CHANGING TRENDS IN CORPORATE FINANCIAL MANAGEMENT DUE TO..

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International Conference on Accounting & Finance (ICAF) - 2014, Colombo, Sri Lanka http://financeconference.co/ "CHANGING TRENDS IN CORPORATE FINANCIAL MANAGEMENT DUE TO GLOBAL FINANCIAL CRISIS" Bhaskar Kumar

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Hosted by: CHANGING TRENDS IN CORPORATE FINANCIAL MANAGEMENT DUE TO GLOBAL FINANCIAL CRISIS Bhaskar Kumar Academic Partner:

CHANGING TRENDS IN CORPORATE FINANCIAL MANAGEMENT DUE TO GLOBAL FINANCIAL CRISIS :

CHANGING TRENDS IN CORPORATE FINANCIAL MANAGEMENT DUE TO GLOBAL FINANCIAL CRISIS Presenter: Bhaskar Kumar K. J. Somaiya Institute of Management Studies & Research , Mumbai

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Agenda

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Analyzing the financial crisis of 2007-08 Test the economic and financial theories and finding reasons as to why these theories failed Suggest a modern approach towards a new paradigm for both the investors and the firm Overview

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The period from 2003-07 was a period of rising asset prices Real Estate prices rose by up to 200% Stock prices rose by over 500% (BSE Sensex 3,250 in Jan 2003 to over 20,000 in Dec 2007) Abundant liquidity created by foreign portfolio inflows All of this created a bubble which was just about to burst anytime and it did Financial Crisis of 2007-08

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Foreign investors withdrew their fund which led to a sharp depreciation in the Rupee Severe liquidity crisis in the Rupee market The inter-bank rates rose to 18% which earlier used to be between 6-9% The drain of foreign exchange reserves affected the BOP(Balance of Payment). The total intervention by the central bank was $22 billion Impact on the financial Sector

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Contrast of the Indian and Taiwanese policies

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Towards a new paradigm

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Many causes identified: Subprime mortgages careless government regulation failure in risk monitoring by financial institutions Decision making of the top executives Having a model that would include all the possible scenarios for analysis is not possible Therefore, quantifying and calibrating using risk metrics would not be a solution Conclusion

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We suggest that the management should follow a rather philosophical rather than a mechanical way of financial decision making The top executives should think flexibly in a non-linear way instead of pinning in a linear thinking path as in most rational models The present is important but the future is much more important Conclusion (contd.)

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