derivative,investment banking

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SUBJECT: ADVANCE FINANCIAL MANAGEMENT : 

SUBJECT: ADVANCE FINANCIAL MANAGEMENT Topics to be Presented: 1. Derivatives and its Application and its Importance in Capital Market 2. Investment Banks and its Functions 3. Various Sources of Long Term Finance

SUBMITTED TO: PROF. GANACHARI : 

SUBMITTED TO: PROF. GANACHARI Submitted By Rajshree Gaikwad 09 Vidya Hanchate 10 Snehal Ise 12

Slide 3: 

1. Derivatives and its Uses and its Importance in Capital Market

DERIVATIVES : 

DERIVATIVES Derivatives are one type of securities whose price is derived from the underlying assets. These underlying assets are most commonly stocks, bonds, currencies, interest rates, commodities and market indices. As Derivatives are merely contracts between two or more parties, anything like weather data or amount of rain can be used as underlying assets. Types of derivatives Forward Futures Options Swaps

TYPES OF DERIVATIVE MARKET : 

TYPES OF DERIVATIVE MARKET Exchange Traded Derivatives Market: They are those derivatives which are traded through specialized derivative exchanges. Over the Counter Derivative Market (OTC): They are those which are privately traded between two parties and involves no exchange or intermediary. Swaps, Options and Forward Contracts are traded in OTC

Forward and futures contracts : 

Forward and futures contracts Forward and Futures Contracts have the same function: both types of contracts allow people to buy or sell a specific type of asset at a specific time at a given price. The key difference is as under:

options contract : 

options contract Options are contracts that give the buyer or seller the right and not the obligation to buy or sell the underlying asset at a fixed price at a future date. There are two main types of Option: Call Option: You would buy a Call Option if you believe the underlying futures price will move higher. Put Option: You would buy a Put Option if you believe the underlying futures price will move lower. The call option gives the right to buy while the put option gives the right to sell. Premium: While buying an Option, you to have to pay some kind of price that price is called premium.

SWAPS : 

SWAPS A swap is an agreement between two parties to exchange the cash flows in the future. This financial instrument is used to hedge interest rate risks There are two basic types of swaps: Interest Rate Swap: An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular principal amount. In this, the principal amount remains same for both sides of the currency and a fixed payment is frequently exchanged for a floating payment that is linked to an interest rate, which is usually LIBOR.

SWAPS : 

SWAPS Currency Swap: A currency swap is an agreement between two parties to exchange the principal loan amount and interest applicable on it in one currency with the principal and interest payments on an equal loan in another currency.

USES OF DERIVATIVES : 

USES OF DERIVATIVES Risk Management Lowering Financing Cost Asset Management Completing the Market for Investors Tax or Regulatory Advantage Speculation

IMPORTANCE OF DERIVATIVES IN CAPITAL MARKET : 

IMPORTANCE OF DERIVATIVES IN CAPITAL MARKET A Tool For Hedging Risk Management Better Avenues For Raising Money Price Discovery Increasing The Depth Of Financial Markets

Slide 13: 

Investment Banks 2.

MEANING OF INVESTMENT BANK : 

MEANING OF INVESTMENT BANK The term investment bank is concerned with the primary function of assisting the capital market in its function of capital intermediation. Assist public and private corporations in raising funds in the capital markets (both equity and debt).

WHO NEEDS AN INVESTMENT BANK : 

WHO NEEDS AN INVESTMENT BANK Any firm contemplating a significant transaction can benefit from the advice of an investment bank. Any small to medium sized company do not have a large in-house staff, a quality investment banking firm can provide the services required to initiate and execute a major transaction.

TYPES OF INVESTMENT BANKS : 

TYPES OF INVESTMENT BANKS Investment Banks – Underwrite stock and bond issues, advise corporations on capital markets activities such as mergers and acquisitions. Merchant Banks - Traditional banks which engaged in trade financing.

SERVICES PROVIDED BY INVESTMENT BANKS : 

SERVICES PROVIDED BY INVESTMENT BANKS Mergers and Acquisitions Advisory Real Estate Advisory Equity Capital Markets Advisory Advisory for Raising Capital

MAIN FUNCTION OF INVESTMENT BANKS : 

MAIN FUNCTION OF INVESTMENT BANKS 1. Investigation, Analysis and Research (Origination) Origination includes the subsidiary operations of discovery, investigation, and negotiation. Investigation is the testing of the investment credit of the prospective security issuer, and the intrinsic soundness of the issue; negotiation is the determination of the amount, the price, and the terms of the proposed issue.

MAIN FUNCTION OF INVESTMENT BANKS : 

MAIN FUNCTION OF INVESTMENT BANKS 2. Underwriting (Public Cash offerings) - Refers to the guarantee by the investment banker that the issuer will receive a certain minimum amount of cash for their new securities. The investment banker buys a new security issue, pays the issuer, and markets the securities. The underwriter’s compensation is the difference between the price at which the securities sold to the public, and the price paid to the company for the securities.

MAIN FUNCTION OF INVESTMENT BANKS : 

MAIN FUNCTION OF INVESTMENT BANKS 3. Distribution The investment banker acts as a specialist to distribute securities efficiently for the corporation. Investment banker has established marketing and sales network to distribute securities.

Slide 21: 

Sources of Long Term Finance 3.

PURPOSE OF LONG TERM FINANCE : 

PURPOSE OF LONG TERM FINANCE To Finance Fixed Assets   To Finance The Permanent Part of Working capital To Finance Growth and Expansion Of Business

FACTORS DETERMINING LONG-TERM FINANCIAL REQUIREMENTS : 

FACTORS DETERMINING LONG-TERM FINANCIAL REQUIREMENTS Nature of Business Nature of Goods Produced Technology Used

SOURCES OF LONG TERM FINANCE : 

SOURCES OF LONG TERM FINANCE Shares Debentures Public Deposits Retained Earnings Term Loans From Banks Loan from Financial Institutions Mortgage Venture Capital

Slide 25: 

Thank You

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