

There is nothing complex about factoring. It is simply a unique package of services designed to ease the traditional problems of selling on open account. Typical services include investigating the creditworthiness of buyers, assuming credit risk and giving 100% protection against writeoffs, collection and management of receivables and provision of finance through immediate cash advances against outstanding receivables. When export factoring is carried out by members of FCI, the service involves a five or six stage operation.

The exporter signs a factoring contract assigning all agreed receivables to an export factor. The factor then becomes responsible for all aspects of the factoring operation. The export factor chooses an FCI correspondent to serve as an import factor in the country where goods are to be shipped. The receivables are then reassigned to the import factor. At the same time, the import factor investigates the credit standing of the buyer of the exporter's goods and establishes lines of credit. This allows the buyer to place an order on open account terms without opening letters of credit. Once the goods have been shipped, the export factor may advance up to 80% of the invoice value to the exporter. Once the sale has taken place, the import factor collects the full invoice value at maturity and is responsible for the swift transmission of funds to the export factor who then pays the exporter the outstanding balance. If after 90 days past due date an approved invoice remains unpaid, the import factor will pay 100% of the invoice value under guarantee.

Not only is each stage designed to ensure risk-free export sales, it lets the exporter offer more attractive terms to overseas customers. Both the exporter and the customer also benefit by spending less time and money on administration and documentation. In all cases, exporters are assured of the best deal in each country. This is because export factors never appoint an import factor solely because the company is a fellow member of FCI. Import factors are invited to compete for business and those with superior services are selected.

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In some situations, FCI members handle their client's business without involving another factor. This is becoming more common in the European Union where national boundaries are disappearing. However FCI members conduct their business, one thing remains certain. Their aim is to make selling in the complex world of international trade as easy for clients as dealing with local customers.

Differences from bank loans

Factors make funds available, even when banks would not do so, because factors focus first on the credit worthiness of the debtor, the party who is obligated to pay the invoices for goods or services delivered by the seller. In contrast, the fundamental emphasis in a bank lending relationship is on the creditworthiness of the borrower, not that of its customers. While bank lending is cheaper than factoring, the key terms and conditions under which the small firm must operate differ significantly. From a combined cost and availability of funds and services perspective, factoring creates wealth for some but not all small businesses. For small businesses, their choice is slowing their growth or the use of external funds beyond the banks. In choosing to use external funds beyond the banks the rapidly growing firms choice is between seeking venture capital (i.e., equity) or the lower cost of selling invoices to finance their growth. The latter is also easier to access and can be obtained in a matter of a week or two, whereas securing funds from venture capitalists can typically take up to six months. Factoring is also used as bridge financing while the firm pursues venture capital and in conjunction with venture capital to provide a lower average cost of funds than equity financing alone. Of course one needs to note that Equity capital has the highest cost in the long run, as a firm needs to demonstrate higher return on investment for its shareholders Firms can also combine the three types of financing, angel/venture, factoring and bank line of credit to further reduce their total cost of funds whilst at the same time improving cash flow. As with any technique, factoring solves some problems but not all. Businesses with a small spread between the revenue from a sale and the cost of a sale, should limit their use of factoring to sales above their breakeven sales level where the revenue less the direct cost of the sale plus the cost of factoring is positive. While factoring is an attractive alternative to raising equity for small innovative fast-growing firms, the same financial technique can be used to turn around a fundamentally good business whose management has encountered a perfect storm or made significant business mistakes which have made it impossible for the firm to work within the constraints of their bank covenants. The value of using factoring for this purpose is that it provides management time to implement the changes required to turn the business around. The firm is paying to have the option of a future the owners control. The association of factoring with troubled situations accounts for the half truth of it being labeled 'last resort' financing. However, use of the technique when there is only a modest spread between the revenue from a sale and its cost is not advisable for turnarounds. Nor are turnarounds usually able to recreate wealth for the owners in this situation. Large firms use the technique without any negative connotations to show cash on their balance sheet rather than an account receivable entry, money owed from their customers, particularly
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when these show payments being due for extended periods of time beyond the North American norm of 60 days or less.

Invoice sellers
The invoice seller presents recently generated invoices to the factor in exchange for an amount that is less than the value of the invoice(s) by an agreed upon discount and a reserve. A reserve is a provision to cover short payments, payment of less than the full amount of the invoice by the debtor, or a payment received later than expected. The result is an initial payment followed by a second one equal to the amount of the reserve if the invoice is paid in full and on time or a credit to the account of the seller with the factor. In an ongoing relationship the invoice seller will get their funds one or two days after the factor receives the invoices. Astute invoice sellers can use a combination of techniques to cover the range of 1% to 5% plus cost of factoring for invoices paid within 50 to 60 days or more. In many industries, customers expect to pay a few percentage points higher to get flexible sales terms. In effect the customer is willing to pay the supplier to be their bank and reduce the equity the customer needs to run their business. To counter this it is a widespread practice to offer a prompt payment discount on the invoice. This is commonly set out on an invoice as an offer of a 2% discount for payment in ten days. {Few firms can be relied upon to systematically take the discount, particularly for low value invoices - under $100,000 so cash inflow estimates are highly variable and thus not a reliable basis upon which to make commitments.} Invoice sellers can also seek a cash discount from a supplier of 2 % up to 10% (depending on the industry standard) in return for prompt payment. Large firms also use the technique of factoring at the end of reporting periods to dress their balance sheet by showing cash instead of accounts receivable. There are a number of varieties of factoring arrangements offered to invoice sellers depending upon their specific requirements. The basic ones are described under the heading Factors below.

Factors
When initially contacted by a prospective invoice seller, the factor first establishes whether or not a basic condition exists, does the potential debtor(s) have a history of paying their bills on time? That is, are they creditworthy? (A factor may actually obtain insurance against the debtors becoming bankrupt and thus the invoice not being paid.) The factor is willing to consider purchasing invoices from all the invoice sellers creditworthy deb tors. The classic arrangement which suits most small firms, particularly new ones, is full service factoring where the debtor is notified to pay the factor (notification) who also takes responsibility for collection of payments from the debtor and the risk of the debtor not paying in the event the debtor becomes insolvent; i.e., nonrecourse factoring. This traditional method of factoring puts the risk of non-payment fully on the factor, except if the reason for the factor's failure to collect is not related to the financial inability of the account debtor to pay, the sole risk assumed by a nonrecourse factor. If the debtor cannot pay the invoice due to insolvency, it is the factor's problem to deal with and the factor cannot seek payment from the seller. The factor will only purchase solid credit worthy invoices and often turns away average credit quality customers. The cost is typically higher with this factoring process because the factor assumes a greater risk and provides credit checking and payment collection services as part of the overall package. For firms with formal management
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structures such as a Board of Directors (with outside members), and a Controller (with a professional designation), debtors may not be notified (i.e., non-notification factoring). The invoice seller may not retain the credit control function. If they do then it is likely that the factor will insist on recourse against the seller if the invoice is not paid after an agreed upon elapse of time, typically 60 or 90 days. In the event of non-payment by the customer, the seller must buy back the invoice with another credit worthy invoice. Recourse factoring is typically the lowest cost for the seller because they retain the bad debt risk, which makes the arrangement less risky for the factor. Despite the fact that most large organizations have in place processes to deal with suppliers who use third party financing arrangements incorporating direct contact with them, many entrepreneurs remain very concerned about notification of their clients. It is a part of the invoice selling process that benefits from salesmanship on the part of the factor and their client in its conduct. Even so, in some industries there is a perception that a business that factors its debts is in financial distress. There are two principal methods of factoring: recourse and non-recourse. Under recourse factoring, the client is not protected against the risk of bad debts. On the other hand, the factor assumes the entire credit risk under non-recourse factoring i.e., full amount of invoice is paid to the client in the event of the debt becoming bad. Other variations include partial nonrecourse, where the factor's assumption of credit risk is limited by time, and partial recourse, where the factor and its client (the seller of the accounts) share credit risk. Factors never assume "quality" risk, and even a nonrecourse factor can chargeback a purchased account which does not collect for reasons other than credit risk assumed by the factor; for example, because the account debtor disputes the quality or quantity of the goods or services delivered by the factor's client.

Invoice payers (debtors)

Large firms and organizations such as governments usually have specialized processes to deal with one aspect of factoring, redirection of payment to the factor following receipt of notification from the third party (i.e., the factor) to whom they will make the payment. Many but not all in such organizations are knowledgeable about the use of factoring by small firms and clearly distinguish between its use by small rapidly growing firms and turnarounds. Distinguishing between assignment of the responsibility to perform the work and the assignment of funds to the factor is central to the customer/debtors processes. Firms have purchased from a supplier for a reason and thus insist on that firm fulfilling the work commitment. Once the work has been performed however, it is a matter of indifference who is paid. For example, General Electric has clear processes to be followed which distinguish between their work and payment sensitivities. Contracts direct with US Government require an Assignment of Claims which is an amendment to the contract allowing for payments to third parties (factors).

Risks
The most important risks of a factor are:
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Counter party credit risk related to clients and risk covered debtors. Risk covered debtors can be reinsured, which limit the risks of a factor. Trade receivables are a fairly low risk asset due to their short duration. External fraud by clients: fake invoicing, mis-directed payments, pre-invoicing, not assigned credit notes, etc. A fraud insurance policy and subjecting the client to audit could limit the risks. Legal, compliance and tax risks: large number of applicable laws and regulations in different countries. Operational risks, such as contractual disputes. Uniform Commercial Code (UCC-1) securing rights to assets. IRS liens associated with payroll taxes etc. ICT risks: complicated, integrated factoring system, extensive data exchange with client.

Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value.[1] Securities are broadly categorized into:

debt securities (such as banknotes, bonds and debentures), equity securities, e.g., common stocks; and, derivative contracts, such as forwards, futures, options and swaps.

The company or other entity issuing the security is called the issuer. A country's regulatory structure determines what qualifies as a security. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions. Securities may be represented by a certificate or, more typically, "non-certificated", that is in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security merely by holding the security, or registered, meaning they entitle the holder to rights only if he appears on a security register maintained by the issuer or an intermediary. They include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, and various other formal investment instruments that are negotiable and fungible.

Issuer
Issuer is a legal entity that develops, registers and sells securities for the purpose of financing its operations. Issuers may be domestic or foreign governments, corporations or investment trusts. Issuers are legally responsible for the obligations of the issue and for reporting financial conditions, material developments and any other operational activities as required by the regulations of their jurisdictions.

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The most common types of securities issued are common and preferred stocks, bonds, notes, debentures and bills.

Registered
Registration Under the Securities Act of 1933
Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:

To require that investors receive financial and other significant information concerning securities being offered for public sale; and To prohibit deceit, misrepresentations, and other fraud in the sale of securities.

The SEC accomplishes these goals primarily by requiring that companies disclose important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities. Heres an overview of how the registration process works. In general, all securities offered in the U.S. must be registered with the SEC or must qualify for an exemption from the registration requirements. The registration forms a company files with the SEC provide essential facts, including:

A description of the company's properties and business; A description of the security to be offered for sale; Information about the management of the company; and Financial statements certified by independent accountants.

Registration statements and prospectuses become public shortly after the company files them with the SEC. All companies, domestic and foreign, are required to file registration statements and other forms electronically. Investors can then access registration and other company filings using EDGAR. Not all offerings of securities must be registered with the SEC. The most common exemptions from the registration requirements include :

Private offerings to a limited number of persons or institutions; Offerings of limited size; Intrastate offerings; and Securities of municipal, state, and federal governments.

By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public.

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The SECs Division of Corporation Finance may examine a companys registration statement to determine whether it complies with our disclosure requirements. But the SEC does not evaluate the merits of offerings, nor do we determine if the securities offered are "good" investments. While our rules require that companies provide accurate and truthful information, we cannot guarantee the accuracy of the information in a companys filings. In fact, every year we bring enforcement actions against companies whove "cooked their books" or failed to provide important information to investors. Investors who purchase securities and suffer losses should know that they have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information.

Classification
Securities may be classified according to many categories or classification systems:

Currency of denomination Ownership rights Term to maturity Degree of liquidity Income payments Tax treatment Credit rating Industrial sector or "industry". ("Sector" often refers to a higher level or broader category, such as Consumer Discretionary, whereas "industry" often refers to a lower level classification, such as Consumer Appliances. See Industry for a discussion of some classification systems.) Region or country (such as country of incorporation, country of principal sales/market of its products or services, or country in which the principal securities exchange where it trades is located) Market capitalization State (typically for municipal or "tax-free" bonds in the U.S.)

New capital
Commercial enterprises have traditionally used securities as a means of raising new capital. Securities may be an attractive option relative to bank loans depending on their pricing and market demand for particular characteristics. Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may raise capital through the issuance of securities (see government debt).

Repackaging
In recent decades, securities have been issued to repackage existing assets. In a traditional securitization, a financial institution may wish to remove assets from its balance sheet to achieve
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regulatory capital efficiencies (the informal ratio of output divided by capital expenditure) or to accelerate its receipt of cash flow from the original assets. Alternatively, an intermediary may wish to make a profit by acquiring financial assets and repackaging them in a way more attractive to investors. In other words, a basket of assets is typically contributed or placed into a separate legal entity such as a trust or SPV, which subsequently issues shares of equity interest to investors. This allows the sponsor entity to more easily raise capital for these assets as opposed to finding buyers to purchase directly such assets.

Type of holder
Investors in securities may be retail, i.e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i.e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds. Investment The traditional economic function of the purchase of securities is investment, with the view to receiving income and/or achieving capital gain. Debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may also offer control of the business of the issuer. Debt holdings may also offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing 'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment. Collateral The last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called "buying on margin". Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception (transfer of title) or only in default (non-transfer-oftitle institutional). For institutional loans, property rights are not transferred but nevertheless enable A to satisfy its claims in the event that B fails to make good on its obligations to A or otherwise becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks, government agencies and other institutional investors such as mutual funds are significant collateral takers as well as providers. In addition, private parties may utilize stocks or other securities as collateral for portfolio loans in securities lending scenarios. On the consumer level, loans against securities have grown into three distinct groups over the last decade: 1) Standard Institutional Loans, generally offering low loan-to-value with very strict call and coverage regimens, akin to standard margin loans; 2) Transfer-of-Title (ToT) Loans, typically provided by private parties where borrower ownership is completely extinguished save for the rights provided in the loan contract; and 3) Non-Transfer-of-Title Credit Line facilities
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where shares are not sold and they serve as assets in a standard lien-type line of cash credit. Of the three, transfer-of-title loans have fallen into the very high-risk category as the number of providers have dwindled as regulators have launched an industry-wide crackdown on transfer-oftitle structures where the private lender may sell or sell short the securities to fund the loan. See sell short. Institutionally managed consumer securities-based loans, on the other hand, draw loan funds from the financial resources of the lending institution, not from the sale of the securities.

Debt and equity

Securities are traditionally divided into debt securities and equities (see also derivatives). A derivative instrument is a contract between two parties that specifies conditions (especially the dates, resulting values of the underlying variables, and notional amounts) under which payments are to be made between the parties.[1][2] Under US law and the laws of most other developed countries, derivatives have special legal exemptions that make them a particularly attractive legal form through which to extend credit. [3] However, the strong creditor protections afforded to derivatives counterparties, in combination with their complexity and lack of transparency, can cause capital markets to underprice credit risk. This can contribute to credit booms, and increase systemic risks. [3] Indeed, the use of derivatives to mask credit risk from third parties while protecting derivative counterparties contributed to the financial crisis of 2008 in the United States. [3][4] Financial reforms within the US since the financial crisis have served only to reinforce special protections for derivatives, including greater access to government guarantees, while minimizing disclosure to broader financial markets.[5] One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the eighteenth century.[6] Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (such as forward, option, swap); the type of underlying asset (such as equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives, or credit derivatives); the market in which they trade (such as exchange-traded or over-the-counter); and their pay-off profile. Derivatives can be used for speculating purposes ("bets") or to hedge ("insurance"). For example, a speculator may sell deep in-the-money naked calls on a stock, expecting the stock price to plummet, but exposing himself to potentially unlimited losses. Very commonly, companies buy currency forwards in order to limit losses due to fluctuations in the exchange rate of two currencies. Third parties can use publicly available derivative prices as educated predictions of uncertain future outcomes, for example, the likelihood that a corporation will default on its debts. [7]

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Debt
Debt securities may be called debentures, bonds, deposits, notes or commercial paper depending on their maturity and certain other characteristics. The holder of a debt security is typically entitled to the payment of principal and interest, together with other contractual rights under the terms of the issue, such as the right to receive certain information. Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term. Debt securities may be protected by collateral or may be unsecured, and, if they are unsecured, may be contractually "senior" to other unsecured debt meaning their holders would have a priority in a bankruptcy of the issuer. Debt that is not senior is "subordinated". Corporate bonds represent the debt of commercial or industrial entities. Debentures have a long maturity, typically at least ten years, whereas notes have a shorter maturity. Commercial paper is a simple form of debt security that essentially represents a post-dated check with a maturity of not more than 270 days. Money market instruments are short term debt instruments that may have characteristics of deposit accounts, such as certificates of deposit, and certain bills of exchange. They are highly liquid and are sometimes referred to as "near cash". Commercial paper is also often highly liquid. Euro debt securities are securities issued internationally outside their domestic market in a denomination different from that of the issuer's domicile. They include eurobonds and euronotes. Eurobonds are characteristically underwritten, and not secured, and interest is paid gross. A euronote may take the form of euro-commercial paper (ECP) or euro-certificates of deposit. Government bonds are medium or long term debt securities issued by sovereign governments or their agencies. Typically they carry a lower rate of interest than corporate bonds, and serve as a source of finance for governments. U.S. federal government bonds are called treasuries. Because of their liquidity and perceived low risk, treasuries are used to manage the money supply in the open market operations of non-US central banks. Sub-sovereign government bonds, known in the U.S. as municipal bonds, represent the debt of state, provincial, territorial, municipal or other governmental units other than sovereign governments. Supranational bonds represent the debt of international organizations such as the World Bank, the International Monetary Fund, regional multilateral development banks and others.

Equity
An equity security is a share of equity interest in an entity such as the capital stock of a company, trust or partnership. The most common form of equity interest is common stock, although preferred equity is also a form of capital stock. The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment. In bankruptcy, they share only in the residual interest of the issuer after all obligations have been
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paid out to creditors. However, equity generally entitles the holder to a pro rata portion of control of the company, meaning that a holder of a majority of the equity is usually entitled to control the issuer. Equity also enjoys the right to profits and capital gain, whereas holders of debt securities receive only interest and repayment of principal regardless of how well the issuer performs financially. Furthermore, debt securities do not have voting rights outside of bankruptcy. In other words, equity holders are entitled to the "upside" of the business and to control the business.

Stock

Hybrid
Hybrid securities combine some of the characteristics of both debt and equity securities. Preference shares form an intermediate class of security between equities and debt. If the issuer is liquidated, they carry the right to receive interest and/or a return of capital in priority to ordinary shareholders. However, from a legal perspective, they are capital stock and therefore may entitle holders to some degree of control depending on whether they contain voting rights. Convertibles are bonds or preferred stock that can be converted, at the election of the holder of the convertibles, into the common stock of the issuing company. The convertibility, however, may be forced if the convertible is a callable bond, and the issuer calls the bond. The bondholder has about 1 month to convert it, or the company will call the bond by giving the holder the call price, which may be less than the value of the converted stock. This is referred to as a forced conversion. Equity warrants are options issued by the company that allow the holder of the warrant to purchase a specific number of shares at a specified price within a specified time. They are often issued together with bonds or existing equities, and are, sometimes, detachable from them and separately tradeable. When the holder of the warrant exercises it, he pays the money directly to the company, and the company issues new shares to the holder. Warrants, like other convertible securities, increases the number of shares outstanding, and are always accounted for in financial reports as fully diluted earnings per share, which assumes that all warrants and convertibles will be exercised.

Credit derivative
In finance, a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the credit risk" of the underlying loan.[1] It is a securitized derivative whereby the credit risk is transferred to an entity other than the lender. [2][3] Where credit protection is bought and sold between bilateral counterparties, this is known as an unfunded credit derivative. If the credit derivative is entered into by a financial institution or a special purpose vehicle (SPV) and payments under the credit derivative are funded using
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securitization techniques, such that a debt obligation is issued by the financial institution or SPV to support these obligations, this is known as a funded credit derivative. This synthetic securitization process has become increasingly popular over the last decade, with the simple versions of these structures being known as synthetic CDOs; credit linked notes; single tranche CDOs, to name a few. In funded credit derivatives, transactions are often rated by rating agencies, which allows investors to take different slices of credit risk according to their risk appetite.

History and participants

The market in credit derivatives started from nothing in 1993. By 1996 there was around $40 billion of outstanding transactions, half of which involved the debts of developing countries.[1] Credit default products are the most commonly traded credit derivative product [4] and include unfunded products such as credit default swaps and funded products such as collateralized debt obligations (see further discussion below). The ISDA[5] reported in April 2007 that total notional amount on outstanding credit derivatives was $35.1 trillion with a gross market value of $948 billion (ISDA's Website). As reported in The Times on September 15, 2008, the "Worldwide credit derivatives market is valued at $62 trillion".[6] Although the credit derivatives market is a global one, London has a market share of about 40%, with the rest of Europe having about 10%.[4] The main market participants are banks, hedge funds, insurance companies, pension funds, and other corporates.[4]

Types
Credit derivatives are fundamentally divided into two categories: funded credit derivatives and unfunded credit derivatives. An unfunded credit derivative is a bilateral contract between two counterparties, where each party is responsible for making its payments under the contract (i.e. payments of premiums and any cash or physical settlement amount) itself without recourse to other assets. A funded credit derivative involves the protection seller (the party that assumes the credit risk) making an initial payment that is used to settle any potential credit events. (The protection buyer, however, still may be exposed to the credit risk of the protection seller itself. This is known as counterparty risk.) Unfunded credit derivative products include the following products:

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Credit default swap (CDS) Total return swap Constant maturity credit default swap (CMCDS) First to Default Credit Default Swap Portfolio Credit Default Swap Secured Loan Credit Default Swap Credit Default Swap on Asset Backed Securities Credit default swaption Recovery lock transaction Credit Spread Option CDS index products

Funded credit derivative products include the following products:

Credit linked note (CLN) Synthetic Collateralised Debt Obligation (CDO) Constant Proportion Debt Obligation (CPDO) Synthetic Constant Proportion Portfolio Insurance (Synthetic CPPI)

Key unfunded credit derivative products

Credit default swap The credit default swap or CDS has become the cornerstone product of the credit derivatives market. This product represents over thirty percent of the credit derivatives market. [4] The product has many variations, including where there is a basket or portfolio of reference entities, although fundamentally, the principles remain the same. A powerful recent variation has been gathering market share of late: credit default swaps which relate to asset-backed securities.[7]

Total return swap

Key funded credit derivative products

Credit linked notes

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In this example coupons from the bank's portfolio of loans are passed to the SPV which uses the cash flow to service the credit linked notes. A credit linked note is a note whose cash flow depends upon an event, which may be a default, change in credit spread, or rating change. The definition of the relevant credit events must be negotiated by the parties to the note. A CLN in effect combines a credit-default swap with a regular note (with coupon, maturity, redemption). Given its note like features, a CLN is an on-balance-sheet asset, in contrast to a CDS. Typically, an investment fund manager will purchase such a note to hedge against possible down grades, or loan defaults. Numerous different types of credit linked notes (CLNs) have been structured and placed in the past few years. Here we are going to provide an overview rather than a detailed account of these instruments. The most basic CLN consists of a bond, issued by a well-rated borrower, packaged with a credit default swap on a less creditworthy risk. For example, a bank may sell some of its exposure to a particular emerging country by issuing a bond linked to that country's default or convertibility risk. From the bank's point of view, this achieves the purpose of reducing its exposure to that risk, as it will not need to reimburse all or part of the note if a credit event occurs. However, from the point of view of investors, the risk profile is different from that of the bonds issued by the country. If the bank runs into difficulty, their investments will suffer even if the country is still performing well. The credit rating is improved by using a proportion of government bonds, which means the CLN investor receives an enhanced coupon.

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Through the use of a credit default swap, the bank receives some recompense if the reference credit defaults. There are several different types of securitized product, which have a credit dimension.

Credit-linked notes CLN: Credit-linked note is a generic name related to any bond whose value is linked to the performance of a reference asset, or assets. This link may be through the use of a credit derivative, but does not have to be. Collateralized debt obligation CDO: Generic term for a bond issued against a mixed pool of assets - There also exists CDO-squared (CDO^2) where the underlying assets are CDO tranches. Collateralized bond obligations CBO: Bond issued against a pool of bond assets or other securities. It is referred to in a generic sense as a CDO Collateralized loan obligations CLO: Bond issued against a pool of bank loan. It is referred to in a generic sense as a CDO

CDO refers either to the pool of assets used to support the CLNs or, confusingly, to the CLNs themselves. Collateralized debt obligations (CDO) Main article: collateralized debt obligation Not all collateralized debt obligations (CDOs) are credit derivatives. For example a CDO made up of loans is merely a securitizing of loans that is then tranched based on its credit rating. This particular securitization is known as a collateralized loan obligation (CLO) and the investor receives the cash flow that accompanies the paying of the debtor to the creditor. Essentially, a CDO is held up by a pool of assets that generate cash. A CDO only becomes a derivative when it is used in conjunction with credit default swaps (CDS), in which case it becomes a Synthetic CDO. The main difference between CDO's and derivatives is that a derivative is essentially a bilateral agreement in which the payout occurs during a specific event which is tied to the underlying asset. Other more complicated CDOs have been developed where each underlying credit risk is itself a CDO tranche. These CDOs are commonly known as CDOs-squared.

Pricing
Pricing of credit derivative is not an easy process.[3] This is because:

The complexity in monitoring the market price of the underlying credit obligation. Understanding the creditworthiness of a debtor is often a cumbersome task as it is not easily quantifiable. The incidence of default is not a frequent phenomenon and makes it difficult for the investors to find the empirical data of a solvent company with respect to default.
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Even though one can take help of different ratings published by ranking agencies but often these ratings will be different.

Risks
Risks involving credit derivatives are a concern among regulators of financial markets. The US Federal Reserve issued several statements in the Fall of 2005 about these risks, and highlighted the growing backlog of confirmations for credit derivatives trades. These backlogs pose risks to the market (both in theory and in all likelihood), and they exacerbate other risks in the financial system.[3] One challenge in regulating these and other derivatives is that the people who know most about them also typically have a vested incentive in encouraging their growth and lack of regulation. incentive may be indirect, e.g., academics have not only consulting incentives, but also incentives in keeping open doors for research.)

The securities markets

Primary and secondary market
In the U.S., the public securities markets can be divided into primary and secondary markets. The distinguishing difference between the two markets is that in the primary market, the money for the securities is received by the issuer of those securities from investors, typically in an initial public offering transaction, whereas in the secondary market, the securities are simply assets held by one investor selling them to another investor (money goes from one investor to the other). An initial public offering is when a company issues public stock newly to investors, called an "IPO" for short. A company can later issue more new shares, or issue shares that have been previously registered in a shelf registration. These later new issues are also sold in the primary market, but they are not considered to be an IPO but are often called a "secondary offering". Issuers usually retain investment banks to assist them in administering the IPO, obtaining SEC (or other regulatory body) approval of the offering filing, and selling the new issue. When the investment bank buys the entire new issue from the issuer at a discount to resell it at a markup, it is called a firm commitment underwriting. However, if the investment bank considers the risk too great for an underwriting, it may only assent to a best effort agreement, where the investment bank will simply do its best to sell the new issue. For the primary market to thrive, there must be a secondary market, or aftermarket that provides liquidity for the investment securitywhere holders of securities can sell them to other investors for cash. Otherwise, few people would purchase primary issues, and, thus, companies and governments would be restricted in raising equity capital (money) for their operations. Organized exchanges constitute the main secondary markets. Many smaller issues and most debt securities trade in the decentralized, dealer-based over-the-counter markets. In Europe, the principal trade organization for securities dealers is the International Capital Market Association.[2] In the U.S., the principal trade organization for securities dealers is the Securities Industry and Financial Markets Association, [3] which is the result of the merger of the Securities Industry Association and the Bond Market Association. The Financial Information
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Services Division of the Software and Information Industry Association (FISD/SIIA) [4] represents a round-table of market data industry firms, referring to them as Consumers, Exchanges, and Vendors.

Public offer and private placement

In the primary markets, securities may be offered to the public in a public offer. Alternatively, they may be offered privately to a limited number of qualified persons in a private placement. Sometimes a combination of the two is used. The distinction between the two is important to securities regulation and company law. Privately placed securities are not publicly tradable and may only be bought and sold by sophisticated qualified investors. As a result, the secondary market is not nearly as liquid as it is for public (registered) securities. Another category, sovereign bonds, is generally sold by auction to a specialized class of dealers.

Listing and OTC dealing

Securities are often listed in a stock exchange, an organized and officially recognized market on which securities can be bought and sold. Issuers may seek listings for their securities to attract investors, by ensuring there is a liquid and regulated market that investors can buy and sell securities in. Growth in informal electronic trading systems has challenged the traditional business of stock exchanges. Large volumes of securities are also bought and sold "over the counter" (OTC). OTC dealing involves buyers and sellers dealing with each other by telephone or electronically on the basis of prices that are displayed electronically, usually by commercial information vendors such as Reuters and Bloomberg. There are also eurosecurities, which are securities that are issued outside their domestic market into more than one jurisdiction. They are generally listed on the Luxembourg Stock Exchange or admitted to listing in London. The reasons for listing eurobonds include regulatory and tax considerations, as well as the investment restrictions.

Market
London is the centre of the eurosecurities markets. There was a huge rise in the eurosecurities market in London in the early 1980s. Settlement of trades in eurosecurities is currently effected through two European computerized clearing/depositories called Euroclear (in Belgium) and Clearstream (formerly Cedelbank) in Luxembourg. The main market for Eurobonds is the EuroMTS, owned by Borsa Italiana and Euronext. There are ramp up market in Emergent countries, but it is growing slowly.

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Physical nature of securities

Certificated securities
Securities that are represented in paper (physical) form are called certificated securities. They may be bearer or registered.

DRS securities
Securities may also be held in DRS. Direct Registration System (DRS) is a method of recording shares of stock in book-entry form. Book-entry means the company's transfer agent maintains your shares on your behalf without the need for physical share certificates. Shares held in uncertificated book-entry form have the same rights and privileges as shares held in certificated form. Bearer securities Bearer securities are completely negotiable and entitle the holder to the rights under the security (e.g. to payment if it is a debt security, and voting if it is an equity security). They are transferred by delivering the instrument from person to person. In some cases, transfer is by endorsement, or signing the back of the instrument, and delivery. Regulatory and fiscal authorities sometimes regard bearer securities negatively, as they may be used to facilitate the evasion of regulatory restrictions and tax. In the United Kingdom, for example, the issue of bearer securities was heavily restricted firstly by the Exchange Control Act 1947 until 1953. Bearer securities are very rare in the United States because of the negative tax implications they may have to the issuer and holder. Registered securities In the case of registered securities, certificates bearing the name of the holder are issued, but these merely represent the securities. A person does not automatically acquire legal ownership by having possession of the certificate. Instead, the issuer (or its appointed agent) maintains a register in which details of the holder of the securities are entered and updated as appropriate. A transfer of registered securities is effected by amending the register.

Non-certificated securities and global certificates

Modern practice has developed to eliminate both the need for certificates and maintenance of a complete security register by the issuer. There are two general ways this has been accomplished. Non-certificated securities In some jurisdictions, such as France, it is possible for issuers of that jurisdiction to maintain a legal record of their securities electronically.
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In the United States, the current "official" version of Article 8 of the Uniform Commercial Code permits non-certificated securities. However, the "official" UCC is a mere draft that must be enacted individually by each of the U.S. states. Though all 50 states (as well as the District of Columbia and the U.S. Virgin Islands) have enacted some form of Article 8, many of them still appear to use older versions of Article 8, including some that did not permit non-certificated securities.[5] Global certificates, book entry interests, depositories To facilitate the electronic transfer of interests in securities without dealing with inconsistent versions of Article 8, a system has developed whereby issuers deposit a single global certificate representing all the outstanding securities of a class or series with a universal depository. This depository is called The Depository Trust Company, or DTC. DTC's parent, Depository Trust & Clearing Corporation (DTCC), is a non-profit cooperative owned by approximately thirty of the largest Wall Street players that typically act as brokers or dealers in securities. These thirty banks are called the DTC participants. DTC, through a legal nominee, owns each of the global securities on behalf of all the DTC participants. All securities traded through DTC are in fact held, in electronic form, on the books of various intermediaries between the ultimate owner, e.g. a retail investor, and the DTC participants. For example, Mr. Smith may hold 100 shares of Coca Cola, Inc. in his brokerage account at local broker Jones & Co. brokers. In turn, Jones & Co. may hold 1000 shares of Coca Cola on behalf of Mr. Smith and nine other customers. These 1000 shares are held by Jones & Co. in an account with Goldman Sachs, a DTC participant, or in an account at another DTC participant. Goldman Sachs in turn may hold millions of Coca Cola shares on its books on behalf of hundreds of brokers similar to Jones & Co. Each day, the DTC participants settle their accounts with the other DTC participants and adjust the number of shares held on their books for the benefit of customers like Jones & Co. Ownership of securities in this fashion is called beneficial ownership. Each intermediary holds on behalf of someone beneath him in the chain. The ultimate owner is called the beneficial owner. This is also referred to as owning in "Street name". Among brokerages and mutual fund companies, a large amount of mutual fund share transactions take place among intermediaries as opposed to shares being sold and redeemed directly with the transfer agent of the fund. Most of these intermediaries such as brokerage firms clear the shares electronically through the National Securities Clearing Corp. or "NSCC", a subsidiary of DTCC. Other depositories: Euroclear and Clearstream Besides DTC, two other large securities depositories exist, both in Europe: Euroclear and Clearstream.

Divided and undivided security

The terms "divided" and "undivided" relate to the proprietary nature of a security.

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Each divided security constitutes a separate asset, which is legally distinct from each other security in the same issue. Pre-electronic bearer securities were divided. Each instrument constitutes the separate covenant of the issuer and is a separate debt. With undivided securities, the entire issue makes up one single asset, with each of the securities being a fractional part of this undivided whole. Shares in the secondary markets are always undivided. The issuer owes only one set of obligations to shareholders under its memorandum, articles of association and company law. A share represents an undivided fractional part of the issuing company. Registered debt securities also have this undivided nature.

Fungible and non-fungible security

The terms "fungible" and "non-fungible" are a feature of assets. If an asset is fungible, this means that if such an asset is lent, or placed with a custodian, it is customary for the borrower or custodian to be obliged at the end of the loan or custody arrangement to return assets equivalent to the original asset, rather than the specific identical asset. In other words, the redelivery of fungibles is equivalent and not in specie. In other words, if an owner of 100 shares of IBM transfers custody of those shares to another party to hold for a purpose, at the end of the arrangement, the holder need simply provide the owner with 100 shares of IBM identical to those received. Cash is also an example of a fungible asset. The exact currency notes received need not be segregated and returned to the owner. Undivided securities are always fungible by logical necessity. Divided securities may or may not be fungible, depending on market practice. The clear trend is towards fungible arrangements.

Regulation
In the United States, the public offer and sale of securities must be either registered pursuant to a registration statement that is filed with the U.S. Securities and Exchange Commission (SEC) or are offered and sold pursuant to an exemption therefrom. Dealing in securities is regulated by both federal authorities (SEC) and state securities departments. In addition, the brokerage industry is supposedly self policed by Self Regulatory Organizations (SROs), such as the Financial Industry Regulatory Authority (FINRA), formerly the National Association of Securities Dealers (or NASD) or the MSRB. With respect to investment schemes that do not fall within the traditional categories of securities listed in the definition of a security (Sec. 2(a)(1) of the 33 act and Sec. 3(a)(10) of the 34 act) the US Courts have developed a broad definition for securities that must then be registered with the SEC. When determining if there a is an "investment contract" that must be registered the courts look for an investment of money, a common enterprise and expectation of profits to come primarily from the efforts of others. See SEC v. W.J. Howey Co. and SEC v. Glenn W. Turner Enterprises, Inc.

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Pawn (chess)

Pawn in the standard Staunton pattern The pawn () is the most numerous and (in most circumstances) weakest piece in the game of chess, historically representing infantry, or more particularly armed peasants or pikemen. Each player begins the game with eight pawns, one on each square of the rank immediately in front of the other pieces. (In algebraic notation, the white pawns start on a2, b2, c2, ..., h2, while black pawns start on a7, b7, c7, ..., h7.) Individual pawns are referred to by the file on which they currently stand. For example, one speaks of "White's f-pawn" or "Black's b-pawn", or less commonly (using descriptive notation), "White's king's bishop pawn" or "Black's queen's knight pawn". It is also common to refer to a rook pawn, meaning any pawn on the a- or h-file, a knight pawn (on the b- or g-file), a bishop pawn (on the c- or f-file), a queen pawn (on the d-file), a king pawn (on the e-file), and a central pawn (on either the d- or e-file). The word piece in chess literature usually excludes pawns, though this distinction between "pieces" and "pawns" is not found in the official rules.

Antichresis
Antichresis, under civil law and Roman law, is a contract whereby a debtor pledges (i.e., conveys possession but not title) real property to a creditor, allowing the use and occupation of the pledged property, in lieu of interest on the loan. Historically, antichresis was used in Ancient Mesopotamia (Akkad, Assyria, Babylonia) and by the Greeks and Romans. After the Western Church banned interest loans, it became a favored method of securing loans in early medieval society and was known in England as the gage of land (OFr gage, MLG sate, Germ Satzung). There were two variants: (1) the living gage (OFr vif gage, MLG dotsate, Germ Totsatzung), under which the income and profits coming from the estate went towards reducing the loan's principal; and (2) the dead gage (OFr mort gage, Germ Zinssatzung), under which the income and profits were taken only as interest. The latter form underlies the modern antichresis.
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If the creditor is a debtor, he can sell the rights of antichresis to another creditor (Lat subpignus, Germ Unterpfand, It suppegno).

Pawn and antichresis distinguished. A thing is said to be pawned when a movable thing is given as security; and the antichresis, when the security given consists in immovables. La.CC Art. 3135.

Distraint
Distraint or distress is "the seizure of someones property in order to obtain payment of rent or other money owed", especially in common law countries.[1] Distraint is the act or process "whereby a person (the distrainor), traditionally even without prior court approval, seizes the personal property of another located upon the distrainor's land in satisfaction of a claim, as a pledge for performance of a duty, or in reparation of an injury ."[2] Distraint typically involves the seizure of goods (chattels) belonging to the tenant by the landlord to sell the goods for the payment of the rent. In the past, distress was often carried out without court approval. Today, some kind of court action is usually required, [3] the main exception being certain tax authorities, such as HM Revenue and Customs in the United Kingdom and, in the United States, the Internal Revenue Service -- agencies that retain the legal power to levy assets (by either seizure or distraint) without a court order.[4]

History
Article 61 of the Magna Carta extended the law of distraint to the monarch's properties. In England in 1267 the Statute of Marlborough was passed making distraint illegal without a court order.[citation needed]

Procedure
The goods are held for a given amount of time, and if the rent is not paid, they may be sold. [citation needed] The actual seizure of the goods may be carried out by the landlord, the landlord's agent, or an officer of the government, a bailiff or sheriff officer in the United Kingdom or a sheriff or marshal in the United States. Certain goods are protected against distraint - these are called "privileged goods". Such goods include, for example, goods belonging to the state, fixtures, goods delivered to the tenant or debtor for business purposes, the goods of a guest, perishable goods (e.g. food), livestock, gas, water, electricity, and tools of the tenant's trade. Forced entry is usually not permitted by the distraint officer, however in the UK, in the event of entry being refused to the HMRC distraint officer, HM Revenue and Customs can apply for a break open warrant under Section 61(2) of the Taxes Management Act, 1970. This would permit forced entry to the debtors premises by the HMRC distraint officer. Any additional costs
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incurred from obtaining the warrant are passed onto the debtor and added to the debt to be collected by distraint.

Reform in the United Kingdom

In the United Kingdom, there have been proposals to reform the remedy of distraint. Concerns have been expressed that the use of the distraint remedy may result in violations of human rights, such as Article 8 of the European Convention on Human Rights, the right to respect for private life.[5] The Lord Chancellor's Department (now the Ministry of Justice) in May 2001 issued the consultation paper Enforcement Review Consultation Paper No. 5: Distress for Rent , which proposes abolishing distraint for residential leases, but retaining it for commercial property subject to certain safeguards to ensure compliance with the Human Rights Act 1998. Distraint will be abolished in the UK when the Tribunals, Courts and Enforcement Act 2007, s.71 comes into force, replacing the remedy, solely for leases on commercial property, by a statutory system of Commercial Rent Arrears Recovery (CRAR).[6][7]

Distraint in the United States

Distraint was adopted into the United States common law from England, and it has recently been challenged as a possible violation of due process rights under the Fourteenth Amendment.[8] In decisions like Luria Bros. and Co. v. Allen, 672 F.2d 347 (3d Cir. 1982), however, the courts have upheld the rule because, as a landlord's self-help remedy, distraint involves no state action and thus cannot violate due process rights. [9] In the case of distraint by the federal government for collection of taxes, the power of administrative levy by distraint (distress) dates back to the year 1791, according to the U.S. Supreme Court.[10]

salvation
noun 1. the act of saving or protecting from harm, risk, loss, destruction, etc. 2. the state of being saved or protected from harm, risk, etc. 3. a source, cause, or means of being saved or protected from harm, risk, etc. 4. Theology . deliverance from the power and penalty of sin; redemption.

Salvation, in religion, is the saving of the soul from sin and its consequences.[1] It may also be called "deliverance" or "redemption" from sin and its effects.[2] Depending on the religious tradition, salvation is considered to be caused either by the free will and grace of a deity (in theistic religions) or by personal responsibility and self-effort (e.g. in the sramanic and yogic traditions of India). Religions often emphasize the necessity of both personal effort for example, repentance and asceticism and divine action (e.g. grace). Within soteriology, salvation has two related meanings. On the one hand it refers to the phenomenon of being saved by divine agency such as is the case in Christianity, Judaism and Islam. On the other it 37

refers to the phenomenon of the soul being saved (as in 'safe') from some unfortunate destiny. In the former, divine agency gives rise to the situation of the latter. However, even within Islam and Christianity devotion, petition, supplication and liturgical participation are not enough alone to bring about salvation. Asceticism and repentance are necessary from both a practical and sacramental point of view. The academic study of salvation is called soteriology. It concerns itself with the comparative study of how different religious traditions conceive salvation and how they believe it is effected or achieved. In Indian religions, for example, the concept of salvation (which is called moksha) involves being free from an endless process of transmigration of the soul, a belief that is absent from Abrahamic soteriology. In Jainism and Buddhism divine agency does not have any role in salvation[3] since both religions regard the matter from a purely causal point of view. In both Eastern and Western religions salvation is also the phenomenon of being saved from death but here is not meant biological death but the suffering and degradation within life resulting from the consequences of sin. In Christianity one who has attained salvation is said to experience and inherit eternal life in God or what in Buddhism is called nirvana (whose synonym amaravati means "deathlessness").

Grace (Christianity)
In Christian theology, grace can be defined as the love and mercy given to us by God because God wants us to have it, not because of anything we have done to earn it. [1] It is understood by Christians to be a spontaneous gift from God to man - "generous, free and totally unexpected and undeserved"[2] - that takes the form of divine favor, love and clemency. It is an attribute of God that is most manifest in the salvation of sinners. Christian orthodoxy has taught that the initiative in the relationship of grace between God and an individual is always on the side of God. Once God has reached out in this "first grace," however, each person has the option to accept it or reject it, as well as a responsibility to abide in the Messianic covenant. The Calvinist doctrine of irresistible grace, however, states that a person dead in sin cannot resist the efficacious call of God to salvation, and only individuals whom God has predestined to salvation will receive that call. The concept of grace has been called "the watershed that divides Catholicism from Protestantism, Calvinism from Arminianism, modern [theological] liberalism from [theological] conservatism."[3] The Roman Catholic Church holds that grace is infused in a particular way through sacraments, while Protestantism almost universally does not. Calvinists emphasize "the utter helplessness of man apart from grace." Arminians understand the grace of God as cooperating with one's free will in order to bring an individual to salvation. According to Evangelical theologian Charles C. Ryrie, modern liberal theology "gives an exaggerated place to the abilities of man to decide his own fate and to effect his own salvation entirely apart from God's grace." He writes that theological conservatives maintain God's grace is necessary for salvation.[3]

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Forgiveness

Emperor Marcus Aurelius shows his clemence towards the vanquished after his success against tribes. (Capitoline Museum in Rome) Forgiveness is the renunciation or cessation of resentment, indignation or anger as a result of a perceived offense, disagreement, or mistake, or ceasing to demand punishment or restitution.[1][2] The Oxford English Dictionary defines forgiveness as 'to grant free pardon and to give up all claim on account of an offense or debt'. The concept and benefits of forgiveness have been explored in religious thought, the social sciences and medicine. Forgiveness may be considered simply in terms of the person who forgives including forgiving themselves, in terms of the person forgiven or in terms of the relationship between the forgiver and the person forgiven. In most contexts, forgiveness is granted without any expectation of restorative justice, and without any response on the part of the offender (for example, one may forgive a person who is incommunicado or dead). In practical terms, it may be necessary for the offender to offer some form of acknowledgment, an apology, or even just ask for forgiveness, in order for the wronged person to believe himself able to forgive.[1] Most world religions include teachings on the nature of forgiveness, and many of these teachings provide an underlying basis for many varying modern day traditions and practices of forgiveness. Some religious doctrines or philosophies place greater emphasis on the need for humans to find some sort of divine forgiveness for their own shortcomings, others place greater emphasis on the need for humans to practice forgiveness of one another, yet others make little or no distinction between human and divine forgiveness.

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Restitution
The law of restitution is the law of gains-based recovery. It is to be contrasted with the law of compensation, which is the law of loss-based recovery. Obligations to make restitution and obligations to pay compensation are each a type of legal response to events in the real world. When a court orders restitution it orders the defendant to give up his gains to the claimant. When a court orders compensation it orders the defendant to compensate the claimant for his or her loss. This type of damages restores the benefit conferred to the non-breaching party (the plaintiff). Simply, the plaintiff will get the value of whatever was conferred to the defendant when there was a contract. There are two general limits to recovery, which is that a complete breach of contract is needed, and the damages will be capped at the contract price if the restitution damages exceed it. The orthodox view suggests that there is only one principle on which the law of restitution is dependent, namely the principle of unjust enrichment.[1][2] However, the view that restitution, like other legal responses, can be triggered by any one of a variety of causative events is increasingly prevalent. These are events in the real world which trigger a legal response. It is beyond doubt that unjust enrichment and wrongs can trigger an obligation to make restitution. Certain commentators propose that there is a third basis for restitution, namely the vindication of property rights with which the defendant has interfered. [3] It is arguable that other types of causative event can also trigger an obligation to make restitution.

Restitution for wrongs

Judicial Remedies Legal remedies (Damages) Compensatory Punitive Incidental Consequential Liquidated Reliance Nominal Statutory Treble

Equitable Remedies Specific Performance Account of Profits

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Constructive Trust Injunction RESTITUTION Rescission Rectification Declaratory Relief

Related Issues Adequate Remedy Election of Remedies Provisional Remedy Tracing Legal Costs

Imagine that A commits a wrong against B and B sues in respect of that wrong. A will certainly be liable to pay compensation to B. If B seeks compensation then the court award will be measured by reference to the loss that B has suffered as a result of As wrongful act. However, in certain circumstances it will be open to B to seek restitution rather than compensation. It will be in his interest to do so if the profit that A made by his wrongful act is greater than the loss suffered by B. Whether or not a claimant can seek restitution for a wrong depends to a large extent on the particular wrong in question. For example, in English law, restitution for breach of fiduciary duty is widely available but restitution for breach of contract is fairly exceptional. The wrong could be of any one of the following types: 1. 2. 3. 4. 5. A statutory tort A common law tort An equitable wrong A breach of contract Criminal offences

Notice that (1)-(5) are all causative events (see above). The law responds to each of them by imposing an obligation to pay compensatory damages. Restitution for wrongs is the subject which deals with the issue of when exactly the law also responds by imposing an obligation to make restitution. Example. In Attorney General v Blake [2001] 1 AC 268, an English court found itself faced with the following claim. The defendant had made a profit somewhere in the region of 60,000 as a direct result of breaching his contract with the claimant. The claimant was undoubtedly entitled to claim compensatory damages but had suffered little or no identifiable loss. It therefore decided to seek restitution for the wrong of breach of contract. The claimant won the case and the defendant was ordered to pay over his profits to the claimant. However, the court was careful to point out that the normal legal response to a breach of contract is to award compensation. An order to make restitution was said to be available only in exceptional circumstances.
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Restitution to reverse unjust enrichment

Main article: Unjust enrichment Cases of intentional torts or breaches of fiduciary duty often allow for claims of unjust enrichment, as well as cases of statutory torts and breaches of contract. A plaintiff can even have a claim in unjust enrichment when there is no other substantive claim. The Uniform Commercial Code ("UCC") entitles a buyer who defaults restitution of the buyer's deposit to the extent it exceeds reasonable liquidated damages or actual damages. [4] If the contract does not have a liquidated damages clause, the UCC provides a statutory sum: 20% of the price or $500, whichever is less, and the buyer who defaulted is entitled to restitution of any excess.

Research
Prior to the 1980s, forgiveness was a practice primarily left to matters of faith. [citation needed] Although there is presently no consensus for a psychological definition of forgiveness in the research literature, agreement has emerged that forgiveness is a process and a number of models describing the process of forgiveness have been published, including one from a radical behavioral perspective.[3] Dr. Robert Enright from the University of WisconsinMadison founded the International Forgiveness Institute and is considered the initiator of forgiveness studies. He developed a 20Step Process Model of Forgiveness.[4] Recent work has focused on what kind of person is more likely to be forgiving. A longitudinal study showed that people who were generally more neurotic, angry and hostile in life were less likely to forgive another person even after a long time had passed. Specifically, these people were more likely to still avoid their transgressor and want to enact revenge upon them two and a half years after the transgression. [5] Studies show that people who forgive are happier and healthier than those who hold resentments.[6] The first study to look at how forgiveness improves physical health discovered that when people think about forgiving an offender it leads to improved functioning in their cardiovascular and nervous systems.[7] Another study at the University of Wisconsin found the more forgiving people were, the less they suffered from a wide range of illnesses. The less forgiving people reported a greater number of health problems. [8] The research of Dr. Fred Luskin of Stanford University shows that forgiveness can be learned. Dr. Frederic Luskin's work is based on seven major research projects into the effects of forgiveness, giving empirical validity to the concept that forgiveness is not only powerful, but also excellent for your health. Dr. Fred Luskin author of the book "Learning to forgive"[9] was presented with a Champion of Forgiveness award by the Forgiveness Alliance [10] for his groundbreaking work with forgiveness, reconciliation and peace. In three separate studies, including one with Catholics and Protestants from Northern Ireland whose family members were murdered in the political violence, he found that people who are taught how to forgive become less angry, feel less hurt, are more optimistic, become more
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forgiving in a variety of situations, and become more compassionate and self-confident. His studies show a reduction in experience of stress, physical manifestations of stress, and an increase in vitality.[11]

Religious views
Further information: Salvation and Sin

Abrahamic
Judaism In Judaism, if a person causes harm, but then sincerely and honestly apologizes to the wronged individual and tries to rectify the wrong, the wronged individual is religiously required to grant forgiveness:

"It is forbidden to be obdurate and not allow yourself to be appeased. On the contrary, one should be easily pacified and find it difficult to become angry. When asked by an offender for forgiveness, one should forgive with a sincere mind and a willing spirit. . . forgiveness is natural to the seed of Israel." (Mishneh Torah, Teshuvah 2:10)

In Judaism, one must go to those he has harmed in order to be entitled to forgiveness.[12] [One who sincerely apologizes three times for a wrong committed against another has fulfilled his or her obligation to seek forgiveness. (Shulchan Aruch) OC 606:1] This means that in Judaism a person cannot obtain forgiveness from God for wrongs the person has done to other people. This also means that, unless the victim forgave the perpetrator before he died, murder is unforgivable in Judaism, and they will answer to God for it, though the victims' family and friends can forgive the murderer for the grief they caused them. The Tefila Zaka meditation, which is recited just before Yom Kippur, closes with the following:

"I know that there is no one so righteous that they have not wronged another, financially or physically, through deed or speech. This pains my heart within me, because wrongs between humans and their fellow are not atoned by Yom Kippur, until the wronged one is appeased. Because of this, my heart breaks within me, and my bones tremble; for even the day of death does not atone for such sins. Therefore I prostrate and beg before You, to have mercy on me, and grant me grace, compassion, and mercy in Your eyes and in the eyes of all people. For behold, I forgive with a final and resolved forgiveness anyone who has wronged me, whether in person or property, even if they slandered me, or spread falsehoods against me. So I release anyone who has injured me either in person or in property, or has committed any manner of sin that one may commit against another [except for legally enforceable business obligations, and except for someone who has deliberately harmed me with the thought I can harm him because he wil l forgive me']. Except for these two, I fully and finally forgive everyone; may no one be punished because of me. And just as I forgive everyone, so may You grant me grace in the eyes of others, that they too forgive me absolutely ." [emphasis added]
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Thus the "reward" for forgiving others is not God's forgiveness for wrongs done to others, but rather help in obtaining forgiveness from the other person. Sir Jonathan Sacks, Chief Rabbi of the United Hebrew Congregations of the Commonwealth, summarized: "it is not that God forgives, while human beings do not. To the contrary, we believe that just as only God can forgive sins against God, so only human beings can forgive sins against human beings."[13] Jews observe a Day of Atonement Yom Kippur on the day before God makes decisions regarding what will happen during the coming year. [12] Just prior to Yom Kippur, Jews will ask forgiveness of those they have wronged during the prior year (if they have not already done so).[12] During Yom Kippur itself, Jews fast and pray for God's forgiveness for the transgressions they have made against God in the prior year.[12] Sincere repentance is required, and once again, God can only forgive one for the sins one has committed against God; this is why it is necessary for Jews also to seek the forgiveness of those people who they have wronged. [12] Christianity

Rembrandt The Return of the Prodigal Son In the New Testament, Jesus speaks of the importance of Christians forgiving or showing mercy towards others. The Parable of the Prodigal Son[14] is perhaps the best known instance of such teaching and practice of forgiveness. In the Sermon on the Mount, Jesus repeatedly spoke of forgiveness, Blessed are th e merciful, for they will be shown mercy. Matthew 5:7 (NIV) Therefore, if you are offering your gift at the altar and there remember that your brother has something against you, leave your gift there in
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front of the altar. First go and be reconciled to your brother; then come and offer your gift. Matthew 5:23-24 (NIV) And when you stand praying, if you hold anything against anyone, forgive him, so that your Father in heaven may forgive you your sins. Mark 11:25 (NIV) But I tell you who hear me: Love your enemies, do good to those who hate you, bless those who curse you, pray for those who mistreat you. If someone strikes you on one cheek, turn to him the other also. Luke 6:27-29 (NIV) Be merciful, just as your Father is merciful. Luke 6:36 (NIV) Do not judge, and you will not be judged. Do not condemn, and you will not be condemned. Forgive, and you will be forgiven. Luke 6:37 (NIV) Elsewhere, it is said, "Then Peter came to Him and said, Lord, how often shall my brother sin against me, and I forgive him? Up to seven times? Jesus said to him, I do not say to you, up to seven times, but up to seventy times seven. Matthew 18:21-22 (NKJV) Jesus asked for God's forgiveness of those who crucified him. "And Jesus said, 'Father, forgive them, for they know not what they do.'" Luke 23: 34 (ESV) "Chistian pardon is not only obedience rule to the Lord for Christian people, but also real source of health for everyone. According to clinical experience of United States psychologist and psychology teacher R. Enright (http://www.macrolibrarsi.it/autori/_robert-enright.php) and of his assistants, pardon is an effective medical tool capable to reduce several troubles affecting man. Particularly in modern society, pardon is of great help to physical,mental and emotional health. More: whoever practices pardon, enlarges self-esteem and future expectations, in work life and inside his community." Islam Islam teaches that God is Al-Ghaffur "The All-Forgiving", and is the original source of all forgiveness (ghufran eht seriuqer netfo ssenevigroF .( repentance of those being forgiven. Depending on the type of wrong committed, forgiveness can come either directly from Allah, or from one's fellow man who received the wrong. In the case of divine forgiveness, the asking for divine forgiveness via repentance is important. In the case of human forgiveness, it is important to both forgive, and to be forgiven.[15] Islam does not teach universalism, however, and the Qur'an states explicitly that God will not forgive idol worship (shirk): God does not forgive idol worship (if maintained until death), and He forgives lesser offenses for whomever He wills. Anyone who idolizes any idol beside God has strayed far astray. (Qur'an 4:116) The Qur'an never allows for violent behavior on the part of Muslim believers, [16] except in the cases of defending one's religion, one's life, or one's property. Outside of this, the Qu'ran makes no allowances for violent behavior. From time to time certain Muslims have interpreted such Qur'anic allowances for "defensive violence" to include what other Muslims have viewed more as unwarranted and overly aggressive violence. This interpretative debate about when to forgive and when to aggressively attack or defend continues to this day within the Muslim community.
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The Qur'an makes it clear that, whenever possible, it is better to forgive another than to attack another. The Qur'an describes the believers (Muslims) as those who, avoid gross sins and vice, and when angered they forgive. (Qur'an 42:37) and says that Although the just requital for an injustice is an equivalent retribution, those who pardon and maintain righteousness are rewarded by GOD. He does not love the unjust. (Qur'an 42:40). To receive forgiveness from God there are three requirements: 1. Recognizing the offense itself and its admission before God. 2. Making a commitment not to repeat the offense. 3. Asking for forgiveness from God. If the offense was committed against another human being, or against society, a fourth condition is added: 1. Recognizing the offense before those against whom offense was committed and before God. 2. Committing oneself not to repeat the offense. 3. Doing whatever needs to be done to rectify the offense (within reason) and asking pardon of the offended party. 4. Asking God for forgiveness. There are no particular words to say for asking forgiveness. However, Muslims are taught many phrases and words to keep repeating daily asking God's forgiveness. For example:

Astaghfiru-Allah, "I ask forgiveness from Allah" Subhanaka-Allah humma wa bi hamdika wa ash-hadu al la Ilaha illa Anta astaghfiruka wa atubu ilayk, "Glory be to You, Allah, and with You Praise (thanks) and I bear witness that there is no deity but You, I ask Your forgiveness and I return to You (in obedience)".

Islamic teaching presents the Prophet Muhammad as an example of someone who would forgive others for their ignorance, even those who might have once considered themselves to be his enemies. One example of Muhammad's practice of forgiveness can be found in the Hadith, the body of early Islamic literature about the life of Muhammad. This account is as follows: The Prophet was the most forgiving person. He was ever ready to forgive his enemies. When he went to Taif to preach the message of Allah, its people mistreated him, abused him and hit him with stones. He left the city humiliated and wounded. When he took shelter under a tree, the angel of Allah visited him and told him that Allah sent him to destroy the people of Taif because of their sin of maltreating their Prophet. Muhammad prayed to Allah to save the people of Ta'if, because what they did was out of their ignorance.[17] Bah' Faith In the Bah' Writings, this explanation is given of how to be forgiving towards others:

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"Love the creatures for the sake of God and not for themselves. You will never become angry or impatient if you love them for the sake of God. Humanity is not perfect. There are imperfections in every human being, and you will always become unhappy if you look toward the people themselves. But if you look toward God, you will love them and be kind to them, for the world of God is the world of perfection and complete mercy. Therefore, do not look at the shortcomings of anybody; see with the sight of forgiveness." `Abdu'l-Bah, The Promulgation of Universal Peace, p. 92

Eastern
Buddhism In Buddhism, forgiveness is seen as a practice to prevent harmful thoughts from causing havoc on ones mental well-being.[18] Buddhism recognizes that feelings of hatred and ill-will leave a lasting effect on our mind karma. Instead, Buddhism encourages the cultivation of thoughts that leave a wholesome effect. "In contemplating the law of karma, we realize that it is not a matter of seeking revenge but of practicing mett and forgiveness, for the victimizer is, truly, the most unfortunate of all.[19] When resentments have already arisen, the Buddhist view is to calmly proceed to release them by going back to their roots. Buddhism centers on release from delusion and suffering through meditation and receiving insight into the nature of reality. Buddhism questions the reality of the passions that make forgiveness necessary as well as the reality of the objects of those passions.[20] "If we havent forgiven, we keep creating an identity around our pain, and that is what is reborn. That is what suffers."[21] Buddhism places much emphasis on the concepts of Mett (loving kindness), karuna (compassion), mudita (sympathetic joy), and upekkh (equanimity), as a means to avoiding resentments in the first place. These reflections are used to understand the context of suffering in the world, both our own and the suffering of others. He abused me, he struck me, he overcame me, he robbed me in those who harbor such thoughts hatred will never cease. He abused me, he struck me, he overcame me, he robbed me in those who do not harbor such thoughts hatred will cease. (Dhammapada 1.3-4; trans. Radhakrishnan - see article)[22] Hinduism The concept of performing atonement from one's wrongdoing (Prayaschittha Sanskrit: Penance), and asking for forgiveness is very much a part of the practice of Hinduism. Prayaschittha is related to the law of Karma. Karma is a sum of all that an individual has done, is currently doing and will do. The effects of those deeds and these deeds actively create present and future experiences, thus making one responsible for one's own life, and the pain in others. Addressing Dhritarashtra, Vidura said: "There is one only defect in forgiving persons, and not another; that defect is that people take a forgiving person to be weak. That defect, however, should not be taken into consideration, for forgiveness is a great power. Forgiveness is a virtue of
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the weak, and an ornament of the strong. Forgiveness subdues (all) in this world; what is there that forgiveness cannot achieve? What can a wicked person do unto him who carries the sabre of forgiveness in his hand? Fire falling on the grassless ground is extinguished of itself. And unforgiving individual defiles himself with many enormities. Righteousness is the one highest good; and forgiveness is the one supreme peace; knowledge is one supreme contentment; and benevolence, one sole happiness." (From the Mahabharata, Udyoga Parva Section XXXIII, Translated by Sri Kisari Mohan Ganguli). An even more authoritative statement about forgiveness is espoused by Krishna, who is considered to be an incarnation (Avatar) of Vishnu by Hindus. Krishna said in the Gita that forgiveness is one of the characteristics of one born for a divine state. It is noteworthy that he distinguishes those good traits from those he considered to be demoniac, such as pride, selfconceit and anger (Bhagavad Gita, Chapter 16, verse 3). Village priests may open their temple ceremonies with the following beloved invocation: O Lord, forgive three sins that are due to my human limitations: Thou art everywhere, but I worship you here; Thou art without form, but I worship you in these forms; Thou needest no praise, yet I offer you these prayers and salutations, Lord, forgive three sins that are due to my human limitations. Jainism See also: Micchami Dukkadam In Jainism, forgiveness is one of the main virtues that needs to be cultivated by the Jains. Kampan or supreme forgiveness forms part of one of the ten characteristics of dharma.[23] In the Jain prayer, (pratikramana) Jains repeatedly seek forgiveness from various creatures even from ekindriyas or single sensed beings like plants and microorganisms that they may have harmed while eating and doing routine activities. [24] Forgiveness is asked by uttering the phrase, Micchmi dukkaa. Micchmi dukkaa is a Prakrit language phrase literally meaning "may all the evil that has been done be fruitless."[25] During samvatsarithe last day of Jain festival paryusanaJains utter the phrase Micchami Dukkadam after pratikraman. As a matter of ritual, they personally greet their friends and relatives micchmi dukkaa seeking their forgiveness. No private quarrel or dispute may be carried beyond samvatsari, and letters and telephone calls are made to the outstation friends and relatives asking their forgiveness. [26] Pratikraman also contains the following prayer:[27] Khmemi savva-jve savv jive khamantu me / metti me savva-bhesu, vera mejjha na keavi // (I ask pardon of all creatures, may all creatures pardon me. May I have friendship with all beings and enmity with none.)
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In their daily prayers and samayika, Jains recite Iryavahi sutra seeking forgiveness from all creatures while involved in routine activities:[28] May you, O Revered One! Voluntarily permit me. I would like to confess my sinful acts committed while walking. I honour your permission. I desire to absolve myself of the sinful acts by confessing them. I seek forgiveness from all those living beings which I may have tortured while walking, coming and going, treading on living organism, seeds, green grass, dew drops, ant hills, moss, live water, live earth, spider web and others. I seek forgiveness from all these living beings, be they one sensed, two sensed, three sensed, four sensed or five sensed. Which I may have kicked, covered with dust, rubbed with ground, collided with other, turned upside down, tormented, frightened, shifted from one place to another or killed and deprived them of their lives. (By confessing) may I be absolved of all these sins. Jain texts quote Mhavra on forgiveness:[29] By practicing pryacitta (repentance), a soul gets rid of sins, and commits no transgressions; he who correctly practises pryacitta gains the road and the reward of the road, he wins the reward of good conduct. By begging forgiveness he obtains happiness of mind; thereby he acquires a kind disposition towards all kinds of living beings; by this kind disposition he obtains purity of character and freedom from fear. Mhavra in Uttardhyayana Stra 29:1718 Even the code of conduct amongst the monks requires the monks to ask forgiveness for all transgressions:[30] If among monks or nuns occurs a quarrel or dispute or dissension, the young monk should ask forgiveness of the superior, and the superior of the young monk. They should forgive and ask forgiveness, appease and be appeased, and converse without restraint. For him who is appeased, there will be success (in control); for him who is not appeased, there will be no success; therefore one should appease one's self. 'Why has this been said, Sir? Peace is the essence of monasticism'. Kalpa Stra 8:59 Ho'oponopono Hooponopono (ho-o-pono-pono) is an ancient Hawaiian practice of reconciliation and forgiveness, combined with prayer. Similar forgiveness practices were performed on islands throughout the South Pacific, including Samoa, Tahiti and New Zealand. Traditionally hooponopono is practiced by healing priests or kahuna lapaau among family members of a person who is physically ill. Modern versions are performed within the family by a family elder, or by the individual alone.

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Parable of the Prodigal Son

The Return of the Prodigal Son (1773) by Pompeo Batoni The Prodigal Son, also known as Two Sons, Lost Son and Prodigal Father is one of the parables of Jesus. It appears in only one of the Canonical gospels of the New Testament. According to the Gospel of Luke (Luke 15:11-32), a father, in response to his demands, gives the younger of his two sons his inheritance before he dies. The younger son, after wasting his fortune (the word 'prodigal' means 'wastefully extravagant'), repents and returns home, where the father holds a feast to celebrate his return. The older son refuses to participate, stating that in all the time the son has worked for the father, he did not even give him a goat to celebrate with his friends. His father reminds the older son that everything the father has is the older son's, but that they should still celebrate the return of the younger son as he has come back to them. It is the third and final part of a cycle on redemption, following the Parable of the Lost Sheep and the Parable of the Lost Coin. In Western Catholic tradition, this parable is usually read on the third Sunday of Lent, while in the Eastern Orthodox Church it is read on the Sunday of the Prodigal Son.

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Narrative
The parable begins with a young man, the younger of two sons, who asks his father to give him his share of the estate. The parable continues by describing how the younger son travels to a distant country and wastes all his money in wild living. When a famine strikes, he becomes desperately poor and is forced to take work as a swineherd. When he reaches the point of envying the pigs he is looking after, he finally comes to his senses: But when he came to himself he said, "How many hired servants of my father's have bread enough to spare, and I'm dying with hunger! I will get up and go to my father, and will tell him, 'Father, I have sinned against heaven, and in your sight. I am no more worthy to be called your son. Make me as one of your hired servants.'" He arose, and came to his father. But while he was still far off, his father saw him, and was moved with compassion, and ran towards him, and fell on his neck, and kissed him. Luke 15:17-20, World English Bible The son does not even have time to finish his rehearsed speech, since the father calls for his servants to dress him in a fine robe, a ring, and sandals, and slaughter the "fattened calf" for a celebratory meal. The older son, who was at work in the fields, hears the sound of celebration, and is told about the return of his younger brother. He is not impressed, and becomes angry: But he answered his father, "Behold, these many years I have served you, and I never disobeyed a commandment of yours, but you never gave me a goat, that I might celebrate with my friends. But when this, your son, came, who has devoured your living with prostitutes, you killed the fattened calf for him." Luke 15:29-30, World English Bible The parable concludes with the father explaining that because the younger son had returned, in a sense, from the dead, celebration was necessary: "But it was appropriate to celebrate and be glad, for this, your brother, was dead, and is alive again. He was lost, and is found." Luke 15:32, World English Bible

Context and interpretation

This is the last of three parables about loss and redemption, following the parable of the Lost Sheep and the parable of the Lost Coin, that Jesus tells after the Pharisees and religious leaders accuse him of welcoming and eating with "sinners."[1] The father's joy described in the parable reflects divine love,[1] the "boundless mercy of God,"[2] and "God's refusal to limit the measure of his grace."[1]
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The request of the younger son for his share of the inheritance is "brash, even insolent" [3] and "tantamount to wishing that the father were dead."[3] His actions do not lead to success, and he eventually becomes an indentured servant, with the degrading job of looking after pigs, and even envying them for the carob pods they eat.[3] On his return, the father treats him with a generosity far more than he has a right to expect.[3] The older son, in contrast, seems to think in terms of "law, merit, and reward,"[3] rather than "love and graciousness."[3] He may represent the Pharisees who were criticizing Jesus.[3]

Commemoration and use

Orthodox
The Eastern Orthodox Church traditionally reads this story on the Sunday of the Prodigal Son, [4] which in their liturgical year is the Sunday before Meatfare Sunday and about two weeks before the beginning of Great Lent. One common kontakion hymn of the occasion reads, I have recklessly forgotten Your glory, O Father; And among sinners I have scattered the riches which You gave to me. And now I cry to You as the Prodigal: I have sinned before You, O merciful Father; Receive me as a penitent and make me as one of Your hired servants.

Catholic
In his apostolic exhortation titled Reconciliatio et Paenitentia (Latin for Reconciliation and Penance), Pope John Paul II used this parable to explain the process of conversion and reconciliation. Emphasizing that God the Father is "rich in mercy" and always ready to forgive, he stated that reconciliation is a gift on his part. He stated that for the Church her "mission of reconciliation is the initiative, full of compassionate love and mercy, of that God who is love."[5][6] He also explored the issues raised by this parable in his second encyclical Dives in Misericordia (Latin for Rich in Mercy) issued in 1980.[7]

Baptism
Baptism (from the Greek noun baptisma; itself derived from baptismos, washing[2]) is a Christian rite of admission (or adoption[3]), almost invariably with the use of water, into the Christian Church generally[4] and also a particular church tradition. Baptism has been called a sacrament and an ordinance of Jesus Christ. In some traditions, baptism is also called christening, [5][6] but for others the word "christening" is reserved for the baptism of infants.[7] The New Testament reports that Jesus was baptized.[8] The usual form of baptism among the earliest Christians was for the naked[9] candidate to be immersed totally (submersion) or partially
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(standing or kneeling in water while water was poured on him or her). [10][11][12][13][14][15][16] While John the Baptist's use of a deep river for his baptism suggests immersion,[17] pictorial and archaeological evidence of Christian baptism from the 3rd century onward indicates that a normal form was to have the candidate stand in water while water was poured over the upper body.[18][19][20][21] Other common forms of baptism now in use include pouring water three times on the forehead. Martyrdom was identified early in Church history as "baptism by blood", enabling martyrs who had not been baptized by water to be saved. Later, the Catholic Church identified a baptism of desire, by which those preparing for baptism who die before actually receiving the sacrament are considered saved.[22] As evidenced also in the common Christian practice of infant baptism, baptism was universally seen by Christians as in some sense necessary for salvation, until Huldrych Zwingli in the 16th century denied its necessity. [23] Today, some Christians, particularly Quakers and the Salvation Army, do not see baptism as necessary, and do not practice the rite. Among those that do, differences can be found in the manner and mode of baptizing and in the understanding of the significance of the rite. Most Christians baptize "in the name of the Father, and of the Son, and of the Holy Spirit" (following the Great Commission), but some baptize in Jesus' name only. Most Christians baptize infants;[24] many others hold that only believers baptism is true baptism. Some insist on submersion or at least partial immersion of the person who is baptized, others consider that any form of washing by water, as long as the water flows on the head, is sufficient.

"Baptism" has also been used to refer to any ceremony, trial, or experience by which a person is initiated, purified, or given a name[25] see Other initiation ceremonies.

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