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The financial services sector contributed 15 per cent to India's GDP in FY09, and is the second-largest component after

trade, hotels, transport and communication all combined together, as per the Banking & Finance Journal, released by an industry body in August 2010. Share of Financial services, banking, insurance and real estate sectors is expected to enhance by 9.7 per cent for the year 2009-10 to 17.2 per cent of GDP (at factor cost). Data sourced from SEBI shows that the number of registered FIIs stood at 1,738 and number of registered sub-accounts rose to 5,592 as of November 10, 2010. Overseas funds infused into Indian capital market in 2010 stood at US$ 39 billion. According to data released by Securities and Exchange Board of India (SEBI), stocks and debt securities over worth US$ 17.28 billion were purchased by the foreign institutional investors (FIIs) from the Indian capital market in January 2011. According to data available with SEBI, FIIs have made investments worth US$ 4.11 billion in equities and invested US$ 667.71 million into the debt market. The average assets under management of the mutual fund industry stood at US$ 147.99 billion for the quarter ended December 2010, according to the data released by Association of Mutual Funds in India (AMFI). As on January 21, 2011, India's foreign exchange reserves totaled US$ 299.39 billion, according to the Reserve Bank of India's (RBI) Weekly Statistical Supplement. According to Venture Intelligence, a research firm, private equity firms invested US$ 7,974 million over 325 deals in India during 2010, as against US$ 4,068 million (over 290 deals) in 2009. The largest investment reported during the year was the US$ 425 million raised by power generation firm Asian Genco from investors including General Atlantic, Goldman Sachs, Morgan Stanley, Everstone and Norwest. According to a global consultancy firm Ernst & Young (E&Y), sectors such as power and transportation, consumer and branded products, infrastructure ancillaries, education and financial services, and healthcare are likely to witness increased PE activity in 2011. Deals India Inc announced merger and acquisition (M&A) deals worth a record US$ 55 billion in 2010, including a record number of billion-dollar transactions. The number of mergers and acquisitions (M&A), private equity (PE) transactions and Qualified Institutional Placements (QIP) increased close to 40 per cent to US$ 3.23 billion in November 2010. Besides, there have been US$ 9 billion plus deals in 2010, the highest seen in any year. Fund-raising activity gained pace by almost 65 per cent in 2010 as compared to 2009. In real terms, 27 funds were able to raise US$ 13 billion as PE as against US$ 8 billion by 22 funds in 2009. There has also been a more than 80 per cent growth in PE and VC investments in India: 2010 witnessed 348 deals worth $8 billion, against 317 deals worth $4.4 billion in 2009, according to VCCedge data.

Stock markets Market capitalisation of India as a proportion of world market cap has risen to a record high. According to data sourced from Bloomberg, the country's market capitalisation as a proportion of the world market cap is currently 3.34 per cent. India's current market-cap is US$ 1.55 trillion as compared with world marketcap of US$ 46.5 trillion. This is higher than 3.12 per cent share India enjoyed at the market peak of January 2008. As analyzed by Venture Intelligence, private equity firms obtained exit routes for their investments in a record 121 companies during 2010, including 24 via IPOs. (2009 had witnessed 66 liquidity events including 7 via IPOs). PE-backed companies raised about US$ 2.20 billion via IPOs during 2010. Insurance The Indian Life Insurance industry is one on the strongest growing sectors in the country. Currently a US$ 41-billion industry, India is the fifth largest life insurance market and growing at a rapid pace of 3234 per cent annually. Currently, there are 22 life insurance companies operating in India, according to the Life Insurance Council (LIC). According to data released by the Insurance Regulatory and Development Authority (IRDA), insurance companies garnered US$ 11.73 billion in new business premium during April-August 2010, against US$ 6.90 billion in the corresponding period last year. Further, according to IRDA, in October 2010, life insurance companies collected first year premium worth US$ 542.19 million (individual single premium). For the period up to October 2010, total premium collected by life insurance companies was US$ 4.66 billion, as compared to US$ 2.39 billion collected in the same period of 2009 (individual single premium). The life insurance industry is expected to cross the US$ 66.8 billion total premium income mark in 201011. "This year, we are expecting a growth of 18 per cent in total premium income. If achieved, it is expected to cross the US$ 64.4 billion mark," said SB Mathur, Secretary General, Life Insurance Council. Total premium income, at US$ 56.04 billion, rose 18 per cent during 2009-10, against US$ 47.6 billion in the previous year. Banking services Significantly, on a year-on-year basis, bank credit grew by 24.4 per cent in 2010 as against RBIs projections of 20 per cent for the entire fiscal 2010-11. The Indian aviation industry has witnessed an impressive growth during the past few years, with major contribution from the civil aviation segment. The market has been strongly supported by the government and the private sector. Availability of skilled manpower along with favourable business environment will position India as one of the most attractive investment destinations in the coming years. It is currently the 9th largest market in the world. On the basis of strong market fundamentals, it is anticipated that the civil aviation market will register more than 16 per cent Compound Annual Growth Rate (CAGR) during 2010-2013. India is expected to be the fastest growing civil aviation market in the world by 2020 with about 420 million passengers being handled by the Indian airport system, according to the Economic Survey 2010-11.

The number of passengers carried by the domestic airlines during JanuaryFebruary 2011 was 9.51 million as against 7.95 million in the corresponding period in 2010, thereby registering a growth of 19.6 per cent, according to the latest data released by the Directorate General of Civil Aviation (DGCA). The domestic airlines registered a growth of almost 16 per cent year-on-year (y-o-y), carrying a record 5.2 million passengers in December 2010 as against 4.5 million passengers in December 2009. The domestic air passenger traffic grew by 19 percent in 2010, registering 51.53 million passengers as compared to 43.3 million in 2009, according to the Economic Survey 2010-11. In terms of market share, private carrier Kingfisher Airlines was the market leader with 19 per cent share, closely followed by Indigo with 18.7 per cent, Jet Airways with 18 per cent, Air India with 15.8 per cent, Spicejet with 13.8 per cent, JetLite with 8.1 per cent and GoAir with 6.6 per cent during the month of February 2011. Delhi's Indira Gandhi International (IGI) Airport has been handling the maximum number of flight movements per day. The airport handled an average of 741 flights each day between April and December 2010, followed by Mumbai's Chhatrapati Shivaji Termus (CST) Airport which handled 695 flights each day during the same period. Significantly, IGI has been rated the 14th best airport in the world in the Airports Council International's airport service quality survey for 2010. In the category of 25-40 million passengers per annum, the airport has been rated fourth. Investment Opportunities Leading aircraft manufacturers Airbus and Boeing have expressed optimism over the growth of the civil aviation industry in India. As per Airbus, the country would need 1,032 new aircrafts worth around US$ 138 billion by 2028. On a similar note, Boeing has also predicted that the sector would require 1,150 commercial jets worth US$ 135 billion in the next 20 years. The Hyderabad International Airport has been ranked amongst the world's top ten in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport - being managed by a public-private joint venture of the GMR Group, Malaysia Airports Holdings Berhad and the State Government of Andhra Pradesh along with the Airports Authority of India (AAI) - retained its top position in the category of airports. Timothy J Roemer, the US Ambassador to India has said that the US will work with the Indian government and the domestic private sector to make the country an aviation hub. Speaking at India Aviation 2010, Roemer said that the public-private initiative, US-India Aviation Programme, would work together with the DGCA on helicopter aviation security. The AAI is focusing its efforts towards modernisation of non-metro airports. AAI is planning the city-side development of 24 airports, including those at Ahmedabad and Amritsar. Additionally, 11 new greenfield airports have been identified to reduce passenger load on existing airports, according to Praveen Seth, member-operations, AAI. AAI also plans to spend around US$ 3.07

billion in the next five years for developing, upgrading and modernising metro and non-metro airports. With the growth in the industry, airport retailing has also gained pace in the recent times. Development of new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus to this segment. The highest margin earners in this segment are food and beverages, beauty products, electronic items, apparel etc. It has been predicted that airports would provide around 300,000-400,000 square feet retail space by 2015. Many companies are also planning to leverage on this growing segment by launching specific products for air travellers. For instance, French premium skincare brand L'Occitane is planning to develop a special range to cater to the airport retailing segment. The Indian aviation sector will grow by 18-20 per cent this year, according to aviation industry experts. Among airlines, national carrier Air India and low-cost airlines IndiGo and SpiceJet will add more than 1,000 aircrafts in 2011. Investment Policy The consolidated document on FDI policy was released on March 31, 2010. Currently, for the civil aviation sector (Airports):

FDI up to 100 per cent is allowed under the automatic route for greenfield projects. For existing projects, FDI up to 100 per cent is allowed; while investment up to 74 per cent under the automatic route and beyond 74 per cent under the government route. FDI up to 49 per cent is allowed in the domestic airlines sector under the automatic route, but not by of foreign airline companies.

Government initiatives

To create world class airports, the government has recognised the need for the involvement of private players in the development of airport infrastructure. Development of airports at Delhi and Mumbai has been taken up under Public Private Partnership (PPP) mode. The capital expenditure is funded through private equity, borrowings, and internal resources of joint venture companies. The development work of Mumbai airport is likely to be completed by 2012 whereas the work of a new terminal (Terminal 3) at Indira Gandhi International Airport at Delhi got completed in July 2010. The development work of Kolkata and Chennai International airport has been taken up by Airport Authority of India whereas Bangaluru and Hydrabad international airports have been developed on PPP mode as greenfield airports. The AAI has taken up the development of 35 non metro airports. As per the Economic Survey of 2010-11, out of 35 airports granted in 2006, 11 have been completed, while the remaining are under implementation. The survey also said that modernisation of Kolkata and Chennai airports was under way with the Airports Authority of India ( AAI) spending an estimated US$ 514.6 million and US$ 446 million, respectively. Both the projects are expected to be completed between May-October 2011. The adoption of Open Sky Policy has resulted in the entry of several new privately owned airlines and increased frequency / flights for international airlines.

Road Ahead Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion towards new aircraft and US$ 30 billion towards the development of airport infrastructure, according to the Investment Commission of India. State-owned carrier Air India plans to take a call soon on making Dublin airport in the Irish capital its new hub, after pulling out of Frankfurt in Germany. The talks between the Indian and Irish governments are at an advanced stage in this regard. Airports-to-infrastructure conglomerate GMR is setting up a 420 MW power plant of its own to meet the energy needs of IGI's Terminal 3, estimated to rise to 250 MW or 8-9 per cent of Delhi's current demand in a few years from now. Lufthansa Cargo and GMR group have signed an agreement to develop Rajiv Gandhi International Airport as a South Asian cargo hub, with focus on pharmaceutical exports. Kingfisher Airlines and American Airlines, both members of the Oneworld alliance, will begin their codeshare and frequent flyer arrangement in 2011, the two airlines have announced. Lockheed Martin Corp and Tata Advanced Systems, a wholly owned subsidiary of Tata Sons Ltd has announced the formation of a new joint venture company - Tata Lockheed Martin Aerostructures, for manufacturing aerostructures for the C-130 aircraft produced by Lockheed Martin GE Aviation has signed a 20-year engine maintenance agreement with Air India. The agreement covers the maintenance, repair and overhaul (MRO) of GE90 aircraft engines. India is poised to become the fastest growing market in the world for aircraft maintenance, repair and overhaul (MRO) services over the next decade tripling its worth to US$ 1.5 billion, as airline companies buy more planes to cater for the countrys rapidly growing traffic Russian-made civil helicopters operated in India will now have a service centre within the country. Russian Helicopters, part of United Industrial Corporation (UIC) Oboronprom and domestic company, Vectra Group, have formed a joint venture company Integrated Helicopter Services Pvt Ltd to start a maintenance, repair and overhaul (MRO) facility in the outskirts of Delhi. Exchange rate used: 1 USD = 45.18 INR (as in March 2011) Media and Entertainment (M&E) is one of the fastest growing sectors in India. The sector consists of creation, aggregation and distribution of content, products and services, news and information, advertising and entertainment through various channels and platforms. The industry is taking initiatives like regional content and distribution platforms (digital, nondigital and mobile) to enhance customer experience as well as monetize content. New technologies such as 3G, broadband and mobile infrastructure are also helping in propelling the growth rate.

The Indian economy grew at a faster pace in 2010 compared to 2009, which translated into more advertising as well consumer spending. This high growth rate will continue to remain in 2011 as well. The Indian advertising industry will grow by 17 per cent in calendar year 2011 and is expected to add about US$ 889 million to the existing ad pie worth US$ 5248 million, according to Pitch Madison Media Advertising Outlook 2011. This robust growth in advertising industry will benefit the M&E industry in 2011 as well. The entertainment industry in India is estimated at about US$ 9.4 billion in revenues in year 2010, which is expected to grow at a rate of 14.1 per cent to reach revenues of US$ 10.7 billion in 2011. Television The television industry is expected to grow by 12.9 per cent cumulatively over 2009-14. The maximum growth is slated to occur in 2010 (15.6 per cent), followed by 2012 (13 per cent), according to a report by PricewaterhouseCoopers (PwC). The television industry is expected to grow above 20 per cent in 2011. Two important cricket events - World Cup and the Indian Premier League (IPL) - are expected to boost the television advertising revenue. Cricket is expected to earn advertising revenue of US$ 405 million from its television telecast this year, up from US$ 337 million in 2010. The direct-to-home (DTH) market in India had 23.1 million active subscribers by the end of 2010, as per Media Partners Asia. This amounts to 16 per cent penetration of television homes in India. With advertisement revenues strengthening, M&E players are aggressively entering the television (TV) broadcasting space. Broadcasters have added 444 television channels in the last five years with over 100 channels getting added in 2010 alone. Last year saw the second highest additions of television channels in the decade after 2008 which saw a record permission for 152 channels. The Ministry of Information and Broadcasting has granted permission to 39 channels including nine high definition (HD) channels from Star India, ESPN and Sun TV network in December 2010 and January 2011. In the next twelve months, television's ad revenue is slated to grow by 20 per cent to add. The TV ad revenues will touch a total of US$ 2804.3 million) in 2011, according to Pitch Madison Media Advertising Outlook 2011. (as on March 2011) The report also projects that TV will remain the highest grosser of revenues in 2011 too. It is expected to corner 45.7 per cent of the total ad pie this year, a further rise from 44.5 per cent in 2010. Times Network, Sahara Group, Colors and newspaper company Matrubhumi are planning the launch of their new TV channels. AETN18 also received Foreign Investment Promotion Board (FIPB) approval for the launch of specialized channels in India. Reliance Broadcast has initiated a buyout of Turner-controlled Bollywood music channel Imagine Showbiz. Music

The music industry in India has always been dominated by film music, which contributes to 15 per cent of a films earning. The industry is expected to grow at a CAGR of 28.6 per cent over 2010-14, reaching US$ 567.6 million in 2014, reports PwC. With the advent of new technologies such as 2G and 3G, and incresing mobile penetration Indias music industry is scaling on a high note. Handset major Nokia launched its music store in India; Hungama announced the launch of two portals - Hungama.com and Artistaloud and Saregama too launched its music portal. Radio The Radio industry is now in the Phase III licensing stage which will take its station numbers to 700 from the current 250. In 2011, the radio industry is expected clock revenues of US$ 226 million, as per the Pitch Madison Media Advertising Outlook 2011. The radio advertising industry is projected to grow at a CAGR of 12.2 per cent over 2010-14, reaching US$ 342.7 million in 2014 from the present US$ 192.8 million in 2009, as per PwC. Cinema India is the largest film producing market in the world with over 1,000 films released every year and 3.7 billion tickets sold annually. The Indian film industry is set to top revenues of US$ 3.3 billion by 2010 as it rides new technologies and a booming economy set to expand at the rate of 18 percent per year. It is also one of the largest employment sectors in the country. The government of India gave the motion picture industry the status of an industry in 2001, making it easier for film producers to obtain institutional financing. According to PwC, the industry is projected to grow at a CAGR of 12.4 per cent, reaching US$ 3.65 billion in 2014 from US$ 2.03 billion in 2009. Advertising The Indian advertising industry will grow at 17 per cent to clock US$ 6136.2 million in 2011, reported by Pitch Madison Media Advertising Outlook 2011. The print media generated advertising revenue of US$ 2.2 billion, growing at 28 per cent compared to 2010; while television advertising generated US$ 2.34 billion, grabbing the biggest share of 44.5 per cent of the entire advertising pie. The Out Of Home (OOH) advertising medium grew by 27 per cent in 2010, commanding US$ 320 million of the total ad spends. Radio advertising too has grown by 30 per cent to become a US$ 199 million industry. Internet penetration in India reached an all time high with 50 million plus connections in 2010. As per Internet and Mobile Association of India (IAMAI), the total Online Advertising market of India is estimated at US$174 million for the year FY2009-10 and is expected to grow to US$220 million in year FY2010-11. The internet market is currently dominated by display ads and is

expected to remain so for the next year. Total Display advertising market of India in year 200910 is estimated at US$ 92.5 million and is expected to grow by 28 per cent to reach US$ 118 million in year 2010-11. Total text advertising market of India in year 2009-10 is estimated at US$ 81 million and is expected to grow by 25 per cent to reach US$ 102 million in year 201011. Banking, Financial Services and Insurance (BFSI), Travel and Online Publishers - the top three text advertisers of FY 10 are expected to continue to lead text based advertisers in FY11 as well. Theatre Midvalley Entertainment Ltd., a media and entertainment company, recently raised US 13.4 million through an IPO. The company has plans to invest US$ 3.3 million of the amount in screening agreements with 300 cinema theaters in Tamil Nadu, Andhra Pradesh and Karnataka, while US$ 5.8 million will be invested in the renovation and upgrade of cinema infrastructure with digital equipment and other related assets for select 100 screens in South India. Multiplex chain Cinemax plans to add 30 digital screens to its existing 105 screens across India in the next six to eight months, most of which will be located in western and southern states. The investments for the 30 screens will be in the tune of US$ 10 million. PVR Cinemas presently runs about 142 screens at 32 locations across 18 cities in India and plans to open another 80-100 screens in FY 12 in at least 27 cities, at an investment of US$ 2226 million. Digital Media The Information and Broadcasting (I&B) Ministry has accepted a proposal by Telecom Regulatory Authority of India (TRAI) to make broadcasting operations completely digital. The timeline decided for closing the analog cable distribution has been decided for March 2015. A report by ICRA states that the industry requires an investment of US$ 3.37 billion to go for the digital system. India is the third biggest Internet market, with over 100 million internet user base and the amount of time spent on the Internet for an average user in the country is 16 hours a week. According to Google estimates, 40 million users access Internet through mobile phones and download 30 million applications. Print and Publishing The newspaper market in India has grown at 13 per cent compound annual growth rate (CAGR) over the last five years to US$ 3.9 billion in 2010 will continue on its growth trajectory at an estimated CAGR of around 12 per cent between 2010 and 2013 to reach US$ 5.9 billion in 2013, according to Ernst & Young India,. As per the Indian Readership Survey (IRS) for the third quarter of 2010, conducted jointly by the Media Research Users Council (MRUC) along with research firm Hansa Research Group Pvt Ltd, Dainik Jagran, published by Jagran Prakashan, continues to be the most preferred newspaper in the country..

Amar Ujala, which launched an NCR edition in February 2011, is the No 4 newspaper according to IRS Q4, 2010. It has lost a marginal 125 thousand readers and its total readership is down from 29.7 million to 29.6 million. The No 1 Bengali daily, Anandabazar Patrika is at No 10. The Times of India, India's No 1 English daily, continues to be at No 11 with a total readership of 13.8 million. It had gained 114 thousand readers in Q3, 2010, while in the Q4, it has added 204 thousand readers. In Mumbai, the average issue readership (AIR) has grown from 6,06,000 to 6,27,000. Total Readership (TR) across all Hindustran Times editions have risen from 63,33,000 to 64,57,000. In Mumbai, the TR figures have increased to 9,73,000 from 9,43,000 in Q3. Foreign investment, including foreign direct investments (FDI) and investment by non-resident Indians (NRIs)/person of Indian origin (PIO)/foreign institutional investor (FII), up to 26 per cent, is permitted for publishing of newspapers and periodicals dealing with news and current affairs under the Government route. FDI policy for publication of Indian editions of foreign magazines dealing with news and current affairs is:

Foreign investment, including FDI and investment by NRIs/PIOs/FII, up to 26 per cent, is permitted under the Government route. 'Magazine', for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news. Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information and Broadcasting (I&B) on Publishing/printing of Scientific and Technical Magazines/specialty journals/ periodicals 100 per cent FDI is permitted under the Government route.

Publication of facsimile edition of foreign newspapers:

FDI up to 100 per cent is permitted under Government route in publication of facsimile edition of foreign newspapers provided the FDI is by the owner of the original foreign newspapers whose facsimile edition is proposed to be brought out in India Publication of facsimile edition of foreign newspapers can be undertaken only by an entity incorporated or registered in India under the provisions of the Companies Act, 1956 Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time.

Government Policies The Ministry of Information and Broadcasting (MIB) has set up a committee to assess the current rating system for television rating points (TRP) of TV programs and has expressed concern over this current system of evaluation. The MIB has recommended increasing the sample size and switching to a more scientific approach for accurate data.

It has also proposed an increase in the sample size from 8,000 homes to 15,000 urban and rural households over a period of two years. It further recommends that this figure should increase to 30,000 over the next three years, covering urban areas, rural areas and small towns as well as Jammu and Kashmir and the North-Eastern States, to provide complete geographical coverage of the country. Insurance is a federal subject in India. The insurance sector has gone through a number of phases and changes. Since 1999, when the government opened up the insurance sector by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government. Contents [hide]

1 History 2 Industry structure


2.1 Specialisation

3 Acts 4 Authorities 5 See also 6 References 7 External links [edit]History In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts has reference to marine trade loans and carriers' contracts. Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by anactuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business. The Government of India issued an Ordinance on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies. With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited. [edit]Industry structure Currently, a US$41 billion industry, India is the world's fifth largest life insurance market and growing at a rapid pace of 32-34% annually as per Life Insurance Council studies. Currently, in India only two million people (0.2 % of the total population of 1 billion) are covered under Mediclaim, whereas in developed nations like USA about 75 % of the total population are covered under some insurance scheme. With more and more private companies in the sector, the situation may change soon. [edit]Specialisation

ECGC, ESIC and AIC provide insurance services for niche markets. So, their scope is limited by legislation but enjoy special powers. [edit]Acts The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts. The Insurance Act of 1938[1] was the first legislation governing all forms of insurance to provide strict state control over insurance business. Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India.[2] The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.[3] Until 1999, there were not any private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby deregulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies. In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries. A minimum capital of US$20 million(Rs.100 Crore) is required by legislation to set up an insurance business. [edit]Authorities The industry recognises examinations conducted by IAI (for actuaries), III (for agents, brokers and third-party administrators) and IIISLA (for surveyors and loss assessors). TAC is the sole data repository for the non-life industry. IBAI gives voice for brokers while GI Council and LI Council are platforms for insurers. AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers.

In addition, there are a dozen Ombudsman offices to address client grievances. [edit]See also

List of insurance companies in India

IRDA controls all the Insurance business in India. They are setting structure and boundaries for the insurance companies to act upon. Starting from licensing to approving the products, IRDA directs the companies in India. They also protect customer interests in the country.

Insurance Institute of India [edit]References 1. ^ http://www.irdaindia.org/regulations/TheInsuranceAct1938er126042004.doc here 2. ^ History of Insurance in India, http://www.licindia.com/history.htm accessed on 29 April 2006 3. ^ Regulation of General Insurance in India, Insurance in India, accessed on 29 April 2006. CRM in insurance 4. Insurance Regulatory and Development Authority India 5. History of Insurance [edit]External links

Insurance Regulatory & Development Authority Life Insurance ^ [Birla Sun Life Insurance] http://www.insurance.birlasunlife.com

Health and Travel Insurance for International Traveller Categories: Insurance in India

A bank is a financial intermediary and appears in several related basic forms:

a central bank issues money on behalf of a government, and regulates the money supply a commercial bank accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses on the world's open financial markets.

a savings bank, also known as a building society in Britain is only allowed to borrow and save from members of a financial cooperative

Banks often start as microcredit or savings clubs which become formalized, first as credit unions and later savings banks which transform themselves from cooperatives to limited liability companies. A fuller description of these forms appears below. Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies. In Japan, banks are usually the nexus of a cross-share holding entity known as the keiretsu. In Iceland banks had very light regulation prior to the 2008 collapse. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, and has been operating continuously since 1472.[1] Contents [hide]

1 History

1.1 Origin of the word

2 Definition 3 Banking
o o o o

3.1 Standard activities 3.2 Channels 3.3 Business model 3.4 Products

3.4.1 Retail 3.4.2 Wholesale

4 Risk and capital 5 Banks in the economy

o o o

5.1 Economic functions 5.2 Bank crisis 5.3 Size of global banking industry

6 Regulation 7 Types of banks


7.1 Types of retail banks

o o o

7.2 Types of investment banks 7.3 Both combined 7.4 Other types of banks 8.1 United States 8.2 Competition for loanable funds 9.1 Brokered deposits

8 Challenges within the banking industry

o o

9 Accounting for bank accounts


10 Banking by country 11 See also 12 References 13 External links [edit]History Main article: History of banking Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Veniceand Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe.[2]Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397.[3] The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.[4] Banks can be traced back to ancient times even before money when temples were used to store commodities. During the 3rd century AD, banks inPersia and other territories in the Persian Sassanid Empire issued letters of credit known as akks.[citation needed] Muslim traders are known to have used the cheque or akk system since the time of Harun al-Rashid (9th century) of the Abbasid Caliphate. In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad,[5][verification needed] a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire.[citation

Fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably

similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent. [edit]Origin of the word

The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.[6] The earliest evidence of money-changing activity is depicted on a silver Greek drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza () means both a table and a bank. [edit]Definition The definition of a bank varies from country to country. See the relevant country page (below) for more information. Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:[7]

conducting current accounts for his customers paying cheques drawn on him, and collecting cheques for his customers.

Banco de Venezuela in Coro. In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organised or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

"banking business" means the business of either or both of the following: 1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period; 2. paying or collecting cheques drawn by or paid in by customers[8]

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.[9] [edit]Banking [edit]Standard activities

Large door to an old bank vault. Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM. Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by makinginstallment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too.[clarification needed] [edit]Channels Banks offer many different channels to access their banking and other services:

ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services. A branch is a retail location Call center Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using one's mobile phone to conduct banking transactions Online banking is a term used for performing transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses

Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via

a videoconference enabled bank branch. [edit]Business model A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers[citation needed]. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance. In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home).

However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards. This helps in making profit and facilitates economic development as a whole[citation needed]. [edit]Products

A former building society, now a modern retail bank in Leeds, West Yorkshire.

An interior of a branch of National Westminster Bank on Castle Street,Liverpool [edit]Retail

Business loan Cheque account Credit card Home loan Insurance advisor Mutual fund Personal loan

Savings account [edit]Wholesale

Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Revolving credit Risk management (FX, interest rates, commodities, derivatives)

Term loan [edit]Risk and capital Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include:

Credit risk: risk of loss[citation needed] arising from a borrower who does not make payments as promised. Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. Operational risk: risk arising from execution of a company's business functions.

The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset). [edit]Banks in the economy See also: Financial system [edit]Economic functions The economic functions of banks include: 1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.

2. Netting and settlement of payments banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 3. Credit intermediation banks borrow and lend back-to-back on their own account as middle men. 4. Credit quality improvement banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 5. Maturity transformation banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). [edit]Bank crisis Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals in excess of available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans). Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisisin the 2000s. [edit]Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalisation. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totalled $66.3bn in 2009, up 12% on the previous year.[10] The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).[citation needed] This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branchesmore than double the 15,000 branches in the UK.[10] [edit]Regulation Main article: Banking regulation See also: Basel II Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, being either a publicly or privately governed central bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank. Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customerdefined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank. 2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. 3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer. 4. The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account. 5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. 6. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank. 7. The bank must not disclose details of transactions through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. 8. The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bankcustomer relationship. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules. The requirements for the issue of a bank licence vary between jurisdictions but typically include: 1. Minimum capital 2. Minimum capital ratio 3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers 4. Approval of the bank's business plan as being sufficiently prudent and plausible. [edit]Types of banks Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking,

directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations. [edit]Types of retail banks

National Bank of the Republic, Salt Lake City 1908

ATM Al-Rajhi Bank

National Copper Bank, Salt Lake City 1911

Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.

Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners. Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.

Postal savings banks: savings banks associated with national postal systems. Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.[citation needed]

Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.

Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreachand by their socially responsible approach to business and society.

Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments. A Direct or Internet-Only bank is a banking operation without any physical bank branches,

conceived and implemented wholly with networked computers. [edit]Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.

Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather

than loans. Unlike venture capital firms, they tend not to invest in new companies. [edit]Both combined

Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided

by the same corporate entity. [edit]Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.

Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must

avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers. [edit]Challenges within the banking industry

[edit]United States Main article: Banking in the United States In the United States, the banking industry is a highly regulated industry with detailed and focused regulators. All banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations,[clarification needed] the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks; and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulatorthe OCC. Qualified Intermediaries & Exchange Accommodators are regulated by MAIC. Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing. In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS, MAIC and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the

recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders. The management of the banks asset portfolios also remains a challenge in todays economic environment. Loans are a banks primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of good times. The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs. Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc. As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and MAIC trust & Securities Clearing services tradingand become big players in such activities. [edit]Competition for loanable funds To be able to provide homebuyers and builders with the funds needed, banks must compete for deposits. The phenomenon of disintermediation had to dollars moving from savings accounts and into direct market instruments such as U.S. Treasury obligations, agency securities, and corporate debt. One of the greatest factors in recent years in the movement of deposits was the tremendous growth of money market funds whose higher interest rates attracted consumer deposits.[11] To compete for deposits, US savings institutions offer many different types of plans[11]:

Passbook or ordinary deposit accounts permit any amount to be added to or withdrawn from the account at any time. NOW and Super NOW accounts function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts. Money market accounts carry a monthly limit of preauthorized transfers to other accounts or persons and may require a minimum or average balance. Certificate accounts subject to loss of some or all interest on withdrawals before maturity. Notice accounts the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal. Individual retirement accounts (IRAs) and Keogh plans a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal.

Checking accounts offered by some institutions under definite restrictions. All withdrawals and deposits are completely the sole decision and responsibility of the account owner unless the parent or guardian is required to do otherwise for legal reasons. Club accounts and other savings accounts designed to help people save regularly to

meet certain goals. [edit]Accounting for bank accounts

Suburban bank branch Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and MAICthere are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a credit account to decrease its balance.[12]

This also means you credit your savings account every time you deposit money into it (and the account is normally in credit), while you debit your credit card account every time you spend money from it (and the account is normally in debit). However, if you read your bank statement, it will say the oppositethat you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance. Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holderwhich is traditionally what most people are used to seeing. [edit]Brokered deposits One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors through MAIC or other trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to be engaged in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the Savings and loan crisis of the 1980s. MAIC Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits.[13] [edit]Banking by country

Banking in Australia Banking in Bangladesh Banking in Canada Banking in China Banking in France Banking in Germany Banking in Greece

Banking in Iran Banking in India Banking in Israel Banking in Italy Banking in Pakistan Banking in Russia Banking in Singapore Banking in Switzerland Banks of the United Kingdom

Banking in the United States [edit]See also Types of institutions:

Bankers' bank Building Society Cooperative bank Credit union Ethical bank Industrial loan company Islamic banking Mortgage bank Mutual savings bank Offshore banking Person-to-person lending Savings and loan association Savings bank Sparebank Crime:

Terms and concepts:

Bank regulation Bankers' bonuses Call Report Cheque

Bank fraud Bank robbery Cheque fraud Mortgage fraud

Electronic funds transfer Factoring (finance) Finance Fractional-reserve banking Hedge fund IBAN Internet banking Investment banking Mobile banking Money Money laundering Narrow banking Overdraft Overdraft protection Piggy bank Pigmy Deposit Scheme Private Banking Stock broker Substitute check SWIFT Tax haven Venture capital Wealth Management Wire transfer Wikimedia Commons has media related to: Banks Wikisource has the text of the1911 Encyclopdia Britannicaarticle Banks and Banking.


List of accounting topics List of bank mergers in United States List of banks List of economics topics List of finance topics List of largest U.S. bank failures List of stock exchanges

[edit]References 1. ^ Boland, Vincent (2009-06-12). "Modern dilemma for worlds oldest bank". Financial Times. Retrieved 23 February 2010. 2. ^ Hoggson, N. F. (1926) Banking Through the Ages, New York, Dodd, Mead & Company. 3. ^ Goldthwaite, R. A. (1995) Banks, Places and Entrepreneurs in Renaissance Florence, Aldershot, Hampshire, Great Britain, Variorum 4. ^ Macesich, George (30 June 2000). "Central Banking: The Early Years: Other Early Banks". Issues in Money and Banking. Westport, Connecticut: Praeger Publishers (Greenwood Publishing Group). p. 42. doi:10.1336/0275967778. ISBN 978-0-27596777-2. Retrieved 2009-03-12. "The first state deposit bank was the Bank of St. George in Genoa, which was established in 1407." 5. ^ Paul, Vallely (11 March 2006). "How Islamic inventors changed the world". Independent (London). Retrieved 26 May 2009. 6. ^ de Albuquerque, Martim (1855). Notes and Queries. London: George Bell. pp. 431. 7. ^ United Dominions Trust Ltd v Kirkwood, 1966, English Court of Appeal, 2 QB 431 8. ^ (Banking Ordinance, Section 2, Interpretation, Hong Kong) Note that in this case the definition is extended to include accepting any deposits repayable in less than 3 months, companies that accept deposits of greater than HK$100 000 for periods of greater than 3 months are regulated as deposit taking companies rather than as banks in Hong Kong). 9. ^ e.g. Tyree's Banking Law in New Zealand, A L Tyree, LexisNexis 2003, page 70. 10. ^ a b Banking 2010PDF (638 KB) charts 78, pages 34. International Financial Services, London (IFSL). 11. ^ a b Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood: Irwin. pp. 128129. ISBN 0-256-13948-2. 12. ^ Statistics Department (2001). "Source Data for Monetary and Financial Statistics". Monetary and Financial Statistics: Compilation Guide. Washington D.C.: International Monetary Fund. p. 24. ISBN 9781589065840. Retrieved 2009-03-14. 13. ^ "For Banks, Wads of Cash and Loads of Trouble" article by Eric Lipton and Andrew Martin in The New York Times July 3, 2009

"Genoa and the history of finance: a series of firsts ?" Giuseppe Felloni, Guido Laura. 9 November 2004, ISBN 88-87822-16-6 (the book can be downloaded at

www.giuseppefelloni.it) [edit]External links Look up bank or banking inWiktionary, the free dictionary.

INDIAN BANKS Guardian Datablog World's Biggest Banks Banking, Banks, and Credit Unions from UCB Libraries GovPubs A Guide to the National Banking System (PDF). Office of the Comptroller of the Currency (OCC), Washington, D.C. Provides an overview of the national banking system of the USA, its regulation, and the OCC.

International Directory of Banks and Press Releases of Banks

A stock market or equity market is a public (a loose network of economic transactions, not a physical facility or discrete) entity for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately. The size of the world stock market was estimated at about $36.6 trillion at the start of October 2008. derivatives market has been estimated at about $791 trillion face or nominal value, world economy.
[3] [2] [1]

The total world

11 times the size of the entire

The value of the derivatives market, because it is stated in terms of notional values, cannot be

directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (i.e., a derivative 'bet' on an event occurring is offset by a comparable derivative 'bet' on the event notoccurring). Many such relatively illiquid securities are valued as marked to model, rather than an actual market price. The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market cap, is theNew York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Brse (Frankfurt Stock Exchange). In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange,

the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV. Contents [hide]

1 Trading 2 Market participants 3 History 4 Importance of stock market

o o o o o o

4.1 Function and purpose 4.2 Relation of the stock market to the modern financial system 4.3 United States stock market returns 4.4 The behavior of the stock market 4.5 Irrational behavior 4.6 Crashes

5 Stock market index 6 Derivative instruments 7 Leveraged strategies

o o

7.1 Short selling 7.2 Margin buying

8 New issuance 9 Investment strategies 10 Taxation 11 See also 12 References 13 Further reading 14 External links [edit]Trading

The London Stock Exchange. Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The other type of stock exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders. Actual trades are based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any ask price or bid price for the stock, respectively.) When the bid and ask prices match, a sale takes place, on a first-come-firstserved basis if there are multiple bidders or askers at a given price. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.

The New York Stock Exchange.

The New York Stock Exchange is a physical exchange, also referred to as a listed exchange only stocks listed with the exchange may be traded. Orders enter by way of exchange members and flow down to a floor broker, who goes to the floor trading post specialist for that stock to trade the order. The specialist's job is to match buy and sell orders using open outcry. If a spread exists, no trade immediately takes placein this case the specialist should use his/her own resources (money or stock) to close the difference after his/her judged time. Once a trade has been made the details are reported on the "tape" and sent back to the brokerage firm, which then notifies the investor who placed the order. Although there is a significant amount of human contact in this process, computers play an important role, especially for so-called "program trading". The NASDAQ is a virtual listed exchange, where all of the trading is done over a computer network. The process is similar to the New York Stock Exchange. However, buyers and sellers are electronically matched. One or more NASDAQ market makers will always provide a bid and ask price at which they will always purchase or sell 'their' stock.

The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late 1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor or the Palais Brongniart. In 1986, the CATS trading systemwas introduced, and the order matching process was fully automated. From time to time, active trading (especially in large blocks of securities) have moved away from the 'active' exchanges. Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems. That share probably will increase to 18 percent by 2010 as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to data compiled by Boston-based Aite Group LLC, a brokerage-industry consultant.

Now that computers have eliminated the need for trading floors like the Big Board's, the balance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11 billion a year that institutional investors pay in trading commissions as well as the surplus of the century had taken place. [edit]Market participants A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension funds, insurance companies, mutual funds,index funds, exchangetraded funds, hedge funds, investor groups, banks and various other financial institutions). The rise of the institutional investor has brought with it some improvements in market operations. Thus, the government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the 'small' investor, but only
[citation needed]

after the large institutions had managed to break the brokers' solid front on fees. (They then went to 'negotiated' fees, but only for large institutions.
[citation needed]

However, corporate governance (at least in the West) has been very much adversely affected by the rise of (largely 'absentee') institutional 'owners'. [edit]History
[citation needed]

Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelief is that in late 13th centuryBruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred;

the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for

trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. Italian companies were also the first to issue shares. Companies in England and the Low Countries followed in the 16th century. The Dutch East India Company (founded in 1602) was the first joint-stock company to get a fixed capital stock and as a result, continuous trade in company stock emerged on the Amsterdam Exchange. Soon thereafter, a

lively trade in various derivatives, among which options and repos, emerged on the Amsterdam market. Dutch traders also pioneered short selling - a practice which was banned by the Dutch authorities as early as 1610.

There are now stock markets in virtually every developed and most developing economies, with the world's biggest market being in the United States, United Kingdom, Japan, India, China, Canada, Germany's (Frankfurt Stock Exchange), France, South Korea and the Netherlands. [edit]Importance of stock market [edit]Function and purpose

The main trading room of the Tokyo Stock Exchange,where trading is currently completed through computers. The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Financial stability is the raison d'tre of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction. The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. [edit]Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation. A portion of the funds involved in saving and financing, flows directly to the financial markets instead of being routed via the traditional bank lending and deposit operations. The general public's heightened interest in investing in the stock market, either directly or through mutual funds, has been an important component of this process. Statistics show that in recent decades shares have made up an increasingly large proportion of households' financial assets in many countries. In the 1970s, in Sweden, deposit accounts and other very liquid assets with little risk made up almost 60 percent of households' financial wealth, compared to less than 20 percent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance investment of premiums, etc. The trend towards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permitting a higher proportion of shares to bonds. Similar tendencies are to be found in other industrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other developed nations, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another [edit]United States stock market returns Years to Dec. 31, 2010 Average Annual Return % Average Compounded Annual Return %





























[edit]The behavior of the stock market

NASDAQ in Times Square, New York City.

From experience we know that investors may 'temporarily' move financial prices away from their long term aggregate price 'trends'. (Positive or up trends are referred to as bull markets; negative or down trends are referred to as bear markets.) Over-reactions may occurso that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may drive prices unduly low. Economists continue to debate whether financial markets are 'generally' efficient. According to one interpretation of the efficient-market hypothesis (EMH), only changes in fundamental factors, such as the outlook for margins, profits or dividends, ought to affect share prices beyond the short term, where random 'noise' in the system may prevail. (But this largely theoretic academic viewpoint known as 'hard' EMHalso predicts that little or no trading should take place, contrary to fact, since prices are already at or near equilibrium, having priced in all public knowledge.) The 'hard' efficient-market hypothesis is sorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percentthe largest-ever oneday fall in the United States.

This event demonstrated that share prices can fall dramatically even though, to this day, it is impossible to fix a generally agreed upon definite cause: a thorough search failed to detect any 'reasonable' development that might have accounted for the crash. (But note that such events are predicted to occur strictly by chance, although very rarely.) It seems also to be the case more generally that many price movements (beyond that which are predicted to occur 'randomly') are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period seems to confirm this.

However, a 'soft' EMH has emerged which does not require that prices remain at or near equilibrium, but only that market participants not be able to systematically profit from any momentary market 'inefficiencies'. Moreover, while EMH predicts that all price movement (in the absence of change in fundamental information) is random (i.e., nontrending), many studies have shown a marked tendency for the stock market to trend over time periods of weeks or longer. Various explanations for such large and apparently non-random price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could cause financial markets to overreact. But the best explanation seems to be that the distribution of stock market prices is non-Gaussian (in which case EMH, in any of its current forms, would not be strictly applicable).

Other research has shown that psychological factors may result in exaggerated (statistically anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns, and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up). A period of good returns also boosts the investor's self-confidence, reducing his (psychological) risk threshold.

Another phenomenonalso from psychologythat works against an objective assessment is group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from that of a majority of the group. An example with which one may be familiar is the reluctance to enter a restaurant that is empty; people generally prefer to have their opinion validated by those of others in the group. In one paper the authors draw an analogy with gambling.

In normal times the market behaves like a game

of roulette; the probabilities are known and largely independent of the investment decisions of the different players. In times of market stress, however, the game becomes more like poker (herding behavior takes over). The players now must give heavy weight to the psychology of other investors and how they are likely to react psychologically. The stock market, as with any other business, is quite unforgiving of amateurs. Inexperienced investors rarely get the assistance and support they need. In the period running up to the 1987 crash, less than 1 percent of the analyst's recommendations had been to sell (and even during the 20002002 bear market, the average did not rise above 5 %%). In the run up to 2000, the media amplified the general euphoria, with reports of rapidly rising share prices and the notion that large sums of money could be quickly earned in the so-called new economystock market. (And later amplified the gloom which descended during the 2000 2002 bear market, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.) [edit]Irrational behavior Sometimes the market seems to react irrationally to economic or financial news, even if that news is likely to have no real effect on the fundamental value of securities itself. But this may be more apparent than real, since often such news has been anticipated, and a counterreaction may occur if the news is better (or worse) than expected. Therefore, the stock market may be swayed in either direction by press releases, rumors, euphoria and mass panic; but generally only briefly, as more experienced investors (especially the hedge funds) quickly rally to take advantage of even the slightest, momentary hysteria. Over the short-term, stocks and other securities can be battered or buoyed by any number of fast market-changing events, making the stock market behavior difficult to predict. Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally obscure. Behaviorists argue that investors often behave 'irrationally' when making investment decisions thereby incorrectly pricing securities, which causes market inefficiencies, which, in turn, are opportunities to make money.

However, the

whole notion of EMH is that these non-rational reactions to information cancel out, leaving the prices of stocks rationally determined. The Dow Jones Industrial Average biggest gain in one day was 936.42 points or 11 percent, this occurred on October 13, 2008.


Robert Shiller's plot of the S&P Composite Real Price Index, Earnings, Dividends, and Interest Rates, from Irrational Exuberance, 2d ed.

In the preface to this edition, Shiller warns, "The stock market has not come down to historical

levels: the price-earnings ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average... People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."

Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller (Figure 10.1,

source). The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Indexas

computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted

earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later. Data from different twenty year periods is colorcoded as shown in the key. See also ten-year returns. Shiller states that this plot "confirms that long-term investors investors who commit their money to an investment for ten full years did do well when prices were low relative to earnings at the beginning of the ten years. Long-term investors would be well advised, individually, to lower their exposure to the stock market when it is high, as it has been recently, and get into the market when it is low." Main article: Stock market crash A stock market crash is often defined as a sharp dip in share prices of equities listed on the stock exchanges. In parallel with various economic factors, a reason for stock market crashes is also due to panic and investing public's loss of confidence. Often, stock market crashes end speculative economic bubbles. There have been famous stock market crashes that have ended in the loss of billions of dollars and wealth destruction on a massive scale. An increasing number of people are involved in the stock market, especially since the social security and retirement plans are being increasingly privatized and linked to stocks and bonds and other elements of the market. There have been a number of famous stock market crashes like the Wall Street Crash of 1929, the stock market crash of 19734, the Black Monday of 1987, the Dot-com bubble of 2000, and the Stock Market Crash of 2008. One of the most famous stock market crashes started October 24, 1929 on Black Thursday. The Dow Jones Industrial lost 50 % during this stock market crash. It was the beginning of the Great Depression. Another famous crash took place on October 19, 1987 Black Monday. The crash began in Hong Kong and quickly spread around the world. By the end of October, stock markets in Hong Kong had fallen 45.5 %%, Australia 41.8 %%, Spain 31 %%, the United Kingdom 26.4 %%, the United States 22.68 %%, and Canada 22.5 %%. Black Monday itself was the largest one-day percentage decline in stock market history the Dow Jones fell by 22.6 %% in a day. The names Black Monday and Black Tuesday are also used for October 2829, 1929, which followed Terrible Thursdaythe starting day of the stock market crash in 1929. The crash in 1987 raised some puzzles-main news and events did not predict the catastrophe and visible reasons for the collapse were not identified. This event raised questions about many important assumptions of modern economics, namely, the theory of rational human conduct, the theory of market equilibrium and the hypothesis of market efficiency. For some time after the crash, trading in stock exchanges worldwide was halted, since the exchange computers did not perform well owing to enormous quantity of trades being received at one time. This halt in trading allowed the Federal Reserve system and central banks of other countries to take measures to control the spreading of worldwide financial crisis. In the United States the SEC introduced several new measures of control into the stock market in an attempt to prevent a re-occurrence of the events of Black Monday.

Computer systems were upgraded in the stock exchanges to handle larger trading volumes in a more accurate and controlled manner. The SEC modified the margin requirements in an attempt to lower the volatility of common stocks, stock options and the futures market. The New York Stock Exchange and the Chicago Mercantile Exchange introduced the concept of a circuit breaker. The circuit breaker halts trading if the Dow declines a prescribed number of points for a prescribed amount of time.

New York Stock Exchange (NYSE) circuit breakers % drop time of drop close trading for


10 %% drop before 2 pm

one hour halt

10 %% drop 2 pm 2:30 pm

half-hour halt

10 %% drop after 2:30 pm

market stays open

20 %% drop before 1 pm

halt for two hours

20 %% drop 1 pm 2 pm

halt for one hour

20 %% drop after 2 pm

close for the day

30 %% drop any time during day close for the day [edit]Stock market index Main article: Stock market index The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices. Such indices are usually market capitalization weighted, with the weights reflecting the contribution of the stock to the index. The constituents of the index are reviewed frequently to include/exclude stocks in order to reflect the changing business environment. [edit]Derivative instruments Main article: Derivative (finance)

Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange-traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be traded on futures exchanges (which are distinct from stock exchangestheir history traces back to commodities futures exchanges), or traded over-the-counter. As all of these products are only derived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather than the (hypothetical) stock market. [edit]Leveraged strategies Stock that a trader does not actually own may be traded using short selling; margin buying may be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sales. [edit]Short selling Main article: Short selling In short selling, the trader borrows stock (usually from his brokerage which holds its clients' shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the price to fall. The trader eventually buys back the stock, making money if the price fell in the meantime and losing money if it rose. Exiting a short position by buying back the stock is called "covering a short position." This strategy may also be used by unscrupulous traders in illiquid or thinly traded markets to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur. The practice of naked shorting is illegal in most (but not all) stock markets. [edit]Margin buying Main article: margin buying In margin buying, the trader borrows money (at interest) to buy a stock and hopes for it to rise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks' value. In the United States, the margin requirements have been 50 %% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance margin below the $500). A margin call is made if the total value of the investor's account cannot support the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be required to maintain the account's equity, and with or without notice the margined security or any others within the account may be sold by the brokerage to protect its loan position. The investor is responsible for any shortfall following such forced sales.) Regulation of margin requirements (by the Federal Reserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rules may include the prohibition of free-riding: putting in an order to buy stocks without paying initially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the

three-days are up) and using part of the proceeds to make the original payment (assuming that the value of the stocks has not declined in the interim). [edit]New issuance Main article: Thomson Financial league tables Global issuance of equity and equity-related instruments totaled $505 billion in 2004, a 29.8 %% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased 221 %% with 233 offerings that raised $45 billion, and IPOs in Europe, Middle East and Africa (EMEA) increased by 333 %%, from $ 9 billion to $39 billion. [edit]Investment strategies Main article: Stock valuation One of the many things people always want to know about the stock market is, "How do I make money investing?" There are many different approaches; two basic methods are classified as either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing companies by their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technical analysis studies price actions in markets through the use of charts and quantitative techniques to attempt to forecast price trends regardless of the company's financial prospects. One example of a technical strategy is the Trend following method, used by John W. Henry and Ed Seykota, which uses price patterns, utilizes strict money management and is also rooted in risk control and diversification. Additionally, many choose to invest via the index method. In this method, one holds a weighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (such as the S&P 500 or Wilshire 5000). The principal aim of this strategy is to maximize diversification, minimize taxes from too frequent trading, and ride the general trend of the stock market (which, in the U.S., has averaged nearly 10 %%/year, compounded annually, since World War II). [edit]Taxation Main article: Capital gains tax According to much national or state legislation, a large array of fiscal obligations are taxed for capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market, in particular in the stock exchanges. However, these fiscal obligations may vary from jurisdictions to jurisdictions because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock market operations are useful to boost economic growth. [edit]See also

Balance sheet Dead cat bounce

Modeling and analysis of financial markets Shareholders' equity Slippage Stock exchange Stock investor Stock market bubble Stock market cycles Stock market data systems Stock market index Trader (finance)

US specific:

Nasdaq NASDAQ-100 Securities regulation in the United States


List of recessions List of stock exchanges List of market opening times List of stock market crashes

List of stock market indices [edit]References

1. 2.

^ SeekingAlpha.com ^ "Quarterly Review Statistical Annex December 2008". Bis.org. September 7, 2008. Retrieved March 5, 2010.

3. 4.

^ CIA.gov ^ "What's the difference between a Nasdaq market maker and a NYSE specialist?". Investopedia.com. Retrieved March 5, 2010.


^ Ortega, Edgar, and Yalman Onaran. "UBS, Goldman Threaten NYSE, Nasdaq With Rival Stock Markets." Bloomberg, Dec. 4, 2006. Web. Dec. 23, 2009.


^ "16de eeuwse traditionele bak- en zandsteenarchitectuur Oude Beurs Antwerpen 1 (centrum) / Antwerp foto". Belgiumview.com. Retrieved March 5, 2010.

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^ http://sites.google.com/site/lodewijkpetram/ PhD thesis 'The world's first stock exchange' ^ World Federation of Exchanges Monthly YTD Data ^ http://www.census.gov/statab/hist/HS-38.pdf Retrieved February 14, 2011.
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Cutler, D. Poterba, J. & Summers, L. (1991). "Speculative dynamics". Review of Economic Studies 58: