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I have read a lot of textbooks on finance. A lot of sentences include "would", but I have difficultly understanding the intended meaning of them. The word "would" does not appear to express presumption or expectation or hypothecation or habitual action in the past.

Could you please help me to clarify this in these examples:

  1. Authorize.net would be a competitor to our services. We do include some cascade options for other processors such as Epoch, but we do not support any other payment gateways.

  2. Activities that generate fees, such as most investment banking activities, are straightforward. Accrual accounting rules similar to those that would be used by any other business apply.

  3. CAT bonds typically give a high probability of an above-normal rate of interest and a low-probability of a high loss. Why would investors be interested in such instruments?

  4. Consider two bonds that have the same coupon, time to maturity and price. One is a B-rated corporate bond. The other is a CAT bond. An analysis based on historical data shows that the expected losses on the two bonds in each year of their life is the same. Which bond would you advise a portfolio manager to buy and why?

  5. Advocates of hedge funds would argue that hedge fund managers search for profitable opportunities that other investors do not have the resources or expertise to find. They would point out that the top hedge fund managers have been very successful at finding these opportunities.

  6. The simplest type of trade is the purchase of an asset for cash or the sale of an asset that is owned for cash. Examples of such trades are:

    1. The purchase of 100 IBM shares
    2. The sale of 1 million British pounds for dollars
    3. The purchase of 1,000 ounces of gold
    4. The sale of $1 million worth of bonds issued by General Motors

    The first of these trades would typically be done on an exchange; the other three would be done in the over-the-counter market. The trades are sometimes referred to as spot trades because they lead to almost immediate (on the spot) delivery of the asset.

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    What do you think it means in each example? What is confusing you? What have you tried to figure out the meaning in each case? – WendiKidd Aug 16 '13 at 17:03
  • @WendiKidd I think OP has indicated research in the third sentence, the catalogue of meanings the word does not appear to express. – StoneyB Aug 17 '13 at 10:45
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User StoneyB has provided you an answer with good advice that can be applied generally across situations you may encounter in the future. I recommend you accept that one.

I just thought it might be helpful to take you through each of your examples and attempt an explanation for each on its own, and doing so would be nearly impossible with comments.

  1. Authorize.net would be a competitor to our services. We do include some cascade options for other processors such as Epoch, but we do not support any other payment gateways.
    • The author is counting on you to know that benefitting a competitor is bad business to explain not choosing to support interface with Authorize.net. The sentence has the intended sense if you substitute “bad choice of partner” for “competitor to our services.”
  2. Activities that generate fees, such as most investment banking activities, are straightforward. Accrual accounting rules similar to those that would be used by any other business apply.
    • This is basically saying that one can apply the same (accrual accounting) rules (to fee-generating investment banking activities) that could hypothetically be applied to other businesses (who are accruing funds in any number of different ways).
  3. CAT bonds typically give a high probability of an above-normal rate of interest and a low-probability of a high loss. Why would investors be interested in such instruments?
    • Read as “Why would investors (in choosing among several hypothetically viable options) be interested in CAT bonds?”
  4. Consider two bonds that have the same coupon, time to maturity and price. One is a B-rated corporate bond. The other is a CAT bond. An analysis based on historical data shows that the expected losses on the two bonds in each year of their life is the same. Which bond would you advise a portfolio manager to buy and why?
    • Here we have a thought experiment. You are instructed to consider a certain situation, and then make a choice based on the given (hypothetical) context.
  5. Advocates of hedge funds would argue that hedge fund managers search for profitable opportunities that other investors do not have the resources or expertise to find. They would point out that the top hedge fund managers have been very successful at finding these opportunities.
    • Based on the source, the author is saying “Presented with the arguments (detractions) above, someone (a hypothetical person) who disagrees (is instead advocating for hedge funds) would probably present [these counterarguments].”
  6. The simplest type of trade is the purchase of an asset for cash or the sale of an asset that is owned for cash. Examples of such trades are:

    [list omitted]

    The first of these trades would typically be done on an exchange; the other three would be done in the over-the-counter market. The trades are sometimes referred to as spot trades because they lead to almost immediate (on the spot) delivery of the asset.

    • Each item listed is a hypothetical. It does not represent historical fact. Instead, they each give an idea of a different class of situation. Different players, commodities, currencies, etc. The difference the author wants to highlight is that the sort of situation described in first hypothetical is typically conducted one way, the rest in another.
  • Thanks for your detailed explanations. But as for the second exmaple, I would think many businesses do use these rules in their accounting work, which are usual and real accounting practices. Is it that these businesses are hypothetical, not the real practice? @Tyler James Young – Kinzle B Aug 17 '13 at 14:13
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In all of these except #1 would denotes a presumption or hypothetical* situation. The businesses, investors, portfolio managers, advocates and trades involved are not actual entities you can point to and say "These businesses do use these rules", "These investors are interested", "I have advised this portfolio manager", "These advocates argue such-and-such", or "These trades are done". They are all hypothetical entities invented for the sake of illustration.

In #1 would may be another hypothetical—for instance, the author of the sentence may be trying to raise capital for a business which does not yet exist, or may be trying to sell services to a prospective customer who has not put out an actual RFP. Alternatively, this may be commercial mealy-mouthedness. Business people are discouraged by their lawyers from claiming that their goods and services offer real benefits, and they do not like to acknowledge that they have real competitors; they prefer to imply that such matters are hypothetical by using words like may and might and potentially and would.


*Not hypothecation - that is a technical financial/legal term with a very different meaning.

  • Your explanations are very straightforward and of great help to me. Btw, as for the second exmaple, I would think many businesses do use these rules in their accounting work, which is a common sense like the sun rising everyday. Is it that these businesses are hypothetical, not the real practice? if I use "are" instead of "would be" in the second example, does this have different meaning? @StoneyB – Kinzle B Aug 17 '13 at 1:54
  • @ZhanlongZheng Yes -- "are used" would be fine there. I suspect that what's implied is "We use the same rules we would if we were in any other business". – StoneyB Aug 17 '13 at 10:43
  • here is another example: The objective of life insurance is to provide financial security to policyholders and their families. Traditionally, this security has been provided by means of a lump sum payable contingent on the death or survival of the insured life. The sum insured would be fixed and guaranteed. The policyholder would pay one or more premiums during the term of the contract for the right to the sum insured. I wonder why has been is first used, then follows would. I cannot find the implied hypothetical situation here. @StoneyB – Kinzle B Aug 17 '13 at 11:15
  • @ZhanlongZheng What the author intends is that the first two sentences make up one unit describing life-insurance-in-general, while the next two sentences make up a different unit describing a hypothetical policy. ... It's bad writing, in several respects; and I regret to tell you that this is very common in business texts, which are mostly written by experts in finance who (at least in the US) are very poorly educated in English composition. Hypothetical would in many cases, perhaps most, is just a meaningless business mannerism. – StoneyB Aug 17 '13 at 12:47
  • Thanks a lot. Could you give me your MSN or Skype id? I wondered if you could help me with other usage problems. @StoneyB – Kinzle B Aug 17 '13 at 12:58

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