Shailesh GCM fINAL

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Index

Serial No. Contents Page No.

1. Financial Market 7

2. The formation of the Global Capital Market 8

3. Globalization 9

4. Globalization of Financial services 12

5. Merger and Acquisition 13

6. Global Equity Market 15

7. Stock Exchanges 16

8. Major and Emerging Stock Exchanges 17

9. Cross Listing (Multi Listing) 18

10. Depositary Receipts 29

11. Bond Market 30

12. Global Bond Market 31

13. EURO Bonds 70

14. FOREX 71

15. Bibliography 72


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Global Capital Market

TYBFM pg. 2

FINANCIAL MARKET

It is a market where creation andexchange of financial asset take place.

Financial Market plays a vital role inallocating resources in an economy byperforming three important function:Facilitating price discovery, providingliquidity to financial assets and reducingthe cost of transaction.

Financial Market is broadly divided intotwo Group;

1] Capital Market2] Money Market

CAPITAL MARKET

A capital market is a market for Securities (debt and equity), where businessenterprises (companies) and government can raise long term fund . It is definedas a market in which money is provided for the period longer than a year as theraising of short term funds takes place on other market .The capital market includes the Stock Market (Equity Sec) and the Bond Market(Debt).Capital Markets may be classified as Primary Market and Secondarymarket. In primary market, new stock or bond issue are sold to the investor via amechanism known as underwriting. In secondary market, existing securities aresold and bought among investors or traders, usually on security exchange, overthe counter or elsewhere.

MONEY MARKETMoney market is a centre in which financial institution joint together for thepurpose of dealing in financial or monetary assets which may be of short term

maturity. Thus, money market is a market for short term financial instruments,maturity period of which is less than a year. The deals are over the counter. Thenumber of players in the market are limited and it is regulated by RBI


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TYBFM pg. 3

M0NEY

MARKET.....................

CAPITAL

MARKET.................

1 Money Market is a market for shortterm loan able funds for a period ofnot exceeding one year.

Capital Market for long-term fundsexceeding a period of one year

2 Money market supplies funds forfinancing current business operations

working capital requirements ofindustries and short periodrequirements of the government

Capital Market supplies fund forfinancing the fixed capital

requirement of trade and commerceas well as the long term requirementof the government

3 The central bank and commercialbanks are the major institution in themoney market

In the capital market developmentbanks and insurance companies playsa dominant role

4 Transaction mostly take place overthe phone and there is no formal

place

In capital market transaction takeplace at a formal place viz., Stock

Exchange

5 Money Market Instrument generallydo not have secondary market

Capital market instrument generallyhave secondary market


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TYBFM pg. 4

CAPITAL MARKET INSTRUMENTS

The following are the instrument traded in this market;

Foreign Exchange Market

Equity Market

Insurance Market

Credit Market instrument

Derivatives instrument

Hybrid Instrument

Instrument issued and traded in the capital market differ in certaincharacteristics;

Term to maturity

Interest rate paid on the nominal value

Interest payment date

Nominal amount in issue

Role and function of capital market

Mobilization of saving: Capital market is an important source formobilizing idle savings from the economy. It mobilizes funds frompeople for further investments in the productive channel of economy.In that sense it activates the ideal monetary resource and puts them inproper investments.

Capital Formation: Capital market helps in capital formation.Capital formation is the net addition to the existing stock of capital inthe economy. Through mobilization of ideal resources it generatessavings; the mobilized savings are made available to various segmentssuch as agriculture, industries etc. This helps in capital formation.


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TYBFM pg. 5

Provision of investment avenue: Capital market raises resourcesfor long period of time. Thus it provide an investment avenue forpeople who wish to invest resources for a long period of time. It

provide suitable interest rate returns also to the investor.

Speed up economic growth and development: Capital marketenhances production and productivity in the national economy. As itmakes funds available for long period of time, the financialrequirements of the business houses are meet by the capital market. Ithelps in research and development.

Proper regulation of funds: Capita market not only helps inmobilization of funds but also helps in proper allocation of theseresources.

Continuous availability if fund: Capital market is a place wherethe investment avenue is continuously available for long terminvestment.This is a liquid market as it makes fund available oncontinuous basis. Both buyer and seller can easily buy and sellsecurities as the are available continuously. Basically capital markettransaction are related to stock exchanges. Thus marketability in the

capital market become easy. Technological up-gradation: it serve as an important source fortechnological up-gradation in the industrial sector.


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TYBFM pg. 6

Primary Market.

When companies need financial resources for its expansion, they borrowmoney from investors through issue of securities

Securities issued :- Preference Shares, Equity Shares, Debentures etc.. Equity shares is issued by the under writers and merchant bankers on

behalf of the company.

People who apply for these securities are: High net worth individual,Retail investors, Employees, Financial Institutions, Mutual Fund Houses,Banks etc.

One time activity by the company.

Secondary Market

The place where such securities are traded by these investors is known asthe secondary market.

Securities like Preference Shares and Debentures cannot be traded in thesecondary market.

Equity shares are tradable through a private broker or a brokerage house. Securities that are traded, are traded by the retail investors. Helps in mobilizing the funds for the investors in the short run.


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TYBFM pg. 7

The formation of the Global Capital Market

Todays global capital market developed after the major nations of the worldabandoned the adjustable peg system rates in the early 1970s and eliminated therigid foreign exchange controls that went with them. Advances in technologythat enables greate capital mobility, coupled with lack of fiscal discipline,mostly on the part the united states, made a quasi-fixed rate system unworkableand inefficient. In 20 years since abandonment, the resulting financial freedomand the boom in the technology (information and processing), have allowedprofit seeking investors, issuers, and intermediaries to create an ever expandingglobal market for financial instrument in all denominations. As trading volumessoared and the variety of instruments multiplied, this global market acquiredconsiderable power.

But the process is only help complete. While the markets for the money ,foreign exchange and bonds have already became global, the equities marketsare only in the process of globalizing. Moreover, as bank deposits continue tobe securitized around the world, more and more of the flow of funds in theeconomies of the developed world will be in instruments which can be tradedand there by linked directly to the global capital market. Finally, more and moreof the developing countries of the world are reforming there financial systemsand, in the process linking into the global capital market.

As this process continues, the global capital market will continue to grow,becoming more powerful and integrated, until it reaches maturity sometime inthe next century. Worldwide capital supply and demand will be intermediatedthrough this market, which will be the mechanism for capital pricing andallocation.

The phenomenon ofglobalization began in a primitive form when humans firstsettled into different areas of the world; however, it has shown a rather steadyand rapid progress in the recent times and has become an international dynamicwhich, due to technological advancements, has increased in speed and scale, so

that countries in all five continents have been affected and engaged.
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TYBFM pg. 8

GLOBALIZATION

Globalization is defined as a process which, based on international strategies,aims to expand business operations on a worldwide level and was precipitated

by the facilitation of global communications due to technologicaladvancements, and socioeconomic, political and environmental developments.The goal of globalization is to provide organizations a superior competitiveposition with lower operating costs, to gain greater numbers of products,services and consumers. This approach to competition is gained viadiversification of resources, the creation and development of new investmentopportunities by opening up additional markets, and accessing new rawmaterials and resources. Diversification of resources is a business strategy thatincreases the variety of business products and services within various

organizations. Diversification strengthens institutions by loweringorganizational risk factors, spreading interests in different areas, takingadvantage of market opportunities and acquiring companies both horizontal andvertical in nature.

Industrialized or developed nations are specific countries with a high level ofeconomic development and meet certain socioeconomic criteria based oneconomic theory such as gross domestic product (GDP), industrialization andhuman development index (HDI) as defined by the International Monetary Fund(IMF), the United Nations (UN) and the World Trade Organization (WTO).Using these definitions, some industrialized countries in 2010 were: Austria,United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan,Luxembourg, Norway, Sweden, Switzerland, and the United States.

Components of Globalization

The components of globalization include GDP, industrialization and the HumanDevelopment Index (HDI). The GDP is the market value of all finished goods

and services produced within a country's borders in a year and serves as ameasure of a country's overall economic output. Industrialization is a processwhich, driven by technological innovation, effectuates social change andeconomic development by transforming a country into a modernized industrial,or developed, nation. The Human Development Index comprises threecomponents. Specifically, a country's (a) population's life expectancy, (b)knowledge and education measured by the adult literacy and (c) income.

The degree to which an organization is globalized and diversified has bearing

on the strategies that it uses to pursue greater development and investmentopportunities.
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TYBFM pg. 9

The Economic Impact on Developed Nations

Globalization compels businesses to adapt to different strategies based on newideological trends that try to balance rights and interests of both the individual

and the community as a whole. This change enables businesses to competeworldwide and also signifies a dramatic change for business leaders, labor andmanagement by legitimately accepting the participation of workers andgovernment in developing and implementing company policies and strategies.Risk reduction via diversification can be accomplished through companyinvolvement with international financial institutions and partnering with bothlocal and multinational businesses. Globalization brings reorganization at theinternational, national and sub-national levels. Specifically, it brings thereorganization of production, international trade and the integration of financialmarkets, thus affecting capitalist economic and social relations viamultilateralism and microeconomic phenomena, such as businesscompetitiveness, at the global level. The transformation of the productionsystems affects the class structure, the labor process, the application oftechnology and the structure and organization of capital. Globalization is nowseen as marginalizing the less educated and low-skilled workers. Businessexpansion will no longer automatically imply increased employment.Additionally, it can cause high remuneration of capital due to its higher mobilitycompared to labor.

The phenomenon seems to be driven by three major forces: globalization of allproduct and financial markets, technology and deregulation. Globalization ofproduct and financial markets refers to an increased economic integration inspecialization and economies of scale, which will result in greater trade infinancial services through both capital flows and cross-border entry activity.The technology factor, specifically telecommunication and informationavailability, have facilitated remote delivery and provided new access anddistribution channels while revamping industrial structures for financial servicesby allowing entry of non-bank entities such as telecoms and utilities.

Deregulation pertains to the liberalization ofcapital account and financialservices in products, markets and geographic locations. It integrated banks byoffering a broad array of services, allowed entry of new providers and increasedmultinational presence in many markets and more cross-border activities. In aglobal economy, power is the ability of a company to command both tangibleand intangible assets that create customer loyalty, regardless of location.Independent of size or geographic location, a company can meet globalstandards and tap into global networks, thrive and act as a world class thinker,maker and trader, by using its greatest assets: its concepts, competence andconnections.
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TYBFM pg. 10

Beneficial Effects

Some economists have a positive outlook regarding the net effects of

globalization on economic growth. These effects have been analyzed over theyears by several studies attempting to measure the impact of globalization onvarious nations' economies using variables such as trade, capital flows and theiropenness, GDP per capita, foreign direct investment (FDI) and more. Thesestudies examined the effects of several components of globalization on growthusing time series cross sectional data on trade, FDI and portfolio investment.Although they provide an analysis of individual components of globalization oneconomic growth, some of the results are inconclusive or even contradictory.However, overall, the findings of those studies seem to be supportive of theeconomists' positive position instead of the one held by the public and non-economist view.

Trade among nations via the use ofcomparative advantage promotes growth,which is attributed to a strong correlation between the openness to trade flowsand the affect on economic growth and economic performance. Additionallythere is a strong positive relation between capital flows and their impact oneconomic growth.

Foreign Direct Investment's impact on economic growth has had a positive

growth effect in wealthy countries and an increase in trade and FDI resulted inhigher growth rates. Empirical research examining the effects of severalcomponents of globalization on growth using time series and cross sectionaldata on trade, FDI and portfolio investment found that a country tends to have alower degree of globalization if it generates higher revenues from trade taxes.Further evidence indicates that there is a positive growth-effect in countrieswhich are sufficiently rich as are most of the developed nations.

The World Bank reports that integration with global capital markets can lead to

disastrous effects without sound domestic financial systems in place.Furthermore globalized countries have lower increases in government outlays,as well as taxes, and lower levels of corruption in their governments.

One of the potential benefits of globalization is to provide opportunities forreducing macroeconomic volatility on output and consumption viadiversification of risk.
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TYBFM pg. 11

Harmful Effects

Non-economists and the wide public expect the costs associated with

globalization to outweigh the benefits, especially in the short-run. Less wealthycountries from those among the industrialized nations may not have the samehighly-accentuated beneficial effect from globalization as more wealthycountries measured by GDP per capita etc. Free trade, although increasesopportunities for international trade, it also increases the risk of failure forsmaller companies that cannot compete globally.

Additionally it may drive up production and labor costs including higher wagesfor more skilled workforce. Domestic industries in some countries may beendangered due to comparative or absolute advantage of other countries in

specific industries. Another possible danger and harmful effect is the overuseand abuse of natural resources to meet the new higher demand in the productionof goods

The Bottom Line

One of the major potential benefits of globalization is to provide opportunitiesfor reducing macroeconomic volatility on output and consumption via

diversification of risk. The overall evidence of the globalization effect onmacroeconomic volatility of output indicates that, although in theoreticalmodels the direct effects are ambiguous, financial integration helps in a nation'sproduction base diversification, leads to an increase in specialization ofproduction. However, the specialization of production based on the concept ofcomparative advantage can also lead to higher volatility in specific industrieswithin an economy and society of a nation. As time passes, successfulcompanies, independent of size, will be the ones that are part of the globaleconomy.


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TYBFM pg. 12

Globalization of financial Services

In this age ofglobalization, the key to survival and success for many financialinstitutions is to cultivate strategic partnerships that allow them to be

competitive and offer diverse services to consumers. In examining the barriersto - and impact of - mergers, acquisitions and diversification in the financialservices industry, it's important to consider the keys to survival in thisindustry:

1. Understanding the individual client's needs and expectations2. Providing customer service tailored to meet customers' needs and

expectations

In 2008, there were very high rates of mergers and acquisition (M&A) in thefinancial services sector. Let's take a look at some of the regulatory history thatcontributed to changes in the financial services landscape and what this meansfor the new landscape investors now need to traverse.

Diversification Encouraged by DeregulationBecause large, international mergers tend to impact the structure of entiredomestic industries, national governments often devise and implementprevention policies aimed at reducing domestic competition among firms.Beginning in the early 1980s, the Depository Institutions Deregulationand Monetary Control Act of 1980 and the Garn-St. Germaine Depository Actof 1982 were passed.

By providing the Federal Reserve with greater control over non-member banks,these two acts work to allow banks to merge and thrift institutions (creditunions, savings and loans and mutual savings banks) to offer checkabledeposits. These changes also became the catalysts for the dramatictransformation of the U.S. financial service markets in 2008 and the emergenceof reconstituted players as well as new players and service channels.

Nearly a decade later, the implementation of the Second Banking Directive in1993 deregulated the markets ofEuropean Union countries. In 1994, Europeaninsurance markets underwent similar changes as a result of the Third GenerationInsurance Directive of 1994. These two directives brought the financial servicesindustries of the United States and Europe into fierce competitive alignment,creating a vigorous global scramble to secure customers that had beenpreviously unreachable or untouchable.
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TYBFM pg. 13

The ability for business entities to use the internet to deliver financialservices to their clientle also impacted the product-oriented and geographicdiversification in the financial services arena.

Going GlobalAsian markets joined the expansion movement in 1996 when "BigBang" financial reforms brought about deregulation in Japan. Relatively far-reaching financial systems in that country became competitive in a globalenvironment that was enlarging and changing swiftly. By 1999, nearly allremaining restrictions on foreign exchange transactions between Japan andother countries were lifted.

Following the changes in the Asian financial market, the United States

continued to implement several additional stages of deregulation, concludingwith the Gramm-Leach-Bliley Act of 1999. This law allowed for theconsolidation of major financial players, which pushed U.S.-domiciled financialservice companies involved in M&A transactions to a total of $221 billion in2000. According to a 2001 study by Joseph Teplitz, Gary Apanaschik andElizabeth Harper Briglia in Bank Accounting & Finance, expansion of suchmagnitude involving trade liberalization, the privatization of banks in manyemerging countries and technological advancements has become a rathercommon trend.

The immediate effects ofderegulation were increased competition, marketefficiency and enhanced consumer choice. Deregulation sparked unprecedentedchanges that transformed customers from passive consumers to powerful andsophisticated players. Studies suggest that additional, diverse regulatory effortsfurther complicated the running and managing of financial institutions byincreasing the layers of bureaucracy and number of regulations.

Simultaneously, the technological revolution of the internet changed the nature,scope and competitive landscape of the financial services industry. Following

deregulation, the new reality has each financial institution essentially operatingin its own market and targeting its audience with narrower services, catering tothe demands of a unique mix of customer segments. This deregulation forcedfinancial institutions to prioritize their goals by shifting their focus from rate-setting and transaction-processing to becoming more customer-focused.

Challenges and Drawbacks of Financial PartnershipsSince 1998, the financial services industry in wealthy nations and the UnitedStates has been experiencing a rapid geographic expansion; customers

previously served by local financial institutions are now targeted at a globallevel. Additionally, according to Alen Berger and Robert DeYoung in their
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TYBFM pg. 14

article Technological Progress and the Geographic Expansion of the BankingIndustry (Journal of Money, Credit and Banking, September 2006), between1985 and 1998, the average distance between a main bank and its affiliateswithin U.S. multibank holding companies has increased by more than 50%,

from 123.4 miles to 188.9 miles. This indicates that the increased ability ofbanks to make small business loans at greater distances enabled them to sufferfewer diseconomies of scale and boost productivity.

Deregulation has also been the major factor behind this geographicdiversification, and beginning in the early 1980s, a sequence of policy changesimplemented a gradual reduction of intrastate and interstate banking restrictions.

In the European Union, a similar counterpart of policy changes enabled bankingorganizations and certain other financial institutions to extend their operationsacross the member-states.Latin America, the transitional economies of EasternEurope and other parts of the world also began to lower or eliminate restrictionson foreign entry, thus enabling multinational financial institutionsheadquartered in other countries to attain considerable market shares.

Transactions without Boundaries, Borders: Recent innovations incommunications and information technology have resulted in a reduction indiseconomies of scale associated with business costs faced by financialinstitutions contemplating geographic expansion. ATM networks and banking

websites has enabled efficient long-distance interactions between institutionsand their customers, and consumers have become so dependent on theirnewfound ability to conduct boundary-less financial transactions on acontinuous basis that businesses lose all competitiveness if they are nottechnologically connected.

An additional driving force for financial service firms' geographicdiversification has been the proliferation of corporate combination strategiessuch as mergers, acquisitions, strategic alliances and outsourcing. Such

consolidation strategies may improve efficiency within the industry, resulting inM&As, voluntary exit, or forced withdrawal of poorly performing firms.

Consolidation strategies further empower firms to capitalize on economies ofscale and focus on lowering their unit production costs. Firms often publiclydeclare that their mergers are motivated by a desire for revenue growth, anincrease in product bases, and for increased shareholder value via staffconsolidation, overhead reduction and by offering a wider array of products.However, the main reason and value of such strategy combinations is often

related to internal cost reduction and increased productivity
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TYBFM pg. 15

Unfavorable facts about the advantages and disadvantages of the majorstrategies used as a tool for geographic expansions within the financial servicessectors were obscured in 2008 by the very high rates of M&As, such as those

between Nations Bank and Bank of America (NYSE:BAC), Travelers Groupand Citicorp (NYSE:C), JP Morgan Chase (NYSE:JPM) and Bank One. Theirdilemma was to create a balance that maximized overall profit.

ConclusionThe conclusion regarding the impact, advantages and disadvantages of domesticand international geographic diversification and expansion on the financialservice industry is the fact that with globalization, the survival and success ofmany financial service firms lies in understanding and meeting the needs,

desires and expectations of their customers.The most important and continually emerging factor for financial firms tooperate successfully in extended global markets is their ability to efficientlyserve discerning, highly sophisticated, better educated, more powerfulconsumers addicted to the ease and speed of technology. Financial firms that donot to realize the significance of being customer-oriented are wasting theirresources and eventually will perish. Businesses that fail to recognize the impactof these consumer-driven transformations will struggle to survive or cease toexist in a newly forged global financial service community that has been foreverchanged by deregulation.
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TYBFM pg. 16

MERGER AND ACQUISITION

One plus one makes three: this equation is the special alchemy of a merger or an

acquisition. The key principle behind buying a company is to create shareholdervalue over and above that of the sum of the two companies. Two companiestogether are more valuable than two separate companies - at least, that's thereasoning behind M&A.

This rationale is particularly alluring to companies when times are tough. Strongcompanies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greatermarket share or to achieve greater efficiency. Because of these potentialbenefits, target companies will often agree to be purchased when they know

they cannot survive alone.

Distinction between Mergers and Acquisitions

Although they are often uttered in the same breath and used as though they weresynonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the newowner, the purchase is called an acquisition. From a legal point of view, thetarget company ceases to exist, the buyer "swallows" the business and the

buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of aboutthe same size, agree to go forward as a single new company rather than remainseparately owned and operated. This kind of action is more precisely referred toas a "merger of equals." Both companies' stocks are surrendered and newcompany stock is issued in its place. For example, both Daimler-Benz andChrysler ceased to exist when the two firms merged, and a new company,DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually,one company will buy another and, as part of the deal's terms, simply allow theacquired firm to proclaim that the action is a merger of equals, even if it'stechnically an acquisition. Being bought out often carries negative connotations,therefore, by describing the deal as a merger, deal makers and top managers tryto make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joiningtogether is in the best interest of both of their companies. But when the deal isunfriendly - that is, when the target company does not want to be purchased - it
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is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends onwhether the purchase is friendly or hostile and how it is announced. In other

words, the real difference lies in how the purchase is communicated to andreceived by the target company's board of directors, employees andshareholders.

Synergy

Synergy is the magic force that allows for enhanced cost efficiencies of the newbusiness. Synergy takes the form of revenue enhancement and cost savings. Bymerging, the companies hope to benefit from the following:

Staff reductions - As every employee knows, mergers tend to mean joblosses. Consider all the money saved from reducing the number of staffmembers from accounting, marketing and other departments. Job cutswill also include the former CEO, who typically leaves with acompensation package.

Economies of scale- Yes, size matters. Whether it's purchasingstationery or a new corporate IT system, a bigger company placing theorders can save more on costs. Mergers also translate into improvedpurchasing power to buy equipment or office supplies - when placinglarger 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 companycan maintain or develop a competitive edge.

Improved market reach and industry visibility - Companies buycompanies to reach new markets and grow revenues and earnings. Amerge may expand two companies' marketing and distribution, givingthem new sales opportunities. A merger can also improve a company's

standing in the investment community: bigger firms often have an easiertime raising capital than smaller ones.

That said, achieving synergy is easier said than done - it is not automaticallyrealized once two companies merge. Sure, there ought to be economies of scalewhen two businesses are combined, but sometimes a merger does just theopposite. In many cases, one and one add up to less than two.

Sadly, synergy opportunities may exist only in the minds of the corporate

leaders and the deal makers. Where there is no value to be created, the CEO andinvestment bankers - who have much to gain from a successful M&A deal - will
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try to create an image of enhanced value. The market, however, eventually seesthrough this and penalizes the company by assigning it a discounted share price.We'll talk more about why M&A may fail in a later section of this tutorial.

Varieties of MergersFrom the perspective of business structures, there is a whole host of differentmergers. Here are a few types, distinguished by the relationship between thetwo companies that are merging:

Horizontal merger - Two companies that are in direct competition andshare the same product lines and markets.

Vertical merger - A customer and company or a supplier and company.Think of a cone supplier merging with an ice cream maker.

Market-extension merger - Two companies that sell the same products indifferent markets.

Product-extension merger - Two companies selling different but relatedproducts in the same market.

Conglomeration - Two companies that have no common business areas.There are two types of mergers that are distinguished by how the mergeris financed. Each has certain implications for the companies involved andfor investors:

o Purchase Mergers - As the name suggests, this kind of mergeroccurs when one company purchases another. The purchase ismade with cash or through the issue of some kind ofdebtinstrument; the sale is taxable.

Acquiring companies often prefer this type of merger because itcan provide them with a tax benefit. Acquired assets can bewritten-up to the actual purchase price, and the difference betweenthe book value and the purchase price of the assets can depreciateannually, reducing taxes payable by the acquiring company. We

will discuss this further in part four of this tutorial.o Consolidation Mergers - With this merger, a brand new company is

formed and both companies are bought and combined under thenew entity. The tax terms are the same as those of a purchasemerger.
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Acquisitions

As you can see, an acquisition may be only slightly different from a merger. Infact, it may be different in name only. Like mergers, acquisitions are actions

through which companies seek economies of scale, efficiencies and enhancedmarket visibility. Unlike all mergers, all acquisitions involve one firmpurchasing another - there is no exchange of stock or consolidation as a newcompany. Acquisitions are often congenial, and all parties feel satisfied with thedeal. Other times, acquisitions are more hostile.

In an acquisition, as in some of the merger deals we discuss above, a companycan buy another company with cash, stock or a combination of the two. Anotherpossibility, which is common in smaller deals, is for one company to acquire all

the assets of another company. Company X buys all of Company Y's assets forcash, which means that Company Y will have only cash (and debt, if they haddebt before). Of course, Company Y becomes merely a shell and will eventuallyliquidate or enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a privatecompany to get publicly-listed in a relatively short time period. A reversemerger occurs when a private company that has strong prospects and is eager toraise financing buys a publicly-listed shell company, usually one with nobusiness and limited assets. The private company reverse merges into the publiccompany, and together they become an entirely new public corporation withtradable shares.

Regardless of their category or structure, all mergers and acquisitions have onecommon goal: they are all meant to create synergy that makes the value of thecombined companies greater than the sum of the two parts. The success of amerger or acquisition depends on whether this synergy is achieved.
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GLOBAL EQUITY MARKET

Equity Market

The market in which shares are issued and traded, either through exchanges orover-the-counter markets. Also known as the stock market, it is one of the mostvital areas of a market economy because it gives companies access to capitaland investors a slice of ownership in a company with the potential to realizegains based on its future performance.

Participants: A few decade ago, worldwide, buyer and seller were individualinvestors, such as wealthy businessmen, usually with long family histories toparticular corporations. Over time markets more institutionalized; buyer and

seller are largely institutions (e.g., Pension Funds, Insurance Companies,Mutual Funds, Exchange traded funds, Hedge funds, InvestorGroups, Banks and other financial institutions).

The rise of the institutional investor has brought with improvement in marketoperations.


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Global Equity Market

The equity market have been slower to globalize than the foreign exchange orthe bond markets. Price linkages remain weak across equity markets. Significantdifferences in valuation still exist across different national equity market evenfor comparable companies in identical industries.

Equity market have been difficult and slow to globalize for many reasons.Unlike foreign exchange and government bonds, equities and not pure

commodities.The valuation of the equity of a company is highly unique to theparticular circumstances of that company and the total amount of market valuebeing traded can also be relatively small. As a result of both of these factors,these markets are less liquid and the full transaction costs(such as equities,research, commission, etc.) are higher than in the other markets.

While the total daily volume of the global foreign exchange markets is on themarket is on the order of $1 trillion a day and the total daily trading volume ofthe government bonds is on the order of $200 billion a day, the total dailyvolume of all the worlds stock exchanges is only $23 billion a day


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DAILY TRADING VOLUME OF FOREIGN EXCHANGE, GOVERNMENT

BONDS AND EQUITES 1992U.S $ Billion

Estimate based on U.S daiy transaction volume (approximately $100 billion,$30-$50 billion long term)

Strictly speaking there is no international equity market in the sense that thereare international bond and international currency market. Rather many countrieshave their own domestic equity market in which stock are traded. The largest ofthese domestic equity market are to be found in the United States, Great Britain,Japan and Germany. Although each domestic equity market is still dominatedby investors who are citizens of that country and companies incorporated in thatcountry, development are internationalizing the world equity market. Investors

are investing heavily in foreign equity markets to diversify the portfolio.

One of the greatest limitations to the globalization of the equity markets hasbeen the lack of any agent to drive the process. The illiquidity and volatility ofindividual equity prices makes it prohibitively risky for the highly leveraged,multinational commercial banks to hold equities in volume for even a shortperiod of time. As a result, multinational banks have historically been reluctantto try to make money (even where permitted by regulation) by trading orinvesting in international equities, and therefore, have not driven the

globalization of equity.


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TYBFM pg. 23

A stock exchange is an entity that provides services for stock brokers andtraders to trade stocks, bonds, and other securities. Stock exchanges alsoprovide facilities for issue and redemption of securities and other financialinstruments, and capital events including the payment of income and dividends.

Securities traded on a stock exchange include shares issued by companies, unittrusts, derivatives, pooled investment products and bonds.

To be able to trade a security on a certain stock exchange, it must be listedthere. Usually, there is a central location at least for record keeping, but trade isincreasingly less linked to such a physical place, as modern markets areelectronic networks, which gives them advantages of increased speed andreduced cost of transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in the

primary market and subsequent trading is done in the secondary market. A stockexchange is often the most important component of a stock market. Supply anddemand in stock markets is driven by various factors that, as in all free markets,affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, normust stock be subsequently traded on the exchange. Such trading is said to beoff exchange or over-the-counter. This is the usual way that derivatives andbonds are traded. Increasingly, stock exchanges are part of a global market for

securities.

The role of stock exchanges

Stock exchanges have multiple roles in the economy. This may include thefollowing:

Raising capital for businesses

The Stock Exchange provide companies with the facility to raise capital forexpansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares (through a IPO or theissuance of new company shares of an already listed company), it usually leadsto rational allocation of resources because funds, which could have beenconsumed, or kept in idle deposits with banks, are mobilized and redirected tohelp companies' management boards finance their organizations. This may

promote business activity with benefits for several economic sectors such asagriculture, commerce and industry, resulting in stronger economic growth and
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higher productivity levels of firms. Sometimes it is very difficult for the stockinvestor to determine whether or not the allocation of those funds is in goodfaith and will be able to generate long-term company growth, withoutexamination of a company's internal auditing.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,increase distribution channels, hedge against volatility, increase its marketshare, or acquire other necessary business assets. A takeover bid or a mergeragreement through the stock market is one of the simplest and most commonways for a company to grow by acquisition or fusion.

Profit sharing

Both casual and professional stock investors, as large as institutional investorsor as small as an ordinary middle class family, through dividends and stockprice increases that may result in capital gains, share in the wealth of profitablebusinesses. Unprofitable and troubled businesses may result in capital losses forshareholders.

Corporate governance

By having a wide and varied scope of owners, companies generally tend toimprove management standards and efficiency to satisfy the demands of theseshareholders, and the more stringent rules for public corporations imposed bypublic stock exchanges and the government. Consequently, it is alleged thatpublic companies (companies that are owned by shareholders who are membersof the general public and trade shares on public exchanges) tend to have bettermanagement records than privately held companies (those companies whereshares are not publicly traded, often owned by the company founders and/ortheir families and heirs, or otherwise by a small group of investors).

Despite this claim, some well-documented cases are known where it is allegedthat there has been considerable slippage in corporate governance on the part ofsome public companies. The dot-com bubble in the late 1990s, and the subprimemortgage crisis in 2007-08, are classical examples of corporatemismanagement. Companies like Pets.com (2000), Enron Corporation (2001),One.Tel (2001), Sunbeam (2001), Webvan (2001), Adelphia (2002), MCIWorldCom (2002), Parmalat (2003), American International Group (2008),Bear Stearns (2008), Lehman Brothers (2008), General Motors (2009) andSatyam Computer Services (2009) were among the most widely scrutinized by

the media.
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However, when poor financial, ethical or managerial records are known by thestock investors, the stock and the company tend to lose value. In the stockexchanges, shareholders of underperforming firms are often penalized bysignificant share price decline, and they tend as well to dismiss incompetent

management teams.Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing inshares is open to both the large and small stock investors because a person buysthe number of shares they can afford. Therefore the Stock Exchange providesthe opportunity for small investors to own shares of the same companies aslarge investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money to financeinfrastructure projects such as sewage and water treatment works or housingestates by selling another category ofsecurities known as bonds. These bondscan be raised through the Stock Exchange whereby members of the public buythem, thus loaning money to the government. The issuance of such bonds canobviate the need, in the short term, to directly tax citizens to financedevelopmentthough by securing such bonds with the full faith and credit of

the government instead of with collateral, the government must eventually taxcitizens or otherwise raise additional funds to make any regular couponpayments and refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on marketforces. Share prices tend to rise or remain stable when companies and theeconomy in general show signs of stability and growth. An economic recession,depression, or financial crisis could eventually lead to a stock market crash.

Therefore the movement of share prices and in general of the stock indexes canbe an indicator of the general trend in the economy.
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Rank Economy Stock exchanges Market

capitalization

(USD

BILLION)

TRADE

VALUE

(USD

BILLION)

1 United StatesEurope

NYSE Euronext 15,970 19,813

2 United StatesEurope

NASDAQ OMX 4,931 13,439

3 Japan Tokyo Stock Exchange 3,827 3,787

4 UnitedKingdom

London Stock Exchange 3613 2741

5 China Shanghai Stock Exchange 2717 4496

6 Hong Kong Hong Kong Stock Exchange 2711 1496

7 Canada Toronto Stok Exchange 2170 1368

8 India Bombay Stock Exchange 1631 258

9 India National stock Exchange ofIndia

1596 801

10 Brazil BM&F Bovespa 1545 868

11 Australia Australian securitiesexchange

1454 1062

12 Germany Deutsche Borse 1429 1628

13 China Shenzhen Stock Exchange 1311 3572

14 Switzerland SIX Swiss exchange 1229 788

15 Spain BME Spanish Exchange 1771 1360

16 South Korea Korea Exchange 1091 1607

17 Russia MICEX 949 408

18 South Africa JSE LIMITED 925 340


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Major stock exchanges

I. US Markets

1. NASDAQ 100, NASDAQ Composite and NASDAQ Financial

The Nasdaq, United States of America.

The National Association of Securities Dealers Automated Quotations known asNASDAQ, is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States.

With approximately 3,800 companies and corporations, it has more tradingvolume per hour than any other stock exchange in the world.

This exchange is monitored by the Securities and Exchange Commission (SEC).

Its main index is the NASDAQ Composite, which has been published since itsinception. However, its exchange-traded fund tracks the large-cap

NASDAQ100 index, which was introduced in1985 alongside the NASDAQ100Financial Index.


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The NASDAQ - 100 is a stock market index of 100 of the largest domestic andinternational non-financial companies listed on the NASDAQ. It is a modifiedmarket value-weighted index. The companies' weights in the index are based ontheir market capitalizations, with certain rules capping the influence of the

largest components.It does not contain financial companies, and includes companies incorporatedoutside the United States. Both of those factors differentiate it from the DowJones Industrial Average, and the exclusion of financial companiesdistinguishes it from the S&P 500 Index.

This particular index consists of Industrial, Technology, Retail,Telecommunication, Biotechnology, Health Care, Transportation, Media andService companies; and the NASDAQ Financial-100, consists of. By creating

these two indices, the NASDAQ hoped that mutual funds, options and futureswould correlate and trade in conjunction with them.

The NASDAQ Financial-100 Index includes 100 of the largest domestic andinternational financial securities listed on The NASDAQ Stock Market based onmarket capitalization. They include companies classified according to theIndustry Classification Benchmark as Financials, including BankingCompanies, Insurance Firms, Brokerage Houses and Mortgage Companies,

which are included within the NASDAQ Bank, NASDAQ Insurance, andNASDAQ Other Finance Indexes

TheNASDAQ-100 is often abbreviated as NDX in the Derivatives Markets. TheNASDAQ Composite is a stock market index of all of the common stocks andsimilar securities (e.g. ADRs, tracking stocks, limited partnership interests)listed on the NASDAQ stock market, meaning that it has over 3,000components. It is highly followed in the U.S. as an indicator of the performanceof stocks of technology companies and growth companies. Since both U.S. andnon-U.S. companies are listed on the NASDAQ stock market, the index is not

exclusively a U.S. index.

Launched in January 1985, each security in the Index is proportionatelyrepresented by its market capitalization in relation to the total market value ofthe Index.

The Index reflects NASDAQ's largest growth companies across major industrygroups. All index components have a minimum market capitalization of $500million, and an average daily trading volume of at least 100,000 shares.

The number of securities in the NASDAQ-100 index makes it an effectivevehicle for arbitrageurs and securities traders. In October 1993, the NASDAQ-


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100 Index began trading on the Chicago Board Options Exchange. On April 10,1996 the Chicago Mercantile Exchange began trading futures and futuresoptions on the NASDAQ-100 Index.

TheNASDAQCompositeIndexmeasures allNASDAQdomestic andnon-U.S.basedcommon

stocks listedon TheNASDAQStock Market.The Index ismarket-valueweighted.This means that each company's security affects the Index in proportion to it'smarket value. The market value, the last sale price multiplied by total shares

outstanding, is calculated throughout the trading day, and is related to the totalvalue of the Index.

Today the NASDAQ Composite includes over 5,000 companies, more thanmost other stock market indexes. Because it is so broad-based, the Composite isone of the most widely followed and quoted major market indexes.


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2. S&P 500

The S&P500 is a stock market index containing the stocks of 500 AmericanLarge-Cap corporations. The index is owned and maintained by Standard &Poor's, a division of McGraw-Hill.

The S&P500 is often quoted using the symbol SPX or INX, and may beprefixed with a caret (^) or with a dollar sign ($).

The S&P500 index is not made up of the 500 largest corporations in the U.S.,since other factors such as liquidity of the stock and industry grouping are alsoconsidered in selecting members for the index.

For example, Berkshire Hathaway is not included in the S&P 500 index since itis a holding company and does not meet liquidity guidelines due to its high

share price.The Standard &Poor's 500 Index is calculated using a base-weighted aggregatemethodology; that means the level of the Index reflects the total marketcapitalization of all 500 component stocks relative to a particular base period.The S&P 500's base period is 1941-43. The actual total market value of thestocks in the Index during the base period has been set equal to an indexedvalue of 10. This is often indicated by the notation 1941-43=10.

In practice, the daily calculation of the Standard & Poor's 500 Index is

computed by dividing the total market value of the 500 companies in the Indexby a number called the Index Divisor. By itself, the Divisor is an arbitrarynumber. However, in the context of the calculation of the S&P 500 Index, it isthe only link to the original base period value of the Index. The Divisor keepsthe Index comparable over time and is the manipulation point for all IndexMaintenance adjustments.

In 2005, the Index was changed to be "float" weighted, i.e. the index weightingis determined by the amount of shares available for public trading. It worksexactly the same way as the market-cap weighting, only that instead of makingeach component proportional to their respective market capitalization, they aremade to be proportional to their public float.

E.g.: When Google was included in the index in March 2006, only its Class Ashares, which are publicly traded, were used to determine Google's weight in theindex. Only a minority of companies in the index has this sort of public floatlower than their total capitalization; for most companies in the index S&Pconsiders all shares to be part of the public float and thus the capitalization usedin the index calculation equals the market capitalization for those companies.


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3. DOW JONES INDUSTRIAL AVERAGE (DJIA)

The Dow Jones Industrial Average (NYSE: DJI, also called the DJIA, Dow30,or informally the Dow Jones or The Dow) is one of several stock marketindices, created by nineteenth-century Wall Street Journal editor and Dow Jones& Company co-founder Charles Dow. The average is named after Dow and oneof his business associates, statistician Edward Jones.

The Industrial portion of the name is largely historical, as many of the modern30 components have little or nothing to do with traditional heavy industry.

The Dow Jones Industrial Average is a price-weighted average of 30 significantstocks traded on the New York Stock Exchange and the Nasdaq. It is one ofthree major indicators of the movement of the U.S. stock market - the other twoare the NASDAQ Composite and the Standard & Poor's 500.

The average is price-weighted, and to compensate for the effects of stock splitsand other adjustments, it is currently a scaled average: not the actual average of

the prices of its component stocks, but rather the sum of the component pricesdivided by a divisor, which changes whenever one of the component stocks has


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a stock split or stock dividend, so as to generate the value of the index. Since thedivisor is currently less than one, the value of the index is higher than the sumof the component prices.

To calculate the DJIA, the sum of the prices of all 30 stocks is divided by aDivisor, the Dow Divisor. The divisor is adjusted in case of stock splits,spinoffs or similar structural changes, to ensure that such events do not inthemselves alter the numerical value of the DJIA. The present divisor, aftermany adjustments, is less than one (meaning the index is actually larger than thesum of the prices of the components).

Also events like stock splits or changes in the list of the companies composingthe index alter the sum of the component prices. In these cases, in order to avoiddiscontinuity in the index, the Dow Divisor is updated so that the quotations

right before and after the event coincides.This is done in order to keep the index value consistent. The current value of theDow Divisor is 0.132129493. Every $1 change in price in a stock within theaverage, results in a 7.57 (1/0.132129493) change in the DJIA.

The Dow is among the most closely watched benchmark indices trackingtargeted stock market activity. Although Dow compiled the index to gauge theperformance of the industrial sector within the American economy, the index'sperformance continues to be influenced by not only corporate and economic

reports, but also by domestic and foreign political events such as war andterrorism, as well as by natural disasters that could potentially lead to economicharm. Components of the Dow trade on both the NASDAQ OMX and theNYSE Euronext, two of the largest stock market companies.


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II. Asian Markets

1. BSE SENSEXThe BSE Sensex is a market capitalized index / a value-weighted index thattracks 30 stocks from the Bombay Stock Exchange, which are representative ofthe stocks from various sectors of the Bombay Stock Exchange. They accountfor approximately one fifth of the capitalization of the exchange.

The index is calculated based on a free-float capitalization method; a variationof the market cap method. Instead of using a company's outstanding shares ituses its float, or shares that are readily available for trading. The free-float

method, therefore, does not include restricted stocks, such as those held bycompany insiders.

The Free Float Adjustment factor, or FAF for short, represents the proportion ofshares that is free floated as a percentage of issued shares and then its roundedup to the nearest multiple of 5% for calculation purposes. To find the free-floatcapitalization of a company, first find its market cap (number of outstandingshares x share price) then multiply its free-float factor.

Bombay Stock Exchange is the oldest stock exchange in Asia What is now

popularly known as the BSE was established as "The Native Share & StockBrokers' Association" in 1875.

Over the past 135 years, BSE has facilitated the growth of the Indian corporatesector by providing it with an efficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of thenumber of listed companies (over 4900). It is the world's 5th most active interms of number of transactions handled through its electronic trading system.And it is in the top ten of global exchanges in terms of the market capitalization

of its listed companies (as of December 31, 2009). The companies listed onBSE command a total market capitalization of USD Trillion 1.28 as of Feb,2010.

BSE is the first exchange in India and the second in the world to obtain an ISO9001:2000 certification. It is also the first Exchange in the country and secondin the world to receive Information Security Management System Standard BS7799-2-2002 certification for its BSE On-Line trading System (BOLT).Presently, BSE ISO 27001:2005 certified, which is a ISO version of BS 7799for Information Security.


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The BSE Index, SENSEX, is India's first and most popular Stock Marketbenchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSEand in Hong Kong. Futures and options on the index are also traded at BSE.

List of SENSEX stocks:

1. ACC Ltd.

2. Bharat Heavy Electricals Ltd.

3. Bharti Airtel Lt d.

4. DLF Ltd.

5. Grasim Industries Ltd.

6. HDFC7. HDFC Bank Ltd.

8. Hero Honda Motors Ltd.

9. Hindalco Industries Ltd.

10. Hindustan Unilever Ltd.

11. ICICI Bank Ltd.

12. Infosys Technologies Lt d.

13. ITC Ltd.

14. Jai prakash Associates Lt d.

15. Larsen & Toubro Limited

16. Mahindra & Mahindra Lt d.

17. Maruti Suzuki India Ltd.

18. NTPC Ltd.

19. ONGC Ltd.

20. Reliance Communications Limited

21. Reliance Industries Ltd.

22. Reliance Infrastructure Ltd.

23. State Bank of India


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24. Sterlite Industries (India) Ltd.

25. Sun Pharmaceutical Industries Ltd.

26. Tata Consultancy Services Ltd.

27. Tata Motors Ltd.

28. Tata Power Company Ltd.

29. Tata Steel Ltd.

30. Wipro Lt d.


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The Bombay Stock Exchange Ltd., Mumbai, India

2. NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange (NSE) is India's leading stock exchange coveringvarious cities and towns across the country. NSE was set up by leadinginstitutions to provide a modern, fully automated screen-based trading systemwith national reach. The Exchange has brought about unparalleled transparency,speed & efficiency, safety and market integrity. It is the 9th largest stockexchange in the world by market capitalization and largest in India by dailyturnover and number of trades, for both equities and derivative trading.

NSE has a market capitalization of around US$1.59 trillion and over 1,552

listings as of December 2010. The NSE's key index is the S&P CNX Nifty,known as the NSE NIFTY (National Stock Exchange Fifty), an index of fiftymajor stocks weighted by market capitalisation.

There are at least 2 foreign investors NYSE Euronext and Goldman Sachs whohave taken a stake in the NSE. As of 2006, the NSE VSAT terminals, 2799 intotal, cover more than 1500 cities across India. NSE is the third largest StockExchange in the world in terms of the number of trades in equities. It is thesecond fastest growing stock exchange in the world with a recorded growth of16.6%.

3. HANG SENG
http://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/1000000000000_(number)http://en.wikipedia.org/wiki/S%26P_CNX_Niftyhttp://en.wikipedia.org/wiki/VSAThttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/VSAThttp://en.wikipedia.org/wiki/S%26P_CNX_Niftyhttp://en.wikipedia.org/wiki/1000000000000_(number)http://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/List_of_stock_exchangeshttp://en.wikipedia.org/wiki/List_of_stock_exchanges


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The Hang Seng Index (abbreviated: HSI) is a free float-adjusted marketcapitalization-weighted stock market index in Hong Kong. It is used to recordand monitor daily changes of the largest companies of the Hong Kong stockmarket and is the main indicator of the overall market performance in HongKong. These 43 constituent companies represent about 60% of capitalisation ofthe Hong Kong Stock Exchange.

HSI was started on November 24, 1969, and is currently compiled andmaintained by Hang Seng Indexs Company Limited, which is a wholly ownedsubsidiary of Hang Seng Bank, one of the largest bank registered and listed inHong Kong in terms of market capitalization. It is responsible for compiling,publishing and managing the Hang Seng Index and a range of other stock

indexes, such as Hang Seng China Enterprises Index, Hang Seng China AHIndex Series, Hang Seng China H-Financials Index, Hang Seng CompositeIndex Series, Hang Seng China A Industry Top Index, Hang Seng CorporateSustainability Index Series and Hang Seng Total Return Index Series.

There are four sub-indices established in order to make the index clearer and toclassify constituent stocks into four distinct sectors. There are 43 HSIconstituent stocks in total under the sub indices:

1) HangSeng Finance Sub-index

2) HangSeng Utilities Sub-index

3) HangSeng Properties Sub-index

4) HangSeng Commerce& Industry Sub-index


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4. NIKKEI 225

Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE).It is apriceweighted average (the unit is yen), and the components are reviewedonce a year.

Currently, the Nikkei is the most widely quoted average of Japanese equities,similar to the Dow Jones Industrial Average. In fact, it was known as the"Nikkei Dow Jones Stock Average" from 1975 to 1985.

The Nikkei 225 began to be calculated on September 7, 1950, retroactivelycalculated back to May 16, 1949.

Currently, the index is updated every 15 seconds during trading sessions.

Stocks are weighted on the Nikkei 225 by giving an equal weighting based on apar value of 50 yen per share. Events such as stock splits, removals andadditions of constituents impact upon the effective weighting of individualstocks and the divisor. The Nikkei 225 is designed to reflect the overall market,so there is no specific weighting of industries.

To calculate an equal weighted index, the market capitalization for each stockused in the calculation of the index is redefined so that each index constituent

has an equal weight in the index at each re-balancing date. In addition to beingthe product of the stock price, the stocks shares outstanding, and the stocks floatfactor and the exchange rate when applicable; a new adjustment factor is alsointroduced in the market capitalization calculation to establish equal weighting.

Stock Market Value= Price of shares * Number of shares outstanding * Freefloat factor * Exchange Rate (if applicable) * Adjustment Factor

The Adjustment factor of a stock is assigned to the stock at each re-balancingdate, which makes the stock value for each stock equal. For index component,

the value would be:Adjustment Factor= Index specific constant "Z"/(Number of shares of thestock*Adjusted stock market value before re-balancing

The main criticism with this index is that a $5 priced share would have the sameweight as the $200 priced share, which gives the smaller shares more weightthan their due. Moreover, the stocks keep changing and so does the equality, sothe stock has to be rebalanced from time to time as compared to a cap weightedindex.


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Tokyo Stock Exchange, Japan.

5. KOSPI

The Korea Composite Stock Price Index or KOSPI is the index of all commonstocks traded on the Stock Market Division previously, Korea Stock Exchangeof the Korea Exchange.

It's the representative stock market index of South Korea, like the Dow averagein U.S.

KOSPI was introduced in 1983 with the base value of 100 as of January 4,1980.

In November 2005, the index's Korean name was officially changed to Koseupijisu.

It's calculated based on market capitalization. It is the worlds largestderivatives exchange (by number of transactions).

The KOSPI is calculated as current market capitalization (at the time ofcomparison) divided by base market capitalization.

Current index = Current total market cap of constituents 100 / Base MarketCapitalization


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The South Korea Stock Exchange Building.

6. STRAITS TIMES

The Straits Times Index (also called the STI) is the benchmark index for theSingapore Exchange.

It covers 30 companies which are deemed representative of the Singaporemarket. The Singapore Exchange works with the UK Based Financial TimesStock Exchange 100 Index (UKX-LN) in order to maintain the FTSE STI indexSeries.

The STI was evolved as a market capitalization weighted index. It involves thetotal market capitalization of the companies weighted by their effect on theindex, so the larger stocks would make more of a difference to the index ascompared to a smaller market cap company. The basic formula for any index is(be it capitalization weighted or any other stock index):

Index level = (Price of stock* Number of shares)*Free float factor/ IndexDivisor.

The Free float Adjustment factor represents the proportion of shares that is freefloated as a percentage of issued shares and then its rounded up to the nearestmultiple of 5% for calculation purposes. To find the free-float capitalization of a


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company, first find its market cap (number of outstanding shares x share price)then multiply its free-float factor. The free-float method, therefore, does notinclude restricted stocks, such as those held by company insiders.

FTSE has partnered with Singapore Press Holdings (SPH) and the SingaporeExchange (SGX) to jointly calculate the Singapore stock market's mainbenchmark, the Straits Times Index (STI), and create a comprehensive series ofstock indices for the Singapore market. The suite of 77 indices allow investorsto measure and invest in the major capital segments of the Singapore marketand facilitate cross-border analysis and comparisons.

Following the relaunch of the STI and creation of a family of 3 themed and 10industry/sector indices in Jan 2008, the partnership continues to explore andintroduce new indices to the market. In July 2008, the FTSE ST China Top

tradable index was launched for access to liquid Singapore listed Chinesestocks. FTSE ST Catalist Index and FTSE ST Maritime Index were launchedthe following year to provide investors with a transparent and cost-efficient wayto access Singapore's Catalist Market and the prosperous maritime industry.

Singapore's Stock Exchange Centre.


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On 1 June 2010 the series was further expanded and now includes 19Supersector and 39 Sector indices to provide investors with a set of tools fordeeper analysis of the Singapore market and the opportunity to create sectorspecific funds and index-linked products.

With the adoption of FTSE's market-leading international index methodologyand the application of FTSE's cutting edge free float weighting and liquidityscreening, the existing market benchmark is now more transparent, investableand easy to trade.

The new family of indices can be used as the basis for trading andbenchmarking of financial products, such as institutional and retail funds,exchange traded funds, derivatives contracts and other financial products.

III. European Markets

1. FTSE 100

Also called the footsie, the Financial Times Stock Exchange100 is a marketcapitalization weighted index representing the top 100 blue chip companies onthe London Stock Exchange.

Although FTSE is jointly owned by the Financial Times and the London StockExchange, the initials are not an acronym and do not stand for 'Financial TimesStock Exchange. They are simply borrowed from FTSE's two parentcompanies. The index began on 3 January 1984 with a base level of 1000; thehighest value reached to date is 6950.6, on 30 December 1999.

It is the most widely used of the FTSE Group's indices, and is frequentlyreported (e.g. on UK news bulletins) as a measure of business prosperity.

The index is said to map more than 80% of the total capitalization in the UnitedKingdom. Stocks are free-float weighted to ensure that only the investableopportunity set is included within the index. The FTSE group manages theIndex, which in turn is a joint venture between the Financial Times and theLondon Stock Exchange.

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Shailesh GCM fINAL