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Fluctuating Indian Rupee: Cause and Consiquences

2011-10-03T13:00:00.000-07:00

Fluctuating Indian Rupee

Introduction

The past month has been disastrous for the rupee value against dollar currency. The same time last month (22-Aug-2011), rupee value against dollar was 44.5 – 45.0 range; today it is hovering to the range of 49.0 – 50.0. It is expected to rise further which would result in weakening the rupee value against the dollar currency. This kind of increase would have the drastic impact on the macro economy of the country like heavy raise in the import cost where countries like India heavily depends on the importing on Oil and other crucial raw materials needs for the industries.

This article explores the reason behind the rupee value depreciation, how RBI trying to defend the rupee value and how it is going to affect the industries. If you have any thoughts, please post it in the comments section.

How currency value is determined?

We are not going deep dive into economic terms to understand the currency value fluctuation. There are many factors to decide the currencies values but that could be very difficult for the common man to understand the theory. Here I will put it in the simple words why the currency value is often fluctuated. A currency will tend to become more valuable when its demand is higher than supply. A currency will tend to become less valuable when its demand is less than supply. It is the basic theory. We need to understand in the global economy terms, when the currency will have more demand and when it will have less demand.

Remember that exchange rates are expressed as a comparison of two currencies. It is always relative and can be measured between two countries. To know more about currency market click here

Interest rates, Inflation and exchange rates are highly related. Reserve bank changes the interest rates to control the Inflation and exchange rates. We can take our real time example of stock market investment to understand the above principle. As we know that, our stock market is dominated by the overseas investors (outside India), because of our growing economy and industrial development. When our economy is doing well and market is performing better than other countries, overseas investors would invest heavily on our market. How they would put it in our market?. They will sell or convert to our currency and invest in India. It is clear that when more investors coming to India, the demand for the currency will be very high. Our rupee value will be increased against dollar. In the same way, when they are pulling out of market, demand for the rupee will be decreased and value is depreciated.

Here I am talking only about the dollar, because it is the global currency and most of the countries trading using the dollar as trade reserve currency. The above example is given to explain it in simple words, the demand for a currency would come in the different way. When we are importing from other countries, we should have the currency of that country to pay for the trade. The value for the currency is fluctuated on real time.

If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand. Exchange rates for such currencies are likely to change almost constantly on financial markets, mainly by banks, around the world.

A movable or adjustable peg system is a system of fixed exchange rates, but with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi (CNY, ¥) was pegged to the United States dollar at ¥8.2768 to $1.

Why RBI intervene on Currency valuation?

In the last week we have seen RBI has acted to stop the erosion of rupee value against the dollar currency. What it did was sold the dollar currency in the market to increase the value of rupee. But, it is very difficult for the Reserve Bank of a country to adjust the value of the currency, the long term solution would be fix the problem in economy and bring the inflation into control. You would wonder why RBI has to intervene on currency value decrease or increase. Note that, RBI would not allow currency to be higher after certain level because of the exports would get affected like IT companies would suffer if the rupee gets appreciated against the dollar. To know more about this click here

India is heavily depending on the import of raw materials and Oil for its industrial development. In the decreasing rupee scenario, the outgo of money will be much higher. This would affect the expenses for the companies who imports raw materials for their factory and all the Oil Marketing Companies (OMC) will incur heavy payment to import the Oil. Now you would have understood why the Petrol prices have been increase in the last fortnight. If you look into the news papers, the reason said by our finance minister was the depreciation of rupee value against dollar.

Major Factors Influencing the Currency Value

In the above section, I have explained in the simple words to make a common man understand the currency fluctuations. This section writes down few economic conditions when the currency value will be under pressure. The following are the three major factors influencing the changes in the currency values. There are many other factors too, but we are not talking about all the factors in this section.

· Inflation

o As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies.

· Interest Rates

o A higher interest rates offer good returns compare to other countries. It will result in the foreign capital come into the country. Lower interest rates decrease the currency value. Note that interest rates have the close relation with interest rates. The currency value would not be affected only based on the interest; it is impacted based on the other conditions like inflation or economic situation.

· Current Account Deficits

o Basically current account of a country presents the status on the trade of a country between other trading partners. If there is any deficit in the current account that means country is doing more trading outside the country then its actual earning inside the country. This situation is not good for a country because the country needs to buy more foreign currency to fulfill its need inside the country. A country needs to manage its deficit within control, otherwise it will lead to a economic problem. More demand for the foreign currency would reduce the value of that country’s currency.

Impact of INR vs USD

In the last two weeks Indian rupee has depreciated about 7% against the USA dollar value. It is expected that it would continue the slide as many macro economic factors not in favor of Indian economy. The following are the factors which would slide down the rupee value.

· Foreign Funds Outflow

o It is the major concern of Indian economy now. Because of the global uncertainty and various economy crisis like Europe sovereign debt problem, US economic slowdown, etc leads to search for the safe heaven among the investors. They are quickly pulling out the money from Indian market and investing in any other safe investments like Gold or US bonds.

· Government Deficit is High

o The government finances are in a bad shape and the combined central and state government deficit has stubbornly stayed around 10 per cent of GDP. It is high deficit and investors lost faith in the local economy.

· Political Uncertainty and Corruption

o This is one of the major factor for any country to stabilize the economy. In India, last one year we are seeing the series of corruptions and there is no good news from the ruling party (Congress) about the economic reforms and lot of agitation among the citizens including the veteran Gandhian Anna Hazare’s campaign of Fight for second freedom which took attention from global media. India needs political change to gain confidence among the investors.

Summary

I hope this article would have given an idea about the rupee depreciation and the reason why the currency is changed. But, there are hundreds of parameters to decide a currency value and politics also there to manipulate the own currency which China has done for a long time. The above are the very basic idea on currency value and how it is affected. If you have any thoughts, please post it in the comments section.

End of Kodak: A lesson to learn..

2011-10-01T09:44:00.000-07:00

End of Eastman Kodak

Eastman Kodak Co. the unprofitable 131-year old camera maker, is weighing options including a bankruptcy filing because of concerns raised by possible buyers of its patent portfolio. It’s amazing to me that Eastman Kodak (EK) has lasted as long as it has. In the 1980s, Kodak was heading unstoppably for its end decades ago — but it took longer than anticipated. Kodak plunged 91 cents, or 54 percent, to 78 cents a share on September 30, in New York Stock Exchange composite trading, the biggest drop since at least 1974. Trading was halted four times by circuit breaker introduced following the May 6, 2010, crash to prevent losses in one security from spreading throughout the stock market.

When Kodak was founded in 1888, quality was its “fighting argument.” It gladly gave away cameras in exchange for getting people hooked on paying to have their photos developed — yielding Kodak a nice annuity in the form of 80% of the market for the chemicals and paper used to develop and print those photos.

Inside Kodak, this was known as the “silver halide” strategy — named after the chemical compounds in its film. Kodak had a fantastic success formula that keyed off of international distribution, mass production to lower unit costs, R&D investment to introduce better products, and extensive advertising to make sure consumers knew about Kodak’s superior quality.

Unfortunately, competition came along and introduced ugly splotches all over this beautiful picture. Here are three examples:

· Instant photography

In 1948, a Massachusetts-based inventor, Edwin Land, offered consumers an instant camera that developed photos in 60 seconds – just in time for Thanksgiving. Instant photography threatened Kodak’s profits from chemicals and film. Kodak responded by introducing its own instant photography products. Polaroid sued — alleging that between 1976 and 1986 Kodak stole its technology – asking for $12 billion in damages. In 1990, Polaroid won a mere $909 million and ultimately filed for bankruptcy in October 2001.

Cut rate film from Japan

· In the 1980s, Japan’s Fuji started to sell rolls of film at a price way below the one that Kodak had been accustomed to charging. Fuji’s willingness to cut prices was quite popular with the rapidly growing mass merchandisers like Wal-Mart (WMT) that preferred to deal with suppliers who were willing to sell high volumes at ever-lower prices. And Fuji helped make consumers aware of its value by sponsoring big events — such as the 1984 Los Angeles Olympics. By 1999, Fuji’s market share gains were so great that Kodak took a $1.2 billion charge along with 19,900 layoffs. Such layoffs persisted, for example in January 2009, Kodak took a $350 million charge to nuke 3,500 people on a 24% revenue plunge.

· Digital photography

Digital photography offered consumers a better value but one that wiped out a decent way for Kodak to make money. After all, digital film — flash memory — was a low margin proposition even if you had the huge fabs needed to produce it. And even though Kodak was number two in digital cameras by 1999, it lost $60 on each one it sold. In one of many bids to replicate its Silver Halide business model in digital photography, Kodak offered a Photo CD film-based digital imaging product – but since it was priced at $500 per player and $20 per disc it did not attract many customers.

In January 1988, Kodak acquired Sterling Drug for $5.1 billion.

Kodak thought this was a wise investment for two reasons: drugs had high margins and Kodak made chemicals. Unfortunately, those two facts were not sufficient to make this deal pay off for Kodak shareholders.

To do that, Kodak would have needed capabilities that it lacked — such as the ability to come up with new, valuable, patented drugs or to make generic drugs at a rock-bottom cost. It only took six years for Kodak to realize that Sterling Drug was not a good fit for Kodak and sell it off in pieces.

One hope for returning to a decent business model might have been producing high quality personal printers for those digital images. Selling inkjet cartridges and papers might have yielded a nice profit stream for Kodak. But regrettably for Kodak, many other competitors — most notably Hewlett Packard (HPQ), had gotten there first.

Since peaking in February 1999 at about $80 a share, Kodak shares have suffered a steady tumble that wiped out 99% of their value — to 78 cents a share as of Sept. 30. At the end of June, Kodak’s liabilities exceeded its assets by $1.4 billion. It then owed $1.4 billion and had $957 million in cash, down $847 million from the end of 2010.

Its latest CEO (since 2005), former HP printer exec, Tony Perez, has been unable to revive Kodak. Last week, it pulled $160 million from its credit line and hired restructuring advisor, Jones Day on Friday even as Kodak denied that it was on the verge of filing for bankruptcy.

It’s taken decades for Kodak’s final picture to develop — but the corporate skull and crossbones it depicts is the result of too much success leading to a slow and painful inability to adapt to a changing competitive landscape. The end of Kodak marks the end of an era and gives a lesson to the world that no matter how big you are one has to fall if it fails to keep itself in line with the changing environment. To prosper one have to be innovative and flexible and corporate needs to formulate their strategies with much more accuracy leaving minimal chances of failure.

Understanding Foreign Exchange Market: The largest Financial Market

2011-09-30T11:09:00.000-07:00

Foreign Exchange Market

Foreign exchange market or forex market is a worldwide decentralized over the counter financial market. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The trading starts at 10 am Monday as Australia Market opens and moves towards west as major financial centers such as Tokyo London, New York opens, finally the market closes on Friday at 5 pm in New York. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency, for example if I want to import goods from America then I have to make payment in terms of US dollars so I can exchange Indian rupees with US dollars through foreign exchange market. There is not a particular exchange for forex trading unlike equity and commodity exchanges but foreign exchange takes place through small financial institutions that are operating in different countries. Foreign exchange market is the largest and most liquid financial market with a daily turnover of $3.2 trillion. Foreign exchange trading takes place through spot, future, swap forward and options. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors

Major Currency Traders

All over the world there are various financial institutions that are involved in currency trading, majors being Deutsche Bank having 18.06% share of total currency traded followed by UBS AG with 11.30%,Barclays Capital 11.08%, Citi 7.69% and JP Morgan having 6.35% of the currency traded. Trading in London accounted for 36.7% of the total, making London by far the most important global center for foreign exchange trading. In second and third places, respectively, trading in New York City accounted for 17.9%, and Tokyo accounted for 6.2%. More than 80% of the currency traded is for speculation purpose for earning profit from currency movement. US dollars is the most traded currency which accounts for 84.9% of daily currency traded followed by Euro 39.1%,Japnese yen 19%, and pound sterling 12.9%.

Currency Trading

A currency is always traded in pairs, this is because when ever currency exchange takes place you are buying one currency and selling the other that you already hold. There are 6 major currency pairs which accounts for more than 95% of the total currency traded. The major currency pairs are:

EUR/USD: Euro and US dollar

GBP/USD: Pound Sterling and US dollar

USD/JYP: US dollar and Japanese Yen

AUD/USD: Australian dollar and US dollar

USD/CAD: US dollar and Canadian dollar

USD/CHF: US dollar and Swiss currency.

All these major currency involves US dollars other currency which doesn’t involve US dollars are called minor currency.

Lots: In the past, spot forex was traded in specific amounts called lots. The standard size for a lot is 100,000 units. There is also a mini, micro, and nano lot sizes that are 10,000, 1,000, and 100 units respectively. Currencies are measured in pips, which is the smallest increment of that currency. To take advantage of these tiny increments, one need to trade large amounts of a particular currency in order to see any significant profit or loss.

Let's assume we will be using a 100,000 unit (standard) lot size. We will now recalculate some examples to see how it affects the pip value.

USD/JPY at an exchange rate of 119.80 (.01 / 119.80) x 100,000 = $8.34 per pip

USD/CHF at an exchange rate of 1.4555 (.0001 / 1.4555) x 100,000 = $6.87 per pip

In cases where the U.S. dollar is not quoted first, the formula is slightly different.

EUR/USD at an exchange rate of 1.1930 (.0001 / 1.1930) X 100,000 = 8.38 x 1.1930 = $9.99734 rounded up will be $10 per pip

GBP/USD at an exchange rate or 1.8040 (.0001 / 1.8040) x 100,000 = 5.54 x 1.8040 = 9.99416 rounded up will be $10 per pip.

. As the market moves, so will the pip value depending on what currency you are currently trading.

Leverage

It a extremely difficult for small investor like us to trade such large amounts of money. In forex trading your broker acts as your bank. He leverage your account deposit in the ratio of 100:1 and sometimes even 200:1 varying from broker to broker. All he asks from you is that you give it $1,000 as a good faith deposit, which he will hold for you but not necessarily keep. This is how forex trading using leverage works. The amount of leverage you use will depend on your broker and what you feel comfortable with.

Typically the broker will require a trade deposit, also known as "account margin" or "initial margin." Once you have deposited your money you will then be able to trade. The broker will also specify how much they require per position (lot) traded.

For example, if the allowed leverage is 100:1 (or 1% of position required), and you wanted to trade a position worth $100,000, but you only have $5,000 in your account. No problem as your broker would set aside $1,000 as down payment, or the "margin," and let you "borrow" the rest. Of course, any losses or gains will be deducted or added to the remaining cash balance in your account.

The minimum security (margin) for each lot will vary from broker to broker. In the example above, the broker required a one percent margin. This means that for every $100,000 traded, the broker wants $1,000 as a deposit on the position.

PIP

A PIP stands for point in percentage. It is unit of measurement to express the smallest change in value between two currencies. A PIP is denoted by the 4 digit to the right of decimal in a currency pair however in pair involving Japanese Yen a PIP denotes 2 digit to the right of decimal. Every movement in pip in a currency pair involving US dollar in a position of $100000 denotes $10 of profit or loss.

This is how a currency window looks like. Here the figure shows a currency pair of EURO and US dollar The first currency in a pair is called base currency and the second is called counter currency. All the selling and buying of currency is done in term of the base currency. For example if are buying a currency pair involving EUR/USD then we are buying EURO and selling US dollar similarly if we are selling a currency pair EUR/USD we are selling EURO and buying US dollars. There is a difference in price that you pay to buy a currency and the price you get in selling the same currency this difference is known as spread this difference in price is kept by your broker as its profit.

Exchange Rate Determination

The exchange rates are determined completely on the principles of demand and supply, value of a currency having greater demand tends to appreciate and depreciates for currency with lesser demand. Besides this the market runs on fundamentals that is any national or international events having an impact on the economy will have a bearing on currency market. The market also runs on sentiments.

Analysis

On the whole a forex market gives us a good trading platform to earn a good return on our investment, since trading on forex market involves high leverage its can give a good return on the same time it can also wipe out your complete investment. Since it is difficult to analyze the changes in forex market, factors that effects exchange rate, very few people tends to invest in foreign exchange market. Reports are published on daily basis analyzing the movement of market on a particular date so these reports can help you in investing, specially reports published by investments banks are more accurate the best being that of Goldman Sachs. Then you can also study the world economy and economic events in major developed nations as they have great impact on the exchange rate. Ex, right now due to the American debt crisis the demand for US dollars will be less thus the US dollar tends to depreciate in its value, similarly with European economy recovering the demand tends to increase. So if you properly analyze the market forex market can give you greater return than any other market.

Financial Tsunami right ahead: The Fall of Greece

2011-09-24T05:52:00.000-07:00

Financial Tsunami Coming right ahead

The Fall of Greece

After three years of struggle and receiving billions of euros as bailout package the Greek sovereign has worsened. Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of an insolvency by a government with 353 billion euros ($483 billion) of debt -- five times the size of Argentina’s $95 billion default in 2001.

There is a monstrously large amount of uncertainty and a massive range of possibilities. A macroeconomic disaster could be averted but only by aggressive policy action by central banks and governments.

After two international-bailout deals, three years of recession and budget-cutting votes that almost cost him his job, Greek Prime Minister George Papandreou says throwing in the towel now would be a “catastrophe.” Potential consequences of a national bankruptcy include the failure of the country’s banking system, an even deeper economic contraction and government collapse.

The fallout may echo the days following the 2008 implosion of Lehman Brothers Holdings Inc. when credit markets froze and the global economy sank into recession, this time with the prospect that the 17-nation euro zone splinters before reaching its teens. The International Monetary Fund, whose annual meetings start in Washington on September 24, reckons the debt crisis has generated as much as 300 billion euros in credit risk for European banks.

Default Risk

Greek two-year yields surged above 70 percent and credit-insurance prices on Greece indicate the chance of default at more than 90 percent. Investors can expect losses on Greek debt of as much as 100 percent.

People, justifiably, think the crisis is what we’re living now: cuts in wages, pensions and incomes, fewer prospects for the young. Unfortunately this isn’t the crisis. This is an attempt, a difficult attempt, to protect Greek and avert a crisis. Because the crisis in Argentina: the complete collapse of the economy, institutions, the social fabric and the productive base of the country.

Even if Greece receives its next aid payment, due next month, default beckons in December when 5.23 billion euros of bonds mature.

Too Late

It’s too late for Greece, Howard Davies, The Greek situation is tumbling out of hand and Greece will not be able to avoid a substantial default. The introduction of the euro and global financial connections mean previous Greek defaults in the 19th and 20th century, most recently in 1932, don’t provide a decent precedent for a failure to satisfy lenders now.

Contagion will be violent as the price of the two-year Greek note tumbles below 30 cents per euro. The European Central Bank would be the first responders through purchases of government debt.

Greek Banks

The country’s banks, of which National Bank of Greece SA (ETE) is the largest, would be the next dominoes. They hold most of the 137 billion euros of Greek government bonds in domestic hands, a third of the total and three times their level of capital and reserves, says JPMorgan Chase. As those bonds are written down and equity wiped out, banks would lose the collateral needed to borrow from the ECB and suffer a rush of withdrawals that likely triggers nationalizations. No banking system in the world would survive such a bank run.

A hollowed-out banking sector wouldn’t be the only danger to an economy that the IMF says will contract for a fourth year in 2012. Greece will shrink 5 percent this year and 2 percent next year, reversing a forecast of a return to growth in 2012. Unemployment is set to rise to 16.5 percent this year, and to 18.5 percent next year, the highest in the European Union after Spain and dry kindling for potential social unrest. Even after saving 14 billion euros in debt repayments, much depends on what deal Greece could strike with its creditors.

Large Haircuts

The losses from Greece-related exposures in isolation look manageable, even in a disorderly default scenario with large haircuts, though the ECB would probably require fresh capital from euro-area governments. A debt exchange that was part of the second Greek bailout approved by European leaders in July would impose losses of as little as 5 percent on bondholders. The risk is that the rot spreads beyond Greece as investors begin dumping the debt of other cash-strapped European nations. Portugal and Ireland have already been bailed out, while speculators have also tested Italy and Spain. Italy, the world’s eighth-largest economy, has a debt of almost 1.6 trillion euros, while Spain, the 12th biggest economy, owes 656 billion euros.

Grand Solution

The possible ripple effects explain why policy makers won’t let Greece default. Policy makers would only allow a Greek default if they think they can contain the fallout, which is a dangerous presumption. If Greece, Ireland, Portugal and Spain all impose haircuts, European banks could lose as much as $543 billion with those in Germany and France suffering the most.

Even those figures don’t tell the full story because they omit indirect exposure via derivatives such as credit-default swaps. U.K. and U.S. banks hold such insurance on Greek debt totaling 25 billion euros and 3.7 billion euros respectively. Extend that metric to the whole European periphery and U.S. banks have a 193 billion euro exposure.

Even Worse

Such linkages threaten an “even worse crisis” than the folding of Lehman Brothers, The amount of outstanding debt is more than with Lehman and we don’t know the amount of derivative exposure.

Governments must create a fund to inject capital into banks as the U.S. did with its $700 billion Troubled Asset Relief Program.

If banks fail, or if they fear big losses, they will stop lending. As things stand today, a credit crunch will corset euroland and a depression will ensue when Greece fails and takes out euroland’s banking system.

G-20 Signals

Signaling efforts to contain the crisis, European officials including French Finance Minister Francois Baroin yesterday said they may be willing to use leverage to boost the firepower of their 440 billion-euro bailout fund. Group of 20 finance chiefs said after talks in Washington late yesterday that European authorities are willing to “maximize” the fund’s impact by the time the group next meets Oct. 14-15.

The ECB may also intensify its own attempts to support growth and ease financial market tensions as early as next month. Potential measures include the reintroduction of 12-month loans to banks. A disorderly Greek default with spillover into Spain and Italy could mean the euro-area contracts 1.3 percent in 2012, using the Lehman Brothers episode as a benchmark.

Rebounds

After shrinking 10.9 percent in 2002 following its decision to default and devalue, Argentina’s economy grew eight years straight, exceeding 8 percent in every year aside from 2008 and 2009. Russia was growing in double digit just two years after defaulting on $40 billion of local debt in 1998.

In contrast, facing only hard choices, EU officials have taken half-measures in the hope that the situation would somehow turn around. What they have done so far is a patchwork approach, Now things are much worse. It’s becoming more expensive not only in economic terms but also in social terms for Greek citizens because now there will be redundancies, now there will be more taxes there will be less jobs and things will get worse.

If Greek defaults the contagion will soon spread to other Euro zone countries and the systemic risk will be beyond measures. It’s certain that Greek has to default and it will default soon. If central banks and government fail to manage the ripple effect it would be impossible to survive the financial tsunami coming ahead.

Rupee posts biggest weekly fall in 15 years

2011-09-23T06:53:00.000-07:00

RBI Intervenes the Forex Market by selling Dollars

The rupee posted its biggest weekly fall in more than 15 years on Friday on heightened risk aversion amid the possibility of a recession in the developed world, even as it rebounded from a 28-month low on suspected intervention by the central bank.

Traders said the rupee will not be able to stay strong as growing concern about the impact of a possible Greek default on the banking sector will negate any move by India's central bank to support the unit.

"Rupee's loss is more than what is warranted when compared with gains in the dollar index. But we could see rupee hit 50.50 if the index touches the level of 80.

The Reserve Bank of India has not intervened in a big way in the currency markets, unlike most of its emerging Asian peers, because it can ill-afford to expend a limited and fragile holding of foreign exchange reserves.

That reluctance to intervene is just one of the factors that sets the RBI apart. It also is currently the most hawkish in the region, waging an expensive and tough war against inflation, while most of the world frets about slowing U.S. growth and a European debt crisis. A persistent current account deficit and realization that an uncertain global environment is bound to keep markets volatile are reasons the RBI is loath to intervene in a big way, spending its small pool of dollar reserves. While many Asian central banks including South Korea, Indonesia and Philippines have been spotted selling dollars to protect their currencies, the RBI has put up only a token show, with some minor intervention in recent weeks.

India's partially convertible rupee has been the worst performer among major Asian currencies -- so far in 2011, losing nearly 12 percent of its value since touching its 2011 high of 43.855 against the dollar on July 27. Intervention depends upon the pace of volatility. But the threshold for volatility also changes with the situation. Look at how the euro has been behaving, how gold, U.S. Treasuries have been moving. If all asset classes are so volatile, then the tolerance level will also rise.

The rupee has weakened nearly 7.2 percent against the dollar since late August, on heightened concerns over European sovereign debt and a likely Greece default. The euro has fallen on most days since Aug. 29, 7.3 percent down in the period and touched a seven-month low of $1.3499 on Sept. 12. In the same period, the key Asian currencies -- Korean won, Indonesian rupiah, Philippine peso have fallen between 1 percent and 10 percent.

UNDERVALUED

The RBI's modest approach would be understandable if they were keeping the rupee stable in trade-weighted terms, but that is not the case. The rupee has been increasingly undervalued in nominal trade-weighted terms.

However, this approach is not new. Its forex policy has by definition been hands off. Asia's third largest economy has reserves that are merely a tenth of the size of mighty neighbour China's. Because India runs a trade deficit, the reserves also comprise a pool of borrowed money that can dwindle quickly should foreigners pull short-term investments away from the country.

Still, many traders and economists are now questioning the wisdom of sticking to that practice amid high inflation, a large trade deficit and heightened uncertainty across currency markets. Downside pressure remains strong, and one-off intervention may not be enough in an environment of growing contagion risks. This begs the question of whether an increase in the frequency and magnitude of RBI intervention is likely.

The RBI was last a net seller of dollars in April 2009, when the Lehman crisis weakened the rupee, and any intervention since then has always been aimed at checking a rise in the local unit. But the biggest impediment to dollar sales is the country's current account deficit, a stark contrast with its Asian peers such as Indonesia, South Korea and Taiwan, all of whom are running current account surpluses.

There is an asymmetry when a central bank buys dollars to intervene and when it sells dollars to intervene. When you are selling dollars, you are losing the country's FX reserve, which is not a very comfortable thought given that we are a current account deficit country.

In the face of foreign fund outflows and India's trade deficit, the RBI's absence from the FX market has only fuelled investor pessimism towards the rupee. India's current account deficit in January-March narrowed to $5.4 billion from $12.8 billion deficit a year earlier, but the global slowdown could hurt exports, widening the deficit again. A wider current account deficit would put pressure on the country's ability to buy oil which is by far the largest component in India's import bill.

INFLATION AND INTERVENTION

Though the RBI maintains that it will never use the foreign exchange rate to contain inflation, selling dollars to arrest the rupee's current sharp drop has the added attraction of helping to ease imported inflation.

India's big state oil companies last week raised the price of petrol by nearly 5 percent.

"Yes, the petrol prices were raised because of the rupee depreciation and not due to any rise in global oil prices and that will have an impact on inflation". But any impact on inflation due to intervention will be incidental and not our objective.

India's inflation has stayed over 9 percent for the last four months and persistently above the central bank's comfort zone of 4.0-4.5 percent despite the RBI's aggressive 18-month rate tightening cycle. It is a sentiment spiral that started in August and I don't think the rupee will turn around unless there is some positive development globally.

Quantative Easing and its effect on Financial Market

2011-09-23T01:31:00.000-07:00

Quantative Easing

Quantitative easing (QE) is a monetary policy tool used by some central banks to stimulate their national economies when conventional monetary policy has become ineffective. The central bank creates money through open market operations, such as buying government bonds and other financial assets, in order to increase the money supply and the excess reserves of the banking system. Quantitative easing shifts monetary policy instruments away from interest rates, towards targeting the quantity of money. The term Quantative easing came into lime light when the US Federal Reserve announced two successive measures on March 18^th 2009 and November 2010 so as to boost the ailing US economy from the subprime crisis and the worst recession since the great depression of 1930’s.

US Federal Reserve is the central bank to United States created post 1907 market crash in 1913 to ensure safe and sound financial system. The main aim of the Fed is to review monetary policy aiming at providing maximum employment and price stability for a healthy economic growth. At present Ben Bernanke is the chairman to the US Federal Reserve. Post Lehman Brother Bankruptcy in September 2008 there was a complete financial meltdown with credit market freezing all over the world, we saw not only financial giants like Washington Mutual failing but also countries like Ireland and Iceland went bankrupt. With US economy on its knees the US Federal Reserve planned out a $720 billion bailout to save the American economy. With unemployment rising Fed came out with a stimulus package called Quantative Easing plan on 18^th May 2009 to bring back US economy on path of positive growth.The first round of Quantative easing came with a stimulus package of $1.7. But it did not prove much useful to the economy, the unemployment level went from 7.2% to 10.4 % in September 2009. The US dollar depreciated by more than 11% within few months, though there was some positive sign in the equity market and again a rising equity market does not portray the real picture of the economy. Even it had very less effect on the commodity market as investors remained cautioned on investing in commodities and with demand of goods falling, commodities were trading at their lowest point. The demand for crude oil was falling and so was the price though there was some uptrend seen in the gold with gold trading in the range of $700-$930. There were several other factors responsible for soaring of gold prices such as sovereign crisis and unstable equity market people were finding gold as safe heaven for investment purpose. On the whole QE1 failed to achieve its objective.

With unemployment rate soaring in double digit Bernanke came with QE2 on November 2010 , a stimulus package of $600 to further strengthen the US economy. There was lots of uncertainty created across the globe as many feared that QE2 will further depreciate dollar creating a currency war with other large economies. A depreciated dollar will increase the commodity price in the world market, China feared the most of the negative impact QE2 would have on the export competitiveness , similarly with excess liquidity flow in emerging market asset could cause significant inflation in recipient countries. From here we would try to analyze the real effect of QE2 on various financial market across the globe.

Implication of Quantative Easing 2

QE consists in creating money and purchasing government debt or other financial assets to add liquidity to the markets with reduced long term interest rate. As a result of QE the government has managed to bring back the positive GDP growth while the private sectors are still weak and contracting. Now i ll discuss the implication of QE on various sectors.

Increase Liquidity: The most immediate effect of QE is an increase in the liquidity of the overall financial system. Private banks and institutional investors have re-directed the cash received into lending to private businesses or individuals. Alternatively, they focused on acquiring assets in emerging market there by making profit by generating revenues on investment made in emerging economies. They also gained from the predictable appreciation made by local currency against the US dollar. China has blamed US of devaluating dollars through QE so as to increase its Global competitiveness. This can also have a negative implication on emerging economies in the form of soaring inflation.

Equity Market: In November 2010 Ben Bernanke said that "Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending." He successfully attained this goal as US stock market has outperformed major economies and even developing BRIC nations in past few months till may 2011 though the 3.4% gain this year is still lagging behind its long term historic pace. However the market is falling since 5 consecutive weeks, its longest fall since 2004 pulling down the S&P index by 5% and with increasing unemployment there are further chances of market making a correction by another 5% in coming weeks.

Unemployment: The main main reason behind these QE was to generate employment in turn strengthen the economy but after some initial success again the unemployment rate is on a rise since two weeks and with new regulations imposed by Fed on financial institution there are chances that major investments giants such as Goldman Sachs, JP Morgan, Bank of America and Morgan Stanley might go for layoffs so as to reduce their operating cost. Increasing unemployment rate can hamper US recovery and can further pull down the equity market.

Housing: Ben Bernanke aimed at increasing the house prices through QE but after some initial positive signs the demand is falling and the housing prices has reached its minimum level since 2005 and there are very little chances of any recovery in near future, Thus we can see that QE2 has failed even at pulling the economy out of housing crisis.

Interest Rates: Ben Bernanke has mentioned that by the use of QE he tends to lower interest rates and help the housing sector and mortgage lending. From March 18, 2009 to May 18, 2011, interest rates have risen on the 10-year Treasury from 2.62% to 3.17%, a 20% increase. Despite that the public debt has increased by 30% during the period, interest rates have nominally increased about 1% from the record lows in the 10-year Treasury hit during the financial crisis. While the Fed hasn't been successful in lowering interest rates, it has been able to contain a sharp rise in them by buying more of a third of the mammoth amounts of debt that are being offered to the market by the US government. The expected fiscal deficit for this year totals $1.5 trillion, 9.8% of GDP and an increase of 10% of the US public debt. With QE part two ending in June, one would expect that interest rates should start to rise as the market will lose one of its principal debt buyers.

Commodity Market: QE has has influenced global commodity prices, dollar depreciation has pushed the commodity prices. Until 2004, the correlation between commodity price and the exchange rate was negative. This was because US economy slowdown would normal cause both the dollar to depreciate and the dollar price of commodity to fall. In recent years, commodity demands have been driven by large developing countries. Under the circumstance dollar depreciation, unlike the pat, has been associated with the increase in commodity price. In 2009, the dollar price of oil and copper appreciated 1.2% while the dollar depreciated 1%. With Fed holding a large chunk of US bond, it reduces the supply of safe investment asset for global institutional investors, reducing the US bond circulation in the market and low interest rate prompted global institutional investors to investment in other financial market, commodity market attracting some investment. Traditionally , investing in commodity market has been a popular as a mean of hedging against inflation. High inflation brings down the return in bond and stock market, commodity future tends to do better in times of inflation. There was seen a sharp rise in the commodity price since 2009 when QE1 was announced, Gold gaining the most showing a rise by 80% in two years a rise from $800 to $1530 per ounce. Other precious metal such as platinum gained too. Overall it was the commodity market that gained the most from QE with commodity price soaring to new heights.

Forex Market : To fund QE Fed has to print notes, this increased the supply of dollar in the market there by depreciating the dollar in term of other currency. This will help US in recovery as a depreciated currecy increases the competitive advantage in the world market but on long term it can boost inflation.

Overall QE1 & QE2 has helped US recover from deep recession of 2008 but the outcome has been much less than expected and the US finds itself at the same situation as it was a year earlier with stock market falling and unemployment rising.

QE3 at the Corner

With QE2 coming to an end in June 2011 there are negative signs from the Fed of a possible QE3 however Bernanke also hinted that if economy growth remain sluggish than the Fed might go for QE3. End of QE2 will hamper Fed goal of keeping interest rate low. Low interest rates makes credit cheaper promoting people to borrow, helping in increasing home prices. With US borrowing limit coming to an end and congress demanding to reduce deficit and chances of a possible US default on its payment there are very little chances of QE3 moreover QE3 can have a catrostrophic effect starting with high inflation.

With no further quantative easing in sight, the effects are already visible. The most effected will be commodity market as the price are likely to come down. The most effected will be gold price, since 2009 when QE1 was announced gold has seen an uptrend with prices rising from $700 to $1540. Since recession there have been several factors caused soaring of gold prices. The sovereign crisis and inflation in major developing nation, gold has attracted the investors the most. Even though other factors are still the same, the end of quantative easing will surely bring down the gold prices. Similarly prices of other precious mental and other commodity will also fall. The price of pulses, soybean has also been on rise post recession, the commodity future has given return as high as 36% , but soon these growth rate will ease off.

On the whole the return from quantative easing has been much less. Bernanke in an interview said that the Japanese Tsunami has been the major cause for downfall of market since May and the second half should see a growth pick up. He further added that there are very less chances of QE3 because a further stimulus can cause serious problem of inflation however the Fed will continue to keep the borrowing interest rate at 0.25% to boost economic growth.

Tips for getting a job as Investment Banker

2011-09-23T01:29:00.000-07:00

Investment Banking Interview Prep.

Landing a job in Investment Banking

An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.

Unlike commercial banks and retail banks, investment banks do not take deposits.

There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the "sell side", while dealing with pension funds, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in order to maximize their return on investment) constitutes the "buy side". Many firms have buy and sell side components.

An investment bank can also be split into private and public functions with a Chinese wall which separates the two to prevent information from crossing. The private areas of the bank deal with private insider information that may not be publicly disclosed, while the public areas such as stock analysis deal with public information.

Career as an Investment Banker

An investment banking career provides great challenge, a chance to learn the ins and outs of corporate finance, and develop analytic skills that are useful in any business field. Investment bankers, with firms such as Goldman Sachs, Blackstone Group and Morgan Stanley, HSBC, BNP Paribas, Barclays act as a link between the corporate world and the investor, whether an individual or an investment fund. This sector offers excellent job opportunities for hard working finance students and professionals who are ready to face the challenges provided by globalization and consolidation.

Before going for an investment banking jobs interview, be sure that you have done your homework and can respond to the toughest questions that aim to judge your analytical and other skills and your attitude towards risk. Count on the standard questions like, your greatest strengths and weaknesses and “tell me about yourself.” Beyond those types of question, there are some questions commonly asked in an interview for an investment banking job.

Investment Banking Job Interview Questions

1. Why investment banking? Why do you want to work at our bank?

In your response, highlight that investment banking is a very competitive and lucrative area, offering tremendous growth opportunities. Talk about the latest industry trends and how they impact businesses in the bank’s specialty. Talk about the opportunities presented recent mergers and acquisitions and the challenges due to by the sub prime crisis. Has Lehman Brothers responded appropriately? What are your thoughts on JPMorgan and Bear Stearns? Be prepared to discuss the firms on the front page of today’s Wall Street Journal.

You need to convince the interviewer that you have the necessary drive, capabilities, and personality best suited to become a successful investment banker. Gaining the trust and respect of the recruiters is very important for cracking these interviews. Talk about the company’s position in the industry and how it differs from that of other Wall Street listed firms – both bulge bracket and boutique.

2. What value is our stock trading at? Trading volume compared to bulge bracket firms.

Before going for an investment banking interview, go through the financial profiles of the bulge bracket firms and identify the highlights. Be aware of the rankings of the investment banking firms in various segments, such as advisory services or asset management. Stock movements are often a reaction to the latest happenings and have less to do with the company’s fundamentals. Study the recent stock price movements and be ready to answer questions related to a sharp movement in the share price or jumps in trading volume.

3. Walk me through the high points and low points in your resume. What were your greatest accomplishments and challenges?

Communication, leadership, problem solving, and working under pressure are the key skills in an investment banking job. You should highlight that you are flexible enough to adopt new styles and methods of functioning, while being willing to work as part of a bigger team.

Talk about your core competencies and how you used them to achieve measurable results at a previous job or during your education. Discuss your failures, how you handled the situations, and what you took away from them. Whenever possible, talk about deals you’ve participated in. There are few things than interest an Associate or Senior Vice President more than deals.

4. Describe some risks you’ve taken. How did you make the decisions?

An investment banker’s job often involves tough decisions, keeping in mind the political changes, various macroeconomic variables and the market trends. The ability to take risks is important. You need to demonstrate adequate analytical skills and how they were used in managing risk associated with a particular deal. You should highlight the logical assumptions and calculated guesses made by you while undertaking a risky project or decision. In an investment banking career, it is often more about being “roughly right” than “precisely inaccurate.”

5. Describe an ethical decision you had to make.

Ethics, trust and integrity are often challenged in an investment banking job. Look at the sub prime crisis, the near collapse of the mortgage giant, Fannie Mae, and the restatement of financial accounts of several investment banking firms in recent years. It is often unethical (or even unlawful) practices that are the main contributors to situations like these. Discuss an instance when you had to make an ethical decision – what did you take into consideration? How did you finally come to a decision? These are insights into how you work and what the firm can expect from you in tough situations.

6. Why should we hire you?

Be ready for this one. Be confident but not cocky. Highlight that you are the right candidate because you can hit the ground running and are flexible enough to move with the changing environment. As Lehman Brothers puts it, the core competencies essential to an investment banking career are: problem solving ability, professional attitude with willingness to adapt and remain flexible, leadership and communication abilities, resourcefulness and the drive to succeed.

7. When you are not working, what do you do?

Investment banking jobs involve long hours and a lot of hard work – there are simply no two ways about it. That does not mean that firms want to hire people without a personality and other interests outside of work. Highlight activities you enjoy that demonstrate risk taking, recharging and an outgoing personality. Let you personal life reflect what investment banking firms are looking for.

8. How much do you read? What do you read?

The types of books and magazines you read reflect your personality and highlight your passion for the industry and the finer things in life (why else take an investment banking job?).The Wall Street Journal and your industry specific trade magazines must be on your list. Also include other readings that show you are not one dimensional in your interests.

9. Do you learn more from success or failure?

Your attitude toward both success and failure could be the difference in determining whether or not you get an investment banking job offer. Deals flop, it’s part of the investment banking game. Discussing how you do a quick post mortem and lessons learned discussion, then move on to the next deal is the best approach. Learning from but not dwelling on the past is the key.

10. What questions do you have?

Count on this one and have several pointed, challenging questions prepared. Ask about the firm’s growth strategies and particular specialties. Discuss a recent news report about a particular deal done or lost. Don’t be afraid to ask a personal question of the interviewer as well; nothing offensive but something but, rather, something that prompts them to think about their own investment banking career choices.

If you’ve landed an investment banking job interview, being prepared for these questions should put you on solid ground and get you one step closer to the offer you are looking for.

If you would like to find an investment banking job opportunity, you could look at the numerous investment banking jobs available. You can do this by browsing sites like Job Search Digest. You can also get in touch with leading executive search consultants for details of current

Best of Luck

World Market Entered Bear Phase... Are we heading towards another recession?

2011-09-23T01:18:00.000-07:00

World Market Entered Bear Phase

Are we heading towards a double dip recession?

Stocks fell today pushing the MSCI All- Country World Index of 45 nations into a bear market for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May.

The MSCI index, which slipped 0.3 percent in Hong Kong today, has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market. It tumbled 4.5 percent to a 13-month low of 277.38 yesterday. The MSCI World (MXWO) Index of shares in developed nations also fell into a bear market yesterday, plunging 4.2 percent. The MSCI Emerging Markets Index reached the 20 percent threshold on Sept. 13.

The world is poised for a financial crisis, Mohamed El- Erian, chief executive officer of Pacific Investment Management Co., said in Washington yesterday. Finance chiefs from the Group of 20 nations pledged late yesterday to address “heightened downside risks” to the global economy, echoing language used by the Federal Reserve on Sept. 21 when it announced a $400 billion plan to spur growth as the recovery from the worst contraction since the Great Depression falters.

The market is pricing in a recession. “Stocks are looking cheap, but it will take a lot of courage to believe that. Things could get worse. The risk of a sovereign-debt default in Greece is the most significant concern.”

Valuations Sink

The MSCI All-Country World Index has retreated 19.8 percent since July 22. It fell after Standard & Poor’s cut the U.S. credit rating following a debate over raising the nation’s borrowing limit, speculation Greece will default intensified, and Chinese inflation accelerated to a three-year high. The slump pushed the price-earnings ratio for the index down to 11.4, the lowest since March 2009 and 46 percent less than the 16-year average, data compiled by Bloomberg show.

The Standard & Poor’s 500 Index extended its drop since its peak on April 29 to 17 percent. The gauge has retreated even as analysts raise projections for 2011 profit to a record $99.34 a share this year from $98.73 on April 29.

Benchmark measures for five out of 24 developed markets haven’t posted a 20 percent slump from their highs: the U.S., U.K., Canada, Singapore and New Zealand. Eight out of 21 developing nations aren’t in bear markets, including South Africa. The MSCI Emerging Markets Index has retreated 27 percent since its 2011 high on May 2.

Europe, Asia

The 15 national stock gauges with the biggest losses since the MSCI All-Country World peaked on May 2 are for European countries. Greece’s ASE Index has lost 42 percent, Italy’s FTSE MIB Index has plunged 40 percent and Hungary’s Budapest Stock Exchange Index has retreated 38 percent.

Policy makers are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy,” G-20 finance ministers and central bank governors said in a previously unplanned statement in Washington. Many urged Europe to implement a July promise to expand the powers of a rescue fund.

The Euro Stoxx 50 Index has tumbled 28 percent since July 22 as Greece edged closer to defaulting on its sovereign debt and the cost of insuring western European countries’ loans rose to records. The MSCI Asia Pacific Index has fallen 19.7 percent since its 2011 high on May 2.China’s Shanghai Composite Index has tumbled 23 percent since its peak in November, and Japan’s Topix has slumped 25 percent since April 2010.

Bad Ending

Europe is going to continue to unwind and eventually end up badly for the global economy, There are so many questions, so many uncertainties.

The 20 percent decline in global equities ended the bull market that began in March 2009. The MSCI All-Country World Index climbed as much as 107 percent during the rally. The measure avoided a bear market in 2010, when it fell 16 percent between April 15 and July 5. The index rebounded after Federal Reserve Chairman Ben S. Bernanke foreshadowed $600 billion in bond purchases meant to prevent deflation and stimulate growth at an Aug. 27, 2010, meeting in Jackson Hole, Wyoming.

Financial stocks, which posted the biggest losses in the last bear market, are leading declines again amid growing concern that European banks will have to write down their holdings of government debt. Banks, brokerages and insurers in the MSCI All-Country World have collectively lost 31 percent since May 2.

SocGen’s Slide

Societe Generale SA of Paris has retreated 66 percent since May 2, the second-biggest loss among financial stocks in the MSCI All-Country behind Athens-based EFG Eurobank Ergasias. UniCredit SpA, based in Milan, has retreated 62 percent. Banks in Europe hold 98.2 billion euros ($132 billion) of Greek sovereign debt, 317 billion euros of Italian government debt and about 280 billion euros of Spanish bonds, according to European Banking Authority data.

Financial companies in the worldwide index sank 77 percent during the last bear market as government bailouts rescued the biggest U.S. banks from collapse and Lehman Brothers Holdings Inc., once the nation’s fourth-biggest securities firm, filed the nation’s largest bankruptcy in September 2008.

More than $37 trillion was erased from global equity values in the previous bear market that lasted for 16 months after the MSCI All-Country World peaked on Oct. 31, 2007. The index fell as much as 60 percent amid the first global recession since World War II and more than $2 trillion in losses and write downs at financial companies worldwide after housing prices dropped.

We could be on the eve of the next financial. We shouldn’t be because there are things that could be done to avert it, but they haven’t been done. There are no signs that the authorities are going to do them. Perhaps government has not yet learned from its previous mistake or they fail to understand the depth of the ongoing crisis. If no steps are taken to boost the economy the world will sink into another recession in next 6 month and this one is going to be far more catrostropic than that of 2008.

Capital Iq Aptitude Test Questions

2011-09-21T05:17:00.000-07:00

Capital IQ Aptitude Questions

Research Associate at Capital IQ (2010 and 2011)

· After a basic test with simple math and English problems and a write up about why you want to join the company.

· 2nd aptitude test is conducted. It is for 80 min. and usually has 4 sections.

a. General Knowledge

b. A write up

c. Passage (Very easy)

d. CAT kind of Logical reasoning and English

Q 1 Eurodollars are best described as

1. The new currency of the European union to US banking regulation.

2. A U.S dollar denominated deposit ….generally in a bank located outside the United States …that is not subject

3. A currency deposited outside its country of origin

4. A foreign Denominated deposit subject to US banking regulations

Q 2 If the real gross domestic product of US has increased, but the production of goods remained the same, then the production of services has;

a) Increases b) Decreases c) Remained same d) Would vary

Q 3 Raj has a jewel chest containing Rings, Pins and Ear-rings. The chest contains 26 pieces. Raj has 2 1/2 times as many rings as pins, and the number of pairs of earrings is 4 less than the number of rings. How many earrings does Raj have?

Q 4 A train travels a certain distance taking 7 hrs in forward journey, during the return journey increased speed 12km/hr takes the times 5 hrs.What is the distance traveled.
A.) 210 kms
B.) 30 kms
C.) 60 kms
D.) 90 kms

Q 5: When the cost of petrol increases by 20%, a man reduces his monthly consumption by 15%. The
percentage change in his monthly expenditure on petrol will be:
(a) 10% (b) 2%
(c) 3% (d) 4%

Q 6 A train leaves New York at 9 A.M and travels east at a constant speed of x mph. If another train leaves
New York at 10 A.M and travels east, at what constant rate of speed will the second train have to travel in
order to first catch train at exactly 1:30 P.M.?

(a) 5/6*X
(b) 9/8*x

Q 7 A clock is set right at 5 am. The clock loses 16 minutes in 24 hours. What will be the true time when the clock indicates 10 pm on 4th day?

(a) 10:48 pm (b) 11 pm

Q 8 Company X owns 40% of the stock in the ABC Corporation. Company Y owns 15,000 shares. Company Z owns all the shares not owned by companies X or Y. How many shares of stock does company X own if
company Y has 25% more shares than company X?
(a) 45, 000 (b) 50, 000
(c) 60,000 (d) 75,000

Q 9 There are 50 student enrolled in a MBA program of the enrolled students, 90% took the final exam. Two thirds of the students who took the final exam passed the final exam. How many students passed the
final exam?
(a) 30 (b) 33
(c) 34 (d) 35

Q 10 The cost of a precious stone varies as the square of its weight. A diamond weighing 10 decigrams costs Rs. 2600. The loss incurred when it break into two pieces whose weights are in the ratio 3:2 is
(a) Rs 168 (b) Rs. 872
(c) Rs. 1352 (d) Rs. 2000

Q 11 WALL : NECK
(a) valance : pendant (b) curtain : ruffle
(c) tie : pleat (d) valence : cravat
Q 12 SPEECH : RAMBLE (a) river : meander (b) mountain : erode(c) flower : blossom (d) plan : fail

Q 13 BANKRUPTCY : SOLVENT

(a) dehydration : wet (b) antagonism : quarrelsome

Q14 BEWITCHED : SPELL
(a) tricked : hoax (b) amused : audience
(c) expelled : school (d) discovered : fraud

Q15 ASYLUM : REFUGEE
(a) flight : escape (b) destination : traveler
(c) lunatic : insanity (d) accident : injury

Some More Interview questions

1. What is Money market & Capital Market?

2. What is the difference b/w acquisition by subsidy & acquisition by a company? Who is the governor of RBI

3. Name 2 stock exchanges of U.S.A

4. What is subordinated debt?

5. What is Contra Entry?

6. What is capital expenditure?

7. What is bonus shares?

8. THE DEBIT BALANCE OF THE P&L A/C IS SHOWN IN WHICH COLUMN OF BALANCE SHEET

9. BY WHOM THE BANK RECONCILIATION STATEMENT IS PREPARED

10. What is the capital

11. What is reserve capital

12. what is private placement?

13. what is capital reserve?

14. What is the new name for Stock exchanges ? (recently)

15. What is Contribution?

16. what is portfolio management?

17. What are quick assets? Give me some examples

18. Differences between forward contract and futures contract?

19. What is goodwill? How do u calculate it?

20. What do u you mean by deferred revenue expenditure?

21. What is the difference between Income and Revenue?

22. What is the difference between Capital expenditure and Revenue expenditure?

23. What are quick assets? Give me some examples

24. Differences between forward contract and futures contract?

25. What is goodwill? How do u calculate it?

26. What do u you mean by deferred revenue expenditure?

27. What is the difference between Capital expenditure and Revenue expenditure?

28. What is the difference between Income and Revenue?

Some HR round interview Questions

1. What do know about the company?

2. what do you know about the position you applying?

3. what modules did you like at university?

4. what modules you disliked?

5. Tell me about your background?

6. What do you think about corporate culture?

7. Tell me about your job experience?

8. People say its a monotonous job.. do u still want to be hired?

9. Why do you want to work for Capital IQ ?

For more information refer the following website:
http://www.capitaliq.com

Capital Iq: Company Profile Interview Tips and Questions

2011-09-21T04:36:00.000-07:00

Capital Iq: Company Profile Interview Tips and Questions

About Capital IQ , Its Interview Questions and Its Campus Recruitment Process

First of All let us Know a bit about the Company Capital IQ.

The Company Profile (www.capitaliq.com)

Capital IQ, a Standard & Poor's business (a McGraw-Hill Company), provides High-impact Information and Work flow Solutions to over 4200 client firms including many of the world's most successful investment banks, investment management firms, private equity firms, consultants, and corporations.

Founded in 1999, we are headquartered in New York City with offices located in San Francisco, Chicago, Los Angeles, Houston, Boston, London, Hyderabad and Gurgaon.

Our solutions are based on the Capital IQ Platform, Computation, Clarify, and Alpha Works products through which we offer an array of powerful applications for desktop research, screening, real-time market data, back-testing, portfolio management, financial modeling, and quantitative analysis.

We help client’s access deep information on companies, people, securities, industries, and markets worldwide. Our solutions are provided through our web and Excel-based applications as well as client-side systems.

People strength- 4500+

Competitors of Capital IQ are:

Bloom berg L.P,Lexis Nexis,Thomson Reuters

Campus Recruitment Process:

The Recruitment Process (Steps Involved):

Capital IQ shares the Job Description and other details like Compensation, Work timings, Place of work etc. Also shares the initial selection criteria for the interested candidates. The following Criteria should be fulfilled:

Class X- 70% and above

Class XII-70% and above

Graduation- Aggregate of 50% and above

MBA/Masters- 60% and above.

Hiring Process:

On the Campus

Ø Aptitude Test for the shortlisted candidates

Ø Company Presentation

Ø Shortlisted Candidates via aptitude test go through an HR round of Interview

Ø Candidates from the HR round undergo a Level II test. Candidates shortlisted from Level II Test undergo TL/Manager Level round of Interview

Ø Candidates shortlisted from TL/Manager Level round of Interview undergo Director level round of Interview

Ø Final List of HIRES communicated to the Placement Coordinator

Ø Process Closed

Q 1 What is the difference between charge and appropriation ?

Ans: The difference between charge and appropriation cab be stated with the following example:

For charge depreciation can be an example.... whether there

is a profit or loss the depreciation is charged to the

Profit and loss account..For appropriation.. Reserves or tax

can be taken as an example.. it can be only appropriated

when there is a profit.. Otherwise there is no

Appropriation.. For charge let there be a profit or loss it

is valid.. Appropriation is only valid when there is a profit.

Q2. What is bank reconciliation statement?

Ans: A form that allows individuals to compare their personal bank account records to the bank's records of the individuals account balance in order to uncover any possible discrepancies.

Q3.What is nifty?
Ans: Nifty is an indicator of all the major companies of the

NSE.Actual this is stock exchange place where all company

and investors see the actual gain/loss which they have got.

Q4.What do you mean by margin of safety?
Ans: IT IS THE DIFFERENCE B/W ACTUAL SALES&BREAK EVEN SALES.IT

CAN BE REPRESENTED BY THE FOLLOWING FORMULA.

MARGIN OF SAFETY=ACTUAL SALES - BREAK EVEN SALES

Q5.Difference between Reserve capital and capital reserve?
Ans: Reserve capital if that part of reserve which may use on

the event of winding off the company .... but capital

Reserve is a part of profit.......

Q6.What is share premium?
Ans:Share Premium means excess issue price over the face value.
Q7.What is debt equity ratio?
Ans: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation.

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones.
Q8. What is ADR DEFINE ?Ans: It is American Depository receipt issued by non American
company to raise capital in US
Q9. Tell me about some accounting concepts?
Ans: There are 10 concepts.They are as follow:

1.Business Entity concept

2.Going Concern concept

3.Money Measurement concept

4.Cost concept

5.Accounting Period concept

6.Dual Aspect concept

7.Matching concept

8.Realization concept

9.Accrual concept

10.Objective Evidence concept.

Q10.What are bills of exchange?
Ans: Definition

An unconditional order issued by a person or business which

directs the recipient to pay a fixed sum of money to a third

party at a future date. The future date may be either fixed

or negotiable. A bill of exchange must be in writing and

signed and dated. also called draft.

Q11.What is private placement?
Ans: The sale of securities to relatively small number of selected

investors as a way of rising capital. It was an opposite of

public issue.

Q12.What is net worth ?
Ans: The amount by which assets exceed liabilities,

This term can be applied to companies and individuals

Q13.What is zero-base budgeting?
Ans: A method of budgeting in which all expenses must be justified for each new period. Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.

ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped, then measured against previous results and current expectations.
Q15.What is the meaning of the capital IQ?
Ans: A research and analysis company that offers a variety of software and data feeds to thousands of investment managers, investment banks, private equity funds, advisory firms, corporations and universities. Its major products are the Capital IQ platform, which provides fundamental analysis, and Compustat, Money Market Directories (MMD), Xpressfeed and SystematIQ, which provide quantitative research

Q16.What is the difference between single entry system &double entry system?
Ans: In the single entry system only one aspect of the business transaction will be recorded in the books of accounts.
but in the double entry system both aspects of the business transaction will be recorded,
for example i am selling the machinery to kiran.
in this two accounts are involved.
i,e:kiran a/c and machinery a/c.
so in the single entry system we will record only kiran a/c as a debtorand we dont record the a/c regarding the machinery.
but in the double entry system we will record both aspects of the transaction.
it means we will record
kiran a/c ---dr
to machinery a/c.
so it wil give complete information about the business transaction.

Q17. What Amount taken if company get asset free?
Ans: As per accounting rule if cost of asset is below 5000 you sgould book it in to your books of account as Re/- 1/.

  2011 Capital IQ Placement Paper I

1.In recommendations to the board of trustees a tuition increase of $500 per year, the president of the university said "There were no student demonstrations over the previous increases of $300 last year and $200 the year before".
If the president’s statement is accurate then which of the following can be validly inferred from the information given:
I. Most students in previous years felt that the increases were justified because of increased operating costs.
II. Student apathy was responsible for the failure of students to protest the previous tuition increases.
III. Students are not likely to demonstrate over new tuition increases.

(a) I only
(b) II only
(c) I or II but not both
(d) I, II and III
(e) None

Ans. (a)

2. When the democratic party holds presidency, the staff of the prime minister’s deputies are composed

I. One-fourth of democratic party members
II. One-half of justice party members and one-fourth of conservative party members
III. One-half of conservative party members and one-fourth of justice party members.

(a) I only
(b) I and II only
(c) II or III but not both
(d) I and II or I and III
(e) None of these

Ans. (a)

3. Which of the following is allowable under the rules as stated:

(a) More than half of the staff within a given office belonging to a single party
(b) Half of the staff within a given office belonging to a single party
(c) Any person having a member of the same party as his or her immediate superior
(d) Half the total number of staff members in all three offices belonging to a single party
(e) Half the staff members in a given office belonging to parties different from the party of the top office holder in that office.

Ans. (a)

4. The office of the Army Chief passes from Conservative to Justice party. Which of the following must be fired.

(a) The democratic deputy and all staff members belonging to Justice party
(b) Justice party deputy and all his or hers staff members
(c) Justice party deputy and half of his Conservative staff members in the chief of staff office
(d) The Conservative deputy and all of his or her staff members belonging to Conservative party
(e) No deputies and all staff members belonging to conservative parties.

5. what is NSE free float capitalization

6. what is exact difference between copy rights and patent rights?

7. what is by brs?

8. why the debit balance of p&l a/c shows in asset side of balance sheet

9. what is minut

10. what is capita employed?

11. what do you mean by semi-variable cost?

12. what do you mean by working capital?

13. what is zero based budgetting

14. what is delapidation

15. what are share warrants?

16. what are the types of the Balance sheets ?

17. what is zero base budgeting

18. what is debentures, types of debentures

19. what is meant by bridge finance

20. what is brs?

21. what is sharesplit and types of it explain?

22. what is the difference between take over and aquisation?

23. what is the formula for profit margin?

24. what is deference between Revenue and Income

25. what perposs calculate the fixed assets?

  2011 Capital IQ Placement Papers - II

1. what is treasury stock

2. what are fictious assets? give some examples?

3. what is debenture ?

4. what about the company background?

5.What is the entry for forfeiture of shares?

6. What is contingent event?

7. What is Break Even Point?

8. What is marginal costing?

9. Difference between operating profit and netprofit.

10. Company A is having operating cycle of 15days...b is having operating cycle of 10 days which company is having better position

11. what is deferred revenue expenditure?

12. what is assets

13. what is the meaning of the capital ique

14. what is brench finance please telL me immediately

15. define finance

16. what is the difference between npv and irr method of capital budgeting and which one is better?

17. Types of Debentures

18. what is float discuss?

19. Company why should issue Debentures and shares, Which one should issue better for company and why?

20. what is fixed cost?

21. In Banking industry difference between interest income and interest expenses is called as .............

22. what is the effect of crr hike on market?

23. how cash enters in market?

24. What Are Hedge Funds?
25. What do you understand by Private Equity? What is the difference b/w PE and Venture Capital

BEST OF LUCK

Lehman Brothers Bankruptcy: Tipping point of Recession

2011-09-20T12:54:00.000-07:00

Into the Meltdown

Lehman Brothers Bankruptcy

It was Friday evening, September 12^th 2008, employees at Lehman Brothers were leaving office, unaware that by the time they will return to their office on Monday, the 158 year old investment giant would be declared bankrupt.

Lehman Brothers, set up in 1850 was a global financial service provider, 4^th largest investment bank in US just after Goldman Sachs, Morgan Stanley and Merrill Lynch. It had a well diversified business in the field of investment Banking, equity and fixed income sales, investment management, private equity and private banking. It was a primary dealer in US Treasury securities market. On September 15^th 2008 the bank filed for chapter 11 bankruptcy protection following massive losses in its business worldwide due to its exposure to the sub prime market, drastic losses in its stock and devaluation of its assets by credit rating agencies. The bankruptcy of Lehman Brothers remains the largest bankruptcy filing in history with Lehman holding over $600 billion in assets.

Background

After the dot com bubble burst in 2000 and 9/11 terrorist attack the US economy was hit hard, the US Federal Reserve felt the need of having a stronger US economy, to fulfill this the US Fed started reducing lending rates and soon the lending rates were as low as 1% this made borrowing for financial institutions almost for free. This enabled these institutions to highly leverage themselves thereby increasing their leverage ratio, a leverage ratio is a measure of the ratio of assets to owners equity, which increased from approximately 24:1 in 2003 to 31:1 by 2007. While generating tremendous profits during the boom, this vulnerable position meant that just a 3-4% decline in the value of its assets would entirely eliminate its book value or equity. At the time of Bankruptcy Lehman leveraged itself in the ratio 44:1. So with credit becoming cheaper the financial institutions started investing heavily in housing industry giving loan to prime borrower at lower interest rates but soon there was shortage of primer borrower. There are certain rules prescribed by US government for lending money to people by financial institutions, in order to boost the economy and fulfill the American dream of house ownership US government gave certain relaxation in these rules. Now the institutions were allowed to give loan to subprime borrower who had greater chances of defaulting, even without having any proof of their income source. Lehman was the front runner in subprime lending which ultimately led to its bankruptcy. When the subprime lender started defaulting in 2007 leading to subprime mortgage crisis Lehman was completely exposed to the crisis due to its heavy investment in housing related asset. And it suffered huge losses. In August 2007, Lehman closed its subprime lender, BMC Mortgage, eliminating 1200 positions in 23 locations.

September 2008

In 2008, Lehman faced an unprecedented loss due to the continuing subprime mortgage crisis. Lehman's loss was apparently a result of having held on to large positions in subprime and other lower-rated mortgage. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets. In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten. In August 2008, Lehman reported that it intended to release 6% of its work force, 1,500 people, just ahead of its third-quarter-reporting deadline in September. On September 10, 2008, Lehman announced a loss of $3.9 billion and their intent to sell off a majority stake in their investment-management business, which includes Neuberger Berman The stock slid 7% that day. On September 12, Lehman was losing $8 million every minute in shares value and by the end of day the share were trading at 3 cents a share, the same being traded at $80 at its peak. By the end of day the company was running out of cash to open itself for business on Monday.

On September 13, 2008, Timothy F. Geithner, then president of the Federal Reserve Bank of New York called a meeting on the future of Lehman, which included the possibility of an emergency liquidation of its assets. Lehman reported that it had been in talks with Bank of America and Barclays for the company's possible sale. The New York Times reported on September 14, 2008, that Barclays had ended its bid to purchase all or part of Lehman and a deal to rescue the bank from liquidation collapsed. It emerged subsequently that a deal had been vetoed by the Bank of England and the UK's Financial Services Authority. Leaders of major Wall Street banks continued to meet late that day to prevent the bank's rapid failure. Bank of America's rumored involvement also appeared to end as federal regulators resisted its request for government involvement in Lehman's sale.

Bankruptcy Filing

Seeing no chances of a takeover and no assistance from the Federal Reserve the bank was left with no other options than to file for bankruptcy. On September 15^th, Lehman Brothers filed for chapter 11 bankruptcy protection in the US bankruptcy court. This was the end of a 158 year old Financial Institution that survived the great depression and other major crisis. It was the largest bankruptcy in history.

After Effects

The bankruptcy of Lehman Brothers had a catastrophic effect not only on the US economy but the whole world economy. On September 15^th share market tumbled all over the world and a total of $700 billion were wiped off from the stock market. There was a complete panic in the market, everybody feared that if Lehman Brothers can go down than who else cannot. The rate the bank charges to lend money doubled within night and it become extremely difficult for banks to raise money. Two days after the bankruptcy on September 17^th money market all over the world froze. The banks lost confidence that they need to lend to each other fearing of a possible default. The fall of Lehman Brothers brought the global financial system on its knees. Soon not only financial institution but large companies started finding it difficult to raise capital to carry their day to day work. In fact bankruptcy of Lehman Brothers led to deep recession which soon gripped the world economy. Soon Lehman Brothers bankruptcy was followed by the bankruptcy of Washington Mutual, US largest commercial bank, this was the second largest bankruptcy after Lehman, Later J P Morgan took over Washington Mutual. Soon banks all over the world started running out of cash, the major being the European Nation mainly Ireland and Iceland, on 29^th september the government of Iceland nationalize its largest bank, but it proved to be a costly move, Iceland banks had debt 8 times the country’s GDP, international depositors didn’t believe they could meet them and started withdrawing money, this led to a bank run later the government of Iceland decided that its payment system continue to function while creditor, not the taxpayer shouldered the losses of banks. Soon this spread to other European countries like Greece, Portugal, Spain. Ireland guaranteed deposits of six of its major banks, similar steps were taken by Greece Portugal and Spain . Till now Greece, Ireland and Portugal has been bailed out by billions of dollars by European Union. Still the European countries have not recovered and are getting bailouts. The interest rate on bonds of Greece are at its highest point. And with bonds maturing soon and countries still under crisis there seems very less chance to these countries to recover in near future.

Analysis

Historians would debate if weather the US government should have bailed out Lehman Brothers leading to a greater degree of financial stability. My personal view point is that a company like Lehman Brother should have never left for bankruptcy, this was too big company to fail, before letting it go, the US fed should have analyzed the consequences of failure of Lehman Brothers, bailing out Lehman would have hardly cost the US treasury some 30 to 40 billion dollars but the effect the bankruptcy had on world economy is beyond measures, not only companies but countries went bankrupt, government across the globe pumped billions of dollars in their banking system to save their economy. We can see the effects of these as major developing nation are now facing problem of high inflation with India being hit hard in particular. The European countries are still in crisis. US till now has pumped trillions of dollars in its banking system to boost its recovery. The American debt has increased from $9.2 trillion in 2007 to $14.3 trillion till now and at present US is facing debt crisis and if US is unable to raise its debt ceiling and defaults on its payment it will lead to a worse financial crisis that will have a more catastrophic effect than that of recession of 2008.