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Prof.

Rajiv Vohra

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Continuous Evaluation Assignments Class Interaction Group Presentation/Case Studies Mid Term Examination End Term Examination

: 20% : 10% : 10% : 20% : 20% : 40%

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Understanding the Concepts Ability to Think and Articulate Questioning and Criticizing the Ideas Generated Presentation of Facts and Original Ideas

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Why have you taken Wealth Management? What are your expectations from the course? What do you want to achieve at the end of this course? List investment options available to an average Indian? What is Money? What is an Investment? Why do people invest? On what parameters are investments made? Difference between Debt and Equity?

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Money is anything that is accepted as store house of value, which can be exchanged for payment of debts and purchase of goods or services. Is Money an asset? Narrow Money (M1): Money supply with the public, currency notes with the public and demand deposits with the banks M2=M1+ post office Savings Bank Deposits Broad Money (M3)= M2 + Time Deposits with banks M4 = M3 + Other Post Office Deposits.

Non Marketable Financial Assets


Bank Deposits Post Office Deposits Company Deposits PF Deposits

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Equity Shares Bonds


Government Securities PSU Bonds Debentures

Money Marker Instruments


Treasury Bills Commercial Papers Certificate of Deposits

Mutual Funds
Equity Mutual Funds Debt Mutual Funds Others

Life Insurance
Unit linked Insurance Policies Term Insurance Endowment Policies

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Retirement Solutions Real Estate Precious Objects Derivatives

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Rate of return Risk Marketability, Convenience/Liquidity Taxation Time Horizon Amount Government Policies

Capital/ Principal

This is principal amount borrowed And does not vary unless you Repay funds. Repayment arrangement are Agreed at the time of debt is drawn Return on funds lent are through Interest. Interest is either fixed Or floating

This the value of your shares when you purchase them and may rise or fall No repayment options. The shares Exist till the company is wound up.

Repayment

Return

Return is in the form of dividends And capital appreciation

Participation in No ownership rights. profit

Ownership rights

Retail Financial Services


Deposits Lending Investments

Wholesale Financial Services


Corporate Borrowing Merger & Acquisitions Underwriting new securities (Debt and Equity) Foreign Exchange Dealing

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Reserve Bank of India Banks Non Banks


Finance Companies Fund Managers Housing Finance Companies Investment Banks Life Insurance Companies Stock Brokers Superannuation Funds

RBI: India s Central Bank and is responsible for formulating and pursuing monetary policy
Monetary Policy Liquidity Support Payment System Control Control on Banking Sector Control on Foreign Exchange Dealers Control of Non Banking Financial Companies

SEBI
Conduct of Underwriter for issue of Capital, FII, Portfolio Managers, Mutual fund Industry, Credit Rating Agencies. Conduct of Stock Exchanges, Stock Brokers. Regulation of Custodian of Securities. Guidelines for Corporate Governance.

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IRDA Pension Fund Regulatory and Development Authority

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What do you understand by the phrase Economic Environment? Which factors govern this Economic Environment? Do we need to study them? What is Monetary & Fiscal Policy ? What is Repo Rate and Reverse Repo Rate? What is a business cycle?

Objectives of Economic Policies


Guide growth while controlling Inflation. Achieve Maximum Employment. Steady growth in national income as measured by output of goods and services. Improve balance of payment by guiding foreign trade and investments. Reduce Regional Imbalances. Reduce economic Imbalances in the Society.

Macroeconomics: Looks at the overall, big picture and general principles ` Government Policies ` Balance of Payment
Current Account: It encompasses the country s international trade in goods and services, the income flow resulting from Non Resident Investments, our investments overseas. Capital Account: Flow of capital into and out o India by way of equity investments, direct or portfolio and debt, long and short-term and public and private.

Foreign Exchange Rates ` The Terms of Trade ` Inflation ` Household Savings Rate Microeconomics: It looks ate the general markets, individual companies and the impact on individuals
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Inflation: It is the rise in general level of prices of goods and services. An erosion in the purchasing power. Is Inflation Bad for an Economy? Difference Between Primary & Secondary Markets
Issuance of Prospectus Increasing obligation by the issuer of securities

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Top Down Investment Approach Bottom Up Approach

MONETARY POLICY
The objective of Monetary Policy is to foster Monetary and Financial Conditions that will help control inflation, promote growth in output on a sustainable basis and exploit country s strength in International Trade. Open Market Operations x Buying and Selling of Government Bonds Discount Rate Policy x Setting of Interest Rates, also called the bank rate at which member banks can borrow from the central bank. Reserve Requirement Policy x CRR & SLR Interest Rate Regulation x Currently RBI controls only saving bank deposit rates and minimum term deposit tenure ( 7 days for amounts greater than Rs 15 Lakhs and 14 days for any amount)

RBI Concerned with Inflation Reduce Bank Reserves by Selling Securities in Open Market Reduction in Bank Reserve leading To reduction in Money Supply Increased Interest Rates and Tightening of credit norms Reduction in Long term Investments Reduction in aggregate demand, Income, output and thus inflation

FISCAL POLICY
It refers to the use of government spending and taxing power to achieve macroeconomic objectives. The government raises its resources through taxation, borrowing and other revenue sources. Government expenditure influences both private investments as well as private consumption. Taxation reduces private consumption besides influencing investment and potential output.

The total market value of goods and services produced in India after taking out the cost of goods and services used up, in the product process before deducting depreciation of the economy s capital stock. Measuring GDP 1. The Product Approach: The total valued added by households, farmers, businesses and each level of government. 2. The Income Approach: It totals the factor incomes i.e. the gross incomes paid to labour and capital as the factors of production, depreciation and net indirect taxes. 3. The Expenditure Approach:
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1. 2. 3. 4. 5.

Consumption Investments Government Exports Imports

Repo (Repurchase) Rate Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend.
If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse Repo Rate This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate.
The RBI uses this tool when it feels there is too much money floating in the banking system If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk)

Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo signifies the rate at which liquidity is injected.
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Bank Rate This is the rate at which RBI lends money to other banks (or financial institutions . The bank rate signals the central bank s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa.
Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.

Call Rate Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis.

CRR Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money SLR Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank s leverage in pumping more money into the economy.

Recession
It is a Business Cycle contraction, a general slowdown in economic activity over a period of time. It is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year.

Depression
It is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a Recession Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years

Trough to expansion
WPI Falling Interest Rates falling Consumer sentiments increasing Consumer demands increasing Retail sales increasing

Expansion to Peak
GDP increasing, IIP increasing Capacity Utilization Increasing WPI Increasing Labour market tightening Growing expectations that the boom cannot last

Peak to Contraction
GDP Falling Industrial Production Falling Capacity Utilization falling Labour productivity increasing Unit labour cost decreasing

Contraction to Trough
WPI Falling Retail Sales declining Unemployment rising Housing Starts declining Home lending falling Consumer sentiments decreasing

Leading Indicators
Consumer sentiments Consumer purchases around festivals Movement in realty sector Automobile sales

Coincident Indicators
Job advertisements Credit off take by private sector

Lagging Indicators
Unemployment Rate Employment Growth

These partial indicators along with broader measures such as National Account, Consumer Price Index, Balance of payment and government policy statements provide information about the current state of economy and likely direction.

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