Financial Engineering

Definition
Financial engineering involves the design, the development, and the implementation of innovative instruments and processes, and the formulation of creative solutions to problem in finance. John Finnerty.

Tools of Financial Engineering

Conceptual tools
Valuation theory

Physical tools
Instruments
Fixed income securities Options Swaps Futures equits

Processes
Electric security trading Public offering Private placement

Portfolio theory
Hedging theory Accounting relationship Tax tretment

Factors Responsible for Financial Engineering

Price Volatility Globalisation of Market Tax Asymmetry Regulatory Changes Liquidity Needs Accounting Benefits

Definition
Financial engineering involves the design, the development, and the implementation of innovative instruments and processes, and the formulation of creative solutions to problem in finance. John Finnerty.

Sell off
Sell off involves the sale of a subsidiary, division or a product line in exchange for cash or securities or combination thereof Buyer can be :

Another Company
Firms Management (Management buyout) Another Management team (Leverage buyout) Needs Advantages

Spin off
In spin off one or more divisions of a listed company are detached from the parent company and parent company distributes shares in a collateral subsidiary to its shareholders. Need Advantages

Before spin off.

Spin off
Parent company

Division A

Division B

after spin off.

Parent company

New company

Division A
Same shareholders

Spin off
Example:
NIIT's Software Solutions

NIIT limited Other divisions

75% of the equity share capital of NTL held by the shareholders of NIIT Limited. The balance 25% held by demerged NIIT Limited through a wholly owned subsidiary.

Equity carve-out
In equity carve out a public company sells portion of its stack in subsidiary through IPO and carve out subsidiary becomes an independent company Need Advantages

Equity carve-out
Before carve out

Parent company

Subsidiary A

Subsidiary B

after carve out .

Parent company

New company

Subsidiary A

New shareholders

Targeted stocks

Common stock structure

Valuation on the basis of performance of business A&B

Voting power

company
Business A Business B

Targeted Stocks Structure

Targeted stock A
Valuation based on performance of A

Targeted stock B
Valuation based on performance of B

Shared voting

company
Business A Business B

Definition
Financial engineering involves the design, the development, and the implementation of innovative instruments and processes, and the formulation of creative solutions to problem in finance. John Finnerty.

A to Z of Financial Instrument
A ADR B Badla C Collateralisd Mortgage Obligation D Debentures E Euro Bonds F Floating Rate Bond G Gold Loan H Hybrid Mutual Fund I Inverse Floaters

A to Z of Financial Instrument
J Junk Bond K Keogh Account L Leveraged Buyout M Money Market Mutual Fund N Negotiable Certificate of Deposit O Option P Puttable Common Stock Q Quasi Equity R Real Yield Securities

A to Z of Financial Instrument
S Synthetic Convertible Bond T Treasury Bills U Unit Link Insurance Plan V Venture Capital W Warrant X eXtendible Notes Y Yankee Bonds Z Zero Coupon Bonds