Important reasons for the growth of merchant banks has been development activities throughout the country, exerting excess demand on the sources of fund for ever expanding industries and trade, thus leaving a widening gap unabridged between the supply and demand of invisible funds. All financial institutions had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. Growing demand for funds put pressure on capital market that enthused commercial banks, share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. As a result all the commercial banks in nationalized and public sector as well as in private sector including foreign banks in Continue reading
Indian Financial System
Functions of Life Insurance Corporation of India (LIC)
Life insurance business in India was being transacted by private companies until 1956. As a result of the long felt need and in the interest of insuring public, the life insurance business was nationalized in 1956. The nationalization resulted in the establishment of Life Insurance Corporation of India (LIC) by an act of the Parliament. The Corporation was formed and began to function on September 1, 1956 by taking over 170 companies and 75 provident societies. The entire initial capital of Rs.5 crore was contributed by the government of India. The objective of nationalization was described by the then finance minister, C. D. Deshmukh as “to see that the gospel of insurance is spread as far and wide as possible so that we reach beyond the more advanced urban areas well into the hither to neglected rural areas.” The Corporation is a body corporate having perpetual succession with a common Continue reading
Commercial Paper – Definition, Features and Advantages
What is a Commercial Paper? A commercial paper is an unsecured promissory note issued with a fixed maturity by a company approved by RBI, negotiable by endorsement and delivery, issued in bearer form and issued at such discount on the face value as may be determent by the issuing company. Features of Commercial Paper Commercial paper is a short-term money market instrument comprising usince promissory note with a fixed maturity. It is a certificate evidencing an unsecured corporate debt of short term maturity. Commercial paper is issued at a discount to face value basis but it can be issued in interest bearing form. The issuer promises to pay the buyer some fixed amount on some future period but pledge no assets, only his liquidity and established earning power, to guarantee that promise. Commercial paper can be issued directly by a company to investors or through banks/merchant banks. Advantages of Commercial Continue reading
Listing and Delisting of Securities at Stock Exchanges
Listing of Securities at Stock Exchanges Listing means formal admission of a security into a public trading system of a stock exchange. A security is said to be listed when they have been included in the official list of the stock exchange for the purpose of trading. The prime objective of admission to dealings cm the stock exchange is to provide liquidity and marketability to securities and also to provide a mechanism for effective management of trading. The securities listed in stock exchanges may be of any public limited company, central or state government, quasi-government and other corporations or financial institutions. To make a security eligible to be listed in a stock exchange, the company shall be obligatory to fulfill all the listing requirements specified in the Companies Act of 1956. Besides the company is also compulsorily to discharge the listing norms issued by SEBI from time to time and Continue reading
Trading Participants in the Derivatives Market
The trading participants in the derivatives market are as follows: 1. Hedgers The process of managing the risk or risk management is called as hedging. Hedgers are those individuals or firms who manage their risk with the help of derivative products. Hedging does not mean maximizing of return. The main purpose for hedging is to reduce the volatility of a portfolio by reducing the risk. 2. Speculators Speculators do not have any position on which they enter into futures and options Market i.e., they take the positions in the futures market without having position in the underlying cash market. They only have a particular view about future price of a commodity, shares, stock index, interest rates or currency. They consider various factors like demand and supply, market positions, open interests, economic fundamentals, international events, etc. to make predictions. They take risk in turn from high returns. Speculators are Continue reading
Ketan Parekh Scam and It’s Impact on Financial Institutions
Ketan Parekh was threatening to sue the Bank of India for defamation, because it complained about the bouncing of Rs 1.3-billion pay orders issued to the broker by the Madhavpura Mercantile Cooperative Bank. He seemed to suggest there is nothing more that the authorities would be able to pin against him. At last investigations by the Central Bureau of Investigation and the Securities and Exchange Board of India reveal that the sheer magnitude of money moved around by Parekh or available to him for his market manipulation was a staggering Rs 64 billion. Money abroad The CBI called a press conference to announce it had unearthed a Swiss bank account in which Parekh was listed as the beneficiary. The Bureau claimed there was $ 80 million (Rs 3.4 billion) in the account, which has since been frozen. In the past, CBI announcements were usually followed up with a quick arrest, Continue reading