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Welcome to the world of Finance

I2B sessions
2015-17 Batch
financeclub@iimranchi.ac.in
https://www.facebook.com/FinClub.IIMRanchi

To be Covered

Financial Statements
Finance & Investment Basics
Economics
Important Events & Financial Crisis
Financial Ratios & Fundamental Analysis
Certifications (CFA, FRM, FLIP)
B-school and Corporate Sponsored Competitions

Financial Statements
Balance Sheet

Tells the financial condition of the firm at a point of time


There are three major accounts
Assets, Liabilities and Owners Equity
Assets

Liabilities

The valuable resources


that a company owns
Can be converted into
cash or will generate cash
in the future

The
resources
and
obligations that a company
owes to outside parties

Basic Accounting Equation


Assets = Liabilities + Owners Equity

+
Owners Equity
Money owed by the firm to
the owners of the firm

Financial Statements
Income Statement
Measures a company's financial performance over a specific accounting
period
Two major line items are Revenues and Expenses
It is also called Profit and Loss Statement or Revenue and Expense
Statement

Cash Flow Statement


Details about the cash inflows and outflows resulting from operating,
financing and investing activities of the firm
Consists of three parts
CFO :- Cash flows resulting from daily transactions involved in the
running of the business
CFI :- Cash flows from acquisition and disposal of long term assets
CFF :- Cash flows affecting the firms capital structure

Finance & Investment Basics


What is Equity?
Money owed by the firm to
the owners of the firm
Also called Share

What is Debt?
Debt is the money borrowed by the firm
It has a predetermined interest rate
and is to repaid

Which has higher required return? Equity or Debt?


Equity

Finance & Investment Basics


Mutual Fund
A Mutual Fund is a body corporate registered with SEBI that pools money
from individuals/corporate investors and invests the same in a variety of
different financial instruments
Types of Mutual Funds
Balanced Funds
Fixed Income Funds
Money Market Funds
Index Funds
Sector Funds

Finance & Investment Basics


Stock Index
An Index shows how a specified portfolio of share prices are moving in
order to give an indication of market trends. It is a basket of securities
and the average price movement
S&P BSE SENSEX
Also called Sensex
Consists of 30 Stocks
NIFTY 50
Commonly called Nifty
Consists of 50 Stocks

Other Indices
Sectoral Indices like CNX Bank,
CNX IT, CNX FMCG
Indices based on market
capitalization like CNX Small Cap,
CNX Mid Cap and CNX Large
Cap
Major International Indices
include NASDAQ, Dow Jones
Industrial Average, S&P 500,
NIKKEI

Finance & Investment Basics


Derivatives
Derivative is a product whose value is determined from the value of one
or more underlying asset
Types of Derivatives :

Forwards
Futures
Options
Swaps

Financial Markets
Primary Market
The primary market is where securities are created. It's in this market that
firms sell (float) new stocks and bonds to the public for the first time
IPO

FPO

Initial Public Offering is


when an unlisted company
makes either a fresh issue
of security or an offer for
sale
of
its
existing
securities to the public

Follow Public Offering is


when an unlisted company
makes either a fresh issue
of security or an offer for
sale
of
its
existing
securities to the public

Financial Markets
Secondary Market
The secondary market is what people are talking about when they refer to
the "stock market". This includes the BSE, NSE, New York Stock Exchange
(NYSE), NASDAQ and all major exchanges around the world
The defining characteristic of the secondary market is that investors trade
among themselves.

Finance & Investment Basics


What is GDP ?
The monetary value of all the finished goods and services produced
within a country's borders in a specific time period
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer spending, in a
nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports
minus total imports. (NX = Exports - Imports)

Finance & Investment Basics


Fiscal policy
Fiscal policy is the use of government expenditure and revenue
collection through taxation to influence the economic activity.
Monetary policy
With the help of monetary policy the Central banks (RBI) attempt to
stabilize the economy by controlling interest rates and spending.
Monetary policy comprises of various policy rates and reserve ratios.
Inflation
The rate at which the general level of prices for goods and services is
rising, and subsequently, purchasing power is falling. It represents
the loss of real value of money. The Central banks attempt to stop
severe inflation, along with severe deflation, in an attempt to keep
the
excessive growth of prices to a minimum.
Deflation
A general decline in prices, often caused by a reduction in the supply
of money or credit. Deflation can be caused also by a decrease in
government, personal or investment spending.

Finance & Investment Basics


Cash Reserve Ratio
The Cash Reserve Ratio (CRR) refers to the liquid cash that banks have to
maintain with the RBI as a certain percentage of their demand and time
liabilities. For example if the CRR is 4% then a bank with net demand and time
deposits of Rs. 1,00,000 will have to deposit Rs. 4,000 with the RBI as liquid
cash.
Repo Rate
The rate at which the RBI lends money to commercial banks is called repo
rate, a short term for repurchase agreement. Current Rate 7.25%

Reverse Repo Rate


Reverse repo rate is the rate at which the RBI borrows money from commercial
banks. Banks are always happy to lend money to the RBI since their money is
in safe hands with a good interest. Current Rate 6.25%

Statutory Liquidity Ratio


Statutory Liquidity Ratio (SLR) is the percentage of its deposits in the form of
cash, gold or approved securities that a bank has to maintain with the RBI.
This requirement is known as SLR Current Rate 21.5%

Marginal Standing Faculty


MSF is a very short term borrowing scheme for scheduled commercial banks.
Banks may borrow funds through MSF during severe cash shortage or acute
shortage of liquidity. Current Rate=8.25%

Finance & Investment Basics


Foreign Direct Investment (FDI)
An investment made by a company or entity based in one country,
into a company or entity based in another country
Foreign direct investments differ substantially from indirect
investments such as portfolio flows, wherein overseas institutions
invest in equities listed on a nation's stock exchange
Open economies with skilled workforces and good growth prospects
tend to attract larger amounts of foreign direct investment than
closed, highly regulated economies

Foreign Direct Investment (FII)

An investor or investment fund that is from or registered in a


country outside of the one in which it is currently investing.
Institutional investors include hedge funds, insurance companies,
pension funds and mutual funds
International institutional investors must register with the Securities
and Exchange Board of India to participate in the market. One of the
major market regulations pertaining to FIIs involves placing limits on
FII ownership in Indian companies

Important Events in the field of


Finance

1997-Asian
Crisis

The Great Depression (1929)


1. Stock Market Crash of 1929
2. Bank Failures
3. Reduction in Purchasing Across
the Board
4. American Economic Policy with
Europe
5. Drought Conditions

The Great Depression (1929)

1991 Liberalization of Indian Economy


1991was the year of perfect storm.This triple crisis brought India on its
knees.
On the one end, our primary buyer(Soviet Union) is gone.
On the other hand, our primary sellers were in war(West Asia).
In the middle, our production was effectively stopped by political crisis.
In return for the interim loan of $3.9 billion (a huge sum for India then) we
took 67 tons of our gold in two planes - one to London and other to
Switzerland to get this assistance

1997 South Asian Crisis


What went wrong? Were these countries the victims of their own success?
A buildup of overheating pressures, evident in large external deficits and
inflated property and stock market values
The prolonged maintenance of pegged exchange rates at unsustainable
levels

Sub-prime crisis (2008)


What is Subprime Mortgage?
Why Banks Want Subprime Mortgage?
What happens to subprime borrowers?
When and Why Crisis Happens?

Sub-prime crisis -2008

Euro Sovereign Debt crisis (2012)


How did this happen?
Borrowed too much! What now?
So why is the future of the Euro in question?
The role of Banks?

Euro Sovereign Debt crisis- 2012

2013 Indian Rupee Crisis


Quantitative Easing and Tapering
From Capital Glut to Capital Flight
Forex Swap Window for OMCs
Swap windows FCNR (B) deposits and overseas borrowings by
banks
The central bank also allowed banks to borrow up to 100% of
their equity capital from overseas

Certifications
CFA (Chartered Financial Analyst)
The CFA charter is a qualification for finance and investment professionals,
particularly in the fields of investment management and financial analysis of
stocks, bonds and their derivative assets
The program focuses on portfolio management and financial analysis, and
provides a generalist knowledge of other areas of finance
The program includes a series of three exams Level I , II and III
Level I takes place twice a year in June and December
Level II and III takes place once a year in June.

Certifications
CFA (Chartered Financial Analyst)
Topics covered in CFA :Ethics and Professional Standards
Quantitative Methods
Economics
Financial Reporting and Analysis
Corporate Finance
Alternative Investments
Portfolio Management
Derivatives
Equity
Fixed Income

Certifications
FRM (Financial Risk Management)
The FRM is a qualification for risk management professionals, particularly
those who are involved in analyzing, controlling, or assessing potential credit
risk, market risk, and liquidity risk as well as non-market related financial risks.
This includes a series of two parts FRM Part 1 and Part 2
Both the exams take place twice in a year May and November
Topics covered in FRM :

Capital Asset Pricing Model


Quantitative Analysis
Derivatives Forwards, Futures, Options, Swaps
Bonds, VaR ( Value at Risk)

Thank
You
Akanksha Gupta
7858016147
Alapati Mahesh
Amaresh Krishna

+91+91-9703148254
+91-9425589418

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