Zero based budgeting A method of budgeting in which all expenses must be justified for each new period.

Zero-based budgeting starts from a "zero base" and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one. ZBB allows top-level strategic goals to be implemented into the budgeting process by tying them to specific functional areas of the organization, where costs can be first grouped, then measured against previous results and current expectations. Because of its detail-oriented nature, zero-based budgeting may be a rolling process done over several years, with only a few functional areas reviewed at a time by managers or group leadership. Zero-based budgeting can lower costs by avoiding blanket increases or decreases to a prior period's budget. It is, however, a time-consuming process that takes much longer than traditional, cost-based budgeting. The practice also favors areas that achieve direct revenues or production; their contributions are more easily justified than in departments such as client service and research and development. 1. Efficient allocation of resources, as it is based on needs and benefits rather than history. 2. Drives managers to find cost effective ways to improve operations. 3. Detects inflated budgets. 4. Increases staff motivation by providing greater initiative and responsibility in decision-making. 5. Increases communication and coordination within the organization. 6. Identifies and eliminates wasteful and obsolete operations. 7. Identifies opportunities for outsourcing. 8. Forces cost centers to identify their mission and their relationship to overall goals. 9. It helps in identifying areas of wasteful expenditure and, if desired, it can also be used for suggesting alternative courses of action.

Financial restructuring Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring. Executives involved in restructuring often hire financial and legal advisors to assist in the transaction details and negotiation. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. It generally involves financing debt, selling portions of the company to investors, and reorganizing or reducing operations. The basic nature of restructuring is a zero sum game. Strategic restructuring reduces financial losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution of a distressed situation.

Steps: ensure the company has enough liquidity to operate during implementation of a complete restructuring produce accurate working capital forecasts provide open and clear lines of communication with creditors who mostly control the company's ability to raise financing update detailed business plan and considerations

Off shore financing An offshore financial centre (OFC), though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds.Tax heaven A more practical definition of an OFC is a center where the bulk of financial sector activity is offshore on both sides of the balance sheet, (that is the counterparties of the majority of financial institutions liabilities and assets are non-residents), where the transactions are initiated elsewhere, and where the majority of the institutions involved are controlled by non-residents. Thus OFCs are usually referred to as: Technical and financial anlysis The common thread between technical and fundamental analysis is the study of trends. Where technical analysis is the study of trends in price and volume, fundamental analysis concerns itself with economic and corporate growth trends and the projection of performance based on trends of relevant factors The Differences Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction To Fundamental Analysis and Advanced Financial Statement Analysis.) By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true. Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals Jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents; Financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies; and More popularly, centers which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity.

because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts. Time Horizon Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The different timeframes that these two approaches use is a result of the nature of the investing style to which they each adhere. It can take a long time for a company's value to be reflected in the market, so when a fundamental analyst estimates intrinsic value, a gain is not realized until the stock's market price rises to its "correct" value. This type of investing is called value investing and assumes that the short-term market is wrong, but that the price of a particular stock will correct itself over the long run. This "long run" can represent a timeframe of as long as several years, in some cases. (For more insight, read Warren Buffett: How He Does It and What Is Warren Buffett's Investing Style?) Furthermore, the numbers that a fundamentalist analyzes are only released over long periods of time. Financial statements are filed quarterly and changes in earnings per share don't emerge on a daily basis like price and volume information. Also remember that fundamentals are the actual characteristics of a business. New management can't implement sweeping changes overnight and it takes time to create new products, marketing campaigns, supply chains, etc. Part of the reason that fundamental analysts use a long-term timeframe, therefore, is because the data they use to analyze a stock is generated much more slowly than the price and volume data used by technical analysts. Trading Versus Investing Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment. Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.

The Differences Charts vs. Financial Statements At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements. (For further reading, see Introduction To Fundamental Analysis and Advanced Financial Statement Analysis.) By looking at the balance sheet, cash flow statement and income statement, a fundamental analyst tries to determine a company's value. In financial terms, an analyst attempts to measure a company's intrinsic value. In this approach, investment decisions are fairly easy to make - if the price of a stock trades below its intrinsic value, it's a good investment. Although this is an oversimplification (fundamental analysis goes beyond just the financial statements) for the purposes of this tutorial, this simple tenet holds true. Technical traders, on the other hand, believe there is no reason to analyze a company's fundamentals because these are all accounted for in the stock's price. Technicians believe that all the information they need about a stock can be found in its charts.

Venture capital Venture capital is a means of equity financing for rapidly-growing private companies. Finance may be required for the start-up, development/expansion or purchase of a company. Venture Capital firms invest funds on a professional basis, often focusing on a limited sector of specialization (eg. IT, infrastructure, health/life sciences, clean technology, etc.). The goal of venture capital is to build companies so that the shares become liquid (through IPO or

acquisition) and provide a rate of return to the investors (in the form of cash or shares) that is consistent with the level of risk taken. With venture capital financing, the venture capitalist acquires an agreed proportion of the equity of the company in return for the funding. Equity finance offers the significant advantage of having no interest charges. It is "patient" capital that seeks a return through long-term capital gain rather than immediate and regular interest payments, as in the case of debt financing. Given the nature of equity financing, venture capital investors are therefore exposed to the risk of the company failing. As a result the venture capitalist must look to invest in companies which have the ability to grow very successfully and provide higher than average returns to compensate for the risk. When venture capitalists invest in a business they typically require a seat on the company's board of directors. They tend to take a minority share in the company and usually do not take day-to-day control. Rather, professional venture capitalists act as mentors and aim to provide support and advice on a range of management, sales and technical issues to assist the company to develop its full potential. Venture capital has a number of advantages over other forms of finance, such as: It injects long term equity finance which provides a solid capital base for future growth. The venture capitalist is a business partner, sharing both the risks and rewards. Venture capitalists are rewarded by business success and the capital gain. The venture capitalist is able to provide practical advice and assistance to the company based on past experience with other companies which were in similar situations. The venture capitalist also has a network of contacts in many areas that can add value to the company, such as in recruiting key personnel, providing contacts in international markets, introductions to strategic partners, and if needed co-investments with other venture capital firms when additional rounds of financing are required. The venture capitalist may be capable of providing additional rounds of funding should it be required to finance growth.

Venture capital firms typically source the majority of their funding from large investment institutions such as fund of funds, financial institutions, endowments, pension funds and banks. These institutions typically invest in a venture capital fund for a period of up to ten years. To compensate for the long term commitment and lack of both security and liquidity, investment institutions expect to receive very high returns on their investment. Therefore venture capitalists invest in either companies with high growth potential where they are able to exit through either an IPO or a merger/acquisition. Although the venture capitalist may receive some return through dividends, their primary return on investment comes from capital gains when they eventually sell their shares in the company, typically between three to five years after the investment. Venture capitalists are therefore in the business of promoting growth in the companies they invest in and managing the associated risk to protect and enhance their investors' capital.

Badla/hawala system What is Badla? Simply put, badla is the price payable by the buyer to carry over his speculative purchases to the next settlement. This system helps traders to carry forward businesses without taking deliveries of stocks purchased. It helps to build large volumes on the exchanges and impart liquidity in stocks.

In the badla system, a position (either a short sale or long purchase) is carried forward. In the event of a long purchase, the investor may want to carry forward the transaction to the next settlement cycle and for doing so, he has to compensate the seller. The 'seedha badla' financier enters the market to lend money to the investor for a return. This is measured as interest on the funds made available for one settlement cycle, i.e. one week or a longer period in case of a book closure badla system. Similarly 'undha badla' or a 'contango' charge is a return paid by the stock borrower to the stock lender. In a short sale, when the investor wants to carry forward the transaction to the next settlement cycle, he has to borrow the stocks to compensate the other party in the contract. The charge paid on the borrowed stock is called a 'contango' charge or `share badla'. Vyaj Badla The transaction where the lender who lends money to the borrower through the clearinghouse of the Bombay Stock Exchange is called Vyaj Badla. The lender takes up the delivery of the shares from the original buyer at a standard rate (average or hawala rate) and sells the same in the next settlement back to him at a standard rate plus finance charge, to pay for the stock for that particular period. Vyaj Badla is not speculation since the financier or the investor is not taking any investment position in the market. His role is that of a financier and he steps into the shoes of the buyer only for funding the delivery at a predetermined rate. The badla mechanism The Badla session is held every Saturday in Mumbai, Delhi and Ahmedabad and on Thursday at the Calcutta Stock Exchange. The outstanding positions of various stocks are listed along with the quantities outstanding. Depending on the demand and supply of money, the carry forward rates are determined. If the market is over bought, i.e. there is more demand for funds, it results in Vyaj badla. However when the market is oversold, or when in a particular stock the short position is more, the Undha badla applies. Hawala and badla rates The hawala rate is the price at which buyers and sellers settle their speculative transactions at the end of the settlement on any exchange. It becomes the basis for buy and sell for the investor opting for carry forward during the next settlement. This price is fixed by taking the weighted average of trades in the last half-an-hour of trading on the settlement day for securities in the carry forward list, also known as the A group or specified group. This price is significant because for a speculative buyer or a seller, the hawala rate is the standard rate for settling his trade and for carrying forward business to the next settlement. By Friday (which in case of BSE is the settlement day), if Rs90 were the weighted average price in the last half an hour, the buyer would have to carry forward his trade at Rs90. He then settles at Rs90 and enters into a contract at Rs90 plus badla charges for the next settlement. Risk associated The Stock Exchange has the Trade Guarantee Fund of Rs306 crores (as on 31st March 98) in reserve, which is used if the stockbroker defaults. Neither the Stock Exchange nor any other authority is allowed to use the securities lying in the investor's (financier) name as provided by the Bye Laws of the Exchange. Further, only the customer can deal with the shares lying in the Clearing House. Tax perspective It is easy to show this kind of income as sale or purchase of shares. However, the Income Tax Authorities can also treat it as speculation profit or loss in the intervening period and as long or short-term income for the first and the last transaction. Vyaj badla is however not taxable. Fairly Liquid Badla is normally done for a period of seven days, (which works out to about ten days considering the period between pay-in and pay-out). Hence the money could easily be pulled back within fifteen days from the day of intimation, if required.

ADR and GDR ADR stands for American Depository Receipt. Similarly, GDR stands for Global Depository Receipt. Lets understand these better. Every publicly traded company issues shares and these shares are listed and traded on various stock exchanges. Thus, companies in India issue shares which are traded on Indian stock exchanges like BSE (The Stock Exchange, Mumbai), NSE (National Stock Exchange), etc. These shares are sometimes also listed and traded on foreign stock exchanges like NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotation). But to list on a foreign stock exchange, the company has to comply with the policies of those stock exchanges. Many times, the policies of these exchanges in US or Europe are much more stringent than the policies of the exchanges in India. This deters these companies from listing on foreign stock exchanges directly. But many good companies get listed on these stock exchanges indirectly using ADRs and GDRs. This is what happens: The company deposits a large number of its shares with a bank located in the country where it wants to list indirectly. The bank issues receipts against these shares, each receipt having a fixed number of shares as an underlying (Usually 2 or 4). These receipts are then sold to the people of this foreign country (and anyone who is allowed to buy shares in that country). These receipts are listed on the stock exchanges. They behave exactly like regular stocks their prices fluctuate depending on their demand and supply, and depending on the fundamentals of the underlying company. These receipts, which are traded like ordinary stocks, are called Depository Receipts. Each receipt amounts to a claim on the predefined number of shares of that company. The issuing bank acts as a depository for these shares that is, it stores the shares on behalf of the receipt holders.

What is the difference between ADR and GDR? Both ADR and GDR are depository receipts, and represent a claim on the underlying shares. The only difference is the location where they are traded. If the depository receipt is traded in the United States of America (USA), it is called an American Depository Receipt, or an ADR. If the depository receipt is traded in a country other than USA, it is called a Global Depository Receipt, or a GDR.

How can you use an ADR / GDR? ADRs and GDRs are not for investors in India they can invest directly in the shares of various Indian companies. But the ADRs and GDRs are an excellent means of investment for NRIs and foreign nationals wanting to invest in India. By buying these, they can invest directly in Indian companies without going through the hassle of understanding the rules and working of the Indian financial market since ADRs and GDRs are traded like any other stock, NRIs and foreigners can buy these using their regular equity trading accounts! Eg: Dr. Reddys, HDFC, Infosys (both), (only ADR)- Patni computers ans tata motors, Only GDR- Bajaj auto, SBI

Book building Book Building Issues A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period.. 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application. 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors. Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. The Process: The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. The Issuer specifies the number of securities to be issued and the price band for the bids. The Issuer also appoints syndicate members with whom orders are to be placed by the investors. The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. The book normally remains open for a period of 5 days. Bids have to be entered within the specified price band. Bids can be revised by the bidders before the book closes. On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. The book runners and the Issuer decide the final price at which the securities shall be issued. Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share. Allocation of securities is made to the successful bidders. The rest get refund orders.

BSE's Book Building System BSE offers a book building platform through the Book Building software that runs on the BSE Private network.

This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. The software is operated by book-runners of the issue and by the syndicate members , for electronically placing the bids on line real-time for the entire bidding period. In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals.

Libor/ prime lending rate The Libor is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate (LIBOR, /labr/). Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates. The Libor figure is an average of these rates. Many financial institutions, mortgage lenders and credit card agencies track the rate, which is produced daily at 11 a.m. to fix their own interest rates which are typically higher than the Libor rate. As such, it is a benchmark for finance all around the world LIBOR is the interest rate that banks charge each other for one-month, three-month, six-month and oneyear loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for bank rates all over the world. Prime rate or prime lending rate is a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate of interest at which banks lent to favored customers, i.e., those with high credibility, though this is no longer always the case. Some variable interest rates may be expressed as a percentage above or below prime rate.