Thursday, September 4, 2008

What are the risks involved in stock investing?

Everyone wanted to make quick money out of stock markets and very badly wanted good stock picks that would generate triple digit returns but WAIT, 1. Are you aware of risks involved in stock market investing? 2. Have you calculated the amount of risk that you can take? 3. Are u choosing the stocks that matches your scale of risk? One should find answers to the above questions, before placing a buy order with his/her broker.Let us go through the various risks associated with stock market investing. Financial Risk

The investor can lose his/her money when the financials of the company in which he has invested is not performing well. If an investor invests in a company and if the company's profit keep declining yoy, then investor is holding the risk of losing her money because the company's share price will keep moving downwards. So before choosing a company to invest, do a thorough analysis of the financials of the company. Interest Rate Risk

Lets assume an investors goes for fixed depost at the rate of 8%. When the interest rate scenario changes, the

interest rate in the market can move to say 10%, then you stand to lose the extra 2% gained in new fresh deposits. Interest rate also affects equity investment,how? . Companies borrow funds from banks, financial institutions for capital expansion. When the lending rate increases, companies bottom line(profit) is hit and hence it affects the share price of the company. Market Risk

The investment can be influenced by market volatitlity in the short to medium term.The markets sentiment is driven by lots of factors - like global cues,economic data etc. When the entire market is moving down, your stock will also most likely move down and affect your return on investment. Inflation Risk

In terms of investment, one should always look for inflation adjusted return for true evaluation. If your investment fetches you 10% per annum and the inflation is 12% per annum, then you are losing your money and your investment is giving negative returns.So inflation has a bigger impact in investments. Poitical Risk

The market mood is influenced by the political climate in the country. When a govt changes,the market will be in a jittery mood to know if the new govt will be industry friendly or not.The major economic policy of a country is framed by the ruling government and hence it has a

bigger say in market and hence your investments. Emotional Risk

Investors usually get into the trap of three emotions while investing. Greed,Fear,Love.They have a greed to make most of the money in a short period of time. They fear to enter markets when market is in a deep bear run. They keep investing in a stock though it is moving down just because they have a mad love for that stock. In investment, emotions should not rule over intelligence. So, take into account all these risks before investing in stock markets.

Why Invest In Gold?

Why should you invest in gold? As you will find throughout this tutorial, gold the list:
1. Growing Global Demand.

offers

great

number of benefits. However, these three reasons to invest in gold top

Despite the worldwide economic slowdown, the huge emerging economies of China and India are consuming ever greater quantities of gold and for silver. these Consequently, precious metals the is demand

experiencing explosive growth, which in turn drives up their price. These economies are only in their infancy, promising that this trend will continue into the foreseeable future.
2. Not Linked to Currency.

Our national debt is already several times our Gross Domestic Product (GDP) and has severely weakened the dollar, which is not backed by any tangible asset. While the value of paper assets is tightly linked to that of the dollar, the value of a gold investment is independent and universal.
3. Invest In Gold to Counter Declining Stocks.

Although US interest rates are at historic lows, eventually the government will be forced to raise them to counter inflation. As interest rates go up, so does the cost of money. The higher cost of money means corporations have less money to invest, driving down the value of stocks and bonds. History shows us that the value of gold always reacts to counter the declining value of stocks and bonds. In Other Words. This is what of the head of the Household Trading Division had to say when asked why it is necessary and

prudent to invest in gold: Leading my answers as to "why invest in gold" is that I love America and its citizens, but our political system has caused many problems for the national economy over the years. These problems are due to trillions of American taxpayer dollars that have been put into a failing financial system. Invest in gold because it could safeguard you and preserve your wealth during difficult economic times. Its also been historically proven to make profit for investors when mainstream investing is at a standstill. These are my personal reasons as to why one should invest in precious metals and it drives my days and nights knowing that my staff and I have the ability to help the citizens of the United States cement their financial strength with gold. Call and speak

to myself or one of our friendly experts today by calling 1-800-3000715.

Types of Gold Investments

The two most common types of gold investment are those in modern bullion products and certified rare gold coins. Because of their small size, investors can take physical possession of these assets; secure storage requires no more than a safe deposit box. Both of these products should be powerful weapons in any gold investment strategy. Whether it is to be for short or long term investment may determine which product is right for you.
Modern Gold Bullion Products the vehicle of choice for shortterm gold investment

Modern gold bullion is available in two convenient forms: bars and coins. Each comes in a variety of common weights bars from 1 gram to 400 ounces, and coins from 1/10 ounce to 1 ounce. Recently coins weighing as little as 1/20 ounce and as much as one kilogram have been introduced as well. Gold bullion coins are legal tender struck and guaranteed by government mints, giving them instant liquidity worldwide. Gold bullion bars that are struck and guaranteed by certain prominent private sector companies in particular Credit Suisse and Johnson Matthey are equally liquid. Because the purchase premium on bullion products is very low, their value closely follows the spot price of gold. Low premiums, superior liquidity, and high profitability make modern bullion products the ideal short-term gold investment.
Certified Rare Gold Coins the vehicle of choice for long-term gold investment.

Since the advent of third party coin grading and certifying services in the late 1980s, rare coins have become a viable and profitable vehicle for long-term gold investment. Today, thanks to highly reputable firms such as NGC and PCGS, trade of rare gold coins is commonplace. Rare gold coins along with a label bearing the certification information are encapsulated in a tamper evident package. This packaging provides both protection for the coin and a secure permanent record of its assessment. Both NGC and PCGS also guarantee their coins for authenticity and grade, and both maintain broad networks of authorized dealers where their respective coins are instantly accepted. The value of Certified Gold Coins is enhanced and stabilized by their worth to collectors. This rarity premium, which will only increase as more investors enter the market, can easily exceed their higher purchase premium. Also, because of their status as collectibles, Certified Gold Coins are not subject to potential government confiscation. Superior long-term stability, value as collectibles, and immunity from confiscation make Certified Coins the ideal long-term gold investment.
The Exchange For All Your Needs

Whether you are a licensed dealer, investment fund manager, or household investor, has the resources, expertise, and clout to make your gold investments painless and profitable. Our noncommissioned certified gold specialists are here solely to assist you in making the optimal long or short term investment for your specific goals and needs. They will answer all of your questions and guide you to relevant research until you fully understand the investment you are

planning to make. Whenever you need accurate information fast, just call us at 1-800-300-0715.

Risk Involved in Investing

A) Concept of Risk

Risk pertains to a probability of earning lesser return than expectations. It is a probability of loss due to unforeseen reasons. There is an opportunity cost which is involved in every investment. It has been said theoretically, that there is no risk involved in Bank FD's, but if we see practically there is some risk; what will happen if bank becomes bankrupt? So risk is associated with each and every investment. B) Strategies Adopted by Investors

There are basically three strategies that have been adopted by investors while making investments:1. LOW RISK STRATEGY

These are adopted by long term investors who want to have minimum or least risk in investments. For this investor may invest in Bank FD's, Government Securities, Provident Fund, Post office Schemes or can invest in Mutual Funds of low risk category i.e. in Balanced Mutual Fund category. 2. MEDIUM RISK STRATEGY

These are meant for medium term investors who are

investing for medium time period and are ready to bear little bit higher risk to have more returns in comparison to investors opting for low risk strategy. Investor; for this can invest in equity based Mutual Funds like Diversified Mutual Fund schemes. Investor can go for Gold ETF Schemes, SIP (Systematic Investment Plan) schemes for investment purpose. Risk and return are commensurate and go hand in hand. 3. HIGH RISK STRATEGY

Investors having ambitious financial goals are lured by higher risk strategy. In this investor invests for short period of time that is they invest in share market and do trading of stocks which is very risky investment. Investors do investment based on opportunity that is they revise their portfolio, if they seek opportunity or higher return in other securities for a time period. For this, investor can go for investment in individual stocks or in sectoral Mutual Funds schemes. C) 1. TYPES SYSTEMATIC OF RISK RISK

Those risks which are inherent in nature and are not controllable. These are non- diversifiable risks. This type of risk affects everyone because of raw happenings in the economy of country and world. 2. UNSYSTEMATIC RISK

Risks which are controllable and are not market specific and are diversifiable i.e. risk can be diversified by doing investment in varied securities.

The relation between systematic and unsystematic risk can be clear with the help of following graph:-

Explanation:It has been said that, "Don't put all your eggs in one basket". So, the same has been followed here that is firstly, we see in initial stage, the risk falls steeply as we increase no. of securities in portfolio but gradually rate of fall in risk reduces and finally becomes flat due to uncontrollable factor, no matter how much securities are invested in profit. D) 1. REASONS FOR POLITICAL SYSTEMATIC RISK

CONDITIONS

When political conditions are adverse and thus create an adverse situation for an economy like what is happening nowadays, "Anna Hazare Protest for Lokpal Bill". 2. SLOWDOWN

Presently, global slowdown is hurting stocks, economy worldwide. As, it depends on the nature of policies of one country with respect to other i.e. how much one country has opened gates for other country in terms of trade. If large gates are opened than economy will be affected, if anything bad happens to another country economy with

whom 3.

trade RISE IN

is

being INTEREST

done. RATES

When interest rates increases then also economy becomes uncontrollable as investor prefer less to take loans and if they don't take loans then they can't do investing or if so also do investing, risk will not be controlled and returns remains risky. 4. RISE IN INFLATION

With the rise of inflation, purchase power will be decreased and everything will be costly like what is happening today as India's inflation rate is over 9% but 5-6% is the desired level of inflation rate for the developing economy. E) 1. REASONS FOR INDUSTRY UNSYSTEMATIC RISK SPECIFIC

At a particular point of time, particular industry may not do well so this will impact all the concerned companies. Like, Sugar Industry is suffering a lot due to Government interference and prices of the same have also been influenced by government policies. During this situation, risk can be avoided by taking less exposure in that particular industry and explore other non-risky or less risky industries for investment. 2. COMPANY SPECIFIC

It pertains to company's situation. An industry may be doing well but it is not necessary that company will also

do well. Like, quality problem was found once with Ranbaxy but it was not the case with Cipla. So, these risks are company risks. F) 1. MEASURES STANDARD OF RISK DEVIATION

It quantifies the degree to which returns fluctuates around their average, a higher value of standard deviation means higher risk. It determines the volatility of funds. High standard deviation implies high volatility and low standard deviation implies low volatility. 2. BETA ANALYSIS

It is used to measure the risk. It basically indicates the level of volatility associated with the fund as compared to the market. Higher the beta, higher the risk. It keeps on changing from time to time. 3. VAR(VALUE AT RISK)

Maximum loss a share is likely to have on a typical trading day. It shows that over a time period what is the highest of probabilities to lose money. It is a popular measure. Higher the VAR more is the risk. Margin for trading = VAR rate + Additional Volatility Margin VAR rate is determined on the basis of historical data. Volatility margin is the additional margin for safety purpose.

G) This 1. ensures

RISK how Lesser the risk can risky

MANAGEMENT be minimized. assets

Investor to minimize risk should invest in assets which are less risky. They can invest in Mutual Funds to ensure less risk. 2. Diversify

The best thing to minimize risk is to do diversification of securities for investment purpose. This can be done in two ways:a) b) Security/Asset Time Diversification Diversification

Investment can be made in multiple assets/securities. An investor can go for regular and long term investment, as even in the case of worst situation, one will be getting stable returns. 3. Monitor portfolio periodically

An investor has to monitor the shares/portfolio periodically to find out if investments are performing as desired. Monitoring also helps to avoid any unpleasant situation. 4. Take risk that you can afford

Bear the risk that can be afforded and can be managed. It should be done keeping in mind all situations and risk

and

socio-economic

profile

of

an

investor.

So, in this way risk can be minimized and losses can also be avoided. As, opportunities in world of investments keep on increasing and decision making gets complex, specialized knowledge is a pre-requisite. At the time of writing this article Sensex is at 16000 level while Gold price has dropped by almost 5% indicating the relevance of risk in investment. This article focuses on concept, types and management of risk.

Investment banking
From Wikipedia, the free encyclopedia

Banking
A series on Financial services

Types of banks[show]
Bank accounts[show]

Bank cards[show]

Electronic funds transfer[show] Banking terms[show] Finance series[show]

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (October
2010)
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (GlassSteagall Act) until 1999 (GrammLeachBliley Act), the United States maintained a separation between investment banking and commercial banks. Other industrialized countries, includingG8 countries, have historically not maintained such a separation. There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) constitutes the "buy side". Many firms have buy and sell side components. An investment bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information.

Are you facing any difficulty while studying this course material? Have you been able to

comprehend the lessons you have studied so far? If not, please feel free to write to National Institute of Open Schooling (NIOS) about your specific problems. The NIOS will definitely find out a solution to your problem. But the question is how will you convey your problems? In the previous lesson, you learnt about various means of communication. By using any of those means you can communicate with us. In that lesson, you also learnt that letters are very common and convenient means of written communication. If you write a letter to us, then how will it reach us? Who will bring it to us? Well, it is the post office, which will do it. It acts as a middleman between the sender and the receiver. The sender posts the letter at the post office and the post office takes all necessary steps to deliver the letter to the person concerned. In addition to this, the post office also performs some other services. In this lesson we shall learn more about various services offered by the post office. 13.1 Objectives After studying this lesson, you will be able to: ! explain the meaning and nature of postal services; ! state various services provided by postal department; ! describe the importance of postal services; and ! recognise the role of private courier services.

Bank is an important organ of the modern trade and commerce. Banks in India are regulated by the Banking Regulation Act, 1949. The banking activities in India are regulated by the Banking

Regulations Act, 1949. Under Section 5(b) of the said Act Banking means, the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on

demand or otherwise, and withdrawal by cheque, draft, order or otherwise. Any bank which transacts this business in India is called a banking company. However, any company which

is engaged in the manufacturer of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as manufacturer or

trader shall not be deemed to transact the business of banking. It may be mentioned that the Banking Regulation Act, 1949 is not applicable to a primary agricultural society, a cooperative land

mortgage bank and any other cooperative society except in the manner and to the extent specified in Part V of the Act. Some banks are included in the Second Schedule to the Reserve Bank of

India Act, 1934; these are called Scheduled Banks. The Reserve Bank includes a bank in this schedule if itfulfils certain conditions. The Reserve Bank gives certain facilities to scheduled banks

including the following: (a) The purchase, sale, and re-discounting of certain bills of exchange, or promissory notes; (b) Purchase and sale of foreign exchange; (c) Purchase, sale and

re-discounting of foreign bills of exchange; (d) Making of loans and advances to scheduled banks; (e) Maintenance of accounts of the scheduled bank in its banking department and

issue department; (f) Remittance of money between different branches of scheduled banks through the offices, branches or agencies of Reserve Bank free of cost or at nominal rates. Section 6 of the

Banking Regulation Act, 1949 specifies the forms of business in which a banking company may engage. These are : (i) borrowing, raising or taking up of money; lending or advancing of money; drawing,

making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, etc.; (ii) acting as agents for any government or local authority or any other person;

(iii) directing for public and private loans and negotiating and issuing the same; (iv) effecting, insuring, guaranteeing, under-writing, participating in managing and

carrying out of any issue of shares, stock, debentures etc.; (v) carrying on and transacting every kind of guarantee and indemnity business; (vi) managing, selling and realising property which may

come into the possession of the banking company in satisfaction of its claim; (vii) acquiring and holding and generally dealing with any property or any right, title or interest in such

property which may form the security for any loans and advances; (viii) underwriting and executing trusts; (ix) establishing and supporting or aiding in the establishment and support of

institutions, funds, trusts etc. (x) acquisition, construction, maintenance and alteration of any building and works necessary for the purpose of the banking company; (xi) selling,

improving, managing, developing, exchanging, leasing, mortgaging, depositing of or turning into account or otherwise dealing with all or any part of the property and

rights of the company;(xii) acquiring and undertaking whole or any part of the business of any person or company; (xiii) doing all such other things as are incidental or conductive to the

promotion or advancement of the business of the banking company; (xiv) any other business which the Central Government may specify by notification in the Official Gazette. No banking company

shall engage in any form of business other than those referred to above.
13.2 Meaning of Postal Service You must have been to a Post Office. What did you do there? You may have purchasedBusiness Studies 136 stamps or posted a letter. Sometimes, you may also have sent money or parcels, or you may have deposited your savings in the post office. The services of carrying letters and parcels, arranging remittance of money, accepting deposits of money, etc. are the various services offered by the post office, which the public can avail of. All these services are known as postal services