Equity Derivatives in India - An Overview Derivatives Markets Derivatives markets broadly can be classified into two categories, those

that are traded on the exchange and the those traded one to one or over the counter. They are hence known as Exchange Traded Derivatives OTC Derivatives (Over The Counter)

OTC Equity Derivatives Traditionally equity derivatives have a long history in India in the OTC market. Options of various kinds (called Teji and Mandi and Fatak) in un-organized markets were traded as early as 1900 in Mumbai The SCRA however banned all kind of options in 1956.

Derivative Markets today The prohibition on options in SCRA was removed in 1995. Foreign currency options in currency pairs other than Rupee were the first options permitted by RBI. The Reserve Bank of India has permitted options, interest rate swaps, currency swaps and other risk reductions OTC derivative products. Besides the Forward market in currencies has been a vibrant market in India for several decades. In addition the Forward Markets Commission has allowed the setting up of commodities futures exchanges. Today we have 18 commodities exchanges most of which trade futures. e.g. The Indian Pepper and Spice Traders Association (IPSTA) and the Coffee Owners Futures Exchange of India (COFEI). In 2000 an amendment to the SCRA expanded the definition of securities to included Derivatives thereby enabling stock exchanges to trade derivative products. The year 2000 will herald the introduction of exchange traded equity derivatives in India for the first time.

Equity Derivatives Exchanges in India In the equity markets both the National Stock Exchange of India Ltd. (NSE) and The Stock Exchange, Mumbai (BSE) have applied to SEBI for setting up their derivatives segments. The exchanges are expected to start trading in Stock Index futures by mid-May 2000.

BSE's and NSEs plans Both the exchanges have set-up an in-house segment instead of setting up a separate exchange for derivatives. BSEs Derivatives Segment, will start with Sensex futures as its first product. NSEs Futures & Options Segment will be launched with Nifty futures as the first product.

Product Specifications BSE-30 Sensex Futures

Contract Size - Rs. 50 times the Index Tick Size - 0.1 points or Rs. 5 Expiry day - last Thursday of the month Settlement basis - cash settled Contract cycle - 3 months Active contracts - 3 nearest months

Product Specifications S&P CNX Nifty Futures Contract Size - Rs. 200 times the Index Tick Size - 0.05 points or Rs. 10 Expiry day - last Thursday of the month Settlement basis - cash settled Contract cycle - 3 months Active contracts - 3 nearest months

Membership Membership for the new segment in both the exchanges is not automatic and has to be separately applied for. Membership is currently open on both the exchanges. All members will also have to be separately registered with SEBI before they can be accepted.

Membership Criteria NSE Clearing Member (CM) Networth - 300 lakh Interest-Free Security Deposits - Rs. 25 lakh Collateral Security Deposit - Rs. 25 lakh

In addition for every TM he wishes to clear for the CM has to deposit Rs. 10 lakh. Trading Member (TM) BSE Clearing Member (CM) Networth - 300 lacs Networth - Rs. 100 lakh Interest-Free Security Deposit - Rs. 8 lakh Annual Subscription Fees - Rs. 1 lakh

Interest-Free Security Deposits - Rs. 25 lakh Collateral Security Deposit - Rs. 25 lakh Non-refundable Deposit - Rs. 5 lakh Annual Subscription Fees - Rs. 50 thousand

In addition for every TM he wishes to clear for the CM has to deposit Rs. 10 lakh with the following breakup. Cash - Rs. 2.5 lakh Cash Equivalents - Rs. 25 lakh Collateral Security Deposit - Rs. 5 lakh

Trading Member (TM) Networth - Rs. 50 lakh Non-refundable Deposit - Rs. 3 lakh Annual Subscription Fees - Rs. 25 thousand

The Non-refundable fees paid by the members is exclusive and will be a total of Rs.8 lakhs if the member has both Clearing and Trading rights. Trading Systems NSEs Trading system for its futres and options segment is called NEAT F&O. It is based on the NEAT system for the cash segment. BSEs trading system for its derivatives segment is called DTSS. It is built on a platform different from the BOLT system though most of the features are common.

Settlement and Risk Management systems Systems for settlement and risk management are required to satisfy the conditions specified by the L.C. Gupta Committee and the J.R. Verma committee. These include upfront margins, daily settlement, online surveillance and position monitoring and risk management using the Value-at-Risk concept.

Certification Programmes The NSE certification programme is called NCFM (NSEs Certification in Financial Markets). NSE has outsourced training for this to various institutes around the country. The BSE certification programme is called BCDE (BSEs Certification for the Derivatives Exchnage). BSE conducts its own training run by its training institute. Both these programmes are approved by SEBI.

Rules and Laws Both the BSE and the NSE have been give in-principle approval on their rule and laws by SEBI. According to the SEBI chairman, the Gazette notification of the Bye-Laws after the final approval is expected to be completed by May 2000. Trading is expected to start by mid-June 2000.

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

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 followed international standards of 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

Everyone talks about derivatives these days. Derivative products have been around for a long time. Do you know derivatives first came about in Japanese rice markets? Yes, as early as the 1650s, dealings resembling present day derivative market transactions were seen in rice markets in Osaka, Japan [ Images ]. The first leap towards an organized derivatives market came in 1848, when the Chicago Board of Trade, the largest derivative exchange in the world, was established. Today, equity and commodity derivative markets are rapidly gaining in size in India. In terms of popularity too, these markets are catching on like a forest fire. So, what

are these markets all about? What are the products that they trade in? Why do people feel the need to trade in such products and what sort of traders benefit from such trades? Do these markets hold scope for retail investors too? And if so, how exactly can you go about trading in them? Derivatives markets broadly can be classified into two categories, those that are traded on the exchange and the those traded one to one or 'over the counter'. They are hence known as:

Exchange Traded Derivatives OTC Derivatives (Over The Counter) OTC Equity Derivatives

Traditionally equity derivatives have a long history in India in the OTC market. Options of various kinds (called Teji and Mandi and Fatak) in un-organized markets were traded as early as 1900 in Mumbai [ Images ] The SCRA however banned all kind of options in 1956. The prohibition on options in SCRA was removed in 1995. Foreign currency options in currency pairs other than Rupee were the first options permitted by RBI. The Reserve Bank of India [ Get Quote ] has permitted options, interest rate swaps, currency swaps and other

risk

reductions

OTC

derivative

products.

Besides the Forward market in currencies has been a vibrant market in India for several decades. The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Derivative trading in India takes can place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a SelfRegulatory Organisation and Sebi acts as the oversight regulator. The clearing & settlement of all trades on the Derivative Exchange/Segment would have to be through a Clearing Corporation/House, which is independent in governance and membership from the Derivative Exchange/Segment. With the amendment in the definition of 'securities' under SC(R)A (to include derivative contracts in the definition of securities), derivatives trading takes place under the

provisions of the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992. Dr. L.C Gupta Committee constituted by Sebi had laid down the regulatory framework for derivative trading in India. SEBI has also framed suggestive bye-law for Derivative Exchanges/Segments and their Clearing Corporation/House which lay's down the provisions for trading and settlement of derivative contracts. The Rules, Bye-laws & Regulations of the Derivative Segment of the Exchanges and their Clearing Corporation/House have to be framed in line with the suggestive Bye-laws. Sebi has also laid the eligibility conditions for Derivative Exchange/Segment and its Clearing Corporation/House. The eligibility conditions have been framed to ensure that Derivative Exchange/Segment & Clearing Corporation/House provide a transparent trading environment, safety & integrity and provide facilities for redressal of investor grievances. Namita Jain/Commodity Online

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 automated teller machine (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 making installment 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 nonfinancial businesses, and lend most funds to households and non-financial businesses, but nonbank 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 videoconferenceenabled bank branch.clarification

[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-LeachBliley 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 credit- debit - cards. This helps in making profit and facilitates economic development as a whole{{Citation needed|date=January 2011. [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 riskweighted asset). [edit]Banks

in the economy

See also: Financial system [edit]Economic functions The economic functions of banks include: 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
1.

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 crisis in 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.[9] 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:2400 0+) 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.[9] [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 orderalthough 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 bank-customer 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 underserved 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 mediumsized 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 oncapital 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
The examples and perspective in this section may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (September 2009)

This section does not cite any references or sources.

Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (September 2008)

[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 Federal Deposit Insurance Corporation(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 trading and 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.[10] To compete for deposits, US savings institutions offer many different types of plans[10]:

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 MAIC there 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.[11] 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.
[12]

[edit]Banking

by country

Banking in Australia Banking in Austria 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

banking

Definition
In generalterms, thebusiness activityof accepting and safeguardingmoneyowned by otherindividualsandentities, and thenlendingout this money inordertoearnaprofit.
Read more:http://www.investorwords.com/5413/banking.html#ixz z1Of3AZ0Em

bank

Definition

Anorganization, usually acorporation,charteredby a state orfederal government, which does most or all of the following: receivesdemand depositsandtime deposits,honorsinstrumentsdrawn on them, andpaysintereston them;discountsnotes, makesloans, andinvestsinsecurities;collectschecks,drafts, and notes;certifiesdepositor'schecks; andissuesdrafts andcashier's checks.
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Bankers' bank
From Wikipedia, the free encyclopedia

A bankers' bank is a financial institution that provides financial services to community banks in the United

States of America. Bankers' banks are owned by investor banks and may provide services only to community banks. By leveraging positive economies of scale, bankers' banks are able to provide many services to community banks that typically would be economically available only to large national or multinational banks. The advantage here is that community banks which use these services can in turn offer them to their customers, allowing these smaller independent banks to effectively compete with larger banks. The first bankers' bank was formed in Minnesota in 1975. Currently there are 22 bankers' banks across the US serving more than 6,000 banks in 48 states. The largest bankers' bank is at present TIB-The Independent BankersBank, located in Irving, TX, and serving over 1,400 banks across 46 states - plus Guam and Bermuda. The most successful Banker's Bank is the State Bank of North Dakota. Founded in 1919, this bank partners with other banks around the state of North Dakota and has helped the state remain solvent in hard economic times. In 1997, when the Red River flooded and destroyed Grand Forks and East Grand Forks, the State Bank of North Dakota quickly funneled money so that people could save others and repair the damages after the flood died down. Grand Forks quickly recovered thanks, in part, to the efforts of the State

Bank of North Dakota, East Grand Forks, located in Minnesota, did not recover as well or as quickly, due to a lack of funds that the State Bank of North Dakota provided its counterpart.

Mutual Fund is an instrument of investing money. Nowadays, bank rates have fallen down and are generally below the inflation rate. Therefore, keeping large amounts of money in bank is not a wise option, as in real terms the value of money decreases over a period of time. One of the options is to invest the money in stock market. But a common investor is not informed and competent enough to understand the intricacies of stock market. This is where mutual funds come to the rescue. A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. Mutual funds are highly cost efficient and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. Also, one doesn't have to figure out which stocks or bonds to buy. But the biggest advantage of mutual funds is diversification. Diversification means spreading out money across many different types of investments. When one investment is down another might be up. Diversification of investment holdings reduces the risk tremendously. On the basis of their structure and objective, mutual funds can be classified into following major types: Closed-end funds A closed-end mutual fund has a set number of shares issued to the public through an initial public offering. Open-end funds Open end funds are operated by a mutual fund house which raises money from shareholders and invests in a group of assets Large cap funds Large cap funds are those mutual funds, which seek capital appreciation by investing

primarily

in

stocks

of

large

blue

chip

companies

Mid-cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies Equity funds Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. Balanced funds Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds Growth funds Growth funds are those mutual funds that aim to achieve capital appreciation by investing in growth stocks. No load funds Mutual funds can be classified into two types - Load mutual funds and No-Load mutual funds. Exchange traded funds Exchange Traded Funds (ETFs) represent a basket of securities that is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds Value funds Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. Money market funds A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. International mutual funds International mutual funds are those funds that invest in non-domestic securities markets throughout the world. Regional mutual funds Regional mutual fund is a mutual fund that confines itself to investments in securities from a specified geographical area, usually, the fund's local region. Sector funds Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy.

Index funds An index fund is a a mutual fund or exchange-traded fund) that aims to replicate the movements of an index of a specific financial market. Fund of funds A fund of funds (FoF) is an investment fund that holds a portfolio of other investment funds rather than investing directly in shares, bonds or other securities.

Mutual Fund Definition : or What is a Mutual Funds and How does these work?
Mutual Fund Definition: A mutual fund is made up of money that is pooled together by a large number of investors who give their money to a fund manager to invest in a large portfolio of stocks and / or bonds

Mutual fund is a kind of trust that manages the pool of money collected from various investors and it is managed by a team of professional fund managers (usually called an Asset Management Company) for a small fee. The investments by the Mutual Funds are made in equities, bonds, debentures, call money etc., depending on the terms of each scheme floated by the Fund. The current value of such investments is now a days is calculated almost on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc. Why Should I Invest in a Mutual Fund when I can Invest Directly in the Same Instruments : We have already mentioned that like all other investments in equities and debts, the investments in Mutual funds also carry risk. However, investments through Mutual Funds is considered better due to the following reasons :

Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments; Your small investment cannot be spread into equity shares of various good companies due to high price of such shares. Mutual Funds are in a much better position to effectively spread your investments across various sectors and among several products available in the market. This is called risk

diversification and can effectively shield the steep slide in the value of your investments.
Thus, we can say that Mutual funds are better options for investments as they offer regular investors a chance to diversify their portfolios, which is something they may not be able to do if they decide to make direct investments in stock market or bond market. For example, if you want to build a diversified portfolio of 20 scrips, you would probably need Rs 2,00,000 to get started (assuming that you make minumum investment of Rs 10000 per scrip). However, you can invest in some of the diversified Mutual Fund schemes for an low as Rs.10,000/-.

WHAT ARE VARIOUS TYPES OF MUTUAL FUNDS A common man is so much confused about the various kinds of Mutual Funds that he is afraid of investing in these funds as he can not differentiate between various types of Mutual Funds with fancy names. Mutual Funds can be classified into various categories under the following heads:(A) ACCORDING TO TYPE OF INVESTMENTS :- While launching a new scheme, every Mutual Fund is supposed to declare in the prospectus the kind of instruments in which it will make investments of the funds collected under that scheme. Thus, the various kinds of Mutual Fund schemes as categoried according to the type of investments are as follows :(a) EQUITY FUNDS / SCHEMES (b) DEBT FUNDS / SCHEMES (also called Income Funds) (c ) DIVERSIFIED FUNDS / SCHEMES (Also called Balanced Funds) (d) GILT FUNDS / SCHEMES (e) MONEY MARKET FUNDS / SCHEMES (f) SECTOR SPECIFIC FUNDS (g) INDEX FUNDS B) ACCORDING TO THE TIME OF CLOSURE OF THE SCHEME :- While launching a new schemes, Mutual Funds also declare whether this will be an open ended scheme (i.e. there is no specific date when the scheme will be closed) or there is a closing date when finally the scheme will be wind up. Thus, according to the time of closure schemes are classified as follows :-

(a) OPEN ENDED SCHEMES (b) CLOSE ENDED SCHEMES

C) ACCORDING TO TAX INCENTIVE SCHEMES :- Mutual Funds are also allowed to float some tax saving schemes. Therefore, sometimes the schemes are classified according to this also:(a) TAX SAVING FUNDS (b) NOT TAX SAVING FUNDS / OTHER FUNDS (D) ACCORDING TO THE TIME OF PAYOUT :- Sometimes Mutual Fund schemes are classified according to the periodicity of the pay outs (i.e. dividend etc.). The categories are as follows :(a) Dividend Paying Schemes (b) Reinvestment Schemes The mutual fund schemes come with various combinations of the above categories. Therefore, we can have an Equity Fund which is open ended and is dividend paying plan. Before you invest, you must find out what kind of the scheme you are being asked to invest. You should choose a scheme as per your risk capacity and the regularity at which you wish to have the dividends from such schemes.

Various Types of Mutual Funds based on allocation of funds : These days asset managers give very attractive names to some of their schemes, which may just another type of the above referred schemes. Some of the most popular type of Mutual Funds these days are "Aggressive Growth Fund"; "Balanced Fund"; "Blend Fund"; "Capital Appreciation Fund"; "Crossover fund"; "Global Fund"; "Growth and Income Fund"; Money Market Fund"; "Liquid Fund"; "Prime Rate Fund"; "Hedge Fund"; "Index Fund"; "International Fund". Association of Mutual Funds in India : It is popularly known as AMFI (www.amfindia.com). The site provides valuable information about mutual fund industry in India. For getting the details of the latest NAVs of various Mutual Fund schemes in India, you can click on link provided at the top. SOME OF THE TERMS USED IN MUTUAL FUNDS

Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price : It is the price you pay when you invest in a scheme and is also called "Offer Price". It may include a sales load. Repurchase Price : - It is the price at which a Mutual Funds repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price : It is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load / Front End Load : It is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes which do not charge a load at the time of entry are called No Load schemes. Repurchase / Back-end Load : It is a charge collected by a Mufual Funds when it buys back / Repurchases the units from the unit holders.

Definition
Anopen-endedfundoperated by aninvestment companywhich raisesmoneyfromshareholdersandinvestsin a group ofassets, inaccordancewith a statedsetofobjectives. mutualfundsraisemoney bysellingshares of the fund to thepublic, much like any other type ofcompanycansell stockin itself to the public. Mutual funds thentakethe money theyreceivefrom thesaleof their shares (along with any money made from previous investments) and use it topurchasevariousinvestmentvehicles, such asstocks,bondsandmoney market instruments. Inreturnfor the money they give to the fund whenpurchasingshares, shareholders receive anequitypositionin the fund and, ineffect, in each of itsunderlying securities. For most mutual funds, shareholders arefreetoselltheir shares at any time, although thepriceof asharein a mutual fund willfluctuatedaily, depending upon theperformanceof thesecuritiesheldby the fund.Benefitsof mutual funds includediversificationandprofessionalmoney management. Mutual fundsofferchoice,liquidity, and convenience, butchargefeesand oftenrequireaminimum investment. Aclosed-end fundis often incorrectly referred to as a mutual fund, but is actually aninvestment trust. There are many types of mutual funds, includingaggressive growth fund,asset allocation fund,balanced fund,blend fund,bond

fund,capital appreciation fund,clone fund,closed fund,crossover fund,equity fund,fund of funds,global fund,growth fund,growth and income fund,hedge fund,income fund,index fund,international fund,money market fund,municipal bond fund,prime rate fund,regional fund,sector fund,specialty fund,stock fund, andtax-free bond fund.
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The first mutual fund to be introduced in India was way back in 1963 when the Government of India launched Unit Trust of India (UTI). UTI enjoyed a monopoly in the Indian mutual fund market till 1987 when a host of other government controlled Indian financial companies came up with their own funds. These included State Bank of India, Canara Bank, Punjab National Bank etc. This market was made open to private players in 1993 after the historic constitutional amendments brought forward by the then Congress led government under the existing regime of Liberalization, Privatization andGlobalization (LPG). The first private sector fund to operate in India was Kothari Pioneer which was later merged with Franklin Templeton.

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year,[1][dead link] as the raising of shortterm funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

Debt is that which is owed; usually assets owed, but the term can also cover moral obligations and other interactions not requiring money. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned. Some companies and corporations use debt as a part of their overallcorporate finance strategy. A debt is created when a creditor agrees to lend a sum of assets to a debtor. In modern society, debt is usually granted with expected repayment; in most cases, plusinterest.

Types of debt A company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into: 1) secured and unsecured debt, 2) private and public debt, 3) syndicated and bilateral debt, and 4) other types of debt that display one or more of the characteristics noted above.[1] A debt obligation is considered secured, if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company. Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims. Private debt comprises bank-loan type obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely tradeable on a public exchange or over the counter, with few if any restrictions. A basic loan is the simplest form of debt. It consists of an agreement to lend a principal sum for a fixed period of time, to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date. In some loans, the amount actually loaned to the debtor is less than the principal sum to be repaid; the additional principal has the same economic effect as a higher interest rate (see point (mortgage)), and is

sometimes referred to as a banker's dozen, a play on "baker's dozen" owe twelve (a dozen), receive a loan of eleven (a banker's dozen). Note that the effective interest rate is not equal to the discount: if one borrows $10 and must repay $11, then this is ($11$10)/$10 = 10% interest; however, if one borrows $9 and must repay $10, then this is ($10$9)/$9 = 11 1/9 % interest.[2] A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum. Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity. A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investorsin a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over 30 years, being less common. At the end of the bond's life the money should be repaid in full. Interest may be added to the end payment, or can be paid in regular installments (known as coupons) during the life of the bond. Bonds may be traded in the bond markets, and are widely used as relatively safe investments in comparison to equity.
[edit]

Fund base
Cash Credit This is the primary method in which banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted

to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit", "credit facility" in excess of the amount deposited in the account. Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank. Working capital: Firms need cash to pay for all their day-to-day activities. They have to pay wages, pay for raw materials, pay bills and so on. The money available to them to do this is known as the firm's working capital. The main sources of working capital are the current assets as these are the short-term assets that the firm can use to generate cash. However, the firm also has current liabilities and so these have to be taken account of when working out how much working capital a firm has at its disposal. Working capital is therefore Current Assets (stock + debtors + cash) minus Current liabilities. Working capital is the same as net current assets, and is an important part of the top half of the firm's balance sheet. It is vital to a business to have sufficient working capital to meet all its requirements. Many businesses have undergone bankcruptcy, not because they were unprofitable, but because they suffered from a shortage of working capital. Bank Overdraft: The word overdraft means the act of overdrawing from a Bank account. In other words, the account holder withdraws more money from a Bank Account than has been deposited in it. An overdraft occurs when withdrawals from a bank account exceed the available balance which gives the account a negative balance - a person can be said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft protection plan, and the amount overdrawn is within this authorised overdraft, then interest is normally charged at the agreed rate. If the balance exceeds the agreed terms, then fees may be charged and higher interest rate might apply Term loan: Term Loan are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, pre-determined installments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year). Purchases of plant and machinery, constructing building for factory, setting up new projects fall in this category. Financing for purchase of automobiles, consumer durables, real estate and creation of infra structure also falls in this category. Bill discounting: Bill discounting is a major activity with some of the smaller Banks. Under this particular type of lending, Bank takes the bill drawn by borrower on his(borrower's) customer and pay him or her immediately

deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collect the total amount. If the bill is delayed, the borrower or his customer pay the Bank a pre-determined interest depending upon the terms of transaction. Project Financing: Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, rather than the balance sheets of project sponsors. Usually, a project financing structure involves a number of equity investors, known as sponsors, as well as a syndicate of banks that provide loans to the operation. [edit]Non

Fund Base

Letter of Credit: The LC can also be the source of payment for a transaction, meaning that redeeming the letter of credit will pay an exporter. Letters of credit are used primarily in international trade transactions of significant value, for deals between a supplier in one country and a customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in order to receive payment include a commercial invoice, bill of lading, and a document proving the shipment was insured against loss or damage in transit. However, the list and form of documents is open to imagination and negotiation and might contain requirements to present documents issued by a neutral third party evidencing the quality of the goods shipped, or their place of origin. Corporate finance

Working capital Cash conversion cycle Return on capital

Economic value added Just in time Economic order quantity Discounts and allowances Factoring (finance) Capital budgeting Capital investment decisions The investment decision The financing decision Sections Managerial finance Financial accounting Management accounting Mergers and acquisitions Balance sheet analysis Business plan Corporate action Societal components Financial market Financial market participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation Clawback
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[edit]Accounting

debt

In national accounting, debts are added according to those who are indebted. Household debt is the debt held by households. "National" or Public debt is the debt held by the various governmental institutions (federal government, states, cities ...). Business debt is the debt held by businesses. Financial debt is the

debt held by the financial sector (from one financial institution to another). Total debt is the sum of all those debts, excluding financial debt to prevent double accounting. These various types of debt can be computed in debt/GDP ratios. Those ratios help to assess the speed of variations in the indebtness and the size of the debt due. For example, the USA has a high consumer debt and a low public debt, while in eastern European countries the opposite tends to be true. There are differences in the accounting of debt for private and public agents. If a private agent promises to pay something later, it has a debt, and this debt is enforceable by public agents. If a public body passes a law stating that it'll pay something later (a kind of promise), it keeps the right to change the law later (and not to pay). This is why, for instance, the money governments promised to pay for retirements does not show up in the public debt assessment, whereas the money private companies promised to pay for retirements do. [edit]Securitization Main article: Securitization Securitization occurs when a company groups together assets or receivables and sells them in units to the market through a trust. Any asset with a cashflow can be securitized. The cash flows from these receivables are used to pay the holders of these units. Companies often do this in order to remove these assets from their balance sheets and monetize an asset. Although these assets are "removed" from the balance sheet and are supposed to be the responsibility of the trust, that does not end the company's involvement. Often the company maintains a special interest in the trust which is called an "interest only strip" or "first loss piece". Any payments from the trust must be made to regular investors in precedence to this interest. This protects investors from a degree of risk, making the securitization more attractive. The aforementioned brings into question whether the assets are truly off-balance-sheet given the company's exposure to losses on this interest. [edit]Debt,

inflation and the exchange rate

As noted below, debt is normally denominated in a particular monetary currency, and so changes in the valuation of that currency can change the effective size of the debt. This can happen due to inflation or deflation, so it can happen even though the borrower and the lender are using the same currency. Thus it is important to agree on standards of deferred payment in advance, so that a degree of fluctuation will also be agreed as acceptable. It is for instance common[citation needed] to agree to "US dollar denominated" debt. The form of debt involved in banking accounts for a large proportion of the money in most industrialised nations (see money, broad money, and demand deposits for a discussion of this). There is therefore a relationship between inflation, deflation, the money supply, and debt. The store of value represented by the entire economy of the industrialized nation, and the state's ability to levy tax on it, acts to the foreign

holder of debt as a guarantee of repayment, since industrial goods are in high demand in many places worldwide. [edit]Inflation

indexed debt

Borrowing and repayment arrangements linked to inflation-indexed units of account are possible and are used in some countries. For example, the US government issues two types of inflation-indexed bonds, Treasury Inflation-Protected Securities (TIPS) and I-bonds. These are one of the safest forms of investment available, since the only major source of risk that of inflation is eliminated. A number of other governments issue similar bonds, and some did so for many years before the US government. In countries with consistently high inflation, ordinary borrowings at banks may also be inflation indexed.

Money market
From Wikipedia, the free encyclopedia

This article is about the financial market. For the fund type, see Money market fund. For the bank deposit account, see Money market account.

Finance
Financial markets[show]

Financial instruments[show]

Corporate finance[show]

Personal finance[show]

Public finance[show]

Banks and banking[show]

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Standards[show]

Economic history[show]

vde

The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgage-and asset-backed securities.[1] It provides liquidity funding for the global financial system.

The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. The core of the money market consists of interbank lending--banks borrowing and lending to each other using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency. Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines. In the United States, federal, state and local governments all issue paper to meet funding needs. States and local governments issue municipal paper, while the US Treasury issues Treasury bills to fund the US public debt. Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers.

Retail and institutional money market funds Banks Central banks Cash management programs Arbitrage ABCP conduits, which seek to buy higher yielding paper, while themselves selling cheaper paper. Merchant Banks
[edit]Common

money market instruments

Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift institutions, and credit unions. Repurchase agreements - Short-term loansnormally for less than two weeks and frequently for one dayarranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270 days; usually sold at a discount from face value. Eurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States. Federal agency short-term securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and theFederal National Mortgage Association. Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate. Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues. Treasury bills - Short-term debt obligations of a national government that are issued to mature in three to twelve months. For the U.S., see Treasury bills.

Money funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors. Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future. Short-lived mortgage- and asset-backed securities
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Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage, or credit). The name derives from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose.

Bank underwriting In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report; and the lender's evaluation of the borrower's credit needs and ability to pay. Examples include mortgage underwriting. Underwriting can also refer to the purchase of corporate bonds, commercial paper, government securities, municipal generalobligation bonds by a commercial bank or dealer bank for its own account or for resale to investors. Bank underwriting of corporate securities is carried out through separate holding-company affiliates, called securities affiliates or Section 20 affiliates.
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OTC-traded stocks

In the U.S., over-the-counter trading in stock is carried out by market makers that make markets in OTCBB and Pink Sheets securities using inter-dealer quotation services such as Pink Quote (operated by Pink OTC Markets) and the OTC Bulletin Board (OTCBB). OTC stocks are not usually listed nor traded on any stock exchanges, though exchange listed stocks can be traded OTC on thethird market. Although stocks quoted on the OTCBB must comply with U.S. Securities and Exchange Commission (SEC) reporting requirements, other OTC stocks, such as those stocks categorized as Pink Sheets securities, have no reporting requirements, while those stocks categorized as OTCQX have met alternative disclosure guidelines through Pink OTC Markets. [edit]OTC

contracts

An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its clients directly. Forwards and swaps are prime examples of such contracts. It is mostly done via the computer or the telephone. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement. This segment of the OTC market is occasionally referred to as the "Fourth Market." The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy derivatives which allows counterparties of many bilateral OTC transactions to mutually agree to transfer the trade to ClearPort, the exchange's clearing house, thus eliminating credit and performance risk of the initial OTC transaction counterparts.

Bond (finance)
From Wikipedia, the free encyclopedia

Finance
Financial markets[show]

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Corporate finance[show]

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Banks and banking[show]

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Standards[show]

Economic history[show]

vde

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (thecoupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.[1] Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit (CDs) or commercial paper are considered to be money market instruments and not bonds. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity (i.e., bond with no maturity).

Issuing bonds
Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. Primary issuance is arranged by bookrunners who arrange the bond issue, have the direct contact with investors and act as advisors to the bond issuer in terms of timing and price of the bond issue. The bookrunners' willingness to underwrite must be discussed prior to opening books on a bond issue as there may be limited appetite to do so.

In the case of government bonds, these are usually issued by auctions, called a public sale, where both members of the public and banks may bid for bond. Since the coupon is fixed, but the price is not, the percent return is a function both of the price paid as well as the coupon.[2] However, because the cost of issuance for a publicly auctioned bond can be cost prohibitive for a smaller loan, it is also common for smaller bonds to avoid the underwriting and auction process through the use of a private placement bond. In the case of a private placement bond, the bond is held by the lender and does not enter the large bond market.[3]

Types of Bond

Bond certificate for the state of South Carolinaissued in 1873 under the state's Consolidation Act.

The following descriptions are not mutually exclusive, and more than one of them may apply to a particular bond. Fixed rate bonds have a coupon that remains constant throughout the life of the bond. Floating rate notes (FRNs) have a variable coupon that is linked to a reference rate of interest,

such as LIBOR or Euribor. For example the coupon may be defined as three month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically every one or three months. Zero-coupon bonds pay no regular interest. They are issued at a substantial discount to par

value, so that the interest is effectively rolled up to maturity (and usually taxed as such). The bondholder receives the full principal amount on the redemption date. An example of zero coupon bonds is Series E savings bonds issued by the U.S. government. Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal. In other words, the separated coupons and the final principal payment of the bond may be traded separately. See IO (Interest Only) and PO (Principal Only).

Inflation linked bonds, in which the principal amount and the interest payments are indexed to

inflation. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this position briefly reversed itself for short-term UK bonds in December 2008). However, as the principal amount grows, the payments increase with inflation. The United Kingdom was the first sovereign issuer to issue inflation linked Gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and Ibonds are examples of inflation linked bonds issued by the U.S. government.

Receipt for temporary bonds for the state ofKansas issued in 1922

Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator

(income, added value) or on a country's GDP. Asset-backed securities are bonds whose interest and principal payments are backed by

underlying cash flows from other assets. Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt obligations(CDOs). Subordinated bonds are those that have a lower priority than other bonds of the issuer in case

of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is paid, then government taxes, etc. The first bond holders in line to be paid are those holding what is called senior bonds. After they have been paid, the subordinated bond holders are paid. As a result, the risk is

higher. Therefore, subordinated bonds usually have a lower credit rating than senior bonds. The main examples of subordinated bonds can be found in bonds issued by banks, and asset-backed securities. The latter are often issued in tranches. The senior tranches get paid back first, the subordinated tranches later. Perpetual bonds are also often called perpetuities or 'Perps'. They have no maturity date. The

most famous of these are the UK Consols, which are also known as Treasury Annuities or Undated Treasuries. Some of these were issued back in 1888 and still trade today, although the amounts are now insignificant. Some ultra-long-term bonds (sometimes a bond can last centuries: West Shore Railroad issued a bond which matures in 2361 (i.e. 24th century) are virtually perpetuities from a financial point of view, with the current value of principal near zero. Bearer bond is an official certificate issued without a named holder. In other words, the person

who has the paper certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky because they can be lost or stolen. Especially after federal income tax began in the United States, bearer bonds were seen as an opportunity to conceal income or assets.[4] U.S. corporations stopped issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982, and state and local tax-exempt bearer bonds were prohibited in 1983.[5] Registered bond is a bond whose ownership (and any subsequent purchaser) is recorded by the

issuer, or by a transfer agent. It is the alternative to aBearer bond. Interest payments, and the principal upon maturity, are sent to the registered owner. Treasury bond, also called government bond, is issued by the Federal government and is not

exposed to default risk. It is characterized as the safest bond, with the lowest interest rate. A treasury bond is backed by the full faith and credit of the federal government. For that reason, this type of bond is often referred to as risk-free.

Pacific Railroad Bond issued by City and County of San Francisco, CA. May 1, 1865

Municipal bond is a bond issued by a state, U.S. Territory, city, local government, or their agencies. Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt. Build America Bonds (BABs) is a new form of municipal bond authorized by the American

Recovery and Reinvestment Act of 2009. Unlike traditional municipal bonds, which are usually tax exempt, interest received on BABs is subject to federal taxation. However, as with municipal bonds, the bond is tax-exempt within the state it is issued. Generally, BABs offer significantly higher yields (over 7 percent) than standard municipal bonds.[6] Book-entry bond is a bond that does not have a paper certificate. As physically processing paper

bonds and interest coupons became more expensive, issuers (and banks that used to collect coupon interest for depositors) have tried to discourage their use. Some book-entry bond issues do not offer the option of a paper certificate, even to investors who prefer them.[7] Lottery bond is a bond issued by a state, usually a European state. Interest is paid like a

traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond. War bond is a bond issued by a country to fund a war. Serial bond is a bond that matures in installments over a period of time. In effect, a $100,000, 5-

year serial bond would mature in a $20,000 annuity over a 5-year interval. Revenue bond is a special type of municipal bond distinguished by its guarantee of repayment

solely from revenues generated by a specified revenue-generating entity associated with the purpose of the bonds. Revenue bonds are typically "non-recourse," meaning that in the event of default, the bond holder has no recourse to other governmental assets or revenues. Climate bond is a bond issued by a government or corporate entity in order to raise finance for

climate change mitigation or adaptation related projects or programs.

Types of mutual funds

There are three basic types of registered investment companies defined in the Investment Company Act of 1940: open-end funds, unit investment trusts (UITs); and closed-end funds. exchange-traded funds (ETFs)are open-end funds or unit investment trusts that trade on an exchange. [edit]Open-end

funds

Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, redemptions and fluctuation in market valuation. [edit]Closed-end

funds

Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate. [edit]Unit

investment trusts

Unit investment trusts or UITs issue shares to the public only once, when they are created. Investors can redeem shares directly with the fund (as with an open-end fund) or they may also be able to sell their shares in the market. Unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT and does not change. UITs generally have a limited life span, established at creation. [edit]Exchange-traded

funds

Main article: Exchange-traded fund A relatively recent innovation, the exchange-traded fund or ETF is often structured as an open-end investment company, though ETFs may also be structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both closed-end funds and open-end funds. Like closed-end funds, ETFs are traded throughout the day

on a stock exchange at a price determined by the market. However, as with open-end funds, investors normally receive a price that is close to net asset value. To keep the market price close to net asset value, ETFs issue and redeem large blocks of their shares with institutional investors. Most ETFs are index funds.

equities Stock
From Wikipedia, the free encyclopedia
(Redirected from Equities)

For "capital stock" in the sense of the fixed input of a production function, see Physical capital For other uses, see Stock (disambiguation).

Financial markets

Public market Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debt Stock market Stock Preferred stock Common stock Registered share Voting share

Stock exchange Derivatives market Securitization Hybrid security Credit derivative Futures exchange OTC, non organized Spot market Forwards Swaps Options Foreign exchange Exchange rate Currency Other markets Money market Reinsurance market Commodity market Real estate market Practical trading Participants Clearing house Financial regulation

Finance series Banks and banking Corporate finance Personal finance Public finance vde

The capital stock (or just stock) of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be

withdrawn to the detriment of the creditors. Stock is distinct from the property and the assets of a business which may fluctuate in quantity and value.

Profit in busi
Business is always considered an organization but it is not so. Business refers to the system to produce or distribute goods or services to the customer with the basic aim to earn profit. Indeed, a company does such activities even a shopkeeper does business. Therefore, if we talk about business, then we talk about the aim of business which is same for a company, firm, organization or an entrepreneur, which is to earn profit. Profit increases the money that a businessman has invested in the activity and it also increases the area of business. There is no single business institution which does not have the aim to earn the profit. Profit Profit is a unique term of business. After the expenditure on the activity of the business, the remaining amount is called the profit. In a more technical term, after the exclusion of the expenses of production or distribution from the business return, the rest of the income is profit. If a business firm does not have the aim to earn the profit, then it will be weakened by the passage of time and once it is dissolved, there will be no increase in the capital or the investment of the businessman. Likely, business needs some amount of money to make his status and widen the area. But on the other hand, if a businessman just thinks about profit, then he will not succeed because it will charge an extra amount from the customer and will exploit him. Profit is earned due to the remuneration of those people who are a part of that business entity. It is a wide disputed debate topic that whether to earn profit in the business is utmost or to think that what are the customers rights, because these are the people who will buy the product and will enable the business to run. If we talk about a business institute, we should be aware about the concept of customer desires. Certainly, it is the customer who will use and utilize the product and if they do not demand, then that products company will suffer a great loss. If we examine a business environment, then we will see the initial effect of the customer to the business firm. With a slight dejection of the

product by the customer, the company can face a big loss. They are in fact the customer, not the businessman or the worker, which enable the business to run. There are many factors which regret the aim of earning profit at wide range because it has many adverse effects on the society and the economy. A businessman seeks to earn more and more profit that will make them richer and those people who buy that product will suffer a decline in the financial status. That results to a practical distribution of the society in two groups, one is the rich and other is the poor. It will disturb the whole economy. Corporate Social Responsibility To stop such cases, a well-known aspect of the business comes at the view that is corporate social responsibility. Corporate social responsibility is much known for the welfare activities but that they do not make the whole sense. Corporate social responsibility is referred to that activity in which the corporation, company or an entrepreneur, tend to make itself much valuable for the society. Social responsibilities are measured by degrees which include many features. It initially tends to make the company more strong on the economic bases. If the company is earning much profit, then it should reimburse the employees more because it is due to their hard work that the company is earning so much profit. In the second degree, it tends to make the company have a legal and an ethical value in the society. It is also known as the social degree in which makes it clear that a company should have a legal existence and pay taxes. Taxes will make the government strong which will provide social ease. Along with that, the company should also be ethical and should provide a very apparent image to the outer world about the society and should provide its all account summaries to the people. The last part is the social responsiveness degree that tends the company to make a major problem of the society to erase. It has a broad and a wide range. Social responsibility make the profit of the company less, therefore the company gives an additional cost of this expenditure on the product. It is just like that the society is paying for itself. Indeed, it is not ethical but a proportion of the amount is paid by the company and it is even more advantageous for the company because it can advertise its social aspects to the people for a better image and goodwill. Profitable Business Institutes If we take about a business institution we think of three firms 1. Entrepreneur 2. Partnership 3. Corporation The most easily defined type is the entrepreneur, in which the investor in a single body who handles the business. The other is partnership, in which the number of investors is more than that in the entrepreneur. They together handle the business and make the decisions. The third and the last type is the corporation or a company.

Profit in a company Company is a great amount of recourses and a whole board of professional to make the decisions. It has numerous amounts of investors and a very sound financial status. These types of businesses are much more profitable than the others because it has a good risk management feature. All the decisions are handled by the experts of the field with a strong knowledge and they have a huge capital. They give out shares in the market, which are bought by the customer also called shareholder, and thus they earn a periodical profit on the investments. They dont need to make any business decision. A person can earn more profit in this kind of business, therefore they are widely known. Unlike the other two types, entrepreneur and partnership, a company has limited liabilities. In other words, a company cannot take more liability than its resources. In the entrepreneur and partnership business, the businessman tends to take more and more liabilities of debts over himself than the resources. At a certain limit of the debt, he becomes unable to pay them back and therefore becomes bankrupt. But in the company business, by the continuous addition of shareholders, they never get bankrupted. If they are under a major loss, then they have a very sound risk management system. They get themselves insured and tend to be more conscious over any deal. The shareholders enjoy a very good and a beneficial business with a regular profit, considering in the mind that they have invested their money in a very profitable company. Choosing a company to invest is not a hard job. Find a reliable stock broker with a great knowledge and experience about the market and the values of the company. Profit measures in the other businesses Talking about the entrepreneur and the partnership, they are also profitable but in the sense, if they are adequate to manage the organization. An entrepreneur can have much more profit than the companys investment money. An entrepreneur uses his managing qualities and the knowledge about the product and market to boost up the profit. Indeed, he needs to have a large amount of experience and expertise about the variation of the market. Like, a merchant or a trader uses his investment and skills to sell the product, whether self-made or a third party product and earns the profit. Partnership is not much different from entrepreneur. It has the merged qualities of many entrepreneurs. If likely an entrepreneur has great knowledge about the market and the sales aspects, then they can merge themselves to earn a greater amount of profit. Many times, with the unavailability of the recourses, these entrepreneurs merge themselves to have an adequate profit. Resources include everything like money, labor, or time etc. They try to run their business in a good and a fine condition. Some people think that by merging of the company, the profit in not much the same. It is not true, mostly it is analyzed that the profit is doubled and the profit proportion to each partner rises. Concluding that if someone has the knowledge about the market and is more intellectual, then he must go for the business like the entrepreneur or partnership. If he is in a job then he must have money to invest. At a very strong height of experience, he can leave the job and can start his own business. He can also be a hidden partner in any other firm to gain profit. Alternatively, if

somebody doesnt have the knowledge about any product or market, then he can go to invest his money in any of the profitable and creditable company by buying shares. He just needs to examine the yearly dividend and the yearly premium, which he has paid.

Shar holder fund

Shareholders' funds is the balance sheet value of the shareholders' interest in a company. For company (as opposed to group) accounts it is simply all assets less all liabilities. For consolidated group accounts the the value ofminority interests should also be excluded. The addition of minority interests gives us shareholders' fund including minority interests. Further adjustments gives us total equity. The balance sheet value of assets does have some significance for valuation (see NAV). However, changes in shareholders' funds are also important. The most obvious reason for shareholders' funds to change is that profits have been made and retained, however changes can also be caused by gains or losses that do not go through the P & L, such as revaluations. This is why both the statement of total recognised gains and losses (STRGL) and the note to the accounts reconciling beginning and ending shareholders' funds are important, the more so because looking at changes that have not gone through the P & L can alert investors to some manipulations of the accounts. For example, a consistent accumulation of unrealised losses on investments may be a cause for concern. The items within shareholders' funds (share capital, reserves and retained profit) are usually of little importance, although the amount of distributable reserves might matter to shareholders if it is too low, and (even more rarely) to creditors if it is too high.

Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.[1] When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. For a joint stock company, a dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. For the joint stock company, paying dividends is not an expense; rather, it is the division of after tax profits among shareholders. Retained earnings (profits that have not been distributed as dividends) are shown in the shareholder equity section in the company's balance sheet - the same as its issued share capital. Public companies usually pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called a special dividend to distinguish it from the fixed schedule dividends. Cooperatives, on the other hand, allocate dividends according to members' activity, so their dividends are often considered to be a pre-tax expense. Dividends are usually paid in the form of cash, store credits (common among retail consumers' cooperatives) and shares in the company (either newly created shares or existing shares bought in the market.) Further, many public companies offer dividend reinvestment plans, which automatically use the cash dividend to purchase additional shares for the shareholder. The word "dividend" comes from the Latin word "dividendum" meaning "thing to be divided

Joint stock company dividends

A dividend is allocated as a fixed amount per share. Therefore, a shareholder receives a dividend in proportion to their shareholding. [edit]Forms

of payment

Cash dividends (most common) are those paid out in currency, usually via electronic funds transfer or a printed paper check. Such dividends are a form of investment income and are usually taxable to the recipient in the year they are paid. This is the most common method of sharing corporate profits with the shareholders of the company. For each share owned, a declared amount of money is distributed. Thus, if a person owns 100 shares and the cash dividend is USD $0.50 per share, the holder of the stock will be paid USD $50. Stock or scrip dividends are those paid out in the form of additional stock shares of the issuing corporation, or another corporation (such as its subsidiary corporation). They are usually issued in

proportion to shares owned (for example, for every 100 shares of stock owned, a 5% stock dividend will yield 5 extra shares). If the payment involves the issue of new shares, it is similar to a stock splitin that it increases the total number of shares while lowering the price of each share without changing the market capitalization, or total value, of the shares held. (See also Stock dilution.) Property dividends or dividends in specie (Latin for "in kind") are those paid out in the form of assets from the issuing corporation or another corporation, such as a subsidiary corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer, however they can take other forms, such as products and services. Other dividends can be used in structured finance. Financial assets with a known market value can be distributed as dividends; warrants are sometimes distributed in this way. For large companies with subsidiaries, dividends can take the form of shares in a subsidiary company. A common technique for "spinning off" a company from its parent is to distribute shares in the new company to the old company's shareholders. The new shares can then be traded independently. [edit]Reliability

of dividends

There are two metrics which are commonly used to gauge the sustainability of a firm's dividend policy. Payout ratio is calculated by dividing the company's dividend by the earnings per share. A payout ratio greater than 1 means the company is paying out more in dividends for the year than it earned. Dividend cover is calculated by dividing the company's cash flow from operations by the dividend. This ratio is apparently popular with analysts of income trusts in Canada.[citation needed] [edit]Dividend

Dates

Dividends must be "declared" (approved) by a companys Board of Directors each time they are paid. For public companies, there are four important dates to remember regarding dividends. These are discussed in detail with examples at the Securities and Exchange Commission site [1] Declaration date is the day the Board of Directors announces its intention to pay a dividend. On this day, a liability is created and the company records that liability on its books; it now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date. In-dividend date is the last day, which is one trading day before the ex-dividend date, where the stock is said to be cum dividend ('with [including] dividend'). In other words, existing holders of the stock and anyone who buys it on this day will receive the dividend, whereas any holders selling the stock lose their right to the dividend. After this date the stock becomes ex dividend. Ex-dividend date (typically 2 trading days before the record date for U.S. securities) is the day on which all shares bought and sold no longer come attached with the right to be paid the most recently declared

dividend. This is an important date for any company that has many stockholders, including those that trade on exchanges, as it makes reconciliation of who is to be paid the dividend easier. Existing holders of the stock will receive the dividend even if they now sell the stock, whereas anyone who now buys the stock will not receive the dividend. It is relatively common for a stock's price to decrease on the exdividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company's assets resulting from the declaration of the dividend. The company does not take any explicit action to adjust its stock price; in an efficient market, buyers and sellers will automatically price this in. Book closure Date Whenever a company announces a dividend pay-out, it also announces a date on which the company will ideally temporarily close its books for fresh transfers of stock. Read "Book Closure" for a better understanding. Record date Shareholders registered in the stockholders of record on or before the date of record will receive the dividend. Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date. Payment date is the day when the dividend checks will actually be mailed to the shareholders of a company or credited to brokerage accounts. [edit]Dividend-reinvestment Some companies have dividend reinvestment plans, or DRIPs, not to be confused with scrips. DRIPs allow shareholders to use dividends to systematically buy small amounts of stock, usually with no commission and sometimes at a slight discount. In some cases, the shareholder might not need to pay taxes on these re-invested dividends, but in most cases they do. [edit]Dividend

Taxation

[edit]Australia and New Zealand In Australia and New Zealand, companies also forward franking credits or imputation credits to shareholders along with dividends. These franking credits represent the tax paid by the company upon its pre-tax profits. One dollar of company tax paid generates one franking credit. Companies can forward any proportion of franking up to a maximum amount that is calculated from the prevailing company tax rate: for each dollar of dividend paid, the maximum level of franking is the company tax rate divided by (1 company tax rate). At the current 30% rate, this works out at 0.30 of a credit per 70 cents of dividend, or 42.857 cents per dollar of dividend. The shareholders who are able to use them offset these credits against their income tax bills at a rate of a dollar per credit, thereby effectively eliminating the double taxation of company profits. This system is called dividend imputation. [edit]UK

The UK's taxation system operates along similar lines: when a shareholder receives a dividend, the basic rate of income tax is deemed to already have been paid on that dividend. This ensures that double taxation does not take place, however this creates difficulties for some non-taxpaying entities such as certain trusts, charities and pension funds which are not allowed to reclaim the deemed tax payment and thus are in effect taxed on their income. [edit]India In India, companies declaring or distributing dividend, are required to pay a Corporate Dividend Tax in addition to the tax levied on their income. Dividend received is exempt in the hands of the shareholder's, in respect of which Corporate Dividend Tax has been paid by the company. [edit]Criticism Some believe that company profits are best re-invested back into the company: research and development, capital investment, expansion, etc. Proponents of this view (and thus critics of dividends per se) suggest that an eagerness to return profits to shareholders may indicate the management having run out of good ideas for the future of the company. Some studies, however, have demonstrated that companies that pay dividends have higher earnings growth, suggesting that dividend payments may be evidence of confidence in earnings growth and sufficient profitability to fund future expansion.[3] Taxation of dividends is often used as justification for retaining earnings, or for performing a stock buyback, in which the company buys back stock, thereby increasing the value of the stock left outstanding. When dividends are paid, individual shareholders in many countries suffer from double taxation of those dividends: 1. 2. the company pays income tax to the government when it earns any income, and then when the dividend is paid, the individual shareholder pays income tax on the dividend

payment. In many countries, the tax rate on dividend income is lower than for other forms of income to compensate for tax paid at the corporate level. In contrast, corporate shareholders often do not pay tax on dividends because the tax regime is designed to tax corporate income (as opposed to individual income) only once. The shareholder will pay a tax on capital gains (often taxed at a lower rate than ordinary income), only when the shareholder chooses to sell the stock. If a holder of the stock chooses to not participate in the buyback, the price of the holder's shares should rise, but the tax on these gains is delayed until the actual sale of the shares. Certain types

of specialized investment companies (such as a REIT in the U.S.) allow the shareholder to partially or fully avoid double taxation of dividends. Shareholders in companies which pay little or no cash dividends can reap the benefit of the company's profits when they sell their shareholding, or when a company is wound down and all assetsliquidated and distributed amongst shareholders. This, in effect, delegates the dividend policy from the board to the individual shareholder. Payment of a dividend can increase the borrowing requirement, or leverage, of a company.

Contingent liabilities are liabilities that may or may not be incurred by an entity depending on the outcome of a future event such as a court case. These liabilities are recorded in a company'saccounts and shown in the balance sheet when both probable and reasonably estimable. A footnote to the balance sheet describes the nature and extent of the contingent liabilities. The likelihood of loss is described as probable, reasonably possible, or remote. The ability to estimate a loss is described as known, reasonably estimable, or not reasonably estimable. [edit]Examples outstanding lawsuits Legal liability Liquidated damages Tort Bills Discounted with bank Unliquidated damages Destruction by Flood product warranty

In law, a debenture is a document that either creates a debt or acknowledges it. In corporate finance, the term is used for a medium- to long-term debt instrumentused by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified

amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital..[1] Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company's general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's financial statements.

NAV MEANS NET ASSET VALUE NAV=TOTAL VALUE OF INVESTMENT-LIABILITIES /TOTAL OF NO. UNITS OUTSTANDING . NAV MEANS TOTAL VALUE OF UNITS MINES LIABILITIES IS DIVADED BY TOTAL OF NO.UNITS OUTSTANDING

What is NET ASSET VALUE ?

The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is calculated by subtracting liabilities from the value of a fund's securities and other items of value and dividing this by the number of outstanding shares.Net asset value is popularly used in newspaper mutual fund tables to designate the price per share for the fund. The value of a collective investment fund based on the market price of securities held in its portfolio. Units in open ended funds are valued using this measure. Closed ended investment trusts have a net asset value but have a separate market value. NAVper share is calculated by dividing this figure by the number of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV. Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding. Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.50.00

Basic Mutual Fund Concepts

InvestorGuide University > Subject: Mutual Funds > Topic: Mutual Fund Basics > Basic Mutual Fund Concepts by InvestorGuide Staff (Write for us!) There's a lot of terminology associated with mutual funds that you'll need to know before you can start investing in them. These concepts are an important part of mutual fund investing; you should make sure that you understand them in full before you start to invest in mutual funds.

Open-end Funds

All mutual funds fall into one of two broad categories: open-end funds and closed-end funds. Most mutual funds are open-end. The reason why these funds are called "open-end" is because there is no limit to the number of new shares that they can issue. New and existing shareholders may add as much money to the fund as they want and the fund will simply issue new shares to them. Open-end funds also redeem, or buy back, shares from shareholders. In order to determine the value of a share in an open-end fund at any time, a number called the Net Asset Value (described below) is used. You purchase shares in open-end mutual funds from the mutual fund itself or one of its agents; they are not traded on exchanges.

Closed-end Funds

Closed-end funds behave more like stock than open-end funds; that is to say, closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time shares in the fund are bought and sold on a stock exchange. Unlike open-end funds, closed-end funds are not obligated to issue new shares or redeem outstanding shares. The price of a share in a closed-end fund is determined entirely by market demand, so shares can either trade below their net asset value ("at a discount") or above it ("at a premium"). Since you must take into consideration not only the fund's net asset value but also the discount or premium at which the fund is trading, closed-end funds are considered to be more suitable for experienced investors. You can purchase shares in a closed-end fund through a broker, just as you would purchase a share of stock.

Net Asset Value (NAV)

Open-end mutual funds price their shares in terms of a Net Asset Value (NAV) (note that you can calculate NAV for a closed-end fund too, but it will not necessarily be the price at which you buy or sell closed-end shares). NAV is calculated by adding up the market value of all the fund's underlying securities, subtracting all of the fund's liabilities, and then dividing by the number of outstanding shares in the fund. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees). Mutual funds only calculate their NAVs once per trading day, at the close of the trading session.

Public Offering Price (POP)

The public offering price (POP) is the price at which shares are sold to the public. For funds that don't charge a sales commission (or "load"), the POP is simply equal to the Net Asset Value (NAV). For a load fund, the POP is equal to the NAV plus the sales charge. As with the NAV, the POP will typically change on a day to day basis.

Dividends and Capital Gains Distributions

Mutual funds earn money on their investments through one of two ways: dividend income and capital appreciation. In other words, a mutual fund makes money on one of the fund's assets when that asset pays the mutual fund dividends or interest, or when the mutual fund sells the asset for more than what it initially paid (if it sells the asset for less than what it initially paid, then that is called a capital loss). The federal government mandates that all mutual funds distribute these dividends and capital gains to the fund's shareholders at leas