Elective - 1 Accounting and Finance

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Elective - 1 Accounting and Finance

Money market - The way of Indian development

Money market is the part of financial market and one of important concept

ofFinancebecause finance is flow of fund and money market provides system for flowing offunds and commercial papers. In simple words, money market is that market in which short

term commercial papers are bought and sold and short term loan are given and taken. Main

dealers of money market are the banks and financial institutions who need fund in very short

term and they can not take this fund from capital market because in capital market, they can

only receive long term fund with huge amount of loan and share capital.

So, Money market is so important for Indian developments because sometime banks need

money for paying their customers, they can get this short term loan from Indian money

market.

Rate of short term loan is high than long term loan of capital market. SBI, ICICI bank, HDFCbank, UTI and LIC and other commercial and financial intuitions are the main dealers and

they deal in commercial papers.

Main instruments of Money market:-

Instruments mean short term assets which can be include following

Commercial papers

in commercial papers , promissory notes , bill of exchange are included .

Treasury bills

Treasury bills are the bills which are issued by central Govt. of India. They can be bought or

sell like commercial papers.

Bankers acceptance

Bankers acceptance is also the form of short term assets on the basis of short term loan can

be taken.

Money fund

Money fund is also main instrument of money market. This fund which can be used for

fulfilling the need of banks to repay customers.

Indian money market is most affected by interest rates, rate of foreign exchange and other

related factors. Short term loan is one of factor for development of India because , banks and

financial institution can work effectively , if Indian money market is so active with providing

short term loan at lower rate of interests and also provides call money loans for one hour to

one day. It will be helpful to Indian bank to avoid tension for providing money in shortage offund period .

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simplified definition of capital market6]

Capital market is that part of financial market in which trade of long term debts and securities

are done by brokers and it includes share/stock market and bond market. The buyers are

general public, middle investors , companies and brokers who are interested to invest their

money for getting profit in the form of interest ordividend and profit from bargaining .Capital market is source long term funds for companies because any company who started his

business can sell their shares in the primary market of capital and next time, this company is

allowed to sell in secondary market. Buyers are also allowed to sell their bought shares in any

time. Every country has made the control power for capital market. In USA, its name is

Security exchange commission who control capital market. It established in 1934 but in India

capital market controller name is Security exchange board of India which established in 1992

after Harshad Mehta Scam. Indias capital market is so wide and more than 30 millionsinvestors have invested their money in Indian capital market. BSE and NSE are the famous

stock exchanges in India like New York Stock exchange in USA .

Working of Stock Exchanges in India

Indian stock exchanges are working before independence of Indian after revaluation of

industry in west, Englishinvestorsstarted to deal

in shares in Indian stock exchanges since 1875. They started to deal first in Indias economicand business center Bombay. For this they had established Bombay stock exchange in India

in 1875 with the name of The native share and stock brokers association . There were just318 persons who became members of this association.

Slowly the no. of members and trading in this stock market was increasing and in 1956, BSE

became reputed market after providing powers of capital market by passing securitiescontract(Regulation) act1956 and also after making of new economic policies in 1991 by Dr.

Manmohan Singh( slogan of liberalisation , privatisation and globalisation ) .

No. of stock exchanges were increases and national stock exchange was also established in

Mumbai in 1993.

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From 1875 to 1995 working of stock

exchanges in India was fully dependent on paper shares, debentures and bond. It means for

completing dealing physical delivery of shares was necessary.

But from 1995, online dealing in shares, created online stock markets in India. One side, we

are seeing the developments and progress in stock exchanges in India but

other side after Harshad Mehta scam, we watched downfall in

the progress of stock exchanges in India. Harshad Mehta was a player who rendered fraud

in Indian stock market by including private bank in fraud scheme. He dealt 200 million shares

of 90 companies and millions of Dollars loss was suffered by small and middle investors

when scam was publicly opened and sensex dropped 570 points.

Govt. of India had taken good action for prohibiting such scams by establishing SEBI in

1992. This board played a great role to develop and to secure the investors of India. After this

India stock exchange again because attraction point of international investors.

SEBI made rules in which all transactions will be settled on daily basis and there will be zero

level fraud and scam in stock exchanges in India.

Now stock exchange changes fully in India. For dealing in stock exchange, any person needs

Demat account and SBI and Karvi are working as online stock exchange broker in India .

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Main benefit of e-stock exchanges that now NRI can sell and purchase without physical

transferring of shares , all dealing are taken place online and sale and purchase price of shares

are transferred by cheque or by e-banking facility .

This new form of stock exchanges in India opens new business in each and every home

which is connected with Internet.

Indian stock exchange trends are showing upward sensex from last 2008 when USA market

fell due tofinancial crisisbut Indiasaved easily from this crisis and a very small effect was

on Indian stock market .y6]

Security Exchange board of India(SEBI ) and its powers

Security exchange board established in 1992 by passing the ordinance in the parliament of

India. Indias first law relating to control over security was Control Security issue act 1947

but, it was not fulfilling the desires of Govt . and investors.

For securing the interests of Investors, SEBI has established by Central Govt. In India, now it

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is vital authority to makes all rules and regulations relating to capital market. Main aim and

objectives of SEBI is to protect the money of investors from frauds in stock markets. A new

investors can easily cheated by expert brokers, So, SEBI knows this point and it has made

very strict rules for ceasing such cheating , frauds and malpractices .

SEBI never accepts anydodgy transactionwhich is done by any party in stock exchanges in

India. SEBI is the board which is operated by one chairperson and other members which are

appointed from following way.

One member is selected from the officers of ministry of finance. One member is selected from the officers of ministry of law. One member is selected from the office of RBI. Other two members are selected by central Govt.

Powers of SEBI

1. To make rules and regulation for controlling the stock exchanges in India.2. To educate brokers and investors.3. To do amendments in the rules and regulations of stock exchanges in India.4. To encourage investors of foreign to investment in India.5. To safeguard the interests of investors.6. To development the stock and share market in India.7. To stop all fraud and malpractices in stock exchanges.8. To reduce the fluctuations in the market prices of shares.9. To create good relationships among the large numbers of brokers, finance agents and

financers.

10.To provide license to brokers for activities in stock exchanges in India.[

National Stock Exchange (NSE ) - Backbone of Indian Capital market

NSE or National stock exchange is the largest stock exchange in the city Mumbai. It is the

second stock exchange in world whose growth rate is 16.6%. It was established as company

in 1993 and in 1994 it converted as stock exchange where all type of investors can deal in

shares and long term loans.

It is also reputed place for whole debt trading (WDT). Capital market of Companies listed

have reached at $ 1.46 trillion. It means if we visualize this money, it is 10s power 12 ($

1,000,000,000,000) for 1 trillion and + 0.46 trillion also included one trillion. We canvisualize this amount in following picture when a man stand in the front of this amount , he

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looks like a small ball . So , NSE is backbone of Indian companies' finance and capital

market .

Trading time

Trading time in NSE is started from 09:55am and closed at 03:30pm. Saturdays and Sundays

are the holiday.

Educational Services

National stock exchange (NSE) is also operating educational services . It has started

Certification in Financial Markets

Updated position

According to Business Standard 04/06/09, NSE has gotten 26% 26 foreign direct investment

(FDI). That is good sign of the reputation of NSE. ThanksINDOLINK Consulting

There are also following top five companies who gain from this capital market in 8 June 2009

.

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OTCEI is famous stock exchange which is founded and incorporated in 1990 in

Mumbai under Indian company act 1956s section 25. This stock exchange is allowed to

all unlisted companies (Who is not listed in BSE or NSE) to trade in shares and itprovides more facility to companies to list in OTC exchange of India. It is also the

institute which provides the sources to the valuation of securities. This stock exchange is

also active in US by online system of buying and selling of shares and other securities. It

also provides the facility to NRI to invest their money in reputed companies under IPO

system. It is affiliated stock exchange under Securities contract act 1956. Presently 115

companies are listed under OTC

Know more about OTCEI

OTCEI Motto

"To assist in efficient capital formation by developing a vibrant, dynamic and self-regulated

capital market conferring benefits to the investors, issuers, capital market and the nation at

large."

World famous USA Stock Exchange - NASDAQ

>> JUNE 9, 2009

National association of securities dealers automated quotations is also known as NASDAQ.

It is famous stock exchange of USA. It was established in 1971 and its head office in NewYork. It is operating 8 branches in Europe. 1/3 part of Dubai stock exchange is of NASDAQ.

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World largest transaction in the volumes of shares is dealt in this stock exchange.

No. of companies listed in NASDAQ

3200 companies are listed and trading in this stock exchange .

GDRs And its Importance

Definition of GDRs

GDRs mean global depository receipts. It is negotiable and transferable from one body to

another. It is also evidence of ownership of a company's shares . When a bank purchases

shares of foreign company, at that time it issues a certificate, that certificate is called global

depository receipt.

Suppose A USA based company wants to buy the shares of Indian company, then it only

possible by getting GDRs. USA Company can buy Indian company shares by the help of his

bank. Bank takes some charges and issues GDR.

Importance of GDRs

If any company gets GDRs for his purchased shares, then these can be sold in any stock

market of world through global network of banks and financial institutions.

Global Depositary Receipts (GDRs) give power to investors and companies access to two or

more markets, most frequently the US market and the Euromarkets, with one security. GDRsare most commonly used when the company is raising capital in the local market as well as in

the international and US markets, either through private placement or public offerings.

Securities and Exchange Commission of USA has allowed USA companies and also foreign

companies to buy and sell shares through GDRs

Among the Indian Companies, Reliance Industries Ltd. was the first company to get funds

through a GDR issue , after this many other Indian Companies like Infosys,WIPRO AND

ICICI have started to raise funds via GDRs.

It is the good way for getting foreign investment for developing economy .

Why is American Depository Receipt (ADR) Needed?

American depository receipt is very important receipt. With its help, non USA companiescan purchase and sell shares inUS stock and share markets. Thus, Investors of USA can buy

the shares of foreign companies without any problem of cross border or cross currency. It is

more famous with ADRs. All payment of price for getting ADR is in US dollars. Only after

this receipt foreign company can deal in USA share market.

Now, I will give you more important information regarding this:-

ADR can be issued by US depository banks like Citibank and Bank of New York Mellon.American depository shares are called ADS.

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It is just like licence to trade in USA stock exchange and this ADR can be gotten only bythree levels. Ist level ADR is very simple. Any foreign company who has English website in

which it shows his annual financial statements and also apply general conditions of Security

exchange commission of USA. But other two level ADR is more difficult because for getting

these ADRs, Foreign companies have to fill the form 20, accept all US GAAP and also accept

all related conditions of SEC.

Venture Capital Fund and simplified it with Video tutorial

Venture capital fund is special type of private capital. It is that type of private capital in

which two and more person associates and provide capital. Venture capital can not be

increased by issuing of shares in stock exchange. But in venture capital more money is

received from friend, reference of investors and relatives. It is different from partnership

capital because, association in venture is not life long and this capital is used in technology

project, bio technology and life science projects.

Any firm gets venture capital, if it provides high return on investment, have good project of

business. Venture capitalization is most popular in USA.

Structure of venture capital fund

1st of all two of more partners join in limited partnership that is called joint venture .

2nd they invest money in the form of venture capital fund.

3rd They also get money from friends, relatives and reference of investors.

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4th They also get profit from project and divide amoung all partners or investors .

Measurement of Risk and Returns Securities and Portfolios

Aim

Aim of this topic is to make expert the students and investors in financial analysis.

Explanation : When a person starts his own work, then either he will get profit or loss and

this is not sure and the possibility of this uncertainty is called risk. Loss is one of major risk

of business and main motive of financial analysis is to reduce risk of loss. It is also generalrule higher risk and higher return but modern concept is just opposite this , it is lower risk and

higher profit. In financial market, Company issues and also invests in shares and company

Measurement of Risk is with the help offinancial mathematics and financial risk

management. Company uses modern portfolio theory for getting maximum return on

minimum risk.

Reasons of Risk

1. Some longer-term consequences of disasters

2. such as lawsuits

3. loss of market confidence and employee morale and impairment of brand names can take along time to play out

For this following procedure is adopted for making good Portfolios

1. Calculation the value at Risk

Risk of investment is measured on the basis of Standard deviation . It is variation of actual

and standard performance on the investment .

Prof. Razvan Pascalau, Univ. of Alabama has made simple online value at risk calculator

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which is very helpful for investors

2. Calculation of portfolio

After calculation of Risk , we can make portfolio by applying mathematical formula .

Return is the weighted average of the risk free asset, f, and the risky portfolio, p, and is

therefore linear:

Since the asset is risk free, portfolio standard deviation is simply a function of the weight of

the risky portfolio in the position. This relationship is linear

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