financial instruments ppt

7/28/2019 Financial Instruments PPT

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Financial Instruments

By : Akshay anand

FM 2, Sem - 3



• Equity Shares• Preference Shares

• Debentures

•

Treasury bills• Commercial Paper

• Certificate of Deposits

• Commercial bills

• Derivatives

• Mutual funds

• Government securities

Major Financial Instruments



• It is issued by RBI on behalf of GOI to raise short-termfinance.

• Most important segment of money market.

• They are negotiable securities.

• They are issued at discount.

• They are negotiable securities.

• No default risk

• On-tap bill, ad hoc bill, auctioned bill• Multiple price / uniform price auction

Treasury bills



• It is issued by corporate, primary dealers and FI atdiscount.

• Minimum rating is required to issue CPs.

• It can be issued from 7 days to 1 year.

• It is issued in the multiple of Rs. 5 lakhs.

• It can be issued as a promissory note or in the dematform.

• Underwriting is not permitted in CPs.• It is also issued at a discount as T-bill.

Commercial paper



Types of bills Demand bill

Usance bill

Clean bill

Documentary bill

Inland bill

Foreign bill

Bill Market in India has remained under-developed.

Commercial bills



• CDs are short-term bearer instruments issued banksand DFIs.

• Differences between CDs and FDs.

• Minimum amount of CD is Rs. 1 lakh and multiple of Rs. 1 lakh thereafter.

• Banks can issue CD from 7 days to 1 year.

• CDs can be issued at discount.

• Physical CDs are freely transferable by endorsementand delivery

Certificate of Deposit



Banks / FIs can not grant loan against CDs. Investor can hold CDs in physical form or demat form.

Security aspect of CDs.

Repayment on maturity.

Certificate of Deposit



Derivatives means the value of which is derived fromthe underlying asset.

Underlying asset can be equity, foreign exchange,interest bearing financial asset, commodities.

It is a tool for financial risk management.

There are four major types of derivatives: forward,future, option and swaps.

Derivatives



It is the simplest and oldest type of derivative. It is a contract between two parties to buy and sell an

asset at future date at agreed price.

Each contract is custom design.

They are bilateral contracts so they are exposed tocounter party risk.

Forward



It is an agreement in which a buyer has a right ( notobligation) to buy or sell an asset at a set price.

The buyer pays the premium to seller for having theoption.

There are two types of option : Call option and Putoption.

Options are generally European or American.

Option



It is a derivative where two parties exchange on streamof cash flow against another.

There are mainly interest rate swaps and currency swaps.

Swaps

financial instruments ppt

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