Finance Markets and Institutions

Lecture 1, 24-11-20
Money market
Short maturity less than 1 year (1 day / 1 week / 1 month/ 1 year)
High liquid
Substitute of cash bills like trade bills, govt bills, etc
Includes all individuals

Call

Assignment:

Case of Unit 64 scheme – Fiasco (1980)

It was NBFC then
Instruments

Prime Lending Rate – 8.75%

(Banks are allowed to charge 2-3% more or 1-2% less than the PLR)
Treasury Bills

91 day bill

Unit 64
DHFL, ILFS
SATYAM SCAM

1. Unit Scheme-1964 (US-64)

US64 was a popular scheme of UTI (Unit Trust of India).

Started with high dividends payout

(At times 28% even though the profit was less than 10%)

SEBI insists: if the mutual funds will provide guaranteed return, then the sponsors should
guarantee. However, UTI provided ARS (Assured Return Scheme) without sponsors.

UPI had thought it had create a fund called Development Reserve Fund which could easily
become a guarantee as it had a corpus of 600cr and growth projection of 125 cr pa.

In 2001, the company didn't have funds to pay back.

JPC later found it was an erroneous projection and IDBI were responsible as their nominees
approved the ARS.

Later found that UTI had no sponsors so Govt and had to step in and take the liabilities.

https://www.google.com/amp/s/wap.business-standard.com/article-amp/beyond-
business/how-uti-crisis-unfolded-former-sebi-chairman-uk-sinha-revists-the-drama-
120010400751_1.html
 2. DHFL, ILFS

NBFCs take short term borrowings for providing long term loans which makes its position
very difficult during liquidity crunch.

After ILFS default case, DHFL faced a lot of issues. It couldn't pay back 900 crores worth of
interest. If it would go insolvent, markets would go crazy as it had 1 lakh cr worth of loans
(most of it being house loans). Banks which lended money to DHFL on credit (50k cr banks,
30k cr LIC) were also in a very difficult position causing the markets go crazy.

https://www.google.com/amp/s/amp.scroll.in/article/926444/scroll-explainer-what-
happened-to-finance-firm-dhfl-and-what-that-means-for-the-indian-economy

Lecture 1, 24-11-20
Treasury Bills
- 91 days
- 182 days
- 364 days

Inland Bills
Banker’s Acceptance

Lecture 3, 8-12-20
Difference between Commercial Paper and Certificate of Deposit

--

Money markets = liquidity and low risk

People with fixed income go for it

Note on Fiat Currency with its advantages and disadvantages and the fiasco of American
Gold Standard.
Make a ppt or make small note of 2 pages.

Lecture 5, 22-12-20
Stagflation: Inflation is low, interest rates are low still the county is not growing

This is because of saturation. For example, city with a population of 30,000 and you have
15-20 malls then what’s the use?
Bonds

Inversely Proportional
Interest rate low then Bond prices will increase.

--

Credit vs Loan
Credit: You don’t have to pay the interest
Loan: You have to pay the interest

Corporate Bond
Risk in Bonds

Basis Point
Factors that influence the Yield Curve

Bond Equivalent Yield

Lecture 6, 29-12-20
Quantitative easing = Printing notes, making cheap loans available, causing flood of money
>1k crores – Micro Cap
1k to 5k crores – Small Cap
5k to 15k crores – Mid Cap
20k crores and above – Large Cap

4-2-21