You are on page 1of 3


02 Finance Club Newsletter-INFINITY BUSINESS SCHOOL

Post Lehman World – Is there a room for marketing YEAR

As the financial markets have started to revive and the real economy
too has started showing some mixed signs of recovery, the question
that is on everyone’s mind these days is how will derivatives be This issue
positioned in the new post crisis financial markets. Derivatives as a iiiiKSDNF
Is the Fed Creating New Bubbles P.1
financial instrument will have to be seen separately from the
Marketing Derivatives P.1
economic crisis that engulfed the world post Lehman. Although it is Solutions for a
very tough to do so considering how all the blame for failure of New Economy Infrastructure boosts IndiaP.2
financial markets has been heaped on the derivatives. A wide range of Warren Buffets 7 Investing P.2
exotic derivatives, including MBS (Mortgage backed securities), CDO The debate over how
(Collateralized Debt Obligations), CDS (Credit Default Swaps) and to deal with asset
the kind are believed to be instrumental in the collapse of Lehman in bubbles isn't going
particular and financial markets in general which plunged many away. It's "perhaps Is the Fed Creating New
developed economies into recession and led to a global slowdown. the most difficult
America's super-easy monetary During Obama's recent Asian
The derivatives in and of themselves cannot be held responsible for problem in monetary
policy has drawn a blast of swing, China Banking
the failure of entire financial markets. policy of the
criticism lately from the high Regulatory Commission
decade," Bernanke
and mighty of Asian finance. Chairman Liu Bank of Japan
The major reasons of the failure were pursuit of excess profits, acknowledged at the
President Barack Obama and Governor Masaaki Shirakawa
recklessness, ignoring basics of banking, lack of regulation, Economic Club
Federal Reserve Chairman Ben and Hong Kong Chief
continuation of low interest rates for long, increased leverage and luncheon. For now,
S. Bernanke stand accused of Executive Donald Tsang issued
heightened risk taking. Lehman, for example, was leveraged around count on the Federal
blithely ignoring the risk of new similar warnings. But there are
30 times on the day of its failure and was funding its long term Reserve to keep
asset bubbles and more two sides to this story. In
liabilities with short term funds from the market. This kind of interest rates
economic mayhem. detailed speeches and
technology mismatch in balance sheet was a sure shot recipe for disaster which extremely low until
impromptu remarks, Bernanke
the Federal Reserve allowed to happen for too long. The improper the recovery is well As critics see it, the Fed helped and other top Fed officials have
rating of the derivative instruments with the rating agencies having a established—no inflate the tech and housing been making an interesting case
conflict of interest in properly rating the derivatives which led to matter what's markets over the past decade that there's less to the much
people wanting low risk exposure being exposed to higher risk happening in asset and is setting up the global feared bubbles than meets the
instruments was another reason why the liquidity dried up suddenly markets. economy for another doozy with eye. First, they say few if any
when things started going wrong. Derivatives offer benefits such as its near-zero short-term interest asset classes are obviously
risk management and efficiency in trading etc. to its users. Financial rates. Global investors can overvalued. Second, they say
derivatives should be considered for inclusion in any organization’s borrow dollars cheaply and that trying to prick bubbles by
risk‐control arsenal. Also derivatives, when used properly, pass on the invest the borrowed funds in raising interest rates could kill
risks involved to a group of people who want to take on additional assets ranging from Indonesian the nascent economic recovery.
risk for the increased future returns. Thus they are essential for the stocks to copper futures
financial markets as well as rest of the economy to function properly contracts, a strategy known as a
by passing on the risks from one group to another group. carry trade. Mingkang warned
Finance Club that U.S. monetary policy is
creating "new, real, and Finance Club
insurmountable risks.
Warren Buffett's 7
Investment Principles
1. The company should be Will Infrastructure EYE ON IT
soundly managed. Tests of good Current Financial
management include: Spending Lead The Industry Trends
 Share buybacks
Growth Story For
 Good use of retained
India In The Next Only the Trend
Trading Picks
 Sticking to what you Ten Years? Weekly Newsletter
includes the Winning
Formula which
2. The company has
incorporates the 5
demonstrated earning capacity
with a likelihood that this will
Financial Solutions for India Golden Rules for
Profitable Investing!
continue. Tests of earning The Indian economy The story, however, is fingers at the In the absence of China, India closest Increasing
1. Invest in the
capacity include: has come a long way not as rosy as it seems. government’s consumer spending, growth competitor, infrastructure
* Company growth direction of
since early days of The recent rains at acute negligence government expenditure which spends around spending, while
the trend
* Dealing with inflation liberalization to count Mumbai adequately of infrastructure 10%. China, which improving private
would be the only 2. Cut losses
* Capital expenditure among the fastest- exposed the creaking spending. The successfully participation, is the quickly
growth driver for the
* Look through earnings growing economies infrastructure of India’s problem lies right economy, and the onus hosted the recent way forward to 3. Let profits run
* Brand names today. Astronomic financial capital, which at the roots – now lies on the central Olympics, also has achieve India’s vision 4. Diversify
GDP growth rates, crumbled under a few various schemes in the of being an economic 5. Manage risk
year on year, and state governments to
3. The company should have fuelled by the feet of rainfall. governments, for pipeline to boost this superpower.
boost infrastructure
consistently high returns. flourishing outsourcing obvious reasons. further. The
spending to prepare the STOCKS
* Returns on equity & Capital industry and an Time is right to take a
The recession country for the next Monthly Picks
emerging, technically- has taught us In the absence of wave of growth. leaf out of our
4. The company should have a educated middle class, Real trade neighbour’s book; if
hard lessons. consumer spending, and growth
India spends only 4.5% 1. Cairn India
prudent approach to debt. have ensured that no government India were to be a
Public-private of its GDP on 2. RIL
Rational foreign is to be manufacturing and
partnerships Expenditure would infrastructure, compared 3. ONGC
5. The businesses of the investor can afford to promoted. exporting superpower.
for be the only growth with 4. NTPC
company should be simple and keep India out of his infrastructure driver for the 5. IOC
understanding of the company. investment plans. The development economy This Month’s Q&A Finance Tips 6. Glenmark
government, realizing have
6. Assuming that all these
The recent tragedy at the India must build 7. PNB
thresholds are satisfied, the India’s immense flourished in Q. Why the weak U.S. dollar is Weak dollar is basically the
Delhi Metro site, sophisticated and 8. Andhra Bank
investment should only be made potential as a low-cost, the past. helping to push oil and gasoline mirror image of strong dollar.
at a reasonable price, with a loopholes in an ageing reliable infrastructure 9. Welspun
out-sourced service prices higher? U.S. manufacturers and other
margin of safety railway system, constant that would truly Gujarat
provider, ensured full exporters benefit as American
Airport delays, lack of justify its claim as a 10. Reliance
 Price/earnings ratios
Support for the If the dollar gains against other products become relatively
institutions of higher fast-growing, Capital
industry in all ways currencies, it is said to be cheaper. More foreign tourists
 Earnings and Dividend possible. A flourishing education, inadequate efficient economy.
strengthening. Its buying power can afford to visit the United
infrastructure payments The recession has taught
yields industry meant higher us hard lessons. increases relative to the other States.
 Book value salaries, and a richer at Tier II cities, poor
 Comparative rates of
currencies. If its exchange rate
consumer meant more roads, dilapidated
return declines, it is said to be
disposable income. shipping and sports
7. Investors need to take a facilities raise ugly
long term approach.
Finance Club A strong dollar lowers the price to
U.S. consumers of foreign






Finance Club