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WORKPLACES for MBA FINANCETraditional•BANKS
•MUTUAL FUNDS
•INSURANCE
•FINANCIAL CONSULTANCY
Specialized•INVESTMENT
BANKING
•CORPORATE FINANCE
•MERCHANT BANKING
•PORTFOLIO MANAGEMENT
Emerging•HEDGE FUND
•ASSET MANAGEMENT
•CREDIT RISK MANAGEMENT
•DERIVATIVES STRUCTURING
•PRIVATE EQUITY
JOB PROFILES• INVESTMENT BANKER• PORTFOLIO MANAGER• FINANCE MANAGER
• CREDIT RISK MANAGER• FINANCIAL/INVESTMENT ANALYST
• FINANCIAL/EQUITY RESEARCH ANALYST• RISK and INSURANCE MANAGER• FINANCIAL PLANNER/ADVISOR
Etc….
FINANCIAL PLANNING
Financial planning is the first step you can take to become financially
independent !!!
If your only goal is to become rich. You will
never achieve it.
A goal without a plan is just a DREAM.
Importance of Financial Planning
1. Financial Security2. Ensured Cash flows3. Standard of Living
4. Family Security5. Creation of Assets
6. Systematic and organized lifestyle
Factors that make financial plan important
1. Increased demands and lifestyle requirements
2. Inflation
3. Reduced Job security
4. Contingency expenses
5. Increased life expectancy
Process of financial planningMonthly Salary
(Rs. 1 lac)
Saving(Rs. 50
thousand)
Save(Rs. 10
thousand)
Investment(Rs. 40
thousand)
Tax (Rs. 20 thousand)
Consumption(Rs. 30
thousand)
With INVESTMENTS you can also avail TAX BENEFITS
(Rs. 10 thousand)
Where to Invest?BANK
(Accounts and Deposits)
GOLD BONDS/DEBT INSTRUMENTS
INSURANCE EQUITY DERIVATIVES
MUTUAL FUNDS
REAL ESTATE
ART and Other Misc.
Role Of DiversificationSYSTEMATI
C Risk
UNSYSTEMATICRisk
Forms of Diversification• Asset Classes• Markets• Timings• Financial Institutions
INVESTMENT VEHICLESEQUITY Shares (Common Stock)
MUTUAL FUNDS
DERIVATIVES• FORWARDS• FUTURES• OPTIONS
HOW DO I SELECT THE EQUITY STOCKS To Invest
FUNDAMENTAL ANALYSIS• Fundamental analysis involves analysis of
Financial statements (P&L, BS, CFS) to forecast future performance through DCF, DDM, Relatives and other valuation models.TECHNICAL ANALYSIS
• A security analysis methodology for forecasting the direction of prices through the study of past market data, i.e, Price and Volume behavior. Charts, patterns, indicators and theories.
Interesting Facts and Figures1. Only 2-3% of Indian total savings is
invested into stock markets2. BSE is world’s top stock exchange in terms
of listed companies3. SENSEX touched the highest level of
28,882 (Intraday high) in ……4. India was the first market where US Indices
(DJIA & S&P500) derivatives contracts were traded outside US
5. India comes in the top 20 world stock markets in terms of Market Cap
Asset• The underlying fundamental asset
that could be a STOCK, INTEREST RATE, CURRENCY, COMMODITY
Derivatives• A mutual contract between parties
which takes value from the underlying asset
Value of Derivatives change when the value of the underlying asset changes
Mr. Orange wants to invest in ITC Ltd. with Rs. 1000
Market Price of ITC Ltd. = Rs. 100No. of Shares for Mr. Orange = 10
Futures Contract Premium for ITC Ltd. = Rs. 25No. Of Shares in a futures contract = 40
After one month at the time of expiry of futures contract the price of ITC Ltd. moves to Rs. 120
So with the use of leverage feature in
the derivatives contract.Mr. Orange was able
to earn a return of Rs. 800 instead of
Rs. 200 if he had long shares of ITC Ltd.
Now if the price of ITC Ltd Moves to Rs. 80. Mr.
Orange would have lost Rs. 800 instead of Rs. 200
So… Mr. Orange turns Mr. Red.. Angry with his investment
decision !!
TRADING SYSTEMS
Over the Counter Exchange• Forwards• Swaps• Exotic OptionsExchange Traded Derivatives• Futures• Options
FORWARDSLet’s suppose you want to gift an Apple Iphone6 to your brother after saving your pocket money for 2
months.
Current price = Rs. 60,000
You have three options1. Buy it now and gift it later. (No Cash)
2. Buy it after 2 months at the price prevailing after 2 months.
3. Enter into an agreement with a friend who is a mobile dealer to pay him Rs. 60,000 after 2
months in exchange of phone.
FUTURESMr. White, the owner of NYSE is a really smart
and observing personality.He observes that demand for Iphone 6 is huge
and people are executing forwards contracts on a large scale.
He floats a futures contract where contracts are:- Standardized
- Safe and Backed- Highly Liquid
- And Marked to Market
OptionsAnd here comes Mr. Blue owner of NSE who has
sympathy for the blues of futures buyers.
On the same principle of futures, Mr. Blue floats an options contracts where he gives an option to the
buyer of the contract to exercise the contract or not at the time of maturity.
He only demands a little premium for the same features offered by Mr. White and further either:
- Call Option- Put Option
Call OptionYou are an investor and want to trade on NIFTY.
Current level = 8500
You believe that NIFTY would be trading above 8700 after a month.
You buy an NIFTY call option at strike price of 8700.After one month on the day of expiry NIFTY closes at :
- 8900- 8750- 8550
Put OptionYou are an investor and want to trade on NIFTY.
Current level = 8500
You believe that NIFTY would be trading below 8700 after a month.
You buy a NIFTY PUT option at strike price of 8700.After one month on the day of expiry NIFTY closes at :
- 8900- 8750- 8550
BENEFITS of DERIVATIVES1. Formulation of long term Hedging
and speculation strategies
2. Benefit of leverage
3. Small transaction costs
4. Great risk management tool
Limitations of Derivatives1.Effect of Leverage
2.Highly volatile and risky
3.Complex and difficult to strategize
HEDGINGMr. Mukesh Ambani owns 500 shares of TATA
Steel Ltd. bought at Rs. 10 a share.He wants to hold the stocks for 6 months but
also want to secure himself from any risk.
How does he hedge himself against his long position?
He sells a futures contract of 6 months expiry currently selling at Rs.9 a share (discount).
SPECULATINGCase : Covered Call Strategy
Mr. Mukesh owns 500 shares of TATA Steel Ltd. bought at Rs. 10 a share and is ready to hold the
stock for a long time.
He wants to earn additional income over his holdings.
He sells a Call Option of 1 month expiry at strike price of Rs. 13 and receives a premium of Rs. 1 a
share.
FUNDAMENTAL ANALYSISBased on the fundamentals of the company
Using the E-I-C approach
- Finding the intrinsic value of share-Implications of various financial ratios- Measuring the impact of qualitative
factors
Economy Industry Company
TECHNICAL ANALYSISCandle Stick Charts
• Hammer• Hanging man• Morning/Evening Star etc.
Patterns
• Support• Resistance• Head and shoulders• Double top and double bottom
Indicators and Oscillators
• William %R• Relative strength index• Moving average
Trading Theories
• Elliot Wave Theory• Dow Jones Theory
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