Professional Documents
Culture Documents
[TYPE HERE]
INTRODUCTION
HISTORYA
Established in 1875, the Bombay Stock Exchange is Asia's first stock exchange.
12th century France the courratiers de change were concerned with managing
and regulating debts of agricultural communities on behalf of the banks.
Because these men also traded with debts, they could be called the first brokers.
A common misbelief is that in late 13th century Bruges commodity traders
gathered inside the house of a man called Van der Beurze, and in 1309 they
became the "Brugse Beurse", institutionalizing what had been, until then, an
informal meeting, but actually, the family Van der Beurze had a building in
Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as
most of the merchants of that period, as their primary place for trading. The idea
quickly spread around Flanders and neighboring counties and "Beurzen" soon
opened in Ghent and Amsterdam. In the middle of the 13th century, Venetian
bankers began to trade in government securities. In 1351 the Venetian
government outlawed spreading rumors intended to lower the price of
government funds. Bankers in Pisa, Verona, Genoa and Florence also began
trading in government securities during the 14th century. This was only possible
because these were independent city states not ruled by a duke but a council of
influential citizens. The Dutch later started joint stock companies, which let
shareholders invest in business ventures and get a share of their profits - or
losses. In 1602, the Dutch East India Company issued the first share on the
Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.
Page 1
[TYPE HERE]
[TYPE HERE]
The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have
been the first stock exchange to introduce continuous trade in the early 17th
century. The Dutch "pioneered short selling, option trading, debt-equity swaps,
merchant banking, unit trusts and other speculative instruments, much as we
know them" There are now stock markets in virtually every developed and most
developing economies, with the world's biggest markets being in the United
States, United Kingdom, Japan, India, China, Canada, Germany, France, South
Korea and the Netherlands.
CAPITALMARKET
The capital market is the market for securities, where Companies and
governments can raise long-term funds. It is a market in which money is lent for
periods longer than a year. A nation's capital market includes such financial
institutions as banks, insurance companies, and stock exchanges that channel
long-term investment funds to commercial and industrial borrowers. Unlike the
money market, on which lending is ordinarily short term, the capital market
typically finances fixed investments like those in buildings and machinery.
Nature and Constituents: The capital market consists of number of individuals
and institutions(including the government) that canalize the supply and demand
for longterm capital and claims on capital. The stock exchange, commercial
banks, co-operative banks, saving banks, development banks, insurance
companies, investment trust or companies, etc., are important constituents of the
capital markets. The capital market, like the money market, has three important
Page 2
[TYPE HERE]
[TYPE HERE]
Components, namely the suppliers of loanable funds, the borrowers and the
Intermediaries who deal with the leaders on the one hand and the Borrowers on
the other. The demand for capital comes mostly from agriculture, industry, trade
the government. The predominant form of industrial organization developed
Capital Market becomes a necessary infrastructure for fast industrialization
Capital market not concerned solely with the issue of new claims on capital, But
also with dealing in existing claims.
Page 3
[TYPE HERE]
[TYPE HERE]
Contents
1 Market structure
2 Types of bond markets
3 Bond market participants
4 Bond market size
5 Bond market volatility
6 Bond market influence
7 Bond investments
8 Bond indices
MARKET STUCTURE
Bond markets in most countries remain decentralized and lack common
exchanges like stock, future and commodity markets. This has occurred, in part,
because no two bond issues are exactly alike, and the variety of bond securities
outstanding greatly exceeds that of stocks. However, the New York Stock
Exchange (NYSE) is the largest centralized bond market, representing mostly
corporate bonds. The NYSE migrated from the Automated Bond System(ABS)
to the NYSE Bonds trading system in April 2007 and expects the number of
traded issues to increase from 1000 to 6000.Besides other causes, the
decentralized market structure of the corporate and municipal bond markets, as
distinguished from the stock market structure, results in higher transaction costs
and less liquidity. A study performed by Profs Harris and Piwowar in 2004,
Secondary Trading Costs in the Municipal Bond Market, reached the following
conclusions: (1) "Municipal bond trades are also substantially more expensive
Page 4
[TYPE HERE]
[TYPE HERE]
than similar sized equity trades. We attribute these results to the lack of price
transparency in the bond markets. Additional cross-sectional analyses show that
bond trading costs decrease with credit quality and increase with instrument
complexity, time to maturity, and time since issuance." (2) "Our results show
that municipal bond trades are significantly more expensive than equivalent
sized equity trades. Effective spreads in municipal bonds average about two
percent of price for retail size trades of 20,000 dollars and about one percent for
institutional trade size trades of 200,000 dollars."
Page 5
[TYPE HERE]
[TYPE HERE]
Institutional investors
Governments
Traders
Individuals
Because of the specificity of individual bond issues, and the lack of liquidity in
many smaller issues, the majority of outstanding bonds are held by institutions
like pension funds, banks and mutual funds. In the United States, approximately
10% of the market is currently held by private individuals.
Page 6
[TYPE HERE]
[TYPE HERE]
than an actual market price. The stocks are listed and traded on stock exchanges
which are entities of a corporation or mutual organization specialized in the
business of bringing buyers and sellers of the organizations to a listing of stocks
and securities together. The largest stock market in the United States, by market
cap is the New York Stock Exchange, NYSE, and while in Canada, it is the
Toronto Stock Exchange. Major European examples of stock exchanges include
the London Stock Exchange, Paris Bourse, and the Deutsche Borse. Asian
examples include the Tokyo Stock Exchange, the Hong Kong Stock Exchange,
the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin
America, there are such exchanges as the BM&F Bovespa and the BMV.
Contents
1 Trading
2 Market participants
3 History
4 Importance of stock market
o 4.1 Function and purpose
o 4.2 Relation of the stock market to the modern financial system
o 4.3 The stock market, individual investors, and financial risk
TRADING
Participants in the stock market range from small individual stock investors to
large hedge fund traders, who can be based anywhere. Their orders usually end
up with a professional at a stock exchange, who executes the order. Some
Page 7
[TYPE HERE]
[TYPE HERE]
exchanges are physical locations where transactions are carried out on a trading
floor, by a method known as open outcry. This type of auction is used in stock
exchanges and commodity exchanges where traders may enter "verbal" bids and
offers simultaneously. The other type of stock exchange is a virtual kind,
composed of a network of computers where trades are made electronically via
traders. Actual trades are based on an auction market model where a potential
buyer bids a specific price for a stock and a potential seller asks a specific price
for the stock. (Buying or selling at market means you will accept any ask price
or bid price for the stock, respectively.) When the bid and ask prices match, a
sale takes place, on a first-come-first-served basis if there are multiple bidders
or askers at a given price. The purpose of a stock exchange is to facilitate the
exchange of securities between buyers and sellers, thus providing a marketplace
(virtual or real). The exchanges provide real-time trading information on the
listed securities, facilitating price discovery. The New York Stock Exchange is a
physical exchange, also referred to as a listed exchange only stocks listed
with the exchange may be traded. Orders enter by way of exchange members
and flow down to a floor broker, who goes to the floor trading post specialist for
that stock to trade the order. The specialist's job is to match buy and sell orders
using open outcry. If a spread exists, no trade immediately takes place--in this
case the specialist should use his/her own resources (money or stock) to close
the difference after his/her judged time. Once a trade has been made the details
are reported on the "tape" and sent back to the brokerage firm, which then
notifies the investor who placed the order. Although there is a significant
amount of human contact in this process, computers play an important role,
Page 8
[TYPE HERE]
[TYPE HERE]
Page 9
[TYPE HERE]
[TYPE HERE]
Market participants
A few decades ago, worldwide, buyers and sellers were individual investors,
such as wealthy businessmen, with long family histories (and emotional ties) to
particular
corporations.
Overtime,
markets
have
become
more
Page 10
[TYPE HERE]
[TYPE HERE]
Page 11
[TYPE HERE]
[TYPE HERE]
value to American society profit American bankers on Wall Street, as they reap
large commissions from the placement, as well as the Chinese company which
yields funds to invest in China. However, these companies accrueno intrinsic
value to the long-term stability of the American economy, but rather only shortterm profits to American business men and the Chinese; although, when the
foreign company has a presence in the new market, this can benefit the market's
citizens. Conversely, there are very few large foreign corporations listed on the
Toronto Stock Exchange TSX, Canada's largest stock exchange. This discretion
has insulated Canada to some degree to worldwide financial conditions. In order
for the stock markets to truly facilitate economic growth via lower costs and
better employment, great attention must be given to the foreign participants
being allowed in.
Page 12
[TYPE HERE]
[TYPE HERE]
floated and later June 1947 amalgamated into Delhi stock exchange association
limited.
Page 13
[TYPE HERE]
[TYPE HERE]
Page 14
[TYPE HERE]
[TYPE HERE]
Page 15
[TYPE HERE]
[TYPE HERE]
Primary capital market- A market where new securities are bought and sold
for the first time
Page 16
[TYPE HERE]
[TYPE HERE]
Difference between
Primary market Secondary market
Deals with new securities Market for existing securities, which are already
listed
Provides additional capital to issuer companies No additional capital generated.
Provides liquidity to existing stock leading stock exchanges:
Page 17
[TYPE HERE]
[TYPE HERE]
Money Market: Money market is a market for debt securities that pay off in
the short term usually less than one year, for example the market for 90-days
treasury bills. This market encompasses the trading and issuance of short term
non-equity debt instruments including treasury bills, commercial papers,
bankers acceptance, certificates of deposits, etc.
Capital Market: Capital market is a market for long-term debt and equity
shares. In this market, the capital funds comprising of both equity and debt are
issued and traded. This also includes private placement sources of debt and
Page 18
[TYPE HERE]
[TYPE HERE]
Page 19
[TYPE HERE]
[TYPE HERE]
Page 20
[TYPE HERE]
[TYPE HERE]
stock index as a yardstick for their returns. Indices are useful in modern
financial application of derivatives.
Capital Market Instruments some of the capital market instruments are:
Equity
CORPORATE SECURITIES
SHARES
The total capital of a company may be divided into small units called shares.
For example, if the required capital of a company is US $5,00,000 and is
divided into 50,000 units of US $10 each, each unit is called a share of face
value US $10. A share may be of any face value depending upon the capital
required and the number of shares into which it is divided. The holders of the
shares are called share holders. The shares can be purchased or sold only in
integral multiples. Equity shares signify ownership in a corporation and
represent claim over the financial assets and earnings of the corporation.
Shareholders enjoy voting rights and the right to receive dividends; however in
case of liquidation they will receive residuals, after all the creditors of the
company are settled in full. A company may invite investors to subscribe for the
shares by the way of:
Public issue through prospectus
Tender/ book building process
Offer for sale
Placement method
Page 21
[TYPE HERE]
[TYPE HERE]
Rights issue
STOCKS
The word stock refers to the old English law tradition where a share in the
capital of the company was not divided into shares of fixed denomination but
was issued as one chunk. This concept is no more prevalent, but the word
stock continues. The word joint stock companies also refers to this
tradition.
DEBT INSTRUMENTS
A contractual arrangement in which the issuer agrees to pay interest and repay
the
Borrowed amount after a specified period of time is a debt instrument. Certain
features
Common to all debt instruments are:
Maturity the number of years over which the issuer agrees to meet the
contractual obligations is the term to maturity. Debt instruments are classified
on the basis of the time remaining to maturity
Par value the face value or principal value of the debt instrument is called
the par value.
Coupon rate agreed rate of interest that is paid periodically to the investor
and is calculated as a percentage of the face value. Some of the debt instruments
may not have an explicit coupon rate, for instance zero coupon bonds. These
Page 22
[TYPE HERE]
[TYPE HERE]
bonds are issued on discount and redeemed at par. Thus the difference between
the investors investment and return is the interest earned. Coupon rates may be
fixed for the term or may be variable.
Call option option available to the issuer, specified in the trust indenture,
to call
in the bonds and repay them at pre-determined price before maturity. Call
feature acts like a ceiling f or payments. The issuer may call the bonds before
the stated maturity as it may recognize that the interest rates may fall below the
coupon rate and redeeming the bonds and replacing them with securities of
lower coupon rates will be economically beneficial. It is the same as the
prepayment option, where the borrower prepays before scheduled payments or
slated maturity of Some bonds are issued with call protection feature, i.e. they
would not be called for a specified period of time o Similar to the call option of
the issuer there is a put option for the investor, to sell the securities back to the
issuer at a predetermined price and date. The investor may do so anticipating
rise in the interest rates wherein the investor would liquidate the funds and
alternatively invest in place of higher interest
Refunding provisions in case where the issuer may not have cash to
redeem the
debt instruments the issuer may issue new debt instrument and use the proceeds
to repay the securities or to exercise the call option. Debt instruments may be of
various kinds depending on the repayment:
Page 23
[TYPE HERE]
[TYPE HERE]
Bullet payment instruments where the issuer agrees to repay the entire
amount
at the maturity date, i.e. lump sum payment is called bullet payment
Sinking fund payment instruments where the issuer agrees to retire a
specified portion of the debt each year is called sinking fund requirement
Amortization instruments where there are scheduled principal repayments
before maturity date are called amortizing instruments
Debentures/ Bonds
The term Debenture is derived from the Latin word debere which means to
owe a Debt. A debenture is an acknowledgment of debt, taken either from the
public or a particular source. A debenture may be viewed as a loan, represented
as marketable security. The word bond may be used interchangeably with
debentures. Debt instruments with maturity more than 5 years are called bonds
Yields
Most common method of calculating the yields on debt instrument is the yield
to maturity method, the formula is as under: YTM = coupon rate + prorated
discount (face value + purchase price)/2
Page 24
[TYPE HERE]
[TYPE HERE]
Page 25
[TYPE HERE]
[TYPE HERE]
DERIVATIVES
What are derivatives? A derivative picks a risk or volatility in a financial asset,
transaction, market rate, or contingency, and creates a product the value of
which will
change as per changes in the underlying risk or volatility. The idea is that
someone may
either try to safeguard against such risk (hedging), or someone may take the
risk, or may engage in a trade on the derivative, based on the view that they
want to execute. The risk that a derivative intends to trade is called underlying.
A derivative is a financial instrument, whose value depends on the values of
basic underlying variable. In the sense, derivatives is a financial instrument that
offers return based on the return of some other underlying asset, i.e the return is
derived from another instrument. The best way will be take examples of
uncertainties and the derivatives that can be structured around the same.
Stock prices are uncertain - Lot of forwards, options or futures contracts are
based on movements in prices of individual stocks or groups of stocks.
Prices of commodities are uncertain - There are forwards, futures and
options on commodities.
Interest rates are uncertain - There are interest rate swaps and futures.
Foreign exchange rates are uncertain - There are exchange rate derivatives.
Weather is uncertain - There are weather derivatives, and so on.
Page 26
[TYPE HERE]
[TYPE HERE]
DERIVATIVES PRODUCTS
Some significant derivatives that are of interest to us are depicted in the
accompanying graph:
Major types of derivatives
Derivative contracts have several variants. Depending upon the market in which
they are traded, derivatives are classified as 1) exchange traded and 2) over the
counter.
The most common variants are forwards, futures, options and swaps.
Forwards:
A forward contract is a customized contract between two entities, where
settlement takes place as a specific date in the future at todays predetermined
Page 27
[TYPE HERE]
[TYPE HERE]
price. Ex: On 1st June, X enters into an agreement to buy 50 bales of cotton for
1stDecember at Rs.1000 per bale from Y, a cotton dealer. It is a case of a forward
contract where X has to pay Rs.50000 on 1st December to Y and Y has to
supply 50 bales of cotton.
Options:
Options are of two types call and put. Calls give the buyer the right but not the
obligation to buy a given quantity of the underlying asset, at a given price on or
before a given future date. Puts give the buyer the right, but not the obligation to
sell a given
quantity of the underlying asset at a given price on or before a given date.
Warrants:
Options generally have maturity period of three months, majority of options that
are traded on exchanges have maximum maturity of nine months. Longer-traded
options are called warrants and are generally traded over-the-counter.
Leaps:
The acronym LEAPS means Long-term Equity Anticipation Securities. These
are options having a maturity of up to three years.
Baskets:
Basket Options are currency-protected options and its return-profile is based on
the average performance of a pre-set basket of underlying assets. The basket can
Page 28
[TYPE HERE]
[TYPE HERE]
Swaps:
Swaps are private agreement between two parties to exchange cash flows in the
future according to a pre-arranged formula. They can be regarded as portfolio of
forward contracts. The two commonly used Swaps are
i) Interest Rate Swaps: - A interest rate swap entails swapping only the interest
related cash flows between the parties in the same currency.
ii) Currency Swaps: -A currency swap is a foreign exchange agreement
between two parties to exchange a given amount of one currency for another
and after a specified period of time, to give back the original amount swapped.
Page 29
[TYPE HERE]
[TYPE HERE]
FORWARDS
A forward contract is an agreement to buy or sell an asset on a specified date for
a specified price. One of the parties to the contract assumes a long position and
agrees to buy the underlying asset on a certain specified future date for a certain
specified price. The other party assumes a short position and agrees to sell the
asset on the same date for the same price, other contract details like delivery
date, price and quantity are negotiated bilaterally by the parties to the contract.
The forward contracts are normally traded outside the exchange.
The salient features of forward contracts are:
1. They are bilateral contracts and hence exposed to counter-party risk
2. Each contract is custom designed, and hence is unique in terms of
contract size,
3. expiration date and the asset type and quality.
4. The contract price is generally not available in public domain
5. On the expiration date, the contract has to be settled by delivery of the
asset, or net settlement.
The forward markets face certain limitations such as:
Page 30
[TYPE HERE]
[TYPE HERE]
FUTURES
Futures contract is a standardized transaction taking place on the futures
exchange. Futures market was designed to solve the problems that exist in
forward market. A futures contract is an agreement between two parties, to buy
or sell an asset at a certain time in the future at a certain price, but unlike
forward contracts, the futures contract are standardized and exchange traded To
facilitate liquidity in the futures contracts, the exchange specifies certain
standard quantity and quality of the underlying instrument that can be delivered,
and a standard time for such a settlement. Futuresexchange has a division or
subsidiary called a clearing house that performs the specific responsibilities of
paying and collecting daily gains and losses as well as guaranteeing
performance of one party to other. A futures' contract can be offset prior to
maturity by entering into an equal and opposite transaction. More than 99% of
futures transactions are offset this way. Yet another feature is that in a futures
contract gains and losses on each partys position is credited or charged on a
daily basis, this process is called daily settlement or marking to market. Any
person entering into a futures contract assumes a long or short position, by a
small amount to the clearing house called the margin money
The standardized items in a futures contract are:
Quantity of the underlying
Page 31
[TYPE HERE]
[TYPE HERE]
Page 32
[TYPE HERE]
[TYPE HERE]
The futures contract does not give ownership or voting rights in the equity in
which it is trading
There is greater vigilance required because futures trades are marked to market
daily
INDEX DERIVATIVES
Index derivatives are derivative contracts that has index as the underlying. The
most popular index derivatives contract is index futures and index options.
NSEs market index - the S&P CNX Nifty are examples of exchange traded
index futures. An index is a broad-based weighted average of prices of selected
constituents that form part of the index. The rules for construction of the index
are defined by the body that creates the index. Trading in stock index futures
was first introduced by the Kansas City Board of Trade in 1982.
Advantages of investing in stock index futures
Diversification of the risks as the investor is not investing in a particular stock
Flexibility of changing the portfolio and adjusting the exposures to particular
stock index, market or industry
OPTIONS
An option is a contract, or a provision of a contract, that gives one party (the
option holder) the right, but not the obligation, to perform a specified
transaction with another party (the option issuer or option writer) according to
the specified terms. The owner of a property might sell another party an option
to purchase the property any time during the next three months at a specified
Page 33
[TYPE HERE]
[TYPE HERE]
price. For every buyer of an option there must be a seller. The seller is often
referred to as the writer. As with futures, options are brought into existence by
being traded, if none is traded, none exists; conversely, there is no limit to the
number of option contracts that can be in existence at any time. As with futures,
the process of closing out options positions will cause contracts to cease to
exist, diminishing the total number. Thus an option is the right to buy or sell a
specified amount of a financial instrument at a pre-arranged price on or before a
particular date.
There are two options which can be exercised:
Call option, the right to buy is referred to as a call option.
Put option, the right to sell is referred as a put option.
Factors affecting value of options you would understand this while using
the
Valuation techniques, but the terms are introduced below:
Price value of the call option is directly proportionate to the change in the
price of the underlying. Say for example
Time as options expire in future, time has an effect on the value of the
options.
Interest rates and Volatility in case where the underlying asset is a bond or
interest rate, interest rate volatility would have an impact on the option prices.
The statistical or historical volatility (SV) helps measure the past price
movements of the stock and helps in understanding the future volatility of the
stock during the life of the option
Page 34
[TYPE HERE]
[TYPE HERE]
Commodity Derivatives
Commodity Derivatives are the first of the derivatives contracts that emerged to
hedge against the risk of the value of the agricultural crops going below the cost
of production. Chicago Board of Trade was the first organized exchange,
established in 1848 to have started trading in various commodities. Chicago
Board of Trade and Chicago Mercantile Exchange are the largest commodities
exchanges in the world It is important to understand the attributes necessary in a
commodity derivative contract:
a) Commodity should have a high shelf life only if the commodity has
storability durability will the carriers of the stock feel the need for hedging
against the pricerisks or price fluctuations involved
b) Units should be homogenous the underlying commodity as defined in the
commodity derivative contract should be the same as traded in the cash market
to facilitate actual delivery in the cash market. Thus the units of the commodity
should be homogenous
c) Wide and frequent fluctuations in the commodity prices if the price
fluctuations in the cash market are small, people would feel less incentivised to
hedge or insure against the price fluctuations and derivatives market would be
of no significance. Also if by the inherent attributes of the cash market of the
commodity, the cash market of the commodity was such that it would eliminate
the risks of volatility or price fluctuations, derivatives market would be of no
Page 35
[TYPE HERE]
[TYPE HERE]
NCDEX
Page 36
[TYPE HERE]
[TYPE HERE]
Page 37
[TYPE HERE]
[TYPE HERE]
Definition of IRDs
Interest Rate Derivatives (IRD) are derivatives where the underlying risk
interest rates. Hence, depending on the type of the transaction, parties either
swap interest at a fixed or floating rate on a notional amount, or trade in interest
rate futures, or engage in forward rate agreements. As in case of all derivatives,
the contract is mostly settled by net settlement, that is payment of difference
amount.
Types:
The basic IRDs are simple and mostly liquid and are called vanilla products,
whereasderivatives belonging to the least liquid category are termed as exotic
interest rate derivatives. Some vanilla products are:
1) Interest Rate Swaps
2) Interest Rate Futures
3) Forward Rate Agreements
4) Interest rate caps/floors
Interest Rate Swaps These are derivatives where one party exchanges or
swaps the fixed or the floating rates of interest with the other party. The interest
rates are calculatedon the notional principal amount which is not exchanged but
used to determine thequantum of cash flow in the transaction. Interest rate
Page 38
[TYPE HERE]
[TYPE HERE]
Page 39
[TYPE HERE]
[TYPE HERE]
period. The principal is called notional because while itdetermines the amount
of payment, actual exchange of principal never takes place. Forinstance if A
enters an FRA with B and receives a fixed rate of interest say 6% onprincipal,
say P for three years and B receives floating rate on P. If at the end of
contractperiod of C the LIBOR rate is 6.5% then A will make a payment of the
differentialamount, (that is .5% on the principal P) to B. The settlement
mechanism can be furtherexplained as follows:For instance at a notional
principal of USD 1 million where the borrower buys an FRAfor 3 months that
carries an interest rate of 6% and the contract run is 6 months. At thesettlement
date the settlement rate is at 6.5%. Then the settlement amount will becalculated
in the following manner:Settlement amount = [(Difference between settlement
rate and agreed rate)*contract run* principal amount]/[(36,000 or 36500) +
(settlement rate*contract period) That is, in the above problemSettlement
amount = [(6.5-6)*180*USD 1 million]/[36,000 + (6.5%* 90)(Note: 36,000 is
used for currencies where the basis of calculation is actual/360days and 36,500
is used for currencies where the basis of calculation of interest isactual/365
days)
Page 40
[TYPE HERE]
[TYPE HERE]
beyond the cap limit, the seller need not pay anything to theborrower. In such a
situation as long as the interest rates are within the cap limit borrowerenjoys the
floating rates and if rates move above the cap limit he will be compensatedwith
the requisite amount by the protection seller and the borrower will pay fixed to
thecapped rate of interest. The same is the case when a person enters a Interest
Rate Floor transaction. In case of Interest Rate Cap transaction the borrower is
expects the market interest rates to go up in the future and hedge against the
movement of the market rates. Interest Rate Caps/Floors transactions are ideally
of one, two, five or ten years and the desired level of protection the buyer seeks
are 6%, 8% or 10%.
Page 41
[TYPE HERE]
[TYPE HERE]
Page 42
[TYPE HERE]
[TYPE HERE]
capital market of a country. The Indian Met Department (IMD) on 24th June
stated that India would receive only 93 % rainfall of Long Period Average
(LPA). This piece of news directly had an impact on Indian capital market with
BSE Sensex falling by 0.5 % on the 25th June. The major losers were
automakers and consumer goods firms since the below normal monsoon
forecast triggered concerns that demand in the crucial rural heartland would take
a hit. This is because a deficient monsoon could seriously squeeze rural
incomes, reduce the demand for everything from motorbikes to soaps and
worsen a slowing economy.
C) Macro Economic Numbers:The macroeconomic numbers also influence the capital market. It includes
Index of Industrial Production (IIP) which is released every month, annual
Inflation number indicated by Wholesale Price Index (WPI) which is released
every week, Export Import numbers which are declared every month, Core
Industries growth rate (It includes Six Core infrastructure industries Coal,
Crude oil, refining, power, cement and finished steel) which comes out every
month, etc. This macro economic indicators indicate the state of the economy
and the direction in which the economy is headed and therefore impacts the
capital market in India. A case in the point was declaration of core industries
growth figure. The six Core Infrastructure Industries Coal, Crude oil, refining,
finished steel, power & cement grew 6.5% in June , this figure came on the
23rd of July and had a positive impact on the capital market with the Sensex and
nifty rising by 388 points & 125 points respectively.
Page 43
[TYPE HERE]
[TYPE HERE]
D) Global Cues:In this world of globalization various economies are interdependent and
interconnected. An event in one part of the world is bound to affect other parts
of the world, however the magnitude and intensity of impact would vary. Thus
capital market in India is also affected by developments in other parts of the
world i.e. U.S, Europe, Japan , etc. Global cues includes corporate earnings of
MNCs, consumer confidence index in developed countries, jobless claims in
developed countries, global growth outlook given by various agencies like IMF,
economic growth of major economies, price of crude oil, credit rating of
various economies given by Moodys, S & P, etc An obvious example at this
point in time would be that of subprime crisis & recession. Recession started in
U.S. and some parts of the Europe in early 2008 .Since then it has impacted
all the countries of the world- developed, developing, less- developed and even
emerging economies.
E) Political stability and government policies:For any economy to achieve and sustain growth it has to have political stability
and pro- growth government policies. This is because when there is political
stability there is stability and consistency in governments attitude which is
communicated through various government policies. The vice- versa is the case
when there is no political stability .So capital market also reacts to the nature of
government, attitude of government, and various policies of the government.
The above statement can be substantiated by the fact the when the mandate
Page 44
[TYPE HERE]
[TYPE HERE]
came in UPA governments favor ( Without the baggage of left party) on May
16 2009, the stock markets on Monday , 18th May had a bullish rally with
Sensex closing 800 point higher over the previous days close. The reason was
political stability. Also without the baggage of left party government can go
ahead with reforms.
F) Growth prospectus of an economy:When the national income of the country increases and per capita income of
people increases it is said that the economy is growing. Higher income also
means higher expenditure and higher savings. This augurs well for the economy
as higher expenditure means higher demand and higher savings means higher
investment. Thus when an economy is growing at a good pace capital market of
the country attracts more money from investors, both from within and outside
the country and vice -versa. So we can say that growth prospects of an economy
do have an impact on capital markets.
G) Investor Sentiment and risk appetite:Another factor which influences capital market is investor sentiment and their
ris appetite .Even if the investors have the money to invest but if they are not
confident about the returns from their investment , they may stay away from
investment for some time.At the same time if the investors have low risk
appetite , which they were having in global and Indian capital market some four
to five months back due to global financial meltdown and recessionary situation
Page 45
[TYPE HERE]
[TYPE HERE]
in U.S. & some parts of Europe , they may stay away from investment and wait
for the right time to come.
Page 46
[TYPE HERE]
[TYPE HERE]
security prices; in this market, those traders who have non-public information
access can earn excess profits. In the strong-form efficient market, under no
circumstances can investors earn excess profits because all of the information is
incorporated into the security prices. The funds that are flowing in capital
markets, from savers to the firms with the aim of financing projects, must flow
into the best and top valued projects and, therefore, informational efficiency is
of supreme importance. Stocks must be efficiently priced, because if the
securities are priced accurately, then those investors who do not have time for
market analysis would feel confident about making investments in the capital
market. Eugene Fama was one of the earliest to theorize capital market
efficiency, but empirical tests of capital market efficiency had begun even
before that.
Efficient-market hypothesis
In finance, the efficient-market hypothesis (EMH) asserts that financial
markets are "Informationally efficient". That is, one cannot consistently achieve
returns in excess of average market returns on a risk-adjusted basis, given the
information publicly available at the time the investment is made. There are
three major versions of the hypothesis: "weak", "semi-strong", and "strong".
Weak EMH claims that prices on traded assets (e.g., stocks, bonds, or property)
already reflect all past publicly available information. Semi-strong EMH claims
both that prices reflect all publicly available information and that prices
instantly change to reflect new public information. Strong EMH additionally
claims that prices instantly reflect even hidden or "insider" information. There is
Page 47
[TYPE HERE]
[TYPE HERE]
evidence for and against the weak and semi-strong EMHs, while there is
powerful evidence against strong EMH. The validity of the hypothesis has been
questioned by critics who blame the belief in rational markets for much of the
financial crisis of 20072010. Defenders of the EMH caution that conflating
market stability with the EMH is unwarranted; when publicly available
information is unstable, the market can be just as unstable.
Historical background
The efficient-market hypothesis was first expressed by Louis Bachelor, a French
mathematician, in his 1900 dissertation, "The Theory of Speculation". His work
was largely ignored until the 1950s; however beginning in the 30s scattered,
independent work corroborated his thesis. A small number of studies indicated
that US stock prices and related financial series followed a random walk model.
[5] Research by Alfred Cowles in the 30s and 40s suggested that professional
investors were in general unable to outperform the market. The efficient-market
hypothesis was developed by Professor Eugene Fama at the University of
Chicago Booth School of Business as an academic concept of study through his
published Ph.D. thesis in the early 1960s at the same school. It was widely
accepted up until the 1990s, when behavioral finance economists, who were a
fringe element, became mainstream. Empirical analyses have consistently found
problems with the efficient-market hypothesis, the most consistent being that
stocks with low price to earnings (and similarly, low price to cash-flow or book
value) outperform other stocks. Alternative theories have proposed that
cognitive biases cause these inefficiencies, leading investors to purchase
Page 48
[TYPE HERE]
[TYPE HERE]
overpriced growth stocks rather than value stocks. Although the efficient-market
hypothesis has become controversial because substantial and lasting
inefficiencies are observed, Beechey et al. (2000) consider that it remains a
worthwhile starting point. The efficient-market hypothesis emerged as a
prominent theory in the mid-1960s. Paul Samuelson had begun to circulate
Bachelier's work among economists. In 1964 Bachelier's dissertation along with
the empirical studies mentioned above were published in an anthology edited by
Paul Cootner. In 1965 Eugene Fama published his dissertation arguing for the
random walk hypothesis, and Samuelson published a proof for a version of the
efficient-market hypothesis. In 1970 Fama published a review of both the theory
and the evidence for the hypothesis. The paper extended and refined the theory,
included the definitions for three forms of financial market efficiency: weak,
semi-strong and strong (see below). Further to this evidence that the UK stock
market is weak-form efficient, other studies of capital markets have pointed
toward their being semi-strong-form efficient. A study by Khan of thegrain
futures market indicated semi-strong form efficiency following the release of
large trader position information (Khan, 1986). Studies by Firth (1976, 1979,
and 1980) in the United Kingdom have compared the share prices existing after
a takeover announcement with the bid offer. Firth found that the share prices
were fully and instantaneously adjusted to their correct levels, thus concluding
that the UK stock market was semi-strong-form efficient. However, the market's
ability to efficiently respond to a short term, widely publicized event such as a
takeover announcement does not necessarily prove market efficiency related to
other more long term, amorphous factors. David Dreman has criticized the
Page 49
[TYPE HERE]
[TYPE HERE]
Page 50
[TYPE HERE]
[TYPE HERE]
Page 51
[TYPE HERE]
[TYPE HERE]
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research problem.
Itmay be understood as a science of studying how research is done scientifically.
RESEARCH DESIGN
Research Design is a arrangement of the conditions for collection and analysis
of data in a manner that aims to combine relevance to the research purpose with
the economy in procedure. The research problem having been formulated in
clear cut terms helps the researcher to prepare a research design. The
preparation of such a design facilities in conducting it in efficient manner as
possible. As the aim of the research in this project is to find the reasons behind
starting of regional stock exchanges, their growth and downfall. Diagnostic
Research aims at determining the frequency with which something occurs or its
association with something else.
Page 52
[TYPE HERE]
[TYPE HERE]
SAMPLE SIZE
Sample size refers to the number of items to be selected from the universe to
constitute a sample. Due to constraints like time and money, the sample size
selected for the research is twenty five brokers and professional etc.
SAMPLING DESIGN
Data has been presented with the help of bar graph,pie charts,line graphs etc
SAMPLING PLANNING
Page 53
[TYPE HERE]
[TYPE HERE]
Sampling plan is a technique for obtaining the sample from given population
probability sampling method is selected,under which everyitem in the universe has
an equal chance the probability sampling used in the project will be Simple
Random Sampling.
LIMITATION OF STUDY
Some of the person were not so responsive.
Possibility of error in data collection because many of investors may have not given
actual answers of my questionnaire.
Sample size is limited to 25 members of brokers and professional.
Page 54
[TYPE HERE]
[TYPE HERE]
Chapter-3
Page 55
[TYPE HERE]
[TYPE HERE]
LOGO
Page 56
[TYPE HERE]
[TYPE HERE]
innovations in the production of consumer tape products, including audiocassettes, floppy discs and video-cassettes, BASF magnetic became EMTEC
magnetic.
Turning the companys focus to mobile storage products, the EMTEC brand
became a huge success in Europe, symbolized by the powerful red spiral logo.
By 2006, EMTEC had produced the number- one selling brand of flash drives in
France and the number-three selling brand of flash drives in Europe for five
years and counting. Today, EMTEC is distributed in over 50 countries and
prides itself on a 75 year history of creating innovative products that embody
the human spirit to preserve, protect, and share the most valuable moments of
daily life. Whatever the technology or the media, EMTEC commits to providing
hassle-free, creative and stylish solutions that make technology easy to use and
serve our customers memories, ideas and emotions.
MISSION: The unique expertise and diverse technology that Emtec brings
to the table combined with their proven track record for success made it a very
easy choice to continue our relationship
Page 57
[TYPE HERE]
[TYPE HERE]
PRODUCTS
MOVIE CUBE
HARD DRIVES
MP3 PLAYERS
Page 58
[TYPE HERE]
[TYPE HERE]
USB FLASH
MEMORY CARDS
Page 59
ACC
ESSORIES
[TYPE HERE]
[TYPE HERE]
RECOR
DING MEDIA
SERVICES
Consulting services
Packaged applications
Cloud technologies
Application outsourcing
Infrastructure services
Emtec provides a broad array of professional services to suit the needs of our
clients. Organized around five practice areas Consulting, Package and
Custom Application Services, Cloud, and Infrastructure Emtec specializes in
helping world-class organizations leverage technology to achieve business
Page 60
[TYPE HERE]
[TYPE HERE]
Page 61
[TYPE HERE]
[TYPE HERE]
FINANCIAL AND
ACCOUNTING
SALES AND
MARKETING
HUMAN CAPITAL
MANAGEMENT
OUTSOURCING
ORGANISATIONSTRUCTURE
Page 62
[TYPE HERE]
[TYPE HERE]
CEO
DIRECTOR
PRESIDENT
CHAIRMAN
CO-CHAIRMAN
CHIEF EXECUTIVE
OFFICER
CHIEF OPERATING
OFFICER
COMPETITORS
IBM
HP
DELL
Page 63
[TYPE HERE]
[TYPE HERE]
Page 64
[TYPE HERE]
[TYPE HERE]
Page 65