INTERNSHIP : Debt Syndication

There are few following Fund Base debt syndication. Cash Credit This is the primary acting in which Banks lend money against the certificate of commodities and indebtedness. It runs the likes of a current account except that the money that can be withdrawn from this account is not restricted to the sum of money deposited in the account. Instead of this there is a certain limit called as credit facility that is permitted to withdraw by the account holder. Working Capital: Firms and companies require finances for its operational activities like paying wages, purchasing raw materials and bills etc. The available money is known as the firms working capital. It is very important part and holds the top half of any firms balance sheet. Due to the shortage of working capital many business have gone under besides the reason of profit or loss. Bank Overdraft: This term is use when the account holder intends to overdraw from a bank account. When a Bank gives a negative balance to an account then it represents that the account is overdrawn. This over drafting is sometimes covered by some mortgage or by any other protection plan. Term Loan: When the borrower is acquiring a long term assets that benefits the borrower like purchasing of Plant or machinery or constructing building for factory etc then in these cases the bank issues a repayment schedule in pre determined fixed installments. Bill Discounting: Under the particular lending type it is a major activity of some smaller banks. This situation is establish when borrower get paid from the bank against the bill from the borrowers customer and bank deduce some amount out of it as commission. Then this bill is presented by the bank to the borrowers customer on the due dates and collects the total amount. A pre determined interest or profit is settled by the borrower or his customer if the bill gets delayed in cashing out. Project Financing: Usually a number of equity investors also known as sponsors finance a long term infrastructure and industrial projects. Syndicate of banks is also use to provide these kinds of finances for operations. Non Fun Base debt syndication Letter of Credit: The LC can also be the beginning of defrayal for transaction significance that redemptive the missive of recognition will pay a bourgeois. Letter of credits are exploited primarily in international craft transactions of significant economic value for deals between a supplier in

one state and a customer in another. They are also used in the ground development procedure to ensure that sanctioned public facilities streets sidewalks storm H2O ponds etc. In executing a transaction of LC incorporates functions common to giros and Traveler s cheques. The parties to a missive of recognition are usually a beneficiary who is to receive the currency the issue bank of which the applicant is a customer and the advising depository financial institution of which the beneficiary is a client. However the listing and word form of documents is clear to imaginativeness and dialogue and mightiness contain requirements to nowadays documents issued by a neutral one-third party evidencing the caliber of the goods shipped or their place of origin.

Narketpally Addanaki Medarametla Expressway Limited (NAMEL) Katnataka.

NAMEL is a Special Purpose Vehicle (SPV) jointly promoted by ITNL and Ramky in a ratio of 50:50, to undertake the construction, operation and maintenance of the Project as specified in the Concession Agreement (CA) executed with APRDC. NAMEL is a Special Purpose Vehicle (SPV) jointly promoted by ITNL and Ramky in a ratio of 50:50, to undertake the construction, operation and maintenance of the Project as specified in the Concession Agreement (CA) executed with APRDC

Operational Assumptions
The implementation timelines of the project are as under:
Description Concession Agreement Date Financial Closure Date Within 180 days from the date of concession agreement Commercial Operations Date 910 days (2.5 years) from the date of financial closure Project Period (including Construction Period) 24 years from the appointed date January 19, 2035 July 17, 2013 Period Date July 23, 2010 January 19, 2011

Appointed Date is defined in the CA as the date on which Financial Close is achieved i.e. January 19, 2011 or an earlier date that APRDC and NAMEL may by mutual consent

determine, and shall be deemed to be the date of commencement of the Concession Period. As per the CA, Financial Close is required to be achieved within 180 days from the date of signing of the CA

MURTI HOUSING
Borrower : Murti Housing & Finance Pvt. Ltd. (MHFPL)

Sponsor Shareholding Pattern

: Kejriwal Family :
SHAREHOLDER Cubbon Marketing Pvt. Ltd. G.K.Investments Ltd. Uttam Commercial Co. Ltd. Murari Investment & Trading Co. Ltd. Nutshel Holdings Pvt. Ltd. TOTAL % HOLDING 13.18 24.59 20.89 23.99 17.34 100.00

Mandated Arranger Lenders

Lead

: IL&FS Financial Services Limited (IFIN)

: Consortium of Banks and Financial Institutions (Lenders) who agree to extend the Facility to the Borrower

Facility Agent Lenders Agent Security Agent Escrow Agent Lenders Documentation Agent The Project:

: To be decided at a later date by the Lenders by simple majority

: IL&FS Trust Co. Ltd. : To be decided in consultation with the Facility Agent : Lergal Cell of IL&FS

Project Base Plan Case Business

: Integrated Township Complex at Birubandh, Bokaro, Jharkhand : The business plan includes the base case financial model, as approved by the Lenders and will form an integral part of the Financing Agreements and would be used as the basis for budgeting and monitoring by the Lenders during the tenor of the Facility

Project Cost

: The aggregate delivered cost of the Project, would be Rs. 344.03 crs, as per the Base Case Business Plan (Project Cost)

The Project cost would include all costs and expenses of a capital nature estimated to be incurred by the Borrower (including development and financing costs already incurred prior to the date of the Financing Agreements) during such period, as reflected in the Base Case Business Plan

Means of Finance

: The Project Cost would be financed as under:

Particulars Equity Senior Debt Total Amount (Rs. Cr) 114.70 229.33 344.03

The Debt to Contributed Equity Ratio for the Project is proposed at 2:1 Project COD Upfront Equity : 1st July 2013 : The 20% of the Equity capital proposed to be infused into the Project, as per the Base Case Business Plan, shall be infused upfront prior to the drawdown of the Facility; : Such entity/(ies) as may be appointed by the Borrower, to provide any of the Engineering, Procurement, Commissioning, other construction related services pursuant to the relevant Contract(s)

Contractor (s)

Lenders Independent Engineer (IE)

: To be decided in consultation with the Facility Agent

The Facility: Type of Facility and Amount : Rupee Term Loan to the extent of Rs. 229.33 crs (along with LC/BG sub-limit)

Purpose of the Facility

: To fund the design, development, construction and finance the Project Cost

Tenor

: Door to door tenor of 12 years (i.e. 48 quarters), from the date of first disbursement till the date of last repayment, as follows:

(a)

Principal moratorium period of 3 years (12 quarters) comprising: 2.75 years (11 quarters) of drawdown during construction and 0.25 years (1 quarter) of operations after COD;

(b)

First 8 quarterly instalments @ Rs.6 crs and thereafter 24 equal quarterly installments @ Rs.7.56 crs i.e. 8 years thereafter

Availability Period

Drawdown & Commitment Charges

: Subject to the satisfactory compliance of Conditions Precedent, the Facility shall remain available for drawdown from execution of the Financing Agreements until 9 months after the Project COD, unless extended in writing with the consent of the Facility Agent : (a) An indicative quarterly drawdown schedule would be submitted to the Lenders at the time of execution of financing documents;

(b) Further, the Borrower shall also provide to the Facility Agent, an indicative quarterly Drawdown Schedule for each Financial Year (15 days before the commencement of such Financial Year);

Provided that the Borrower would reserve the right to vary the drawdown schedule in line with the actual progress on the Project, by submitting a drawdown schedule for each prospective quarter 10 days prior to the commencement of such quarter (the Drawdown Schedule);

(c) On receipt of the Drawdown notice, all the Lenders shall make proportionate disbursements of the Facility;

(d) Commitment Charges of 0.50% p.a. would be charged on the amounts remaining un-drawn in a quarter, relative to the quarterly drawdown schedule submitted; However, if the drawdown is at least 60% of the committed drawdown, no commitment charge will be levied

CAPM Use to calculate xpected return on ur investment. To find the appropriate discount rate to discount companys future cash flows BETA Relative volatility of a given investment

DiFF bet WAGE and REMUNARATION :

wage - payment for labor or services to a worker, especially on an hourly, daily, or weekly basis or by the piece. remuneration - payment or compensation received for services or employment. This includes the base salary and any bonuses or other economic benefits that an employee or executive receives during employment. This term often refers to the total compensation received by an executive, which includes not only the base salary but options, bonuses, expense accounts and other forms of compensation.

CENVAT ??

A replacement for the earlier MODVAT scheme and is meant for reducing the cascading effect of indirect taxes on finished products. The scheme is a more extensive one with most goods brought under its preview.

No of companies in BSE and NSE As of June 2011, there are over 5,085 listed Indian companies in BSE
Though a number of other exchanges exist, 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. The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange Fifty), an index of fifty major stocks weighted by market capitalisation.

Why mutual funds are subject to market risk ?

Mutual fund money invested by fund manager in fix return instruments like government bonds, commercial papers as well as some part of money invested in fluctuating rate of return instruments which is negative or positive, eg: equity, derivatives, debt fund. So because of no guaranty on return of share market instruments, risk always associated with it,that's the reason mutual funds are always subject to market risk

REVENUE: Amount of money that bought into a company by its business units is called revenue. In other words its the price at which goods and services of a company are sold multiplied by no of goods they sell. Whats recession ?
According to the National Bureau of Economic Research (NBER), recession is defined as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales". More specifically, recession is defined as when businesses cease to expand, the GDP diminishes for two consecutive quarters, the rate of unemployment rises and housing prices decline.

what is cash flow and funds flow? Difference between cash and funds flow? methods of cash
Cash Flow Statement : Statement showing changes in inflow & outflow of cash during the period. Methods of cash flow:1.Direct Method : presenting information in:Statement of A. operating Activities, B. Investment Activities C.Financial Activities

2.Indirect Method :uses net income as base & make adjustments to that income(cash & non-cash)transactions. Funds Flow Statement :Statement showing the sorce & application of funds during the period. Major Difference: The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. FFS is showing the fund for the future activites of the Company.

TDS
TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

What Does Accounting Cycle Mean? The name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements. The nine steps of the accounting cycle are: 1. 2. 3. 4. 5. 6. 7. 8. 9. Collecting and analyzing data from transactions and events. Putting transactions into the general journal. Posting entries to the general ledger. Preparing an unadjusted trial balance. Adjusting entries appropriately. Preparing an adjusted trial balance. Organizing the accounts into the financial statements. Closing the books. Preparing a post-closing trial balance to check the accounts.

Current Ratio Current Ratio = Quick Ratio Quick Ratio = Quick Assets ---------------------Current Liabilities Current Assets -----------------------Current Liabilities

Quick Assets = Current Assets - Inventories Net Working Capital Ratio Net Working Capital Ratio = Net Working Capital -------------------------Total Assets

Net Working Capital = Current Assets - Current Liabilities

Profitability Analysis Ratios Return on Assets (ROA) Return on Assets (ROA) = Net Income ---------------------------------Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2 Return on Equity (ROE) Return on Equity (ROE) = Net Income -------------------------------------------Average Stockholders' Equity

Average Stockholders' Equity = (Beginning Stockholders' Equity + Ending Stockholders' Equity) / 2 Return on Common Equity (ROCE) Return on Common Equity = Net Income --------------------------------------------

Average Common Stockholders' Equity Average Common Stockholders' Equity = (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity) / 2 Profit Margin Profit Margin = Net Income ----------------Sales

Earnings Per Share (EPS) Earnings Per Share = Net Income --------------------------------------------Number of Common Shares Outstanding

Activity Analysis Ratios Assets Turnover Ratio Assets Turnover Ratio = Sales ---------------------------Average Total Assets

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2 Accounts Receivable Turnover Ratio Accounts Receivable Turnover Ratio = Sales ----------------------------------Average Accounts Receivable

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 Inventory Turnover Ratio Inventory Turnover Ratio = Cost of Goods Sold --------------------------Average Inventories

Average Inventories = (Beginning Inventories + Ending Inventories) / 2

Capital Structure Analysis Ratios Debt to Equity Ratio Debt to Equity Ratio = Total Liabilities ---------------------------------Total Stockholders' Equity

Interest Coverage Ratio Interest Coverage Ratio = Income Before Interest and Income Tax Expenses -------------------------------------------------------

Interest Expense Income Before Interest and Income Tax Expenses = Income Before Income Taxes + Interest Expense

Capital Market Analysis Ratios Price Earnings (PE) Ratio Price Earnings Ratio = Market Price of Common Stock Per Share -----------------------------------------------------Earnings Per Share

Market to Book Ratio Market to Book Ratio = Market Price of Common Stock Per Share ------------------------------------------------------Book Value of Equity Per Common Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares Dividend Yield Dividend Yield = Annual Dividends Per Common Share -----------------------------------------------Market Price of Common Stock Per Share

Book Value of Equity Per Common Share = Book Value of Equity for Common Stock / Number of Common Shares Dividend Payout Ratio Dividend Payout Ratio = Cash Dividends -------------------Net Income

ROA = Profit Margin X Assets Turnover Ratio ROA = Profit Margin X Assets Turnover Ratio Net Income ROA = ------------------------ = Average Total Assets Profit Margin = Net Income / Sales Assets Turnover Ratio = Sales / Averages Total Assets Net Income -------------- X Sales

Sales ---------------Average Total

What Does Working Capital Mean?

A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital", or the "working capital ratio". Working capital also gives investors an idea of the company's underlying operational efficiency. If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. What Does Current Assets Mean? 1. A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. 2. In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets

What Does Working Ratio Mean? A ratio used to measure a company's ability to recover operating costs from annual revenue. This ratio is calculated by taking the company's total annual expenses (excluding depreciation and debtrelated expenses) and dividing it by the annual gross income:

Investopedia explains Working Ratio A working ratio below 1 implies that the company is able to recover operating costs, whereas a ratio above 1 reflects the company's inability to do so.

3 rules of A/c ing .

1. Debit to receiver Credit to giver 2. Debit what comes in Credit what goes out 3. Debit All Exp /Loss Credit Income/Gain Rule 1: Total asset= Total liab + owner's Equity

Rule 2: Debit: all exp & loss Credit: all income & gain Rule 3: Total of debit side = Total of credit

First, understand that a sinking fund provision is really just a pool of money set aside by a corporation to help repay a bond issue. Typically, bond agreements (called indentures) require a company to make periodic interest payments to bondholders throughout the life of the bond, and then repay the principal amount of the bond at the end of the bond's lifespan. For example, let's say Cory's Tequila Company (CTC) sells a bond issue with a $1,000 face value and a 10-year life span. The bonds would likely pay interest payments (called coupon payments) to their owners each year. In the bond issue's final year, CTC would need to pay the final round of coupon payments and also repay the entire $1,000 principal amount of each bond outstanding. This could pose a problem because while it may be very easy for CTC to afford relatively small $50 coupon payments each year, repaying the $1,000 might cause some cash flow problems, especially if CTC is in poor financial condition when the bonds come due. After all, the company may be in good shape today, but it is difficult to predict how much spare cash a company will have in 10 years' time. To lessen its risk of being short on cash 10 years from now, the company may create a sinking fund, which is a pool of money set aside for repurchasing a portion of the existing bonds every year. By paying off a portion of its debt each year with the sinking fund, the company will face a much smaller final bill at the end of the 10-year period.

The Opportunity Cost of Capital (OCC)

The OCC is the expected return that your are giving up by investing in a project rather than in the stock market. In other words, it is the project's opportunity cost of capital. Estimate the Opportunity Cost of Capital (OCC) : Investment project :
Investment project Cash flow in year 1 100'000 110'000

Expected return on the project :

(110'000 -100'0000) = 10 %

100 '000

Investment in stock : Today's price : 95,65 . Expected price at the end of the year : 110
(110 - 95,65) = 15 % 95,65

Conclusion : Expected return on stocks is 15 %. This return of 15 % is the project's OCC. In this example, we do not invest in the project.

cost of capital

Definition
The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock.

Retained Earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt. It is recorded under shareholders' equity on the balance sheet. In most cases, companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development. Should a net loss be greater than beginning retained earnings, retained earnings can become negative, creating a deficit.

What Does Cost Of Equity Mean?

In financial theory, the return that stockholders require for a company. The traditional formula for cost of equity (COE) is the dividend capitalization model:

A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership. Investopedia explains Cost Of Equity Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in TSJ Sports. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives you your 10% cost of equity.

What Does Cost Of Debt Mean?

The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; however, because interest expense is deductible, the after-tax cost is seen most often. This is one part of the company's capital structure, which also includes the cost of equity. Investopedia explains Cost Of Debt A company will use various bonds, loans and other forms of debt, so this measure is useful for giving an idea as to the overall rate being paid by the company to use debt financing. The measure can also give investors an idea as to the riskiness of the company compared to others, because riskier companies generally have a higher cost of debt

GNP Gross National Product. GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their location. GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal. What Does Capital Expenditure - CAPEX Mean? Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.

Investopedia explains Capital Expenditure - CAPEX The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities. In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense TAX Deductible 1. The amount you have to pay out-of-pocket for expenses before the insurance company will cover the remaining costs. 2. An amount subtracted from an individual's adjusted gross income to reduce the amount of taxable income. Also known as "tax deductible". 1. For example, if you get into an accident and your medical expenses are $2,000 and your deductible is $300, then you would have to pay the $300 out-of-pocket first before the insurance company paid the remaining $1,700. However, if your accident only resulted in $300 in medical expenses, then you would pay the $300 deductible and the insurance company would pay nothing. 2. There are many types of expenses you can use to reduce the amount of your taxable income such as healthcare expenses, interest expenses (i.e. mortgages, car loans), legal fees and investmentrelated expenses. However, for those with brokerage accounts, fees such as commissions paid for trades are not deductible.

What Does Velocity of Money Mean? A term used to describe the rate at which money is exchanged from one transaction to another. Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services. This helps investors gauge how robust the economy is. It is usually measured as a ratio of GNP to a country's total supply of money.

What Does Unlevered Beta Mean? A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta of a company without any debt. Unlevering a beta removes the financial

effects from leverage. The formula to calculate a company's unlevered beta is:

Where: BL is the firm's beta with leverage. Tc is the corporate tax rate. D/E is the company's debt/equity ratio.

Why does a balance sheet Tally? The balance sheet is a simple and at the same time very complex and detailed account of the company. The balance sheet shows the amount of assets a company holds, it shows the company's liabilities, or what they owe for one reason or another (not monthly expenses) and what the owners or stakeholders have in the company. Remember the accounting equation. Assets = Liabilities + Owners Equity Or it could also be stated Assets - Liabilities = Owners Equity Written this way makes much more sense to me, what it tells me is that after Liabilities are removed from the company's assets (assets - liabilities) we know how valuable the company is to the owners and whether or not they can meet their obligations to Stock Holders and Creditors.
Balance sheet tallies all of the assets, liabilities and capital accounts of a financial entity could be a business enterprise or your own personal financial status. The balance sheet is formally known as the statement of financial position. It is a snapshot of the financial position of an economic entity on any given day. On a balance sheet the total of all assets are equal to the sum of all liabilities and capital. The accounting equation is Assets = Liabilities + Capital. It is a restatement of the algebraic equation Assets minus Liabilities equals Capital.

Q] I'm learning economics and I keep hearing the terms nominal and real all the time to describe things like interest rates. What's the difference between nominal and real?

[A:]Great question!

Generally a real variable, such as the real interest rate, is one where the effects of inflation have been factored in. A nominal variable is one where the effects of inflation have not been accounted for. A few examples illustrate the difference:
1. Nominal Interest Rates vs. Real Interest Rates Suppose we buy a 1 year bond for face value that pays 6% at the end of the year. We pay $100 at the beginning of the year and get $106 at the end of the year. Thus the bond pays an interest rate of 6%. This 6% is the nominal interest rate, as we have not accounted for inflation. Whenever people speak of the interest rate they're talking about the nominal interest rate, unless they state otherwise.

Now suppose the inflation rate is 3% for that year. We can buy a basket of goods today and it will cost $100, or we can buy that basket next year and it will cost $103. If we buy the bond with a 6% nominal interest rate for $100, sell it after a year and get $106, buy a basket of goods for $103, we will have $3 left over. So after factoring in inflation, our $100 bond will earn us $3 in income; a real interest rate of 3%. The relationship between the nominal interest rate, inflation, and the real interest rate is described by the Fisher Equation:
Real Interest Rate = Nominal Interest Rate - Inflation If inflation is positive, which it generally is, then the real interest rate is lower than the nominal interest rate. If we have deflation and the inflation rate is negative, then the real interest rate will be larger. 2. Nominal GDP Growth vs. Real GDP Growth GDP, or Gross Domestic Product is the value of all the goods and services produced in a country. The Nominal Gross Domestic Product measures the value of all the goods and services produced expressed in current prices. On the other hand, Real Gross Domestic Product measures the value of all the goods and services produced expressed in the prices of some base year. An example:

Suppose in the year 2000, the economy of a country produced $100 billion worth of goods and services based on year 2000 prices. Since we're using 2000 as a basis year, the nominal and real GDP are the same. In the year 2001, the economy produced $110B worth of goods and services based on year 2001 prices. Those same goods and services are instead valued at $105B if year 2000 prices are used. Then: Year 2000 Nominal GDP = $100B, Real GDP = $100B Year 2001 Nominal GDP = $110B, Real GDP = $105B Nominal GDP Growth Rate = 10% Real GDP Growth Rate = 5% Once again, if inflation is positive, then the Nominal GDP and Nominal GDP Growth Rate will be less than their nominal counterparts. The difference between Nominal GDP and Real GDP is used to measure inflation in a statistic called The GDP Deflator.
3. Nominal Wages vs. Real Wages These work in the same way as the nominal interest rate. So if your nominal wage is $50,000 in 2002 and $55,000 in 2003, but the price level has risen by 12%, then your $55,000 in 2003 buys what

$49,107 would have in 2002, so your real wage has gone done. You can calculate a real wage in terms of some base year by the following: Real Wage = Nominal Wage / 1 + % Increase in Prices Since Base Year Where a 34% increase in prices since the base year is expressed as 0.34. 4. Other Real Variables Almost all other real variables can be calculated in the manner as Real Wages. The Federal Reserve keeps statistics on items such as the Real Change in Private Inventories, Real Disposable Income, Real Government Expenditures, Real Private Residential Fixed Investment, etc. These are all statistics which account for inflation by using a base year for prices.

1. Differentiate between stock and flow statement

Stocks and flows in accounting

Thus, a stock refers to the value of an asset at a balance date (or point in time), while a flow refers to the total value of transactions (sales or purchases, incomes or expenditures) during an accounting period. If the flow value of an economic activity is divided by the average stock value during an accounting period, we obtain a measure of the number of turnovers (or rotations) of a stock in that accounting period. Some accounting entries are normally always represented as a flow (e.g. profit or income), while others may be represented both as a stock or as a flow (e.g. capital). A person or country might have stocks of money, financial assets, liabilities, wealth, real means of production, capital, inventories, and human capital (or labor power). Flow magnitudes include income, spending, saving, debt repayment, fixed investment, inventory investment, and labor utilization.

Comparing stocks and flows

Stocks and flows have different units and are thus not commensurable they cannot be meaningfully compared, equated, added, or subtracted. However, one may meaningfully take ratios of stocks and flows, or multiply or divide them. This is a point of some confusion for some economics students, as some confuse taking ratios (valid) with comparing (invalid). The ratio of a stock over a flow has units of (units)/(units/time) = time. For example, the debt to GDP ratio has units of years (as GDP is measured in, for example, dollars per year whereas debt is measured in dollars), which yields the interpretation of the debt to GDP ratio as "number of years to pay off all debt, assuming all GDP devoted to debt repayment". The ratio of a flow to a stock has units 1/time. For example, the velocity of money is defined as nominal GDP / nominal money supply; it has units of (dollars / year) / dollars = 1/year. In discrete time, the change in a stock variable from one point in time to another point in time one time unit later is equal to the corresponding flow variable per unit of time. For example, if a country's stock of physical capital on January 1, 2010 is 20 machines and on January 1, 2011 is 23 machines, then the flow of net investment during 2010 was 3 machines per year. If it then has 27 machines on January 1, 2012, the flow of net investment during 2010 and 2011 averaged machines per year. In continuous time, the time derivative of a stock variable is a flow variable.

Cashless profit Profitless Cash ?

Appreciation-accrual(basis of which profit is measured ) Income received in advanced . Profit is the total or absolute monetary difference between sales revenues and operating costs. Profitability measures how well a company is making use of it's capital by investing in resources that make goods and services that generate profits
Profit is a figure in absolute terms. It is the number that sits at the bottom of the statement of financial performance. It is calculated by taking the income earned and deducting the expenses incurred in deriving that income.

Profitability on the other hand is a measure of the profit compared to a number of relevant factors. Profitability tells us more about the efficiency and performance of a business. The best way to illustrate this is to look at an example. I have taken the following figures from two businesses that I know well. They are both in exactly the same industry and charge the same price for their products and services. Company 1 Company 2 $M $M Sales 40 12 Cost of sales 20 5 Gross profit 20 7 Less overheads 16 4 Net profit 4 3 Company 1 is clearly the bigger of the two companies. The volume of sales is more than three times that of Company 2. This means that Company 1 will need more staff, plant and equipment, and premises. The profit made by Company 1 is $4 million compared to the profit of $3 million made by Company 2. If you were given the choice to invest in either company without giving any further thought you would probably choose Company 1. However, when we compare the profitability of the businesses a different picture starts to emerge. More financial information regarding each company follows: Company 1 Company 2 Total assets $12.0m $3.0m Shareholder funds $10.0m $2.0m Gross profit percentage 50% 58% Net profit as percentage of sales 10% 25% Net profit as percentage of total assets 33% 100% Net profit as percentage of shareholders funds 40% 150% Gross profit The first point of comparison is the gross profit margin. Company 1 is achieving a margin of 50 percent whereas Company 2 is achieving 58 percent. This doesn't seem like a huge difference, although if Company I was achieving Company 2's margin it would add a further $3.2 million to the profit. Company 2 is therefore more efficient in producing its products and services. Whats the diff bet financial and operating leberage

Financial Leverage

In the financial world, leverage is the amount of risk a person is willing to take. The greater the risk, the greater the potential payoff. Of course, the greater the risk the greater the investor's chance of losing the investment which is why not everyone uses financial leverage and, of those who use it, why many fail. There are only two things that can be done with money spend it or invest it. Spending involves near zero risk. A person receives his paycheck, goes to the bank where he cashes it for a combination of cash and cashier's checks (or money orders) payable to his creditors for bills due and then goes to the mall and spends the rest on goods he wants or needs. Little chance of loss here. The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders' return on investment and often there are tax advantages associated with borrowing. also called leverage.

Operating leverage
A measurement of the degree to which a firm or project incurs a combination of fixed and variable costs. 1. A business that makes few sales, with each sale providing a very high gross margin, is said to be highly leveraged. A business that makes many sales, with each sale contributing a very slight margin, is said to be less leveraged. As the volume of sales in a business increases, each new sale contributes less to fixed costs and more to profitability. 2. A business that has a higher proportion of fixed costs and a lower proportion of variable costs is said to have used more operating leverage. Those businesses with lower fixed costs and higher variable costs are said to employ less operating leverage. Investopedia explains Operating Leverage The higher the degree of operating leverage, the greater the potential danger from forecasting risk. That is, if a relatively small error is made in forecasting sales, it can be magnified into large errors in cash flow projections. The opposite is true for businesses that are less leveraged. A business that sells millions of products a year, with each contributing slightly to paying for fixed costs, is not as dependent on each individual sale.

Diff bet liquidity and solvency ?

I've heard that the liquidity problem has become a solvency problem. From my research I understand solvency as essentially being able to repay debts. I understand liquidity to be able to easily convert assets into cash. So would I be correct in saying as an example that: Since no one is buying my product (causing me to become illiquid), I am no longer able to pay my creditors (causing insolvency)? So in effect my insolvency causes my creditors to become illiquid? So would I be correct in saying that illiquidity causes insolvency which causes illiquidity and cycles over and over or am I completely wrong in my interpretations? I'm just trying to understand what is going on with the economy.

Solvency refers to the financial soundness of an entity in their ability to repay their debts. If a company or person is able to pay off all their debts when they come due, then they're considered to be solvent. If an entity is incapable of paying back their debts, they become insolvent. They're completely insolvent when they're unable to pay back any debts and they enter bankruptcy. Liquidity refers to investments of entities (people or companies). Money is considered Liquid in the state of cash. If a company is considered liquid, what that actually means is that all their money and investments are placed in holdings or forms that can easily be distributed as cash. Non-liquid investments are investments that are obligated for a certain amount of time. Some investments will take days, weeks, months, or even years to turn liquid (when you can get your money out of it). Sometimes it's just the red tape, othertimes you actually have to sell an item in a market, and other times you're contractually obligated to keep your money insolvent for a set amount of time. If you're insolvent, you're also illiquid since you can not gain access to the cash required to make you solvent. However, they are not necissarily hand-in-hand. It is possible to be insolvent and liquid and illiquid but solvent. What's going on with the economy? Well, I'm worried that the Government, for as liquid as it is, is becoming insolvent. They have to make payments on the National Debt. Once the National Debt gets so high they they no longer have the money to pay the interest on the debt, the government becomes insolvent and goes bankrupt. When that happens, all hell breaks loose, the Govt declairs a "force majeur" and we get a new currency making the US Dollar 100% worthless. What we're seeing right now is a little more complex than simple "insolvency" issues. Sure companies are becoming insolvent (though not illiquid, since hey have plenty of access to cash, just not enough), but the real problem is the captive markets that have been strangleholding corners of the market and the effects ripple into other markets and around the world. Will it work? Only time will tell for sure. I know I could have thought of much better solutions than simply printing up $3trillion dollars and adding it onto the debt to save the same companies that created the problem to begin with, but maybe that's why I'm not a politician.

LIQUIDITY AND PROFITABILITY ?

Operating profit . How is it measured ? The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. Also known as "earnings before interest and tax" (EBIT). Calculated as:

What is CRR (For Non Bankers)

: CRR means Cash Reserve Ratio. Banks in India are

required to hold a certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivlanet to holding cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a banks deposits increase by Rs100, and if the cash reserve ratio is 6%, the banks will have to hold additional Rs 6 with RBI and Bank will be able to use only Rs 94 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system

Statutory Liquidity Ratio :

Statutory Liquidity Ratio is the amount of liquid assets, such as cash, precious metals or other approved securities, that a financial institution must maintain as reserves other than the Cash with the Central Bank. The statutory liquidity ratio is a term most commonly used in India.

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.
How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. .
What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds.. The quantum is specified as some percentage of the total demand and time liabilities ( i.e. the liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one months time due to maturity) of a bank. SLR Rate = Total Demand/Time Liabilities x 100%

SLR to Control Inflation and propel growth

SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

Difference between SLR & CRR

SLR restricts the banks leverage in pumping more money into the economy. On the other hand, CRR, or Cash Reserve Ratio, is the portion of deposits that the banks have to maintain with the Central Bank. The other difference is that to meet SLR, banks can use cash, gold or approved securities whereas with CRR it has to be only cash. CRR is maintained in cash form with central bank, whereas SLR is maintained in liquid form with banks themselves.
What Does Profitability Ratios Mean? A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing Go to http://bizfinance.about.com/od/financialratios/a/Profitability_Ratios.htm

What are Repo rate and Reverse Repo rate? Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks against securities. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it
more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The banks use this tool when they feel that they are stuck with excess
funds and are not able to invest anywhere for reasonable returns. An increase in the reverse repo rate means that the RBI is ready to borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep more and more surplus funds with RBI.

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks

A consumer price index (CPI) measures changes in the price level of

consumer goods and services purchased by households. The CPI, in the United

States is defined by the Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."[1] The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indexes and subsub-indexes are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values. In most countries, the CPI is, along with the population census and the USA National Income and Product Accounts, one of the most closely watched national economic statistics.

The Wholesale Price Index (WPI) is the price of a

representative basket of wholesale goods. Some countries (like India and The Philippines) use WPI changes as a central measure of inflation. However, United States now report a producer price index instead. The Wholesale Price Index or WPI is "the price of a representative basket of wholesale goods. Some countries use the changes in this index to measure inflation in their economies, in particular India The Indian WPI figure is released weekly on every thursday and influences stock and fixed price markets. The Wholesale Price Index focuses on the price of goods traded between corporations, rather than goods bought by consumers, which is measured by the Consumer Price Index. The purpose of the WPI is to monitor price movements that reflect supply and demand in industry, manufacturing and construction. This helps in analyzing both macroeconomic and microeconomic conditions. Calculation The wholesale price index (WPI) is calculated based on the wholesale price of a few relevant commodities of over 2,400 commodities available. The commodities chosen for the calculation are based on their importance in the region and the point of time the WPI is employed. For example in India about 435 items were used for calculating the WPI in base year 1993-94 while the advanced base year 2004-05 uses 676 items. The indicator tracks the price movement of each commodity individually. Based on this individual movement, the WPI is determined through the averaging principle. The following methods are used to compute the WPI:

NI ACT / R B I
3.1. Currency1 is an important means of payment in India, with 19% of M3

represented by currency, as against its share of 6 to 7% in advanced countries. It is supplemented by cheques and drafts for payments in commercial transactions. Various other paper instruments like a Banker's cheque, Payment order, Payable 'At Par' cheques (Interest/Dividend warrants, refund orders, gift cheques etc.), are also used to cater to the specific payment needs. The statutory basis for these instruments was provided by the Negotiable Instruments Act, 1881 (NI Act). 3.2. The NI Act, 1881, defines a Negotiable Instrument as a promissory note, Bill of Exchange or cheque. A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument. A Hundi is a Bill of Exchange in an Indian language, governed by customs and local usage. The NI Act, however, does not govern Hundis. A Bill of Exchange may therefore, include a Hundi, but Hundi may not be a Bill of Exchange. 3.3. A cheque is a Bill of Exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. The maker of a cheque is called the 'drawer', and the person directed to pay is the 'drawee'. The person named in the instrument, to whom or to whose order the money is, by the instrument directed, to be paid, is called the 'payee'. A cheque is a Negotiable Instrument, which can be further negotiated by means of endorsement and is payable on demand. A cheque payable to bearer is negotiable by the delivery thereof, and when it is payable to order is negotiable by the holder by endorsement and delivery thereof. A cheque has to be presented for payment by the payee or holder to the acceptor, maker or drawer. A cheque payment is a debit transaction as the transaction regarding the payment of a cheque is initiated by the payee or beneficiary.

Reserve Bank of India assumed responsibility of note issue from the Controller of Currency in 1935. The sole right to issue bank notes vests with the Reserve Bank under Section 22, of the RBI Act 1934. In terms of Section 23, of the RBI Act 1934, the Issue Department handles the work relating to the issue of bank notes. The Government, however, continued to issue Currency Notes, i.e. Re.1 notes till 1994.

3.4. A cheque is not cash, as it does not assume the finality of payment. The funds may not be available with the drawer or the drawer may have withdrawn funds from his bank account in the interim leading to the possibility of the cheque being dishonoured on presentation. In addition, the banks levy a collection charge based on postal costs as well as the value of the cheque in case of outstation cheques. It takes time to realise the proceeds of a cheque payment, especially if the cheque is an outstation one. For these reasons, the cheque is not always acceptable in several business transactions particularly where the drawer and the payee are notknown to each other. In many commercial transactions, the sellers of goods and services prefer to have a payment instrument where the sum of money payable to the payee is guaranteed. The demand draft is one such instrument. 3.5. The Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank undertakes to make payment in full when the instrument is presented by the

payee for payment. The demand draft is made payable on a specified branch of a bank at a specified centre. In order to obtain payment, the beneficiary has to either present the instrument directly to the branch concerned or have it collected by his / her bank through the clearing mechanism. 3.6. Banker's cheque is another payment instrument which is used by banks to settle payment obligations on behalf of their customers. This instrument is guaranteed by the bank for its full value and is similar to a demand draft. In practice, these instruments are payable at the branch of issue and are used for payment within the local clearing jurisdiction. 3.7. Payment Orders are issued by banks for payments made on behalf of the bank. These instruments are signed by a banker and carry the guarantee of the bank on the availability of the funds. These instruments are payable at the branch of issue.

RBI RATE HIKE BY 25 BAIS POINTS :

MUMBAI (Reuters) - The Reserve Bank of India (RBI) raised interest rates on Tuesday for the 13th time since early 2010 but gave a strong signal it may be finished with its current tightening cycle as growth slows and it expects high inflation to ease starting in December. The RBI raised its policy lending rate, the repo rate, by 25 basis points to 8.5 percent, in line with expectations in a Reuters poll last week. It also revised down its growth forecast for the fiscal year ending in March to 7.6 percent from 8 percent with a downside bias earlier, while sticking with its forecast that headline wholesale price index inflation will ease to 7 percent at the end of the fiscal year. The likelihood of a rate move at its December review is "relatively low," the central bank said in a statement. MUMBAI (Reuters) - The Reserve Bank of India (RBI) raised interest rates on Tuesday for the 13th time since early 2010 but gave a strong signal it may be finished with its current tightening cycle as growth slows and it expects high inflation to ease starting in December. The RBI raised its policy lending rate, the repo rate, by 25 basis points to 8.5 percent, in line with expectations in a Reuters poll last week. It also revised down its growth forecast for the fiscal year ending in March to 7.6 percent from 8 percent with a downside bias earlier, while sticking with its forecast that headline wholesale price index inflation will ease to 7 percent at the end of the fiscal year.

The likelihood of a rate move at its December review is "relatively low," the central bank said in a statement.

BACKGROUND: - Annual inflation barely budged in September , staying above 9 percent for the tenth straight month. The wholesale price index rose 9.72 percent, on the back of a jump in fuel and power prices. - The food price index rose 10.60 percent and the fuel price index climbed 15.17 percent in the year to Oct. 8, compared with 9.32 percent and 15.10 percent, respectively, in the previous week. - Industrial output grew 4.1 percent in August, over the previous year, lagging a Reuters poll forecast for 5 percent growth and was only a slight improvement on the revised 3.84 percent growth clocked in July. - Manufacturing growth nearly stalled in September , turning in its weakest showing since March 2009 on slowing output and order growth. The HSBC Markit India Manufacturing PMI fell more than two points to 50.4 from 52.6. - The service sector contracted in September for the first time in more than two years, with the seasonally adjusted HSBC Markit Business Activity Index, based on a survey of around 400 firms, plunging to 49.8. - An industry body cut its sales growth target for cars in this fiscal year to 2-4 percent, a sharp drop from the 30 percent growth clocked in the previous year. - Gross domestic product slipped to 7.7 percent in the three months through June, its weakest pace in six quarters.

What Does Derivative Mean? A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

Investopedia explains Derivative

Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region.