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Wealth Incorporation Christ University Institute of Management Finance Club Initiative Presents...

CHAANAKYA
Don't try to buy at the bottom and sell at the top. It can't be done except by liars.- Bernard Baruch
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Issue Attractions
National Headlines International Headline Corporate Interview Company Review/ Buzz Words Crossword/Quiz Investors Check Alumni Contact Quiz/Crossword Answers Placements
Repo Rate-6.5% Reverse Repo 5% Cash Reserve Ratio - 5.5% IIP - 4.6% Inflation Rate - 8.84%

National Headlines

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. O GC and IOC join hands for exploration and marketing. Auto companies slash prices of motor cars and commercial vehicles. Yamaha to rollout scooter next year.

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International Headlines

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 of a rescue for U.S. automakers GM to temporarily close 20 plants to slash output European Union governments prepared to put about 1.5% of the alliance's GDP to work digging economy out of a hole. Former ASDAQ chairman Bernard L. Madoff arrested for facing a single count of securities fraud.

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Rs/$
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Gold(per 10gram)

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Oil(per bbl)

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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 industries, 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 financial supermarket, unbiased Research back up, Matchless Financial planning which helps the investor to have holistic approach towards their investments, Powerful administration and ultimately all these results in high retention rate of employees. I think that ours should be the sole company wherein even the bottom level 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 to reduce this redemption pressure other than exit loads? And how far you think it is justified to 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 occupy that place is my feel as already fmps have started giving a return @ 7.5% for quarterly options and income funds are surely giving a return of more than 13% now. Exit loads are mainly introduced to keep redemptions under control as average Indian mentality wont allow him to come out if loads are there. Moreover even the fund houses would have invested in few lock-in products and if mass redemption comes, fund houses may have to sell some of their existing CDs and enter in new CDs which would result in facing Interest rate risk .Moreover even the investor is well informed about the load structure so exit loads are required to keep few 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 the investors portfolio should be in such funds. If the exposure is more, then we suggest the investor to switch to diversified large cap fund or gold funds. We still believe that infrastructure sector has got wide scope. But we dont suggest balancing the portfolio right now. We feel that the spending is going to be phenomenal in this sector. We suggest the investor to hold these investments. Few infrastructure funds like Tatas and ICICI prus 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 encouraging scientific and holistic investment. How this software works & how has it performed since its launch? Ans. As we have wide range of investment products, really this financial planning helps us to identify the requirements of the investor in the proper sense and helps to build a tailor made portfolio and mainly avoid blind selling and this concept makes our role entirely different from others. The software helps to get many basic inputs to plan the investments and helps to prioritize goals and plan through SIP approach. No doubt this has made our role unique and frankly we dont have competitors as this tool helps us to go unbiased by diversifying the investors risks. It also helps us in having high retention of existing clients as we review the plan regularly. Q5.Considering present market condition what are the products & fund options you recommend to your clients? Ans. As our research rightly says even if 5% of Indian population additionally invests Rs.10000 in equity, a sum of Rs.50000 crore would get created which should really suffice to counter even if entire FII selling happens. So we still strongly suggest participation in equity and even through Large cap funds like Sundaram BNP Paribas select focus, DSP blackrock top 100 and equity, Birla Sunlife frontline equity funds, etc. Also we suggest ULIPs to meet their long term financial objectives. Recently we launched Art also as investment option.

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

Company Review
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 advisory services. 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 globalizing businesses. 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.

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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. Also known 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. It was announced that all income trusts will be taxed in a similar manner as corporations at a rate over 30% on taxable income, causing unit holders' values to decrease dramatically virtually overnight.

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

Crosswords

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Down
1. Currency trivia. In India from which 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 Development Bank in January 1988? 4. N a m e t h e t e r m u s e d f o r depreciating a company's intangible assets? 5. In which country's coins you can found the following lines imprinted, 'This is the root of all evils' ? 9. Which country's currency is known as Drachma, which in Greek means

Did you Know?


Founded in 1878, the Tokyo Stock exchange (TSE)is the oldest f i n a n c i a l exchanges in Asia, and the largest of Japans five stock exchanges. Its c u r r e n t incarnation was signed into law in 1947, after S u p r e m e Commander, Allied Powers dissolved the w ar ti m e T SE . Now it is a p r i v a t e corporation with 11 directors,9 officers and 4 auditors. Until 1968, the British pound was the currency of Zambia, after which the kwacha replaced the pound at a rate of 2 kwacha to 1 pound. At this time, the kwacha was equal to US$1.20, but rampant inflation since that t i m e h a s significantly devalued the currency.

Across
3. 6. 7. 8. Market price of mutual funds A highly volatile stock that goes up and down a lot. This method of trading involves selling of securities without owning them. Money spent for payment towards the influential persons for the benefit of organizations 10. Money or property held by a third party until a contract is fulfilled 11. Stage of financing after venture capital and before a company goes public. 12. What is known as the purchase of insurance against losses because of currency fluctuations?

Quiz
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 underground economy. 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 underground economy. 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 the spending behavior of baby boomers (people born between 1946 and 1964). Q9.Who devised the modern portfolio theory in 1952?

Charity is injurious unless it helps the recipient to become independent of it. Sam Walton

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Binomial Trees in Option Pricing


In the financial world, the Black-Scholes and the binomial option models of valuation are two of the most important concepts in modern financial theory. To value an option, one can use 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 the price of the option. In contrast to the Black-Scholes model, which provides a numerical result 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 asset price from period to period and evaluate the option based on making decisions at different points in time. For an American option, which can be exercised at any time before the expiration 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 on exercise 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 provide transparency into the underlying value of the asset and the option as it progresses through time. The Black-Scholes model has five inputs: 1. 2. 3. 4. 5. Risk-free rate Exercise price Current price of asset Time to maturity Implied volatility of the asset price

When these data points are entered into a Black-Scholes model, the model calculates a value for the option, but the impacts of these factors are not revealed on a period-to-period basis. With the binomial model, one can see the change in the underlying asset price from period 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 that
bring friends with them." W. Edwards Deming

INVESTORS CHECK

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. Contd.

Did you Know?


Incorporating Probabilities:
The basic method of calculating the binomial option model is to use the same probability for success and failure each period until option expiration. 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 asset price can increase or decrease by 30% in one period. For the second period, however, the probability that the underlying asset price will increase may grow to 70/30. Let's say we are evaluating an oil well; we are not sure what the value of that oil well is, but there is a 50/50 chance that the price will go up. If oil prices go up in Period 1, making the oil well more valuable, and the market fundamentals now point to continued increases in oil prices, the probability of further appreciation in price may now be 70%. The binomial model allows for this flexibility; the Black-Scholes model does not.
Berkshire Hathaway began as just a group of textile milling plants, but when Warren Buffett became the controlling shareholder in the mid 1960s, he began a progressive strategy of diverting cash flows from the core business into other investments. Insurance subsidiaries tend to represent the largest pieces of Berkshire Hathaway, but the company manages hundreds of diverse businesses all over the world. Until 1968, the British pound was the currency of Zambia, after which the kwacha replaced the pound at a rate of 2 kwacha to 1 pound. At this time, the kwacha was equal to US$1.20, but rampant inflation since that time has significantly devalued the currency. ONGC is the highest dividend paying company in India.

Developing The Model:


The simplest binomial model will have two expected returns, whose probabilities add up to 100%. In our example, there are two possible outcomes for the oil well at each point in time. A more complex version could have three or more different outcomes, each of which is given a probability of occurrence. To calculate the returns per period starting from time zero (now), we must make a determination of the value of the underlying 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 be worth 650 or 350. That would be the equivalent of a 30% increase or decrease in one period. Applying the same 30% up-or-down calculation to the next period results in values of 845, 455 or 245 for Period 2. We can 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, this calculates out as (650x50%) + (350*50%) = 500, which is the current value of the asset. We can now see that if the probabilities are altered, the expected value of the underlying asset will also change. If the probability should be changed, it can also be changed for each subsequent period and does not necessarily have to remain the same throughout. As the example shows, the binomial model can be extended easily to multiple periods. Although the Black-Scholes model can calculate the result of an extended expiration date, the binomial model.

CONTACT ALUMNI AT:


NAME: SREELAKSHMY BATCH: 2004-2006 PREVIOUS ORGANIZATION: KOTAK MAHINDRA BANK CURRENT ORGANIZATION: HSBC, DUBAI WORK PROFILE:MI PLANNING AND ANALYSIS PERSONAL MAIL_ID: sreelakshmy.v@gmail.com CONTACT NUMBER: 00971506803107

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NAME: C.RAGHAVENDRA PRABHU BATCH: 2003-2005 PREVIOUS ORGANIZATION: HDFC CURRENT ORGANIZATION: CITI BANK WORK PROFILE: WEALTH MANAGER OFFICIAL MAIL_ID: raghavendra.prabhu@citi.com CONTACT NUMBER: 9886256565

ANNOUNCEMENT!!!
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 and related topics! It does'nt matter how basic or how complicated it is; what matters is that you enhance your knowledge and make the best use of now! Any queries and questions you have will be answered in the next issue by our professors, the Chaanakya 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 to learning is criticism! Any contributions in the form of articles, trivia, etc will find place in the newsletter! Students and even professors can mail them to us. Keep reading and keep learnng!

CONGRATULATIONS FOR PLACEMENT IN DEUTSCHE BANK

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Did you Know?


Yankee market is a slang term for the stock market in the United States. Yankee market is usually used by non-U.S. residents and refers to the slang term for an American a Yankee. Cornelius Vander Starr was the first Westerner in Shanghai to sell insurance to the Chinese. After his business became successful in Asia, he expanded to other markets, including Latin America, Europe, and the Middle East. Quiz Answers

RAHUL

DIWAKAR

NILADRI

CROSSWORD ANSWERS

TEAM
Editing/Compiling News Company Review Investors Check/Stock Ratnas Interview Coordination Arihant Patawari Chetan P. Shriya Mohammad Nimakwala Sebin Emmanuel Jerry Fouzia Tarannum B.

1.Morgan Guaranty

2. Dumping 3.Beta 4.Acute


Receipts Depository

5.Money Laundering

Contributions made by 1st year:


Editing/Compiling Did you know, Quiz Quotes, Book Quotes Graphs, Buzzwords Indices Crosswords Communication Gyanesh Shroff Megha Garg Maria Fernandes Paloma Lobo Paulomi Hitesh Archana

6.Martingale system 7.Casino finance 8. Boomernomics


9. Harry Markowitz

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