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Apna Sapna Money-Money

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Apna Sapna Money-Money * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * GASCI Seminar 2005 GASCI Seminar 2005 GASCI Seminar 2005 GASCI Seminar ... – PowerPoint PPT presentation

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Title: Apna Sapna Money-Money


1
Apna Sapna Money-Money
2
  • Money doesn't create man but it is the man who
    created money.
  • -Warren Buffet

3
WELCOME To ALL OF YOU IFS Course
  • RAHUL JAIN
  • (Striving for excellence)
  • BCOM (H), MBA, FCS

4
Overview of Indian Financial System and Economic
Development
  • By- Rahul Jain
  • (PGPM (MBA), FCS)
  • rahulkjain16_at_yahoo.co.in
  • www.learningfinancialmanagement.pbworks.com
  • Ph 9811228852

5
Our Strategy for Learning
  • Concepts, Practice and Class Discussion
  • Punctuality, Participation and Preparation
  • Judgment challenge
  • Learning to communicate ideas
  • Learning from each other
  • Learning through discovery

6
Outline
  • Overview of financial markets
  • Institutional infrastructure
  • Role and functions of stock exchange

7
Some Important rules
  • Switch off your Mobiles
  • Attendance rules will be strictly applied
  • Non completion of Assignment will lead to strict
    disciplinary measures
  • Students can gather additional bonus points by
    being a Performer 4 times in the whole course.
  • Students falling in the Improvement category
    would be penalized.

8
Website activity
  • Each one of you write your bio in your course
    page. For example Foundation students will write
    in Foundation Batch course page.
  • Bio will be written as per following guidelines
  • Include your name, prior education background and
    institutes name
  • Include your hobbies, 2 strengths and 2 unique
    talents
  • Include your achievements
  • Include what you want to learn from this course
  • www.learningfinancialmanagement.pbworks.com

9
The Financial System
  • Financial System set of markets, individuals
    and institutions which trade in those markets
  • Channels funds from lenders to borrowers
  • Creates liquidity and money
  • Provides a payments mechanism
  • Provides financial services such as insurance and
    pensions
  • Offers portfolio adjustment facilities

10
Financial System
11
Constituents of Financial System
12
Regulation of the Financial System
  • To increase the information available to
    investors
  • To ensure the soundness of financial
    intermediaries (and the overall financial
    system)
  • Restrictions on entry
  • Disclosure
  • Restrictions on Assets and Activities (e.g. Basel
    II)
  • Deposit Insurance
  • Limits on Competition
  • Restrictions on Interest Rates

13
Financial Markets
  • Markets in which funds are transferred from
    people who have an excess of available funds to
    people who have a shortage of funds
  • Example lenders/savers and borrowers/investors
  • Important effects on economic performance

14
Structure of Financial Markets
  • Debt and Equity Markets
  • U.S. markets (2005) debt 41 trillion, equity
    18 trillion
  • Different return profiles
  • Primary and Secondary Markets
  • Investment Banks underwrite securities in primary
    markets
  • Brokers and dealers work in secondary markets
  • Exchanges and Over-the-Counter (OTC) Markets
  • Money and Capital Markets
  • Money markets deal in short-term (lt 1 yr) debt
    instruments
  • Capital markets deal in longer-term (gt 1 yr) debt
    and equity instruments
  • Growing internationalization of financial markets

15
Overview of Financial Markets
  • Types of financial markets
  • Money markets
  • Capital markets
  • Debt Market
  • Hybrid

16
The Hierarchy of Markets
Asset backed securities derivatives
Corporate bonds equities
Government bond market
Govt T Bills
Money market
17
Instruments
  • Equities
  • Debt

Most popular investing instruments Stocks and
shares Bonus issues Rights issues
Corporate Government
18
Supporting agents
Financial Market
Insurance cos
Capital market
Primary Mkt Inst
Money market
NIS
Commercial banks
Primary market
Credit unions
Secondary market
Stock exchange
Firms raise capital
Short term instruments
Investors trade securities issued in primary
market
debt
equity
Public
Private placement
19
Risk-Return Trade off
20
India- Young and Restless
21
Indian Economy and Capital Market at a glance
  • Second fastest growing economies after China with
    an average annual growth rate of more than 8 per
    cent in the last three years
  • Indias growth rate has surpassed some of the
    developed economies
  • GDP at current market prices is over US 778
    billion

22
Indian Economy A Snapshot
  • One of the fastest growing in the world
  • Consumption growth fuelling economic growth
    consumption expenditure forming 78 of GDP
  • Services sector contributing over 60 to GDP
  • Emerging as a hub of manufacturing excellence.
    new growth engines of Indian economy include IT,
    ITes, pharmaceuticals, bio-technology, nano
    technology, agri. businesses
  • Where forces of competition are at work
  • Innovation driving enterprises
  • Economic reforms well on course entering second
    phase         

23
Indian Economy and Capital Market at a Glance
  • 9040 brokers in cash segment and 1064 in
    derivative segment of the market
  • 122 investment bankers in the market
  • 58 under writers to support primary issues
  • 34 foreign venture capital funds
  • 120 Portfolio managers

24
Indian Economy and Capital Market at a Glance
  • Business Week says that of 100 emerging market
    firms which are rapidly globalising 21 are Indian
    firms
  • Economists project India to become the third
    largest economy in the world by 2040
  • Indian capital market regulator has acquired
    international credibility in the least possible
    time

25
Indian Economy and Capital Market at a Glance
  • India has a disclosure based regime of regulation
  • Disclosure and Investor Protection guidelines
    available
  • Indias accounting standards are closer to
    international standards
  • India has a well laid down legal framework

26
Indian Economy and Capital Market at a Glance
  • India has T2 rolling settlement as opposed to
    T3 in NYSE.
  • In India the transactions are totally electronic
    on a real time basis.
  • India has several protective safeguards for the
    retail investor such as grading system of public
    offering, retail quota at 25 per cent etc.

27
Indian Economy and Capital Market at a Glance
  • As an integral part of risk management trading
    and exposure limits, various margins and mark to
    market margins are in vogue
  • Clearing houses in place
  • Almost 100 per cent risk free electronic
    settlement through depository system
  • SEBI has a surveillance and enforcement system in
    place

28
Indian Economy and Capital Market at a Glance
  • India - one of 10 fastest-growing population of
    HNWIs globally
  • There are at least 23 Indian citizens amongst the
    richest people on the planet
  • Non Resident Indians can invest in all Indian
    Asset Classes
  • Salary increases in India 13.9 is the highest
    in the world
  • Increasing Investment avenues Art, Realty
    Funds, Commodities
  • The number of companies listed on the Bombay
    Stock Exchange, at more than 6,000, is second
    only to NYSE.
  • Each year 2,500 tonnes of gold is mined (fifth of
    the world's gold output.) and 3,500 tonnes is
    consumed, of which 1,000 tonnes is consumed in
    India alone.

29
Indian Equities Long term prospects are intact
Consumerism Retail credit, low interest rates,
changing aspirations
Infrastructure Development of roads, ports,
telecom
Demographics Half the population below 25 yrs
Reforms FDI, Tax reforms
Sustained GDP Growth
Exports
Global competitiveness
Outsourcing
High GDP Growth Growth Gap Over The World
30
Money Market Instruments
  • Short-term debt is traded in the money markets.
  • Short-term is any debt instrument sold with a
    life that is 365 days or shorter.
  • Typically, money market securities have the
    following features
  • No stated rate of interest instead, sold at a
    price that is at a discount from the par or face
    value of the security.
  • Examples include
  • Treasury bills
  • Commercial Paper

31
Short-Term Debt and the Money MarketCommercial
Paper
  • Short-term debt instruments, usually unsecured,
    issued by corporations.
  • Involve credit risk because the financial health
    of a corporation can deteriorate and jeopardize
    the repayment of the amount borrowed.
  • Sold at a discount from their face value
  • Maturities less than a year
  • Because of the credit risk, usually there is only
    a market for commercial paper offered by the most
    credit worthy corporate issuers.

32
Bank FinancingShort-Term Financing
  • Banks are an important source of financing
  • They provide
  • Lines of Credit in support of working capital
    needs
  • Term Loans in support of longer term investment
    in equipment

33
Market infrastructure
  • Stock exchange
  • Clearing and settlement
  • Education and training
  • Investors protection
  • Rating agency

34
Intermediaries
  • Financial intermediaries may stand in between
    ultimate lenders and ultimate borrowers
  • Merchant Bankers
  • Stock brokers
  • Advisors
  • Banks
  • Mutual Funds etc

35
Function of Financial Intermediaries Indirect
Finance
  • Why is there indirect finance, i.e., what is the
    rationale for financial intermediation?
  • Lower transaction costs
  • Risk management
  • Asymmetric information

36
1. Transaction Costs
  • Transaction Costs resources (time/money) used
    in carrying out the exchange of assets, goods or
    services
  • Economies of scale
  • Reduction in transaction costs per dollar of
    transaction
  • Example legal costs for blueprint contract
  • Liquidity services
  • Coordination across deposit-taking and lending
    activities

37
2. Risk Management
  • Risk sharing
  • Asset transformation
  • Risk transformation sell low-risk assets and use
    acquired funds to buy riskier assets
  • Maturity transformation convert funds lent for a
    short-period into loans of longer duration
  • Diversification the holding of multiple (not
    perfectly correlated) assets
  • Take advantage of portfolio effects

38
3. Asymmetric Information
  • Asymmetric distribution of information between
    agents
  • Example borrower has better information about
    investment project than the lender
  • Economic incentives matter
  • Adverse Selection (before the transaction)
  • Example more likely to select risky borrower
  • Moral Hazard (after the transaction)
  • Example activities making loan repayment by
    borrower less likely

39
Role and Functions of a stock exchange
  • Established for the purpose of assisting,
    regulating and controlling business of buying,
    selling and dealing in securities

40
Role and Functions of a stock exchange contd
  • Provides a market for the trading of securities
    to individuals and organizations seeking to
    invest their saving or excess funds through the
    purchase of securities

41
Role and Functions of a stock exchange contd
  • Provides a physical location for buying and
    selling securities that have been listed for
    trading on that exchange

42
Role and Functions of a stock exchange contd
  • Establishes rules for fair trading practices and
    regulates the trading activities of its members
    according to those rules

43
Role and Functions of a stock exchange contd
  • The exchange itself does not buy or sell the
    securities, nor does it set prices for them

44
Fair
  • The exchange assures that no investor will have
    an undue advantage over other market participants

45
Efficient market
  • This means that orders are executed and
    transactions are settled in the fastest possible
    way

46
Transparency
  • Investor make informed and intelligent decision
    about the particular stock based on information

47
Transparency contd
  • Listed companies must disclose information in
    timely, complete and accurate manner to the
    Exchange and the public on a regular basis

48
Transparency contd
  • Required information include stock price,
    corporate conditions and developments dividend,
    mergers and joint ventures, and management
    changes etc

49
Doing business
  • People who buy or sell stock on an exchange do
    so through a broker

50
Doing business contd
  • The broker takes your order to the floor of the
    exchange looks for a broker representing someone
    wanting to buy/sell
  • If a mutually agreeable price is found the trade
    is made

51
Price
  • At any point in time, the price of previously
    issued stock is determined by the ebb and flow of
    supply and demand

52
Listing requirements
  • There are specific requirements for allowing a
    public company to list its securities on the
    Stock Exchange these are set out in the
    legislation

53
Benefits of listing
  • Visibility
  • Market support
  • Investors confidence
  • Increased demand for products and services
  • Overall increase in profitability

54
Once traded
  • Aura of reliability
  • Accuracy in reporting financial data
  • Reputation
  • Strength

55
Delisting
  • Stock exchange can delist companies for a number
    of reasons including -
  • Merger with another company
  • Solvency problems
  • Name change company asked to be removed
  • Failure to comply with exchange rules

56
Desirable Characteristics of a stock market
  • Liquidity

Ability to sell an asset quickly at a fairly
known price Low transactions costs
57
Desirable Characteristics of a stock market
contd
  • Availability of information Market efficiency
  • Prices react quickly to new information
  • Small price fluctuations
  • Narrow price spread

58
Financing the exchange
  • Transaction fees paid by members for each order
    executed
  • Fees paid by firms when their securities are
    originally listed
  • Annual fees by firms
  • Entrance fees from new members
  • sale of historic trading and market information

59
Major challenges for the Exchanges
  • Cross border trading
  • Issuers and investors are expanding their
    horizons beyond their home markets
  • Investors becoming much more demanding

60
Regulatory improvementTransparency and Corporate
Governance
Protection to minority Shareholders
Strong industry regulator
Enhance market confidence
Corporate Governance
Disclosure
61
Ownership of the company is by the public in the
form of shares one share, one vote
Owners
Board is elected by shareholders to represent the
best interests of the owners
Board of Directors
Board hires and fires the management of the
company
Managers
62
Assignment I 11th July
  • Individual Assignment- 3minute presentation on
    Financial News Analysis (Refer Economic times and
    other business news papers/ magazine) Compulsory
    for first 5 roll numbers. Also submit a report on
    A4 size paper (Give intext citations)
  • Individual Assignment 2 minute presentation on
    Key learnings of the previous class. (Compulsory
    for all)
  • Name of Groups (Maximum 7 students)

63
Some important points
  • Academic Honesty
  • Individual Work Only, Allows for Group Discussion
    of Concepts and Problems
  • Do Not Copy Work
  • Reference Any Source
  • When Confused Ask Instructor
  • Contact me Rahul Jain (9811228852,
    rahulkjain16_at_yahoo.co.in, Yahooidrahulkjain16)
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