Que- explain five reason why anomalies might persist in an efficient market?

Ans- Despite strong evidence that the stock market is highly efficient, there have been scores of studies that have documented long-term historical anomalies in the stock market that seem to contradict the efficient market hypothesis. While the existence of anomalies is generally well accepted, the question of whether investors can exploit them to earn superior returns in the future is subject to debate. Investors evaluating anomalies should keep in mind that although they have existed historically, there is no guarantee they will persist in the future. If they do persist, transactions and hidden costs may prevent outperformance in the future (see the Value Line Anomaly and Implementation Shortfall). Investors should also consider tax effects in their taxable portfolios when evaluating stock strategies. Researchers that discover anomalies or styles that produce superior returns have two choices: (1) go public and seek recognition for discovering the technique; or (2) use the technique to earn excess returns (many do both). It's common for money to flow into strategies that attempt to exploit anomalies and this in turn causes the anomaly to disappear. Further, even anomalies that do persist may take decades to pay off. Investors evaluating historical data should also consider the potential pitfalls of "data mining." When searching large amounts of data, correlations between variables may occur randomly and therefore may have no predictive value. Anomalies that have existed over the longest time frames and have been confirmed to exist in international markets and out of sample periods are particularly persuasive. See also

Que- in relation to microeconomics explain the following terms ? Ans1. commercialization

Commercialization is the process or cycle of introducing a new product or production method into the market. The actual launch of a new product is the final stage of new product development, and the one where the most money will have to be spent for advertising, sales promotion, and other marketing efforts. Commercialization is often confused with sales, marketing or business development. The Commercialization process has three key aspects: 1. The funnel. It is essential to look at many ideas to get one or two products or businesses that can be sustained long-term 2. It is a stage-wise process and each stage has its own key goals and milestones 3. It is vital to involve key stakeholders early, including customers

Commercialization of a product will only take place, if the following three questions can be answered: 1. When the company has to decide on the introduction timing. When facing the danger of cannibalizing the sales of the companys other products, if the product can be improved further, or if the economy is down, the launch should be delayed. 2. Where the company has to decide where to launch its products. It can be in a single location, one or several regions, a national or the international market. This decision will be strongly influenced by the companys resources, in terms of capital, managerial confidence and

operational capacities. Smaller companies usually launch in attractive cities or regions, while larger companies enter a national market at once. Global roll outs are generally only undertaken by multinational conglomerates, since they have the necessary size and make use of international distribution systems (e.g., Unilever, Procter & Gamble). Other multinationals use the lead-country strategy: introducing the new product in one country/region at a time (e.g. Colgate-Palmolive). 3. To Whom the primary target consumer group will have been identified earlier by research and test marketing. These primary consumer group should consist of innovators, early adopters, heavy users and/or opinion leaders. This will ensure adoption by other buyers in the market place during the product growth period. How the company has to decide on an action plan for introducing the product by implementing the above decisions. It has to develop a viable marketing-mix and create a respective marketing budget.

2. TRANSFORMATION Transformation of Micro-finance This paper identifies key issues and challenges in transforming NGOs delivering microfinance to commercial organizations. The paper overviews the transformation of microfinance non-government organizations (MNGOs) into regulated financial institutions, and presents key issues and challenges before, during and after transformation. The paper identifies the following advantages to transformation: Ability to mobilize deposits; Permission to provide a wider range of financial services; Improvement in customer service Access to private sources of capital; Better governance and transparency; The possibility of reaching significant scale and financial sustainability.

The paper discusses the common challenges experienced during transformation that discourage the uptake of this restructuring strategy: Need for timely and appropriate communication to staff and clients; Adjustment to a more competitive environment; Facing high initial costs; Problems in adjusting to the payment system; Difficulty in meeting reporting requirements; Entering into unfamiliar areas in terms of product development, management, etc; Difficulties in developing necessary management information systems (MIS).

The paper goes on to discuss and illustrate:

Cross-cutting issues such as licensing and ownership models, raising equity capital, institutional models, operational transformation, organizational culture, human resources, client transitioning and competition; The implications of transformation on governance, ownership, organizational development, loan methodology, poverty outreach and social intermediation.

This paper identifies key issues and challenges in transforming NGOs delivering microfinance to The paper identifies the following advantages to transformation: Ability to mobilize deposits; Permission to provide a wider range of financial services; Improvement in customer service Access to private sources of capital; Better governance and transparency; The possibility of reaching significant scale and financial sustainability.

3. SIX BENEFIT TO MICRO FINANCE INSTITUTION UPON TRANSFORMATION

Diversifying the lending methodology away from the current "group methodology" into others like village banking and possibly to individual lending may help, for the group lending on the one hand tends to ignore the very poor, and on the other hand, have no room for those who can borrow on individual bases.

Trained Manpower: The need for developing suitable financial products that satisfy the growing and diversified need of clients, introducing reasonable flexibility in the terms and conditions of existing products, as well as providing services expected of a micro-bank, requires more adequately qualified and trained manpower at all level than is currently available. However, the current capacity, in terms of the size as well as the quality of manpower, is not such as to effectively discharge such increased responsibility in the industry. This needs an immediate action, alongside with establishing a clear incentive system for staff.

Rural infrastructure, particularly the road net-work needs special attention by government and others for a healthy microfinance operations. Given that the poor are largely involved in few enterprises, the risk is indeed high if similar products cater only for the small market nearby, which easily saturates, diminishing potential profitability. Relevant market information and networks are also vital.

Expand BDS service: Credit must, above all, be accompanied by some kind of marketable skill development, which the poor seriously lack. Credit alone can only increase the "scale" of existing activities rather than enabling the poor to move into new or higher value activities. Some kind of cultural transformation may also be called for at this particular juncture in order to change the attitudes of some otherwise poor people who are reluctant, for cultural reasons (including religion), to engage themselves in non-traditional activities which are much more rewarding indeed.

Women are "allocated" some portion of the credit, but a good portion of it is destined to their male counterparts, violating the institutional objective. This partly has to do with the fact that women are still highly handicapped with lack of any business skill, much more than their male counterparts. On the other

hand, however, this may have also to do with the "wrong assumptions" that planners of micro-finance services had on the available time that women have. Planners forget that women are fully engaged in domestic works through out the day, and have little to afford for such business activities. Appropriate labour saving technologies is largely unknown even by the standards of developing countries. For microfinance to have its intended positive impact on the lives of poor women, these infrastructural problems need to get enough attention. Credit With Education The delivery of credit and saving services alone cannot be sure way out of poverty for the majority poor. Thus, initiating strategic alliance between, among others, the mutually supportive but operationally separate activities of micro-finance and health education (family planning) services would allow each to do what it does best, yet benefit from each other activities

Q ue- summarize the factor to consider when constructing market indexes?

Ans- Differentiating Factors in the Construction of Market Indexes Because the indicator series are intended to reflect overall market price changes of a group of securities, it is necessary to consider which factors are important in computing an index that is intended to represent a total population. Each indicator series will be built upon conscious choices on the following issues: SAMPLE WEIGHTING SAMPLE MEMBERS COMPUTATIONAL PROCEDURE

SAMPLE - the size of the sample, the breadth of the sample, and the source of the sample used to construct a series are all important WEIGHTING SAMPLE MEMBERS - three principal weighting systems are (1) price-weighted (2) valueweighted (3) unweighted (equally weighted)

COMPUTATIONAL PROCEDURE - one alternative is to take a simple arithmetic average of the various member in the series. Another is to compute an index and have all changes, whether in price or value, reported in terms of the basic index. Finally, some prefer a geometric average of the components rather than an arithmetic average

Que- briefly explain seven investment strategies which could be adopted by institutional investors with regard to stock index futures?
Ans- Time Dependence The Sharpe Ratio is not independent of the time period over which it is measured. This is true for both ex ante and ex post measures. Consider the simplest possible case. The one-period mean and standard deviation of the differential return are, respectively, d-bar1 and sigmad1. Assume that the differential return over T periods is measured by simply summing the one-period differential returns and that the latter have zero serial correlation.

Correlations The ex ante Sharpe Ratio takes into account both the expected differential return and the associated risk, while the ex post version takes into account both the average differential return and the associated variability. Neither incorporates information about the correlation of a fund or strategy with other assets, liabilities, or previous realizations of its own return. For this reason, the ratio may need to be supplemented in certain applications. Such considerations are discussed in later sections Scale Independence Originally, the benchmark for the Sharpe Ratio was taken to be a riskless security. In such a case the differential return is equal to the excess return of the fund over a one-period riskless rate of interest. In the original applications of the ratio, where the benchmark is taken to be a one- period riskless asset, the differential return represents the payoff from a unit investment in the fund, financed by borrowing. 4: More generally, the differential return corresponds to the payoff obtained from a unit investment in the fund, financed by a short position in the benchmark. For example, a fund's selection return can be considered to be the payoff from a unit investment in the fund, financed by short positions in a mix of asset class index funds with the same style. A differential return can be obtained explicitly by entering into an agreement in which a party and a counterparty agree to swap the return on the benchmark for the return on the fund and vice-versa. A forward contract provides a similar result. Arbitrage will insure that the return on such a contract will be very close to the excess return on 5 the underlying asset for the period ending on the delivery date. : A similar relationship holds approximately for traded contracts such as stock index futures , which clearly represent zero-investment strategies Q analyze the factor that might lead to the existence of a global debt problem? The conventional explanation is that the debt crisis of the 1980s was due to a number of highly contingent circumstances that were essentially unpredictable at the time many of these loans were made. For example, William R. Cline of the Institute for International Economics summarized the causes as follows: The external debt crisis that emerged in many developing countries in 1982 can be traced to higher oil prices in 1973-74 and 1979-80, high interest rates in 1980-82, declining export prices and volume associated with global recession in 1981-82, problems of domestic economic management, and an adverse psychological shift in the credit markets.12 The story actually begins earlier than 1973 because debt has been solidly entrenched in the finances of developing countries for many years. The United States was a heavily indebted country in the nineteenth century, and poorer countries have always needed outside infusions of investment capital in order to develop their resources. The logic of indebtedness is commonplace and not especially arcane: one incurs a debt in hopes of making an investment that will produce enough money both to pay off the debt and to generate economic growth that is self-sustaining. An important characteristic of developing-country debt prior to 1973 was that it was largely financed through public agencies, both bilateral and multilateral After the oil crisis of 1973-74, however, many commercial banks found themselves awash with "petrodollars" from some oil-producing states, and these private banks were eager to put this windfall capital to productive use. The banks assumed that sovereign debt was a good risk since there was a prevalent belief that countries would not default. In retrospect, it is easy to point out that these actions did not conform to the typical logic of indebtedness. These loans were being used to pay for current consumption, not for productive investments. The money was not being used to mobilize underutilized resources, but rather to maintain a current, albeit desperate, standard of living.

The proof of the wrongheadedness of the lending in the 1970s became dramatically apparent in 1981. Interest rates shot up, and global demand for exports from developing countries plummeted. The very deep global recession of 1981-82 made it impossible for developing countries to generate sufficient income to pay back their loans on schedule. According to the United Nations Conference on Trade and Development (UNCTAD), commodity prices (for essentially foodstuffs, fuels, minerals, and metals) dropped 28 percent in .

Q highlight the four reason why a firm would prefer to riase capital outside its local marke? Raising capital Financial markets attract funds from investors and channel them to corporationsthey thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain long-term funding to support expansion. Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold. The following table illustrates where financial markets fit in the relationship between lenders and borrowers: Relationship between lenders and borrowers Lenders Financial Intermediaries Financial Markets Interbank Stock Exchange Money Market Bond Market Foreign Exchange Borrowers Individuals Companies Central Government Municipalities Public Corporations

Banks Individuals Companies Insurance Companies Pension Funds Mutual Funds

Que- define the term financial liberalization?

Ans The term financial liberalization is used to cover a whole set of measures, such as the autonomy of the Central Bank from the government; the complete freedom of finance to move into and out of the economy, which implies the full convertibility of the currency; the abandonment of all priority sector lending targets; an end to government-imposed differential interest rate schemes; a freeing of interest rates; the complete freedom of banks to pursue profits unhindered by government directives; the removal of restrictions on the ownership of banks, which means de-nationalization, full freedom for foreign ownership, and an end to voting caps; and so on. These measures are not necessarily presented as a package, and not always in their maximal form. The Narasimhan Committee in India for instance did not ask for a complete denationalization of banks; it suggested that the government, the foreigners and the Indian private sector should have one-third equity each in the currently-nationalized banks. Nonetheless, no matter what the exact sequence, form and strategy through which financial liberalization is sought to be ushered in, the objective ultimately is to realize the above set of measures. Since financial liberalization is seen as consisting of these measures, the debate upon it gets fragmented into a debate upon the desirability of each of these measures, i.e., whether central bank autonomy is desirable or not; whether the government should have exclusive equity ownership in banks or only a majority ownership, or not even that; whether priority sector lending targets serve the purpose they are meant to; whether control over interest rates has not understated the scarcity value of capital (a particularly silly debate this, based on a Hayekian assumption of full employment); and so on. Because of this fragmentation of issues, the process of financial liberalization is never seen in its totality. This, by camouflaging the total impact of financial liberalization, keeps the opposition to it enfeebled, and thereby helps the liberalizers. The question therefore arises: what is financial liberalization in its totality? The essence of financial liberalization, seen in its totality, is to ensure the stranglehold of finance capital over the State. This may appear paradoxical at first sight: as the term liberalization appended to financial suggests, the basic aim of the process is to liberate finance from the shackles of the State, i.e., to ensure not the control of finance over the State but the negation of the control of the State over finance. But the remarkable aspect of financial liberalization consists precisely in this: what appears at first sight as the liberation of finance from the shackles of the State is nothing else but the acquisition by finance of control over the State. This is not just the outcome of the dialectics of a conflict situation. For instance, in a wrestling bout when each of two wrestlers is having a grip on the other, the liberation of one from the grip of the other may be said to mark simultaneously the ascendancy of the one so liberated over the other; in a similar fashion it may be argued that the liberation of finance from the State, and therefore from the possible control of other classes exerted through the State, marks simultaneously the acquisition of hegemony by finance over the State. The dialectics of class struggle in this case may thus be seen only as another instance of the dialectics of any struggle, of which the wrestling bout is just an example.

Que . Disscuss the four foundamental pricipal ethics for a securities and investment analyst?
Ans- Leases as Liabilities An understanding of accounting may prove critical for an analyst when, for example, considering the underlying value of a company that leases its land, buildings or equipment. He will want to ask himself whether the company treats these as "capital" or as "operating" leases. Operating leases are generally kept off-balance sheet; for example, rent is not treated as a liability. An analyst who is not aware of this may overvalue the company. Sales Figures Another accounting issue of importance to an analyst: sales figures. A company that complies with Generally Accepted Accounting Principles will account for that percentage of its product that is returned pursuant to a refund policy. On the company's income statement, returns should not be treated as a debit to sales, but rather as a contra-revenue account. Increases in this account over time can suggest important problems. Jerry Weygandt, in "Financial Accounting," lists them as: "inferior merchandise, inefficiencies in filling orders, errors in billing customers, or delivery or shipment mistakes." Channel Stuffing In the extreme, sales figures can be fraudulently inflated through "channel stuffing," a scheme in which a manufacturer offers distributors or retailers special incentives for purchasing more goods than they need within a particular year or quarter. (The recipients may return these goods in the next quarter, but in the meantime the earlier quarter's results have been successfully inflated.) In 2001, the Securities and Exchange Commission alleged that channel stuffing had been the means by which Chief Executive Officer Al Dunlap produced an apparently miraculous turnaround at the appliance maker Sunbeam. In September 2002, Dunlap settled with the SEC. Although he did not admit guilt, he paid a $500,000 fine and agreed that he would never again serve as officer or director of a public company. Expert Insight Accounting chicanery is not always blatant. It can be quite subtle, so financial analysts will have to keep on their toes to keep up. "The difference between channel stuffing and fancier methods of prematurely recognizing revenue is one of degree, not of kind. At bottom, most revenue-recognition games are variations on a few simple themes," according to Harris Collingwood, David Sherman and David Young, "Revenue Recognition: What is a Sale, and When Do You Book It?" in "FT Press" (2003)

Que. financial companies have diversified their resources of funds in recent years support this statement?
Ans . As a key asset infrastructure is one of the most important driving force of an economy and has a direct impact on the overall growth and development story of the country. Infrastructure assets support a wide range of systems in both public and private sectors without which the industrial society of today simply wont function or be as efficient. Generally developed world tends to have better infrastructure than emerging economies but having said that the overall spending on infrastructure in GDP terms by developed economies have been declining recently whereas the emerging world has increased its overall spending on infrastructure. In a fast growing economy you would expect the demand for infrastructure assets to increase immensely year-on-year and the opposite is true for a slow growth economic environment. So the state of a countrys economy certainly plays an important role in infrastructural needs of that nation. Infrastructure assets should always be forwarding looking because the rapid growth in population and economy especially in emerging countries will put strain on the existing infrastructure creating bottlenecks relatively quickly but at the same time parts of the countries experiencing lower or minimal growth may create a situation of overcapacity. Conceiving a smart and forward looking infrastructure asset and supporting it with the right capital is always critical.In the past federal, state, local tax bases other funding sources have been used to pay for vital infrastructure projects across the world. We have seen the business model for developing and funding infrastructure assets evolve in the last decade where a number of high profile infrastructure assets were built and paid for through Public Private Partnership or Initiative ( PPP or PPI). Although a number of high profile PPP projects have failed this model of developing and financing infrastructure projects is still considered one of the best way to pay for it. While emerging economies have the need to keep building vital infrastructure to support their growth and improve the living standards of its citizens, the developed nations especially the US are sitting on an aging infrastructure that needs to be updated. All this requires capital and with the ongoing financial CRISIS it is getting harder to source funding for infrastructure assets as banks are still struggling to fix their balance sheet.