Global Financial Market



Presented By:  Dhawal

Roll Numbers

Ambani  Gaurang Bharkhada  Kiran Bhilare  Sanjog Devrukhkar  Pradip Malick  Presented

02 04 06 11 50

To: Ms. Pooja Dave

(MFM Semester – III / Group – IV)

 Global

Financial Market  Stock Exchange  Indian Financial Market  IMF –SDR  Hedge Fund  Present FDI In India

 The

global financial system (GFS) is a financial system consisting of institution and regulators that act on the international level, as opposed to those that act on a national or regional level.

 The

main players are the global institutions, such as International Monetary Fund and Bank of International Settlements, national agencies and government departments, e.g., central banks and finance ministries, and private institutions acting on the global scale

 No

geographical boundaries  24 hrs active market  Provides liquidity to various currency  It transfer purchasing power from currency to another currency

one

1)

International institutions The most prominent international institutions are the IMF, World Bank and the WTO

2)

Government institutions Governments act in various ways as actors in the GFS: they pass the laws and regulations for financial markets and set the tax burden for private players They are also regulate the central banks that issue government debt, set interest rates and deposit requirements, and intervene in the foreign exchange market.

3)

Private participants Players acting in the stock, bond , foreign exchange , derivatives and commodities markets and investment banking are Commercial Banks, Hedge funds & Private Equity, Pension funds.

The financial markets can be divided into different subtypes: 

Capital Markets which consist of: Stock market, which provide financing through the issuance of shares – Bond markets, which provide financing through the issuance of bonds –

    

Commodity markets, which facilitate the trading of commodities. Money markets, which provide short term debt financing and investment. Derivatives markets, which provide instruments for the management of financial risk. Insurance markets, which facilitate the redistribution of various risks. Foreign exchange markets, which facilitate the trading of foreign exchange.

 The

raising of long term and short term capital (through capital markets & money market).  The transfer of risk (through derivatives markets).  Facilitate International trade (through currency markets).

A

stock exchange play a very important role in global financial market.  A stock exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities  In today world, modern markets are connected through electronic networks, (screen base trading) which gives them advantages of speed and cost of transactions.

 Raising

capital for businesses  Mobilizing savings for investment  Facilitating company growth  Profit sharing  Corporate governance  Creating investment opportunities for small investors  Government capital-raising for development projects  Barometer of the economy

List of following product are traded on across the stock exchange globally.  Stock Future  Commodity Future (Agro & metal commodity)  Currency Future  Corporate Bond  Government Bond  Energy Trading

Market Capitalization of few Global markets as on Aug 2009 Region

Africa Americas Americas Americas Americas Asia-Pacific Asia-Pacific Asia-Pacific Asia-Pacific Asia-Pacific Asia-Pacific Asia-Pacific Asia-Pacific Europe Europe Europe Europe Europe Europe Europe

Stock Exchange

Johannesburg Securities Exchange NASDAQ São Paulo Stock Exchange Toronto Stock Exchange New York Stock Exchange Australian Securities Exchange Bombay Stock Exchange Hong Kong Stock Exchange Korea Exchange National Stock Exchange of India Shanghai Stock Exchange Shenzhen Stock Exchange Tokyo Stock Exchange Euronext Frankfurt Stock Exchange (Deutsche Börse) London Stock Exchange Madrid Stock Exchange) Milan Stock Exchange (Borsa Italiana) Nordic Stock Exchange Group OMX1 Swiss Exchange

Market Value (millions USD)

Total Share Turnover (millions USD)

690,797.50 2,847,535.20 1,032,518.40 1,432,877.00 10,842,001.90 1,066,513.20 1,082,572.00 1,945,517.70 727,125.30 1,019,109.00 2,142,756.80 596,320.20 3,478,602.50 2,605,097.60 1,204,292.00 2,560,491.10 1,178,525.60 636,674.80 781,146.30 992,356.40

210,180.80 19,343,868.30 361,959.00 798,193.10 12,158,620.60 560,912.80 171,176.20 970,227.60 1,050,473.80 506,652.30 3,315,768.50 1,701,256.80 2,675,983.30 1,195,962.20 1,589,736.70 2,321,518.50 1,040,751.10 565,759.30 503,049.90 520,867.50

Participants & there basis of objectives:  Investor – Invest in equity market  Hedgers – Hedge the portfolio  Arbitrageurs – Play with the price difference  Speculators – Play with the market volatility

Indian Financial Markets

MONEY MARKET

CASH

INTEREST RATE DERIVATIVES (IRS/FRAs)

Call Money Term Money Repos CBLO T-Bills CPs/CDs

DEBT MARKET

G-SECS

CORP BONDS

Central Govt State Govt.

FOREX MARKET

SPOT

FORWARD/ DERIVATIVES

EQUITY MARKET

CASH

DERIVATIVES

INDEX FUTURES INDEX OPTIONS STOCK FUTURES STOCK OPTIONS

REGULATORS

SEBI

CORPORATE BOND MARKET

RBI

EQUITY / FOREIGN DERIVATIVES EXCHANGE

FMC

FIXED INCOME MARKET

COMMODITY MARKET

IRDAI

INSURANCE COMPANIES

PFRDA

PENSION FUNDS











NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India, and between them are responsible for the vast majority of share transactions. It is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading NSE has a market capitalization of around Rs 47,01,923 crore (7 August 2009) NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities NSE is mutually-owned by a set of leading financial institutions, banks, insurance companies and other financial intermediaries in India

 Cash    

Equity Debentures Warrants ETFs

 Wholesale Debt Market  

Govt. Securities T-Bills etc.

 Futures  Index  Stock  Interest Rate  Options  Index  Stock  Currency Futures  USINR Future

Equity Net Investments (Rs. Cr)

Yearly Base

Gross Purchases (Rs. Cr)

Gross Sales (Rs. Cr)

2008

721606.50

774593.40

-52986.90

2007

811371.60

741314.40

70057.20

2006

475181.60

438788.50

36393.10

2005

284354.10

237642.20

46711.90

2004

186416.50

147627.20

38789.30

2003

94122.20

63385.10

30737.10

2002

46854.10

43272.80

3581.30

2001

51848.50

38304.80

13514.30

2000

74791.50

68421.60

6370.50

1999

36395.50

29817.10

6578.10

Equity Gross Sales (Rs. Cr)

Net Investments (Rs. Cr)

39814.60

32933.10

6881.50

2009 - Sep

67870.90

49526.50

18344.40

2009 - Aug

52385.80

47483.30

4902.50

2009 - Jul

70128.70

59062.10

11066.60

2009 - Jun

67277.20

63447.00

3830.20

2009 - May

74776.50

54659.10

20117.40

2009 - Apr

39653.30

33145.10

6508.20

2009 - Mar

32377.40

31847.30

530.10

2009 - Feb

21341.10

23777.90

-2436.80

2009 - Jan

27874.00

32119.10

-4245.10

Current Year

Gross Purchase (Rs. Cr)

2009 - Oct

MF activity in Financial Markets Equity Yearly Base

Gross Purchases (Rs. Cr)

Gross Sales Net Investments (Rs. Cr) (Rs. Cr)

2008

180792.70

166800.30

13992.40

2007

183818.21

177623.15

6195.06

2006

136011.99

120787.25

15224.74

2005

79525.00

66257.87

13267.13

2004

42327.66

43294.15

-966.49

2003

28579.80

27950.51

629.29

2002

15202.80

18093.45

-2890.65

2001

3596.16

4333.21

-737.05

Equity Current Year

Gross Purchases (Rs. Cr)

Gross Sales (Rs. Cr)

Net Invest. (Rs. Cr)

2009 - Oct

6426.90

9115.20

-2688.30

2009 - Sep

15852.10

18186.60

-2334.50

2009 - Aug

17451.50

16880.90

570.60

2009 - Jul

22549.00

20728.20

1820.80

2009 - Jun

22215.10

21376.00

839.10

2009 - May

18956.80

16665.90

2290.90

2009 - Apr

12138.00

12100.20

37.80

2009 - Mar

11723.60

10245.80

1477.80

2009 - Feb

6063.30

7559.30

-1496.00

2009 - Jan

10249.60

11114.50

-864.90

 The

International Monetary Fund was created in July 1944, originally with 45 members. At present 186 are member country.  The IMF is governed by its member countries, through the Board of Governors, which consists of one governor from each member country.

 Promote

global financial stability  Exchange Rate Stability  Temporary financial assistance to members experiencing balance of payments difficulties  Economic growth and high levels of employment



IMF’s capital base consists of membership quotas, the financial contributions made by the member countries. Total quotas amount to almost $300 billion.



Members’ quotas are broadly determined by their economic position relative to other members, and are reviewed on a regular basis.



A country’s quota determines its voting power and access to financing.



SDRs are allocated to member countries in proportion to their IMF quotas.

Special Drawing Rights (SDRs) are the freely usable currencies of International Monetary Fund members.  SDRs are defined in terms of a basket of major currencies used in international trade and finance.  At present, the currencies in the basket are, by weight, the United States dollar, the euro, the Japanese yen, and the pound sterling.  The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years. 

Period

USD

DEM

FRF

JPY

GBP

1981–1985

0.540 (42%) 0.460 (19%) 0.740 (13%) 34.0 (13%)

0.0710 (13%)

1986–1990

0.452 (42%) 0.527 (19%) 1.020 (12%) 33.4 (15%)

0.0893 (12%)

1991–1995

0.572 (40%) 0.453 (21%) 0.800 (11%) 31.8 (17%)

0.0812 (11%)

1996–1998

0.582 (39%) 0.446 (21%) 0.813 (11%) 27.2 (18%)

0.1050 (11%)

Period

USD

EUR

JPY

GBP

1999–2000

0.5820 (39%)

0.3519 (32%)

27.2 (18%)

0.1050 (11%)

2001–2005

0.5770 (45%)

0.4260 (29%)

21.0 (15%)

0.0984 (11%)

2006–2010

0.6320 (44%)

0.4100 (34%)

18.4 (11%)

0.0903 (11%)

A

hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of investment and trading activities than other investment funds.  Every hedge fund has its own investment strategy that determines the type of investments and the methods of investment it undertakes.  Hedge funds, invest in a broad range of investments including shares, debt and commodities.

It originated first in US.  It started in the year 1949.  Dr. Alfred Winslow Jones was the founder.  A.W. Jones and Co a partnership firm was created with four friends.  Investment was $ 100,000 in stocks.  A lot of trading desks and commodity-trading advisors began converting themselves into hedge funds.  Securities and Exchange Commission in 1968 counted 140 investment partnerships as hedge funds. 

 Hedge

Fund industry may have managed around $2.5 trillion.  Most hedge funds are highly specialized.  Highly unregulated.  Hedge fund manager are highly professional, disciplined.  Professional investors, Wealthy investors, arbitragers etc are parties to hedge funds.

Mutual Funds

Hedge Funds

 Largely Unregulated  Highly Regulated  NAV is calculated daily  NAV is calculated on daily bases but reported and reported to investors to investors on monthly on daily bases. bases.  Large number of owners.  Very few high net worth  Remunerate individuals and management based on institutions are the % of asset under owners. management  Remunerate managers with performance related incentive fees as well as fixed fees.

Yes – Only accredited investor can invest. Conditions to be fulfilled  Individual or combined net worth of $1million.  Individual income of more than $200,000 in the previous 2 yrs.  The combined income of you and your spouse is more that $300,000.

 Ability

to generate positive returns in both rising and falling markets (bond & Equity).  It reduces risk & volatility and provides increased returns.  It provides ideal long term investment solutions.  It provides diversification.

 High

Leverage  Short selling  Lack of transparency  Lack of regulation  Less Liquidity  Investment Management fees may be relatively high for Hedge Funds

Hedge funds employ many different trading strategies, which are classified in many different ways, with no standard system used. Style: global macro, directional, event-driven  Market: equity, fixed income, commodity, currency  Instrument: long/short, futures, options, swaps  Sector: emerging market, technology, healthcare etc.  Diversification: multi-manager, multi-strategy, multi-fund, multi-market 

           

Amaranth Advisors Bridgewater Associates Citadel Investment Group D.E. Shaw Fortress Investment Group GLG Partners Long-Term Capital Management Man Group Marshall Wace Renaissance Technologies Soros Fund Management The Children's Investment Fund Management (TCI)

 Amaranth

Advisors LLC was an American multistrategy hedge fund managing US$9 billion in assets.  In September 2006, it collapsed after losing roughly US$6 billion on natural gas futures.  The failure was one of the largest known trading losses and hedge fund collapses in history.

 Long-Term

Capital Management (LTCM) was a U.S. hedge fund which used trading strategies such as fixed income arbitrage, statistical arbitrage, and combined with high leverage.  Initially enormously successful with annualized returns of over 40% (after fees) in its first years.  In 1998 it lost $4.6 billion in less than four months following the Russian financial crisis

Investment In India by Foreigners

Foreign Direct Investment

Automatic Route – Through RBI

Approval Route – Through FIPB

Portfolio Investment

Through the prescribe limit of RBI

 Foreign

direct investment is investment of foreign assets into domestic structures, equipment, and organizations.  FDI refers to investment in a foreign country where the investor retains control over the investment

Who is a FII?  An

entity established or incorporated outside India, which proposes to make investment in India.

Who can get registered as an FII? 

Pension funds



Mutual funds



Investment trusts



Insurance or Reinsurance companies



Endowment funds



University funds



Foundations or Charitable trusts



Overseas investment advisors



International or multilateral agencies, Foreign governmental agency or a Foreign central bank



Asset management companies, Institutional portfolio managers, Trustees etc.

A – Cumulative FDI equity inflows (1991-2009)

B – FDI equity inflows during financial Year 2009-2010 Financial Year 2009-2010 (April - March)

Amount of FDI inflows (In Rs. Crore)

(In US $ mm)

April 2009

11,708

2,339

May 2009

10,168

2,095

June 2009

12,335

2,582

July 2009

16,852

3,476

Total

51,063

10,492

C – Share of top investing counties FDI equity inflows (financial year wise) Amount Rupees in Crores (US $ in million)

2009-2010 Cumulative (April-March) inflows (April 00 to July 09)

% to total inflows in terms of rupees

Rank

Country

1

Mauritius

22,257 (4,555)

1,83,529 (41,419)

44 %

2

Singapore

3,692 (759)

37,544 (8,570)

9%

3

U.S.A.

4,261 (886)

32,220 (7,221)

8%

4

U.K.

542 (112)

23,446 (5,338)

6%

5

Netherlands

1,334 (278)

17,187 (3,866)

4%

51,062 (10,492)

4,20,146 (94,947)

Total

According to DTAA signed by India, a large number of Foreign Institutional Investors who trade on the Indian stock markets operate from Mauritius.  According to the tax treaty between India and Mauritius, Capital Gains arising from the sale of shares is taxable in the country of residence of the shareholder and not in the country of residence of the Company whose shares have been sold.  Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no Capital gains tax in Mauritius, the gain will escape tax altogether. 

 India

has a tax treaty with Mauritius providing that gains on any transfer of shares in an Indian company by the Mauritius holding company shall not be taxable in India but in Mauritius as per the domestic tax laws in Mauritius.  Domestic tax laws in Mauritius do not tax capital gains.  Therefore, any transaction on account of the transfer of shares in an Indian company by a Mauritius holding company is a tax free transaction both in India and Mauritius.

http://en.wikipedia.org/wiki/Currency_sign http://en.wikipedia.org/wiki/Amaranth_Advisors http://en.wikipedia.org/wiki/Hedge_fund http://en.wikipedia.org/wiki/The_Children%27s_Investment_Fund_Management http://en.wikipedia.org/wiki/Global_financial_system www.google.com

Thank You!