, bo Miscellaneous Topics of Economic -~ Awareness - I Wisdom 1.0: Course on Banking, Financial & Economic Awareness for All Bank Exams Kapil Kathpal - Lesson 22 + June 18, 2022| bo Miscellaneous Topics of Economic Awareness - II & Doubt Clearing Session ele Con ee eee eadIncome tax is a type of tax that the central government charges on the income earned during a financial year by the individuals and businesses.Taxes are sources of revenue for the government.Government utilizes this revenue for developing infrastructure, providing healthcare education subsidy to the farmer/ agriculture sector and in other government welfare schemes. Taxes are mainly of two types,direct taxes and indirect form of taxesTax levied directly on the income earned is called as direct tax,for example Income taxis a direct taxThe tax calculation is based on the income slab rates applicable during that financial year.Types of Income Tax payers The Income tax Act has classified the types of taxpayers in categories so as to apply different tax rates for different types of taxpayers. Taxpayers are categorized as below: + Individuals, Hindu Undivided Family (HUF) * Firms * Companies Further, Individuals are broadly classified into residents and non-residents. Resident individuals are liable to pay tax on their global income in India i.e. Income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on income earned or accrued in India. The residential status has to be determined separately for tax purposes for every financial year on the basis of the individual tenor of stay in India. Resident Individuals are further classified into below mentioned categories for tax purposes- * Individuals less than 60 years of age + Individuals aged more than 60 but less than 80 years + Individuals aged more than 80 yearsIncome Income from savings bank account interest, fixed deposits, winningin loteriesis taxable from Other under thishead. Sources Income Income earned from renting a house property is taxable under this head of income. trom House Property Income Surplus Income from sale ofa capital asset such as mutual funds, shares, house property from cetcis table under this head of income, Gains Income Profits earned by self employed individuals, businesses , freelancers or contractors & trom Income earned by professionals like life insurance agents, chartered accountants, Business doctors and lawyers who have their own practice, tuition teachers are taxable under this, and, head. Profession Income _ Income earned from salary and pensions taxable under this head of income SalaryWhat is the Existing / Old tax regime? The old tax regime provides 3 slab rates for levy of income tax which are 5%, 20% tax rate and 30% for different brackets of income. The individuals have been given the option to continue with this Old tax regime and they can claim deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and certain other allowances. Additionally, deductions for tax saving investments as per section 80C (LIC, PPF ,NPS etc) to 80U can be claimed. Standard deduction of Rs 50,000, deduction for interest paid on home loan. Tax slab rates applicable for Individual taxpayer below 60 years for Old tax regime is as below: Up to Rs.2,50,000 ° No tax Between Rs2.5lakhsandRsSlakhs 5% 5% of your taxable income Between Rs5lakhs andRs10lakhs 20% ©——_-RS.12,500+ 20% of income above Rs 5 lakhs ‘Above 10 lakhs 30% _RS1,12,500+ 30% of income above Rs 10 lakhsIncome Tax Slabs under new tax regime From the FY 202021, anew tax regime availabe for individuals and HUFE with lower tax rates and zero Rs 1 lakh taxable @ 10% 15% Exempt (until 31 March 2018)Gains> Rs 1 lakh taxable @ 10% 15% ‘20% As per Slab Rates 20% Depends on slab rateInflation is a rise in the general level of prices of goods and services in an economy over a period of time .When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money a loss of real value in the medium of exchange and unit of account within the economy. Inflation is defined as a sustained increase in the general level of prices for goods and services .It is measured as an annual percentage increase. The rate at which the general level of prices for goods and services is rising and subsequently , purchasing power is falling Central banks attempt to stop severe inflation along with severe deflation in an attempt to keep the excessive growth of price to a minimum. Another way of looking at inflation is “too much money chasing too few goods”.Causes of Inflation Demand-pull inflation Demand pull inflation occurs when aggregate demand is growing at an unsustainable rate leading to increased pressure on scarce resources When there is excess demand, producers can raise their prices and achieve bigger profit margins. In this type of inflation prices increase results from an excess of demand over supply for the economy as a whole demand inflation occurs when the supply cannot expand any more to meet demand that is when critical production factors are being fully utilized also called demand inflation. This theory can be summarized as “too much money chasing too few goods”. Cost-push inflation Cost-push inflation occurs when firms respond to rising costs by increasing prices in order to protect their profit marginStaaflation In this types there is fall in the output and employment levels. Due to various pressure, the entrepreneurs have to raise price to maintain their margin of profits. But as they only partially succeed in raising the prices, they are faced with a situation of declining output and investment . Thus on one side there is a rise in the general price level and on the other side there is a fall in the output and employment Stagflation refers to the situation of coexistence of stagnation and inflation in the economy. Stagnation means low National Income growth and high unemployment. The Philips curve shows that at high rate of inflation, there is low rate of unemployment. But stagflation proves the contrary. Deflation Deflation is opposite to that of inflation. The persistent and appreciable fall in the general level of prices is called as deflation. The rate of change of price index is negative. The effects, cause and measures are also in the opposite direction. Disinfiation The rate of inflation at a slower rate is called disinflation. For example, if the inflation of last month was 6% and rate of inflation in the current month is 5% it is termed as disinflation Reflation Relation means deliberate action of government to increase rate of inflation to stimulate economy. It is usually done to redeem the economy from deflationary situationThe figure depicts the various rates of price changes in the economy. From the Month of April to the end of May, the “economy is experiencing negative rate of price range. It is called deflation. From the end of May to the mid of July, the price rate is recovering from negative zone. It is called reflation. From the mid of July, to the end of August, the price rate is moving upward in the positive territory. It is called Inflation. From September to the mid of October, the rate of price change is declining but still in the positive territory. It is called disinflation. ‘om ate of price change Bhettetter-veabeuejalloping Inflation Very Rapid Inflation which is almost impossible to reduce. Creeping Inflation Circumstance where the inflation of a nation increases gradually, but continually, over time. This tends to be a typically pattern for many nations. Although the increase is relatively small in the short-term, as it continues over time the effect will become greater and greater. Hyper Inflation Hyperinflation is caused mainly by excessive deficit spending (financed by printing more money) by a government, some economists believe that social breakdown leads to hyperinflation (not vice versa), and that its roots lie in political rather than economic causes.Bottleneck Inflation: This inflation takes place when supply falls drastically and demand remains at same level. Such situations arise due to supply-side accidents, hazards or mismanagement. Headline Inflation: A measurement of price inflation that takes into account all types of inflation that an economy can experience. In India, headline inflation is measured through the CPI. Core Inflation: An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc. It reflects the inflation trend in an economy. It is, therefore, a preferred tool for framing long-term policy.ye pi GROSS [DOMESTIC PRODUC = Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year._, GDP=(P*Q) where p=price of goods and services q=quantity of goods and services Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the Q3 2017 GDP of a country is up_3%, the economy of that country has grown by 3% over the third quarter. While quarterly growth rates are a periodic measure of how the economy is faring, annual GDP figures are often considered the benchmark for the size of the economy. ra, GD nbQGDP is a number that expresses the worth of the output of a country in local currency. - SauNeNOONG= eeeee i OGDP tries to capture all final goods and services as long as they are produced within the country) thereby assuring that the final monetary value of everything that is‘created in a country is represented in the GDP. QGDP is calculated for a specific per period of time, usually a year or a quarter ofa a year.GROSS NATIONAL PRODUCT(GNP)'~ * Total market value of all final goods and services produced annually in a country plus net factor income from aboard. cil - + GNP=GDP+NFIA (Net factor income from aboard a a $< (Net factor income from abroad =(Factor income earned by the domestic factors of production employed in the rest_of the world — Factor income | earned by the factors of production of the rest of th of th the world employed in the domestic economy) ~_ —NET DOMESTIC PRODUCT(NNPNET NATIONAL PRODUCT(NNP) + Derived by subtracting depreciation allowance from GNP > oe — A NINESENP- depreciation(are = Teor, wo 47 he] Factor costs are the actual production costs at which goods and services are Produced by firms and industries in an economy. They are the cost of all factors of production such as land, labor, capital, energy, raw materials lil are used to produce a given quantity of output in an economy. Also called jate costs)since all the costs that are incurred to produce a given quantity of goods and SERIES take place behind the factory gates, It refers to the actual transacted price-and thus includes the indirect taxes which a government levies. Thus there are two chan: make to the factor cost to arrive at the Wearket Price We need to add the (ndirect taxes Jand subtract the subsidies given by the goverment. Once a product is produced and it leaves the factory gate, Market Price Comes into play during the billing process, where the indirect taxes levied by the government are added and this is the final cost the consumer has to pay for the product. Subsidies are subtracted because it reduces the cost of production and thus the consumer has to pay less.Wholesale Price Index Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.). The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals. Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. WPI basket does not cover services.cs =n = _* The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 1961-62, 1970-71, 1981-82, 1993-94 and 2004-05 so far. The base year of All-India WPI has been revised from 2004-05 to 2011-12 on 12 May 2017 to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Index of Industrial Production (IIP). The current series is the seventh revision. * The new series with base 2011-12=100, was based on the recommendations of the Working Group which was constituted on 19th March 2012 under the chairmanship of Late Dr. Saumitra Chaudhuri, Member, erstwhile Planning Commission. The committee submitted its report in March 2014.Consumer Price Index (CPI * Consumer Price Index is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. * This basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes. The consumer price index number measures changes only in one of the factors; prices. This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts. Consumer price index is used as a measure of inflation in around 157 countries. The dearness allowance of Government employees and wage contracts between labour and employer is based on this index.+ Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI for Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural). Consumer Price Index for Urban Non Manual Employees was earlier computed by Central Statistical Organisation. + However this index has been discontinued since April 2008.The CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are compiled by Labour Bureau. This means that these index numbers measure changes in the retail price of the basket of goods and services.> Anything of value that serves as a (1) generally accepted medium of financial exchange, (2) legal tender for repayment of debt, (3) standard of value, (4) unit of accounting measure, and (5) means to save or store purchasing power. > Money is simply is a medium of exchange which could also be used for the measure of the value of anything. > There are various types of money depending upon the liquidity.a o MO (Reserve money) M1 (Narrow Money) M2 M3 (Broad Money) M4+ One rupee in 1947 is not the same as one rupee today, both in a appearance and purchasing power. Seer + The value of a country's currency is linked with its economic conditions and policies. + The value of a currency depends on factors that affect the economy such as imports and econ) BNE) employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions.) { ce = aaa > es) ie —| + Income levels influence currencies through consumer spending. When incomes increase, people spend more. Higher demand for imported goods increases demand for foreign currencies and, thus, weakens the local currency. + Balance of payments, which comprises trade balance (net inflow/outflow of money) and flow of capital, also affects the value of a country’s currency. + Avcountry that sells more goods and services in overseas markets than it buys from them has a trade surplus. This means more foreign currency comes into the country than what is paid for imports. This strengthens the local currency.oy + Another factor is the difference in interest rates between countries. Let us consider the recent RBI move to deregulate interest rates on savings deposits and fixed deposits held by non-resident Indians (NRIs). + By allowing banks to increase rates on NRI rupee accounts and bring them on a par with domestic term deposit rates, the RBI expects fund inflows from NRIs, triggering a rise in demand for rupees and an increase in the value of the local currency. @Ue leet le C0+ The RBI manages the value of the rupee with several tools, which involve controlling its supply in the market and, thus, making it cheap or expensive. + Some ways through which the RBI controls the movement of the rupee are changes in interest rates, relaxation or tightening of rules for fund flows, tweaking the cash reserve ratio (the proportion of money banks have to keep with the central bank) and selling or buying dollars in the open market.* The RBI also fixes the|statutory liquidity ratio} that is, ne proportion of money banks have to invest in government bonds, and the repo rate, at which it lends to banks. * While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of money available, impacting its valueBalance of Payments + The balance of payments is the record of all international financial transactions made by a country's residents. + Accountry's balance of payments tells you whether it saves enough to pay for its imports. The BOP is reported for a quarter or a year.Transfers from Abroad Net Current Balance of Net Income TradeCurrent Account: + Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time. + Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.Components of Current Account: The main components of Current Account are: 41. Export and Import of Goods (Merchandise Transactions or Visible Trade): A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance).2. Export and Import of Services (Invisible Trade): It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services. Services are generally of three kinds: (a) Shipping, (b) Banking, and (c) Insurance. Payments for these services are recorded on the negative side and receipts on the positive side.3. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions): Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side.(4, Income receipts and payments to and from abroad: It includes investment income in the form of interest, rent and profits. Current Account shows the Net Income: Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector.Difference between Balance of Trade and Current Account: Components: Balance of Trade (BOT) Balance of trade includes only visible items. It isa narrow concept as itis only a part of current account Current Account Current Account records both visible and invisible items. It isa wider concept and it includes BOT.Capital Account: Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature. Capital Account is used to: (i) Finance deficit in current account; or (ii) Absorb surplus of current account. Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country.oe - Components of Capital Account: The main components of capital account are: 1. Borrowing and lending to and from abroad: It includes: + All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side. + All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item. Ae ot2. Investments to and from abroad: It includes: + Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange. + Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange.a 3. Change in Foreign Exchange Reserves: The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side.BASIS FOR, ‘COMPARISON Meaning Capital Transfers Which is better? ‘Component BALANCE OF TRADE Balance of Trade is a statement that captures the country’s export and import of goods with the remaining world, Transactions related to goods only. ‘Are not included in the Balance of Trade. It gives a partial view of the ‘country’s economic status. Itcan be Favorable, Unfavorable or balanced. [tis a component of Current Account of Balance of Payment. BALANCE OF PAYMENT Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world. ‘Transactions related to both goods and services are recorded. Are included in Payment. nce of It gives a clear view of the economic position of the country. Both the receipts and payment sides tallies. Current Account and Capital Account.Credit Items 1. Borrowings and lending’s to and from abroad Borrowings from abroad: 2. Investments from abroad Investments from abroad: 3. Change in Foreign Exchange Reserves. Decreases in foreign exchange reserves: Debit Items. Landings to abroad Investments to abroad Increases in foreign exchange reserves Net Credit (Credit — Debit) Net Borrowings from abroad Net Investments from abroad Net change in foreign exchange reservesMiscellaneous Topics of Economic Awareness - II & Doubt Clearing el Session eRe RN Lea ie Ma alae Sela ee Wel ane a Lefola ae colt i mae a Cone eee SreyMiscellaneous Topics of Economic Awareness - | Banking, Financial & Economic Awareness for Bank Exams 2022 Con eeeIncome tax is a type of tax that the central government charges on the income earned during a financial year by the individuals and businesses.Taxes are sources of revenue for the government.Government utilizes this revenue for developing infrastructure, providing healthcare education subsidy to the farmer/ agriculture sector and in other government welfare schemes. Taxes are mainly of two types,direct taxes and indirect form of taxes Tax levied directly on the income earned is called as direct cabo: example Income taxis a direct taxThe tax calculation is based on the income slab rates applicable during that financial year.Types of Income Tax payers The Income tax Act has classified the types of taxpayers in categories so as to apply different tax rates for different types of taxpayers. Taxpayers are categorized as below: _2._ Individuals, Hindu Undivided Family (HUF) ae Firms : * Companies Further, Individuals are broadly classified into residents and non-residents. Resident individuals are liable to pay tax on their global income in India i.e. Income earned in India and abroad. Whereas, those who qualify as Non-residents need to pay taxes only on income earned or accrued in India. The residential status has to be determined separately for tax purposes for every financial year on the basis of the individual tenor of stay in India. Resident Individuals are further classified into below mentioned categories for tax purposes- # + Individuals less than 60 years of age-— + ee + Individuals aged more than 60 but less than 80 years -7 (on) —5 192! + Individuals aged more than 80 year: GIncome |) income from savings bank account interest, fixed deposits, winni from Other under this head. a Sources — Income Income earned from renting a house property is taxable under this head of income. trom oo House Property Teme | Surplus Income from sae ofa capita ste such as mutual funds, shares, house proper beeen Capital (e ins De (te Income Profits earned by elfemployed individuals, businesses freelancers or contractors & trom Income earned by professioneis ike life insurance agents, chartered accountants, Business, | doctors and lawyers who have their own practice, tuition teachers are taxable under th and, head. Income Income earned from salary and pensions taxable under this head of income“ from eee ee San “OOWhat is the Existing / Old tax regime?./ Quer ey {3 slab ratesfo The old tax regime provided 3 s levy of income tax which are 5%, 20% tax rate and 30% for different brackets of income. The individuals have been given the option to continue with this Old tax regime and they can claim deductions of allowances like Leave Travel Concession (LTC), House Rent Allowance (HRA), and certain other allowances. Additionally, deductions for tax saving investments as per section 80C (LIC, PPF ,NPS etc) to 80U can be claimed. Standard deduction of Rs 50,000, deduction for interest paid on home loan. Tax slab rates applicable for Individual taxpayer below 60 years for Old tax regime is as below: he X (UZ vptors.2,50,0001~ «7 (0) f_Notax % A Between Rs 2.5 lakhs and RsSlakhs -( 5% 5% of your taxable income ‘ Between Rs 5 lakhs and Rs 10lakhs (20%) —_Rs 12,590+ 20% of income above Rs 5 lakhs Stes and Rs 10 lakhs _ co _7 Above 10 lakhs Gow) Rs 1,12,500+ 30% of income above Rs 10 lakhs, SeIncome Tax Slabs undernéw tax regime__ From the FY 20202, anew taxregineia. Tiduals and HUF with ower taxrates and zero 5% IncomefromRs25lakhtoRsSlath 5% Income om Rs Stakhto 7Slakh~ ___y 10% IncomefromRsSlakhtoRei0lakh >, 20% hncometromRs7StahtoRsI0lakh ——) 15% ncomeaboveRssolain (om x 0 Income om Rs 0 lakh tos 125 akh 2ov ‘ rt) a Income roms 125 ath os 18 ath =| Wes q Income above 15 ah athe — A WZ Most ofthe deductions ik re not allowed if the taxpayers opts forthe New Taxregie./ However he exemptions and deductions available under the new regime are: ann + Transport llowancesin case ofa specially-abled perzon. * Conveyance allowance received to meet the conveyance expenditure incurred as part ofthe employment. + Any compensation received to meetthe costof travel on touror transl + Daly allowance received to meet the ordinary regular charges or expenditure you ncuron accountof absence ‘rom his regula place of duty.Exceptions to the Tax Slab ‘One must bearin mind that not all income can be taxed on slab basis. Capital ns income isan exception tothis rule.“ Capital gains are taxed depending on the asset you own and how long you've had it. The holding period would — determine fan assets long term or short term. The holding period to determine nature of asset alsodifers for different assets. A quick glance of holding periods, nature of asset andthe rate of tax for each of them is given below. Debt mutual funds Equity mutual funds Shares (STT shares (STT ‘unpaid) PMPs Holding more than 24 months - Long Term Holding lessthan24 months =Short Term Holding more than 36 months - Long Term Holding less than 36 months ~ Short Term Holding more than 12 months ~ Long Term Holding less than 12 months = Short Term Holding more than 12 months - Long Term Holding less than 12 months = Short Term Holding more than 12 months ~ Long Term Holding less than 12 months ~ Short Term Holding more than 36 months - Long Term Holding less than 36months=Short Term = / 20%6 Dependson slabrate_ 20% Depends on slab rate Exempt (until 31 March 2018) Gains > Rs 1 lakh taxable @ 10% 15% Exempt (until 31 March 2018)Gains> Rs 1 lakh taxable @ 10% 15% ‘20% As per Slab Rates 20% Depends on slab rateInflation/is a rise in the general level of prices of goods and services in an economy over a period of time .When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money a loss of real value in the medium of exchange and unit of account within the economy. Inflation is defined as a sustained increase in the general level of prices for goods and services .It is measured as an annual percentage increase. The rate at which the general level of prices for goods and services is rising and subsequently , purchasing power is falling Central banks attempt to stop severe inflation along with severe deflation in an attempt to keep the excessive growth of price to a minimum. Another way of looking at inflation is “too much money chasing too few goods”.a Causes of Inflation Demand-pull inflation Demand pull inflation occurs when aggregate demand is growing at an unsustainable rate leading to increased pressure on scarce resources When there is excess demand, producers can raise their prices and achieve bigger profit margins. — In this type of inflation prices increase results from an excess of demand over supply for the economy as a whole demand inflation occurs when the supply cannot expand any more to meet demand that is when critical production factors are being fully utilized also called demand inflation. This theory can be summarized as “too much money chasing too few goods’ ost-push infl Cost-push inflation occurs when firms respond to rising costs by increasing prices in order to protect their profit margin —~ eumunetmost He eplgsa'a LD, s there is fall in the output and employment levels. Due to various pressure, the entrepreneurs have to raise price to maintain their margin of profits. But as they only partially succeed in raising the prices, they are faced with a situation of declining output and investment . Thus on one side there is a rise in the general price level and on the other side there is a fall in the output and employment Stagflation refers to the situation of coexistence of stagnation and inflation in the economy. Stagnation means low National Income growth and high unemployment. The Philips curve shows that ~cetaten inflation, there is low rate of unemployment. But stagflation proves the contrary. 0 eae Deflation is opposite to that of inflation. The persistent and a all in the general level of prices is called as deflation. The rate of change of{price index is negative The effects, cause and Measures are also in the opposite direction. ~ — pe ( Bisinflation ee get The rate of inflation at a slower rate is called disinflation. For example, if the inflation of last month was ie ai _ of inflation in the current month is 5% it is termed as disinflation Relation means deliberate action of government to increase rate of inflation to stimulate economy. It is usually done to redeem the economy from deflationary situation—» tthe The figure depicts the various rates of price changes in the economy. From the month of April to the end of May, the economy is experiencing negative rate of price range. It is called deflation. “From the end of May to the mid of July, the price rate is recovering from *,_.| negative zone. It is called reflation. From the mid of July, to the end of August, the price rate is moving upward in the positive territory. It is called Inflation. From September to the mid of October, the rate of price change is declining but still in the positive territory. It is called disinflation. aes ate of price changewe alloping Inflation — te Very Rapid Inflation which is almost impossible to reduce.__ —— = Creeping Inflation ~ Circumstance where the inflation of a nation increases gradually, but continually, overtime. This tends to be a typically pattern for many nations. Although the increase is relatively small in the short-term, as it continues over time the effect will become greater and greater.» waptetse Hyper Inflation “ Hyperinflation is caused mainly by excessive deficit spending) (financed by printing more money) by a government, some economists bel eve that social breakdown leads to hyperinflation (not vice sversa), and th and that its roots lie in political rather than economic causes. —— c al An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc. It reflects the inflation trend in an economy. eee It is, therefore, a preferred tool for framing long-term policy.GROSS DOMESTIC PRODUCT (GDP) Gross domestic product is the money value of all final goods and services produced within the domestic territory of a country during a year. GDP=(P*Q) where p=price of goods and services q=quantity of goods and services Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the Q3 2017 GDP of a country is up 3%, the economy of that country has grown by 3% over the third quarter. While quarterly growth rates are a periodic measure of how the economy is faring, annual GDP figures are often considered the benchmark for the size of the economy.QGDP is a number that expresses the worth of the output of a country in local currency. QGDP tries to capture all final goods and services as long as they are produced within the country, thereby assuring that the final monetary value of everything that is created in a country is represented in the GDP. QGDP is calculated for a specific period of time, usually a year or a quarter of a yearGROSS NATIONAL PRODUCT(GNP) * Total market value of all final goods and services produced annually in a country plus net factor income from aboard. + GNP=GDP+NFIA (Net factor income from aboard) (Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of the world — Factor income earned by the factors of production of the rest of the world employed in the domestic economy)NET DOMESTIC PRODUCT(NNP) NDP=GDP- depreciationNET NATIONAL PRODUCT(NNP) + Derived by subtracting depreciation allowance from GNP ¢ NNP=GNP- depreciationFactor Cost: Factor costs are the actual production costs at which goods and services are produced by firms and industries in an economy. They are the cost of all factors of production such as land, labor, capital, energy, raw materials like steel, etc that are used to produce a given quantity of output in an economy. Also called factor gate costs since all the costs that are incurred to produce a given quantity of goods and services take place behind the factory gates. Market Price: It refers to the actual transacted price and thus includes the indirect taxes which a government levies. Thus there are two changes we make to the factor cost to arrive at the Market Price. We need to add the indirect taxes and subtract the subsidies given by the government. Once a product is produced and it leaves the factory gate, Market Price comes into play during the billing process, where the indirect taxes levied by the government are added and this is the final cost the consumer has to pay for the product. Subsidies are subtracted because it reduces the cost of production and thus the consumer has to pay less.Wholesale Price Index Wholesale Price Index (WPI) measures the average change in the prices of commodities for bulk sale at the level of early stage of transactions. The index basket of the WPI covers commodities falling under the three major groups namely Primary Articles, Fuel and Power and Manufactured products. (The index basket of the present 2011-12 series has a total of 697 items including 117 items for Primary Articles, 16 items for Fuel & Power and 564 items for Manufactured Products.). The prices tracked are ex- factory price for manufactured products, mandi price for agricultural commodities and ex-mines prices for minerals. Weights given to each commodity covered in the WPI basket is based on the value of production adjusted for net imports. WPI basket does not cover services.The Wholesale Price Index (WPI) series in India has undergone six revisions in 1952-53, 1961-62, 1970-71, 1981-82, 1993-94 and 2004-05 so far. The base year of All-India WPI has been revised from 2004-05 to 2011-12 on 12 May 2017 to align it with the base year of other macroeconomic indicators like the Gross Domestic Product (GDP) and Index of Industrial Production (IIP). The current series is the seventh revision. The new series with base 2011-12=100, was based on the recommendations of the Working Group which was constituted on 19th March 2012 under the chairmanship of Late Dr. Saumitra Chaudhuri, Member, erstwhile Planning Commission. The committee submitted its report in March 2014.Consumer Price Index (CPI * Consumer Price Index is a measure of change in retail prices of goods and services consumed by defined population group in a given area with reference to a base year. * This basket of goods and services represents the level of living or the utility derived by the consumers at given levels of their income, prices and tastes. The consumer price index number measures changes only in one of the factors; prices. This index is an important economic indicator and is widely considered as a barometer of inflation, a tool for monitoring price stability and as a deflator in national accounts. Consumer price index is used as a measure of inflation in around 157 countries. The dearness allowance of Government employees and wage contracts between labour and employer is based on this index.+ Presently the consumer price indices compiled in India are CPI for Industrial workers CPI(IW), CPI for Agricultural Labourers CPI(AL) and; Rural Labourers CPI(RL) and (Urban) and CPI(Rural). Consumer Price Index for Urban Non Manual Employees was earlier computed by Central Statistical Organisation. + However this index has been discontinued since April 2008.The CPI(IW) and CPI(AL& RL) compiled are occupation specific and centre specific and are compiled by Labour Bureau. This means that these index numbers measure changes in the retail price of the basket of goods and services.> Anything of value that serves as a (1) generally accepted medium of financial exchange, (2) legal tender for repayment of debt, (3) standard of value, (4) unit of accounting measure, and (5) means to save or store purchasing power. > Money is simply is a medium of exchange which could also be used for the measure of the value of anything. > There are various types of money depending upon the liquidity.a o MO (Reserve money) M1 (Narrow Money) M2 M3 (Broad Money) M4One rupee in 1947 is not the same as one rupee today, both in a appearance and purchasing power. The value of a country's currency is linked with its economic conditions and policies. The value of a currency depends on factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions.| + Income levels influence currencies through consumer spending. When incomes increase, people spend more. Higher demand for imported goods increases demand for foreign currencies and, thus, weakens the local currency. + Balance of payments, which comprises trade balance (net inflow/outflow of money) and flow of capital, also affects the value of a country’s currency. + Avcountry that sells more goods and services in overseas markets than it buys from them has a trade surplus. This means more foreign currency comes into the country than what is paid for imports. This strengthens the local currency.oy + Another factor is the difference in interest rates between countries. Let us consider the recent RBI move to deregulate interest rates on savings deposits and fixed deposits held by non-resident Indians (NRIs). + By allowing banks to increase rates on NRI rupee accounts and bring them on a par with domestic term deposit rates, the RBI expects fund inflows from NRIs, triggering a rise in demand for rupees and an increase in the value of the local currency.+ The RBI manages the value of the rupee with several tools, which involve controlling its supply in the market and, thus, making it cheap or expensive. + Some ways through which the RBI controls the movement of the rupee are changes in interest rates, relaxation or tightening of rules for fund flows, tweaking the cash reserve ratio (the proportion of money banks have to keep with the central bank) and selling or buying dollars in the open market.* The RBI also fixes the statutory liquidity ratio, that is, ne proportion of money banks have to invest in government bonds, and the repo rate, at which it lends to banks. * While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of money available, impacting its valueBalance of Payments + The balance of payments is the record of all international financial transactions made by a country's residents. + Accountry's balance of payments tells you whether it saves enough to pay for its imports. The BOP is reported for a quarter or a year.Transfers from Abroad Net Current Balance of Net Income TradeCurrent Account: + Current account refers to an account which records all the transactions relating to export and import of goods and services and unilateral transfers during a given period of time. + Current account contains the receipts and payments relating to all the transactions of visible items, invisible items and unilateral transfers.Components of Current Account: The main components of Current Account are: 41. Export and Import of Goods (Merchandise Transactions or Visible Trade): A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance).2. Export and Import of Services (Invisible Trade): It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services. Services are generally of three kinds: (a) Shipping, (b) Banking, and (c) Insurance. Payments for these services are recorded on the negative side and receipts on the positive side.3. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions): Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side.(4, Income receipts and payments to and from abroad: It includes investment income in the form of interest, rent and profits. Current Account shows the Net Income: Current Account records all the actual transactions of goods and services which affect the income, output and employment of a country. So, it shows the net income generated in the foreign sector.Difference between Balance of Trade and Current Account: Components: Balance of Trade (BOT) Balance of trade includes only visible items. It isa narrow concept as itis only a part of current account Current Account Current Account records both visible and invisible items. It isa wider concept and it includes BOT.Capital Account: Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature. Capital Account is used to: (i) Finance deficit in current account; or (ii) Absorb surplus of current account. Capital account is concerned with financial transfers. So, it does not have direct effect on income, output and employment of the country.oe - Components of Capital Account: The main components of capital account are: 1. Borrowing and lending to and from abroad: It includes: + All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side. + All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item. Ae ot2. Investments to and from abroad: It includes: + Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange. + Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange.a 3. Change in Foreign Exchange Reserves: The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side.BASIS FOR, ‘COMPARISON Meaning Capital Transfers Which is better? ‘Component BALANCE OF TRADE Balance of Trade is a statement that captures the country’s export and import of goods with the remaining world, Transactions related to goods only. ‘Are not included in the Balance of Trade. It gives a partial view of the ‘country’s economic status. Itcan be Favorable, Unfavorable or balanced. [tis a component of Current Account of Balance of Payment. BALANCE OF PAYMENT Balance of Payment is a statement that keeps track of all economic transactions done by the country with the remaining world. ‘Transactions related to both goods and services are recorded. Are included in Payment. nce of It gives a clear view of the economic position of the country. Both the receipts and payment sides tallies. Current Account and Capital Account.Credit Items 1. Borrowings and lending’s to and from abroad Borrowings from abroad: 2. Investments from abroad Investments from abroad: 3. Change in Foreign Exchange Reserves. Decreases in foreign exchange reserves: Debit Items. Landings to abroad Investments to abroad Increases in foreign exchange reserves Net Credit (Credit — Debit) Net Borrowings from abroad Net Investments from abroad Net change in foreign exchange reserves, bo Financial & Stock Market Awareness a Wisdom 1.0: Course on Banking, Financial & Economic Awareness for All Lefela ae coli Kapil Kathpal - Lesson 23 » June 20, 2022| bo Financial Awareness - | Coreg Retro ys eo eA ea eNom tol ao Od aoa] Pon cae eee eedTate TaM ata lare-l | System Organised Unorganised Sector sectorlee TT} Sector aid fica Wi Kelalay meee)= wy, Financia Organised Sector @ 4Financial Market 4ee J Comefpr V *| A registered association which is an ficial legal having an pee legal, entity with a perpetual succession, a common seal for its signatures, a/_ mmon capital comprised of transferable shares and carrying limited liability. Legal Person: A legal person could be human or a non-human entity which is recognised by law as having legal rights and is subject to obligations. -| A person or a group of persons: It is no more required to be an association of persons to form a company. A company can also be started as a single person company (one-person company). ” Ta ———Features & Characteristics of a C 7 Cals Fostures & Characteristics of a Company: , we ae Incorporated associati Company comes into existence when it is registered under the Compani (or other equivalent_ac «the law). A company has to fulfil requirements in terms of documents (MOA] AOA), shareholders, directors, and share capital to be deemed as a legal association. Artificial Legal Person: In the eyes of the law, A company is an artificial legal person whiciT has the rights to acquire or dispose of any property, to enter into contracts in its own name, and to sue and be sued by others. - eparate Legal Entity) A company has a distinct entity and is independent of its embers or people controlling it. A separate legal entity means _that only the company is responsible to repay creditors and to get sued for its deeds. The individual members cannot be sued for actions performed by the company. Similarly, the company is not liable to pay personal debts of the members.‘Market Summary > Kit eA 240.90 sx 7549 43.90%) al tine © Ey * (am ie 237.00 24.90 235.90 Fy le vo | ty | ov lk aor an Mitcap 44.7201 Preto 6.05 Dyed 5.155 More about Kings pc > ae SDP scare sank high ‘nk ow s LON: KGF ae 7800 zane tmpow Kingfisher ple 5 LORS oy ‘Kgs le a Bits mutnaonal retain ‘company eacquaered a London, we regional ‘ofices located across the Unted King, France, ‘Poland and Romania. thas over 1,300 stores in rine ‘countries, and 8 brands tude BAO, Catorama, ‘reo Depot and Screw Whpedia Founded: 16 September 1082 _ [Numb of employees: £1,710 (2022) Revenue: 1254 crores GBP (2021) ‘Subsidiaries: 840, Screwty, Casiorama, co Depot, Kostas, MORE ‘GEO: Thierry Gamer (24 Sept 2010-),Thiery cteasieou ioe, | Se ema. = ‘Mote about LONKGF > © ingtsner com jsFeatures & Characteristics of aCompany: (CiZ— \” Perpetual Existence: Unlike other non-registered business entities, a company is a stable business organisation. Its life doesn’t depend on the life of its shareholders, directors, or employees. Members may come and go but the company goes on forever. — Common Seal: A company being an artificial legal person, uses its common seal (with the name of the company engraved on it) as a substitute for its signature. Any document bearing the common seal of the company will be legally binding on the company. aN Limited Liability: A company may be limited by guarantee or limited by shares. In a company limited by shares, the liability of the Shareholders. is-limted_to-the “| unpaid value of their shares. In a conipany ined by guarantee, the liability of the meffibérs is limited ‘to the amount they had agreed upon to contribute to the assets of the company in the event of it being wound up.” ~‘Types of compani ‘A company can be classified into various types depending upon the following requirements: Statutory Companies ‘These companies are incorporated by a special act passed by the central or state legislature. ‘These companies are intended to carry out some bt national importance. For example, The Reserve Bank of India was formed undef I act 1934 i Registered or Incorporated Companies ~~ These companies are formed/incorporated under the companies act passed by the government. These companies come into existen: tered under the act and the certificate incorporation is passed by thé Registrar of companies Classification of Companies based on the liability of the members ~ The registered companies can be classified into thie following Categories based on the liabilities of members:Companies Limited By Shares These companies have a defined share capital and the liability of each member is limited by the memorandum to the extent of the face value of shares subscribed by him. Companies Limited By Guarantee — These companies may or may not have a share capital and the liability of each member is limited by the memorandum to the extent of the sum of money s/he had promised to pay in the event of liquidation of the company for payments of debts and liabilities of the company. Unlimited Companies we There is no formal restriction to the amount of money that the shareholder/member of the company has to pay in the event of the liquidation of an unlimited company. —a.. ———fiblic Company (or Public Limited Company). A public company is a corporation whose ownership is open to the public. In other words, anyone can buy the shares of a public company. There are no restrictions to the number of members af-a public company or to the transferability of shares. However, there are some other restrictions: ~ - Apulic company should have ot eo elember nd deste] and isulapoapecis ore talament in lieu of prospectus with the Registrar before allotting shareg. = = one aioe Company (or Private Limited Company)“ A private company cannot be owned by the public; it restricts the number of members, the right to transfer its, shares ane profits ony invsion te PUBNStosubecrbe for any shares or deborures of te company A private company is a separate legal entity with a suitable company name, an address, at least 2 members and at most 200 members, and at least two digactors with one being an Indian resident. jp eenenEEe One Person Company L_~ ‘Aone-person company is an Indian private limited company which has only one founder/promoter. The founder should be a natural person who is a country resident. There is also a threshold of paid-up capital (€ 50 lakh) ~ and average turnover (& 2 crores in 3 immediate preceding financial years) for a one-person _Basics- Capital MarketBasics & Functions The capital market is a place where people buy and sell securities. Securities in this sense is simply a bundle of rights sold to the public by companies, authorities or institutions on which people then trade in the capital market. * There are different types of securi bonds, etc. s or bundles of rights. These include shares, debentures, * The capital market is the market for securities, where companies and governments can raise long-terms funds. * The capital market is market for long-term debt & equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. The capital market concerns two broad types of securities traded, debts and equity. Buying stock allows investors to gain an equity interest in the company and become owner. There are two levels of the market. The primary market is the market where those wishing to raise funds from the stock market sell their securities to the public. The secondary market is where those who bought the securities in the Initial Public Offer (IPO) can sell them any time they wish.Primary Market Secondary Market Primary Market ple) MarketCapital Market Participants The supply in this market comes from savings from different sectors of the economy. These savings accrue from the following sources: 1. Individuals. 2. Corporate. 3. Governments. 4. Foreign countries. 5. Banks. 6. Provident Funds. 7. Financial Institutions.Capital Market Instruments The various capital market instruments used by corporate entities for raising resources are as follows: Preference shares Y Equity shares ¥ Company fixed deposits ¥ Warrants ¥ Debentures ¥ Bonds ¥ Mutual fund Y Derivatives ¥ Commodities ¥ Currency exchangeShares & Debentures- BasicsShares A share is one of the units into which the capital of the company is divided. Share is the share in the share capital of a company. A person having the shares of a company is called as shareholder of that company and is regarded as the part owner of the company. Shares are of two types:- 11) Equity shares:- Equity shares are also called as ordinary shares and they represent part or fractional ownership in the company for the equity shareholder and gives right to the equity shareholder of a share in the profits of the company in the form of dividend as and when declared by the company and also voting rights. Equity shareholders are the members of the company. {2) Preference shares:- Preference shares are the shares which give the preference shareholders two preferential rights- first, the right to receive dividend at a fixed rate or fixed amount before any dividend is paid to the equity shareholders and second, the right to receive re-payment of their capital on winding up of the company before the capital of equity shareholders is returned. Because of these two preferential rights they are called as preference shares. Preference shareholders do not have any voting rights and they are not the members of the company.Preference Shares Cumulative and Non-Cumulative Preference share: if a company does not have adequate profit for a year and so is not able to pay preference dividend then such unpaid dividend gets accumulated and is carried forward to future years and is paid out of the profits earned by the company in those years before paying equity dividend. In case of non-cumulative preference shares, the unpaid dividend does not get accumulated and is not carried forward to future years. So if the company has inadequate profit for a year, then the preference shareholders do not get any dividend for that year. Redeemable and Irredeemable Preference shares:- Redeemable preference shares have to be redeemed or repaid by the company after the expiry of a fixed period from the date of issue while irredeemable preference shares cannot be redeemed or repaid by the company except at the time of winding up of the company.Preference Shares Participating and Non-Participating Preference shares:- Participating preference shareholders have a right to participate in the surplus profits of the company left after payment of dividend to equity shareholders and other preference shareholders in addition to the fixed rate of dividend payable to them. Non-participating preference shareholders do not have any such right to participate in the surplus profits of the company. Convertible and Non-Convertible Preference shares: Those preference shares which can be converted into equity shares at the end of a specified period are called as convertible preference shares. The terms of issue must include a right for conversion into equity shares and in absence of any such right for conversion in the terms of issue, the preference shares cannot be converted into equity shares and are called as non-convertible preference shares.Debentures Debentures are the long-term borrowed funds of the company. Debentures have a fixed maturity period and have a fixed rate of interest. Debentures are usually in the form of a certificate issued under the common seal of the company . The certificate is an acknowledgement by the company of its indebtedness to the holder of the debentures. There are various kinds of debentures which are issued by a company:- ‘Secured and Unsecured Debentures:- Debentures that are secured by a charge on some of the assets or property of the company are called as secured or mortgage debentures. So the holders of such debentures have a right to sell off those assets or property of the company on which the charge is created in case the company defaults in re-payment of the principal amount of debentures or interest. Debentures that do not carry any such charge on the assets or property of the company are called as unsecured debentures. Registered and Bearer Debentures:- Registered debentures are registered with the company. The name of every debenture holder is recorded on the debenture certificate and in the company's register of debenture holders. Registered debentures are non-negotiable instruments and interest on such debentures is payable only to the registered holders of debentures. Bearer debentures are not registered with the company. The names of debenture holders are not registered in the books of the company but the holders are entitled to claim principal amount and interest as and when due. Bearer debentures are negotiable instruments and interest on such debentures is payable to the bearer. Bearer debentures are transferable by mere deliverymable irs mi ni rat Redeemable debentures are the debentures that have to be redeemed or repaid by the company after the expiry of a fixed period from the date of their issue whereas irredeemable debentures cannot be redeemed or repaid by the company except at the time of winding up of the company. They are also called as perpetual debentures. Fully convertible, Partly convertible and non-convertible debentures:- Those debentures which can be converted into equity shares at the end of a specified period are called as fully convertible debentures. The terms of issue must include a right for conversion into equity shares. Partly convertible debentures have two portions- one is the convertible portion and the other is the non-convertible portion. The convertible portion is converted into equity shares at the end of the specified period and the non-convertible portion is redeemed or repaid by the company after the expiry of the stipulated period. Non-convertible debentures do not have the option of conversion into equity shares and are redeemed or repaid after the expiry of fixed period., bo Financial & Stock Market Awareness aa Wisdom 1.0: Course on Banking, Financial & Economic Awareness for All Bank Exams Kopil Kathpal » Lesson 24 + June 22, 2022iS COR on aso Lyr1 Pon cae eee eedTate TaM ata lare-l | System Organised Sector Unorganised {Toi to)glee TT} Sector aid fica Money meee)E Organised Sector |@ ; ps eeFinancial Market 4* Aregistered association which is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capital comprised of transferable shares and carrying limited liability. + Legal Person: A legal person could be human or a non-human entity which is recognised by law as having legal rights and is subject to obligations. » A person or a group of persons: It is no more required to be an association of persons to form a company. A company can also be started as a single person company (one-person company).Features & Characteristics of a Company: Incorporated association: A company comes into existence when it is registered under the Companies Act (or other equivalent act under the law). A company has to fulfil requirements in terms of documents (MOA, AOA), shareholders, directors, and share capital to be deemed as a legal association. Artificial Legal Person: In the eyes of the law, A company is an artificial legal person which has the rights to acquire or dispose of any property, to enter into contracts in its own name, and to sue and be sued by others. Separate Legal Entity: A company has a distinct entity and is independent of its members or people controlling it. A separate legal entity means that only the company is responsible to repay creditors and to get sued for its deeds. The individual members cannot be sued for actions performed by the company. Similarly, the company is not liable to pay personal debts of the members.Features & Characteristics of a Company: + Perpetual Existence: Unlike other non-registered business entities, a company is a stable business organisation. Its life doesn’t depend on the life of its shareholders, directors, or employees. Members may come and go but the company goes on forever. * Common Seal: A company being an artificial legal person, uses its common seal (with the name of the company engraved on it) as a substitute for its signature. Any document bearing the common seal of the company will be legally binding on the company. + Limited Liability: A company may be limited by guarantee or limited by shares. In a company limited by shares, the liability of the shareholders is limited to the unpaid value of their shares. In a company limited by guarantee, the liability of the members is limited to the amount they had agreed upon to contribute to the assets of the company in the event of it being wound up.‘Types of compani ‘A company can be classified into various types depending upon the following requirements: Statutory Companies ‘These companies are incorporated by a special act passed by the central or state legislature. ‘These companies are intended to carry out some business of national importance. For example, The Reserve Bank of India was formed under RBI act 1934. Registered or Incorporated Companies These companies are formed/incorporated under the companies act passed by the government. These companies come into existence only after these are registered under the act and the certificate of incorporation is passed by the Registrar of companies. Classification of Companies based on the liability of the members The registered companies can be classified into the following categories based on the liabilities of members:Companies Limited By Shares These companies have a defined share capital and the liability of each member is limited by the memorandum to the extent of the face value of shares subscribed by him. Companies Limited By Guarantee These companies may or may not have a share capital and the liability of each member is limited by the memorandum to the extent of the sum of money s/he had promised to pay in the event of liquidation of the company for payments of debts and liabilities of the company. Unlimited Companies There is no formal restriction to the amount of money that the shareholder/member of the company has to pay in the event of the liquidation of an unlimited company.Public Company (or Public Limited Company) * Apublic company is a corporation whose ownership is open to the public. In other words, anyone can buy the shares of a public company. There are no restrictions to the number of members of a public company or to the transferability of shares. However, there are some other restrictions: * Apublic company should have at least 7 members and 3 directors, and issue a prospectus or file a statement in lieu of prospectus with the Registrar before allotting shares. Private Company (or Private Limited Company) private company cannot be owned by the public; it restricts the number of members, the right to transfer its shares and prohibits any invitation to the public to subscribe for any shares or debentures of the company. * Aprivate company is a separate legal entity with a suitable company name, an address, at least 2 members and at most 200 members, and at least two directors with one being an Indian resident. One Person Company one-person company is an Indian private limited company which has only one founderipromoter. The founder should be a natural person who is a country resident. There is also a threshold of paid-up capital 50 lakh) and average turnover (& 2 crores in 3 immediate preceding financial years) for a one-personre) | Tastes tea Basics- Capital MarketBasics & Functions The capital market is a place where people buy and sell securities. Securities in this sense is simply a bundle of rights sold to the public by companies, authorities or institutions on which people then trade in the capital market. * There are different types of securi bonds, etc. s or bundles of rights. These include shares, debentures, * The capital market is the market for securities, where companies and governments can raise long-terms funds. * The capital market is market for long-term debt & equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. The capital market concerns two broad types of securities traded, debts and equity. Buying stock allows investors to gain an equity interest in the company and become owner. There are two levels of the market. The primary market is the market where those wishing to raise funds from the stock market sell their securities to the public. The secondary market is where those who bought the securities in the Initial Public Offer (IPO) can sell them any time they wish.Capital Market Participants The supply in this market comes from savings from different sectors of the economy. These savings accrue from the following sources: 1. Individuals. ~) 2. Corporate.’ 3. Governments.~ 4. Foreign countries) 5. Banks. 6. Provident Funds. ~~ 7. Financial Institutions.Capital Market Instruments The various capital market instruments used by corporate entities for raising resources are as follows: reference shares o& Equity shares ¥ Company fixed deposits v Warrants Debentures Bonds Mutual fund < Currency exchange\& Debentures- Basics pod \ Q on _— 3 “hy SF ce @I PT Pa( nerare *(2y eee = 2 OEShares — A share is one of the units into which the capital of the company is divided. Share is the share in the share capital of a company. A person having the shares of a company is called as shareholder of that company and is garded as the part owner of the company. Shares are of two types:- Ju Equity shares:- Equity shares are also called as ordinary shares and they represent part or fractional ownership in the company for the equity shareholder and gives right to the ~ equity shareholder of a share in the profits of the company in the fora of dividend as and when declared by the company and also voting rights. Equity sharéholders are the members of the company. _ ee {2) Preference_shat Preference shares are the shares which give the preference shareholders two preferential rights- first, the right to receive dividend at a fixed rate or fixed amount before any dividend is paid to the equity shareholders and second, the_right to receive re-payment of their capital on winding up of the company before the capital of ‘equity shareholders is returned. Because of these two preferential rights they are called as preference shares. Preference shareholders do not have any_voting rights and they are not the members of the company. =Preference Shares ~ (Dba? 2 Eee Gamulative and Non-Cumulative Preference share \) if a company does not have adequate profit for a year and so is not able to pay preference dividend then such unpaid dividend gets accumulated and is carried forward to future years and is paid out of the profits earned by the company in those years before paying equity lend. In case of non-cumulative preference shares, the unpaid dividend does not get accumulated and is not carried forward to future years. So if the company has inadequate profit for a year, then the preference shareholders do not get any dividend for that year. Redeemable and Irredeemable Preference shares:- }- Redeemable preference shares have to be redeemed or repaid by the company after the expiry of a fixed period from the date of issue while irredeemable preference shares cannot be redeemed or repaid by the company except at the time of winding up of the company. _.Preference Shares Participating and Non-Participating Preference share: Participating preference shareholders have a right to participate in the surplus profits of the company left after payment of dividend to equity shareholders and other preference shareholders in addition to the fixed rate of dividend payable to them. Non-participating preference shareholders do not have any such right to participate in the surplus_profits of the company. a a Convertible and Non-Convertible Preference shares: Those preference shares which can be converted into equity shares at the end of a specified period are called as convertible preference shares. The terms of issue must include a right for conversion into equity shares and in absence of any such right for conversion in the terms of issue, the preference shares cannot be converted into equity shares and are called as non-convertible preference shares.Debentures 1?) Debentures are thd long-term borrowed funds\of the company. Debentures have a fixed maturity period and have a fixed rate of interest. Debentures are usually in thé form of a certificate issued under the common seal of the campany. The certificate is an acknowledgement by the company of its indebtedness to the holder of the os There are various kinds of debentures which are issued by a company: Secuféd and Unsecured Debentures:-” Debentures that are secured by a charge on some of the assets or property of the company are called as secured or mortgage debentures. So the holders of such debentures have a right to sell off those assets or property of the company on which the charge is created in case the company defaults in re-payment of the principal amount of debentures or interest. Debentures that do not carry any such charge on the assets or property of the company are called as unsecured debentures. Registered and Bearer Debentures: ~ Registered debentures are registered with the company. The name of every debenture holder is recorded on the debenture certificate and in the company's register of debenture holders. Registered debentures are non-negotiable instruments and interest on such debentures is payable only to the registered holders of debentures. Bearer debentures are not registered with the company. The names of debenture holders are not registered in the books of the tompany but the holders are entitled to claim principal amount and interest as and when due. Bearer debentures are negotiable instruments and interest on such debentures is payable to the bearer. Bearer debentures are transferable by mere deliverymable irs mi ni rat Redeemable debentures are the debentures that have to be redeemed or repaid by the company after the expiry of a fixed period from the date of their issue whereas irredeemable debentures cannot be redeemed except at the time of winding up of the company. They are also called 2 annie Fully convertible, Partly convertible and non-convertible debentures:- Those debentures which can be converted into equity shares at the end of a specified period are called as fully convertible debentures. The terms of issue must include a right for conversion into equity shares. Partly convertible debentures have two portions- one is the convertible portion and the other is the non-convertible portion. The convertible portion is converted into equity shares at the end of the specified period and the non-convertible portion is redeemed or repaid by the company after the expiry of the stipulated period. Non-convertible debentures do not have the option of conversion into equity shares and are redeemed or repaid after the expiry of fixed period.F. Financial & Stock Market Awareness aT Wisdom 1.0: Course on Banking, Financial & Economic Awareness for All Bank Exams Pon ee eee erie?Financial Awareness - III feet Man ate E ue aad gael) Part II Con cae eee aedOfferings in Primary Market */Public Issuef Rights issue / Private PlacementInitial Public Offerir (Po) A fist time offer of sale of securities. byan unlisted company Follow-on Public Offering (FPO) An offer of sale of securities by alisted company Private Placement (Unlisted 7 Companies) Direct Sale of securities to some selected people or to financial Allotment of shares to some select group of persons _ in terms of provision of Chapter XIV of ‘SEBI (DIP GuiPublic Issue ‘When anyone from general public can buy the shares and invest in the company. Two Types: Intial Public Offering (IPO): An initial public offering (IPO) is the first time that the stock of a private company (unlisted) is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. Through this process investors bid for the companies shares within a certain band. It helps to generate funds from public. Follow on Public Offering (FPO) Already listed companies issue shares for further expansion, new projects etc. Fresh Issue: First time shares are issued. Offer for sale: Promoters of the company dilute their shareholding in the company by selling their ownership to general public. ~ Kexpéllq egy Rights Issue ~~ * A rights lesue is a way by which alisted company a However, instead of going to the public, the company gives its existing shareholders the right to subscribe to newly issued shares in proportion to their existing holdings. For example, 1:4 1:4 rights iss issue means an existing investor can buy one extra share for every very four shares alrez already held by him/her. Usually the price at which the new shares are issued by way of rights issue is less than the prevailing market price of the stock, i.e. the shares are offered at a discount.i (ar (yor 1 * Private placement ri irect sale of|newly issued securitieg by the issuer to a Gmall_number of investors) through merchant bankers. These investors are selected clients such as financial institutions, corporates, banks, and high net worth individuals. Company law defines a privately placed issue to be the one seeking subscriptior from 50 mem! The private placement route offers several advantages to the issuer for raising resources. The time taken by, as well as the cost of issue for the private placement route is much less for the issuer as compared to the public and rights issues. Privately placed issues can be | tailor-made) to suit the requirements of both the issuer and the investor, to give them greater flexibility than public or rights issues. _ ae @5) ae 1 hh A KapilPreferential Issue ~~ A preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons Companies Act which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. a Such allotments are made to various strategic groups including promoters, foreign partners, technical collaborators, and private equity funds. Companies need to seek approval from shareholders for preferential allotment of shares.Qualified Institutions Placement (QIP) IP is a capital raising tool wherein a listed company can issue equity shares, fully and partly convertible debentures, or any security other than warrants that are convertible into equity shares. But unlike in an initial public offering or a follow-on public offering, only institutions or qualified institutional buyers can participate. Qualified institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. Scheduled commercial banks; v% Mutual funds; 2” Foreign institutional investor registered with SEBI; * Multilateral and bilateral development financial institutions; © Venture capital funds registered with SEB! Foreign Venture capital investors registered with SEBI. State Industrial Development Corporations. _* Insurance Companies registered with the Insurance Regulatory and Development Authority (IRDA). Provident Funds with minimum corpus of Rs.25 crores Pension Funds with minimum corpus of Rs. 25 crores. ere et MareaNC ee oa ee oe ee ee ee ae making the investors aware of the risks of an investment. Itis also known as the offer document. Te ee een Re ee eer to be offered based on the demand from investors A situation in which the demand for shares offered in an IPO exceeds the number of shares Po) It is referred to as anjover-allotment option. It is a provision contained in an underwriting agreement whereby the underwriter)gets the right to sellinvéstors more shares than originally planned by the issuer in case the demand for a security issue proves higher than expected. Price band refers to the band within which the investors can bid. The spread between the floor and thie cap of the price band is not be more than 20% i.e. the cap should not be more than 120% of the floor price. RO ee Ue ae re ee Rm tne eRe determining the price of an IPO. Shares offered in IPOs are required to be listed on stock exchanges for the purpose of trading. Listing means that the shares have been listed on the stock exchange and are available for trading in the secondary market.Ss Re eee Roe ae nal ole eee aes IN aus eM LN LE RCM me ae Sten Cn investment bank is the prime requisite. The underwriters are the middlemen betwesnthe Ce UU Rue mee ne eee ea) The different factors that are considered with the investment bankers include: Samu etal Cu ACCES Site eet aa) OS ecu cu cud The deal could be a firm commitment where the underwriter guarantees that a certain amount Cee RR Ree ee Me mcd RE RCM ame aes a men aN a cake eee amount raised. Also to off shoulder the risk in the offering, there is a syndicate of underwriters Se Pau hu ean ees Cem aeel OR Re ae Ue ae eee uO CR RC Re a ia aR ERS CL DR REO er ie au um ut ne Ae ees me the money is to be used etc. The SEBI then requires-aCooling off period, yn which they investigate and make sure all material information has been disclosed. Once the SEBI approves the offering, a Preece renee iene el echt poten Mech cat LgeDea eis eae Rn ae ey sm ta eT POMC cr CR Uae Ce Rene aie auras moet mea eeu uM cana Cm TOM UM tent Me cc Mee caeu Ru Cec an eeu ht Mens uC ss Te ie en eee a Meee aS en meee Cee huce een ame) Re ie Oe) eam UT a aa Re er Na tee a PERU MON en Mel aN AT ee ee cae ORR UC POC Ru CR RCE een ne aor eR Ro ele Un Ue oro Rang esC aura eeu Reta u sae tac RCL TaN) cel eeie eR Book Building) The initial public offers are the way by which the growth-driven Companies raise capital in the primary market for the first time to fuel their future growth. The Companies sell their securities to the public. The company gets a capital boost when the people buy their company’s equity. And people get to reap the fortunes of the company proportional to their share holding. If all goes well, the relationship is mutually beneficial.Types of Investors See oe Bessie elninoRetail Investors ~ ee Wo MT CeO AO LO) Lae eS personal account, and not for another company or organization>——_ On ue) OSM ACCEL CoOL SRM oa aC UR ENaC ea oy OTe ae ee ee IT a a aC Coma Cun eee tO eeInstitutional Investors “ eee Mn Oe Cm ake CSS ce Domestic Institutional investors (Dlls). Foreign Institutional investors (Fils). seDomestic Institutional investors 1pYoT aT elommlaelee soar MN Col CM LoTR Lee Le (OtMCCoOLoR] undertake investment in securities and other financial assets of the country Scale Institutional investment is defined to be the investment done by institutions or organizations Aree Mc re companies, mutual imate houses, € oR ie Ome ole mee ea SUT oct cle domestic institutional investors use pooled funds to trade in securities and assets of their country.beelCa eer Ol Lo ele) eg rele le elie e Rae ee eee ae cca ree ie Metra emu CMC eM Se eee OR seg aD Poe ace aE eo cca oy ee RCO eo ce a CUM Ca a) A a nd Fils, Sub Accounts and Qualified Foreign Investors. Foreign portfolio investment (FPI) ronsists of securities and other financial assets passively held by foreign investors. tt does not provide the investor with'direct ownership of financial assets and is relatively liquid depending on the volatility of the market. FPI lets an investor purchase stocks, bonds or other financial assets in a foreign country. He does ‘not have control Ng ee eeForeign Portfolio Invetsors ” OE eae eect ome cm a SMC UM LO a A Sere A age ee y ce ory | (Low Risk) which would include Government and entities like Foreign Central banks, Sovereign wealth Funds, Multilateral Organizations, etc — ye Nn [Moderaté Risk) which would ificlude Regulated entities such as banks, Pension cme Tamer mL OM Ce Camu td Companies, University related endowments (already registered with SEB!) 2 Gategory Ill (High Risk) which would include all other FPIs not eligible to be included in the eee a'ASBA (Applications Supported by Blocked Amount) is a process developed by the India's Stock Pode tact he ha en gene toe Meer eco sts doesn't get debited until shares are allotted to them. ONCE ete UR cannes oe oun Re ree ee eed RU eC NR ec ee DSR RR ae ec Oe eeu ae cg Seam eee anon a eR Cyc Race eu cc em eke) a UM kee ae) UCM Reams iC Offers (FPO) made through Book Building route and co-exists with the current process of ReneS au ee eee oe MU RC eC e nT eos oFPg SOE ean eS eR RoC EE eR a scm eae eae nk em et ei eee ene ee ee De) eR Eg SR cu a rea Poe ems ere tun ucts SEBI introduced the concept of anchor investors in IPOs in 2009. Book built IPOs are supposed to have a SO pee ee eeu eM ee ee eo allotted To anchor investors. No merchant banker, promoter or their relatives can apply for shares under the anchor investor category. In offers of size less thar{ €250 crore,)there can be a maximum of 15 anchor investors, but in those over 250 crore, SEBI recently removed the cap on number of anchor investors. Now, there could be 10 additional investors for every extra %250 crore allocation, subject to minimum Beene Cee ces LO oe uke ae ee Rae investors who want to flip shares an listing. do not use the ‘anchor’ route. Anchor investors can bid for shares at anywhere within the price band declared by the Company. if the price discovered through the book building process is higher than the price at which shares were allotted to anchor investors, then these investors have to bring in additional funds to make good the shortfall. But if the book built price is lower, ReecePN me R eel Macias: ll 1) Peer tea oe eS ee oe Re OE eee een ee cy meager eed aa RUC Pe eRe eee Rg ere an Mee Ee SSoE5 ad etsy Tm RUSE ee eC ae cen Our Peet Om Oe aR MM eC ee Mee eur ee ee ate Not more tha 50 pet'vent of the net offer to the public shall be availabe for allocation to the qualified institutional buyers. _- eePN eRe eacl es: =) In Case of Fixed Price Issue The proportionate allotment of securities to the different investor re ees ae eas TNO On ne aaa RUT BC ee eens Ca eS Renee ee eR ee es ea ja. Individual applicants other than retail individual investors, and Mee See ee ee ae ae securities applied for.ee eT ro " A public issue is opened for a minimum of 3 Nel CENCE Mur hulli) ClO Ree MeN MMe Melman lM hee = For Book Built issues, the offer will be open for a period between(3 to 7) days extendable by 3 days in case of a revision in price band. Neste e can make applications during this period. In a book built issue Investors can also revise bids in the period. 7 aac)Be eel eR i eee eo elm are This market is also known as the stock market. In India the secondary market CCC IC RCM Ie CoM Cinna amo ACT ment | aE Neen Naar runt ule SO Cle eur Urn N ue Mure meee eect Ba RCC MCS C Lem sel ts OMeLE Beier etal leek traded. A stock exchange is defined under Section 2(3) of the Securities Contracts (Regulation) Act, 1956, ‘as any body of individuals whether incorporated or not, CO ROM Ne Mee Cot act aoa tee re eels NEARS tela clues oe bene a eiek ake Omen Rast Tadbats scl] SOMME UMUC came UMC SC ae Sel rs Leeda ce Rca ue em we una ORG Mutrs es channel through the process of disinvestment to reinvestment. SOT CRUE CHa Rg Cot Bm Coar SnCu Co CU meu RUT uae CRC iscea anu ee ICRC ac cad sem coe na ee ON nee aa eee RUMP ca rere d Oe Race uuu Ra mury cat ue mec) investors.Stock Market Index The stock market index is the most important indices of all as it measures overall Dens a erence mas Le Ma Oe en Cm mum ia ace Cet EUR eed mee mi et nels a ae The function of a stock index is to provide investors with information regarding the average share price in the market. Cece MU me cca eta mE ee ec hen en RS ae Ur ae Rem mune eee ee eC toe a Re Roms UE Re emu ect ceaSO a eg a ee eC} years, it has launched 13 more indices The BSE Sensex of equity-share prices was launched with the base year of 1978-79. It comprises 30 scrips SSCS eS et ie Sa CoC uC OR See Ma ot au SO ar es The BSE introduced two new indices during 1993-94—the BSE 200 and the Dollex. The BSE 200 reflects CO a Rue eee eu ee ec reese ee Pee Sen cu ke ae Rane ace Set ce Sec as a ee Dollex 30, 100 and 200. Bat eR OnE ee Ua meu a enh ome UC ae SelM ct tty Index, the BSE FMCG Index, the BSE Health Care Index and the BSE Consumer Durables Index. ea tie Rea a ee hu aCe em eee uny all the indices is a free-float market capitalisation except for BSE-PSU Index. Brees aa ee ee eR ue COM ae power, realty and tech. The other major indices introduced are small cap, midcap, BSE100, BSE SOO and C4.MOS Re an Cee RU ccs ae Rea etc et ead ec cada Its Benchmark Index is NIFTY which stands for National Fifty. The NSE Fifty was rechristened as the S&P CNX Nifty on July 28, 1998. This index is widely used as it reflects Re Ue ee asa November 3, 1995. are Sse The CNX Nifty Junior is a mid-cap index introduced in January 1997 to cater to the growth companies in the Ces A new index called the S&P CNX Defty (dollar-denominated S&P CNX Nifty) was introduced on November 26, Ce eee ee me CCS eee a a performance indicator to hedging indian equity exposure The other popular indices are the Nifty mid-cap 50, the CNX mid-cap 50, the S&P CNX Sectoral Indices, such Poa eR ea ce oa a aM coe ee TS Pog Rae nC Pe RC ae eo Re coe et em US PO cc eee Meee esc hoe caeThe Over The Counter Exchange of India (OTCEI) The OTCEI was promoted jointly by the ICICI, SBI, UTI, Capital markets Ltd., Can ban Financial priate ee AOC Oa Ree uh ee Be eC ee meer ace lae Pe eos me tee ec) Tec Res Rn ate ear en Rae nen Se Reece Re Came finance in a cost effective manner and investors with a convenient, transparent and efficient avenue for capital market investmentTwo Methodologies are: > Full market capitalisation method. Pee antny caer nel ee nel aeFull market capitalisation method In this method, the number of shares outstanding] multiplied by the market price of a company’s share determines the scrip’s weightage in the index. The shares with the Se Ce ea MER Mun eRe ml Be Tec MUR elm are —_ z a 1 aeee best cast Dea RSC Daa eae eee acd current market price. For example, if a company has 1 lakh outstanding shares and the stock price is Rs 20, then the market capitalization of the company is Rs 20 lakh. _~ eu eo UCR eee en ce ae ed CO ee UR ce company has issued 10 lakh shares of face value Rs 10, but of these, four lakh shares is owned by the promoter, then the free float market capitalisation is Rs 60 lakh. a 5) we Both| NSE _and the BSE/use the free float market capitalisation method to calculate their Pere ued aie eee i} EO Rus a ee) Eee un eee aeons nen oo Pee um en ce ae ener eee in rise eee me Oe Te Oa COM CoM Ieee nT EYE klar’ [ht ee —— a