09 20 e 20 n Ja Issu th 2, 16 e m lu Vo

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

CHAANAKYA
When written in Chinese the word "crisis" is composed of two characters - one represents danger and the other represents opportunity. ~John F. Kennedy
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Issue Attractions
National Headlines International Headline
Students Article

National Headlines

Company Review/ Buzz Words Crossword/Quiz Investors Check Alumni Contact Quiz/Crossword Answers

Repo Rate-5.5% Reverse Repo 4% Forex Reserves $255.24 bn Cash Reserve Ratio - 5.5% IIP - 4.6% Inflation Rate - 5.24%

Satyams chairman Ramalinga Raju admits accounting fraud of Rupees 7000 Cr . Deepak Parekh, Kiran Karnik and C Achutan are appointed as new board members for Satyam. Government plans Rs 2000 Cr bailout package for Satyam. Daiichi Sankyo may take $3.9 bn knock in Q3 results. IDFC Projects, BHEL and GSECL join together to set up thermal plant in Sarkhadi, Ahmedabad. Indian Oil starts operations at petrochemical plant. Tata completes stake sale in Idea Cellular . World Bank reveals that it had also barred Wipro Technologies and Megasoft Consultants from receiving direct contracts from the bank under its corporate procurement programme.

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International Headlines

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US economy may shrink by 1.5% in 2009. Citigroup Inc may book a gain of as much as $10 billion by selling control of its brokerage to Morgan Stanley. China now world's third-largest economy. Oil tops $39 on talk of output cuts: OPEC signals it may reduce production again at its March meeting. U.S. inventories on tap. European stocks struggle: Shares in London, Paris dip as investors are unable to maintain early momentum, Asia closes higher. Yahoo Inc. announced that it had hired veteran technology executive Carol Bartz as its new CEO.

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STUDE TS ARTICLE-The Monte Carlo Analysis

Research analysts use multivariate models to forecast investment outcomes to understand the possibilities surrounding their investment exposures and to better mitigate risks. Monte Carlo analysis is one specific multivariate modeling technique that allows researchers to run multiple trials and define all potential outcomes of an event or investment. Running a Monte Carlo model creates a probability distribution or risk assessment for a given investment or event under review. By comparing results against risk tolerances, managers can decide whether to proceed with certain investments or projects. Monte Carlo Analysis Monte Carlo analysis is named after the principality made famous by its casinos. Monte Carlo analysis is useful for analysts because many investment and business decisions are made on the basis of one outcome. In other words, many analysts derive one possible scenario and then compare it to return hurdles to decide whether to proceed. Most pro forma estimates start with a base case. By inputting the highest probability assumption for each factor, an analyst can actually derive the highest probability outcome. However, making any decisions on the basis of a base case is problematic, and creating a forecast with only one outcome is insufficient because it says nothing about any other possible values that could occur. Creating the Model Once designed, executing a Monte Carlo model requires a tool that will randomly select factor values that are bound by certain predetermined conditions. By running a number of trials with variables constrained by their own independent probability of occurrence, an analyst creates a distribution that includes all the possible outcomes and the probability that they will occur. There are many random number generators in the marketplace. The two most common tools for designing and executing Monte Carlo models are Risk and Crystal Ball. Both of these can be used as add-ins for spreadsheets and allow random sampling to be incorporated into established spreadsheet models. The art in developing an appropriate Monte Carlo model is to determine the correct constraints for each variable and the correct relationship between variables. For example, because portfolio diversification is based on the correlation between assets, any model developed to create expected portfolio values must include the correlation between investments. In order to choose the correct distribution for a variable, one must understand each of the possible distributions available. For example, the most common one is a normal distribution, also known as a bell curve. In a normal distribution, all the occurrences are equally distributed (symmetrical) around the mean. The mean is the most probable event. Natural phenomena, people's heights and inflation are some examples of inputs that are normally distributed. In the Monte Carlo analysis, a random-number generator picks a random value for each variable (within the constraints set by the model) and produces a probability distribution for all possible outcomes. The standard deviation of that probability is a statistic that denotes the likelihood that the actual outcome being estimated will be something other than the mean or most probable event. Assuming a probability distribution is normally distributed, approximately 68% of the values will fall within one standard deviation of the mean, about 95% of the values will fall within two standard deviations and about 99.7 % will lie within three standard deviations of the mean. This is known as the "68-95-99.7 rule" or the "empirical rule". Example: Let us take for example two separate, normally distributed probability distributions derived from random-factor analysis or from multiple scenarios of a Monte Carlo model. Monte Carlo analysis can also help determine whether certain initiatives should be taken on by looking at the risk and return consequences of taking certain actions. Let us assume we want to place debt on our original investment. ...Continued on page 6

Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-theyhave's. ~Earl Wilson

Company Review ICICI Bank

ICICI Bank is India's second-largest bank with total assets of Rs. 3,849.70 billion (US$ 82 billion) as on September 30, 2008 and profit after tax Rs. 17.42 billion for the half year ended September 30, 2008. The Bank has a network of about 1,400 branches and 4,530 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Financial Position

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Particulars Cr.) Total income Net profit EPS (Rs.) P/E ratio CAR NPA
Careers at ICICI bank

2008 (in Rs. Cr.) 29957 3110 34.59 23.7% 11.7% 1% 39667 4157 37.37 36% 14.9% 1.6%

2007 (in Rs.

As a rapidly growing organization ICICI looks to induct post-graduate management talent from various business schools across the country. Enthusiastic and talented youth form the backbone of their banking operations. What they offer is the grooming needed to be the best. They offer a wide range of careers in all functions including - Finance, Marketing, Operations, Information Technology and Human Resources. In their continuous endeavor to improve the selection process for recruitment at all levels in ICICI Bank, they carry out an in-depth study of the competencies required to succeed in ICICI Bank which are called the ICICI Bank DNA anchors. As per their research, the DNA anchors which indicated success at the entry level in ICICI Bank are:

Customer first Passion Dynamism Compliance with conscience

Buzz Word
Hostile Takeover: A takeover attempt that is strongly resisted by the target firm. Hostile takeovers are usually bad news, as the employee morale of the target firm can quickly turn to animosity against the acquiring firm. Longevity Risk: The risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Longevity risk exists due to the increasing life expectancy trends among policy holders and pensioners, and can result in payout levels that are higher than what a company or fund originally accounts for. Ponzi Scheme: A fraudulent investing scheme that promises high rates of return at little risk to investors. The scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. A Ponzi scheme is similar to a pyramid scheme. Pyramid Schemes: Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited.

Everybody wants to eat at the government's table, but nobody wants to do the dishes. ~Werner

Crosswords

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Down
1.Which Indian bank is promoted by 20th century Finance Corporation & Keppel Tatlee Bank of Singapore? 3.In India where is the paper for currency manufactured 5.What are the Bonds that carry low ratings with correspondingly higher yields called? 6.Which was the first bank to introduce ATM's in India 7.In which country's coins you can found the following lines imprinted, 'This is the root of all evils? 8.What is a coin with minting error called?

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
2. Which is the only country having paper currency and have no coins and it introduced cheque only in 1997? 4. Where is the European Central Bank located? 9. Name the person who introduced the 'Double Entry' book keeping concept 10. What is the exchange rate of one currency for another over a fixed period of time called? 11.Oldest Stock exchange in the world

Quiz
Q1. Who devised and used the first electric stock quotation board? Q2. A strategy that uses financial leverage by shorting poor performing stocks and purchasing shares that are expected to have high returns. Q3. Who tried and failed to corner the silver market in the late 1970s? Q4. A trader who acts independently of others and typically recklessly - usually to the detriment of both the clients and the institution that employs him or her. Q5. Which company acquired 90% stake in the German company Schoneweiss in 2007? Q6. A fund that buys securities in distressed investments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy. Q7. A type of option that can only be exercised on predetermined dates, usually every month. Q8. A swap with varying combinations of interest rate, currency and equity swap features, where payments are based on the movement of two different countries' interest rates.

Blessed are the young, for they shall inherit the national debt. ~Herbert Hoover

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RISK FREE RETURN

The risk-free rate of return is one of the most basic components of modern finance and many of its most famous theories. The capital asset pricing model (CAPM), modern portfolio theory (MPT) and the BlackScholes model all use the risk-free rate as the primary component from which other valuations are derived. The risk-free asset only applies in theory, but its actual safety rarely comes into question until events fall far beyond the normal daily volatile markets. Although it's easy to take shots at theories that have a risk-free asset as their base, there are limited options to use as a proxy. This article looks at the risk-free security in theory and in reality (as a government security), evaluating how truly risk free it is. The model assumes that investors are risk averse and will expect a certain rate of return for excess risk extending from the intercept, which is the risk-free rate of return. The T-Bill Base The risk-free rate is an important building block for MPT. As referenced in Figure 1, the risk-free rate is the base of the line where the lowest return can be found with the least amount of risk.

Risk-free assets under MPT, while theoretical, typically are represented by Treasury bills (T-bills), which have the following characteristics: T-bills are assumed to have zero default risk because they represent and are backed by the good faith of the government. T-bills are sold at auction in a competitive bidding process and are sold at a discount from par. They don't pay traditional interest payments like their cousins, the Treasury notes and Treasury bonds. They're sold in various maturities and denominations. They can be purchased by individuals directly from the government. Sources of Risk: The term risk is often taken for granted and used very loosely, especially when it comes to the risk-free rate. At its most basic level, risk is the probability of events or outcomes. When applied to investments, risk can be broken down a number of ways:
1.Absolute

risk as defined by volatility: Absolute risk as defined by volatility can be easily quantified by common measures like standard deviation. Since risk-free assets typically mature in three months or less, the volatility measure is very short-term in nature. While daily prices relating to yield can be used to measure volatility, they are not commonly used.

If inflation continues to soar, you're going to have to work like a dog just to live like one. ~George Gobel

INVESTORS CHECK

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. Contd.

Did you Know? 2.Relative risk: Relative risk when applied to investments is usually represented by the relation of price fluctuation of an asset to an index or base. One important differentiation is that relative risk tells very little about absolute risk - it only tells how risky the asset is compared to a base. Again, since the risk-free asset used in the theories is so short-term, relative risk does not always apply. 3.Default risk: What risk is assumed when investing in the three-month T-bill? Default risk, which in this case is the risk that the U.S. government would default on its debt obligations. Credit-risk evaluation measures deployed by securities analysts and lenders can help define the ultimate risk of default. Although the U.S. government has never defaulted on any of its debt obligations, the risk of default has been raised during extreme economic events, when the U.S. government has stepped in to provide a level of security, which provided a perception of safety. The U.S. government can spin the ultimate security of its debt in unlimited ways, but the reality is that the U.S. dollar is no longer backed by gold, so the only true security for its debt is the government's ability to make the payments from current balances or tax revenues. This raises many questions of the reality of a risk-free asset. For example, say the economic environment is such that there is a large deficit being funded by debt, and the current administration plans to reduce taxes and provide tax incentives to both individuals and companies to spur economic growth. If this plan were used by a publicly held company, how could the company justify its credit quality if the plan were to basically decrease revenue and increase spending? That in itself is the rub: there really is no justification or alternative for the risk-free asset. There have been attempts to use other options, but the U.S. T-bill remains the best option, because it is the closest investment in theory and reality to a short-term riskless security. THE MONTE CARLO ANALYSIS CONTINUED... The distributions in Figure 2 show the original outcome and the outcome after modeling the effects of leverage. Our new leveraged analysis shows an increase in the expected value from 200 to 400, but with an increased financial risk of debt. Debt has increased the expected value by 200 but also the standard deviation. Before 1 standard deviation was a range range from 100 to 300. Now with debt, 68% of values (1 standard deviation) fall between 0 and 400. By using scenario analysis an investor can now determine whether the additional increase in return equals or outweighs the additional risk (variability of potential outcomes) that comes with taking on the new initiative.
The first derivative product was an option. Some historians have found references to options in the Bible. Options were actively traded during the Dutch Tulip Bulb craze starting in 1647 predating the startup of organized stock exchanges by a century. O ptions traded informally on the floor at the NYSE in 1817. The US markets introduced circuit breakers after the crash of Oct. 1987. The circuit breakers halt trading for 30 minutes when the Dow falls by 350 points or more, and for 1 hour when the Dow falls 550 points or more. These came into use for the first time on Oct. 27, 1997 when the DJIA tumbled 554, the biggest points drop in history. The $23 billion merger between SBC and the UBS gave birth to the largest assets manager in the world. Ucar International Inc., the nation's leading maker of graphite electrodes, has agreed to pay a $110 million fine for price fixing, i.e the la rg e st a nt itr u s t penalty.

ALUMNI SPEAK:
NAME: SACHINDRA SHENOY ORGANIZATION: D E SHAW WORK PROFILE: SENIOR ANALYST OFFICIAL MAIL_ID: shenoys@deshaw.com PERSONAL MAIL_ID: sachindra82@gmail.com CONTACT NUMBER: 09440144870 BATCH: 2004-2006 CURRENT LOCATION: HYDERABAD

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ORGANIZATION: EXPERIENCE IN THE ORGANIZATION D E Shaw India, part of the D E Shaw Group (an alternative investment firm), has been a great place to work in mainly because of the culture they have here. I cant believe that in Mar'09, I will be completing 3 years in this organisation. I actually work in the Financial Research department, currently working for the real estate sector. As a department we prepare reports for traders in other D E Shaw offices like private equity, real estate, distressed debt, convertibles among others. Before it used to look sort off flashy, now we don't do valuation!! Overall I have been able to learn a lot both in the so called finance topics and management, mainly people management. MESSAGE FOR THE STUDENTS: I am not sure if I will be able to give any message as I believe one always remains a student. Though would like to share somethings that I feel is important a) One should have strong basic knowledge about various topics and just not limited to finance, b) Be updated about all happenings around you. Even political events though it might seem it does not add much value c) Have different thoughts and not limited to something, as actually views drive the market. ALL THE BEST!
NAME: REJOICE D JOHN ORGANIZATION: FUTURES FIRST WORK PROFILE: DERIVATIVES RESEARCH ANALYST OFFICIAL MAIL_ID: rejoice.daniel@futuresfirst.in PERSONAL MAIL_ID: rejoicedaniel@gmail.com CONTACT NUMBER: 9886105233 BATCH: 2004-2006 CURRENT LOCATION: BANGALORE EXPERIENCE IN THE ORGANIZATION: Its been two and a half years since I have been working with this organization and its been an awesome experience. Trading has always been my dream job and now I trade international derivative futures. MESSAGE FOR THE STUDENTS: Tough time ahead, but I think people from Christ will make it. Its the right time to plan for your future . Work hard. ALL THE BEST!

FEEDBACK
Chaanakya has been a pleasant surprise to me theyway it is being produced and managed. I am still wondering, how are you people getting hold of certain distinguished individuals to give interviews!! Someday, would love to be interviewed for the column. Meanwhile, didn't have much success in the crosswords :( and really salute the creativity that goes into it.) SACHINDRA SHENOY D E SHAW INDIA ALUMNI 2004-2006

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Did you Know?

John Bogle was the first person to offer an index fund to retail customers. Bogles flagship Vanguard 500 Fund became the worlds largest mutual fund by assets in 2002. His Vanguard funds are renowned for their ultra-low expense ratios, and for having no loads. E u r i b o r ( E u r o Interbank Offered Rate) is the benchmark rate of the large euro money market that has emerged since 1999. It is sponsored by the European Banking Federation (EBF), which represents the interests of s o m e 5 0 0 0 European banks and by the Financial Markets Association (ACI).

CROSSWORD ANSWERS

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

Quiz Answers

1. Sutro & Co.in 1929. 2. 130-30 strategy. 3.The Hunt brothers and their associates.

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

4.Rogue trader. 5.Mahindra & Mahindra. 6.Vulture fund. 7.Bermuda Option. 8.Quanto swap.

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