Final Presentation financial market
Transcript of Final Presentation financial market
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PRESENTED BY
ADITYA PATIL
ANNA NICHOLAS
BIBIN CHACKO EGYANENDRA KUMAR
MADHURIMA PRAKASH
MEGHA T N
NUBIA G CHAKKALAKALRAJ JANA ROY
REVATHY JEEVANROHIT RAMACHANDRAN
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OBJECTIVES
� INTRODUCTION
� TYPES OF DEBT MARKETS
� MAJOR PLAYERS AND MARKET SIZE� REGULATIONS
� RBI AND SEBI
� CLASSIFICATION
� DEBT INSTRUMENTS
� ADVANTAGES AND DISADVANTAGES
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INTR ODUCTION
� What is a ¶DEBT MARKET·?
�Fixed Return
� Coupon Rate
� Why is ¶BOND MARKET· referred as
¶GOVERNMENT BOND MARKET· ?
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Types of debt markets
� Funding
� Government & agency
� Municipal� Mortgage backed, asset backed, and
collateralized debt obligation
� Corporate
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Corporate Bond
� A corporate bond is a bond issued by a
corporation. The term is usually applied tolonger-term debt instruments, generally with
a maturity date falling at least a year after
their issue date.
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Types of corporate bond
� Secured debt vs unsecured debt
� Senior debt vs subordinate debt
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Risk analysis
� Default risk
� Credit spread risk
� Interest rate risk� Liquidity risk
� Supply risk
� Inflation risk.� Tax Change risk
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GOVERNMENT BONDS
A debt security issued by a government to
support government spending, most oftenissued in the country's domestic currency.
Government debt is money owed by anylevel of government and is backed by the full
faith of the government.
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Lending to a national government in the
country's own sovereign currency,
government bonds, are free of credit risk,
because the government can raise taxes or
simply print more money to redeem the bond
at maturity
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The Indian bond market, however, is today at par
with some of the leading markets of Asia like Korea.
The grapevine is that in a few years, the Indian bond
market will be counted as a renowned market of theworld
The Government of India bonds (GOI bonds) enjoyed
an increase of about 8% of GDP - from 28% to 36.7%
from 1991 to 2001.
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MUNCIPAL BOND
� A debt security issued by a state, municipality
or county to finance its capital expenditures.
Municipal bonds are exempt from federal
taxes and from most state and local taxes,
especially if you live in the state in which the
bond is issued.
� Also known as a "muni".
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� Municipal bonds may be used to fund
expenditures such as the construction of
highways, bridges or schools. "Munis" are
bought for their favourable tax implications.
� Popular with people in high income tax
brackets.
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Municipal bonds, the best way to access
market funds
The size of municipal bond market in USA grew byabout 90% between 2000 and 2005, with fresh bond
issuances of about $459 billion in 2005. The US
municipal bond market has been in existence for
more than 150 years, and its size is more than that of the market for US corporate debt.
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Although India's municipal corporations are
yet to avail of municipal bonds in a big way,
the scenario seems likely to change. With
increasing urbanisation pushing demand for
infrastructure, and GoI's proposed thrust for
infrastructure development, municipal bonds
appear certain to set off an urban revolution
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MORTGAGED BACKED SECURITY
A type of asset-backed security that is secured
by a mortgage or collection of mortgages. These
securities must also be grouped in one of the top
two ratings as determined by a accredited creditrating agency, and usually pay periodic payments
that are similar to coupon payments
Also known as mortgage-related security" or a
"mortgage pass through"
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TYPES OF MBS
1. Residential MBS: RMBS is a pass-through MBS
backed by mortgages on residential property.
2. Commercial MBS: CMBS s a pass-through MBS
backed by mortgages on commercial property.
3. A collateralized mortgage obligation (CMO) is a
more complex MBS in which the mortgages are
ordered into tranches by some quality (such asrepayment time), with each tranche sold as a
separate security.
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FUNDING BONDS
Funding bonds issued to cover an interestliability
Funding bonds include
� bonds,
� stocks,
� shares,
� securities or
� certificates of indebtedness
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DEBT INSTRUMENTS
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DEFINITION
� A paper or electronic obligation that enables
the issuing party to raise funds by promising to
repay a lender in accordance with terms of a
contract.
� Types of debt instruments include Government
Securities, Corporate Bonds, Certificate of
Deposit, Commercial papers.
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GOVERNMENT SECURITIES
� Government debt (also known as public
debt, national debt, sovereign
debt) is money (or credit) owed by a central
government.
� Reserve Bank of India issues Government Securitiesor G-Secs on behalf of the Government of India.
� Maturity period - 1 to 30 years.
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� G-Secs offer fixed interest rate.
� For shorter term, there are Treasury Bills or T-Bills, which are issued by the RBI for 91 days,
182 days and 364 days.
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CORPORATE BONDS
� A corporate bond is a bond issued by a corporation.It is a bond that a corporation issues to raise moneyin order to expand its business.
� Comes from PSUs and private corporations .
� Extensive range of tenures up to 15 years.
� Risky when compared to G-Secs.
� Higher returns when compared to G-Secs.
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COMMERCIAL PAPERS
� An unsecured, short-term debt instrument issued
by a corporation, typically for the financing of
accounts receivable, inventories and meeting
short-term liabilities.
� Maturity of 7 to 365 days.
� Issued by corporate entities at a discount to face
value.
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CERTIFICATE OF DEPOSIT
� A certificate of deposit is a promissory note issued bya bank. It is a time deposit that restricts holdersfrom withdrawing funds on demand.
� Negotiable money market instruments.
� Offer higher returns than Bank term deposits.
� Banks - maturity between 7 days and 1 year.
� Financial Institutions - maturity between 1 and 3
years
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BOND MARKET PARTICIPANTS� Bond market participants are similar to participants in most
financial markets.
� Are essentially either buyers (debt issuer) of funds or sellers
(institution) of funds and often both.
Participants include
� Institutional Investors
� Government
� Traders
� Individuals
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INSTITUTIONAL INVESTORS
�Pool a large sum of money and invest the sums insecurities, real property.
�Typical investors include banks, insurance
companies, mutual funds.
�As per the current regulations, Indian companies
can issue bonds in Indian currency and foreign
investors can invest in these bonds upto $20billioncollectively.
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TRADER
�A trader is someone who buys and sells financialinstruments such as stocks,bonds,commodities and
derivatives.
�Fixed securities are referred to as bonds and they
provide fixed return based on interest rate.
�Institutional trader
�Independent trader
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GOVERNMENT
PSU bonds are bonds issued by central PSUs (i.e. PSUfunds )
Corporate bondsBonds that are issued by public sector undertakings
and private corporations for a wide range of tenors butnamely up to 15years.
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REGULATION
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REGULATION
Consists of a set of rules and
restrictions
ensuring market stability .protecting onshore financial
institutions
from offshore competition.
Economic regulation
Prudential regulation
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ECONOMIC REGULATION
economic rules and restrictions.
undermine the free operation of market
forces by prohibiting certain business
activities.
Egs: market entry restrictions, capital
controls, price controls and certain
taxes.
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PRUDENTIAL REGULATION
meant to protect investors, ensure that
financial markets are fair, transparent
and efficient and reduce systemic risks.
stresses transparency, market
discipline and self regulation and not
just compliance with formal rules.
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About RBI
� Nations Central Bank
� 1935
� Managed by Central Board of Directors
� India¶s monetary authority
�
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� Issuer of currency
� Manager of foreign exchange
reserves
� Banker and debt manager to
government� Supervisor of payment
system
�
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Organizations & Functions
� Establishment
� Preamble
� Central Board� Legal Framework
� Main Functions
� Departments� Offices
� Training Establishment
� Subsidiaries
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Role of RBI in Debt Market
� Prohibition of RBI¶s subscription
� Central Government as a financial
intermediary for State Governments� 8.1 per cent
� investments in both infrastructure
and industry accelerate
� Central and State Governments in
consonance with the Central and
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About SEBI
The Securities and
Exchange Board of Indiawas established on April
12, 1992 in accordancewith the provisions of the
Securities and Exchan e
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FUNCTIONS OF
SEBI
� Regulating the business in stock
exchanges and any other
securities market.
� Registering and regulating the
working of stockbrokers, Sub-brokers, share transfer agents,
bankers to an issue, merchant ban
kers ,
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� Registering and regulating the wor
king of collective investment
schemes including mutualfund� Promoting and regulating self-
regulatory organisation.
� Prohibiting fraudulent and unfair trade practices relating to
securities market.
� Promotin investors· education an
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Classification of Indian Debt Market
Indian debt market can be classified into two
categories:
1-Government Securities Market (G-Sec Market)
2-Bond Market
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Government Securities Market
(G-Sec Market)
� It consists of central and state government
securities. Government Securities are
securities issued by the Government for
raising a public loan or as notified in the
official Gazette. They consist of Government
Promissory Notes, Bearer Bonds, Stocks or
Bonds held in Bond Ledger Account. They maybe in the form of Treasury Bills or Dated
Government Securities.
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Features of Government Securities
Issued at face value
No default risk as the securities carry
sovereign guarantee.
Ample liquidity as the investor can sell the
security in the secondary market
Interest payment on a half yearly basis on face
value
No tax deducted at source
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Bond Market
� It consists of Financial Institutions bonds,
Corporate bonds and debentures and Public
Sector Units bonds. These bonds are issued to
meet financial requirements at a fixed cost
and hence remove uncertainty in financial
costs.
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Advantages
� Assured returns
� High liquidity
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Disadvantages
� Less Returns
� Less retail participation