financial securities and derivatives
TRANSCRIPT
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Raga -1010635
Prakruthi-1010657Swati-1010663
Madhurya-1010671
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A financial instrument is a tradable asset of any kind;either cash, evidence of an ownership interest in anentity, or a contractual right to receive or deliver cashor another financial instrument.
Cash instruments are financial instruments whosevalue is determined directly by the markets. They canbe divided into securities, which are readilytransferable, and other cash instruments such as loansand deposits, where both borrower and lender have toagree on a transfer.
Derivative instruments are financial instrumentswhich derive their value from the value andcharacteristics of one or more underlying entities suchas an asset, index, or interest rate. They can be divided
into exchange-traded derivatives and over-the-counter (OTC) derivatives.
http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Depositshttp://en.wikipedia.org/wiki/Loanshttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Market -
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Altering the terms of
issue in a novel way inorder to achieve the
predetermined purpose
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Different Type of Credit Control and Macro-level Liquidity Management
Matching Cash Flow Requirement of the Fund
Raiser
Satisfying other Objectives like RetainingManagement Control
More Effective Catering to the Needs of theInvestors
Better Treasury Managment
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Liquidity Adjustment Facility (LAF)
{Repo and Reverse Repo}
Collateralized Borrowing & LendingObligations (CBLO)
Market Stabilisation Scheme (MSS)
Perpetual Bonds or Innovative Bonds
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Repo and Reverse Repo as part of LAF since
2000
Designed to form the Interest Rate Platform
within which all short-term interest rates will lie
Together with CRR, it has become an effective
short-term liquidity management tool
Needed to manage the unexpected movementof funds into and out of the country due to
Hedge Funds and Others
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Introduced by CCIL in 2003A Wider Call Money Market
Participation by Pledging specified securitieswith CCIL
Participation by NBFCs and Corporate alsoapart from usual Call Money Market Players
One Day or more
Better Treasury Management by CorporateBetter Profitability of Banks
Cheaper Market than Call Money Market
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Launched in 2004 through an MOU between RBIand the Central Government
Part of a Longer Period Sterilisation of Market
Managing Liquidity Problems arising out ofForex Remittances
RBI to issue after consultation with Government
Sale of Treasury Bills and Dated Securitiesthrough Auction
Better Fiscal Accountability as they are issuedagainst cash maintained by the Government
with RBI
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Introduced in 2005
Issued by Scheduled Commercial Bankss
15 year Tenure with a Roll on forever at theoption of the Bank
Part of Tier I Capital of Banks
Enabling the Banks to meet Basel Norm
regarding Capital Adequacy Ratio
Insurance Companies are usually theinvestors
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Bonus Debenture
Zero Coupon Bonds
FCCB
Multiple Option Bonds
Infrastructure Bonds
Commercial Paper
Certificate of Deposit
Forex BackedInfrastructure Bonds
Shares with DifferentialVoting Rights
Bonus Preference Shares
Time Share
Plantation Share
ADR/GDR
Shares withDisproportionate VotingRights
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Rewarding Shareholder by better TreasuryManagement
Hindustan Lever tried it in early 2000s
Avoiding a Blown-up equity capital base
Did not enthuse the investors much
Concept did not catch the fancy of the
market
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Interest in the form of discount on the facevalue of bonds
Cross Border Investment
Taxation benefit
Better Treasury Management sincepostponing the payment of interest on
redemptionWhere convertibility alone is the
consideration, saving of interest
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Provisions of FEMA
Convertibility is the cream
Cross Border InvestmentGained Popularity Recently
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Reliance Industries pioneered it in India
Appealing to Different Requirements ofInvestors for Income Planning
Flexibility in Tax Planning of Investors
Payment of Interest is staggered with variedoptions
Became Popular and adopted forInfrastructure Bonds also
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short-term security
Rated instrument
Issued by listed companies
Short-term source of finance for corporates
Banks and other corporates invest
SBI-DFHI tried to create a secondary market, butfailed
Securities are held until maturity
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Banks allowed to issue COD by RBI since 1989though US banks were issuing since 1961
Tapping large deposits of corporates and HNI
Tenure is short-term for 3 months to one year
Held until maturity
SBI-DFHI buys the CODs
No secondary market exists as SBI-DFHI isnot able to accumulate sufficient CODs
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In 2009, For the First time RBI invested with aprivate fund
The UK Subsidiary of India InfrastructureFinance Company Ltd issued the bonds
The RBI used its foreign exchange reserve toinvest in the bonds
Indian firms operating in foreign countriescan augment the resources by issuing suchbonds
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A product for the M&A era
Lesser Dilution of management control
Each share carrying fraction of a voteShare issued at a discount
Dividend is more than the dividend on the
normal sharesTata Motors issued in 2008 (one tenth of vote,
305 against 340 per share and 5% moredividend)-Gujarat NRE Coke in the same year
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In 2003, Sun Pharmaceuticals issued bonuspreference shares
Better cash management
Better than bonus debentures as there is nocompulsion of payment of interest
Did not enthuse the shareholders like the
bonus equity sharesDid not catch the fancy of the market
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Property sharing for a certain number of daysper year
Used by Resorts in Tourist DestinationsSterling Group and a few other organisations
tapped the market well
Fancy ruled only for a few years
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Came out with big fanfare
Promised fantastic returns in the distantfuture
Many gullible investors were taken for a ride
Least Liquid instrument
Only a few firms have a token presence
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Instruments issued to foreign investors in lieuof the shares deposited with a custodian inthe home country
Mainly to get the instruments of Instrumentsof Indian companies listed in foreign bourses
Enhanced the image of Indian companies and
added a global perspectiveContributed to the volatility of Indian Market
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New Companies Bill is doing away withshares with differential voting rights
In its place, shares with superior voting rightsare being proposed
Helping the promoters to ward off hostiletake-overs
Lacking fairness
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Creating a hype
Not a proper study is made before theintroduction
ComplexityComplexity leads to lack of correction of
wrong steps
IT enabled financial system enables excesseswhich endanger the very survival of the firm
Short term growth for higher managerialremuneration
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