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Pepper crisis continues on low import demand from US and EU

British Airways in merger talks with Qantas.

Oil rebounds from 4-year lows to above $43. Crisil to sell 90 per cent stake in UK subsidiary.

Tribune bankruptcy may signal distress for media companies. Dollar recovers from 13-year low against the yen on hopes

rescue for U.S. automakers

GM to temporarily close 20 plants to slash output

European Union governments prepared to put about 1.5% of

alliance's GDP to work digging economy out of a hole.

Former ASDAQ chairman Bernard L. Madoff arrested

facing a single count of securities fraud.

thDec

2008

lume2

,Issue

18

Repo Rate-6.5%

Reverse Repo 5%

Cash Reserve Ratio - 5.5%

P - 4.6% Inflation Rate - 8.84%

Issue Attractionstional Headlines 1

ernational Headline 1

porate Interview 2

mpany Review/zz Words

3

ssword/Quiz 4

estors Check 5-6

umni Contact 7

iz/Crosswordswers

8

cements 8

15 days Movements

Don't try to buy at the bottom and sell at the top. It can't be done except by

liars.- Bernard Baruch

Reliance communication gets flurry of ISD calls for 26%.

DoT says final bid for 3G will be on January 5th and Auction on

16th January 2009.

Sebi looking at stricter entry rules for MF industry.

Auto fuel rates to be freed from government price control. IT margins to be hit as US gets tough with visas.

OGC and IOC join hands for exploration and marketing.

Auto companies slash prices of motor cars and commercial

vehicles.

Yamaha to rollout scooter next year.

International Headlines

National Headlines

CHAANAKYACHAANAKYACHAANAKYACHAANAKYA

Wealth Incorporation

Christ University

Institute of Management

Finance Club Initiative Presents...

1 2 3 4 5 6 7 8 9 10

Rs/$

Rs/$

1 2 3 4 5 8 10 11 12

Oil(per bbl)

Oil(per bbl)

1 2 3 4 5 8 10 11 12

Gold(per 10gram)

Gold(per 10gram)

1 2 3 4 5 8 10 11 12

Sensex

Sensex

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Interview with Mr. C.K.Vanitha, AREA MANAGER - BAJAJ CAPITAL LTD., Bangalore

Q1.Bajaj Capital has been ranked 24th in the Best workplaces 2008 List across all industrie

what are the factors you think has contributed in achieving such a great milestone?

Ans: Adoption of latest technology, varied Investment options which make it as one stop financ

supermarket, unbiased Research back up, Matchless Financial planning which helps the investor to ha

holistic approach towards their investments, Powerful administration and ultimately all these results in hi

retention rate of employees. I think that ours should be the sole company wherein even the bottom lev

employee can speak freely to even the Managing director or Group CEO at any time.

Q2.Close to Rs.24000 crore is eroded from the FMP segment; do you suggest any other way

reduce this redemption pressure other than exit loads? And how far you think it is justified

penalize the investors by imposing exit load on FMPs?

Ans. As the FMP yields have come down drastically, already there are less takers. Income funds will occu

that place is my feel as already fmps have started giving a return @ 7.5% for quarterly options and incom

funds are surely giving a return of more than 13% now. Exit loads are mainly introduced to keep redemptio

under control as average Indian mentality wont allow him to come out if loads are there. Moreover even t

fund houses would have invested in few lock-in products and if mass redemption comes, fund houses m

have to sell some of their existing CDs and enter in new CDs which would result in facing Interest ra

risk .Moreover even the investor is well informed about the load structure so exit loads are required to kefew pressures under control.

Q3.The Global Equity Fund & Infrastructure Fund offered by Bajaj Capital have shown close to 30

loss since inception, what do you suggest the investors to exit these funds or stay invested?

Ans. A global equity fund helps the investor to further diversify the portfolio and still we suggest 5% of t

investors portfolio should be in such funds. If the exposure is more, then we suggest the investor to switch

diversified large cap fund or gold funds. We still believe that infrastructure sector has got wide scope. But w

dont suggest balancing the portfolio right now. We feel that the spending is going to be phenomenal in th

sector. We suggest the investor to hold these investments. Few infrastructure funds like Tatas and ICICI pr

have over weightage in large cap stocks and as such good to hold.

Q4.In 2005 Bajaj Capital launched 360 Financial Planning software aimed at encouragi

scientific and holistic investment. How this software works & how has it performed since

launch?

Ans. As we have wide range of investment products, really this financial planning helps us to identify t

requirements of the investor in the proper sense and helps to build a tailor made portfolio and mainly avo

blind selling and this concept makes our role entirely different from others. The software helps to get ma

basic inputs to plan the investments and helps to prioritize goals and plan through SIP approach. No doubt th

has made our role unique and frankly we dont have competitors as this tool helps us to go unbiased

diversifying the investors risks. It also helps us in having high retention of existing clients as we review t

plan regularly.

Q5.Considering present market condition what are the products & fund options you recommend

your clients?

Ans. As our research rightly says even if 5% of Indian population additionally invests Rs.10000 in equity

sum of Rs.50000 crore would get created which should really suffice to counter even if entire FII selli

happens. So we still strongly suggest participation in equity and even through Large cap funds like Sundara

BNP Paribas select focus, DSP blackrock top 100 and equity, Birla Sunlife frontline equity funds, etc. Also

suggest ULIPs to meet their long term financial objectives. Recently we launched Art also as investme

option.

"Wealth is not a matter of intelligence it's a matter of inspiration." Jim Rohn

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KPMG INDIA

KPMG is the global network of professional services firms whose aim is to turn understanding of

information, industries, and business trends into value. KPMG was established in India in September

1993, and has rapidly built a significant competitive presence in the country. The firm operates from its

offices in Mumbai, Pune, Delhi, Kolkata, Chennai, Bangalore and Hyderabad, and offers its clients a full

range of services, including financial and business advisory, tax and regulatory, and risk advisoryservices. With nearly 1,23,000 people worldwide, member firms provide audit, tax, and advisory

services in 145 countries.

Today they work with over 5000 national and international clients and operate from 7 Indian cities.

They have over 3000 people across our service lines and sectors and looking at crossing the 5,000

mark by 2010.

The firm got a major boost with the announcement of its inclusion in the Global Board of Directors for

KPMG International. KPMG in India will be one of the 25 members currently on the board.

Leadership team

Russell Parera - Chief Executive Officer

Richard Rekhy - Chief Operating Officer Pradip Kanakia - National Head of Markets

Other information

Growing at 45% year on year and expected to continue the trend

IFRS, infrastructure and private equity to be a major focus area

Launches Corporate alumni programme through an alumni website

Careers at KPMG India

At KPMG, you will find challenging opportunities in an environment that recognizes and rewards

exceptional performance. They seek experienced individuals capable of delivering a wide range of value

-added services to the clients around the world, while helping them to confront today's critical issues

head on. KPMG is a strong international network of firms and takes a leadership role in globalizingbusinesses.

To help you capitalize on these opportunities, they have implemented several programs to attract the

best and the brightest people and are striving to make KPMG a place where you will want to stay and

build your professional career.

Company Review

Good management consists in showing average people how to do the work of superior peopleohn D. Rockefelle

Buzz Word

Front Running: The unethical practice of a broker trading an equity, based on information from the

analyst department before his or her clients have been given the information.

Garbatrage: An increase in price and trading volume in a particular sector of the

economy that results from a recent takeover creating a change in sentiment towards the sector. Alsoknown as rumortrage.

Gazunder: When a buyer reduces his or her bid for a property before the transaction has been signed

and finalized

Halloween Massacre: Refers to Canada's decision to tax all income trusts domiciled in Canada. Itwas announced that all income trusts will be taxed in a similar manner as corporations at a rate over30% on taxable income, causing unit holders' values to decrease dramatically virtually overnight.

8/6/2019 18_16th December 2008 (161208)

4/8Charity is injurious unless it helps the recipient to become independent of it. -

Sam Walton

Down

Across3. Market price of mutual funds6. A highly volatile stock that goes up and down a lot.7. This method of trading involves selling of securities without owning them.

8. Money spent for payment towards the influential persons for the benefit of

organizations10. Money or property held by a third party until a contract is fulfilled11. Stage of financing after venture capital and before a company goes public.

12. What is known as the purchase of insurance against losses because ofcurrency fluctuations?

Q1.J.P. Morgan and Co. later became which trust?

Q2.What is the act of selling different commodities in different markets at different

prices called?

Q3.Part of an economic theory for valuing financial securities and calculating the

cost of capital.

Q4.A security which offers a way for US citizens to invest in a foreign company

Q5.The practice of engaging in financial transactions in order to conceal the identity,source, and/or destination of money, and is a main operation of the undergroundeconomy.

Q5.The practice of engaging in financial transactions in order to conceal the identity,source, and/or destination of money, and is a main operation of the undergroundeconomy.

Q7.Any investment strategy that is classified as extremely high risk is termed as

Q8.An investing strategy that involves buying equities directly related to thespending behavior of baby boomers (people born between 1946 and 1964).

Q9.Who devised the modern portfolio theory in 1952?

Quiz

Crosswords

Founded in 187

the Tokyo Sto

exchange (TSE)

t h e o l d e s

f i n a n c i aexchanges

Asia, and th

largest of Japan

f i v e s t o c

exchanges. I

c u r r e n

incarnation w

signed into law

1 9 4 7 , a f t e

S u p r e m

C o m m a n d e

Allied Powe

dissolved th

wartime TS

Now it is

p r i v a t

corporation wi

11 directors

officers and

auditors.

Until 1968, th

British pound w

the currency

Zambia, aft

which the kwach

replaced th

pound at a rate

2 kwacha to

pound. At th

time, the kwach

was equal

US$1.20, b

rampant inflatio

s i n c e t h at i m e h a

s i g n i f i c a n t

devalued th

currency.

Did you Know

1. Currency trivia. In India fromwhich state is the Paper for the

currency manufactured?

2. Which is India's first Credit Rating

Agency set up jointly by LIC, GIC,UTI, ICICI and Asian DevelopmentBank in January 1988?

4. Name the term used fordepreciating a company's intangibleassets?

5. In which country's coins you canfound the following lines imprinted,'This is the root of all evils' ?

9. Which country's currency is knownas Drachma, which in Greek means

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Binomial Trees in Option Pricing

In the financial world, the Black-Scholes and the binomial option models of valuation aretwo of the most important concepts in modern financial theory. To value an option, one canuse either the Black-Scholes model or the binomial option model, and each has its own

advantages and disadvantages.Let us look at some advantages of the Binomial Model.

Multiple-Period View

The binomial model enables a multi-period view of the underlying asset price as well as theprice of the option. In contrast to the Black-Scholes model, which provides a numericalresult based on five inputs, the binomial model allows for the calculation of the asset and

the option for multiple periods along with the range of possible results for each period.

The advantage of this multi-period view is that the user can visualize the change in assetprice from period to period and evaluate the option based on making decisions at differentpoints in time. For an American option, which can be exercised at any time before theexpiration date, the binomial model can provide insight into when exercising the option may

look attractive and when it should be held for longer periods.

By looking at the binomial tree of values, one can determine in advance when a decision onexercise may occur. If the option has a positive value, there is the possibility of exercise,

whereas if it has a value less than zero, it should he held for longer periods.

Transparency:

Closely related to the multi-period review is the ability of the binomial model to providetransparency into the underlying value of the asset and the option as it progresses through

time. The Black-Scholes model has five inputs:

1. Risk-free rate

2. Exercise price3. Current price of asset4. Time to maturity

5. Implied volatility of the asset price

When these data points are entered into a Black-Scholes model, the model calculates avalue for the option, but the impacts of these factors are not revealed on a period-to-periodbasis. With the binomial model, one can see the change in the underlying asset price fromperiod to period and the corresponding change caused in the option price.

"Profit in business comes from repeat customers, customers that boast about your project or service, and tha

brin friends with them." W. Edwards Demin

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Incorporating Probabilities:

The basic method of calculating the binomial option model is to use thesame probability for success and failure each period until optionexpiration. However, one can actually incorporate different probabilities

for each period based on new information obtained as time passes.

For example, there may be a 50/50 chance that the underlying assetprice can increase or decrease by 30% in one period. For the secondperiod, however, the probability that the underlying asset price willincrease may grow to 70/30. Let's say we are evaluating an oil well; weare not sure what the value of that oil well is, but there is a 50/50chance that the price will go up. If oil prices go up in Period 1, makingthe oil well more valuable, and the market fundamentals now point tocontinued increases in oil prices, the probability of further appreciation inprice may now be 70%. The binomial model allows for this flexibility; the

Black-Scholes model does not.

Developing The Model:The simplest binomial model will have two expected returns, whoseprobabilities add up to 100%. In our example, there are two possibleoutcomes for the oil well at each point in time. A more complex versioncould have three or more different outcomes, each of which is given aprobability of occurrence. To calculate the returns per period startingfrom time zero (now), we must make a determination of the value of theunderlying asset one period from now. In this example, we will assume

the following:

Price of underlying asset: 500 Investment required: 1,000

Risk-free rate: 5% Price change each period: 30% up or down

The price of the underlying asset is 500, and in Period 1, it can either beworth 650 or 350. That would be the equivalent of a 30% increase ordecrease in one period. Applying the same 30% up-or-down calculationto the next period results in values of 845, 455 or 245 for Period 2. Wecan continue this process for as many periods as are necessary to reach

the expiration of the option.

In our example, there is a 50% chance of appreciation and a 50%chance of depreciation. Using the Period 2 values as an example, thiscalculates out as (650x50%) + (350*50%) = 500, which is the currentvalue of the asset. We can now see that if the probabilities are altered,the expected value of the underlying asset will also change. If theprobability should be changed, it can also be changed for eachsubsequent period and does not necessarily have to remain the samethroughout. As the example shows, the binomial model can be extendedeasily to multiple periods. Although the Black-Scholes model cancalculate the result of an extended expiration date, the binomial model.

INVESTORS CHECK . Contd.

Berkshire Hathawa

began as just

group of texti

milling plants, bu

when Warre

Buffett became th

controlling

shareholder in th

mid 1960s, he bega

a progressiv

strategy of divertin

cash flows from th

core business int

other investment

Insurance

subsidiaries tend trepresent th

largest pieces o

Berkshire Hathawa

but the compan

manages hundred

of divers

businesses all ove

the world.

Until 1968, th

British pound wa

the currency oZambia, after whic

the kwacha replace

the pound at a rat

of 2 kwacha to

pound. At this time

the kwacha wa

equal t

US$1.20, but

rampant inflatio

since that time ha

significantly

devalued th

currency.

ONGC is the highe

dividend payin

company in India.

Did you Know

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CONTACT ALUMNI AT:

Hello All!!

Hope you have been reading and enjoying Chaanakya!!

To make the issue more interactive, the Chaanakya team would love to answer your personal queries on finance andrelated topics! It does'nt matter how basic or how complicated it is; what matters is that you enhance your knowledge andmake the best use of now! Any queries and questions you have will be answered in the next issue by our professors, theChaanakya team or the readers! You can send all your questions to: chaanakya.ccim@gmail.com.

We assure to give you prompt replies and will try to make it as easy as we can for you to learn and progress!

We would also highly appreciate any feedback on the newsletter: good, bad or even ugly... after all, the first step toearning is criticism!

Any contributions in the form of articles, trivia, etc will find place in the newsletter! Students and even professors canmail them to us.

Keep reading and keep learnng!

ANNOUNCEMENT!!!

NAME: C.RAGHAVENDRA PRABHU

BATCH: 2003-2005

PREVIOUS ORGANIZATION: HDFC

CURRENT ORGANIZATION: CITI BANK

WORK PROFILE: WEALTH MANAGEROFFICIAL MAIL_ID:

aghavendra.prabhu@citi.com

CONTACT NUMBER: 9886256565

NAME: SREELAKSHMY

BATCH: 2004-2006

PREVIOUS ORGANIZATION: KOTAK

MAHINDRA BANK

CURRENT ORGANIZATION: HSBC, DUBA

WORK PROFILE:MI PLANNING ANDANALYSIS

PERSONAL MAIL_ID:

sreelakshmy.v@gmail.com

CONTACT NUMBER: 00971506803107

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1.Morgan Guarant

2. Dumping

3.Beta

4.Acute Deposit

Receipts

5.Money Launderin

6.Martingale syste

7.Casino finance

8. Boomernomics

9.Harry Markowitz

Yankee market

a slang te

for the sto

market in t

United Stat

Yankee market

usually used non-U.S. reside

and refers to t

slang term for

American -

Yankee.

Cornelius Vand

Starr was the fi

Westerner

Shanghai to s

insurance to t

Chinese. After business beca

successful in As

he expanded

other marke

including La

America, Euro

and the Mid

East.

CROSSWORD ANSWERS

Did you Kno

Quiz Answers

Editing/Compiling Arihant PatawariNews Chetan P.

ShriyaCompany Review Mohammad NimakwalaInvestors Check/Stock Ratnas Sebin EmmanuelInterview JerryCoordination Fouzia Tarannum B.

Contributions made by 1st year:

Editing/Compiling Gyanesh ShroffDid you know, Quiz Megha GargQuotes, Book Quotes Maria FernandesGraphs, Buzzwords Paloma LoboIndices PaulomiCrosswords HiteshCommunication Archana

Please mail your valuable feedbacks, reviews at chaanakya.ccim@gmail.com

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