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Plain Vanilla



Definition

The financial term “Plain Vanilla” refers to the most basic or standard version of a financial instrument, usually options, bonds, futures, or swaps. It is simple with no complex features or characteristics and easy to understand. The opposite of plain vanilla in financial terms would be an exotic instrument, which has complicated features and structures.

Phonetic

The phonetic spelling of “Plain Vanilla” is: /pleɪn vəˈnɪlə/

Key Takeaways

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  1. Plain Vanilla is an Icelandic game studio that gained significant fame for its mobile trivia game, QuizUp. It became an overnight sensation with millions of users worldwide.
  2. The company was founded by Thor Fridriksson and had a high valuation at its peak, drawing investment from entities like Sequoia Capital. However, it experienced financial difficulties later on due to the cost of maintaining the game and its sizable user base.
  3. Despite its early success and popularity, Plain Vanilla Corp eventually closed down in 2016. Its assets, including QuizUp, were sold to Glu Mobile. The game continued to operate until 2020, but it has been shut down since then.

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Importance

The term “Plain Vanilla” in business/finance is crucial because it refers to the most basic version of a financial instrument and is widely used as a benchmark. It denotes standard, uncomplicated, and easily understandable financial instruments, like bonds, options, and swaps, among others. The importance lies in its simplicity, ease of implementation, and lower risks compared to other more complex financial instruments. As such, they are commonly utilized by both investors who desire a conservative investment strategy and financial institutions needing instruments that are straightforward to value, provide greater liquidity and are easier to manage in terms of risk.

Explanation

In the context of finance and business, the term “Plain Vanilla” refers to the most basic version of a financial instrument, without any additional or sophisticated features. They are the simplest, most straightforward and standard form of financial instruments including stocks, bonds, futures, and options. These are commonly used due to their simplicity and transparency. They serve as the building blocks for creating more complex financial instruments.The primary purpose of plain vanilla instruments is to facilitate uncomplicated transactions that meet the needs of most investors. These instruments offer the advantages of understandability, computational ease, and fewer risks, promoting ease of marketability and liquidity. For instance, a plain vanilla bond, which pays a fixed interest payment until maturity when the principal is returned, serves the purpose of providing a steady income stream for the investor and capital for the issuer. It’s used by investors seeking predictable returns and institutions needing to raise funds. Overall, plain vanilla finance instruments grant accessibility and clarity for a wide range of investors and businesses.

Examples

1. Bonds: A “plain vanilla” bond is a standard, no-frills bond issued by an entity (like a corporation or government) that pays the owner a fixed interest rate over a specified period of time and then returns the principal when the bond comes due.2. Mortgages: A plain vanilla mortgage refers to a standard, fixed-rate, fully amortizing mortgage with regular monthly payments. It’s the most traditional type of mortgage loan, offering straightforward terms and minimal risks compared to other, more complex types of loans.3. Swaps: In derivatives trading, a plain vanilla swap typically refers to a classic interest rate swap agreement between two parties. One party will pay a fixed interest rate, while the other pays a floating rate that fluctuates with market conditions. The terms are straightforward and devoid of any complex features.

Frequently Asked Questions(FAQ)

What does the term ‘Plain Vanilla’ mean in finance and business?

‘Plain Vanilla’ is a term used in the finance and business world to refer to the most basic version of a financial instrument, such as bonds, options, and swaps. It’s often used to describe standard or conventional financial instruments.

Where does the term ‘Plain Vanilla’ come from?

The term comes from the vanilla flavor in ice creams, which is often considered the most basic or standard flavor. In finance, the term is used to denote simple, standard financial instruments without any advanced features.

Could you provide an example of a ‘Plain Vanilla’ financial instrument?

Yes, a good example would be a standard bond issued by a corporation or government which involves the borrower paying a fixed, predetermined interest rate to the lenders for a set period of time.

Are ‘Plain Vanilla’ options or investments considered as a risky form of investment?

‘Plain Vanilla’ options or investments are generally considered less risky compared to their non-standard counterparts that might include advanced or complex features. This is because they are straightforward and do not involve complex mechanisms.

Can ‘Plain Vanilla’ apply to business strategies as well?

Yes, in business, ‘Plain Vanilla’ strategies refer to straightforward, uncomplicated strategies that are widely recognized and easy to implement. They are often viewed as conservative and conventional.

How are ‘Plain Vanilla’ financial instruments used in the market?

‘Plain Vanilla’ financial instruments are used as reliable financial tools by investors who prefer simplicity. For example, an investor who wishes to avoid excessive risk might prefer a ‘Plain Vanilla’ Government bond over a complex, exotic financial derivative.

Do ‘Plain Vanilla’ products or transactions require more or less regulatory oversight?

Generally speaking, ‘Plain Vanilla’ products or transactions require less regulatory oversight as they are easier to understand and less likely to hide complex risks or potential for fraud. However, any financial instrument still needs to comply with the appropriate regulations.

Related Finance Terms

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