In every country of the world, some type of money market exists. Some of them are highly developed while others are not well developed. Prof. S.N. Sen has described certain essential features of a developed money market. Highly organized banking system: The commercial banks are the nerve centre of the whole money market. They are principal suppliers of short-term funds. Their policies regarding loans and advances have impact on the entire money market. The commercial banks serve as vital link between the central bank and the various segments of the highly organized banking system co-exist. In an underdeveloped money market, the commercial banking system is not fully developed. Presence Of A Central Bank: The Central Bank acts as the banker’s bank. It keeps their cash reserves and provides them financial accommodation in difficulties by discounting their eligible securities. In other words, it enables the commercial banks and other institutions to Continue reading
Investment Terms
Convertible Issues – Explanation and Significance
A convertible issue is a bond or a share of preferred stock that can be converted at the option of the holder into common stock of the same company. Once converted into common stock, the stock cannot be exchanged again for bonds or preferred stock. Issue of convertible preference shares and convertible debentures are called convertible issues. The convertible preference shares and convertible debentures are converted into equity shares. The ratio of exchange between the convertible issues and the equity shares can be stated in terms of either a conversion price or a conversion ratio. Convertible Preference Shares: The preference shares which carry the right of conversion into equity shares within a specified period, are called convertible preference shares. The issue of convertible preference shares must be duly authorized by the articles of association of the company. Convertible Debentures: Convertible debentures provide an option to holders to convert them into Continue reading
Commodities Exchange in India
Commodities (commodity) are basic raw materials and foodstuffs such as metals, petroleum, coffee, grain etc. Commodities are traded on a commodity exchange both by the companies that use them (e.g. chocolate manufacturers) and by speculators. Futures contracts allow commodity producers and commodity users to bring some predictability and stability to pricing. By buying futures contracts, they can hedge against underlying price changes in the commodity. Commodity exchange are the exchanges where the trading of futures and forwards take place, basically commodity exchange are trading in future contacts on those commodities which have some regional relevance it is not going to be as easy as a share of a company to get listed in a different exchange. Commodity exchanges in India are expected to contribute significantly in the strengthening Indian economy to face the challenges of globalization. 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
The Concept of Financial Research
Here, there are several distinctions between types of research–breaking it down by style, capital structure and firm. While the main focus will be on fundamental equity and fixed income research, it will also discuss the other types of research as well as the functional roles analysts play at different types of firms. 1. Research Styles Fundamental Research: Fundamental research takes a deep dive into a company’s financial statement as well as industry trends in order to extrapolate buy and sell investment decisions. There is no clear cut way in conducting fundamental research but it normally includes building detailed financial models, which project items such as revenue, earnings, cash flows and debt balances. Some asset managers may focus solely on earnings growth while others may focus on returns on invested capital (ROIC). It is important for the candidate to understand the firm’s investment philosophy. This can usually be achieved by Continue reading
Is a Dollar Always Worth a Dollar?
The value of a dollar changes dramatically, depending on when you can take control of the dollar and invest it. The critical variable in the exact value of a dollar is time. If someone owes you a dollar, do you want him to pay you today or next year? Yes! The answer is, Today. With inflation consistently destroying the purchasing power of a dollar, a year from now a dollar will be worth slightly less than it is today. “Inflation” is an economic term used to describe the gradual tendency of prices to rise over time. If inflation is 2% per year, which means that prices, on average, will rise 2% over the next year, which in turn means that your dollar can purchase 2 cents less in a year than it can today. That’s right, with 2% inflation, a dollar today is worth only 98 cents in a year. Continue reading