Foreign Institutional Investors (FIIs) is used to denote an investor; it is mostly of the form of an institution or entity which invests money in the financial markets of a country. The term FII is most commonly used in India to refer to companies that are established or incorporated outside India, and is investing in the financial markets of India. These investors must register with the Securities and Exchange Board of India (SEBI) to take part in the market. Foreign investment refers to investments made by residents of a country in another country’s financial assets and production processes. After the opening up of the borders for capital movement, foreign investments in India have grown enormously. It affects the productivity factors of the receiver country and has the potential to create a ripple effect on the Balance of Payments of the country. In developing countries like India, foreign capital helps in Continue reading
Investment Management
Different Types/Categories of Mutual Fund Products
Investment companies or investment trusts obtain funds from large number of investors through sale of units. The funds collected from the investors are placed under professional management for the benefit of the investors. There are a variety of ways in which mutual funds are created to accommodate varied risk and return requirements of investors. Depending on the investment portfolio that is created and the segments of the various markets in which funds are invested, there is a choice of funds to investors. Mutual funds can offer further broad choices to the investors in terms of: Nature of participation: Open and close-end funds. Nature of income distribution: Dividend, growth and reinvestment of dividends. Mutual Fund Products based on the Nature of Participation 1. Open-Ended Mutual Funds An open-ended mutual fund remains open for issue and redemption of its shares throughout its unlimited duration. As an open-ended mutual fund is required to Continue reading
RBI’s Role in Risk Management and Settlement of Transactions in the Foreign Exchange Market
The Indian Foreign Exchange (Forex) market is characterized by constant changes and rapid innovations in trading methods and products. While the innovative products and ways of trading create new possibilities for profit, they also pose various kinds of risks to the market. Central banks all over the world, therefore, have become increasingly concerned of the scale of foreign exchange settlement risk and the importance of risk mitigation measures. Behind this growing awareness are several events in the past in which foreign exchange settlement risk might have resulted in systemic risk in global financial markets, including the failure of Bankhaus Herstatt in 1974 and the closure of BCCI SA in 1991. The foreign exchange settlement risk arises because the delivery of the two currencies involved in a trade usually occurs in two different countries, which, in many cases are located in different time zones. This risk is of particular concern to Continue reading
Indian Banking System: Payment and Settlement Systems
In recent years, alternate money transmission avenues, especially the development of electronic money schemes, have been gaining currency. While electronic money has the potential to take over from cash for making small-value payments, making such transactions are becoming easier and cheaper for both consumers and merchants. This raises policy issues for central banks in its role as the guardian of the payment network and implementer of the monetary policy. The emergence of peer-to-peer money transmission mechanisms poses a challenge to current role of banks as gatekeepers to traditional payment systems. Robust payment systems, therefore, are a key requirement in maintaining and promoting financial stability with technology playing both a facilitating and disruptive role in them. Reserve Bank’s initiatives for electronic payments and banking As part of its public policy objective of promoting a safe, secure, sound and efficient payment system, the Reserve Bank has taken several initiatives to develop and Continue reading
Financial and Economic Meaning of Investment
Investment is the employment of funds with the aim of getting return on it. In general terms, investment means the use of money in the hope of making more money. In finance, investment means the purchase of a financial product or other item of value with an expectation of favorable future returns. Investment of hard earned money is a crucial activity of every human being. Investment is the commitment of funds which have been saved from current consumption with the hope that some benefits will be received in future. Thus, it is a reward for waiting for money. Savings of the people are invested in assets depending on their risk and return demands. Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, offering differing Continue reading
Uses of Currency Futures – Hedging, Speculation and Arbitrage
Future contract is normally defined as a standardized agreement with an organized exchange to buy or sell some item, such as a currency or commodity at a fixed price at a certain date in the future. Some contracts for example, foreign currency futures, provide for cash delivery; others, such as Eurodollar futures, are based on some reference price and allow only for cash settlement at maturity. The purpose of futures is not to obtain delivery but to replicate without credit risk, the gains or losses that would occur from an equivalent forward contract. In principle, currency futures are similar to foreign exchange forwards in that they are contracts for delivery of certain amount of a foreign currency at some future date and at known price. But in practice, most futures contracts are terminated before maturity. The most important uses of currency futures are listed below; 1. Hedging: Presume Entity A Continue reading