Derivatives market (ev)
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The document explains how derivative contracts work in the stock market through an example. It describes a scenario where an investor buys a futures contract for Stock A at Rs. 120, with settlement in 5 days. Each day, the investor's account is credited or debited based on whether the stock price increased or decreased from the previous day. At settlement, the stock price was Rs. 125, so the investor gained Rs. 5 total. However, since the investor only paid 15% margin money of Rs. 18 upfront, the effective return on investment was 27%.
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Futures
Futures contracts allow parties with opposing views on future price movements of a commodity to enter an agreement to buy or sell the commodity at a fixed price on a future date. In the example, a farmer agrees to sell wheat to a bread manufacturer in 3 months at Rs. 110 per unit through a futures contract. When the price rises to Rs. 120, the farmer sells at the agreed lower price but the manufacturer benefits from securing the input at a below market price. Both parties' needs are met through the contract even if their price predictions differed, showing how futures trading helps businesses hedge risks from price fluctuations.
Bottom line
Bikas was a street food vendor in Mumbai who sold bhelpuri. His daily expenses to buy ingredients were Rs. 1000. He would sell all his food for Rs. 1200 each day, making a profit of Rs. 200. His daily top-line was Rs. 1200 in sales, while his bottom-line profit was Rs. 200. Top-line growth means increasing total sales by selling more units, while bottom-line growth can occur by increasing prices or reducing costs, without necessarily increasing the top-line. Understanding the difference between top-line and bottom-line is important for business planning and performance analysis.
Understanding indexation
Indexation means adjusting the purchase price of a capital asset to account for inflation between the purchase date and sale date. This adjustment reduces the capital gains amount and resulting capital gains tax liability. The purchase price is inflated using the Cost Inflation Index notified annually by the government. For a property purchased in 1996-97 and sold in 2004-05, indexation reduced the capital gains tax from Rs. 20,000 to Rs. 11,311 by inflating the purchase price from Rs. 2.5 lakh to Rs. 3.93 lakh. Indexation helps offset the erosion in asset value due to inflation over the holding period.
Simplifying beta
Beta is a measure of the volatility of a security or fund compared to the market as a whole. It helps investors evaluate risk and make better investment decisions based on their risk profile. A beta of 1 means the security's price movements match the market. A beta below 1 means it is less volatile, while a beta above 1 means it is more volatile than the overall market. Understanding a fund's beta in relation to benchmarks is important for investment decisions in addition to considering its performance.
Top down
The document discusses top-down and bottom-up approaches to investing. Top-down refers to making broad market or sector investment decisions first before selecting individual investments. Bottom-up refers to selecting individual investments based on their specific attributes before considering the overall market. The example given is of selecting India for software engineers first (top-down) and then interviewing individuals (bottom-up).
Options in the real market
The document describes how an options deal works between a buyer and seller in the stock market.
Ram buys a call option from Sam for a stock trading at Rs. 100, with a strike price of Rs. 120 expiring in 5 days. Ram pays Sam a Rs. 2 premium. If the stock price rises above Rs. 120, Ram profits, otherwise he only loses the Rs. 2 premium. Sam profits if the price falls or stays the same.
The document then tracks the notional profits and losses for Ram and Sam over the 5 days. On the settlement date, if the price is above Rs. 120, Ram's account is credited his profits and Sam's is debited his losses. If the
Price discovery in the stock market
Price discovery in the stock market occurs through changes in a company's earnings per share and investor demand for its shares. Mr. Pickle buys shares of a company with an earnings per share of Rs. 10 and P/E ratio of 10, meaning the share price is Rs. 100. When earnings per share rises to Rs. 100, the share price should rise to Rs. 1000 based on the unchanged P/E ratio. However, increased demand for the company's shares drives the P/E ratio up to 12, raising the share price further to Rs. 1200, allowing Mr. Pickle to profit from his investment. Thus, price discovery balances earnings data and shifting market sentiment over time.
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Futures
Futures contracts allow parties with opposing views on future price movements of a commodity to enter an agreement to buy or sell the commodity at a fixed price on a future date. In the example, a farmer agrees to sell wheat to a bread manufacturer in 3 months at Rs. 110 per unit through a futures contract. When the price rises to Rs. 120, the farmer sells at the agreed lower price but the manufacturer benefits from securing the input at a below market price. Both parties' needs are met through the contract even if their price predictions differed, showing how futures trading helps businesses hedge risks from price fluctuations.
Bottom line
Bikas was a street food vendor in Mumbai who sold bhelpuri. His daily expenses to buy ingredients were Rs. 1000. He would sell all his food for Rs. 1200 each day, making a profit of Rs. 200. His daily top-line was Rs. 1200 in sales, while his bottom-line profit was Rs. 200. Top-line growth means increasing total sales by selling more units, while bottom-line growth can occur by increasing prices or reducing costs, without necessarily increasing the top-line. Understanding the difference between top-line and bottom-line is important for business planning and performance analysis.
Understanding indexation
Indexation means adjusting the purchase price of a capital asset to account for inflation between the purchase date and sale date. This adjustment reduces the capital gains amount and resulting capital gains tax liability. The purchase price is inflated using the Cost Inflation Index notified annually by the government. For a property purchased in 1996-97 and sold in 2004-05, indexation reduced the capital gains tax from Rs. 20,000 to Rs. 11,311 by inflating the purchase price from Rs. 2.5 lakh to Rs. 3.93 lakh. Indexation helps offset the erosion in asset value due to inflation over the holding period.
Simplifying beta
Beta is a measure of the volatility of a security or fund compared to the market as a whole. It helps investors evaluate risk and make better investment decisions based on their risk profile. A beta of 1 means the security's price movements match the market. A beta below 1 means it is less volatile, while a beta above 1 means it is more volatile than the overall market. Understanding a fund's beta in relation to benchmarks is important for investment decisions in addition to considering its performance.
Top down
The document discusses top-down and bottom-up approaches to investing. Top-down refers to making broad market or sector investment decisions first before selecting individual investments. Bottom-up refers to selecting individual investments based on their specific attributes before considering the overall market. The example given is of selecting India for software engineers first (top-down) and then interviewing individuals (bottom-up).
Options in the real market
The document describes how an options deal works between a buyer and seller in the stock market.
Ram buys a call option from Sam for a stock trading at Rs. 100, with a strike price of Rs. 120 expiring in 5 days. Ram pays Sam a Rs. 2 premium. If the stock price rises above Rs. 120, Ram profits, otherwise he only loses the Rs. 2 premium. Sam profits if the price falls or stays the same.
The document then tracks the notional profits and losses for Ram and Sam over the 5 days. On the settlement date, if the price is above Rs. 120, Ram's account is credited his profits and Sam's is debited his losses. If the
Price discovery in the stock market
Price discovery in the stock market occurs through changes in a company's earnings per share and investor demand for its shares. Mr. Pickle buys shares of a company with an earnings per share of Rs. 10 and P/E ratio of 10, meaning the share price is Rs. 100. When earnings per share rises to Rs. 100, the share price should rise to Rs. 1000 based on the unchanged P/E ratio. However, increased demand for the company's shares drives the P/E ratio up to 12, raising the share price further to Rs. 1200, allowing Mr. Pickle to profit from his investment. Thus, price discovery balances earnings data and shifting market sentiment over time.
Net present value
Two friends, Shekhu and Pheku, were arguing over which offer from their fathers was better. Shekhu was offered Rs 1 cr immediately, while Pheku was offered Rs 1.2 cr after 3 years. To compare the offers fairly, the professor explained the concept of net present value and discounted Pheku's future amount using an assumed inflation rate of 8% per year. Using the NPV formula, the professor calculated the present value of Pheku's Rs 1.2 cr was actually Rs 95 lacs. Therefore, Shekhu's immediate offer of Rs 1 cr was better than Pheku's future offer once inflation was taken into account. The lesson aimed to explain how one should calculate the present value of
Real estate investment trusts
REITs are companies that own and operate income-producing real estate. To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends. REITs were created in 1960 to allow individual investors to invest in large-scale commercial properties. REITs provide ongoing dividend income along with potential for long-term capital gains. They offer investors exposure to the real estate asset class through publicly traded shares that are professionally managed.
Volatility index
Volatility indexes like India Vix measure the expected volatility or risk in the stock market over the short term. India Vix specifically calculates implied volatility based on Nifty 50 index option prices. A volatility index can help investors gauge market sentiment, as higher readings indicate greater fear and expected price declines, while lower readings suggest complacency. Volatility indexes also enable hedging strategies using derivatives that provide protection against overall market volatility rather than risks to specific stocks.
Capital gains and indexation
Capital gains tax is levied on the profits from selling assets like shares, bonds, property, and mutual funds. Gains are classified as short-term (held 12-36 months) or long-term (held over 36 months). The tax law provides indexation to reduce the tax burden on long-term capital gains. Indexation artificially inflates the purchase price of the asset using a cost inflation index to account for inflation. This lowers the taxable capital gains and resulting tax liability. Indexation benefits investors by reducing the effects of inflation on asset values over long holding periods.
Buyback of shares
The document discusses share buybacks by company promoters. It provides three main reasons why promoters may offer to buy back shares: 1) to support falling share prices and boost investor confidence, 2) to increase their ownership stake and defend against potential takeover bids, and 3) if the share price is lower than the company's intrinsic value. The buyback indicates to investors that share prices could rise in the medium term as it shows the promoter's confidence in the company.
Treynor ratio
The Treynor Ratio measures the returns of a fund relative to its volatility or risk. It is calculated by dividing the fund's excess return over the risk-free rate by the fund's volatility. A higher Treynor Ratio indicates the fund has performed well with less risk compared to the overall market. The document provides an example comparing the performance of two batsmen to illustrate how the Treynor Ratio works.
Derivatives vs cash
Derivative trading involves betting on the future price movements of assets like stocks using only a fraction of the investment required to purchase the full assets. This allows for high gains with minimal upfront cost, but also high losses if the bet is incorrect. Specifically, investing in 10 shares of a Rs. 100 stock through derivatives requires only a 10% margin of Rs. 100, whereas purchasing the shares directly would cost Rs. 1000. If the stock price rises 10% to Rs. 110, the derivatives investor earns Rs. 100 or 100% return on their Rs. 100 investment compared to a 10% return purchasing the stock. However, a 10% price drop also leads to a full 100% loss of the Rs. 100 investment for
Options contract
The document discusses options contracts and compares them to futures contracts. In an options contract:
1) One party, in this case the farmer, has the option to either execute or exit the contract, while the other party, the bread manufacturer, must honor whatever choice the farmer makes.
2) The farmer pays a premium for this option privilege, regardless of whether the option is ultimately exercised.
3) Here, if wheat prices rise above the agreed price, the farmer will exit the contract to sell at the higher open market price, while still compensating the manufacturer somewhat through the previously paid premium.
Bonus shares vs stock splits
Bonus shares and stock splits both increase the number of a company's shares, but they differ in their purpose and impact on share price. Bonus shares are issued using a company's reserves and do not change the total market capitalization, causing the individual share price to decrease proportionally. Stock splits reduce the market price of each share to increase liquidity and allow smaller investors to purchase shares, also without changing the total market capitalization. Both actions are generally viewed positively by the market as indicators of a company's growth and performance.
Peg ratio
The document defines and explains the PEG (Price Earnings to Growth) ratio, which determines a stock's value by taking into account future earnings growth. It is calculated by dividing the P/E ratio by the expected earnings growth percentage. A PEG ratio of 1 suggests the stock is fairly priced based on anticipated growth. PEG ratios above 1 may indicate an overvalued stock due to hype, while ratios below 1 could suggest a stock is undervalued. The document provides examples to illustrate how to interpret PEG ratios and concludes by discussing advantages and disadvantages of the PEG ratio valuation metric.
Margin money in derivatives
Margin money refers to the amount of funds that must be deposited by investors in derivatives trading to cover potential losses. The broker holds this money on behalf of the exchange to mitigate risk. In the example provided, investors A and B each need to provide 10% of the futures contract value of Rs. 100 as margin money to the broker. This covers potential price fluctuations of Rs. 10. If the price rises to Rs. 108, investor A profits Rs. 8 and receives their original Rs. 10 margin back. Investor B who lost Rs. 8 has it deducted from their margin, with the remaining Rs. 2 returned. Margin money thus allows derivatives trading to occur without needing full payment upfront.
Why bonus shares are issued
Bonus shares are issued by companies to increase the number of shares and reduce the price per share, making it more affordable for retail investors. When a company's profits increase substantially but the number of shares remains the same, the earnings per share and theoretical price per share also increases dramatically. To improve liquidity and allow more investors to participate, companies may issue bonus shares in a ratio such as 1:4, increasing the total shares from 100 to 500. This keeps the overall capital the same while reducing the earnings per share and price per share to a more accessible level for small investors.
Exchange traded funds
Exchange traded funds (ETFs) are investment vehicles that track an index or basket of assets like stocks or commodities. ETFs trade on stock exchanges similar to stocks. They allow investors indirect ownership in the underlying assets by purchasing shares in the ETF. ETFs track indexes closely and provide opportunities for diversified, low-cost exposure to markets or sectors similar to index mutual funds but with intraday tradability like stocks. While ETFs and mutual funds have similarities, ETFs trade continuously at market prices close to the net asset value of their holdings, unlike closed-end mutual funds which may trade at premiums or discounts to net asset value.
Off balance sheets
Off-balance sheet items refer to assets, debts, or financing activities that are not reported on a company's balance sheet. Companies often use off-balance sheet financing to keep debt-to-equity ratios low and appear more financially stable. While tax laws allow excluding these items from financial statements through footnotes, they still represent legal obligations or risks for the company. Governments also sometimes use off-balance sheet accounting by not reporting future liabilities like oil bonds on the current year's balance sheet.
Liquidity ratio
The document discusses the liquidity ratio, which indicates how prepared someone is to meet short-term financial obligations without income. The liquidity ratio is calculated by dividing liquid assets by monthly expenses. Liquid assets include cash savings that can be accessed, while expenses used are immediate monthly costs like rent that cannot be delayed. A higher liquidity ratio means more months of expenses can be covered without income. The appropriate ratio depends on individual factors like income level and expenses.
Mutual fund vs. hedge fund
Hedge funds and mutual funds both pool money from investors to be professionally managed. However, there are key differences in their investment approaches, investor requirements, and regulations. Hedge funds focus on absolute returns, can invest in any asset class including risky investments, use leverage to enhance returns, run concentrated portfolios, and charge high fees to accredited investors. Mutual funds focus on relative returns, have diversification and compliance requirements, charge lower fees to retail investors, and are highly regulated for investor protection.
Options in the real market (put option)
The document explains how a put option works through an example involving two participants, Ram and Shyam. Ram buys a put option from Shyam, giving Ram the right to sell a stock to Shyam at Rs. 100 per share over the next 5 days. The document tracks the notional profits and losses for Ram and Shyam over the 5 days as the stock price fluctuates, showing how Ram benefits from declines in the stock price while Shyam assumes the risk but collects the premium. In the end, Ram has a net gain of Rs. 5 while Shyam has a net loss of Rs. 5 after factoring in the initial premium paid.
Futures
Futures contracts allow a farmer and bread manufacturer to lock in a future price for wheat to protect themselves from price fluctuations. The farmer expects wheat prices to fall to Rs. 90 in 3 months, while the manufacturer expects a rise to Rs. 120. They agree to a contract where the farmer will sell wheat at Rs. 110 in 3 months. This protects both parties - the farmer from a price drop, and the manufacturer from a price increase. If prices instead rise to Rs. 120, the farmer misses out on Rs. 10 profit but has had 3 months of protected income, while the manufacturer profits Rs. 10 through correct forecasting aided by the futures contract.
Foreign exchange arithmetic
The document discusses foreign exchange arithmetic and provides examples of calculating foreign exchange rates and transactions. It begins with an example of calculating spot and forward rates for USD/INR. It then provides additional examples of calculating spot rates for EUR/USD and USD/JPY. Further examples demonstrate calculations for transactions involving bills of exchange with different maturity periods and usance periods. The document also discusses principles for cancelling transactions and calculating profits or losses from cancellations. Finally, it discusses swaps and how banks use them to manage maturity mismatches in their foreign exchange positions.
Trading plan
Trading plan is very important for you to be successful in forex trading.forex trading plan in pdf file. In this ebook will be cover on your plan to be successful forex trader, your trading goal, money management,your strategy and how you going to do your trading.
Derivatives trading
This document provides an overview of derivatives markets, including forwards, futures, and options contracts. It defines each contract type and explains how they work. Forwards involve a private agreement between two parties to buy or sell an asset at a future date at an agreed upon price. Futures are standardized forward contracts that are traded on an exchange. Options provide the right, but not obligation, to buy or sell the underlying asset. The document discusses participants in these markets including hedgers who aim to reduce risk, speculators who take bets on price movements, and arbitrageurs who exploit temporary price differences. It also provides illustrations of how these contracts can be used for hedging or trading purposes.
Ultimate Forex Guide
Introducing Forex Fortunes Guide:- Create the Mindset Your Need Trade like a Pro. Inside this eBook, you will discover the topics about the mindset and trading, how to trade on the forex, have realistic expectations, understand the power of patience, be organized in your approach to the markets, why emotional management is critical read more
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Net present value
Two friends, Shekhu and Pheku, were arguing over which offer from their fathers was better. Shekhu was offered Rs 1 cr immediately, while Pheku was offered Rs 1.2 cr after 3 years. To compare the offers fairly, the professor explained the concept of net present value and discounted Pheku's future amount using an assumed inflation rate of 8% per year. Using the NPV formula, the professor calculated the present value of Pheku's Rs 1.2 cr was actually Rs 95 lacs. Therefore, Shekhu's immediate offer of Rs 1 cr was better than Pheku's future offer once inflation was taken into account. The lesson aimed to explain how one should calculate the present value of
Real estate investment trusts
REITs are companies that own and operate income-producing real estate. To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends. REITs were created in 1960 to allow individual investors to invest in large-scale commercial properties. REITs provide ongoing dividend income along with potential for long-term capital gains. They offer investors exposure to the real estate asset class through publicly traded shares that are professionally managed.
Volatility index
Volatility indexes like India Vix measure the expected volatility or risk in the stock market over the short term. India Vix specifically calculates implied volatility based on Nifty 50 index option prices. A volatility index can help investors gauge market sentiment, as higher readings indicate greater fear and expected price declines, while lower readings suggest complacency. Volatility indexes also enable hedging strategies using derivatives that provide protection against overall market volatility rather than risks to specific stocks.
Capital gains and indexation
Capital gains tax is levied on the profits from selling assets like shares, bonds, property, and mutual funds. Gains are classified as short-term (held 12-36 months) or long-term (held over 36 months). The tax law provides indexation to reduce the tax burden on long-term capital gains. Indexation artificially inflates the purchase price of the asset using a cost inflation index to account for inflation. This lowers the taxable capital gains and resulting tax liability. Indexation benefits investors by reducing the effects of inflation on asset values over long holding periods.
Buyback of shares
The document discusses share buybacks by company promoters. It provides three main reasons why promoters may offer to buy back shares: 1) to support falling share prices and boost investor confidence, 2) to increase their ownership stake and defend against potential takeover bids, and 3) if the share price is lower than the company's intrinsic value. The buyback indicates to investors that share prices could rise in the medium term as it shows the promoter's confidence in the company.
Treynor ratio
The Treynor Ratio measures the returns of a fund relative to its volatility or risk. It is calculated by dividing the fund's excess return over the risk-free rate by the fund's volatility. A higher Treynor Ratio indicates the fund has performed well with less risk compared to the overall market. The document provides an example comparing the performance of two batsmen to illustrate how the Treynor Ratio works.
Derivatives vs cash
Derivative trading involves betting on the future price movements of assets like stocks using only a fraction of the investment required to purchase the full assets. This allows for high gains with minimal upfront cost, but also high losses if the bet is incorrect. Specifically, investing in 10 shares of a Rs. 100 stock through derivatives requires only a 10% margin of Rs. 100, whereas purchasing the shares directly would cost Rs. 1000. If the stock price rises 10% to Rs. 110, the derivatives investor earns Rs. 100 or 100% return on their Rs. 100 investment compared to a 10% return purchasing the stock. However, a 10% price drop also leads to a full 100% loss of the Rs. 100 investment for
Options contract
The document discusses options contracts and compares them to futures contracts. In an options contract:
1) One party, in this case the farmer, has the option to either execute or exit the contract, while the other party, the bread manufacturer, must honor whatever choice the farmer makes.
2) The farmer pays a premium for this option privilege, regardless of whether the option is ultimately exercised.
3) Here, if wheat prices rise above the agreed price, the farmer will exit the contract to sell at the higher open market price, while still compensating the manufacturer somewhat through the previously paid premium.
Bonus shares vs stock splits
Bonus shares and stock splits both increase the number of a company's shares, but they differ in their purpose and impact on share price. Bonus shares are issued using a company's reserves and do not change the total market capitalization, causing the individual share price to decrease proportionally. Stock splits reduce the market price of each share to increase liquidity and allow smaller investors to purchase shares, also without changing the total market capitalization. Both actions are generally viewed positively by the market as indicators of a company's growth and performance.
Peg ratio
The document defines and explains the PEG (Price Earnings to Growth) ratio, which determines a stock's value by taking into account future earnings growth. It is calculated by dividing the P/E ratio by the expected earnings growth percentage. A PEG ratio of 1 suggests the stock is fairly priced based on anticipated growth. PEG ratios above 1 may indicate an overvalued stock due to hype, while ratios below 1 could suggest a stock is undervalued. The document provides examples to illustrate how to interpret PEG ratios and concludes by discussing advantages and disadvantages of the PEG ratio valuation metric.
Margin money in derivatives
Margin money refers to the amount of funds that must be deposited by investors in derivatives trading to cover potential losses. The broker holds this money on behalf of the exchange to mitigate risk. In the example provided, investors A and B each need to provide 10% of the futures contract value of Rs. 100 as margin money to the broker. This covers potential price fluctuations of Rs. 10. If the price rises to Rs. 108, investor A profits Rs. 8 and receives their original Rs. 10 margin back. Investor B who lost Rs. 8 has it deducted from their margin, with the remaining Rs. 2 returned. Margin money thus allows derivatives trading to occur without needing full payment upfront.
Why bonus shares are issued
Bonus shares are issued by companies to increase the number of shares and reduce the price per share, making it more affordable for retail investors. When a company's profits increase substantially but the number of shares remains the same, the earnings per share and theoretical price per share also increases dramatically. To improve liquidity and allow more investors to participate, companies may issue bonus shares in a ratio such as 1:4, increasing the total shares from 100 to 500. This keeps the overall capital the same while reducing the earnings per share and price per share to a more accessible level for small investors.
Exchange traded funds
Exchange traded funds (ETFs) are investment vehicles that track an index or basket of assets like stocks or commodities. ETFs trade on stock exchanges similar to stocks. They allow investors indirect ownership in the underlying assets by purchasing shares in the ETF. ETFs track indexes closely and provide opportunities for diversified, low-cost exposure to markets or sectors similar to index mutual funds but with intraday tradability like stocks. While ETFs and mutual funds have similarities, ETFs trade continuously at market prices close to the net asset value of their holdings, unlike closed-end mutual funds which may trade at premiums or discounts to net asset value.
Off balance sheets
Off-balance sheet items refer to assets, debts, or financing activities that are not reported on a company's balance sheet. Companies often use off-balance sheet financing to keep debt-to-equity ratios low and appear more financially stable. While tax laws allow excluding these items from financial statements through footnotes, they still represent legal obligations or risks for the company. Governments also sometimes use off-balance sheet accounting by not reporting future liabilities like oil bonds on the current year's balance sheet.
Liquidity ratio
The document discusses the liquidity ratio, which indicates how prepared someone is to meet short-term financial obligations without income. The liquidity ratio is calculated by dividing liquid assets by monthly expenses. Liquid assets include cash savings that can be accessed, while expenses used are immediate monthly costs like rent that cannot be delayed. A higher liquidity ratio means more months of expenses can be covered without income. The appropriate ratio depends on individual factors like income level and expenses.
Mutual fund vs. hedge fund
Hedge funds and mutual funds both pool money from investors to be professionally managed. However, there are key differences in their investment approaches, investor requirements, and regulations. Hedge funds focus on absolute returns, can invest in any asset class including risky investments, use leverage to enhance returns, run concentrated portfolios, and charge high fees to accredited investors. Mutual funds focus on relative returns, have diversification and compliance requirements, charge lower fees to retail investors, and are highly regulated for investor protection.
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The document explains how a put option works through an example involving two participants, Ram and Shyam. Ram buys a put option from Shyam, giving Ram the right to sell a stock to Shyam at Rs. 100 per share over the next 5 days. The document tracks the notional profits and losses for Ram and Shyam over the 5 days as the stock price fluctuates, showing how Ram benefits from declines in the stock price while Shyam assumes the risk but collects the premium. In the end, Ram has a net gain of Rs. 5 while Shyam has a net loss of Rs. 5 after factoring in the initial premium paid.
Futures
Futures contracts allow a farmer and bread manufacturer to lock in a future price for wheat to protect themselves from price fluctuations. The farmer expects wheat prices to fall to Rs. 90 in 3 months, while the manufacturer expects a rise to Rs. 120. They agree to a contract where the farmer will sell wheat at Rs. 110 in 3 months. This protects both parties - the farmer from a price drop, and the manufacturer from a price increase. If prices instead rise to Rs. 120, the farmer misses out on Rs. 10 profit but has had 3 months of protected income, while the manufacturer profits Rs. 10 through correct forecasting aided by the futures contract.
Foreign exchange arithmetic
The document discusses foreign exchange arithmetic and provides examples of calculating foreign exchange rates and transactions. It begins with an example of calculating spot and forward rates for USD/INR. It then provides additional examples of calculating spot rates for EUR/USD and USD/JPY. Further examples demonstrate calculations for transactions involving bills of exchange with different maturity periods and usance periods. The document also discusses principles for cancelling transactions and calculating profits or losses from cancellations. Finally, it discusses swaps and how banks use them to manage maturity mismatches in their foreign exchange positions.
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This document provides an overview of derivatives markets, including forwards, futures, and options contracts. It defines each contract type and explains how they work. Forwards involve a private agreement between two parties to buy or sell an asset at a future date at an agreed upon price. Futures are standardized forward contracts that are traded on an exchange. Options provide the right, but not obligation, to buy or sell the underlying asset. The document discusses participants in these markets including hedgers who aim to reduce risk, speculators who take bets on price movements, and arbitrageurs who exploit temporary price differences. It also provides illustrations of how these contracts can be used for hedging or trading purposes.
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The document explains the inverse relationship between bond prices and yields. It states that when bond prices go down, bond yields go up, and vice versa. This is illustrated with an example where one investor, Ravi, needs to sell his bond for an emergency. The buyer, John, purchases the bond at a lower price than Ravi paid. However, John earns a higher yield since he paid less for the bond that pays the same return. The example shows that when bond prices fall, the yields rise for new buyers, demonstrating the inverse relationship between the two.
Forex Fortunes Guide
Forex or (Nadex) Binary Options, or without a doubt exchanging general, ought to think of it as a highlight purchase a participation to (BOTS) procedure advancement room. Notwithstanding your experience level, you would now be able to participate and start gaining from other astounding individuals. The general purpose of this assistance is to attempt to interface similar people together to shape a group of thoughts to help out everybody improve. Any individual who has exchanged for almost any timeframe realizes exchanging is HARD, VERY HARD. It requires some investment to create procedures and attempt to figure out how to control hazard. We help out by offering a local area in which individuals can share their encounters and what they are really going after to diminish an opportunity to gain proficiency with these significant exercises.
Forex fortunes guide
This document contains terms and conditions for a guide on Forex trading. It states that while efforts have been made to verify the accuracy of the content, the publisher assumes no responsibility for errors. It also notes that the guide is not intended as a source of legal, business, or financial advice. Readers should seek professional advice regarding their individual circumstances. The document then provides a table of contents that outlines the chapters in the guide, which will discuss topics like the mindset needed for trading, how to trade on Forex markets, managing emotions, and the traits of a successful Forex trader.
Forex fortunes guide
This document contains terms and conditions for a guide on Forex trading. It states that while efforts have been made to verify the accuracy of the content, the publisher assumes no responsibility for errors. It also cautions readers that income is not guaranteed and to rely on their own judgment. The document encourages printing it for easy reading and contains a table of contents that lists chapters on topics like the mindset of trading, how to trade on Forex markets, managing emotions, and the traits of a successful Forex trader.
Forex Fortunes Guide eBook
Inside this eBook, you will discover the topics about the mindset, trading, system, etc and why emotional management is critical to trading success.
Prof simply simple futures.pptx
A futures contract allows a farmer and bread manufacturer to lock in the price of wheat for delivery in 3 months when their price expectations differ. The farmer expects prices to fall to Rs. 90 while the manufacturer expects a rise to Rs. 120. Their contract sets the price at Rs. 110. If prices instead rise to Rs. 120, the farmer loses Rs. 10 but the manufacturer gains Rs. 10. Both parties' business interests are protected from price fluctuations through this mutually beneficial futures agreement.
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Deflation refers to a sustained reduction in the overall price level, while disinflation is a slowdown in the inflation rate even if prices remain positive. Deflation is caused by a fall in aggregate demand, creating a deflationary spiral as consumers delay purchases and lower economic activity. This can be countered by monetary policies to boost demand through lower interest rates or increasing the money supply. While India is experiencing disinflation currently, its strong GDP growth makes deflation unlikely as long as growth remains high and the government has tools to stimulate the economy if needed.
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This document defines and explains the concept of stagflation. Stagflation occurs when inflation rises alongside a stagnant economy, with both prices and unemployment increasing. The Reserve Bank of India must balance fighting inflation through interest rate hikes with avoiding damaging economic growth and causing stagflation. For India's robust economy, this balancing act is less risky than for slower-growing countries. Removing structural obstacles and reforms can help unlock growth and steer an economy out of stagflation.
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The document discusses money supply expansion by banks and runs on banks. It explains that when a customer deposits money in a bank, the bank lends out a portion while keeping a 10% reserve. This lending allows new money to enter circulation, expanding the money supply. However, if too many depositors withdraw funds due to economic uncertainty, it can cause a bank run where the bank lacks sufficient reserves to pay everyone.
Revenue trade
This document discusses three types of deficits: fiscal deficit, revenue deficit, and trade deficit. A fiscal deficit occurs when a government spends more than it earns in a year. A revenue deficit is when a government's revenue expenditures are greater than its revenue receipts. Finally, a trade deficit is when the value of a country's imports exceeds the value of its exports.
Oil bonds
The document summarizes the issue of oil bonds in India. The government gives oil companies oil bonds to compensate them for selling fuel at controlled low prices instead of market prices. This creates problems for the oil companies by delaying payments and impacting their cash flow, forcing them to sell the bonds at a discount. In the long run, the government will have to repay the bonds, adding to fiscal deficits. Recently, fuel prices were raised more significantly, indicating a shift away from reliance on oil bonds towards allowing market-linked pricing.
Mss bonds
MSS bonds help control inflation by absorbing excess liquidity in the market. When there is too much money circulating, it can cause prices to rise, leading to inflation. The central bank issues MSS bonds to suck up this extra liquidity, similar to how pamphlets offering rewards sucked kids into staying home rather than spending money outside. By reducing the amount of money available, demand is lowered and prices stabilize, bringing inflation under control. MSS bonds are an effective tool for central banks to regulate liquidity and inflation through offering attractive returns that incentivize investment in the bonds.
Money supply
Banks are able to increase the money supply through fractional reserve banking. When a customer deposits money in a bank, the bank is only required to keep a portion of those deposits as reserves, typically around 10%, and can lend out the remaining 90% to borrowers. This lending creates new money, as the amount lent is also spent and deposited elsewhere. Through this process of lending and redepositing, the original $100 deposit can end up creating $190 in the total money supply. The central bank regulates money supply by adjusting the reserve requirement percentage - increasing it decreases lending and money supply while decreasing it has the opposite effect.
Money market
The money market is a place where large institutions and governments manage short-term cash needs through very short term debt securities maturing in less than one year. It specializes in safe, liquid instruments like treasury bills, certificates of deposit, commercial paper, and repurchase agreements. While offering lower returns than stocks, these conservative money market securities provide more safety. Individual investors can access the money market through money market mutual funds.
Measurements of money supply
Velocity of money is calculated by dividing GDP by the value of money supply. Different measurements of money supply (M0, M1, M2, M3) show different velocities, as they represent different components of the money supply. M0 only includes currency in circulation and bank reserves, while M3 includes a broader range of assets. Understanding how money moves between entities in an economy helps explain why velocity, or the rate of money circulation, is important for economic growth.
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Governments have several ways to repay their debts, including developing fiscal surpluses through taxes and reducing expenses. They can also use dividends from public sector companies or divest holdings. As a last resort, governments may borrow more money or print currency to repay debts, which risks hyperinflation.
Four monetary terms part 1
The document provides an overview of two key Indian monetary policy terms: the repo rate and statutory liquidity ratio (SLR). The repo rate is the interest rate at which commercial banks borrow funds from the Reserve Bank of India. A reduction in the repo rate will allow banks to borrow funds at a cheaper rate. The SLR is the minimum amount of funds that commercial banks must hold in government approved securities. The SLR is set by the RBI and helps control the expansion of bank credit. The SLR has recently been reduced by 100 basis points to 24% of deposits, freeing up more cash for banks to lend.
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The Finance Minister announced a 4.8% revenue deficit and 6.8% fiscal deficit in the Union Budget this week. A revenue deficit occurs when a government's revenue expenses exceed its revenue receipts, while a fiscal deficit is the difference between total government expenses and total receipts. Although deficits are generally undesirable, the current budget aims to stimulate demand and create assets through spending in order to dig India out of an economic slowdown and return to 9% growth.
Fiscal deficit
The document explains fiscal deficit. It states that the government spends money on revenue expenses like salaries and capital expenses like constructing hospitals. However, the government's total expenses are always more than its total income from taxes and other sources, resulting in a fiscal deficit. This deficit is financed through government borrowings from the market or printing additional currency, with borrowing being the better option to avoid inflation. However, borrowing also cannot continue indefinitely and the only sustainable way to control the deficit is by spending less and earning more revenue.
Fiscal consolidation
Fiscal consolidation refers to a government withdrawing fiscal stimulus that was provided during an economic crisis in order to improve its financial position. This is illustrated through a story where one brother, Arjun, provides financial support to his unemployed brother, Karan, for 6 months until Karan finds a new job. Arjun is then able to discontinue the support and fulfill his own plans like buying a car, just as governments discontinue fiscal stimulus as the economy recovers.
Deflation
Deflation refers to a sustained reduction in the overall price level, where the inflation rate falls below zero percent and prices continue to decrease. This occurs when aggregate demand in the economy declines significantly. While a one-time price decrease is not a problem, sustained deflation can lead to a deflationary spiral as consumers delay purchases in expectation of even lower prices, further reducing demand and economic activity. Central banks aim to prevent deflation through monetary policies that increase the money supply, such as lowering interest rates, in order to stimulate demand. According to the passage, India's current low inflation rate is considered disinflation rather than deflation, as prices have not started falling continuously and the economy remains robust with around 6.5%
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【业务选择办理准则】
一、工作未确定，回国需先给父母、亲戚朋友看下文凭的情况，办理一份就读学校的毕业证【微信：A575476】文凭即可
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Derivatives market (ev)
- 1. Simplifying how derivative products operate in the stock market (Extended Version) – By Prof. Simply Simple TM Hopefully the last lesson on ‘derivatives in the real world’ helped you get a good idea about it’s concept. In this lesson, I will explain to you how a derivative deal is practically done in the market place.
- 2. In our previous lesson we explained how in a market comprising of several buyers and sellers, one need not know who the counter-party is.
- 3. As we saw in our earlier lesson, there are several farmers in the market, perhaps a few thousands!
- 4. And several thousand bread manufacturers!!
- 5. And a market place where there is free flow of information!!!
- 6. So that the expected future stock price (price of wheat for the sake of comparison with our previous examples) is known to every farmer and bread manufacturer. Any farmer trying to extract a higher price will not be able to do so because for the bread manufacturer there are several other farmers to buy from and vice versa. This is what we call ‘Price Discovery’.
- 7. Now in the stock market we do not have farmers and bread manufacturers, but instead have investors who are both buyers and sellers of stocks.
- 8. Now lets say there is a stock A listed on the stock exchange and its “futures” is quoted at Rs. 120. Also, let’s assume there are participants in the market to buy and sell the futures to each other based on their contrarian view about the stock. And let’s say the expiry date for settlement of the futures contract is after 5 days.
- 9. Now, for the sake of understanding, suppose you were to buy a ‘futures’ of stock A for Rs 120. In this context, it is important for you to understand that in a derivative product what you actually do is take a view on future price movements and at the end of the settlement period, you reconcile based on whether your view was right or wrong. Since at no point in time the investor has to take delivery of the stock, he does not have to pay the entire price of the stock at the time of the deal. All he has to pay hence is the margin money which is a fraction of the price, say, 15% of the price which is Rs 18 in the above example.
- 10. Now to understand this better, let’s look at how the prices move in these 5 days.
- 11. Closing Price on day “One” – 122 Your buying price day “One” – 120 Your profit – Rs 2 So at the end of the day your account with your broker would get credited by Rs 2. Day 1 Rs. 2 Day 1 Credit Debit
- 12. Closing Price on day “two” – 125 Your profit as compared to the previous day is Rs 3 So at the end of day 2, your account with your broker would get credited by Rs 3. Day 2 Rs 3 Day 2 Rs. 2 Day 1 Credit Debit
- 13. Closing Price on day “Three” – 124 Your loss as compared to the previous day is Rs.1 So at the end of day 3, your account with your broker would get debited by Rs 1. Day 3 Rs.1 Day 3 Rs 3 Day 2 Rs. 2 Day 1 Credit Debit
- 14. Closing Price on day “Four” – 123 Your loss as compared to the previous day is Rs.1 So at the end of day 4, your account with your broker would get debited by Rs 1. Day 4 Rs. 1 Day 4 Rs.1 Day 3 Rs 3 Day 2 Rs. 2 Day 1 Credit Debit
- 15. Closing Price on day “Five” – 125 Your profit as compared to the previous day is Rs.2 So at the end of day 5, your account with your broker would get credited by Rs 2. Day 5 – Settlement Date Rs 2 Day 5 Rs. 1 Day 4 Rs.1 Day 3 Rs 3 Day 2 Rs. 2 Day 1 Credit Debit
- 16. Thus the effect of the 5 days leading to the settlement would be like this… Day 5 – Settlement Date So in this case the investor gained Rs 5 on settlement date. Rs 7 Rs 2 Total Rs 2 Day 5 Rs. 1 Day 4 Rs.1 Day 3 Rs 3 Day 2 Rs. 2 Day 1 Credit Debit
- 17. However since your investment was only Rs. 18 (15% margin money), you need to calculate Rs. 5 as a percentage of Rs. 18. Thus, the returns earned would be equal to 5/18 x 100 = 27% (approx.)