Market Watch 06/09/07

SENSEX	15616.31	(170.16)
NIFTY	4518.60	(42.75)
DJIA	13305.47	(143.39)
NASDAQ	2605.95	(24.29)
RS/$	40.94	(0.03)

Market Watch 4/09/07

SENSEX	15465.40	43.35
NIFTY	4479.25	4.50
DJIA	13357.74	119.01
NASDAQ	2596.36	31.06
RS/$	40.88	-0.08

Best Wishes....

Finance and Economics Club wishes all the Best of Luck for all those aspirants who are apperaring for Interview with HCL.

Stock Market Watch 28/08/07

SENSEX	14919.19	76.81
NIFTY	4320.70	18.10
DJIA	13041.85	280.28
NASDAQ	2500.64	-60.61
RS/$	40.98	0.00

Market Watch 24/08/07

SENSEX	14424.87	260.89
NIFTY	4190.15	75.20
DJIA	13378.87	142.99
NASDAQ	2576.69	34.99
RS/$	41.18	0.32

Market Watch 20/08/07

SENSEX	14427.55	286.03
NIFTY	4209.05	101.00
DJIA	13121.35	42.27
NASDAQ	2508.59	3.56
RS/$	41.57	0.00

Last Date for Giving Team Names

FINANCE & ECONOMICS CLUB

RESULT:-BUSINESS QUIZ

The students who have cleared the Preliminary Test of Business Quiz , conducted on 4^th August, 2007 are as under:

Name Enrolment No. Section

1. Abhimanyu Chanudhary 07BS0138 D
   
2. Mradul Km. Mathur 07BS2042 A
   
3. Amit Jain 07BS0415 A
   
4. Gargi Roy 07BS1389 A
   
5. Pallavi 07BS2759 E
   
6. Savin Dhall 07BS3901 D
   
7. Robin Chabra 07BS3470 B
   
8. Shailash Malhotra 07BS3926 A
   
9. Dheeraj Vermani 07BS1261 E
   
10. Puneet Dua 07BS3079 B
    
11. Mitul Kakkar 07BS2272 E
    
12. Avneesh Kr. Paul 07BS0920 E
    
13. Priyanka Rai 07BS3051 E
    
14. Karan Duggal 07BS1841 B
    
15. Ritu N. Singh 07BS3456 A
    
16. Muneeb Muzattan Tak 07BS2355 A
    
17. Sunil Samdani 07BS4422 A
    
18. Gurpindejeet Kaur 07BS1509 B
    
19. Sunil Sharma 07BS4423 A
    
20. Akash Motwani 07BS0334 D
    
21. Abhishek Main Tripathi 07BS0039/ -
    
22. Rajni 07BS3279 A
    
23. Neha Bansal 07BS2473 -
    
24. Vipul Garg 07BS5032
    

Congratulations to all the selected participants

The aforesaid participants are required to form their own group of 2 members each. All the group names be informed to the Business Quiz activity coordinators:- S.Hari Balaji(2008) and Vinod Kumar(2008) by 21^th August, 2007 by 5.00p.m.. The participants who will not do so will be disqualified.

This issues with the approval of faculty coordinator

Gyan Chandra

Sumit Garg

CAPITAL ACCOUNT CONVERTIBILITY

GROWING INDIA
With the around 7% GDP growth rate, India has emerged as one of the fastest growing economy after China. India has moved towards liberalization, privatization and globalization. It is opening up its markets so as to integrate with global economy and while doing so, India has been quite watchful in its approach to embrace global economy.
In the wake of severe currency crisis in the late 1990s in many parts of the world and the globalization of the financial markets, many developing Latin American and Asian countries have been considering the openness of the capital account.
Capital account convertibility begins with liberalization of capital account by the Governments and their respective Central Banks of the nations.

CAPITAL ACCOUNT CONVERTIBILITY
By capital account convertibility, we mean “the freedom to convert the local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. This is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world”.
Thus in simpler terms, it means that irrespective of whether one is a resident or non-resident of India, one’s assets and liabilities can be freely (that is without any permission of any regulatory authority) denominated in any currency and easily interchanged between that currency and the rupee.

CURRENT ACCOUNT CONVERTIBILITY
On the other hand current account convertibility refers to convertibility required in case of transactions relating to exchange of goods and services, money transfers and all those transactions that are classified under current account.

ASPECTS OF CAPITAL ACCOUNT ACCOUNTABILITY
Capital account convertibility includes two aspects-
1. Inflow of funds into the economy; and
2. Outflow of funds from the economy.
It is basically removing the restrictions of international and is the feature of developed countries.
Convertibility would generate massive flows of funds into and out of India, as Indians and foreigners modify their portfolios to reflect new investment possibilities. Even if all policies in terms of financial regulation are correctly orchestrated, volatility in the dollar-rupee will innately increase. But given the tradition of government controls in India, we are all used to expecting low volatility of the rupee-dollar. This raises the urgency of developing futures and options on the dollar-rupee, which would give people a method for managing these risks.

CAPITAL/CURRENT ACCOUNT CONVERTIBILITY IN INDIAN CONTEXT
At the moment India has implemented current account convertibility. It means one can export and import goods and services and can make the payment of these services rendered very easily. But capital account convertibility is not fully implemented in India, there is partial conversion. An Indian individual or institution is allowed, subject to certain conditions, to invest in foreign assets. Foreigners too are similarly allowed to invest in India. Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment. It offers foreign investors a lot of comfort as they can re-convert local currency into foreign currency anytime they want to and take their money away. At the same time, capital account convertibility makes it easier for domestic companies to tap foreign markets.

WHAT INDIAN GOVERNMENT IS DOING?
To see into the matter, till date only one committee under consultation of Indian Government has been set up. A committee on capital account convertibility, setup by the Reserve Bank of India (RBI) under the chairmanship of former RBI deputy governor S.S. Tarapore to "lay the road map" to capital account convertibility. At the moment it is still a report and central bank has to accept the recommendations of the committee.
The Committee had also laid down certain pre-conditions for implementing the reforms. But nothing much happened during this phase. Then, came the phase subsequent to 1999-2000 when there was a phenomenal increase in foreign exchange reserves of more than $41 billion cumulatively. In 2002-03 alone, there was a quantum jump in reserves by $21.3 billion. This significant improvement in the external position is, to quote the Reserve Bank of India (RBI), "unprecedented in India's history".

EFFECT ON INDIVIDUAL
As most of us know, resident Indians cannot move their money abroad freely. That is, one has to operate within the limits specified by the Reserve Bank of India and obtain permission from RBI for anything concerning foreign currency.
For example, the annual limit for the amount you are allowed to carry on a private visit abroad is $10,000: of which only $5,000 can be in cash. For business travel, the yearly limit is $25,000. Similarly, you can gift or donate up to $5,000 in a year.
The RBI limit raises the limit if you are going abroad for employment, or are immigrating to another country, or are going for studies abroad: the limit in both these cases is $100,000.
You are also allowed to invest into foreign stock markets up to the extent of $1,00,000 in a year.
For the average Indian, these 'limits' seem generous and might not affect him at all. But for heavy spenders and those with visions of buying a house abroad or a Van Gogh painting, it will mean a lot.
But with the markets opening up further with the advent of capital account convertibility, one would be able to look forward to more and better goods and services.

WHAT INDIA IS GOING GAIN FROM CAC?
If India goes for fuller Capital Account Convertibility then it is going to prove beneficial for her in the following terms:
a) As there will be inflow of capital, then it can be used for overall development of the country.
b) Forex inflows can be used for specific purposes like infrastructural development which is o utmost importance.
c) It can be used developing the country’s untapped human resources which again used for the country’s development.
d) It will increase the country’s goodwill in comparison to other developed countries of the world.
e) It will increase the country’s foreign reserve also which can put to use for different purposes like balance payment, investment in foreign country, etc.
f) Indian investors can divert their surplus saving to other investments in foreign countries.
g) During any financial crisis, India could be in safe position as the country’s money which is invested in foreign countries can be used in the country as there will be flexibility for Indian investor s too.

WHAT INDIA CAN LOOSE?
Till date India has implemented Current Account Convertibility and now she is on the path for the fuller Capital Account Convertibility. But India should take care of the following aspects before doing so:
a) As there will huge inflow without any hindrance from the apex financial system i.e. Reserve Bank of India, it can pose threat to country’s financial security. As it belongs to the foreign country.
b) As there can sudden capital inflow so the reverse can also happen, that is there is provision for sudden withdrawal of the same without taking the permission of the RBI.
c) Withdrawal can lead to “HERD BEHAVIOUR” of the investors whereby if one will start to withdraw from the country, others will follow resulting in capital flight.
d) If not taken proper care can lead to a “Financial Crises” as well.

RECOMMENDATIONS
In spite of several threatening that India is facing and can face with the implementation of the fuller Capital Account Convertibility, she can go for the same because it is evident from the advantages that it can do wonders to our country. But with that there are certain aspects which have to be paid attention:
- The country should not be pushed to a situation, where it will be too much dependent upon other countries for investment.
- There should be proper ascertainment of the capital requirement in the country so as to avoid any financial crisis.
- The Indian Government should make some provision to have capital inflow in the country through this channel as well as capital outflow again to prevent the country from any sudden shocks which can be positive as well as negative.
- Capital inflow from this channel should not that much which can lead to IDLE capital in the country.
Thus if Indian Government goes very cautiously for fuller Capital Account Convertibility, then the country can get much more opportunity to shine and can make use of its each and every available resource. India can fulfill its financial requirement through other channels as well, but it seems to be much more smooth way in terms of attracting the foreign investors to our country. Also Indian investors can go and make earnings.
Thus, now India after successful implementation of Current Account Convertibility should move forward and implement fuller Capital Account Convertibility in a phased manner if not at a stretch. If India will take such step then very surely it will achieve and touch the much awaited double digit GDP growth rate.

Written By:
Minakshi Karan
Isha Madan

Market Watch 17/08/07

SENSEX	14141.52	216.69
NIFTY	4108.05	70.55
DJIA	13079.08	233.30
NASDAQ	2505.03	53.96
RS/$	41.57	0.88

Stock Market Watch 13/08/07

SENSEX	15017.21	148.96
NIFTY	4373.65	40.30
DJIA	13279.29	8.61
NASDAQ	2550.34	-6.15
RS/$	40.67	0.27

SENSEX	14868.25	231.90
NIFTY	4333.35	69.85
DJIA	13270.68	387.18
NASDAQ	2556.49	56.49
RS/$	40.40	0.18

Market Watch 09/08/07

SENSEX	15100.15	207.83
NIFTY	4403.20	58.90
DJIA	13270.68	387.18
NASDAQ	2556.49	56.49
RS/$	40.40	0.18

Club Activities on 10/08/07

Finance and Economics Club:

It is to for the information of all members of Finance and Economics club, that meeting of the club is being organized on 10/08/07(Friday) at 4.00 PM at IBS Auditorium.

The detailed program is as under.

Activity	Time
Welcome Address	4.00 P.M
Briefing by the Student Club Coordinator	4: 05 P.M
Briefing by Mentors of teams 5 Min. each	4.10- 4.35 P. M
Presentation on Mutual Funds By Bajaj Capital Ltd.	4.35-4.50 P.M
Valedictory and Thanks	4.55-5.00 P.M

Student Activity Coordinators

Gyan Chandra

Sumit Garg

Stock Market Watch 08/08/07

SENSEX	15307.98	375.21
NIFTY	4462.10	105.75
DJIA	13504.30	35.52
NASDAQ	2561.60	14.27
RS/$	40.37	-0.08

Market Watch 06/08/07

SENSEX	14903.03	235.37
NIFTY	4339.50	-62.05
DJIA	13181.91	281.42
NASDAQ	2511.25	-64.73
RS/$	40.43	-0.07

Results of Business Quiz

FINANCE & ECONOMICS CLUB

The students who have cleared the Preliminary Test of Business Quiz , conducted on 4^th August, 2007 are as under:

Name Enrolment No. Section
Abhimanyu Chanudhary - 07BS0138 - D
Mradul Km. Mathur - 07BS2042 - A
Amit Jain- 07BS0415 - A
Gargi Roy - 07BS1389 - A
Pallavi - 07BS2759 - E
Savin Dhall - 07BS3901 - D
Robin Chabra - 07BS3470 - B
Shailash Malhotra - 07BS3926 - A
Dheeraj Vermani - 07BS1261 - E
Puneet Dua - 07BS3079 - B
Mitul Kakkar - 07BS2272 - E
Avneesh Kr. Paul - 07BS0920 - E
Priyanka Rai - 07BS3051 - E
Karan Duggal - 07BS1841 - B
Ritu N. Singh - 07BS3456 - A
Muneeb Muzattan Tak - 07BS2355 - A
Sunil Samdani - 07BS4422 - A
Gurpindejeet Kaur - 07BS1509 - B
Sunil Sharma - 07BS4423 - A
Akash Motwani - 07BS0334 - D
Abhishek Main Tripathi - 07BS0039 -
Rajni - 07BS3279 - A
Neha Bansal - 07BS2473 -
Vipul Garg - 07BS5032 - C

Congratulations to all the selected participants
The aforesaid participants are required to form their own group of 2 members each having a distinct NAME. All the group names be informed to the Business Quiz activity coordinators:- S.Hari Balaji(2008) and Vinod Kumar(2008) by 8^th August, 2007.

Student Coordinators
Gyan Chandra

Sumit Garg

Faculty Coordinators

Dr. Sanjeev Chaddha -Dr. Kewal Raj

Business Quiz

Finance and Economics Club Held Preliminary round for Business Quiz on Saturday 4/08/07. The question asked in the quiz are given below and answers are marked with Red colour

1) This company was called Lutsuko and later changed its name to something that literally means 'to lose money'. Which one?
a)L' Oreal b)Sony c)Suzuki d)Honda
2) Which international brand had an ad campaign - 'Tomorrow is mine' and had signed Rahul Dravid for the campaign?
a)Reebok b)Nike c)Pepsi d)Puma
3) This organization has 1356 members and has the ad-line "the world put stock on us". Which organization?
a)NASDAQ b)LSE c)NYSE d)BSE
4) Who designs jewellery for the company called Artex?
a)Sonia Gandhi b)Priyanka Gandhi c)Menaka Gandhi d)Uma Bharthi
5) What is the name of the new FM channel introduced by India Today?
a)Road b)Run c)Red d)Fun
6) The Indian born, who was recently promoted as the President of Pepsi Co?
a)George Zacharas b)Indira Nooyi c)Steven Kapoor d)Madhavi Puri Buch
7) The controversial MIP-95 mutual fund scheme belongs to ______
a)Alliance Capital. b)UTI. c)Prudential ICICI d) Kotak Mahindra
8) Allen Solly is a brand owned by which group of Companies?
a)Tata Group b)Damani Group c)Arvind Mills Group d)Nahar Group
9) India's first electric car is known as _____
a)Reva b)Mewa. c)Bewa d)Mova.
10) In the context of Mutual Funds, SIP stands for..
a)Systematic Investment Plan b)Scheduled Interest Plan
c)Specific Insurance Plan d)Special Income Plan
11) Identify the person who has over taken Warren Buffet rank of world 2nd richest man
a)Bill Gates b)LN Mittal d)Carlos slim Helu e)Bharti Mittal
12) What is the expansion of GENI
a)Global Environment for Network Innovation b)Global Energy Network Institute
c)Global Education Network of India d)Global Embassy for Network Association
13) Which bank is seeking approval for a joint venture with LIC
a)UTI b)HSBC c)ICICI d)IDBI
14) Pick out the Intangible asset
a)Land b)Goodwill c)Television d)Trademark
15) To which of the following two wheeler brand “Awaz Consumer Award 2006” was awarded?
a)Hero Honda Splendor b)Bajaj CT 100 c)Yamaha Crux d)TVS Star
16) Name the BPO arm of IT major Satyam Computers Service Limited?
a)Naipunya b)Nipuna c)Progen d)Prosoft
17) The term “ transformational leadership” is coined by______ .
a)Pradeep Sindhu b)Philip Kotler c)Samuel A Dipiazza d)James MacGregor Burns
18) Which Air-conditionar company has the slogan “Inspire the Next”?
a)Blue Star b)Hitachi c)Carrier d)LG
19) Which company is listed on the NYSE as MTE?
a)VSNL b)BSNL c)MTNL d)ITI
20) Which company is ranked 1st in Mid-sized company on the basis of Net Sales Growth by Business world survey? (Revenue 500cr-1000cr)
a)Gokuldas Exports b)DLF c)Tele Data Informatics d)Unitech
21) Which company is ranked 1st in Mid-sized company on the basis of Net Profit Growth by Business world survey? (Revenue 500cr-1000cr)
a)Gokuldas Exports b)DLF c)Tele Data Informatics d)Unitech
22) Which company is ranked 1st in Mid-sized company on the basis of Returns by Business world survey? (Revenue 500cr-1000cr)
a)Sandvik Asia b)DLF c)Godrej Consumer Products d)Unitech
23) “Fun on the Run” is the punch line of which car brand?
a)Alto b)Icon c)Lancer d)Indica
24) Which Indian enterprise used the slogan “Improving the Quality of Life”
a)Nokia b)Sony c)Samsung d)Motorola
25) Who Bought “YouTube” for $1.65 bn?
a)Rupret Murdoch b)Microsoft c)Google d)IBM
26) Who is the present Chairman of TATA Sons?
a)Ratan TATA b)Rusi Modi c)Jamshed TATA d) JRD TATA
27) Who sold “HOTMAIL” to Google?
a)Anil Ambani b)Nandan Nilkeni c)Sabeer Bhatia d)Sant Chatwal
28) What is the name of Low cost carrier of Jet Airways
a)Spice Jet b)Jet Lite c)Deccan Airways d)Indigo
29) Who is the present Chairman of UB Group?
a)Ratan TATA b)Anil Ambani c)Aditya Birla d) Vijay Malya
30) Who sold his stake in Air Deccan to King Fisher Airlines
a) Captan GR Gopinath b) Capt. Sidhart Sharma
c) Subhroto Roy d) Vjya Malya

Market Watch 03/08/07

SENSEX	15138.40	152.70
NIFTY	4401.55	45.20
DJIA	13463.33	100.96
NASDAQ	2575.98	22.11
RS/$	40.43	0.12

Market Watch 02/08/07

SENSEX	14985.70	49.93
NIFTY	4356.35	10.50
DJIA	13362.37	150.38
NASDAQ	2553.87	7.60
RS/$	40.43	0.12

Market Watch 31/07/07

SENSEX	15550.99	290.08
NIFTY	4528.85	88.80
DJIA	13358.31	92.84
NASDAQ	2583.28	21.04
RS/$	40.54	0.06

PORFOLIO MANAGEMENT GAME

FINANCE & ECONOMICS CLUB
30TH JULY,07
RE: PORFOLIO MANAGEMENT GAME

GAME HAS STARTED SO HURRY UP !!!!

On the basis of information received from the selected students for Portfolio Management Game, the teams formed for the game are as under:-

Mentor Group 1:- Punam and Megha
BULL (Pallav, Bhupender, Akash, Savin, Manish Jindal)

Mentor Group 2:- Kshitij and Parika
BEAR (Sharad, Manik, Supreet, Rohit Sharma, Ashish Saharan)

Mentor Group 3:-Vaishali and Khushboo Malik
STAG (Sunil, Ashish Toshnival, Ketan, Manswini, Mohit Gulati)

Mentor Group 4:-Chaital and Punya
BANK (Dheeraj, Nikhil, R N Bhatta, Gargi, Manik)

Mentor Group 5:- Muktesh and Ankrita Mehata
DUTCH (Manish Kumar, Praven, Mainak, Ashish Sharma, Vipul)

GAME HAS STARTED SO HURRY UP !!!!

Start trading from31st JULY, 2007 (TUESDAY) in the market thereafter.

The First REVIEW Meeting of the performance of the groups will be held on Friday (03-07-2007) at 4: 30 PM in IBS Auditorium.

Coordinators
Dr. SANJEEV CHADDHA
Dr. KEWAL RAJ

Stock Market 27/07/07

SENSEX	15234.57	-541.74
NIFTY	4445.20	-174.60
DJIA	13473.57	-311.50
NASDAQ	2599.34	-48.83
RS/$	40.27	0.00

Finance and Economics Club

It is to for the information of all members of Finance and Economics club, that meeting of the club is being organized on 28/07/07(Saturday) at 4.00 PM at IBS Auditorium.

The detailed program is as under.

Registration---3.45- 4.00 P.M
Welcome Address---4.00 P.M

Briefing by the Student Club Coordinator---4: 10 P.M
Briefing by Individual Activity Coordinators---4.15- 4.35 P. M

First Presentation on the Topic
Capital Adequacy Ratio in Banks--4.35-4.45 P.M

Second Presentation on the Topic
Capital Account Convertibility--4.45-4.55 P.M

Valedictory and Thanks
4.55-5.00 P.M

Stock Market Watch 26/07/07

SENSEX	15776.31	76.98
NIFTY	4619.80	31.10
DJIA	13785.07	68.12
NASDAQ	2648.17	8.31
RS/$	40.27	-0.07

Results of Portfolio Management Game

FINANCE & ECOMOMIC CLUB

RESULT:-PORTFOLIO MANAGEMENT GAME

The students who have cleared the preliminary round test of Portfolio Management Game are as under.

Name -- Enrolment No. -- Section

1. Rohit Sharma - 07BS3502 - C
   
2. Sukhbir Singh - 07BS4371 - E
   
3. Akash Motwani - 07BS0334 - D
   
4. Dheeraj Vermani - 07BS1261 - E
   
5. Gargi Roy - A
   
6. Ketan Dambal - 07BS1883 - D
   
7. Parvin - 07BS2723 - B
   
8. Bhupendar - 07BS1010 - D
   
9. Manish Jindal - 07BS2131 -
   
10. Ashish Saharan - 07BS0852 - C
    
11. Mainak Dutta - 07BS2088 - B
    
12. Mayank Gupta - 07BS2200 - B
    
13. Manik Gumber - 07BS2121 - C
    
14. Nikil Dugar - 07BS2560 - E
    
15. Ashish Sharma - 07BS0825 - A
    
16. R.N. Bhatia - 07BS3133 - B
    
17. Manish Kumar - 07BS2135 - B
    
18. Supreet Sodhi - 07BS2135 -
    
19. Vipin Garg - 07BS5032 - C
    
20. Savin Dhall - 07BS3901 - D
    
21. Ashish Toshniwal -07BS0863 - D
    
22. Sharad Nandan Singh - 07BS3961 -
    
23. Pallav Chaudhary - 07BS2753 - D
    
24. Sunil Sandani - 07BS4422 - A
    
25. Mohit Gulati - 07BS2290 - A
    

Congratulations

The Students who are short listed should make a group of 5 members. They should give the group name to the activity coordinators:

Nagendra Vyas(2008)
Soniya Mohil(2009).

Prelims of Portfolio Game (Quiz)

Finance and Economic club held Preliminary round for Portfolio Game. Eliminating round consisted of 30 question relating to the Stock Market and General Awareness. The Preliminary round was conducted by the finance and economic club coordinators with help of Dr. Sanjeev Chadda and Dr. Kewal Raj. Around 50 students participated with lot of enthusiasm and made the efforts of the club turn fruit full. The finance and Economic club congratulate all the participants who took active part in it.The questions are as under....Try to answer these question who missed the opportunity.....Answers are posted along with the names of shortlisted candidates.

1)BSE Sensex is composed of how many Companies Shares?

2)Nifty comprises how many Companies Shares?

3) If one is talking about WALL STREET then one is referring to which market?

4) Who is The chairman Of SEBI ?

5)If Someone is talking about Dalal Street than one is referring to which market?

6) How many recognized Stock Exchanges are in India?

7)Who is the current Commerce Minister of India?

8)Who is the current RBI Governor?

9)What is EPS?

10) Which Mutual Fund Company has Highest Asset Under Management in India?

11) What is P/E Ratio?

12) AMFI is Regulator of?

13) Who is the Chairman of Planning Commission?

14) ADR stands for

15) GDR stands for

16) New name for HLL is

17) Who is the CEO of Infosys

18) Which is Oldest Stock Exchange In Asia?

19) Which countries are reffered to as BRIC countries?

20) As Pranny Roy is related to NDTV so UDYAN MUKHERJEE is related to?

21)Who is Regulator of Money Market?

22)What is the full form of SEBI?

23)What are Rolling Stocks?

24)What is Mark to Market?

25)What are derivatives?

26)What are futures?

27)What is an IPO?

28)What is DMat Account?

29)What is NSDL?

30)Which settlement system is now followed in INDIAN Capital Market?

Stock Market Watch 25/07/07

SENSEX	15699.33	-95.59
NIFTY	4588.70	-32.05
DJIA	13943.42	92.34
NASDAQ	2690.58	2.98
RS/$	40.34	0.01

Market Watch 24/07/07

SENSEX	15794.92	62.72
NIFTY	4620.75	1.40
DJIA	13943.42	92.34
NASDAQ	2690.58	2.98
RS/$	40.34	0.01

Market Watch 23/07/07

SENSEX-15732.20 (166.65)
NIFTY-4619.35 (53.30)
DJIA-2687.60 (-32.44)
NASDAQ-13851.08 (-149.33)
RS/$-40.33 (0.00)

Market Watch 20/07/07

SENSEX	15565.55	15.42
NIFTY	4566.05	3.95
DJIA	13861.73	-13.66
NASDAQ	2701.73	-5.14
RS/$	40.58	-0.08

Market Watch 19/07/07

SENSEX-15550.13 (248.96)
NIFTY-4562.10 (62.55)
DJIA-13861.73 (-13.66)
NASDAQ-2701.73 (-5.14)
RS/$-40.58 (0.08)

Market Watch Thursday

SENSEX-15301.17-(11.35)
NIFTY-4499.55 ( 2.80)
DJIA-13861.73 (-13.66)
NASDAQ-2701.73 (-5.14)
RS/$-40.58 (-0.08)

Finance and Economics Club congratulates Environmetal Club

Don't think of that blood donations as giving up part of yourself to keep a total stranger alive. It's really a total stranger giving up almost all of themselves to keep part of you alive.
~Author Unknown

IBS Chandigarh Environmental Club held blood donation camp in IBS Chandigarh on 18/07/07, in association with Cost Accountants Association Chandigarh. In this occasion 96 students took part in it and help to save a life. On this occasion Finance and Economics Club heartily congratulate all donors and Environmental Club.

Market Watch

SENSEX-15289.82 (-21.40)
NIFTY-4496.75(-15.40)
DJIA-13861.73(-13.66)
NASDAQ-2701.73(-5.14)
RS/$-40.58(-0.08)

INFLATIONARY TREND – IS IT DEROGATIVE OR A DECORATIVE MATINEE?

The post liberalization has created a positive atmosphere for a steady growth in certain sectors and a disturbing growth in certain other sectors. While the growth in education sector is 3.5%, in higher education it is less than 2% in insurance sector it is 2%, but the growth in Infrastructure and in real estate construction is 60 to 70%, which is a phenomenal achievement, this will develop 269 industrial sectors. This will facilitate and enhance the purchasing power and disposable income of individuals working in the sector, and as a corollary savings, investment and expenditure in consumer households will increase. Inflationary trends is a healthy sign in a growing economy but it has to be added like a salt, too much of it will dampen the economy and too little of it will create a debt trap. India suffered debt trap in 1991 and various measures it has crawled to reach this stage. Hence the debate is to add this salt of inflation to which of its recipes and at what stage remains to be seen since an unresolved issue is like still water which is deep.

"Unemployment and inflation still preoccupy and perplex economists, statesmen,
Journalists, housewives, and everyone else..."

James Tobin

Economic growth, inflation and unemployment are the three big topics of Macroeconomics. Explicitly embodied in legislation in India and other countries are the goals of achieving rapid economic growth, a low rate of inflation and a low rate of unemployment.

INTRODUCTION:
Price stability has been an important objective of monetary policy in India. Compared with many developing economies, the Indian inflation experience can be considered satisfactory, despite recurrent supply shocks and continuing fiscal imbalances (Reddy, 1999). This is attributed to relatively better monetary management coupled with judicious supply management through buffer stocks of food grains and imports of sensitive commodities which contained the adverse effects of supply shocks and reined in inflation. Nevertheless, inflation increased during the 1970s and remained high thereafter till mid-1990s. In the period since 1996-97, inflation has edged lower reflecting concerted policy efforts.

Annual rate of inflation measured by variations in the wholesale price index (WPI) over the past five decades averaged 6.6 per cent in India. Inflation was very low during the 1950s averaging 1.7 per cent, but was quite volatile and annual inflation ranged between (-) 12.5 per cent and 13.8 per cent. The volatility was mainly on account of agricultural failures. Inflation accelerated to 6.4 per cent during the 1960s partly induced by the two wars during 1962 and 1965 and crop failures in 1965-66 when agricultural production fell by more than 16 per cent.

Inflation accelerated further during the 1970s due to both supply and demand shocks. The supply shocks emanated mainly from oil and food prices. In line with the sharp increase in average international crude oil prices by over 250 per cent in 1974, domestic fuel prices increased sharply from an annual average of about 4.7 per cent during the three years preceding the first oil crisis to about 26.5 per cent on average during the three years beginning 1973-74. The adverse impact of the oil price shocks got accentuated by the drought conditions in 1972-73, 1974-75 and 1979-80 which resulted in significant declines in agricultural output. Thus, higher fuel prices and agricultural commodity prices got reflected in overall inflation. Sharp increases in money supply - even as output growth decelerated during the 1970s - added to demand pressures. Consequently, inflation moved up further in the 1970s, averaging about 9.0 per cent.

During the 1980s, demand pressures emanating from an expansionary fiscal policy and its monetization coupled with irregular supply shocks kept inflation high. Inflation averaged 8.0 per cent per annum during the 1980s, somewhat lower than that of 9.0 per cent per annum during the 1970s. Fiscal deficit of the Centre widened from 3.8 per cent of GDP during the 1970s to 6.8 per cent during the 1980s. A large part of this burden was borne by the Reserve Bank - almost 32 per cent of the fiscal deficit was financed by the Reserve Bank during the 1980s (25 per cent during the 1970s). Monetized deficit almost doubled from 1.1 per cent of GDP during the 1970s to 2.1 per cent during the 1980s. Consequently, the net Reserve Bank credit to the Centre expanded by 20.0 per cent per annum during the 1980s as compared with 14.5 per cent per annum during the 1970s and this led to acceleration in reserve money growth. Broad money growth could however be contained to rates lower than the 1970s, as a result of increases in cash reserve requirements.

Inflationary pressures accelerated in the first half of the 1990s. High fiscal and current account deficits of the 1980s culminated in the balance of payments difficulties during 1990-91. As part of the macroeconomic stabilization programme and structural reforms undertaken in the aftermath of the crisis, exchange rate depreciated substantially. Between end-March 1991 and end-March 1992, the Indian rupee depreciated by nearly 37 per cent. Notwithstanding the limited openness of the Indian economy, this order of depreciation added to inflationary pressures. The exchange rate depreciated by more than 11 per cent per annum during the first half of the 1990s; almost double that during the second half of the 1980s. Hikes in procurement prices as well as supply-demand imbalances in essential commodities like pulses, oilseeds and edibles oils further added to inflation. A part of the hike in procurement prices was intentional so as to restore the terms of trade for agriculture. Primary articles inflation accelerated to 18.1 per cent in 1991-92 from 13.0 per cent a year back. Extremely low foreign exchange reserves - foreign currency assets at US $ 2.2 billion at end-March 1991, equivalent to less than one month of imports -constrained the ability to import to meet the demand gaps. The sustained rise in fuel prices at a double-digit rate (of about 13 per cent) in the first half of the 1990s had its impact on inflation not only directly, but also in other indirect ways.

POST LIBERALIZATION:

We all know that after the liberalization of the Indian economy in 1991, our Indian economy is witnessing a sea change. The major two problems faced by our country are the population and the BOP deficit. Before 1991 our BOP deficit touched the astronomical figure of 16, 900, 34 crores. By keeping in view the situation of crises the new economic policy which was the combination of Globalization, Privatization and liberalization was introduced. The main objective was to make the economy more competitive and to increase the exports and Industrial efficiency.

There are many positive aspects of this policy like there was a considerable increase in the Foreign Exchange Reserve, India’s foreign exchange reserves have grown significantly since 1991. The reserves, which stood at US$ 5.8 billion at end-March 1991 increased gradually to US$ 25.2 billion by end- March 1995. The growth continued in the second half of the 1990s, with the reserves touching the level of US$ 38.0 billion by end-March 2000. Subsequently, the reserves rose to US$ 113.0 billion by end-March 2004, US$ 141.5 billion by end-March 2005, US$ 151.6 billion by end-March 2006 and further to US$ 165.3 billion by end-September 2006 and Indian economy witnessed a drastic growth rate.

We all know that growth is actually not possible without Inflation. There exist a direct relationship between growth and Inflation. Therefore to achieve a growth rate of 8 to 9 % we have to bear the considerable rise in inflation also.

Our Indian economy can be broadly classified into two categories (i.e.) the Urban and the Rural population. Around 70% of the Indian populations are still living in the rural and around 65% of the entire Indian population is still dependent upon agriculture and their contribution to GDP is around 17 to 18 %. It is very much evident (i.e) (65% of the population contributing 18% to the GDP) that there exists an extreme situation of underemployment or disguised unemployment.

We noted earlier that the entire population is bifurcated in 70:30 ratios. We also saw that the growth has to be accompanied by inflation. So the major problem is that 30% of the population which is reaping the benefits of growth is not affected or least affected by inflation on the other hand the rest 70% of the population which does not reap the benefits of growth is very badly affected by inflation. Till today the average wages of an agriculturalist in states like U.P and Bihar is just Rs 5 per day. So how are these poor people going to manage the effect of inflation? How are we going to control the increasing rate of farmer suicide? These questions remain unanswered.

According to National Council of applied Economic Research, 350 million of the Indian population, live in the state of acute poverty. Another disturbing fact is that out of the 40% poor the poorest 20% have a daily income of Rs 3 and the remaining 20% have a daily income of Rs 5.5.

The agricultural sector has been the hard hit. In the pursuit of Invitation, Accommodation and Entertainment of the M.N.C’s we have become indifferent to the most crucial sectors of the economy (i.e.) the rural infrastructure and agriculture then the problem of drinking water, education and health in the rural are still in pursuit. The number of farmer’s suicide is the measure of the widening income disparity.

The drive figure of Sensex or the increase in the growth rate cannot give a relief to the poor and the down trodden society which is the majority in case of Indian population.

There is a drastic decline in the capital formation in the agricultural sector, the total public investment in the agricultural sector war Rs 4467 crore during 93-94 which has come down to 2549 Crores during 02-03.

The large section of the society or the population which is living outside the charmed market is being continuously persuaded for the slow moving trickle down effect. In a country like India where 70% of the population which is not in a position to reap the benefits of growth, the finance ministry and the central bank should concentrate to keep the inflation under control in order to protect the interest of the majority of the population.

Generally we often see the minority fighting for there well being and protection but in our country the majorities interest is not being protected.
Inflation Vs Unemployment

It is pretty evident that unemployment level is dependent upon the real GDP to a great extent. Real GDP growth is not possible with a strict monetary policy. If the Government is much concerned about containing Inflation in the short run then it has no other option rather directing the RBI to hike the Interest rates and to follow a strict monetary policy which implies low demand for money and low investment by the corporate which will hamper the real GDP growth, as a result the unemployment rate will increase to a considerable level. Real interest rates may be seen as a measure of the cost of capital. Higher real interest rates are expected to slow down economic activity since capital costs increase which leads to lower investment eventually decreasing employment.

This is the main reason why majority of the economists feel that Inflation is much better than deflation, in fact Inflation fuels the engines of growth.

Now let us take a look at some important facts:

Ø Inflation in India is mainly due to Demand pull factors.
Ø The aggregate Demand is more than the Aggregate supply which obviously leads to Inflation.
Ø Inflation can be curtailed by increasing the interest rates i.e. by following a tight monetary policy, but such tight monetary policy can hamper growth and may lead to disastrous consequences.
Ø Increase in Interest rate would lead to decrease in borrowing by the Industries.
Ø Decrease in the borrowing by the Industries will hamper the expansion plans.
Ø If there is no expansion by the Industries the Aggregate supply cannot be increased and as a result this situation will again create Inflationary pressure in the Economy.

The above mentioned fact leaves an extremely difficult choice to the Government, should it sacrifice long-term growth to take care of what is hopefully a short term problem? Or should it ignore the short term problem, implement policies designed to promote long-term growth in the hope that increase in supply at least in the long run will ensure that there is no aggregate excess demand. Clearly this is a very difficult trade-off and it does not make sense to take a decision without detailed qualitative and quantitative analysis.

If the chronic Indian problems of poverty, inequality and unemployment are effectively handled or attended in this new economic policy of LPG, then can be a significant increase in the market extent and the business environment can improve considerably.

CRITICAL VIEW POINTS:

In order to control inflation we cannot afford to slow down the growth rate because it depicts the economic strength of the country. Therefore the government must ensure that the entire 100% of the population is benefited by this growth.

To achieve this stage is not an easy task, first the extreme underemployment which is prevailing in the agricultural sector has to be drastically reduced.

There must be a shift in the population from the rural to urban, here shifting does not mean transferring the population physically from villages to cities. Shifting should be done by improving the infrastructure in the villages, installation of industries and improving there standard of living by providing quality free education to all. In short, provide all urban amenities in rural India too. The Government should try and reduce its freebies and subsidies and should increase capital expenditure for the rural development which will pave the way for long term growth with stability which will automatically improve the disposable income and standard of living of the rural population.

If the above mentioned objectives and measures are properly implemented, then with our population Indian economy will be the most admired, strong economy in the world.


Ø India’s Economy is in the upward swing in automobile, software, electronic and electrical sector, Banking, Insurance and other Infrastructure related sectors.
Ø Often India’s economy is compared with China in terms of FDI Inflow, currency compatibility, and Growth in terms of GDP. While India follow a U shaped economy in the sense it had witnessed a slow down in the economical growth but now it is experiencing an upward trend in all spheres of activity. China’s economy is a V shaped curve where in it started its economical revamping exercise as early in 80’s and it is growing faster but not in terms of qualitative measurements. This upward and downward swing in both the economies is due to the confidence level in the overall GDP growth, per capita income, control of Inflation and the most preferred nations for FDI Investments.
Ø Inflation is a wild animal in which it needs to be fed with the proper recipes when it is needed. Since corrective measures cannot be done in a hurried fashion if Inflation is going beyond control.
Ø The policy measures introduced by India have further created a debilitating stage which is the cause for the Inflationary trends since 2006.
Ø Of the three segments in the economy i.e. have lots, have-nots and haves, the have-nots and the haves continue to bear the major burden of the inflationary situation.
Ø The rising trend in the Real Estate prices, increase in the interest rates in particular for housing loans, increase in petroleum prices and in commodity prices, the increase in CRR and Repo rates by RBI have all shakened the common man ( i.e. 780 million – constitute haves and have-nots).
Ø The lopsided growth in IT and ITES have created a saving – expenditure imbalance and hence the economy is coined as Economical Divide, which psychologists name it as Human Divide.

The post liberalization has created a positive atmosphere for a steady growth in certain sectors and a disturbing growth in certain other sectors. While the growth in education sector is 3.5%, in higher education it is less than 2% in insurance sector it is 2%, but the growth in Infrastructure and in real estate construction is 60 to 70%, which is a phenomenal achievement, this will develop 269 industrial sectors. This will facilitate and enhance the purchasing power and disposable income of individuals working in the sector, and as a corollary savings, investment and expenditure in consumer households will increase. At this juncture a possible solution has to emerge from the economists, environmentalists, and academia – industry for finding out workable feasible solution for at least containing the Inflation to the tune of 4%. Whether it is a Midsummer Nights’ Dream, or a Comedy of Errors has to be decided not by the technocrats and the techno-econocrats but by the democrats, in concrete terms by the common man, to be or not to be is an unanswered question?


By

S. Hari Balaji
ICFAI Business School (Chandigarh)
Student
Mobile: 09988355311
E-mail id: ibs.hari@gmail.com

How to identify Fake Notes

WatermarkThe Mahatma Gandhi Series of banknotes contain the Mahatma Gandhi watermark with a light and shade effect and multi-directional lines in the watermark window. Security ThreadRs.1000 notes introduced in October 2000 contain a readable, windowed security thread alternately visible on the obverse with the inscriptions ‘Bharat’ (in Hindi), ‘1000’ and ‘RBI’, but totally embedded on the reverse. The Rs.500 and Rs.100 notes have a security thread with similar visible features and inscription ‘Bharat’ (in Hindi), and ‘RBI’. When held against the light, the security thread on Rs.1000, Rs.500 and Rs.100 can be seen as one continuous line. The Rs.5, Rs.10, Rs.20 and Rs.50 notes contain a readable, fully embedded windowed security thread with the inscription ‘Bharat’ (in Hindi), and ‘RBI’. The security thread appears to the left of the Mahatma's portrait. Notes issued prior to the introduction of the Mahatma Gandhi Series have a plain, non-readable fully embedded security thread. Latent ImageOn the obverse side of Rs.1000, Rs.500, Rs.100, Rs.50 and Rs.20 notes, a vertical band on the right side of the Mahatma Gandhi’s portrait contains a latent image showing the respective denominational value in numeral. The latent image is visible only when the note is held horizontally at eye level. Microlettering This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word ‘RBI’ in Rs.5 and Rs.10. The notes of Rs.20 and above also contain the denominational value of the notes in microletters. This feature can be seen better under a magnifying glass. Intaglio Printing The portrait of Mahatma Gandhi, the Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints, which can be felt by touch, in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes. Identification Mark A special feature in intaglio has been introduced on the left of the watermark window on all notes except Rs.10/- note. This feature is in different shapes for various denominations (Rs. 20-Vertical Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.1000-Diamond) and helps the visually impaired to identify the denomination. Fluorescence Number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp. Optically Variable Ink This is a new security feature incorporated in the Rs.1000 and Rs.500 notes with revised colour scheme introduced in November 2000. The numeral 1000 and 500 on the obverse of Rs.1000 and Rs.500 notes respectively is printed in optically variable ink viz., a colour-shifting ink. The colour of the numeral 1000/500 appears green when the note is held flat but would change to blue when the note is held at an angle. See through Register The small floral design printed both on the front (hollow) and back (filled up) of the note in the middle of the vertical band next to the Watermark has an accurate back to back registration. The design will appear as one floral design when seen against the light. Legal provisions against counterfeiting Printing and circulation of forged notes are offences under Sections 489A to 489E of the Indian Penal Code and are punishable in the courts of law by fine or imprisonment or both.

Market Watch 16/07/2007

SENSEX-15311.22 +38.50
NIFTY-4512.15 +7.60
DJIA-13861.73 -13.66
NASDAQ-2701.73 -5.14
RS/$-40.58/-0.08

Busniess Quiz

1) What is the name of Nerolac’s Tiger Mascot?
2) Which air line in India Serves Domino’s Pizzas?
3) Oberoi’s lower group of hotels known as?
4) In which city are gold rates fixed?
5) Which oil company runs the slogan conserve oil for future?
6) Expand SIM card?
7) Annapurna atta is a product of?
8) Chief Editor of Business world?
9) Which news paper has the punch line “Live Smart”?
10) Complete the punch line NO one does colour like_____?


Answers on next Saturday
Compiled by: Kedar Gogate IBS Chandigarh

Market Yesterday

Stock Market
BSE Sensex- 15272.72(+180.68)
S&P CNX Nifty-4504.55(+58.40)
NASDAQ- 2701.73(-5.14)


Commodities (July 13)
Gold Per(gram) Rs 815
Silver per (Kg) Rs18.95


Exchage Rate
US$= Rs 40.58

Equity hedging

In Equity hedging the investor is interested in minimizing his risk. For instance he purchases 1000 shares of 'XYZ' company to reduce his risk if the market falls the investor also purchases futures of 'XYZ' company .
Another method to hedge and reduce risk is beta neutral Beta is the historical correlation between a stock and an index. If the beta of a 'XYZ' company is 2, then for a 1000 long position in 'XYZ' company you will hedge with a 2000 equivalent short position in the futures.

"HEDGING"

In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity. Typically, a hedger might invest in a security that he believes is under-priced relative to its "fair value" (for example a mortgage loan that he is then making), and combine this with a short sale of a related security or securities. Thus the hedger is indifferent to the movements of the market as a whole, and is interested only in the performance of the 'under-priced' security relative to the hedge.

what is 'SHORT SELLING" ?

In finance, short selling or "shorting" is a way to profit from the decline in price of a security, such as stock or a bond.
Some investors "go long" on an investment, hoping that price will rise. To profit from the stock price going down, short sellers can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. The short seller owes his broker, who usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller
For example, assume that shares in XYZ Company currently sell for $10 per share. A short seller would borrow 100 shares of XYZ Company, and then immediately sell those shares for a total of $1000. If the price of XYZ shares later falls to $8 per share, the short seller would then buy 100 shares back for $800, return the shares to their original owner, and make a $200 profit. This practice has the potential for an unlimited loss. For example, if the shares of XYZ that one borrowed and sold in fact went up to $25, the short seller would have to buy back all the shares at $2500, losing $1500.
However, the term "short selling" or "being short" is often used as a blanket term for all those strategies which allow an investor to gain from the decline in price of a security. Those strategies include buying options known as puts. A put option consists of the right to sell an asset at a given price; thus the owner of the option benefits when the market price of the asset falls. Similarly, a short position in a futures contract, or to be short a futures contract, means the holder of the position has the obligation to sell the underlying asset at a later date.
In fact, what is many times labeled short selling is options or futures activity, since this activity greatly magnifies the gain that results from a securities price loss. For example, if the next earnings release of XYZ company is going to show that its profits declined somewhat in some of its divisions, its stock might decline only 5 percent when that information is released. Someone within the company who wants to trade in inside information however would probably not be satisfied with only a 5 percent gain on his short sell and instead would buy put options or other derivatives or futures to gain possibly 20 or more percent on the decline in the stock price of XYZ.

ETF

Introduction :What do VIPERS, SPIDERS, WEBS, DIAMONDS and CUBES have in common? Well, they are all Exchange Traded Funds. VIPERS stands for Vanguard Index Participation Receipts), SPDRs is Standard & Poors Depository Receipts, pronounced "SPIDERS"), CUBES is the name given for QQQ (called so because of its three 'Q's), and tracks the technology-laden NASDAQ 100 stocks. Also, they are a new addition to the vocabulary of the Indian investor in the domestic financial markets and a new species in the kingdom of the innovative financial instruments that have become buzzwords in the turbulent stock markets. But ETFs are a novelty only in India. Exchange Traded Funds have been in vogue in the global financial markets, especially the US financial markets for a long time now and have $110 billion locked in assets under management. An index of their popularity can be gauged from the fact that about 60 per cent of the trading volumes on the American Stock Exchange comes from ETFs. It is only now that these funds are catching on in the domestic mutual fund market in Inida. UTI has launched its own ETF called SUNDERS, after Becnhmark's BeES and Prudential ICICI's SPIcE.

ETF: The History Exchange Traded Funds came into existence in 1993 when, State Street Global Advisors, together with the American Stock Exchange, developed and launched the ETF market. The name of the product was SPDRS. SPDR, which is benchmarked against the S&P 500 Index, continues to be the most successful product with over $22 billion in Assets Under Management. It currently enjoys tremendous liquidity, averaging close to $1 billion in shares changing hands every day on the American Stock Exchange. In fact, it consistently ranks as one of the most active securities on the AMEX. In addition to launching the SPDR, State Street Global Advisors and the AMEX also launched the Dow Diamonds in 1998, benchmarked against the Dow Jones Industrial Average. That year they also introduced the first sector ETFs, the Select Sector SPDRs, benchmarked against the nine sectors making up the S&P 500 Index. In 1999, they introduced the first ETF in Asia and currently they are doing the same in other major markets around the globe. Now subsequent to the roaring success of the ETF market, more and more complex instruments revolving around the ETFs are coming into being. Such an innovation are options and futures on ETFs. On November 18, 2002, EUREX (European Exchange) launched Europe's first futures and options on the most liquid ETFs.

ETF: the concept explained An Exchange Traded Fund, as the name itself suggests; is a financial instrument, tradable on a stock exchange, that invests in the stocks of an index in approximately the same proportion as held in the index. An ETF is a hybrid financial product, a cross between a stock and a mutual fund. Like a stock it can be traded on a stock exchange, and like a mutual fund it behaves like a diversified portfolio. In many ways it is an index fund, with a few subtleties that put it in a separate league. Unlike an open-ended index fund, where an investor purchases units from the fund itself and to redeem them sells the units back to the fund and thereby expanding or shrinking its corpus on each entry or exit from the fund, in an ETF is listed on an exchange ensuring that the entry or exit of investors has no effect on the fund corpus. An ETF is transacted through a broker and held in dematerialized form. An ETF is different from an Index Fund in another manner. Availability of real-time quotes is another feature present in an ETF but absent in an Index Fund where the previous days NAV is applied for buying or redeeming. This feature makes the trading of the ETFs possible. Much like the units of a mutual fund the ETF too, is divided into units called a "creation unit". The name emanates probably from the process through which one comes to acquire these units. The ETF units when purchased from the fund house are purchased by surrendering the underlying stocks in of the index the ETF tracks and thereby 'creating' the ETF unit.
How ETFs are traded The trading of the ETF is based on a well-known mechanism called arbitrage. But first, let us see how one can buy an ETF. There are two ways in which one can buy an ETF. One is through the market and the other is through the fund house that has issued the ETF. Now for the pricing mechanism: if the demand of the ETFs in the markets soars, the ETF would start trading at a premium from its intrinsic value, which should be equal in proportion to the index that it is charting. This premium would make the buyers go to the fund house where they would have to redeem their shares in the proportion held under each unit of the ETF. Such units that are bought directly from the fund house are called "creation units". But usually the lot size in which one can buy creation units is so high that only an authorized participant (market maker) or institutional investors may have the wherewithal to buy these. In such case the retail investor would have to go to the market itself to buy the units of the ETF, the decision in turn depending on the expectations of the future price movements of the ETF. In case of redemption in the market, the seller would get paid in cash and in case the fund units are taken to the issuer, the seller would get paid in kind that is the underlying shares that make up the index. ETF trading also opens up the flood gates for some more complex trading arrangements like arbitrage between the cash and futures market or simply put - short selling. But there is a hitch as far as the Indian capital markets is concerned: "shorting" is not allowed. As a proxy, one can borrow the units but that mechanism is not very efficient, as the cost of borrowing happens to range between 12 to 18 per cent depending on one's creditworthiness. Given below is a chart that explains the trading mechanism


Advantages

Tradable and Diversifiable: The ultimate selling proposition of an ETF lies in its twin feature of being tradable and diversifiable. One can trade a stock but then it is not diversifiable. Or, one can buy a mutual fund and thereby diversify but then the mutual fund would not be tradable. Alternatively, one can diversify one's risks by holding a portfolio of stocks and trade them but that would be too much of a botheration for the lay investor. This conflicts are reconciled by an ETF that is at once tradable and is a diversified portfolio too. It is these two feature, working in tandem, like the twin blades of a scissor that make it a financial product of choice.


Low cost: Just like an Index-Fund an Exchange Traded Fund does not have to incur any costs on account of active fund management because the fund is passively managed. As the ETFs are listed on the exchange, the cost of distribution is low. Furthermore, exchange traded mechanism reduces minimal collection, disbursement and other processing charges.


Transparency: Just like the index fund, the portfolio of an index fund has no mystery to it. Everybody in the participating market is aware of the stocks that it is tracking and therefore need not worry about a change in the stocks being traded in.


Makes multiple trading strategy possible: As has been said earlier, ETFs have the utility of doubling up as arbitraging instruments between the futures and cash markets. It also helps in equitizing cash, i.e., changing cash into equities, at a low cost.


A Bear market friend: In a volatile stock market, an ETF might become an instrument of choice as it is not expected to be as volatile and yet may be traded. This is borne out by the fact that the assets of US ETFs have grown from $ 96 billion in January 2003 to $118 billion in May 2003.

Disadvantages

Absence of prior active market: In India ETFs being a new instrument, there is no existing market that one could swim into immediately after buying the product. So for the liquidity to be reasonable, a large number of investors would have to buy into the idea to make adequate liquidity possible.


Large Investments: In order to deal directly with the fund houses large capital investments are required. For example in the case of Nifty BeES, a minimum creation unit size of 20000 units is required that would involve lakhs of rupees in investment. This makes ETFs a market where the institutional buyers and sellers become the big fish.


Broker Charges: Broker charges have to be paid anyway when trading in ETFs. This can be minimized by trading long but the very charm of ETFs is destroyed because it is meant for being traded more often than an index fund.


Premiums and discounts: An ETF might trade at a discount to the underlying shares. This means that although the shares might be doing very well on the bourses, yet the ETF might be traded at less than the market value of these stocks.


Does not facilitate "rupee cost averaging": An ETF is not appropriate for those investors who want to operate on the strategy of "rupee cost averaging". This is because investors investing some money into ETFs every month would have to incur brokerage costs that are not to be incurred in case of mutual fund units until and unless the scheme carries an entry load.

SIP views-(Enter your views about SIP in comments)

What is forex swap ?

Forex swap is an over the counter short term interest rate derivative instrument. A Forex swap consists of a spot foreign exchange transaction entered into at exactly the same time and for the same quantity as a forward foreign exchange transaction. The forward portion is the reverse of the spot transaction, where the spot purchase is offset by a forward selling. In this reason, surplus funds in one currency are for a while swapped into another currency for better use of liquidity. Protects against adverse movements in the forex rate, but favourable moves are renounced.
The fixed rate in this transaction is the forward rate that is locked in by the forward contract. The floating rate will be the overnight rate that is realized on a daily basis by the spot transaction. Typically, the floating side of these trades are indexed to the Overnight Index Swap (OIS) rate. This rate is an average of the rates that are paid based on a survey.
It should not be confused with a currency swap, which is a much rarer, long term transaction, governed by a slightly different set of rules.

Tax Planning

Vishwas has taken a home loan and spends around Rs 50,000 towards principal repayment. Deductions upto a limit of Rs 1 lakh can be claimed for payments towards principal repayment of housing loans. Where else can Vikas invest to avail maximum tax benefit?

Tax payers like Vishwas try to save and explore various investment avenues so that they can minimise taxes and increase their disposable income. An integral part of financial planning is tax planning, where tax payers research on tax breaks offered.

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt. The total limit under this section is Rs 1 lakh. Included under this heading are many small savings schemes like NSC, PPF and other pension plans. Payment of life insurance premiums and investment in specified government infrastructure bonds are also eligible for deduction under Section 80C.

One must plan investments well and spread it out across the various instruments specified under this section to avail maximum tax benefit. Unlike Section 88, there are no sub-limits and is irrespective of how much you earn and under which tax bracket you fall. The over all limit under Section 80C is Rs 1 lakh.

Education expense of children is increasing by the day. How does it sound to know that you can claim deductions on their school fees? Under this section, there is enough provision that makes payments towards the education fees for children eligible for an income deduction. Small savings schemes are usually preferred by the risk-averse. With returns on debt instruments dropping, these deductions provide all the more reasons to remain invested. Even if the returns are not on par with returns from equity markets, it makes sense to plan and invest in them for the tax advantage.

National Savings Certificate provides eight percent interest compounded half yearly. Period of investment stands at six long years, however there is no upper limit of investment. So, if one locks-in Rs 1,000, it becomes Rs 1,601 after six years. Kisan Vikas Patra promises to double money in eight years and seven months. With no upper investment limit, the interest rate is eight percent compounded quarterly. So, if you invest Rs 1,000, it becomes Rs 2,000 in a time span of eight years and seven months.

Equity-linked savings schemes (ELSS) are a good option to consider for those with appetite for risk. ELSS tax savers are like any other diversified equity fund, but with a three-year lock-in, providing benefits under Section 80C. Suppose at the end of three years the market is seeing a great unfortunate fall. An average investor, who is keen to move out at the end of three years, may be stuck, unable to redeem at the low NAV. Hence, it is imperative that investors make a comparative analysis and pick top performers amongst numerous tax-savings funds offered by almost all fund houses.

For instance, Prudential ICICI Tax plan has benefited from its mid-cap and small-cap oriented portfolio with 97 percent of investments in equities. Taurus Libra Taxshield, ING Vysya Tax Saving Fund and DBS Chola Tax Saver Fund are some funds that have posted decent returns. New ELSS fund NFOs like HSBC Tax Saver Equity Fund, DSPML Tax Saver Fund and Lotus India Tax Plan are options worth exploring. These funds invest 80 to 100 percent of portfolio in the equity market and the rest in debt and money market instruments. If you've not yet started making investments for tax planning, it is time to get on track. Explore PF, PPF, insurance plans, ELSS, NSC, home loans and other instruments that get you benefits under Section 80C.