Finance for TrainersFinance for Trainers

Objective of the sessionObjective of the session

Business Business orientationorientation

Commonly Used termsCommonly Used terms

SecuritySecurityBondBondStockStock

SecuritySecurity

Security :A security is a Security :A security is a negotiable instrument negotiable instrument representing financial value. representing financial value.

BondBond

Bond (also known as Debenture): it Bond (also known as Debenture): it is a long-term debt instrument used is a long-term debt instrument used by governments and large by governments and large companies to obtain funds. It is companies to obtain funds. It is defined as "any form of borrowing defined as "any form of borrowing that commits a firm to pay interest that commits a firm to pay interest and repay capital”.and repay capital”.

ShareShare

Share (also known as stock and Share (also known as stock and equity):equity):means a share of ownership means a share of ownership in a corporation (company)in a corporation (company)

Commonly Used TermsCommonly Used Terms

Money marketMoney market

In finance, the money market is the In finance, the money market is the global financial market for short-term global financial market for short-term borrowing and lending. It provides borrowing and lending. It provides short-term liquidity funding for the short-term liquidity funding for the global financial system. global financial system.

Capital MarketCapital Market

The Capital Market is the market for The Capital Market is the market for securities, where companies and securities, where companies and governments can raise long term funds governments can raise long term funds (periods longer than a year). The (periods longer than a year). The capital market includes the stock capital market includes the stock market and the bond market. Financial market and the bond market. Financial regulators like SEBI, oversee the capital regulators like SEBI, oversee the capital markets in their countries to ensure markets in their countries to ensure that investors are protected against that investors are protected against fraud.fraud.

Capital Market contd.Capital Market contd.

Consist of Consist of Primary market :The primary market is Primary market :The primary market is

that part of the capital markets that deals that part of the capital markets that deals with the issuance of new securities. For with the issuance of new securities. For e.g. In the case of a new stock issue, this e.g. In the case of a new stock issue, this sale is an initial public offering (IPO).sale is an initial public offering (IPO).

Secondary market: Is the financial market Secondary market: Is the financial market where previously issued securities and where previously issued securities and financial instruments such as stock, bonds financial instruments such as stock, bonds are bought and sold.are bought and sold.

Understanding Indian economyUnderstanding Indian economy

Monetary policyMonetary policy Fiscal policyFiscal policy

Monetary policyMonetary policy

One of the roles of RBI.One of the roles of RBI. Monetary policy is the process by Monetary policy is the process by

which the RBI controls (I) availability which the RBI controls (I) availability of money, and (ii) cost of money or of money, and (ii) cost of money or rate of interest, in order to attain a rate of interest, in order to attain a set of objectives oriented towards set of objectives oriented towards the growth and stability of the the growth and stability of the economyeconomy

Types of Monetary policyTypes of Monetary policy

Expansionary policy: increases the Expansionary policy: increases the total supply of money in the total supply of money in the economy, to combat unemployment economy, to combat unemployment in a recession by lowering interest in a recession by lowering interest rates.rates.

Contractionary policy: involves Contractionary policy: involves

raising interest rates in order to raising interest rates in order to combat inflation.combat inflation.

Important terms in monetary policyImportant terms in monetary policy

CRR: (CASH RESERVE RATIO)CRR: (CASH RESERVE RATIO)

RBI or central banks require RBI or central banks require banks to keep a small portion of their banks to keep a small portion of their deposits as “banks reserves”, which deposits as “banks reserves”, which the banks cannot lend out.the banks cannot lend out.

Quiz TimeQuiz Time

Q.1:What will happen if RBI increases Q.1:What will happen if RBI increases CRR?CRR?

Bank Rate/Repo rateBank Rate/Repo rate

This is the rate at which RBI lends This is the rate at which RBI lends money to other banks (or financial money to other banks (or financial institutions). These loans are usually institutions). These loans are usually very short-term loans.very short-term loans.

Reverse Repo RateReverse Repo Rate

The rate at which RBI borrows money The rate at which RBI borrows money from the banks (or banks lend money from the banks (or banks lend money to the RBI) is termed the reverse to the RBI) is termed the reverse repo rate. The RBI uses this tool repo rate. The RBI uses this tool when it feels there is too much when it feels there is too much money floating in the banking money floating in the banking system.system.

Quiz:2Quiz:2

What is the CRRWhat is the CRR Repo rateRepo rate Reverse repo rateReverse repo rate

Ans.Ans.

Current Rates Figures (as of Jan 6, Current Rates Figures (as of Jan 6, 2009)2009)

CRR = 5.0%CRR = 5.0% Repo Rate = 5.5%Repo Rate = 5.5% Reverse Repo Rate = 4.0%Reverse Repo Rate = 4.0%

Fiscal PolicyFiscal Policy

Fiscal Policy is considered to be acts of a Fiscal Policy is considered to be acts of a government to influence the direction of government to influence the direction of nation’s economy by using its financial nation’s economy by using its financial and regulatory powers.and regulatory powers.

Financial power: The two main important Financial power: The two main important instruments of fiscal policy are instruments of fiscal policy are government spending and taxation.government spending and taxation.

Regulatory powers :The ability of Regulatory powers :The ability of government to influence its people to government to influence its people to change their behaviour.change their behaviour.

Government Revenue: Government Government Revenue: Government generates revenue by collecting taxes generates revenue by collecting taxes from its people and businesses.from its people and businesses.

By changing tax rates government can By changing tax rates government can influence demand. For e.g.– lowering of influence demand. For e.g.– lowering of income tax rate will increase the income tax rate will increase the disposable income of people. With more disposable income of people. With more money in hand people will spend those money in hand people will spend those money on goods and service; hence, money on goods and service; hence, creating a demand for the samecreating a demand for the same..

Government Spending: Government Spending: Constructing schools, colleges, Constructing schools, colleges,

hospitals, ports, airports, highways, hospitals, ports, airports, highways, factories etc. factories etc.

In several welfare schemes such as In several welfare schemes such as unemployment benefits, elderly unemployment benefits, elderly pensions, healthcare benefits.pensions, healthcare benefits.

Quiz:What is infrastructure?Quiz:What is infrastructure?

Infrastructure can be defined as the Infrastructure can be defined as the basic physical and organizational basic physical and organizational structures needed for the operation structures needed for the operation of a society or enterprise.of a society or enterprise.

the services and facilities necessary the services and facilities necessary for an economy to function. for an economy to function. E.g. :roads, water supply, sewers, E.g. :roads, water supply, sewers, power grids, telecommunications.power grids, telecommunications.

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Business Planning For Development Projects

THE PLAYERS

THE REAL ESTATE______

Political / Physical / EconomicOpportunities & Constraints

CAPITAL

THE MARKET______

USERS

DEBT SOURCE:Lenders

EQUITY SOURCE:Owners and

Investors

PUBLIC SECTORAGENCIES

DEVELOPER____________

OPERATORFEES &INCENTIVES

SKILLS &SERVICES

ECONOMICDEVELOPMENT

PROPERTY TAXES& USE FEES

INFRASTRUCTURE& MUNICIPAL

SERVICES

OCCUPANCYCOSTS

USE &ENJOYMENT

FUNDS FUNDS

DEBTSERVICE

RETURN ON ANDOF EQUITY

That’s That’s it!it!