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Welcome to the world of Finance!I2B sessions2015-17 Batch

Financial Statements

Finance & Investment Basics

Economics

Important Events & Financial Crisis

Financial Ratios & Fundamental Analysis

Certifications (CFA, FRM, FLIP)

B-school and Corporate Sponsored CompetitionsTo be Covered

Financial StatementsBalance Sheet Tells the financial condition of the firm at a point of timeThere are three major accounts Assets, Liabilities and Owners Equity Assets

The valuable resources that a company ownsCan be converted into cash or will generate cash in the future

Liabilities

The resources and obligations that a company owes to outside partiesOwners Equity

Money owed by the firm to the owners of the firm=+Basic Accounting EquationAssets = Liabilities + Owners Equity

Financial StatementsIncome Statement

Measures a company's financial performance over a specific accounting periodTwo major line items are Revenues and ExpensesIt 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 firmConsists of three partsCFO :- Cash flows resulting from daily transactions involved in the running of the businessCFI :- Cash flows from acquisition and disposal of long term assetsCFF :- Cash flows affecting the firms capital structure

Finance & Investment BasicsWhat is Equity?Money owed by the firm to the owners of the firm

Also called ShareWhat 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 BasicsMutual FundA 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 BasicsStock IndexAn 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 SENSEXAlso called SensexConsists of 30 Stocks

NIFTY 50Commonly called NiftyConsists of 50 Stocks

Other Indices

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

Finance & Investment BasicsDerivativesDerivative is a product whose value is determined from the value of one or more underlying asset

Types of Derivatives :-

ForwardsFuturesOptionsSwaps

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 timeIPO

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

FPO

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 BasicsWhat 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 BasicsFiscal policy is the use of government expenditure and revenue collection through taxation to influence the economic activity.Fiscal policyMonetary policyWith 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.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.

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.

InflationDeflation

Finance & Investment BasicsThe 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 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%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.

Cash Reserve RatioRepo RateReverse Repo RateStatutory Liquidity RatioStatutory 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 BasicsForeign 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 fundsInternational 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 Finance1997-Asian Crisis

The Great Depression (1929)Stock Market Crash of 1929Bank FailuresReduction in Purchasing Across the BoardAmerican Economic Policy with EuropeDrought Conditions

The Great Depression (1929)

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 assistance1991 Liberalization of Indian Economy

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 valuesThe prolonged maintenance of pegged exchange rates at unsustainable levels1997 South Asian Crisis

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

Sub-prime crisis (2008)

Sub-prime crisis -2008

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)

Euro Sovereign Debt crisis- 2012

2013 Indian Rupee CrisisQuantitative Easing and Tapering

From Capital Glut to Capital Flight

Forex Swap Window for OMCsSwap windows FCNR (B) deposits and overseas borrowings by banksThe central bank also allowed banks to borrow up to 100% of their equity capital from overseas

CertificationsCFA (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.

CertificationsCFA (Chartered Financial Analyst) Topics covered in CFA :-

Ethics and Professional StandardsQuantitative MethodsEconomicsFinancial Reporting and AnalysisCorporate FinanceAlternative InvestmentsPortfolio ManagementDerivativesEquity Fixed Income

CertificationsFRM (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 ModelQuantitative AnalysisDerivatives Forwards, Futures, Options, Swaps Bonds, VaR ( Value at Risk)

Thank YouAkanksha Gupta +91-7858016147Alapati Mahesh +91-9703148254Amaresh Krishna +91-9425589418