World Of Finance

There is a whole world of financial securities other than stocks and bonds. One of such securities is Derivatives, which are financial instruments whose “value” are derived from the value of the underlying. Hence, they are called “derivative” i.e. derive from something else. The underlying on which derivative is based could be: Asset: e.g. stocks, bonds, mortgages, real estate, commodities, real estate properties. Index: e.g. stock market indices, Consumer Price Index, Foreign Currencies and interest rates Other items: e.g. Weather (yes- you will derivatives written on rain!!) For example – a derivative on a stock derive its value from the value of underlying stock! There are three main types of derivatives: Forwards (similar to Futures), Options and Swaps. Futures are very similar to Forwards except for the fact that Futures are traded on exchange while Forwards are traded over the counter (OTC). In this article I am going to concentrate only on Futures (F) and Options (O). So...

Dated Government Securities   Dated Government securities are longer term securities and carry a fixed or floating coupon ( interest rate ) paid on the face value , payable at fixed time periods (usually half-yearly). The tenor of dated securities can be up to 30 years. The Public Debt Office (PDO) of the RBI acts as the registry / depository of Government securities and deals with the issue, interest payment and repayment of principal at maturity. Most of the dated securities are fixed coupon securities. The nomenclature of a typical dated fixed coupon Government security has the following features - coupon, name of the issuer, maturity and face value. For example; 7.49% GOI 2017 would have the following features:   Date of Issue:      April 16, 2007 Date of Maturity: April 16, 2017 Coupon:              7.49% paid on face value Coupon Payment Dates: Half-yearly (October16 and April 16) every...

The Indian economy is witnessing a mini revolution in commodity derivatives and risk management. Commodity options trading and cash settlement of commodity futures had been banned since1952 and until 2002 commodity derivatives market was virtually non-existent, except some negligible activation an OTC basis. Now in September 2005, the country has 3 national level electronic exchange and 21 regional exchanges for trading commodity future derivatives. As many as 103 commodities have been allowed for derivative trading. In this article we will discuss the various. as Modern Commodity market The modern commodity markets have their roots in the trading of agricultural products . While wheat and corn, cattle and pigs, were generally traded using standard instruments in the 19th century in the United States, other basic foodstuffs such as soybeans were only added quite recently in most markets. For a commodity market to be established there must be very wide consensus on the variations i...

Portfolio Portfolio-Management is used to select a portfolio products that help in maximize the profitability or value of the portfolio and to provide balance. Before we go in detail about portfolio management we first need to understand what exactly portfolio means. Portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their mutual exchange-traded and closed-ended fund counterparts. Investors should construct an investment portfolio in accordance with risk tolerance and return requirements. Imagine a pie that is divided into pieces of varying sizes, investment portfolios are just the same representing a variety of asset classes or types of investments to accomplish an appropriate risk-return portfolio allocation. Portfolio Management Now that we know about Portfolio, it can be said that portfolio management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation f...

Arbitrage Arbitrage is the process where there is simultaneous purchase and sale of an asset in order to profit from a difference in the price of the similar financial instruments , on different markets or in different forms. A person who engages in this type of trading is called an arbitrageur. The term is applied to trading in financial instruments, such as bonds, stocks, derivatives, commodities and also currencies. Just an act of buying a product in one market and selling it in another for a higher price at some later time is not arbitrage. Arbitrage is when the transactions occur simultaneously to avoid exposure to market risk, or the risk assumed that prices may change in one market before both transactions are complete. In practical terms, this is only possible with securities and financial products which can be traded electronically.  For example; this type of price arbitrage is very common, but it ignores the cost of transport, storage, risk, and other factors. "T...

We often hear about markets coming down and going up, receiving dividends, annual general meetings etc and one of the reasons for all of the above things to happen is shares and debentures. Are there different types of shares and debentures? If yes then what are they called, what is the difference between them, are shares better than debentures, let’s find out answe r. Companies (Private and Public) need capital either to increase their productivity or to increase their market reach or to diversify or to purchase latest modern equipments. Companies go in for IPO and if they have already gone for IPO then they go for FPO. The only thing they do in either IPO or FPO is to sell the shares or debentures to investors (the term investor here represents retail investors, financial institutions , government, high net worth individuals, banks etc). Whether they issue shares or debentures totally depends upon the concerned company. Shares Shares are the marketable instruments issued by the com...