Q1; trading on equity

Trading on equity is the financial process of using debt to produce gain for the
residual owners. The practice is known as trading on equity because it is the
equity shareholders who have only interest (or equity) in the business income.
The term owes its name also to the fact that the creditors are willing to advance
funds on the strength of the equity supplied by the owners. Trading feature here
is simply one of taking advantage of the permanent stock investment to borrow
funds on reasonable basis.
When the amount of borrowing is relatively large in relation to capital stock, a
company is said to be trading on this equity but where borrowing is
comparatively small in relation to capital stock, the company is said to be trading
on thick equity.
Effects of Trading on Equity:
Trading on equity acts as a lever to magnify the influence of fluctuations in
earnings. Any fluctuation in earnings before interest and taxes (EBIT) is
magnified on the earnings per share (EPS) by operation of trading on equity
larger the magnitude of debt in capital structure, the higher is the variation in
EPS given any variation in EBIT.
Solution:
Impact on trading on equity, will be reflected in earnings per share available to
common stock holders. To calculate the EPS in each of the four alternatives EBIT
has to be first of all calculated.
Proposal Proposal
A
B
Rs.
EBIT

1,20,000 1,20,000

Less;
interest
Earnings
before
taxes

Rs.

Proposal Proposa
C Rs.
l D Rs.
1,20,000

1,20,000

25,000

60,000

11,20,000 95,000

60,000

1,20,000

Less; taxes
@ 50%
60,000

47,100

30,000

60,000

Earnings
after taxes 60,000

47,500

30,000

60,000

47,500

,30,000

35,000

Less;
Preferred
stock
dividend

25,000

Earnings
available

60,000

to
common
stock
holders

20,000

15,000

10,000

15,000

Rs. 3.00

3.67

3.00

2.33

No. of
common
shares
EPS

Effects of trading on equity can be explained with the help of the following
example.
Example:
Prakash Company is capitalized with Rs. 10, 00,000 dividends in 10,000 common
shares of Rs. 100 each. The management wishes to raise another Rs. 10, 00,000
to finance a major programme of expansion through one of four possible
financing plans.
Then management
A) may finance the company with all common stock,
B). Rs. 5 lakhs in common stock and Rs. 5 lakhs in debt at 5% interest,
C) all debt at 6% interest or
D) Rs. 5 lakhs in common stock and Rs. 5 lakhs in preferred stock with 5-4
dividend.
The companys existing earnings before interest and taxes (EBIT) amounted to
Rs. 12,00,000, corporation tax is assumed to be 50%
Thus, when EBIT is Rs. 1,20,000 proposal B involving a total capitalisation of 75%
common stock and 25% debt, would be the most favourable with respect to
earnings per share. It may further be noted that proportion of common stock in
total capitalisation is the same in both the proposals B and D but EPS is
altogether different because of induction of preferred stock.
While preferred stock dividend is subject to taxes whereas interest on debt is tax
deductible expenditure resulting in variation in EPS in proposals B and D, with a
50% tax rate the explicit cost of preferred stock is twice the cost of debt.

Q2: sebi
The overall objectives of SEBI are to protect the interest of investors and to
promote the development of stock exchange and to regulate the activities
of stock market. The objectives of SEBI are:
1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self
regulation of business and its statutory regulations.
4. To regulate and develop a code of conduct for intermediaries such as
brokers, underwriters, etc.

Functions of SEBI:
The SEBI performs functions to meet its objectives. To meet three
objectives SEBI has three important functions. These are:
i. Protective functions
ii. Developmental functions
iii. Regulatory functions.
1. Protective Functions:
These functions are performed by SEBI to protect the interest of investor
and provide safety of investment.
As protective functions SEBI performs following functions:
(i) It Checks Price Rigging:
Price rigging refers to manipulating the prices of securities with the main
objective of inflating or depressing the market price of securities. SEBI
prohibits such practice because this can defraud and cheat the investors.
(ii) It Prohibits Insider trading:
Insider is any person connected with the company such as directors,
promoters etc. These insiders have sensitive information which affects the
prices of the securities. This information is not available to people at large

but the insiders get this privileged information by working inside the
company and if they use this information to make profit, then it is known as
insider trading, e.g., the directors of a company may know that company
will issue Bonus shares to its shareholders at the end of year and they
purchase shares from market to make profit with bonus issue. This is
known as insider trading. SEBI keeps a strict check when insiders are
buying securities of the company and takes strict action on insider trading.
(iii) SEBI prohibits fraudulent and Unfair Trade Practices:
SEBI does not allow the companies to make misleading statements which
are likely to induce the sale or purchase of securities by any other person.
(iv) SEBI undertakes steps to educate investors so that they are able to
evaluate the securities of various companies and select the most profitable
securities.
(v) SEBI promotes fair practices and code of conduct in security market by
taking following steps:
(a) SEBI has issued guidelines to protect the interest of debenture-holders
wherein companies cannot change terms in midterm.
(b) SEBI is empowered to investigate cases of insider trading and has
provisions for stiff fine and imprisonment.
(c) SEBI has stopped the practice of making preferential allotment of
shares unrelated to market prices.
2. Developmental Functions:
These functions are performed by the SEBI to promote and develop
activities in stock exchange and increase the business in stock exchange.
Under developmental categories following functions are performed by
SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible
and adoptable approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock
exchange.
3. Regulatory Functions:
These functions are performed by SEBI to regulate the business in stock
exchange. To regulate the activities of stock exchange following functions
are performed:
(i) SEBI has framed rules and regulations and a code of conduct to regulate
the intermediaries such as merchant bankers, brokers, underwriters, etc.
(ii) These intermediaries have been brought under the regulatory purview
and private placement has been made more restrictive.
(iii) SEBI registers and regulates the working of stock brokers, sub-brokers,
share transfer agents, trustees, merchant bankers and all those who are
associated with stock exchange in any manner.
(iv) SEBI registers and regulates the working of mutual funds etc.
(v) SEBI regulates takeover of the companies.
(vi) SEBI conducts inquiries and audit of stock exchanges.

Q3:merchant banker
Merchant Banking is a combination of Banking and
consultancy services. It provides consultancy to its
clients for financial, marketing, managerial and legal
matters. Consultancy means to provide advice, guidance
and service for a fee. It helps a businessman to start a
business. It helps to raise (collect) finance. It helps to
expand and modernize the business. It helps in
restructuring of a business. It helps to revive sick
business units. It also helps companies to register, buy
and sell shares at the stock exchange. In short,
merchant banking provides a wide range of services for
starting until running a business. It acts as Financial
Engineer for a business.
Q4: value based management
http://www.valuebasedmanagement.net/faq_what_is_val
ue_based_management.html
q5: break even analysis
An analysis to determine the point at which revenue
received equals the costs associated with receiving the
revenue. Break-even analysis calculates what is known
as a margin of safety, the amount that revenues exceed
the break-even point. This is the amount that revenues
can fall while still staying above the break-even point.
Break-even analysis is a supply-side analysis; that is, it
only analyzes the costs of the sales. It does not analyze
how demand may be affected at different price levels.
For example, if it costs $50 to produce a widget, and
there are fixed costs of $1,000, the break-even point for
selling the widgets would be:
If selling for $100: 20 Widgets (Calculated as 1000/(10050)=20)

If selling for $200: 7 Widgets (Calculated as 1000/(20050)=6.7)

In this example, if someone sells the product for a
higher price, the break-even point will come faster.
What the analysis does not show is that it may be easier
to sell 20 widgets at $100 each than 7 widgets at $200
each. A demand-side analysis would give the seller that
information.

Q6: pecking order theory

In corporate finance, pecking order theory (or pecking
order model) postulates that the cost of financing
increases with asymmetric information.
Financing comes from three sources, internal funds,
debt and new equity. Companies prioritize their sources
of financing, first preferring internal financing, and then
debt, lastly raising equity as a last resort. Hence:
internal financing is used first; when that is depleted,
then debt is issued; and when it is no longer sensible to
issue any more debt, equity is issued. This theory
maintains that businesses adhere to a hierarchy of
financing sources and prefer internal financing when
available, and debt is preferred over equity if external
financing is required (equity would mean issuing shares
which meant 'bringing external ownership' into the
company). Thus, the form of debt a firm chooses can act
as a signal of its need for external finance.
The pecking order theory is popularized by Myers and
Majluf (1984)[1] where they argue that equity is a less
preferred means to raise capital because when

managers (who are assumed to know better about true

condition of the firm than investors) issue new equity,
investors believe that managers think that the firm is
overvalued and managers are taking advantage of this
over-valuation. As a result, investors will place a lower
value to the new equity issuance.
Q7: sick industrial company
Industrial sickness is defined in India as "an industrial
company (being a company registered for not less than
five years) which has, at the end of any financial year,
accumulated losses equal to, or exceeding, its entire net
worth and has also suffered cash losses in such financial
year and the financial year immediately preceding such
financial year".
Q8:due diligence
An investigation or audit of a potential investment. Due
diligence serves to confirm all material facts in regards
to a sale.
2. Generally, due diligence refers to the care a
reasonable person should take before entering into an
agreement or a transaction with another party.
1. Offers to purchase an asset are usually dependent on
the results of due diligence analysis. This includes
reviewing all financial records plus anything else
deemed material to the sale. Sellers could also perform
a due diligence analysis on the buyer. Items that may be
considered are the buyer's ability to purchase, as well
as other items that would affect the purchased entity or
the seller after the sale has been completed.
2. Due diligence is a way of preventing unnecessary
harm to either party involved in a transaction.
Q9: discounted cash flow

Discounted cash flow (DCF) is a valuation method used

to estimate the attractiveness of an investment
opportunity. DCF analysis uses future free cash flow
projections and discounts them to arrive at a present
value estimate, which is used to evaluate the potential
for investment. If the value arrived at through DCF
analysis is higher than the current cost of the
investment, the opportunity may be a good one
Calculated as:

Q10:p/e approach
The Price-to-Earnings Ratio or P/E ratio is a ratio for
valuing a company that measures its current share price
relative to its per-share earnings.
The price-earnings ratio can be calculated as:
Market Value per Share / Earnings per Share
For example, suppose that a company is currently
trading at $43 a share and its earnings over the last 12
months were $1.95 per share. The P/E ratio for the stock
could then be calculated as 43/1.95, or 22.05.
EPS is most often derived from the last four quarters.
This form of the price-earnings ratio is called trailing
P/E, which may be calculated by subtracting a
companys share value at the beginning of the 12-month
period from its value at the periods end, adjusting for
stock splits if there have been any. Sometimes, priceearnings can also be taken from analysts estimates of

earnings expected during the next four quarters. This

form of price-earnings is also called projected or
forward P/E. A third, less common variation uses the
sum of the last two actual quarters and the estimates of
the next two quarters.
The price-earnings ratio is also sometimes known as the
price multiple or the earnings multiple.
Q11: Main Financing Mechanisms for Infrastructure
Projects
A number of financing mechanisms are available for
infrastructure projects, and for public-private
partnership (PPP) projects in particular.
Government Funding
Corporate or On-Balance Sheet Finance
Project Finance
Government Funding
The Government may choose to fund some or all of the
capital investment in a project and look to the private
sector to bring in expertise and efficiency. This is
generally the case in a so-called Design-Build-Operate
project where the operator is paid a lump sum for
completed stages of construction and will then receive
an operating fee to cover operation and maintenance of
the project. Another example would be where the
Government chooses to source out the civil works for
the project through traditional procurement and then
brings in a private operator to operate and maintain the
facilities or provide the service.
Even where Governments prefer that financing is raised
by the private sector, increasingly Governments are
recognizing that there are some aspects of the project

or some risks in a project that may be easier or more

sensible for the Government to take. This is discussed in
Government Support in financing PPPs.
back to top
Corporate or On-Balance Sheet Finance
The private operator may accept to finance some of the
capital investment for the project and decide to fund the
project through corporate financing which would
involve getting finance for the project based on the
balance sheet of the private operator rather than the
project itself. This is typically the mechanism used in
lower value projects where the cost of the financing is
not significant enough to warrant a project financing
mechanism or where the operator is so large that it
chooses to fund the project from its own balance sheet.
The benefit of corporate finance is that the cost of
funding will be the cost of funding of the private
operator itself and so it is typically lower than the cost
of funding of project finance. It is also less complicated
than project finance. However, there is an opportunity
cost attached to corporate financing because the
company will only be able to raise a limited level of
finance against its equity (debt to equity ratio) and the
more it invests in one project the less it will be available
to fund or invest in other projects.
back to top
Project Finance
One of the most common - and often most efficient financing arrangements for PPP projects is project
financing, also known as limited recourse or nonrecourse financing. Project financing normally takes
the form of limited recourse lending to a specially
created project vehicle (special purpose vehicle or

SPV) which has the right to carry out the construction

and operation of the project. It is typically used in a new
build or extensive refurbishment situation and so the
SPV has no existing business. The SPV will be
dependent on revenue streams from the contractual
arrangements and/or from tariffs from end users which
will only commence once construction has been
completed and the project is in operation. It is therefore
a risky enterprise and before they agree to provide
financing to the project the lenders will want to carry
out an extensive due diligence on the potential viability
of the project and a detailed review of whether the
project risk allocation protects the project company
sufficiently. This is known commonly as verifying the
projects bankability. For more, go to Risk Allocation,
Bankability and Mitigation.
Q12:symptoms of sickness
Page 950
Q13: private placements
Private placement (or non-public offering) is a funding
round of securities which are sold not through a public
offering, but rather through a private offering, mostly to
a small number of chosen investors. PIPE (Private
Investment in Public Equity) deals are one type of
private placement.
If securities are sold directly to an institutional investor,
such as a corporation or bank, the transaction is called a
private placement.
Unlike a public offering, a private placement does not
have to be registered with the Securities and Exchange
Commission (SEC), provided the securities are bought
for investment and not for resale.
Q14: key financial intermediaries
Page 33

Q15: long term

Page 429
The sources from which a finance manager can raise
long-term funds are broadly classified as 1) External
Sources 2) Internal Sources.
Internal sources include retained earnings, depreciation
(as depreciation only represents reduction in the value
of the asset through wear and tear, obsolescence etc,
and is not an actual cash outflow).
The focus in this article is on the long-term external
source of finance.
Various sources of long-term finance are
Share capital
* Equity share capital
* Preference share capital.
Debenture Capital
* Non-Convertible Debentures (NCD)
* Fully Convertible Debentures (FCD)
* Partly Convertible Debentures (PCD)
Term Loans
* Rupee term loans
* Foreign currency terms loans.
There are many other sources of long-term finance like
deferred credit, unsecured loans and deposits, suppliers
credit scheme, leasing and hire purchase which are
beyond the scope of this article.
Equity Capital:
Equity capital represents the ownership capital. The
equity shareholders collectively own the company and
enjoy all the rewards and the risks associated with the
ownership. However, unlike the sole proprietor or the

partner of the firm, the downside risk of the

shareholders is limited to their capital contribution.
Residual Claim: It refers to the residual income on which
the shareholders have a right. Residual income is the
income left after the claims of all others lenders of longterm finance in the form of interest and taxes have been
met. It is the figure of profit after tax less dividend to be
paid to preference shareholders.
The equity shareholders have a residual claim on the
income of the company. The company has distributed
the whole profit as dividend to the equity holders or the
company may retain a part of its profit. The dividend
decision is the decision of the board of directors. Equity
Shareholders cannot contest it in a court of law.
Liquidation: Refers to the closure of a company. It may
be due to losses and non-viability of the operations. The
capital contributed by the equity shareholders cannot
be redeemed until the liquidation of the company.
From the companys point of view funds through
equity capital has both advantages and disadvantages.
The main advantages are:
* It is a source of permanent capital
* Payments of dividend is not a legal obligation
* Equity capital provides the base for raising debt as
equity represents the commitment of promoters to the
growth of the company.
The main disadvantages are:
* Non-voting shares refer to the equity shares which do
not carry voting rights. Thus, non-voting shareholders
do not involve in making management decisions.
* Public offer of equity capital can result in a dilution of
the effective control exercised by the existing
shareholders. However, this can be avoided by issuing of
non-voting shares (which no corporate is yet allowed to
do).

* Unlike interest on debentures, dividends on equity are

not tax deductible. Out-flow amounts on dividends will
not provide any tax-shield.
Q17: problems associated with disinvestment of psu in
india
Disinvestment of Public sector undertakings
Disinvestment is a wider term extending from dilution of
the stake of the government to a level where there is no
change in the control to dilution that results in the
transfer of management. The transfer of ownership may
occur when in an enterprise the dilution of government
ownership is beyond 51 percent. The disinvestment
implies that the government will sell to public or private
enterprises / public institutes part of its holding in
public sector enterprises.
Reasons for disinvestment
The public sector in India at present is at cross roads.
The new economic policy initiated in July 1991, clearly
indicated that the public sector undertakings have
shown a very negative rate of return on capital
employed. On account of this phenomenon many public
sector undertakings have become burden to the
government. They are infact turning out to be liabilities
to the government rather than being assets.
This is a sector which the government clearly wants to
get rid off. In this direction the government has adopted
a new approach to reform and improve the public sector
undertakings performance i.e 'Disinvestment policy'.
This has gained lot of importance especially in latter
part of 90s. At present the government seriously

perceives the disinvestment policy as an active tool to

reduce the burden to financing the public sector
undertakings.
Problems of Public sector undertakings
The most important criticism levied against public
sector undertakings has been that in relation to the
capital employed, the level of profits has been too low.
Even the government has crticised the public sector
undertakings on this count. Of the various factors
responsible for low profits in the public sector
undertakings, the following are particularly important :i. Price policy of public sector undertakings
ii. Under utilization of capacity
iii. Problem related to planning and construction of
projects
iv. Problems of labour, personnel and management
v. Lack of autonomy
The government in order to put an end to these
problems, decided to disinvest its stake in the PSUs. The
companies traditionally established as pillars of growth
have now become a burden on the economy. Except few
mighty oil and petroleum companies, almost all other
PSUs are incurring losses. The national gross domestic
product and gross national savings are also adversely
effected by low returns from PSUs. About 10 to 15 % of
the total gross domestic savings are reduced on account
of low savings from PSUs.
Q18:derivative

A derivative is a contract between two parties which

derives its value/price from an underlying asset. The
most common types of derivatives are futures, options,
forwards and swaps. Description: It is a financial
instrument which derives its value/price from the
underlying assets
Q19: adjusted book value approach to corporate
valuation
The adjusted book value method of valuation is most
often used to assign value to distressed companies
facing potential liquidation or companies that hold
tangible assets such as property or securities. Analysts
may use adjusted book value to determine a bottom line
price for a company's value when anticipating
bankruptcy or sale due to financial distress.
A measure of a company's valuation after liabilities,
including off-balance sheet liabilities, and assets are
adjusted to reflect true fair market value. The potential
downside of using an adjusted book value is that a
business could be worth more than its stated assets
and/or liabilities because it fails to value intangible
assets, account for discounts or factor in contingent
liabilities. It is not often accepted as an accurate picture
of a profitable company's operating value, however it
can be a way of capturing potential equity available in a
firm.
q19:functions of crisil
CRISIL is acronym for Credit Rating Information Services
of India Limited. CRISIL is India's leading Ratings,
Financial News, Risk and Policy Advisory company. Since
1987 when CRISIL was incorporated, CRISIL has played
an integral role in India's development milestones
The main functions of CRISIL can be classified into
following subheads:
1. Ratings

CRISIL Ratings: It is the only ratings agency in India with

sectoral specialization It has played a critical role in the
development of the debt markets in India. The agency
has developed new ratings methodologies for debt
instruments and innovative structures across sectors.
CRISIL Ratings provides technical know-how to clients
all over the world and has helped set up ratings
agencies in Malaysia (RAM), Israel (MAALOT) and in the
Caribbean.
2. Research
CRISIL Research: It provides research, analysis and
forecasts on the Indian economy, industries and
companies to over 500 Indian and international clients
across financial, corporate, consulting and public
sectors.
CRISIL FundServices: It provides fund evaluation
services and risk solutions to the mutual fund industry.
The Centre for Economic Research: It applies economic
principles to live business applications and provide
benchmarks and analyses for India's policy and business
decision makers.
Investment Research Outsourcing: CRISIL added equity
research to its wide bouquet of services, by acquiring
Irevna, a leading global equity research and analytics
company. Irevna offers investment research services to
the world's leading investment banks and financial
institutions.

3. Advisory
CRISIL Infrastructure Advisory: It provides policy,
regulatory and transaction level advice to governments
and leading organisations across sectors.
Investment and Risk Management Services: CRISIL Risk
Solutions offers integrated risk management solutions
and advice to Banks and Corporates by leveraging the
experience and skills of CRISIL in the areas of credit and
market risk.
Q20:revival of sick unit
Page 954
Q21:interest rate swaps
An agreement between two parties (known as
counterparties) where one stream of future interest
payments is exchanged for another based on a specified
principal amount. Interest rate swaps often exchange a
fixed payment for a floating payment that is linked to an
interest rate (most often the LIBOR). A company will
typically use interest rate swaps to limit or manage
exposure to fluctuations in interest rates, or to obtain a
marginally lower interest rate than it would have been
able to get without the swap.
Interest rate swaps are simply the exchange of one set
of cash flows (based on interest rate specifications) for
another. Because they trade OTC, they are really just
contracts set up between two or more parties, and thus
can be customized in any number of ways.
Generally speaking, swaps are sought by firms that
desire a type of interest rate structure that another firm
can provide less expensively. For example, let's say
Cory's Tequila Company (CTC) is seeking to loan funds at
a fixed interest rate, but Tom's Sports Inc. (TSI) has

access to marginally cheaper fixed-rate funds. Tom's

Sports can issue debt to investors at its low fixed rate
and then trade the fixed-rate cash flow obligations to
CTC for floating-rate obligations issued by TSI. Even
though TSI may have a higher floating rate than CTC, by
swapping the interest structures they are best able to
obtain, their combined costs are decreased - a benefit
that can be shared by both parties.
Q22:role of sebi
SEBI is regulator to control Indian capital market. Since
its establishment in 1992, it is doing hard work for
protecting the interests of Indian investors.
1. Power to make rules for controlling stock exchange :
SEBI has power to make new rules for controlling stock
exchange in India. For example, SEBI fixed the time of
trading 9 AM and 5 PM in stock market.
2. To provide license to dealers and brokers :
SEBI has power to provide license to dealers and
brokers of capital market. If SEBI sees that any financial
product is of capital nature, then SEBI can also control
to that product and its dealers. One of main example is
ULIPs case. SEBI said, " It is just like mutual funds and
all banks and financial and insurance companies who
want to issue it, must take permission from SEBI."
3. To Stop fraud in Capital Market :
SEBI has many powers for stopping fraud in capital
market.

It can ban on the trading of those brokers who are

involved in fraudulent and unfair trade practices
relating to stock market.

It can impose the penalties on capital market

intermediaries if they involve in insider trading.
4. To Control the Merge, Acquisition and Takeover the
companies :
Many big companies in India want to create monopoly in
capital market. So, these companies buy all other
companies or deal of merging. SEBI sees whether this
merge or acquisition is for development of business or
to harm capital market.
5. To audit the performance of stock market :
SEBI uses his powers to audit the performance of
different Indian stock exchange for bringing
transparency in the working of stock exchanges.
6. To make new rules on carry - forward transactions :

Share trading transactions carry forward can not exceed

25% of broker's total transactions.

90 day limit for carry forward.

7. To create relationship with ICAI :

ICAI is the authority for making new auditors of
companies. SEBI creates good relationship with ICAI for
bringing more transparency in the auditing work of
company accounts because audited financial statements
are mirror to see the real face of company and after this
investors can decide to invest or not to invest.
Moreover, investors of India can easily trust on audited
financial reports. After Satyam Scam, SEBI is
investigating with ICAI, whether CAs are doing their
duty by ethical way or not.
8. Introduction of derivative contracts on Volatility Index
:
For reducing the risk of investors, SEBI has now been
decided to permit Stock Exchanges to introduce
derivative contracts on Volatility Index, subject to the
condition that;
a. The underlying Volatility Index has a track record of
at least one year.

b. The Exchange has in place the appropriate risk

management framework for such derivative contracts.
2. Before introduction of such contracts, the Stock
Exchanges shall submit the following:
i. Contract specifications
ii. Position and Exercise Limits
iii. Margins
iv. The economic purpose it is intended to serve
v. Likely contribution to market development
vi. The safeguards and the risk protection mechanism
adopted by the exchange to ensure market integrity,
protection of investors and smooth and orderly trading.
vii. The infrastructure of the exchange and the
surveillance system to effectively monitor trading in
such contracts, and
viii. Details of settlement procedures & systems
ix. Details of back testing of the margin calculation for a
period of one year considering a call and a put option on
the underlying with a delta of 0.25 & -0.25 respectively
and actual value of the underlying. Link

9. To Require report of Portfolio Management Activities :

SEBI has also power to require report of portfolio
management to check the capital market performance.
Recently, SEBI sent the letter to all Registered Portfolio
Managers of India for demanding report.
10. To educate the investors :
Time to time, SEBI arranges scheduled workshops to
educate the investors. On 22 may 2010 SEBI imposed
workshop.
Q23:vcinvstment opprtunities
Its a 5 step venture capital investment model, so that
you can find the right venture capital investment
opportunities:

Origination of the deal

Screening
Due Diligence or Evaluation
Structuring of the deal
Activity Post Investment and Exit

Q24:book building process of ipo

Book building is a systematic process of generating,
capturing, and recording investor demand for shares
during an initial public offering (IPO), or other securities
during their issuance process, in order to support
efficient price discovery.
http://www.slideshare.net/Dharmikpatel7992/bookbuilding-process-of-ipo-24277766
q25: functions of investment banking

Raising Capital & Security Underwriting. Banks are

middlemen between a company that wants to issue new
securities and the buying public.
Mergers & Acquisitions. Banks advise buyers and sellers
on business valuation, negotiation, pricing and
structuring of transactions, as well as procedure and
implementation.
Sales & Trading and Equity Research. Banks match up
buyers and sellers as well as buy and sell securities out
of their own account to facilitate the trading of
securities
Retail and Commercial Banking. After the repeal of
Glass-Steagall in 1999, investment banks now offer
traditionally off-limits services like commercial banking.
Front office vs back office. While the sexier functions
like M&A advisory are front office, other functions like
risk management, financial control, corporate treasury,
corporate strategy, compliance, operations and
technology are critical back office functions.
History of the industry. The industry has changed
dramatically since John Pierpont Morgan had to
personally bail out the United States from the Panic of
1907. We survey the important evolution in this section.
After the 2008 financial crisis. The industry has not
fully recovered from the financial crisis that gripped the
world in 2008. How has the industry changed and where
is it going?
Q26:hw rating agency rate financial instrument
http://www.slideshare.net/stephen_j_omalley/ratingfinancial-instruments-db-method
q27: loan syndication
Loan syndication is a lending process in which a group
of lenders provide funds to a single borrower
The process of involving several different lenders in
providing various portions of a loan. Loan syndication

most often occurs in situations where a borrower

requires a large sum of capital that may either be too
much for a single lender to provide, or may be outside
the scope of a lender's risk exposure levels. Thus,
multiple lenders will work together to provide the
borrower with the capital needed, at an appropriate rate
agreed upon by all the lenders.