Finance for TrainersFinance for Trainers

Objective of the sessionObjective of the session

Business orientationBusiness orientation Prima facie awareness of Indian Prima facie awareness of Indian

economyeconomy

Some Commonly Used termsSome Commonly Used terms

Security,Bond,Stock

SecuritySecurity

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

BondBond

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

ShareShare

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

Commonly Used TermsCommonly Used Terms

Money marketMoney market

In finance, the money market is the global In finance, the money market is the global financial market for short-term borrowing financial market for short-term borrowing and lending. It provides short-term and lending. It provides short-term liquidity funding for the global financial liquidity funding for the global financial system. 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 capital (periods longer than a year). The capital market includes the stock market and the market includes the stock market and the bond market. Financial regulators like bond market. Financial regulators like SEBI, oversee the capital markets in their SEBI, oversee the capital markets in their countries to ensure that investors are countries to ensure that investors are protected against fraud.protected against fraud.

Capital Market contd.Capital Market contd.

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

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

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

Rules and RegulatorsRules and Regulators

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 which Monetary policy is the process by which

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

Types of Monetary policyTypes of Monetary policy

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

Contractionary policy: involves raising Contractionary policy: involves raising

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

Important terms in monetary policyImportant terms in monetary policy

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

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

Quiz TimeQuiz Time

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

Bank Rate/Repo rateBank Rate/Repo rate

This is the rate at which RBI lends money This is the rate at which RBI lends money to other banks (or financial institutions). to other banks (or financial institutions). These loans are usually very short-term These loans are usually very short-term loans.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 to from the banks (or banks lend money to the RBI) is termed the reverse repo rate. the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there The RBI uses this tool when it feels there is too much money floating in the banking is too much 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, 2009)Current Rates Figures (as of Jan 6, 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 nation’s government to influence the direction of nation’s economy by using its financial and regulatory economy by using its financial and regulatory powers.powers.

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

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

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

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

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

ports, airports, highways, factories etc. ports, airports, highways, factories etc. In several welfare schemes such as In several welfare schemes such as

unemployment benefits, elderly pensions, unemployment benefits, elderly pensions, healthcare benefits.healthcare benefits.

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

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

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