Volume 2, Issue 1

August 1, 2011

Vinod gupta school of management, IIT KHARAGPUR
Career choices for an MBA Finance Graduate A Master of Business Administration with a specialisation in Finance is one of the most sought after academic background to enter the job market. An MBA in finance is very different from accounting course as it covers economic analysis, statistics, cost and management accounting, investment analysis, financial management, capital budgeting, valuation methods, risk management etc. The career opportunities in finance can be broadly classified into jobs with companies whose core operation is a finance function and those companies whose core operation is a non-finance activity. That is called corporate finance. Some of the burgeoning fields and kind of profile you can expect as an MBA in finance are: Investment Banking: Investment bankers act as middlemen between issuers and buyers of newly issued stocks, typically referred to as underwriting. Managing HNI client portfolio and advising them about various financing strategies, developing new financial instruments are few of the several functions an Investment banker performs. Until the recent financial crisis, a job on a Wall Street investment banking firm was the most celebrated job for an MBA in finance. Commercial Banking: With financial inclusion as a mandate from RBI, commercial banks are now into insurance, mutual funds and other multitude of services apart from the normal banking activities. That is the reason why they are hiring like never before. A career in banks offers opportunities as loan officer, credit analyst, trust officer etc. Treasury operations in PSU banks have huge requirements because they are now managing funds more actively. Asset Management: Asset Management companies help institutional clients manage their portfolios. The Asset Managers have to be well versed in budgeting, securities, insurance, real estate, taxes and retirement matters. Corporate Finance: A corporate finance job promises plurality of experiences right from helping companies to find money to develop its business. It includes managing assets, making capital budgeting decisions for the firm. Corporate finance professionals are forerunners during any M&A decisions. Equity Research: Most investment banks have their in-house equity research division. The equity research analysts study stocks, bonds for either a fund or for public, which makes them a buy side or a sell side analyst. Analysts are specialists with respect to a particular firm or industry and get a decent pay. Insurance: Insurance companies are now coming up big time in India. With FDI limit in the sector going up to 49%, and given the low insurance penetration in India, the demand for sound insurance professionals will only increase. One sought after career option in the sector is of an Actuary. Actuaries use mathematical and statistical analysis to decide on various terms and conditions of an insurance product. (Contributed by Pallav Maheshwari. Summer Internship at Reckitt Benckiser, Corporate Finance)

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Fin-o-Menal is the Fortnightly Financial News Letter of VGSoM which is published by Finte`est, the Finance Club.
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P a g e


Building model typically involved aggregating the financial data from filings. Summer Internship at Irevna. Irevna supports world’s leading commercial and investment banks. Our project was in quantitative finance. is world’s leading research and analytics outsourcing service provider. Founded in 2001. linking the financials. On my first week at Irevna. Financial modelling done was a sellside analysis. analysing. Our assignment also involved exhaustive use of MS-Excel and VBA. and commodity. The project required knowledge of advanced concepts in statistics and econometrics. With guidance from our project guide regarding reading material for the concepts. corporate and Analytical services. private equity players and asset management firms. derivatives. corporations. index. I completed my assignment within the deadlines. 2011) Commodities this week Commodity ` 23500 Unit GOLD 10 gm SILVER 59272 Kg OIL 4159 Barrel (As on August 2. They provide Financial. Apart from project. retail risk management etc. the company was initially known as Irevna solutions Private Limited. In 2005. which were not part of the curriculum in our first year. My mentors helped me in understanding when a financial model is built from scratch. how and why the financials are linked with each other. Financial models are updated whenever annual filings are released from company. My internship at Irevna was a very pleasant learning experience. I was given a sample financial model for understanding. forecasting the values for future and valuation. The internship provided us with opportunity of working with tools and software like EViews and MATLAB. My assignments in Irevna were primarily about building financial models and updating them. a division of CRISIL. how forecasting can be done and the various valuation methods that can be used. They work by the KPO business model.1% -1. I also had an opportunity to be a part of CSR initiative of Irevna with SMILE foundation. The model build by us predicted the next regime for various assets like equity. Apart from them several other research divisions are provided like commodities research. We were assigned the task of building a mathematical model for Portfolio optimization based on regimeswitching. efforts were put in to understand the concepts for implementation. I joined one of the teams in Equity Research division for my internship. consulting firms. knowledge sharing sessions and Friday evening floor parties. Summer Internship at Irevna.1% (As on August 2. During my internship I had opportunity to work on live projects. where a day was spent with kids by organising various activities for them like dance. Issue 1 August 1. Recommendations are made whether to Buy/Sell/Hold their shares in a company from the results obtained by the modelling. (Contributed by Sagar Jha. With my manager’s support and mentors guidance. it was acquired by CRISIL and renamed as Irevna. 2011) P a g e 2 . Desired results for the project were obtained by implementing the concepts. as well as insurance companies. Financial Services primarily concentrates equity and credit research. Based on the predicted regime the returns for the next period were predicted. The returns predicted could lead to portfolio optimization by usage of Mean-Variance theory. painting competition and educating them about healthy daily habits to be followed. Altogether it was a great experience and learning working with Irevna. 2011 Markets this week Index Opening Value (Aug 1) Closing Value (Aug 2) Change BSE NSE Equity research @ irevna Irevna. I had opportunity to participate in the weekly newsletter of my team. This is to know their accuracy of forecasting and valuation. (Contributed by Lavanya Rajasekaran. Equity Research) 18310 5516 18109 5456 -1. Derivatives) (As on August 2. And after a week I was asked to build a model right from scratch for one of their clients. 2011) Sectors this week INDICES BSE IT AUTO BANKEX BSEPSU METAL LAST 5797 8827 12269 8289 13587 Derivatives @ Irevna Udit and I joined Derivatives division of Irevna for our internship program. I was provided with feedback about my work at each stage of work which helped me to proceed in the right direction during my assignment.Fin-0-Menal Volume 2. a division of CRISIL.

Valuation certificates of assets and working capital of the enterprise by turnover method were analyzed. Issue 1 August 1. ” . merged with Standard Statistics and assumed the name Standard and Poor’s Corporation. Value of existing relationship with the borrower was analyzed. Summer Internship at Bank of India) International Markets this week US Dow Jones London LSE 11961 Japan Nikkei 225 5718 HongKong Hang Seng 9844 22421 (As on August 2.com Toon of the week Q u i c k Q u o t e : Raising the Debt Ceiling is kind of like increasing Blood Alcohol Levels to Solve Drunk Driving . Reports / recommendations from existing Bankers on the application were studied. All in all. We're sitting in the terminal waiting for the economy to take flight and instead it's just being delayed month after month after month. Credit rating given by the bank affects the interest charged on SMEs. The guide seemed quite happy with the approach followed and the end recommendations. senior financial analyst at Bankrate. Details of the principal security and collaterals were studied. Then borrowers’ profile / guarantors information was studied and a SWOT analysis of the exposure/ advance was conducted thoroughly. Also because. the experience at BOI was quite satisfactory. I analyzed the balance sheet and the financial position of the SME. projected balance sheet method. I understood the credit rating models (SBS model and LC model) in practice for rating SMEs. In 1941 Poor’s original company. I learnt about SME Policy of Bank of India and the methods used for working capital assessment such as Turnover Method.Greg McBride. Credit risk assessment of the SME was done. during this phase. 2011 Did You Know? Standard & Poor’s.Unknown P a g e 3 . Phase 2: Implementation I performed the following steps while analyzing the working capital credit proposal. Details of existing borrowings were gathered. Poor’s Publishing. I would like to logically divide the project into two phases. I analyzed the Credit rating (LC scoring) of the SME. Next. Industry Exposure regulations were taken into account. which sponsors a number of other market indexes. I worked on Credit appraisal An analysis of the project Working Capital financing to SMEs & Principles of the Management for credit risk. INTERNSHIP @ Bank of India I had a wonderful internship experience at Bank of India. Phase 1: Learning My project intends to give an in depth knowledge about the Credit Appraisal process at Bank of India. 2011) Quote Un-Quote “It's going to take years to come out of this. I also reviewed Basel committee reports on Principles of the Management for credit risk.Fin-0-Menal Volume 2. traces its roots to an investment information service begun in 1860 by Henry Varnum Poor. Finally a set of recommendations were deliberated upon and presented as a proposal to the company. MPBF Method. the learning phase and the implementation phase. I cleared two certifications on Commercial Banking and Investment analysis & portfolio management by the National stock exchange (NSE). As the first step. Caution lists and other recommendations were applied. the working capital financing for Small and Medium Enterprises (SMEs). (Contributed by Satyam Khatri.

M.for a given period (say one year) = (total $ lost) / (total $ exposure of defaulted loans) Default-weighting-for a given period (say one year) assuming the LGDs of the instruments in the portfolio are known= ∑ LGDs / (# of LGDs) Time-weighting. Of the three. I was really confused about what strategies to select because in two months. Standardized approach uses agency ratings for risk-weighting assets while IRB approach which allows a bank to use internal estimates of components of credit risk. but this time one thing was clear that whatever I recommend to the bank. Coming to the project details. ET Now and we people listening to them. it should return good profits. did analysis. the last (time-weighting) is the least desirable as it smoothes out high LGD years with low ones and may therefore understate expected LGD. 3. I gave the presentation and they really liked my work and asked me to build models for the two strategies so that they can use them at their trading desk. I started downloading various books and papers on bonds. I worked in the financial markets division.the average over time of either dollar-weighted or default-weighted LGDs of the instruments in the portfolio. You often find the dealers and ALM people analyzing news and sometimes you find the Economist and Head of FM giving interviews on rate hikes etc. (Contributed by Manoj Singh. markets might not work in India because of so many restrictions by RBI e. Again I was confused. the bond market in India is very illiquid and a profitable strategy based on U. compromise and settlements which are country specific. understood the examples and I found some 15-20 strategies on bonds portfolio management. Empirically it has been observed that recovery rate (and hence LGD) is dependent on1. Otherwise there is no use of me sitting there for two months.Total Exposure at default 4. and is the degree of uncertainty about recovery owing to borrower defaults. For the first two weeks I was going through the material. CCIL and back-tested those strategies which gave good returns. 2. wholesale banking.Seniority standing of debt in the firm's overall capital structure.S. The IRB approach is based on four parameters1. In many of the internships. LGD-The loss given default 3. Summer Internship at Brickwork Ratings) P a g e 4 . Firm specific capital structure. I learnt so many new things from my mentors and it was a great experience to work in the dealing room. The associate guide helped me very much in my work and gave me valuable suggestions. (Contributed by MSC Arun. The three approaches to obtain average LGD for a portfolio are: Dollar-weighting. in CNBC. to do something useful for the company. Overall. banking and asset management services.g. A drawback of default-weighting is that loan size information is averaged out (and hence lost). In the end. Issue 1 August 1. 2011 Internship @ Brickwork Ratings ING (International Netherlands Group) is a global financial institution which offers insurance. Another problem is.Fin-0-Menal Internship @ ING Vysya Volume 2. short selling for more than one day. So I asked my guide about what strategies to select and he replied that he wants to make money and the ball is in my court. collected data from Bloomberg. back-test them and at the end those Basel-II accord allows banks to calculate their credit risk capital based on standardized approach and an Internal Rating Based (IRB) approach. The bank’s behavior in terms of debt renegotiation with debtors. EAD. The loss given default (LGD) is generally defined asLGD= 100% . insurance. 4. my project guide asked me to analyse two or three bonds trading strategies and back-test those strategies in the Indian scenario. asset management and it also has financial markets division. Being enthusiastic. I selected some strategies.Recovery Amount / EAD =100% . I have built them and was very much satisfied. The quality of collateral attached to loans. it was a great learning experience to work with ING.The value of liquidated assets dependent on the industry of the borrower.The probability of default of a borrower over a one-year horizon 2. I found two strategies which gave decent profits but I was not sure whether they will like/use those. It acquired 44% stake in Vysya Bank in 2002. More sophisticated approaches involve formal modeling using regressions or more complicated techniques such as neutral networks. ING Vysya bank provides services like private banking. you will not have any concrete idea of the project or how to proceed but the success depends on the determination and enthusiasm you have. Industry tangibility. PD.recovery rate While Expected loss as an amount: EL = PD*LGD*EAD might not turn out to be profitable. When it was still one week to go. This department consists of the treasury management team and the sales team. you have to do a scenario analysis of these strategies.Maturity LGD is the fraction of EAD that will not be recovered if there are defaults. leverage etc. Summer Internship at ING Vysya) LGD is an important determinant of credit risk.

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