PORTFOLIO In general sense, portfolio refers to the collection of assets, financial, physical or both.

. The number of securities in various proportions is called portfolio. It is rare to find investors investing their entire savings in a single security. Instead of, they tend to invest in a group of securities. Such a group of securities is called portfolio. The investor tries to choose the optimal portfolio taking into consideration the risk and return characteristics of all possible portfolios. PORTFOLIO MANAGEMENT Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolio. Portfolio management comprises all the processes involved in the creation and maintenance of an investment portfolio. It makes use of analytical techniques of analysis and conceptual theories regarding rational allocation of funds. PHASES OF PORTFOLIO MANAGEMENT Portfolio management is a process encompassing many activities aimed at optimizing the investment of ones funds. Five phases can be identified in this process. Each phase is an integral part of the whole process and the success of portfolio management depends upon the efficiency in carrying out each of these phases. 1) SECURITY ANALYSIS Security analysis is the initial phase of the portfolio management process which consists of examining the risk-return characteristics of individual securities. A basic strategy in securities investment is to buy under-priced securities and sell over-priced securities. There are two alternative approaches to security analysis, namely A. Fundamental analysis B. Technical analysis A. FUNDAMENTAL ANALYSIS ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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 It concentrates on the fundamental factors affecting the company such as the EPS of the company, the dividend pay-out ratio, the competition faced by the company, the market share, quality of management, etc. A fundamental analyst studies not only the fundamental factors affecting the company, but also the fundamental factors affecting the industry to which the company belongs and also the economic fundamentals. Fundamental analysis helps to identify fundamentally strong companies where shares are worthy to be included in the investors portfolio.

B. TECHNICAL ANALYSIS The second alternative approach to security analysis is technical analysis. A technical analyst believes that share price movements are systematic and exhibit certain consistent patterns. They try to predict the future price movements. The current market price is compared with the future predicted price to determine the extent of mispricing. Technical analysis is an approach which concentrates on price movements and ignores the fundamentals of the shares. EFFICIENT MARKET HYPOTHESIS A more recent approach to security analysis is the efficient market hypothesis. According to this, the financial market is efficient in pricing the securities. The efficient market hypothesis holds that market prices instantaneously and fully reflect all relevant available information. It means that the market prices of securities will always equal to their intrinsic values. As a result, fundamental analysis which tries to identify under-valued or over-valued securities is said to be a futile exercise. The EMH further holds that share price movements are random and not systematic. Consequently, technical analysis which tries to study price movements and identifies patterns in them is of little use. EMH is a direct repudiation of both fundamental analysis and technical analysis. An investor cant consistently earn abnormal returns by undertaking fundamental analysis or technical analysis. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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 According to EMH, it is possible for an investor to earn normal return by randomly choosing securities of a given risk level.

2) PORTFOLIO SELECTION Portfolio analysis provides the input for next phase in portfolio management which is portfolio selection. The goal of portfolio selection is to generate a portfolio that provides the highest return at a given level of risk. A portfolio having this characteristics is known as efficient portfolio. This input from portfolio analysis can be used to identify the set of efficient portfolios. From this set of efficient portfolios, the optimal portfolio has to be selected for investment. Harry Markowitzs portfolio theory provides both the conceptual framework and the analytical tools for determining the optimal portfolio in a disciplined and objective way.

3) PORTFOLIO CONSTRUCTION By constructing a portfolio, investors attempt to spread risk by not putting all their eggs into one basket. Thus, diversification of ones holdings is intended to reduce risks in investment. Security analysis provides the investors with a set of worthwhile or desirable securities. From this set of securities an indefinitely large number of portfolios can be constructed by choosing different set of securities and also by varying the proportion of investment in each security. Each individual security has its own risk-return characteristics which can be measured and expressed quantitatively. Each portfolio constructed by combining the individual securities has its own specific risk and return characteristics which are not just the aggregates of the individual security characteristics. Portfolio analysis stage of portfolio management consists of identifying the range of possible portfolios that can be constituted from a given set of securities and calculating their return and risk for future analysis. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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4) PORTFOLIO REVISION Having constructed the optimal portfolio, the investor has to constantly monitor the portfolio to ensure that it continues to be optimal. As the economy and financial markets are dynamic, changes take place almost daily. As time passes, securities which were once attractive, may ceases to be so. New securities with promises of high returns and low risk may emerge. The investor now has to revise his portfolio in the light of the developments in the market. This revision leads to purchase of some new securities and sale of some of the existing securities from the portfolio. The mix of securities and their proportion in the portfolio changes as a result of the revision. Portfolio revision may also be necessitated by some investor-related changes such as availability of additional funds, changes in risk attitude, need of cash for other alternative use, etc. Whatever be the reason for portfolio revision, it has to be done scientifically and objectively so as to ensure the optimality of the revised portfolio.

5) PORTFOLIO EVALUATION The objective of constructing a portfolio and revising it periodically is to earn maximum returns with minimum risk. Portfolio evaluation is the process which is concerned with assessing the performance of the portfolio over a select period of time in terms of return and risk. This involves quantitative measurement of actual return realized and the risk borne by the portfolio over the period of investment. These have to be compared with objective norms to assess the relative performance of the portfolio. Portfolio evaluation provides a mechanism for identifying weaknesses in the investment process and for improving these deficient areas. It provides a feedback mechanism for improving the entire portfolio management process.

The portfolio management process is an on-going process. It starts with security analysis, proceeds to portfolio construction and continues with portfolio

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revision and evaluation. Superior performance is achieved through continual refinement of portfolio management skills.

RISK
Risk is the probability of loss or injury, the degree or probability of such loss. Risk is composed of the demand that bring in variations in return of income. All investments are risky, whether in stock or capital market or banking and financial sector, real estate, bullion, gold, etc. the degree of risk, however, varies on the basis of returns, features of assets, investment instrument, mode of investment or issuer of security, etc. According to Fischer & Jordan:Risk is the variability of return around the expected average is thus the quantitative description of risk. Risk is also influenced by external and internal condition. External risks are uncontrollable and broadly affect investment. These external risks are called systematic risk. Risk due to internal environment of firm or that affecting a particular industry is referred to as unsystematic risk.

A. SYSTEMATIC RISK It is also known as unavoidable or uncontrollable risk. There are three types of market risks. I. INTEREST RATE RISK It is related to debt market. It particularly affects debt securities like bonds and debentures. II. MARKET RISK It affects the share prices on the stock market. III. PURCHASING POWER RISK This risk is mainly caused by inflation which reduces the purchasing power of consumers.

B. UNSYSTEMATIC RISK ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA

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It is also known as unique risk or controllable risk or avoidable risk. I. BUSINESS RISK It is relate to operating cost of the company. Here operating cost means sum of fixed cost and variable cost. II. FINANCIAL RISK Financial risk is a function of financial leverage which is the use of debt in the capital structure.

INVESTMENT
Investment is an activity that is engaged in by people who have savings, i.e. investments are made from savings or in other words, people invest their savings. But all savers are not investors. Investment is an activity which is different from savings. E.g. Insurance, gold loan, etc. From above example, it can be seen that investment involves employment of funds with the aim of achieving additional income or growth in values. Therefore, investment may be defined as:A commitment of funds made in the expectation of some positive rate of return. Expectation of return is an essential element of investment. Since, the return is expected to be realized in future, there is a possibility that the return actually realize is lower than the return expected to be realized. This possibility of variation in the actual return is known as investment risk. Therefore, each and every investment involves returns and risks.

FEATURES OF INVESTMENT The following are the important features of an investment. i.e. a) Return b) Risk c) Safety d) Liquidity ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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OBJECTIVES OF INVESTMENT The following are the primary objectives of investment. i.e. a) Maximization of return b) Minimization of risk c) Hedging against inflation NEED AND IMPORTANCE OF INVESTMENT MANAGEMENT a) Longer life expectancy b) To save tax c) To earn interest d) Fear of inflation e) Income f) Further need expectation INVESTMENT VS. GAMBLING Gambling is the act of playing for stakes in the hope of winning including the payment of a price for chance to win a prize.

BASIS OF DISTINCTION Duration purpose Risk-taking capacity Legal Aspect

INVESTMENT Result of investment is known after long time. Rational people invest for income, not for fun. Investors are risk-takers as well as risk avoiders. Investment is done within four corners of law.

GAMBLING Result of gambling is known more quickly. Rational people gamble for fun, not for income. Gamblers are mainly risktakers. Gambling is not regulated by any law.

INVESTMENT VS. SPECULATION Speculation has a short-term perspective and maximizes the return through buying and selling and delivery of securities is least important in trade. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA

BASIS OF DISTINCTION Planning horizon

INVESTOR An investor has a relatively longer planning horizon. An investor is normally not willing to assume more than moderate risk. An investor usually seeks a modest rate of return. An investor gives greater significance to fundamental factors and attempts on careful evaluation of the prospects of firm.

SPECULATOR A speculator has a very short planning horizon. A speculator is generally willing to assume high risk. A speculator looks for a high rate of return. A speculator relies more on hearsay, and market psychology.

Risk Disposition

Return Expectation Basis for Decisions

Leverage

Typically an investor uses his A speculator normally resorts own funds and avoids to borrowings, which can be borrowed funds. very substantial to supplement his personal resources. Source of income for investor is earning from enterprise. Source of income for speculator is change in market price.

Source of Income

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FINANCIAL SERVICES
MEANING

It is a process by which funds are mobilised from a large number of savers and make them available to all those who are in need of it, particularly to corporate customers. It can be also called financial intermediation. In broad sense it means mobilising and allocating savings. CLASSIFICATION 1. Asset/Fund Based Services 2. Advisory/Fee based Services

ASSET-BASED SERVICES 1. Leasing 2. Hire-Purchase 3. Bill Discounting 4. Venture Capital 5. Housing Finance 6. Insurance, etc FEE-BASED SERVICES 1. Issue Management 2. Portfolio Management 3. Corporate Counselling 4. Loan Syndication 5. Merger and Acquisition 6. Capital Restructuring 7. Credit Rating 8. Stock Broking, etc

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LEASING
DEFINITION According to James C. Van Horne Lease is a contract whereby the owner of an asset (lessor) grants to another party (lessee) the exclusive right to use the asset usually for an agreed period of time in return for the payment of rent. The ownership of the asset remains with the lessor The lessee just uses the asset The lease rent is fully tax deductible. CLASSIFICATION OF LEASE 1. Financial lease 2. Operating lease 3. Leverage lease 4. Sale and lease back 5. Cross border lease FINANCIAL LEASE A financial lease is also known as Capital lease, long-term lease, Net lease and Close Lease. In a financial lease, the lessee selects the equipments, settles the price and terms of sale and arranges with a leasing company to buy it. He enters into a irrevocable and non-cancellable contractual agreement with the leasing company. The lessee uses the equipment exclusively, maintains it, insures and avails of the after sales service and warranty backing it. He also bears the risk of obsolescence as it stands committed to pay the rental for the entire lease period. The financial lease could also be with purchase option, where at the end of the predetermined period, the lessee has the option to buy the equipment. The financial lease may also contain a non-cancellable clause which means that the lessor transfers the title to the lessee at the end of the lease period. The rate of lease would be fixed based on the kind of lease, the period of lease, periodicity of rent payment and the rate of depreciation and other tax benefits. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA

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 The lessee can claim lease rentals as tax-deductible expenses. The lease rentals received by the lessor are taxable. The leasing company charges nominal service charges to cover legal and other costs. In a large number of cases, the financial lease is used as financing cum tax planning tool. High cost equipments like machine tools, diesel generators, office equipments, textile machinery, containers, locomotives, etc are leased under financial lease. OPERATING LEASE An operating Lease is also known as Service Lease, Short term Lease or True Lease. The Lease is for a limited period, may be a month, six months, a year or few years. The lease is terminable by giving stipulated notice as per the agreement. Normally, the lease rentals will be higher as compared to other leases on account of short period. The risk of obsolescence is enforced on the lessor who will also bear the cost of maintenance and other relevant expenditure. The lessor also does the services like handling warranty claims, paying taxes, scheduling and performing maintenance and keeping complete records. Computers, copy machines and other office equipments, vehicles, material handling equipments, etc (which are sensitive to obsolescence) are suitable for this kind of leasing. LEVERAGE LEASE A leverage lease is used for financing those assets which require huge capital outlay. It involves three parties the lessee, the lessor and the lender. The lessor acquires the assets as per the terms of the lease agreement but finances only a part of the total investment, 20%-25%. The balance is provided by a person or a group of persons in the form of loan to the lessor. The loan is generally secured by mortgage of the asset. The position of the lessee is the same as in other type of lease. By investing 20-25% of the cost of an asset, the lessor is entitled to 100% allowance for depreciation and the investment allowance in terms of tax. In leveraged lease, a wide range of equipments such as rail road, rolling stock, coal mining, electricity generating plants, pipelines, ships, etc are acquired. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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MUTUAL FUNDS
DEFINITION According to SEBI, it is a fund established in the form of a trust by a sponsor, to raise money by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with the regulations. CLASSIFICATION

CLOSE-ENDED FUNDS Redeemable Funds having a pre-specified life, at the end of which capital is returned to the investors. These are listed in the stock exchanges. After one has subscribed to the units at the time of the new fund offer, these cannot be sold back to the AMC until the end of the funds life, nor can one buy new units from the mutual fund. However if one wants to sell the units then one can do so in the stock exchange in which it is listed. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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OPEN-ENDED FUNDS They have no maturity period. They are open for investment and redemption throughout the year. They are not listed in the stock exchange. The AMC offers to buy and sell the units from the investors at NAV New investors can also buy units from the AMC. The no. of outstanding units varies on a daily basis. GROWTH FUND, BALANCED FUND AND INCOME FUNDS Based on the extent of the combination of different asset classes in the investments. Growth funds invest predominantly in equities and very little on debt e.g. 80:20. It re-invests the dividends. Income fund invests in the reverse ratio e.g. 20:80. The priority here is to pay a steady income or dividend stream. Balanced fund invests more or less in the same ratio of equity and debt. All funds invest around 5 to 10 % in money market instruments for liquidity. MUTUAL FUNDS BASED ON ASSET CLASS Eg equity funds, debt funds, money market fund, gilt funds, real estate funds and so on. Equity Funds invest in portfolio of equity shares. Debt Funds invest in fixed return instruments. Money Market Mutual funds invest in short-term money market instruments like CDs, Commercial Papers, Inter-bank call Money market, etc. Gilt funds Gilt, Bullion or related securities. Real estate funds real estate. SPECIALISED FUNDS They offer special schemes so as to meet the specific needs of specific categories of people like pensioners, widows, etc. eg Childrens Fund generating savings to meet anticipated expenses of the children in future. Some funds may be confined to particular sector. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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CREDIT RATING
Credit Rating is the Opinion of the rating agency on the relative ability and willingness of the issuer of a debt instrument to meet the debt service obligation as and when they arise. IMPORTANCE OF CREDIT RATING They provide a yardstick against which to measure the risk inherent in any instrument Every investor cannot undertake a detailed risk analysis. Investors also do not possess the requisite skills of credit evaluation. Helps the issuer to price the security correctly. Used by regulators for eligibility criteria Also helpful for establishing business relationships. CREDIT RATING AGENCIES IN INDIA 1. CRISIL (Credit Rating Information Services of India Ltd.) 2. ICRA LTD.(Investment Information and Credit Rating Agency) 3. CARE LTD. (Credit Analysis and REsearch) 4. DCR (Duff and Phelps Credit Rating Agency) 5. ONICRA (Onida Individual Credit Rating Agency), etc.

PRIMARY MARKET It is a market for new issues or new financial claims. Thus it is also called New Issue market. In the primary market borrowers exchange new financial securities for long-term funds. There are three ways a company may raise capital in the primary market. These are :

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1) Public Issue Public issue is the most common method of raising capital by new companies. In this the capital is raised through sale of securities to the public. 2) Rights Issue When an existing company wants to raise additional capital, securities are first offered to the existing shareholders. This is known as Rights issue. 3) Private Placement It is a way of selling securities privately to a small group of investors.

FUNCTIONS OF PRIMARY MARKET: The primary market plays an important role of mobilising the funds from the savers and transfers them to borrowers for production purposes, an important requisite of economic growth. It is not only a platform for raising finance to establish new enterprises but also for expansion/diversification/modernisation of existing units. In this basis the new issue market can be classified as :

1) Market where firms go to the public for the first time through IPO. 2) Market where firms which are already trading raise additional capital through seasoned equity offering (SEO) or FPO. The main functions of a new issue market can be divided into a triple service function: 1. Origination 2. Underwriting 3. Distribution

ADVANTAGES OF PRIMARY MARKET 1) avenue for investment 2) mobilisation of savings 3) sources of large supply of funds 4) rapid industrial growth 5) Sources for expansion and technological upgradation. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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DIS-ADVANTAGES OF PRIMARY MARKET 1) possibility of deceiving investors 2) Lack of post issue seriousness. 3) ineffective role of merchant bankers 4) no fixed norms for project appraisal 5) delay in allotment process 6) poor mobilisation of savings 7) hesitancy to invest on shares SECONDARY MARKET OR STOCK EXCHANGE As per Securities Contracts Regulation Act, 1956, A stock exchange is an association, organisation or body of individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Stock exchange constitute a market where securities issued by the central and state governments, public bodies and joint stock companies are traded. It provides mechanism for regular and continuous purchase and sale of securities. FUNCTIONS/ SERVICES OF STOCK EXCHANGES 1) Liquidity and Marketability of securities 2) Safety of Funds 3) Supply of Long Term Funds 4) Flow of Capital to Profitable Ventures 5) Motivation for improved performance 6) Promotion of Investment 7) Reflection of Business Cycle 8) Marketing of new issues LISTING PROCEDURE: The company concerned must apply in the prescribed form along with the following documents and details:

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1) Certified copies of MOA, AOA, Prospectus or In lieu of Prospectus, Underwriting agreements, Agreements with vendors and Promoters etc. 2) Specimen copies of Shares and debenture certificates, letter of call, allotment and acceptance 3) Copies of B/s and P&L a/c of last five years 4) Copies of offer for sale and circulars or advertisements offering any securities for subscription or sale during the last 5 years 5) Certified copies of agreements with managerial personnel 6) Particulars of dividends and bonuses paid during the last 10 years 7) A statement showing dividends or interest in arrears if any 8) A brief history of the company since its corporation, giving details of its activities 9) Particulars regarding its capital structure 10) Particulars of shares and debentures for which permission to deal is applied for and their issue 11) Particulars of shares forfeited 12) Certified copies of agreements if any with the Industrial Finance Corporation, ICICI, etc. 13) Listing agreement with the necessary initial and annual listing fee. ADVANTAGES OF LISTING 1) Facilitates Buying and selling securities 2) Ensures Liquidity 3) Offers wide Publicity 4) Enables Borrowings 5) Protects Investors DRAWBACKS 1) Leads to Speculation 2) Degrades Companies reputation 3) Disclose Vital Information to competitors

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DERIVATIVES & RISK MANAGEMENT

INTRODUCTION The past decade has witnessed the multiple growths in the volume of international trade and business due to the wave of globalization and liberalization all over the world. As a result, the demand for the international money and financial instruments increased significantly at the global l evel. In this respect, change in the interest rates, exchange rates and stock market prices at the different financial markets have increased the financ ial risks to the corporate world. Adverse changes have even threatened the very survival of the business world. It is therefore, to manage such risks the new financial instruments has been developed in the financial markets, which are also popularly known as financial derivatives. The basic purpose of these instruments is to provide commitments to prices for future dates for giving protection against adverse movements in future prices, in order to reduce the extent of financial risks. Not only this, they also provide opportunities to earn profit for those persons who are ready to go for higher risks. In other words, these instruments, indeed, facilitate to transfer the risk from those who wish to avoid it to those who are willing to accept the same. DEFINITION OF FINANCIAL DERIVATIVE The term Derivative indicates that it has no independent value, i.e., its value is entirely derived from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, livestock or anything else. In other words, derivative means forward, futures, option or any other hybrid contract of predetermined fixed duration, linked for the purpose of contract fulfilment to the value of a specified real or financial asset or to an index of securities. The Securities Contracts (Regulation) Act 1956 defines derivative as under: Derivative includes

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1.

Security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security.

2.

A contract which derives its value from the prices, or index of prices of underlying securities.

FEATURES OF A FINANCIAL DERIVATIVE 1) They derive their value from some other commodit y, security, index or reference point. 2) They are tools for transferring risks. 3) They relates to the future contract between two parties. 4) Can undertake directly between two parties or through particular exchange. 5) Exchange traded derivatives are quite liquid. 6) In general, the counter parties have specified obligation under the derivative contract. Obviously, the nature of the obligation would be different as per the type of the instrument of a derivative. 7) Usually, in derivatives trading, the taking or making of delivery of underlying assets is not involved; rather underlying transactions are mostly settled by taking offsetting positions in the derivatives t hemselves. 8) Derivatives are also known as deferred delivery or deferred payment instrument. It means that it is easier to take short or long position in derivatives in comparison to other assets or securities.

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PARTICIPANTS 1. Hedgers:- They wish to eliminate or reduce the price risk to which they are already exposed. 2. Speculators:- They willingly take price risks to profit from price changes. 3. Arbitrageurs:- They take profit from price differential exi sting in two different markets. THE RISK OF DERIVATIVES There are 4 inherent risks in derivative contracts: Credit risk: the exposure to the possibility of loss resulting from a counter partys failure to meet its financial obligations. Market risk: adverse movements in the price of a financial asset. Legal risk: an action by a court or by a regulatory body that could invalidate a financial contract. Operation risk: in adequate controls, deficient procedures, human error, system failure, or fraud.

TYPES OF FINANCIAL DERIVATIVES

1) FORWARDS CONTRACT A forward contract is a simple customized contract between two parties to buy or sell an asset at a certain time in the future for a certain price. Unlike future contracts, they are not traded on an exchange, traded in the overthe-counter market, usually between two financial institutions or between a financial institution and one of its client.

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Example: on June 1 st , X enters in to an agreement to buy 50 bales of cotton on December 1 st at Rs 1000/- per bale from Y, a cotton dealer. It is a case of a forward contract where, X has to pay Rs 50,000/ -, on Dec 1 st to Y and Y has to supply 50 bales of cotton. In a forward contract, the user ( holder) who promises to buy the specified asset at an agreed price at a fixed future date is said to be in the long position. On the other hand, the user who promises to sell at an agreed price at a future date is said to be in short position. FEATURES OF FORWARD CONTRACT The basic features of a forward contract are given in brief here as under: 1. Forward contracts are bilateral contracts, and hence, they are exposed to counter-party risk. There is risk of non -performance of obligation either of the parties, so these are riskier than the futures contracts. 2 Each contract is custom designed, and hence, is unique in terms of contract size, expiration the asset type, quality, etc. 3. In forward contract, one of the parties takes a long position by agreeing to buy the asset at certain specified future date. The other party assumes a short position by agreeing to same asset at the same date for the same specified price. A party with no obligation off setting forward contract is said to have an open position. A party with a closed position is, sometimes called a hedger. 4. The specified price in a forward contract is referred to as the delivery price. 5. In the forward contract, derivative assets can often be contracted from the combination of under lying assets, such assets are often known as synthetic assets in the forward market. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA

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6.

In the forward market, the contract has to be settled by delivery of the asset on expiration date. In case the party wishes to reverse the contract, it has to compulsory go to the same counter party, which may dominate and command the price it wants as being in a monop oly situation.

7.

In the forward contract, covered parity or cost -of -carry relations are relation between the prices of forward and underlying assets. Such relations further assist in determining the arbitrage -based forward asset prices.

8.

Forward contracts are very popular in foreign exchange market as well as interest rate bearing instruments.

9.

As per the Indian Forward Contract Act -1952, different kinds of forward contracts can be done like hedge contracts, transferable specific delivery (TSD) contracts and non-transferable specify

delivery (NTSD) contracts.

2) FUTURE CONTRACT Like a forward contract, a future contract is an arrangement between two parties to buy or sell a specified quantity of an asset at specified price and at a specified time and place. Futures contracts are normally traded on an exchange which sets the certain standardized norms for trading in the future contracts. FEATURES The future contracts have following feature in brief. Standardization: One of the most important features of futures contract is that the contract have, certain standardized specification, i.e., quantity of the asset, quality of the

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asset, the date and month delivery, the units of price quotation, location of settlement, etc. Clearing house: In the futures contract, the exchange clearing house is an adjunct of the exchange and acts as an intermediary or middleman in futures . It gives the guarantee for the performance of the parties to each transaction. Settlement price: Since the futures contracts are performed through a particular exchange and the close of the day of trading, each contract is marked -to-market. For this the exchange establishes settlement price. This settlement price is use to compute the profit or loss on each contract for that day. Accordingly, the members accounts are credited or debited. Daily settlement and margin: Another feature of a futures contract is that when a person enters into a contract, he is required to deposit funds with the broker, which is called as margin. The exchange usually sets the minimum margin required for different assets, but the broker can set high margin limits for his clients which depend upon the credit-worthiness of the clients. Tick size: The futures prices are expressed in currency units, with a minimum price movement called a tick size. This means that the futures prices must be rounded to the nearest tick. Cash settlement: Most of the futures contracts are settled in cash by having the short or lon g to make cash payment on the difference between the futures price at which the contract was entered and the cash price at expiration date.

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Delivery: The futures contracts are executed on the expiry date. Regulation: The important difference between f utures and forward markets is that the futures contracts are self regulated through a exchange, but the forward contracts are self regulated by the counter parties themselves. 3) OPTIONS CONTRACTS Option may be defined as a contract, between two parties whereby one party obtains the right, but not the obligation, to buy or sell a particular asset, at a specified price, on or before a specified date. The person who acquires the right is known as option buyer or option holder, while the other person (who confers the right) is known as option seller or option writer. The seller of the option for giving such option to the buyer charges an amount which is known as the option premium. TYPES OF OPTIONS
CALL OPTION

A call Option is one which gives the o ption holder the right to buy an underlying asset at a predetermined price called exercise or strike price on or before a specified date in future. In such a case, the writer of a call option is under an obligation to sell the asset at the specified price, in case the buyer exercise his option to buy. Thus, the obligation to sell arises only when the option is exercised.
PUT OPTION

A put option is one which gives the option holder the right to sell an underlying asset at a predetermined price on or before a specified date in future. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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It means that the writer of a put option is under an obligation to buy the asset at the exercise price provided the option holder exercises his option to sell. AMERICAN OPTION VS EUROPEAN OPTION In an option contract, if the option can be exercised at any time between the writing of the contract and its expiration, it is called as an American option. On the contrary, if it can be exercised only at the time of maturity, it is termed as European Option. In India, the stock options i.e. options in individual shares are American options, while the index options ,i.e. NIFTY options and Sensex op tions are European options. The American options have greater profit potentiality than European options. Option Premium: The option holder has to pay a premium to the option writer for availing the right. Strike price: The specified price at which the option can be exercised is known as the strike price. The Relationship between the strike price(SP),actual price(AP) of the asset on the specified date and the profit potentiality has been explained below.

Relationship

Call Option

Put Option

AP > SP

In the Money

Out of Money

AP = SP

At the Money

At the Money

AP < SP

Out of Money

In the Money

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 In the Money means that the option holder can make profit by exercising the right. Out of the Money means that the option need not be exercised and let it lapse. At the money means that there is no chance of making profit or loss. 4) SWAP CONTRACTS A swap is an agreement between two counter parties to exchange cash flows in the future. Under the swap agreement various terms like the dates when the cash flows are to be paid, the currency in which to be paid and the mode of payment are determined and finalized by the parties. Usually the calculation of cash flows involves the future values of one or more market variables. There are two most popular forms of swap contrac ts, i.e., interest rate swaps and currency swaps. In the interest rate swap one party agrees to pay the other party interest at a fixed rate on a notional principal amount, and in return, it receives interest at a floating rate on the same principal notion al amount for a specified period. The currencies of the two sets of cash flows are the same. In case of currency swap, it involves in exchanging of interest flows, in one currency for interest flows in other currency. In other words, it requires the exchange of cash flows in two currencies. There are various forms of swaps based upon these two, but having different features in general.

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STRATEGIC FINANCIAL MANAGEMENT

CORPORATE RESTRUCTURING According to Goldberg:Restructuring of a company is a set of discrete, decisive measure in order to increase the competitiveness of the organization and enhance the value of the firm. Corporate restructuring is a change in the operational structure, investment structure, financial structure and governance structure of a company. FORMS OF CORPORATE RESTRUCTURING A) EXPANSION i) Merger and acquisitions ii) Tender offers iii) Joint Venture B) CONTRACTION i) Spin-offs ii) Split-offs iii) Divestitures iv) Equity carve-out C) CORPORATE CONTROL I) Premium Buyback ii) Standstill Agreements iii) Anti-takeover Amendments IV) Proxy contests D) CHANGES IN OWNERSHIP STRUCTURES i) Exchange offers ii) Share repurchases ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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iii) Going private iv) Leveraged buy-out A. EXPANSION 1) MERGERS Merger is a financial tool that is used for enhancing long-term profitability by expanding their operations. The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. A merger is a combination of two or more corporations in which only one corporation survives and the merged corporations go out of business. BENIFITS OF MERGERS
STAFF REDUCTIONS-

As every employee knows, mergers tend to mean job losses.

Consider all the money saved from reducing the number of staff members from accounting, marketing and other departments.
ECONOMIES OF SCALE-

Whether it is purchasing stationery or a new corporate IT

system, a bigger company placing the orders can save more on costs. Mergers also translate into improved purchasing power to buy equipment or office supplies - when placing larger orders, companies have a greater ability to negotiate prices with their suppliers.
ACQUIRING NEW TECHNOLOGY-

To stay competitive, companies need to stay on top

of technological developments and their business applications. By buying a smaller company with unique technologies, a large company can maintain or develop a competitive edge.
IMPROVED MARKET REACH AND INDUSTRY VISIBILITY-

Companies buy companies

to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.

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2) ACQUISITIONS Acquisitions or takeovers occur between the bidding and the target company. There may be either hostile or friendly takeovers. Reverse takeover occurs when the target firm is larger than the bidding firm. In the course of acquisitions the bidder may purchase the share or the assets of the target company. OBJECTIVES OF MERGERS AND ACQUISITIONS a) Mergers and acquisitions generally succeed in generating cost efficiency through the implementation of economies of scale. It may also lead to tax gains and can even lead to a revenue enhancement through market share gain.

b) The principal benefits from mergers and acquisitions can be listed as increased value generation, increase in cost efficiency and increase in market share.

c) It is expected that the shareholder value of a firm after mergers or acquisitions would be greater than the sum of the shareholder values of the parent companies.

d) An increase in cost efficiency is affected through the procedure of mergers and acquisitions. This is because mergers and acquisitions lead to economies of scale.

e) An increase in market share is one of the plausible benefits of mergers and acquisitions. In case a financially strong company acquires a relatively distressed one, the resultant organization can experience a substantial increase in market share.

3) TENDER OFFER The acquirer pursues takeover (without consent of the acquiree) by making a tender offer directly to shareholders of the target company to sell their shares. This offer is made for cash. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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4) JOINT VENTURE This is an agreement between two or more companies where there will be an agreed contribution and participation of the respective companies.

B. CONTRACTION
1) SPIN OFF It is a kind of a demerger where an existing parent company distributes on a pro-rata basis all the shares it owns in a controlled subsidiary to its own shareholders by which it gains effect to make two of the one company or corporation. There is no money transaction, subsidiarys assets are not valued, and transaction is not treated as stock dividend and tax free exchange. Both the companies exist and carry on business. It does not alter ownership proportion in any company. This takes place when part of a companys undertaking is transferred to a newly formed or an existing company. Some or that part of the shares of the first company are also transferred to the new company. The reminder of the first companys undertaking continues to be vested in it and the shareholders of the main company gets reduced by that extent. 2) SPLIT OFF This occurs when equity shares of a subsidiary company are distributed to some of the parent companys shareholders in exchange for their holdings in parent company. 3) SPLIT UP It is s diversion of a company into two or more parts through transfer of stock and parent company ceases to exist. 4) DIVESTITURE They are sale, for cash or for securities, of a segment of a company to a third party which is an outsider.

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5) EQUITY CARVED OUT It is a type of divestiture and different to spin off. It resembles the IPO of some portion of equity stock of a wholly owned subsidiary by the parent company. Some of the subsidiarys shares are offered for sale to general public for increasing cash inflow without losing control. This is also called split off IPO.

C. CORPORATE CONTROL
Corporate control involves obtaining control over the management of the firm. The various techniques of obtaining corporate control are as1) Premium Buyback 2) Standstill Agreement 3) Anti-Takeover Amendment 4) Proxy Contest: A proxy contest is an attempt by a single shareholder or a group of shareholders to take control or bring about other changes in a company through the use of the proxy mechanism of the corporate voting.

D. CHANGE IN OWNERSHIP STRUCTURE

It is one type of restructuring the ownership of a firm. The various techniques of changing the ownership structure are explained below--1) EXCHANGE OFFERS: It provides one or more classes of securities, the right or option to exchange part or all of their holdings for a different class of securities of the firm. 2) SHARE BUYBACK/REPURCHASES: section 77(A) allows companies buy back their own shares as well as other specified securities. (So the acquirer will not get chance to buy shares)

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3) GOING PRIVATE: It refers to the transformation of a public corporation into a privately hold firm. It involves purchase of the entire equity interest in a previously public corporation by a small group of investors. 4) LEVERAGED BUY OUTS: This is the acquisition of a company by its management personnel. It is also known as management buyout. Management may raise capital from the market or institutions to acquire the company on the strength of its assets.

STRATEGIC COST MANAGEMENT

Strategic cost management can be defined as" scrutinizing every process within your organization, knocking down departmental barriers, understanding your suppliers' business, and helping improve their processes" APPLICATIONS OF STRATEGIC COST MANAGEMENT: There are three basic business areas where strategic cost management can be applied.
STRATEGY:

A strategy in general terms refers to a plan of action that will shape the direction of organization's success. Companies of late have realized the importance of clear articulation of strategy and its effective implementation. Before formulating any strategy, the management should think about the business model whether it is still relevant or need to be changed? Or whether the objectives of the business are going to be accomplished through laid out strategy.
OPERATIONS:

By setting the priorities according to its significance we can operate the tasks effectively and efficiently.
ORGANIZATION:

Company should time and again check whether it is allocating its limited resources in the businesses which generate more value for the entire organization. Resources as such are the liming factors for any organization and that's why the company should be focus on the structure of the business. ROURKELA INSTITUTE OF MANAGEMENT STUDIES, ROURKELA
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ACTIVITY-BASED COSTING Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs. In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced. FINANCIAL ENGINEERING Financial engineering is a multidisciplinary field involving financial theory, the methods of financing, using tools of mathematics, computation and the practice of programming to achieve the desired end results. The financial engineering methodologies usually apply social theories, engineering methodologies and quantitative methods to finance. It is normally used in the securities, banking, and financial management and consulting industries, or as quantitative analysts in corporate treasury and finance departments of general manufacturing and service firms.

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CONCLUSION
Uncertainty is a source of opportunity. It is also what makes the future interesting. Clarity of awareness of three distinct, plausible future worlds may not help to reduce uncertainty about the direction of the financial industry but it is our hope that reading these scenarios will have equipped decision-makers to face that uncertainty with greater knowledge and understanding. These scenarios are not predictions. Rather, their aim has been to raise awareness of underlying issues, heighten sensitivity to early signals of emerging trends, and paint a broad picture of multi-dimensional challenges in which current strategies can be located. Not only businesses but governments and international organizations have a crucial role to play in shaping the future of the financial industry. Decision-makers in these realms, too, can use these scenarios to reflect on which future world seems most propitious and which policies they could adopt to nudge the existing world in their preferred direction. While much is uncertain, what is certain is that decisions made today will determine how financial services evolve tomorrow. We hope that these scenarios have contributed to forming a common understanding and basis for dialogue that can play a role in shaping the industrys future for the better.

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REFERENCES
BOOKS SECURITY ANALYSIS & PORTFOLIO MANAGEMENT Security Analysis and Portfolio Management Fisher / Jodan Pearson Investment Analysis and Portfolio Management Reilly / Brown Cengage FINANCIAL SERVICES Financial Markets and Services Gordon / Natarajan HPH Financial Marketing, Institutions and Financial Services Gomez PHI DERIVATIVES & RISK MANAGEMNT Financial Derivatives Theory, Concepts and problems Gupta PHI Risk Management and Derivatives Stulz Cengage STRATEGIC FINANCIAL MANAGEMENT Strategic Financial Management Ravi M Kishore Taxmann Mergers, Acquisitions and Corporate Restructuring, Gaughan, Wiley WEBSITES www.wikipedia.com www.managementstudyguide.com www.conceptscoach.com www.ebizmba.com

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