Lil more on derivatives….

I wish to add to what Shelly has talked about…..Derivatives are an excellent tool for managing the risks associated with the market fluctuations.

As stock derivatives, there are currency derivatives which are available.

Apart from other risks, Foreign Trade is subject to risks from currency fluctuations. Exporters and Importers in order to safeguard themselves against unfavourable currency fluctuations use currency derivatives as a hedging mechanism.

In case where an importer has to make payments in a foreign currency to the exporter at a future date, he can invest in a buy (long) position for currency futures by paying a premium. On the date when the payment is due to be made by the importer the required currency amount is available at the strike price of the currency futures. Hence, the importer is safeguarded from the any depreciation in the value of his currency.

Similarly, where an Exporter is expecting payments from the importers in a foreign currency, they can invest in a sell (short) position for currency futures in which payment is to be received. When the payments are received by the exporter even if the domestic currency has appreciated in comparison to the currency in which payments have been received the exporter does not suffer any losses. The exporter can accept the payment and the sell the currency in the derivative market at the pre decided strike price.

The buying and selling of currency futures does not help the exporters and importers earn any profits. However, they enable them lock in the exchange price of the payments to be made and received. This helps importers and exporters keep up with their estimated budgets and forecasted revenues.

Hope u find it interesting..
Kriti

Basic of Options

Hello,

I have written a small blog on Options.
Please refer to the link below to access it. Looking forward to responses and queries.

http://neha-viewpoint.blogspot.com/2010/04/basic-of-options.html

hey,
thanx for sharing the information.
Shelly, i wanted to know that among options and futures, which is more favourable?
On what basis do we deicide?

Parri Passu- Charge on an Asset

When an asset is given to the custody of the lender, the asset is said to be charged to the lender. The lender gets the right on the asset upon failure of the borrower to repay the loan. The charge can be a first/second charge or a pari passu charge.

In the case of first charge, the lender gets absolute right on the security. Any surplus from the sale of the asset should be turned over to the borrower.

In the case of the second charge the lender gets the right on the asset after satisfying the first lender. Any surplus after satisfying his claim should be turned over to the borrower.

Pari passu charge gives a parallel proportionate right to the lenders. Realisation of the asset should be shared in proportion to the balances outstanding to the respective lenders.

Hello All !!!!!!!!

Thanx Shelly for sharing this information.Frnds infact i also want to share some new concepts with u that i learnt during this internship....
we all knw that we prepare depriciation schedule but actually we prepare this according to Companies Act 1956 and also Income Tax Act 1961.We treat like this
Acc. to Companies Act, Depriciation for the year = Opening Balance + Op. Bal ( including Cp WIP)+ Addition during the year - Cl. Balance.
Acc. to Income Tax Act 1961, Depriciation for the year = Opening Balance + Addition during the year - Cl. Balance
And then in Consolidate St. Of Provision for Income Tax:
we subtract depriciation calculated as per the Income Tax Act from THe depriciation Calculated from the Companies Act.
Thus how we make Depriciation Schedule.

Discussion on Derivatives

Friends

Let me answer Neha's question...There are two types of option - call option and put option .

A call option gives the buyer the right to purchase an asset for a specific price called strike price by paying an amount right now called the premium. Lets take a hypothetical example , I have a view that X Ltd stock may rise in near future.Currently X Ltd. is trading at Rs. 100.I buy a call option on X Ltd stock with a strike price of Rs. 90( i.e I have a right to buy the stock @ Rs. 90 on expiration) by paying a premium of Rs 10. Now at expiration if the market price of the stock increases to say Rs. 120 , I will exercise this option. This is because I have purchased the right to buy it @ Rs. 90. However if the stock price falls say to Rs 70 , I will not exercise this right. In this case I will lose the premium which was paid initially i.e Rs. 10 at the time of buying this option.

In contrast , put option gives the holder the right to sell an asset for a specific strike price on a specified expiration date . Say a put option which expires in May on Y Ltd. with strike price of Rs. 90 entitles its owner to sell Y Ltd . stock at Rs. 70 at expiration even when the market price is less than Rs. 90. Ofcourse premium is to be paid buy this put option.

Hope this helps Neha..Please free to shoot further questions...Hope to see others participation as well.

Cheers

Shelly Nayyar

NUTS AND BOLTS OF DERIVATIVES

Friends

Hope you are all enjoying your SIP.

Let me share with you ABC of Derivatives.

Well... this is an attempt to answer the first question..What are Derivatives? In finance, derivatives is the collective name used for a broad class of financial instruments. These instruments provide payoffs that depend on the value of other assets such as commodity prices, bonds and stock prices or market index values. Their values derive from the values of other assets. Company stock options, for instance allow employees to profit from changes in the company's stock price without owning shares.

Derivatives come in two basic categories, option type contracts and forward type contracts. These may be listed on the exchange or they may be privately traded.

Options buyers get a right to buy or sell an asset over a specific period.There is no obligation to buy or sell the asset. For getting this right the buyer has to pay a price (premium) to the seller of the contract.

Forward type contracts, which includes forwards, futures and swaps commit the buyer and seller to trade a given asset at a set price on a future date. These contracts involve price fixing on the current date.

The important point to note here is that in options contract there is an option to buy or sell however in the forward types contract there is a commitment.

Waiting for you to shoot further questions.

Happy learning

Shelly Nayyar

Knock Knock..

Hello Everyone...

Long time, no posts..Kindly do not let this blog become inactive...We can always discuss about reports, working atmosphere and learnings!!

Keep posting..

Hello everyone,

I am doing my project on "Understanding International Trade Financing in Indian Bank". Right now I am trying to understand the functioning of the foreign Exchange Department as a whole. I do this by assisting people in their work, completing transactional part of their jobs. The staff here is very limited so cannot give much time in explaining things, however things keep becoming clear as and when I complete various section of jobs.

Have been working on project proposal too.....wish to finish it ASAP.

Kriti

Hello Frnds,
I hope all ppl must have a gud time in their SIP...Frnds as i told u earlier that i m working on Credit appraisal, so I just wanted to share some new concepts which i learnt in last few days.
Minority interest - It refers to the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is always less than 50% of outstanding shares.It is found on the balance sheet under Liabilities. Minority interest belongs to other investors and is reported on the consolidated balance sheet of the owning company to reflect the claim on assets belonging to other, non-controlling shareholders. Also, minority interest is reported on the consolidated income statement as a share of profit belonging to minority shareholders.

Well i keep u updating abt the other learnings

INTRODUCTION

Hello friends ,this is MANSI KAPOOR.i have done my B.com (h) from Lakshmibai college,Delhi University.I am doing my summer training at CHOLAMANDLAM DBS - commercial vehicle finance.my area of work is basically related to credit but for that i need to have some knowledge about the product also.and i am learning a lot of things daily in my org.The work environment is very good.all the people from the top heads to the sales executives are very helpful and cooperative..I have learn t many concepts during my B.com and MBA sem I and II..And now its very interesting to apply them in actual corporate life.
keep in touch
take care
mansi kapoor

Hey guys

I am Meenakshi Aggarwal from Delhi. I am an English (Honors) graduate from JDM, DU. I am doing my SIP from Cholamandalam DBS Finance Ltd., Pusa Road, Delhi. Working in an NBFC is really a great experience and it has a lot to teach too. I am really enjoing being in this company.

And I wish the same for everyone. All the best guys.

Meenakshi Aggarwal

introduction

hi all... shubhra this side... plz excuse d late entry but m a lil technically challenged to get d hang of this thing :)
ayways starting of wid my intro... m an economics graduate from Delhi University n m interning with Duetsche Postbank Home Finance Ltd in Gurgaon.. I plan to major in HR and have taken up marketing as my minor...
My project here is on job description and compensation management.... in d last few weeks I got to know about my organization, the hierarchy, the internal structure etc... the people in my office are busy all the time yet they still find time to intereact wid each other whenever they can which is just amazing.. the work culture there is really nice... n this being my first experience in the corporate as m a fresher has been an eye opener even though a lot of rules dont apply to me as an intern...i have learnt a lot in these past few weeks, things which r not taught in b-schools... patience is definitely an acquired quality!!! as far as my project is concerned I was supposed to make a job description format and a questionnaire for d same which m glad has been finalized! now d next step for me is to start interviewing d people working here... let's see what happens :)
all the best to all... :)

Hello Frnds,
Finally after going through many topics, I decided to work on Credit Appraisal...this area seems to be interested to work on and I m learning new concepts and can also utilize my previous knowledge of finance(FM-1 & FM-2).Initially i have to do balance sheet analysis of the borrowing company and the many more analysis has to be done before financing the project.It provides me practical exposure and also a gud feel as there is a vast scope of value addition and learning in terms of knowledge.

About Myself.......

Hello Everybody,
I m Asha Goel.Done B.E in Electronics and a fresher.I want to pursue MBA in Finance and Banking.Currently i m doing my internship in Canara Bank(Prime Corporate Branch-1),Nehru Place,Delhi.Initially few days i invest in understanding the basic banking operations. I have gone through various project reports that has been already done, just to have a glance how the things actually proceed.I have been reading on mainly two areas Project appraisal and Credit appraisal, so that i can finalise project on which i will work in my SIP.Initially i was confused about project appraisal and credit appraisal.But now after getting through reports i am very clear about these two areas.

The SIP Journey..............

INTRODUCTION
NAME:Shelly Nayyar
EDUCATION: B.A (Hons) Economics, Delhi University
SIP ORGANISATION: Eastwind Capital Advisors Pvt. Ltd.
DEPARTMENT: Equity Research

(February 22nd-26th)

The week commenced on a slow note with the agenda of learning about option valuation through Binomial Tree. It took a lot of time to understand the concept though Shailendra Sir, the CEO, helped me to clarify my doubts.

After going through Black Scholes method of pricing option and delta hedging, I was told to model and master option strategies on excel. With simple excel formulas, I was able to create option strategies like straddle, strangle, condor, protective call and bullspread on excel. The concepts are interesting however one needs to be very fast in creating payoffs so as to capitalize on the underlying opportunity.

The last day of the week was the Budget day and everyone around was discussing the impact on the economy, industry and different companies. If anyone of you is learning derivatives, please discuss so that we can be more confident with the subject. I would like to conclude this write by quoting my company guide, CA Vineeta Jain ‘GO SLOW BUT GO FIRM’

All The Best

Hello Everybody,

I am Kriti, B.com graduate from University of Delhi ...have 3 years of work experience with NIIT and Infosys. I wish to pursue my MBA in Finance and Banking.

I am training with Indian Bank, Nehru Place branch...right now i have been assisting people working in different departments with their transactional work to develop an understanding of various processes to identify a SIP Project, hope to finalize on one very soon...

Introduce Yourself...

Hello everyone..

Let's introduce ourselves before posting anything..Even though we belong to same institute but it may be the condition that we may not be knowing each other..and it will also give all of us a chance to post something...so kindly make a brief introduction..including your Orgainzation Name, your domain interest, background and hobbies...

Here goes mine..

I am Neha, originally from Patna..
Completed my Engineerng from Bharati Vidyapeeth, Pune in Electronics..
Worked for 18 months at Cognizant Technology Solutions as a Programmer Analyst..
My SIP Orgainzation is Indian Bank, Delhi
I am inclined in pursuing MBA in Finance and Banking..
My hobbies include reading novels (fiction and non fiction) and blogging...

It is really a good idea to have a place where we can share our experiences.
Well for me this training has most importantly given me "the corporate feel"..reaching on time..but having no fixed time when you would be leaving for home...being stuck in road traffic for hours(a routine now)... overall it is helping me to follow a disciplined schedule.

While working, I actually get to know when we have to work on something , how much time it takes. For eg., I had to calculate EBIT for some 12-15 companies, I know its simple, but then the whole procedure needs a lot of patience. One has to pay full attention on every minute detail..like somethings are given in millions and some in crores....if you didn't observe then everything is wrong(which I did..so had to redo everything). May be these things look casual but I felt like sharing with you all.

So, I hope we all learn from our own mistakes which I think will definitely be helpful to us in future.
All the best!

Let's Connect

Hello Friends..

It is an initiative to keep ourselves update and informed while we complete our Summer Internship at various locations. This blog is solely dedicated to my IBS friends pursuing their Summer Internship training.

The objective behind maintaining the blog is of two folds..

Firstly, sharing of knowledge amongst peers as to what we are learning academically and professionally and how it is enabling us to enhance our skills..This aspect includes the SIP content of our Summer Training..

Another aspect will be our SIP conduct in terms of inter personal relationships with respective orgainsation ,report submissions and our code of conduct..

Let's make this initiative a successful venture by contributing in abundance..