finxpress_30september2012

IN THIS IS

SUE Fi

nX

pre

ss

September 30 ,2012

Company In Focus

Editoria

l

1

Company in

Focus

2

Term of t

he Week

4

Mark

et this

Week

5

News of t

he Week

7

Cover Sto

ry

9

Fun Corner

10

Term of the Week

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story

September 30 ,2012

EDITORIAL

PAGE 1 http://www.imtgfinxpress.co.cc

Dear Readers, Greetings from FinNiche! The summer placement week has ended on a positive note with top companies like Reckitt Benkiser, Perfetti Van Melle, JPMC and HSBC offering enviable profiles to prospective interns at IMT. Team FinNiche gives heartiest congratulations to all students who have been placed. However, the campus is still abuzz with summer placement activity as a number of reputed companies are expected to visit the campus in the days ahead. In this edition of FinXpress, we have Ford Business Services as the “Company in Focus”. In the “Term of the Week” we simplify Warrants. In the markets section, we discuss how Indian stock indices showed strength this week. In the “special page” we will cover ‘ Student Loans: The next subprime crisis? ‘. We sincerely hope that the readers find our content engaging. We would appreciate feedback and suggestions for improvement. We hope to bring you more information in the future thus keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board “FinXpress

September 30 ,2012

COMPANY IN FOCUS

Ford Business Services

Ford, incorporated in 1919, is a producer of cars and trucks. The Company and its subsidiaries also engage in other

businesses, including financing vehicles. The Company operates in two sectors: Automotive and Financial Services. Its

Automotive Sector includes Ford North America, Ford South America, Ford Europe and Ford Asia Pacific Africa.

Financial Services includes Ford Motor Credit Company and Other Financial Services.

AUTOMOTIVE SECTOR

The Company’s vehicle brands are Ford and Lincoln. During the year ended December 31, 2011, the Company sold

approximately 5,695,000 vehicles at wholesale globally. In addition to the products it sells to its dealerships for retail

sale, it also sells cars and trucks to its dealerships for sale to fleet customers, including commercial fleet customers,

daily rental car companies, and governments. Through its dealer network and other channels, it provides retail

customers with a range of after-sale vehicle services and products, including maintenance and light repair, heavy

repair, collision repair, vehicle accessories and extended service contracts. In North America, it marketed these

products and services under a range of brands, including Ford Service, Lincoln Service, Ford Custom Accessories, Ford

and Lincoln Extended Service Plans, and Motorcraft.

During 2011, the Company’s mid-size utility segment represented 14.5% of total vehicles sales. During 2011, fleet

sales were 32% of its total sales, which included commercial and government customers. During 2011, its daily rental

business was 12% of total sales.

FINANCIAL SERVICES SECTOR

The Company’s wholly owned subsidiary Ford Motor Credit Company LLC (Ford Credit) offers a range of automotive

financing products to and through automotive dealers globally. Ford Credit’s business consists of financing its

vehicles and supporting its dealers. Ford Credit earns its revenue from Payments made under retail installment sale

and lease contracts, which it originates and purchases; interest supplements and other support payments from the

Company and its subsidiaries on special-rate financing programs, and payments made under wholesale and other

dealer loan financing programs.

Ford Credit has a portfolio of finance receivables and leases, which it classifies into two segments: consumer and non

-consumer. Finance receivables and leases in the consumer segment relate to products offered to individuals and to

businesses, which finance the acquisition of vehicles from dealers for personal and commercial use. The financing

products include retail installment sale contracts for new and used vehicles, and leases for new vehicles to retail

customers, government entities, daily rental car companies, and fleet customers. Finance receivables in the

non-consumer segment relate to products offered to automotive dealers, including loans to finance the purchase of

vehicle inventory. Ford Credit also purchases receivables generated by it and its subsidiaries, in connection with the

sale of parts and accessories.

PAGE 2 http://www.imtgfinxpress.co.cc

September 30 ,2012

Ford Credit does business in the United States and Canada through regional business centers. Outside of the United

States, FCE Bank plc (FCE) is Ford Credit's operation. Within Europe, FCE's markets include Germany and the United

Kingdom. About 70% of FCE's finance and lease receivables are from FCE's customers and Ford dealers in Germany,

the United Kingdom, and France; about 17% are from FCE's customers and Ford dealers in Italy and Spain; and about

2% are from FCE's customers and Ford dealers in Greece, Ireland, and Portugal.

A 1910 Model T

PAGE 3 http://www.imtgfinxpress.co.cc

September 30 ,2012

TERM OF THE WEEK : Warrant

PAGE 4 http://www.imtgfinxpress.co.cc

A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific

price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.

They can be used to enhance the yield of the bond, and make them more attractive to potential buyers. Warrants can

also be used in private equity deals. Frequently, these warrants are detachable, and can be sold independently of the

bond or stock.

The main difference between warrants and call options is that warrants are issued and guaranteed by the company,

whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often

measured in years, while the lifetime of a typical option is measured in months.

A wide range of warrants and warrant types are available. The reasons you might invest in one type of warrant may be

different from the reasons you might invest in another type of warrant.

Equity warrants: Equity warrants can be call and put warrants.

Callable warrants: Callable warrants give the Company the right to force the warrant holder to exercise the

warrants into their predetermined number of shares at a predetermined price (or using a predetermined price

formula) after certain contractual conditions are met

Putable warrants: Putable warrants give the warrant holder the right to force the Company to issue the underlying securities at a predetermined price after certain contractual conditions are met

Covered warrants: A covered warrants is a warrant that has some underlying backing, for example the issuer will

purchase the stock beforehand or will use other instruments to cover the option.

Basket warrants: As with a regular equity index, warrants can be classified at, for example, an industry level.

Thus, it mirrors the performance of the industry.

Index warrants: Index warrants use an index as the underlying asset. Your risk is dispersed—using index call and

index put warrants—just like with regular equity indexes. It should be noted that they are priced using index

points. That is, you deal with cash, not directly with shares.

Wedding warrants: are attached to the host debentures and can be exercised only if the host debentures are

surrendered

Detachable warrants: the warrant portion of the security can be detached from the debenture and traded

separately.

Naked warrants: are issued without an accompanying bond, and like traditional warrants, are traded on the

stock exchange.

September 16 ,2012

MARKET THIS WEEK

PAGE 5 http://www.imtgfinxpress.co.cc SEPTEMBER 30 ,2012

MARKET THIS WEEK

SENSEX gained 0.05% from last week and ended at 18762.74 this week.

Simple Moving Averages

Returns – BSE Sensex

Nifty gained 0.21% from last week and ended the week at 5703.30

Simple Moving Averages

Returns – Nifty

30 Days 50 Days 150 Days 200 Days

17,977.84 17,694.10 17,245.88 17,122.67

YTD 21.40 % 1 Week 0.10% 1 Month 6.40% 3 Months 10.40%

6 Months 9.60 % 1 year 14.10 % 2 Year -6.70 % 3 Year 11.30%

30 Days 50 Days 150 Days 200 Days

5,441.79 5,360.09 5,231.68 5,186.09

YTD 23.33 % 1 Week 0.20 % 1 Month 6.90% 3 Months 10.80%

6 Months 9.80% 1 year 15.30% 2 Year -5.40 % 3 Year 13.90 %

PAGE 5 http://www.imtgfinxpress.co.cc

September 16 ,2012

PAGE 6 http://www.imtgfinxpress.co.cc SEPTEMBER 30 ,2012

Overview

NSE index rose on Friday to its highest in 15 months, as blue chips such as Reliance Industries Ltd and Tata

Motors Ltd rallied on continued optimism about additional fiscal and economic reforms.

The gains come a day after India raised taxes on rail fares, while pledging to stick to its planned borrowing target for the year, underlining a resolve to curb its fiscal deficit.

The gains also tracked higher Asian shares on hopes a tough Spain budget was a prelude to an EU aid program that would allow the European Central Bank to try to reduce its high borrowing costs by buying its bonds.

The BSE index has rallied 7.6 percent in September, its biggest monthly gain since January, following major fiscal and economic reforms from the government and monetary stimulus measures from the Federal Reserve and the European Central Bank.

The BSE index rose 7.6 percent for the quarter, its biggest quarterly gain since the final quarter of fiscal

year 2012.

Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR 4.50% Base Rate

10%-

10.5%

Repo Rate 8% SLR 23%

Savings

Deposit Rate 4%

Reverse Repo

Rate 7%

Term

Deposit Rate 8%-9.25%

Margin Standing 9%

Exchange Rate

v/s INR Commodities unit Rs./unit

%

change

Currency Symbol Rate

%

change Gold 10 gms. 32100 1.88%

US Dollar $ 52.85 1.94% Silver 1 Kg. 60600 4.2%

Euro € 67.95 2.94% Crude Oil 1 BBL 4885 1.65%

Dirham AED 14.39 0.89%

Japanese Yen ¥ 0.677 0.73%

Chinese Yuan CNY 8.41 0.59%

PAGE 6 http://www.imtgfinxpress.co.cc

September 30 ,2012

NEWS OF THE WEEK

Auction not the only permissible method of allocating natural resources: Supreme Court

Chief justice SH Kapadia has said that the common good should be the touchstone for any policy and in that case any

means adopted for allocating resources will be in accordance with constituitional principles. The bench said that

auctions may be the best way of maximizing revenue but revenue maximisation may not always be the ultimate mo-

tive of the policy and natural resources can be allocated to private companies by other methods for the purpose to

subserve public good."Common good is the sole guiding factor under Article 39(b) for distribution of natural

resources. It is the touchstone of testing whether any policy subserves the common good and if it does, irrespective

of the means adopted, it is clearly in accordance with the principle enshrined in the Article," the bench said.

No service tax on AC class train tickets purchased before October 1

Fares of AC First Class, Executive Class, AC-2 tier, AC-3 tier, AC Chair Car will go up by 3.708 per cent from October 1

with the service tax coming into force on these services. "However, service tax is not leviable on tickets issued prior

to October 1, and it would not be collected on board and railways have modified its earlier order on it," said a senior

Railway Ministry official. Besides AC fares, railways is levying service tax on freight and auxiliary service such as

catering and parking at stations. The service tax is 12.36 per cent but after adjustment of 70 per cent of this, it will

effectively be 3.708 per cent on passenger fares in AC classes and freight services. It is expected that the exchequer

will be richer by about Rs 3,000 crore from service tax on AC fares and freight.

Indians shell out more than Rs 1.15L for unlocked iPhone 5

Even as the rest of the world opened to the iPhone5, some Indians who couldn’t wait for the product to be launched here in India have already purchased the product shelling close to upto 1.15Lakhs per piece.The iPhone 5 has a slot for a so-called nano SIM. In the absence of telcos offering this card, users have to cut the SIM to size and use sand paper or other abrasives to finely shave off thickness - a process so fraught with the risk of ruining your SIM card that most experts advise users against it.Traders in select markets in India are reporting brisk trade of unlocked iPhones two weeks after Apple launched the sixth iteration of its blockbuster device. Apple clocked record sales in the US, selling 5 million units in three days. Demand in India, not a key Apple market, appears to be strong.

United Spirits' loans rating cut to 'junk'

Loans of Vijay Mallya-owned United Spirits have been downgraded to junk status, a move that may accelerate talks

with Diageo Plc for buying a stake in the country's biggest drinks maker. Rating company ICRA, a unit of Moody's, cut

the rating on United Spirits' 1,800-crore term loans and 1,300-crore long-term fund-based facilities to D, the lowest

grade it assigns to any borrowing, from investment grade BB."The revision in the bank line ratings reflects delays

indebt servicing by the company in the month of March 2012," ICRA said in a statement. "According to the

information shared by the management, these delays, however, have since been corrected. ICRA is in the process of

reviewing the current liquidity position of the company and would take up a review of the ratings accordingly." The

debt fire that is burning up Mallya's Kingfisher Airlines is spreading to other group companies that have either

borrowed heavily for their own purposes, or on behalf of the aviation company.

PAGE 7 http://www.imtgfinxpress.co.cc

September 30 ,2012

Crisis in Maharashtra government

Maharashtra Governor K Sankarnarayananaccepted the resignation of Deputy Chief Minister AjitPawar, who quit

following reports about his alleged involvement in aRs 20,000 crore irrigation scam.Maharashtra Chief Minister

Prithviraj Chavan met the Governor this morning and handed over Pawar's resignation. The crisis in the

Congress-NCP coalition government in the state, triggered by the surprise resignation of AjitPawar, came to an end

yesterday after party chiefSharadPawar asked Chavan to accept it and directed 19 other ministers who had also

stepped down to resume office.The 53-year-old nephew of SharadPawar, had resigned following media reports

about his alleged involvement in a Rs 20,000 crore scam when he held the irrigation portfolio between 1999 and

2009.

PM inviting Walmart to India even as US shuts it out: Advani

BharatiyaJanata Party (BJP) leader LK Advani has said Walmart was being allowed in India even as there were calls in

the US and New York to “shut Walmart out”.He also wrote on his blog , that on the same day the UPA government

“handed the FDI bouquet to Walmart and lobbyists assured us that small retailers are safe, Atlanticcities, a

web-newspaper from the stable of the famous Foreign Affairs magazine, carried a devastating headline news:

‘Radiating Death: How Walmart Displaces Nearby Small Businesses’.”“Weeks ago, on 30 June, over 10,000 people,

shouting “Walmart Poverty”, marched through Los Angeles, America’s richest city, against Walmart stores,” Advani

added.The BJP leader further recalled an episode from the NDA government, when Congress member

Priya Ranjan Dasmunshi had sought clarification from then commerce minister ArunShourie on plans to allow retail

FDI.

PAGE 8 http://www.imtgfinxpress.co.cc

PAGE 9 http://www.imtgfinxpress.co.cc September 30 ,2012

COVER STORY

One question that has always evaded greater scrutiny has been the very critical default rate for student borrowers: a

number which few if any lenders and colleges openly disclose for fears the general public would comprehend not

only the true extent of the student loan bubble, but that it has now burst. Based on data a month ago, The default

rates for federal loan borrowers that while rising was still not too troubling: as it turns out the reason why its was

low is it was made using fudged data that drastically misrepresented the seriousness of the situation, dramatically

undercutting the amount of bad debt in the system.

The Department of Education, which today for the first time ever released official three-year, or much more

thorough than the heretofore standard two-year benchmark, federal student loan cohort default rates. The number,

for all colleges, stood at a stunning 13.4% for the 2009 cohort. The number is stunning because it is nearly 50%

greater than the old benchmark, which tracked a two year default cohort, and which was a "mere" 8.8% for the 2009

year. Broken down by type of education, and using the new improved, and much more realistic benchmark, for-profit

institutions had the highest average three-year default rates at 22.7 percent, with public institutions following at 11

percent and private non-profit institutions at 7.5 percent. In other words, more than one in five federal student loans

used to fund private for-profit education, is now in default and will likely never be repaid!

And while it is impossible using historical data to extrapolate with precision what the current consolidated federal

student loan default rate is, we do know that there is now $914 billion in federal student loans (which also was

mysteriously revised over 50% higher by the Fed just a month ago). Using simple inference, all else equal (and all else

has certainly deteriorated), there is now at least $122 billion in federal student loan defaults and surging every day.

One can see why everyone in the Federal administration has been so reticent about disclosing the true state of the

Federally-funded student loan bubble. Because if one simply assumes the risingdefault rate has kept constant across

all recent cohorts since the updated 2009 number, it would mean broadly speaking, that of the $914 billion in

Federal Student Loans at least 13.4% will end up in default.

PAGE 9 http://www.imtgfinxpress.co.cc

Student Loans: The next subprime crisis?

September 30 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc

CAN YOU SOLVE IT? Match the following:

CARTOONS:

**Rush in your entries to : [email protected]

The right entries will get their name featured in the next issue of FinXpress. So hit the quiz fast & get yourself visible among 1000 odd in the campus.

Feel free to write to us at : [email protected]

Drop in your suggestions to the editorial team :

Magazine design/news : [email protected]

Articles/quiz : [email protected]

LAST WEEK’S ANSWERS

SET A

1) SABMiller Graham Mackay

2) Texas Instruments Richard Templeton

3) TATA Capital Praveen P Kadle

4) Deutsche Bank Anshu Jain

5) RBI Sir Osborne Smith

Winner: Nilesh Sonar

We are on the web !

http://www.facebook.com/FinNiche

http://www.imtgfinxpress.co.cc

Virginia House India Bulls

The Big Australian Haloid corporation

Y W Lee BHP Billiton

Sameer Gehlaut ITC

Xerox Bose Corporation