01 FM New

C-9
FINANCIAL MANAGEMENT
Contents C-11
Part One
: PRINCIPLES OF FINANCIAL MANAGEMENT
Scope and Objectives of Financial Management 3
Financial Statement Analysis 35
Ratio Analysis 61
Funds Flow and Economic Value Added Analysis 112
Cash Flow Analysis 144
Analysis of Operating and Financial Leverages 171
Time Value of Money
Cost of Capital 220
Capital Structure Decisions 251
202
10
Dividend and Retention Policies 295
11
Project Planning and Control 328
12
Capital Budgeting Techniques 362
13
Lease or Buy Decisions 420
14
Working Capital Planning 441
15
Inventory Management 488
16
Receivables Management 512
17
Management of Cash and Marketable Securities 545
18
Sources of Working Capital Finance 581
C-10
Financial Management
Part Two
: ADVANCED FINANCIAL MANAGEMENT
19
Financial Planning and Strategy
20
Project Cashflows Estimation 645
21
Risk Evaluation in Capital Budgeting 672
22
Capital, Debt and Stock Markets 728
23
Equity, Debt and Money Market Instruments
24
Securities Analysis and Stock Market Behaviour 847
25
Financial Services and Institutions 883
26
Depositories and Mutual Funds 919
27
Derivatives and Option Pricing Theory 952
28
Investment Management and Risk-Return Analysis 1010
29
Capital Asset Pricing Model and Modern Portfolio Theory 1042
30
Mergers and Acquisitions 1067
31
Corporate Restructuring and Industrial Sickness 1097
32
International Monetary and Financial System 1127
33
Foreign Exchange Exposure and Risk Management 1156
34
Sources of International Long-term Finance 1198
35
International Trade Finance 1228
36
Financial Management In Public Sector 1244
Abbreviations In Financial Management 1259

Answers to Multiple Choice Questions 1271
Mathematical Tables 1291
611
794
CONTENTS
Chapter 1
SCOPE AND OBJECTIVES OF
Approaches to Financial Management
Depreciation and Tax Liability
22
Depreciation and Dividend
22
Techniques of Financial Management
22
Case Study : Audited Financial Statements

of Reliance Industries Ltd.
24
Key Terms
32
32
33
Traditional View
Modern View
Investment Decisions
Review Questions
Finance Decisions
Multiple Choice Questions
Dividend Decisions
Liquidity and Profitability
Comparison with Accounting and Economics

Financial Management and Accounting
9
9
Financial Management and Economics
Financial Management - Science or Art
10
Chapter 2
FINANCIAL STATEMENT ANALYSIS
Principles of Financial Statements
Objectives of Financial Statements
Financial Management's Importance in Business 10

Significance of Financial Controller
10
Finance Manager as a Facilitator
11
Organization Chart of Finance Function
12
Reasons for Centralizing Finance Function
13
Financial Objectives of Business Firm

Profit Maximization Objective
14
Wealth Maximization Objective
14
Value Maximization Objective
15
Other Maximization Objectives
16
Risk and Return in Financial Planning
17
Costing and Risk
17
Risk-Return Trade off
18
Impact of Taxation and Inflation
18
Impact of Business Taxation
18
Personal Taxation
19
Corporate Taxation
19
Finance Manager as Tax Planner
19
Tax Shield
20
Tax Planning and Tax Avoidance
20
Impact of Inflation
20
Impact of Depreciation
21
Objectives of Depreciation Policy
21
Depreciation and Inflation
21
Depreciation and Capital Budgeting
22
Depreciation as a Source of Fund
22
Underlying Characteristics of Financial Statements
37
Qualitative Characteristics of Financial Statements
37
Constraints on Relevant and Reliable Information
38
Different Types of Financial Statements
39
Forms of Financial Statements
13
35
35
39
Income Statement
40
Horizontal Form
40
Vertical Form
41
Balance Sheet
42
Horizontal Form
43
Vertical Form
45
Vertical Form for Analysis
47
Statement of Retained Earnings
49
Limitations of Financial Statements
49
Financial Statement Analysis
50
Types of Financial Statement Analysis
50
Methods of Analyzing Financial Statements
51
Comparative Financial Statements
51
Comparative Income Statement
51
Comparative Balance Sheet
51
Common-size Financial Statements
54
Common-size Income Statement
54
Common-size Balance Sheet
54
Trend Ratios
56
Key Terms
57
Review Questions
58
59
C-11
C-12
Chapter 3
RATIO ANALYSIS
Dividend Payout Ratio
72
Dividend Yield
73
Book Value
73
62
Price Earning Ratio
73
Current Ratio
62
Market Price to Book Value Ratio
73
Quick/Liquid/Acid Test Ratio
63
Absolute Liquid/Super Quick Ratio
63
Defensive-Interval Ratio
63
Liquidity Ratios
Leverage Ratios
63
Debt-Equity Ratio
63
Shareholders Equity Ratio
64
Long-term Debt to Shareholders Networth Ratio
64
Capital Gearing Ratio
64
Fixed Assets to Long-term Funds Ratio
65
Proprietary Ratio
65
Interest Cover
65
Debt Service Coverage Ratio
65
Dividend Cover
66
Asset Management Ratios
66
Inventory Turnover Ratio
66
Inventory Ratio
66
Debtors Turnover Ratio
66
Du Pont Analysis
73
Other Aspects in Ratio Analysis
75
Importance of Ratio Analysis
75
Factors Affecting Efficacy of Ratios
75
Nonfinancial Performance Measures
76
Case Study : Ratio Analysis

78
Key Terms
87
Review Questions
89
90
Practical Problems
92
Chapter 4
FUNDS FLOW AND
ECONOMIC VALUE ADDED ANALYSIS
Identification of Funds Flow
Definition of Funds Flow Statement
112
112
Debtors Collection Period
67
Bad Debts to Sales Ratio
67
Creditors Turnover Ratio
67
Creditors Payment Period
67
Fixed Assets Turnover Ratio
67
Sources and Application of Funds
114
Total Assets Turnover Ratio
67
Changes in Working Capital Position
116
Working Capital Turnover Ratio
68
Sales to Capital Employed Ratio
68
Study : Funds Flow Analysis

68
Funds Flow Statement & Financial Statements 119
Profitability Ratios
Meaning of Fund and Flow
113
Identification of Flow of Funds
114
Preparation of Funds Flow Statement
114
Case
118
Gross Profit Margin
68
Funds Flow Statement vs. Balance Sheet
119
Net Profit Margin
69
Funds Flow Statement vs. Income Statement
119
Cash Profit Ratio
69
Benefits & Drawbacks of Funds Flow Analysis
120
Return on Total Assets
69
Return on Shareholders Funds
69
Suggestions to Improve EVA
124
Return on Capital Employed
70
Steps in Implementing EVA
124
71
Superiority of EVA
124
Materials Cost Ratio
71
Drawbacks of EVA
125
Labour Cost Ratio
71
Factory Overhead Ratio
71
Administrative Expenses Ratio
71
Selling and Distribution Expenses Ratio
71
Operating Ratio
71
Market Based Ratios
72
Operating Ratios
Earnings Per Share
72
Cash Earnings Per Share
72
Economic Value Added
Market Value Added &

Shareholders Value Analysis
123
126
Market Value Added
126
Shareholder Value Analysis
126
Key Terms
Review Questions
Practical Problems
127
128
128
130
Contents
Chapter 5
CASH FLOW ANALYSIS
AS-3 Revised Cash Flow Statement
Data Required in Preparation
of Cash Flow Statement
Reporting of Cashflows
From Operating Activities
188
Practical Problems
189
Chapter 7
TIME VALUE OF MONEY
144
147
Procedure in Preparation of Cash Flow Statement 148

148
Direct Method
148
Indirect Method
149
Case Study : Cash Flow Statement of

Reliance Industries Ltd.
150
Other Aspects
152
Other Disclosure Requirements
152
Uses and Limitations of Cash Flow Statement
152
Funds Flow Statement vs. Cash Flow Statement
153
Cash Flow Statement vs. Cash Budget
154
C-13
Calculation of Interest Rates and

Discounting of Cashflows
202
Time Value of Money
202
Simple Interest
203
Compound Interest
204
Present Value
205
Annuity
207
Amortisation
209
Sinking Fund
210
Term Structure and Interest Rates
211
Interest Rates
211
Theories on Term Structure of Interest Rates
212
Expectations Theory
213
Liquidity Preference Theory
213
Market Segmentation Theory
213
Key Terms
154
Review Questions
154
155
Yield to Maturity
213
Practical Problems
156
Factors Determining Yields
214
Yield of Stocks
215
Chapter 6
ANALYSIS OF OPERATING
AND FINANCIAL LEVERAGES
Activity Leverage
171
Operating Leverage
171
Financial Leverage
173
Impact of Financial Leverage on ROE and ROA
175
Total Leverage
176
Structural Leverage
177
Debt-Equity Ratio
177
Total Debt to Equity Ratio
177
Debt to Networth Ratio
178
Interest Cover and Income Gearing

Impact of Debt and Equity in Capital Structure
178
180
Distinction Between Debt and Equity
180
Trading on Equity
180
Flat Yield
215
Redemption Yield
215
Key Terms
215
Review Questions
216
217
Practical Problems
217
Chapter 8
COST OF CAPITAL
Cost of Equity Capital
Dividend Yield Method
221
222
Dividend Growth Model
223
Price Earning Method
224
Capital Asset Pricing Model
225
Cost of Retained Earnings
225
Opportunity Cost Approach
226
182
Rights Offer Approach
226
Gearing and Cost of Capital
183
Gearing and EPS
183
Cost of Preferred Capital
Gearing in Relation to Financial Risk
Case Study : Impact of Leverages

on New Project Proposals
184
Key Terms
187
Review Questions
188
227
Cost of Irredeemable Preference Shares
227
Cost of Redeemable Preference Shares
227
Cost of Debt
Cost of Perpetual Debt
228
229
C-14
Cost of Redeemable Debt

Cost of Deep Discount Bonds or ZCBs
Cost of Convertible Debentures
Cost of Floating Debt
229
Static Trade-off Theory
274
230
Financial Distress and Agency Costs
274
231
Pecking Order Theory
276
231
Modified Pecking Order Theory
276
232
Key Terms
277
Simple WACC
232
Review Questions
278
Market Value of Funds and WACC
233
279
WACC and Tax Shields
234

Practical Problems
280
Weighted Average Cost of Capital
Opportunity and Marginal Cost of Capital

Opportunity Cost of Capital
234
234
Opportunity Cost of Equity Funds
235
Opportunity Cost of Debt Funds
235
Marginal Cost of Capital
235
Investment Appraisal and WACC
235
Marginal Cost of Capital and WACC
236
Key Terms
237
Review Questions
237
Chapter 10
DIVIDEND AND RETENTION POLICIES
Meaning and Kinds of Dividend
295
Kinds of Dividend
296
Interim Dividend
296
Final Dividend
296
Dividend on Preference Shares
296
238
Determinants of Dividend Policy
Practical Problems
239
Dividend Policies
Chapter 9
CAPITAL STRUCTURE DECISIONS
Capital Structure : Meaning and Definition
251
295
Meaning of Dividend
296
299
Constant Dividend Payout Policy
299
Constant Dividend Rate Policy
300
Optimum Dividend Policy
301
Gordon Growth Valuation Model
302
Optimum Capital Structure
252
Assumptions
302
Factors Determining Capital Structure
253
Criticism
303
Theories on Optimum Capital Structure
255
Debt-Equity Ratio Analysis
255
EBIT-EPS Analysis
256
Financial Break-even
257
Financial Indifference Point
257
Financial and NEDC Risks Trade-off
259
Financial Risk
260
NEDC Risks
260
Net Income Approach
261
Net Operating Income Approach
262
Weighted Average Cost of Capital Approach
265
Modigliani and Miller Theory
266
Assumptions
267
No Taxation
267
Proposition I
268
Proposition II
268
Proposition III
269
Arbitrage
270
Criticism
271
Corporate Taxation
272
Personal Taxation
273
Walter's Valuation Model
304
Assumptions
304
Implications
304
Modigliani & Miller Dividend Irrelevancy Theory 305

Basic Tenets
305
Assumptions
307
Other Theories on Dividend Policy
308
Gordon and Linter's Bird in Hand Theory
308
Tax Differential Theory
309
Residual Theory
309
100% Payout Theory
309
100% Retention Theory
309
Investor Rationality Theory
309
Span of Control Theory
309
310
Bonus Shares
Purpose of Bonus Issue
310
310
Advantages and Disadvantages of Bonus Issue
311
Impact of Bonus Issue Decision
311
SEBI Guidelines on Bonus Issue
312
Contents
C-15
Key Terms
313
Network Analysis (PERT & CPM)
343
Review Questions
314
Initial Selection of Project Ideas
344
315
Feasibility Study Report
344
Practical Problems
317
Chapter 11
PROJECT PLANNING AND CONTROL
Capital Investment Process & Kinds of Projects 328
Meaning of Capital Budgeting
328
Capital Investment Process
329
Kinds of Projects
330
Classification of Projects
331
Forward and Backward Integration
331
Rationale for Diversification
332
New Concepts in Financing

and Execution of Projects
Project Organization Structure and

Management Systems
332
Market Survey
345
Invisible Walls in Project Estimating
345
Reasons for Project Failure
346
Techniques for Project Control
346
Incentives in Project Planning
347
Incentives for Export Oriented Units
347
Incentives for Units in Industrially Backward Area
347
Incentives for Small Scale Industries
347
Tax Considerations in Project Planning
348
Impact of Liberalization and Globalization
348
Strategic Focus in Project Planning
349
Micro and Macro Considerations
349
Cost and Time Overruns
350
Cost Benefit Analysis
352
333
CBA and Investment Decisions
Project Organization Structure
333
CBA Procedure
352
Benefits of Project Management
333
Techniques of CBA
353
Project Management Information Systems
334
Communication Channels
335
Use of Computers in Project Management
335
Stages in Setting up of a Project
336
Initial Selection of Project Ideas
336
Selection of Project Location
336
Selection of Project Site
337
Soil and Topography
352
Benefits and Limitations of CBA
354
Social Cost and Benefit Analysis
355
Indicators of Social Desirability of a Project
355
Economic Appraisal Techniques of Project
356
Economic Rate of Return
356
Domestic Resource Cost
356
Effective Rate of Protection
357
337
Key Terms
358
Choice of Technology
337
Review Questions
360
SWOT Analysis
338
361
Zero Date
338
Financial Closure
339
Project Viability
339
Work Breakdown Structure
339
Brown Field Project
340
Resource Levelling
340
Project Execution Plan
340
CAT and RAT Schedule
340
Line of Balance
341
Value Engineering Review
341
Risk Aware Culture
341
Project Procedure Manual
342
Time and Cost Trade-off
342
Monitoring of Capital Expenditure
342
Variance and Performance Analysis
343
Chapter 12
CAPITAL BUDGETING TECHNIQUES
Investment Appraisal Techniques
Payback Period Method
363
363
Accounting Rate of Return Method
366
Net Present Value Method
367
Internal Rate of Return Method
369
Relative Ranking of Projects : IRR vs. NPV
371
Profitability Index Method
372
Discounted Payback Period Method
373
Terminal Value Method
374
Adjusted Present Value Approach
375
Assumptions in Use of DCF Techniques
375
C-16
Capital Rationing
376
429
Factors Leading to Capital Rationing
376
430
Situations of Capital Rationing
377
Practical Problems
Use of Linear Programming in Capital Rationing
380
Impact of Inflation
382
Chapter 14
WORKING CAPITAL PLANNING
Meaning and Objectives of Working Capital
441
Synchronized and Differential Inflation
382
Money Cash Flows and Real Cash Flows
382
Meaning of Working Capital
383
Components of Working Capital
442
of Investment Incentives
385
Gross and Net Working Capital
443
Replacement or Retirement of an Asset
385
Impact of Taxation
Impact
Reasons for Replacement of an Asset
386
Appraisal of Replacement Decisions
386
Impact of Nonfinancial Factors
389
Case Study : Analysis of Decisions on

Outsourcing of a Component
390
Key Terms
392
Review Questions
393
394
Practical Problems
396
Chapter 13
LEASE OR BUY DECISIONS
Meaning and Types of Leases
441
Permanent and Temporary Working Capital
444
Positive and Negative Working Capital
445
Objectives of Working Capital Management
445
Operating Cycle Concept
446
Reasons for Prolonged Operating Cycle
449
How to Reduce Operating Cycle?
449
Working Capital Requirement
450
Factors Determining Working Capital
450
Working Capital in Seasonal Industries
452
Working Capital During Inflation
452
Working Capital in Industries with Shift Working
453
Effects of Overtrading and Under Capitalization 454

Impact of Overtrading
420
454
Impact of Under Capitalization
454
Impact of Over Capitalization
455
Symptoms of Poor Working Capital Management
455
Definition and Meaning of Lease
420
Types of Leases
421
Financial Lease
421
Operating Lease
422
Conservative Approach
Sale and Lease Back
422
Aggressive Approach
456
Leveraged Lease
422
Matching Approach
457
Sales Aid Leasing
422
Zero Working Capital Approach
457
Structure of Lease Rentals
423
Working Capital Policies
458
Effects in Financial Statements and Taxation

Effects in Financial Statements
455
455
423
Estimation of Working Capital
460
423
Working Capital Leverage
460
Tax Effects of Leasing
424
Advantages and Disadvantages of Leasing
425
Evaluation of Lease or Buy Decision
Working Capital Management Strategies
Methods of Working Capital Estimation
461
Percentage of Sales Method
461
462
426
Regression Analysis Method
Present Value Method
426
Operating Cycle Method
464
Cost of Capital Method
426
Steps in Determination of Working Capital
466
Bower-Herringer-Williamson Method
426
Approaches to Working Capital Estimation
468
Hirepurchase
Hirepurchase vs. Leasing
Key Terms
Review Questions
Key Terms
469
428
Review Questions
470
428
471
429
Practical Problems
472
427
Contents
Chapter 15
INVENTORY MANAGEMENT
Importance of Inventory Management
488
Definition of Inventory
488
Factors of Ideal Inventory Policy
489
Requirements of Stock Control
489
Inventory Control Ratios
490
Input-Output Ratio
490
Stock Turnover Ratio
490
Inventory Control Techniques
491
Economic Order Quantity
491
Graphical Determination of EOQ
492
Assumptions of EOQ
493
EOQ with Discounts
493
Fixation of Inventory Levels
494
VED Analysis
496
FNSD Analysis
496
ABC Analysis
496
C-17
Assess Credit Risk
523
Establish Effective Administration of Debtors
524
Assess Customer Creditworthiness
525
Establish Policy on Bad Debts
526
Decision Tree Analysis in Credit Granting
527
Case Study : Assessment of Creditworthiness

and Grant of Credit Limits
530
Key Terms
533
Review Questions
534
534
Practical Problems
535
Chapter 17
MANAGEMENT OF
CASH AND MARKETABLE SECURITIES
Cash Assets and Liquidity Management
545
Meaning of Cash Assets Management
545
Classification of Cashflows
546
Motives for Holding Cash
546
Cost-Benefit Analysis of Cash Management
547
Key Terms
499
Review Questions
500
Management of Liquidity
547
501
Reasons of Cash Surplus
548
Practical Problems
502
Reasons for Cashflow Problems
548
Effects of Cash Deficits
549
Methods of Improving Liquidity
549
Chapter 16
RECEIVABLES MANAGEMENT
Trade Debt
Cash Management Models
549
513
Baumol's EOQ Model of Cash Management
549
Costs of Granting Credit
513
Miller-Orr Cash Management Model
552
Costs of Denying Credit
515
Credit Terms and Cash Discount
Management of Cash Balance
554
515
Setting Cash Balance
554
Payment Terms
515
Cash Cycle
555
Steps in Evaluation of Increase in Credit Term
516
Zero Balance Account
555
Economics of Cash Discount
516
Money Market Banking
555
Steps in Evaluation of Increase in Cash Discount
517
Petty Cash Imprest System
555
Principles of Investment in Marketable Securities
555
Monitoring of Accounts Receivables
518
Sources and Types of Float
Ratio Analysis for Control of Receivables
518
Ageing Schedule
519
Meaning and Sources of Float
556
ABC Analysis of Receivables
519
Types of Float
557
Discriminate Analysis and Credit Scoring
520
Management of Float
558
Credit Utilization Report
520
Accelerating Cash Collection
558
Cost-Benefit Analysis of Collection Expenses
521
Lock Box System
558
Measuring Day's Sales in Terms of Debtors
521
Concentration Banking
559
Management of Trade Debts
522
Electronic Fund Transfer
559
Credit Control Department
522
Delaying Payments
559
Establish Credit Policy
523
Electronic Cash Management System
559
Establish Credit Standards
523
Virtual Banking
560
556
C-18
Treasury Management
561
600
Meaning of Treasury Management
561
562
Practical Problems
601
Role and Functions of Treasurer

Advantages of Centralized Treasury Management
563
Advantages of Decentralized
Treasury Management
564
Cash Management vs. Treasury Management
564
Cash Budgeting
Points to be Considered in Cash Budgeting
564
564
Methods of Cash Budgeting
565
Cash Budget vs. Profit and Loss Account
566
Cash Budget vs. Cash Flow Statement
567
Chapter 19
FINANCIAL STRATEGY AND PLANNING
Strategic Approach to Financial Management
Strategic Planning
611
611
Economic Environment of Business
613
Strategic Financial Management
614
Financial Forecasting
616
Meaning of Forecast
616
Meaning and Techniques of Financial Forecasting 616
Key Terms
567
Review Questions
568
569
External Funds Requirement
618
Practical Problems
570
Internal Growth Rate
621
Sustainable Growth Rate
622
Chapter 18
SOURCES OF WORKING CAPITAL FINANCE
Trade Credit and Bills Discounting
Terms in Trade Credit
582
583
Cost of Taking Credit
583
Management of Trade Credit
584
Bills Discounting
585
Factoring of Book Debts
585
Meaning of Factoring
585
Factoring Mechanism
585
Functions of Factor
587
Types of Factoring
587
Benefits of Factoring
588
Cost-Benefit Analysis of Factoring
589
Factoring and Financial Statements
590
Factoring vs. Bills Discounting
592
Factoring vs. Securitization
593
Working Capital Finance from Banks
593
Forms of Bank Credit
593
Maximum Permissible Bank Finance
594
Approaches to Bank Financing
596
Bank Guarantees
596
Other Sources of Working Capital Finance
597
Security for Short-term Financing
598
Pledge of Accounts Receivables
598
Charge on Inventory
598
Key Terms
599
Review Questions
600
Benefits of Financial Forecasting
Financial Forecasting Techniques
Financial Planning Process

Steps in Financial Planning Process
Decision Making & Problems Solving Process
617
618
623
624
625
Decision Making Process
625
Steps in Decision Making Process
626
Problem Solving Process
628
Financial Sector Reforms
628
Agency Theory of Employment
629
Agency Costs
629
Constituents of Agency Theory
630
Criticism of Agency Theory
630
Limited Liability Partnership
631
Meaning of LLP
632
Benefits of LLP
632
Corporate Governance
633
Definition and Meaning of Corporate Governance
633
Tests for Effective Corporate Governance
634
World Trade Organization
634
Uruguay Round and Setting up of WTO
634
General Principles and Objectives of WTO
635
Case Study 1 : V-Guard Industries Ltd. :

Massive Growth of Tiny Industry
636
Case Study 2 : National Thermal Power

Corporation: Role Model in Power Sector
638
Key Terms
642
Review Questions
643
644
Contents
Standard Deviation & Coefficient of Variation
Chapter 20
PROJECT CASHFLOWS ESTIMATION
Detailed Project Report and its Contents
Information in Project Report
Project Appraisal by Financial Institutions
645
645
648
Financial Feasibility
648
Technical Competence
649
Economic Feasibility
650
Managerial Competence
650
Project Appraisal under Inflationary Conditions
650
Restrictive Covenants in Loan Agreement
651
Cost of Project and Means of Finance
653
Cost of Project
653
Means of Finance
654
Margin Money
654
Promoters Contribution
656
Key Terms
656
Review Questions
657
657
Practical Problems
658
Chapter 21
RISK EVALUATION IN CAPITAL BUDGETING
Decision Making and Risk and Uncertainty
672
Business Risk and Financial Risk
672
Considerations of Risk and Uncertainty
673
Risk Analysis in Project Selection
674
Risk Management
675
Objectives of Risk Management
675
Steps in Risk Management Process
675
Application of Risk Management in

Project Management
675
Enterprise Risk Management
675
Probability Analysis
Best and Worst Estimates
676
678
Worst Possible and Best Possible Estimates
678
Optimistic, Most Likely and Pessimistic Approach
678
Value of Information
C-19
685
Hiller's Model for Risk Analysis
687
Certainty Equivalent Approach
687
Risk Adjusted Discount Rate
688
Project Beta
Capital Structure and Beta Values
689
689
Unlevered Firm with Single Project
690
Unlevered Firm with Multiple Projects
690
Levered Firm with Single Project
691
Levered Firm with Many Projects
692
Decision Tree Analysis

Other Risk Management Models
693
695
Uncertainty Analysis
695
Statistical Exponential Analysis
696
Computer Analysis
696
ELGI Approach
696
Commercial Astrology
696
Key Terms
697
Review Questions
698
699
Practical Problems
700
Chapter 22
CAPITAL, DEBT AND STOCK MARKETS
Fund Raising in Primary Capital Markets
729
Meaning and Kinds of Capital Market
729
Legal Framework of Indian Capital Markets
729
Securities and Exchange Board of India
731
SEBI (Disclosure and Investor Protection )

Guidelines, 2000
733
Kinds of Capital Issues
734
Methods of Issue of Stock
735
Kinds of Offer Documents for Issue of Securities
736
Free Pricing of Issues
738
Transaction Cost in Capital Market
738
Disadvantages of Floatation
739
Green Shoe Option
739
Refund of Share Application Money
739
680
Promoters
740
Value of Perfect Information
680
Lock-in Period
740
Value of Imperfect Information
680
Public Issue through On-line System
740
681
Safety Net
740
683
Alternative Investment Market
740
Sensitivity Analysis
Simulation
Fund Raising Through Rights Issues
741
Steps in Simulation
683
Advantages and Disadvantages of Simulation
683
Reasons for Rights Issue
742
Hertz Simulation Model
685
Advantages of Rights Issue
742
C-20
Valuation of Rights
742
Valuation of Share after Rights Issue
743
Employee Stock Option Plans
744
Corporatization and Demutualization

of Stock Exchanges
764
Objectives of Demutualization
764
Advantages of Demutualization
764
Distinction Between ESOs and Ordinary Options
744
Benefits and Drawbacks of ESOPs
745
Raising of Funds in Debt Markets
745
Meaning of Bought-out Deal
765
Government Debt Market
745
Advantages and Drawbacks
765
Money Market
746
Trading Systems in Debt Market
747
Intermediaries
Wholesale Debt Market of NSE
747
Book Building Process
767
Market Stabilization Scheme
748
Computation of Weighted Average Price
769
National Electronic Funds Transfer System
748
Benefits and Drawbacks of Book Building
770
E-Platform for Corporate Debt Trading
748
Net of Trades in Government Securities
748
RBI Facilities in Government Debt Market
749
RBI Measures to Control Inflation
749
Reforms in Government Securities Market
750
Corporate Bond Market
751
Stock Market Procedures and Transactions
752
Meaning and Kind of Stock Market
752
Reasons for Transactions on Secondary Market
753
Meaning of Stock Exchange
753
Services of Stock Exchanges
754
Listing of Securities on Stock Exchange
755
Advantages of Listing of Securities
755
Methods of Trading Systems on Stock Market
756
On-line Stock Market Trading
756
WAP Trading
756
Securities Lending and Short Selling
757
Securities Lending and Borrowing Scheme
757
Short Selling
757
Systems
of Trading on Stock Markets
758
Bought-out Deal
Book Building
Insider Trading
765
766
767
771
Meaning of Insider Trading
771
Disclosure Practices to Prevent Insider Trading
772
Asset Securitization
Asset Securitization Process
773
774
Parties in Asset Securitization
774
Structure of Securities
775
Forms of Asset Securitization
775
Advantages of Asset Securitization
776
Stock Split
Theories on Stock Split
777
777
Signalling Theory
777
Trading Range Theory
778
Optimal Tick Size Theory

Reverse Stock Split
778
778
Legal Provisions as to Denomination of Securities 778
Shares Buyback
779
Reasons for Buyback
779
Financing Aspects of Buyback
780
Methods of Buyback
780
Screen Based Trading System
758
Shares Repurchase Price
781
Scripless Trading
759
Impact of Buyback on Shareholding Pattern
781
Demat Trading
759
Impact of Buyback
783
Alternative Trading System
759
Benefits and Drawbacks of Buyback
783
Risk Management in Stock Markets
760
Circuit Breaker and Circuit Filter Systems
761
Nature of Transactions in Stock Market
762
Cash Market Transactions
762
Carry Forward Transactions
762
Ready Forward Transactions
762
Forward Trading
762
Rolling Settlements
763
Margin Trading
763
Key Terms
784
Review Questions
786
788
Practical Problems
789
Chapter 23
EQUITY, DEBT AND
MONEY MARKET INSTRUMENTS
Equity Market Instruments
Equity Shares
795
795
Contents
C-21
Preference Shares
795
Call Money
816
Forms of Preference Shares
796
Repurchase Agreements
816
Deferred/Founders Shares
797
Interbank Participation Certificate
817
Sweat Equity Shares
797
Bank Deposits
817
Non-voting Shares
797
Term Money
817
Tracking Stocks
798
Corporate Debentures and Bonds
817
799
Bankers Acceptance
817
Debentures
799
Commercial Bills
817
Kinds of Debentures
800
Fringe Market
818
801
Selection of Securities
818
Debt Market Instruments
Debentures and Share Capital : Distinction

Convertible Debentures
801
Valuation of Convertibles
803
Valuation of Warrants
Advantages of Warrants
818
820
804
Valuation of Bonds
820
Zero Interest Bond
804
Financial Engineering
822
Equity Warrants with NCDs
804
Meaning of Financial Engineering
822
Secured Premium Notes
805
Features of Financial Engineering
824
Deep Discount Bond
805
Zero Coupon Convertible Note
805
Step-up and Step-down Debentures
806
Hybrid Debt Instruments
Coupon Stripping
806
Debt for Equity Swap
807
Junk Bonds
807
Mezzanine Debt
807
Floating Rate Bonds
808
Multi Option Convertible Debentures
808
Callable Bond
808
Option Tender Bond
808
Guaranteed Debentures
808
Subordinate Debentures
809
Case Study 1 : Analysis of Alternatives in

Raising of Long-term Funds
824
Case Study 2 : Selection of Financing

Method of Project
827
Case Study 3 : Analysis of Different

Alternatives of Raising Long-term Finance
829
Key Terms
834
Review Questions
837
838
Practical Problems
839
Chapter 24
SECURITIES ANALYSIS
AND STOCK MARKET BEHAVIOUR
Indexed Bond
809
Inflation Adjusted Bond
809
Credit Wrapping
809
Stock Exchanges in India
847
STRIPS
809
Bombay Stock Exchange
848
Oil Bond
809
National Stock Exchange
849
Call and Put Option in Debenture Issue
809
OTC Exchange of India
850
809
Interconnected Stock Exchange of India
850
Money Market Instruments

Treasury Bills
809
Stock Market Indices
851
BSE Total Equity Market Indices
851
State Government/Public Sector/Municipality
BSE Sectoral Indices
851
Issued Securities
811
BSE Sensex
852
Commercial Paper
812
Scrip Selection Criteria in BSE Sensex
852
Forms of Commercial Paper
813
Calculation of Closing price of BSE Sensex
852
Advantages of Commercial Paper
813
Scrips in BSE Sensex
853
Certificate of Deposit
814
Standard & Poor's Indices
853
Rate of Interest on CDs
815
Scrips in S&P CNX Nifty Index
854
Bills Rediscounting
815
Classification of Scrips in BSE
854
816
Reasons for Lack of Liquidity
856
Central Government Securities
Discounted Value of Bill
810
C-22
Bull Market and Bear Market
856
Market Capitalization
856
Meaning and Need for Securities Analysis
856
Fundamental Analysis
857
Kinds of Fundamental Analysis
857
Quantitative Analysis
857
Adaptive Market Hypothesis
876
Case Study 1: Fundamental Analysis of

Allcargo Global Logistics Ltd.
877
Case Study 2 : Company Analysis of

Bharat Heavy Electricals Ltd.
878
879
Qualitative Analysis
859
Case Study 3 : Industry Analysis

of Ship Building
Macro Economic Analysis
859
Key Words
880
Industry Analysis
860
Other Aspects of Fundamental Analysis
860
Review Questions
882
Technical Analysis
861
Chapter 25
FINANCIAL SERVICES AND INSTITUTIONS
Assumptions of Technical Analysis
861
Technical Analysis vs. Fundamental Analysis
862
Dow Theory
862
New Concepts in Financing
Basic Tenets of Dow Theory
862
Loan Transfers
884
Dow Theory : Defects
863
Nonrecourse Financing
885
Chartism
863
Off-Balance Sheet Financing
885
Line Charting
864
Special Purpose Vehicles
886
Trend
864
Break-out
866
Resistance and Support Levels
866
Head and Shoulders Pattern
867
Double Top Formation
867
Distribution Patterns
868
Filter Rules
869
Advance Decline Theory
870
Short Interest Theory
870
Money Flow Index (MFI)
870
Moving Average
871
Moving Average Convergence-Divergence
871
Stochastic Oscillator
872
Block Uptick-Down Tick Ratio
872
Relative Strength Index
872
Reversal Effect
872
New High and New Lows
872
Credit Balance Theory
872
Theories on Stock Market Behaviour
873
Fisher Black's Noise Theory
873
Random Walk Hypothesis
873
Efficient Market Hypothesis
873
Forms of Stock Market Efficiency
874
Characteristics of Efficient Market
874
Assumptions of EMH
875
Individual Returns and EMH
875
Indian Stock Market and EMH
875
Fair Game Concept
875
Financial Intermediation
Banking Services
883
884
887
Universal Banking
887
Correspondent Banking
887
Retail Banking
887
Private Banking
887
Takeout Financing
887
Reverse Mortgage
888
Consortium Lending
888
Loan Participation
888
Transaction Loans
889
Bridge Loans
889
Credit Cards
889
Consumer Credit
891
Consumer Hirepurchase Business
891
CHIPS
892
SWIFT
892
Money Laundering
892
Credit Rating
Credit Rating Agencies
893
893
Types of Credit Rating
893
Benefits of Credit Rating
894
Credit Rating Process
894
Mandatory Provisions for Credit Rating
896
Bank Rating
896
Credit Rating Methodology
896
Credit Rating Symbols of CRISIL
897
Merchant Banking
898
Loan Syndication
899
Contents
Underwriting
C-23
899
Safety Features in Depository System
900
Role of Depository
924
900
Benefits from Depository System
926
Functions of Controlling Branches
900
Physical and Dematerialized Share Trading
927
Functions of Collecting Branches
900
Bank Account and Depository Account
927
Classification of Underwriting
Bankers to Issue
Mutual Funds
923
928
Share Registrars and Transfer Agents
901
Debenture Trustees
901
Stock Brokers and Sub-brokers
902
Development Financial Institutions
903
Qualified Institutional Buyers
904
Market Makers
Net Asset Value
934
904
Entry Load and Exit Load
935
Primary Dealers
Mutual Funds and SEBI
929
How to setup a Mutual Fund?
929
Parties to Mutual Fund
930
Kinds of Mutual Fund Schemes
931
904
Return on Investment
936
Securities Trading Corporation of India Ltd.
905
Criteria in Selection of Mutual Fund
938
Discount and Finance House of India
905
Custodial Services
906
Operation of Custodian
906
E-Stamping Services
907
Duties and Responsibilities of Custodians
907
Portfolio Management and

Investment Advisory Services
Venture Capital
908
909
Activities Eligible for Support
909
Stages in Venture Capital Financing
909
Forms of Financial Assistance from VC Funds
910
Types of Venture Capital Financing
911
Advantages of VC Finance
911
Venture Capital Players in India
912
Venture Leasing
912
Private Equity
Criteria for Evaluation of Investment Proposals
913
913
Exit Routes from PE Investment
914
Limited Partnership with reference to PE
914
Reasons for Growing Popularity of PE
914
Key Terms
915
Review Questions
917
Chapter 26
DEPOSITORIES AND MUTUAL FUNDS
Depositories
920
Meaning and Definition of Depositories
920
Scripless Trading System
920
Framework of Depositories in India
921
Depositories in India
921
Depository System at NSDL
921
Constituents of Depository System
922
Benefits & Drawbacks of Mutual Fund Investments 939

Ratios for Evaluation of Mutual Fund Performance
Standard Deviation
940
940
Sharpe Ratio
940
Sortino Ratio
941
Treynor Ratio
941
Other Innovative Funds
942
Ethical Funds
942
Hedge Funds
942
Sovereign Funds
943
Exchange Traded Funds
943
Gold Exchange Traded Funds
945
Pension Funds
Key Terms
945
946
Review Questions
947
Practical Problems
947
Chapter 27
DERIVATIVES AND OPTION PRICING THEORY
Meaning and Characteristics of Derivatives
953
Meaning of Derivatives
953
History of Derivatives Trading
953
Characteristics of Derivatives
954
Spot Contract and Forward Contract
954
Futures Contract
955
Types of Futures Contract
955
Forward Contract vs. Futures Contract
956
Standardized Items in Futures
957
Important Features of Futures Contract
957
Uses of Futures Contracting
957
Participants in Futures Market
958
Mechanism in Futures Contracts
958
Determination of Futures Price
958
C-24
Basis
958
Speculation in Stock Index Futures Trading
982
Contango
958
Hedging with Stock Index Futures
982
Backwardation
959
Reasons for Popularity of Stock Index Futures
982
Simple Payoff Positions in Futures
959
Criteria for Stock Market Derivatives Trading
983
Closing out of Futures Contract
960
Stock Market Derivatives Market in India
984
Simple Strategies in Futures Market
960
Individual and Index based Futures

and Options: Comparison
986
Option Contracts
961
Definition and Meaning of Option Contracts
961
Features of Options
961
Difference Between Futures and Options
962
Prerequisites of Options Markets
962
Important Terms in Options Contract
963
Call and Put Options
964
Call Option
964
Buying a Call
965
Writing a Call
965
Put Option
966
Buying a Put
966
Writing a Put
967
Factors Affecting the Pricing of Options
968
Advantages and Disadvantages of Options
969
Types of Options
969
Calendar Spread
970
Calculation of Premium on Options
971
Intrinsic Value of an Option
971
In the Money, At the Money and
Distinction Between OTC and Exchange

Traded Derivatives
987
Commodity Exchanges
987
Commodity Futures
988
Need for Regulation of

Commodity Derivatives Market
989
Swaps
991
Principal-Only Swaps
991
Interest Rate Swaps
991
Currency Swaps
991
Carry Trade Swap
991
Credit Derivatives
991
Credit Default Swap
992
Credit Spread Option
992
Total Return Swap
992
Credit Linked Notes
993
Collateralized Debt Obligations
993
Financial Derivatives
994
Weather Derivatives
995
Out of the Money Options
971
Risk Management in Derivatives
995
Time Value of Option
972
Types of Risks in Derivatives
995
Types of Covered Call
972
Risk Management Through Derivatives
996
Put-Call Ratio
972
Types of Margins in Derivatives Market
996
Open Market
972
Liquidating Option Positions
973
Marking to Market
973
Asset Pricing Models
973
Black and Scholes Option Pricing Model
974
Valuing Put Options with Black and Scholes Model 975

Assumptions of Black and Scholes Model
977
Techniques for Estimating Variability of Stock Price 977

Value Embedded Options
978
Valuing the Callable Bond
978
Stock Index Futures
978
Features of Stock Index Futures
979
Over-the Counter Market for Derivatives
980
Trading in Stock Futures
980
Pricing of Stock Index Futures Contract
980
Volatility Index of Capital Market
981
Importance of Derivatives
Case Study : Sub-prime Mortgage
Crisis in U.S.: Its Spillover Effect
997
998
Key Terms
1000
Review Questions
1002
1003
Practical Problems
1005
Chapter 28
INVESTMENT MANAGEMENT
AND RISK-RETURN ANALYSIS
Investment Strategies
1010
Asset Allocation
1011
Constant Proportion
1011
Constant Mix
1011
Rupee Cost Averaging
1012
Contents
C-25
Value Cost Averaging
1013
Capital Market Line
1056
Matrix Approach
1013
Separation Theorem
1057
Other Investment Strategies
1014
Market Portfolio
Types of Companies and Stocks
1058
1015
Key Terms
1058
Types of Companies
1015
Categorization of Stocks
1015
Review Questions
1059
Good Investment Attributes
1015
1060
Practical Problems
1062
Return and Risk of Single Asset
1016
Return of Single Asset
1016
Risk of Single Asset
1018
Return and Risk of Portfolio
1021
Return of Portfolio (Two Assets)
1021
Risk of Portfolio (Two Assets)
1022
Optimal Portfolio (Two Assets)
1024
Risk and Return of Portfolio (Three Assets)
1025
Portfolio Diversification & Minimization of Risk 1025
Chapter 30
MERGERS AND ACQUISITIONS
Kinds of Mergers and Acquisitions
1067
Objectives of M&A Deals
1068
Meaning of M&A
1068
Merger
1068
Acquisition
1068
Kinds of M&A
1068
Utility Function and Risk Taking
1026
Horizontal M&A
1068
Indifference Curves and Attitudes to Risk
1027
Vertical M&A
1069
Concept of Certainty Equivalent
1028
Conglomerate M&A
1069
1028
Other Forms of M&A
1069
Risk and Required Return

Risk Return Relationship
1029
Motives for M&A
1070
Key Terms
1030
Synergy
1070
Review Questions
1032
Strategic Motives
1071
1032
Financial Motives
1072
Practical Problems
1033
Organizational Motives
1073
Motives for Cross Border M&A
1073
Chapter 29
CAPITAL ASSET PRICING MODEL
AND MODERN PORTFOLIO THEORY
Stages in Merger Transactions
1042
1074
Steps in Merger Proposals
1074
Contents of Merger Scheme
1075
Methods of Payment in Merger Transactions
1076
Tax Planning through Merger
1077
Kinds of Takeover and Defensive Measures
1080
Classification of Risks
1043
Systematic Risk
1043
Unsystematic Risk
1044
Meaning of Takeover
1080
Assumptions of CAPM
1045
Stages of Hostile Takeover
1080
Security Market Line
1045
Kinds of Takeover
1080
Characteristic Line
1047
Defensive Measures in Hostile Takeover Bids
1081
Alpha Coefficient
1047
Preventive Measures
1081
Beta Coefficient
1047
Active Measures
1081
Risk-Return Trade-off
1051
Major Causes of M&A Failures
1082
Benefits and Limitations of CAPM
1052
Case Study 1 : Tata Steel's Takeover of

Corus and its Strategic Objective
1083
Case Study 2: Synergy in Merger of

Centurion Bank of Punjab with HDFC Bank
1086
Case Study 3: Microsoft's Takeover Bid for

Yahoo : Poison Pill Defence
1088
Arbitrage Pricing Model
1053
Modern Portfolio Theory
1053
Markowitz Mean-Variance Model
1053
Assumptions
1054
Efficient Frontier
1054
C-26
Key Words
1089
Demerger
1108
Review Questions
1090
Management Buy-In
1109
1090
Management Buy-Out
1109
Practical Problems
1090
Chapter 31
BUSINESS RESTRUCTURING
AND INDUSTRIAL SICKNESS
Knowledge Management
1097
Meaning of Knowledge
1097
Types of Knowledge
1098
Meaning of Knowledge Management
1098
Knowledge Management as a Set of Process
1098
Corporate Restructuring
1098
Need for Corporate Restructuring
1098
Meaning of Corporate Restructuring
1099
Broad Areas of Corporate Restructuring
1099
Group Reorganization
1099
Basic Reasons for Corporate Restructuring
1099
Implications of Corporate Restructuring
1100
Business Process Re-engineering
1101
Financial Restructuring and

Financial Reconstruction
1101
Financial Restructuring
1101
Steps in Financial Restructuring
1102
Financial Reconstruction
1103
Capital Reduction
1103
Corporate Restructuring Process
1103
Hardware Restructuring
1103
Software Restructuring
1104
Leverage Buy-Out
1110
Industrial Sickness
1110
Meaning of Industrial Sickness
1110
Definition of Sick Industrial Company
1111
Causes of Industrial Sickness
1111
Internal Causes
1111
External Causes
1113
Reasons for Business Failure
1114
Detection of Incipient Sickness
1114
Prediction of Sickness
1115
Univariate Models
1115
Multiple Discriminant Analysis
1116
Taffler and Tisshaw Model
1116
Argenti Score Board
1117
Principles to Avoid Failure
1117
Diagnostic Study in Revival of Sick Unit
1118
Turnaround Management
1118
Securitization And Reconstruction

of Financial Assets
1119
Securitization of Financial Assets
1119
Enforcement of Security Assets
1119
Special Features of Securities Receipts
1119
Non-performing Assets
1120
RBI's Definition of 'Non-performing Assets'
1120
RBI's Classification of NPAs
1120
Working Capital Management in Sick Industries
1121
Case Study 1: Turnaround of Whyte & Mackay 1121
1104
Case Study 2: Turnaround of

Visakhapatnam Steel Plant
1122
Mergers
1104
Takeovers
1105
Key Terms
1123
Joint Ventures
1105
Review Questions
1125
Divestitures
1106
Slump Sale
1106
Strategic Alliance
1106
Equity Carveout
1106
Franchising
1107
Intellectual Property Rights
1107
Holding Companies
Sell-off
Techniques of Corporate Restructuring
Chapter 32
INTERNATIONAL MONETARY
AND FINANCIAL SYSTEM
Foreign Exchange Market
1128
Complexity in International Business
1128
1107
Functions of Foreign Exchange

Market Participants
1128
1107
Fixed and Floating Exchange Rates
1129
Going Private
1107
Determinants of Foreign Exchange Rates
1129
Liquidation
1108
Determination of Spot and Forward Rates
1130
Takeover By Reverse Bid
1108
Direct and Indirect Quotes
1130
Reverse Merger
1108
Cross Currency Rates
1130
Contents
Bid Price and Offer Price
Spot Rate
Forward Rate
Theorems on Foreign Exchange Rate

Interest Rate Parity Theorem
C-27
1130
Cross Currency Roll-over
1166
1130
Forward Exchange Contract
1167
1131
Forward to Forward Contracts
1170
1133
Range Forwards
1171
Ratio Range Forwards
1171
1133
Purchasing Power Parity Theorem
1135
Fisher Effect
1137
International Fisher Effect
1138
Integration of IRP and PPP Theorems
1138
International Credit Instruments
1139
Telegraphic or Cable Transfers
1139
Mail Transfers
1139
Banker's Drafts and Banker's Cheques
1140
Bill of Exchange
1140
Letter of Credit
1140
International Money Orders
1140
Buying and Selling Rates
1140
Global Financial Markets
1141
Caps, Floors, Collars

and Fixed Rate Derivatives
1171
Currency Futures
1172
Currency Options
1173
Interest Rate Risk Management
1175
Forward Rate Agreement
1176
Interest Rate Caps
1176
Interest Rate Floors
1178
Interest Rate Collars
1178
Interest Rate Ceiling
1180
Swaps
1180
Currency Swaps
1180
Interest Rate Swaps
1183
Selection of Hedging Method
1186
ACU Dollar
1142
LIBOR
1142
Key Terms
1186
Capital Account Convertibility
1143
Review Questions
1188
Standard and Poor's Currency Indices
1144
1144
1189
Reforms in Forex Market
Practical Problems
1189
Case Study : Southeast Asian and

Argentine Crisis : Lessons from Crisis
1145
Key Terms
1146
Review Questions
1148
1148
Practical Problems
1150
Chapter 33
FOREIGN EXCHANGE EXPOSURE
AND RISK MANAGEMENT
Foreign Exchange Risk Exposure
Currency Exposure to Risk
Foreign Exchange Risk Management
1156
1157
1158
Benefits of Foreign Exchange Risk Management 1158

Foreign Exchange Risk Management Policy
1159
Risk Management Strategies
1159
Foreign Currency Translation Methods
1159
Hedging of Foreign Exchange Rate Risk
1161
Simple Hedging Techniques
1161
Leads and Lags
1164
Netting
1165
Arbitrage Operations
1166
Chapter 34
SOURCES OF INTERNATIONAL
LONG-TERM FINANCE
Risks Associated with Project Financing
1198
Political Risk
1198
Country Risk
1199
Economic Risk
1200
Social Risk
1200
External Risk
1200
Exchange Risk
1201
Other Risks
1201
Issue of ADRs/GDRs
1201
Salient Features of ADRs/GDRs
1202
Categories of ADR Programs
1205
Benefits of ADR/GDR Issue
1206
Comparison of ADRs and GDRs
1206
Guidelines for ADR/GDR Issues
1207
Fungibility
FCCBs and FCEBs
1208
1209
Foreign Currency Convertible Bonds
1209
Advantages and Disadvantages
1209
C-28
Documentary Credit
Taxation Aspects
1210
End Use Restriction
1210
Meaning
1234
Comparative Analysis of FCCB and GDR
1211
Conditions of Issue
1211
Procedure for Opening Letter of Credit
1235
Foreign Currency Exchangeable Bonds
1212
Conditions of Issue
1212
1234
Letter of Credit and Bank Guarantee : Distinction 1235
Export Credit And Insurance
1236
1213
Export Credit and Guarantee

Corporation of India Ltd.
1236
1213
Export Import Bank of India
1237
External Commercial Borrowings
1213
RBI Guidelines on ECBs
1214
India's Foreign Trade Data
1239
Foreign Direct Investment
1215
Bilateral Credit
1240
Special Economic Zones
1241
Key Terms
1242
Review Questions
1243
End Use Restrictions
ECBs and FDIs
Foreign Capital Markets and Instruments
1216
Euro Currency Market
1216
Foreign Domestic Capital Markets
1217
Syndicated Credits
1217
Euro bonds
1217
Multiple Currency Bonds
1218
Foreign Fonds
1218
Alpine Convertibles
1218
Europe Medium Term Notes
1219
Efficiency Audit
1245
1219
Propriety Audit
1245
Qualified Institutional Placement
1219
Budgeting and Revision of Budgets
1245
Foreign Institutional Investors
1220
Strategic Financial Planning
1246
Participatory Notes
1220
Financial Advisor
1246
1221
Working Capital Management
1247
QIBs and FIIs
Multilateral Agencies
Chapter 36
IN PUBLIC SECTOR
Accounting and Financial Reporting in PSEs
Capital Budgeting
1244
International Monetary Fund
1221
World Bank
1222
Objectives of Capital Budgeting
1247
International Development Association
1222
Public Investment Decision Process
1248
International Finance Corporation
1222
Cost-Benefit Analysis
1248
Asian Development Bank
1223
Other International Finance Sources
Financing Policy
1249
1223
Causes of Sickness
1250
All India Financial Institutions (FIIs)
1223
Greenfield Privatization
1250
Multinational Corporations
1224
Commercial Banks having

International Operations
1224
Disinvestment
1247
1251
Criteria for Privatization or Liquidation
1251
Objectives of Disinvestment
1252
Disinvestment Strategy
1252
Key Words
Review Questions
1224
1226
Disinvestment Process
1253
1227
Disinvestment Procedure
1254
Case Study : Rural Electrification Corporation:

Success Story of PSU
1254
Chapter 35
INTERNATIONAL TRADE FINANCE
Forms of Export Finance
1229
Forfaiting
1231
Mechanism of International Forfaiting
1231
Benefits of International Forfaiting
1232
International Factoring vs. International Forfaiting 1233

Counter Trade
1234
Key Terms
1256
Review Questions
1257
1257
Abbreviations in Financial Management
1259
Answers to Multiple Choice Questions
1271
Mathematical Tables
1291

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C-9

: PRINCIPLES OF FINANCIAL MANAGEMENT

Scope and Objectives of Financial Management 3

Financial Statement Analysis 35

Funds Flow and Economic Value Added Analysis 112

Cash Flow Analysis 144

Analysis of Operating and Financial Leverages 171

Time Value of Money

Cost of Capital 220

Capital Structure Decisions 251

Dividend and Retention Policies 295

Project Planning and Control 328

Capital Budgeting Techniques 362

Lease or Buy Decisions 420

Working Capital Planning 441

Inventory Management 488

Receivables Management 512

Management of Cash and Marketable Securities 545

Sources of Working Capital Finance 581

: ADVANCED FINANCIAL MANAGEMENT

Financial Planning and Strategy

Project Cashflows Estimation 645

Risk Evaluation in Capital Budgeting 672

Capital, Debt and Stock Markets 728

Equity, Debt and Money Market Instruments

Securities Analysis and Stock Market Behaviour 847

Financial Services and Institutions 883

Depositories and Mutual Funds 919

Derivatives and Option Pricing Theory 952

Investment Management and Risk-Return Analysis 1010

Capital Asset Pricing Model and Modern Portfolio Theory 1042

Mergers and Acquisitions 1067

Corporate Restructuring and Industrial Sickness 1097

International Monetary and Financial System 1127

Foreign Exchange Exposure and Risk Management 1156

Sources of International Long-term Finance 1198

International Trade Finance 1228

Financial Management In Public Sector 1244

Abbreviations In Financial Management 1259

Depreciation and Tax Liability

Depreciation and Dividend

Techniques of Financial Management

Case Study : Audited Financial Statements

Multiple Choice Questions

Liquidity and Profitability

Comparison with Accounting and Economics

Financial Management and Economics

Financial Management - Science or Art

Financial Management's Importance in Business 10

Finance Manager as a Facilitator

Organization Chart of Finance Function

Reasons for Centralizing Finance Function

Financial Objectives of Business Firm

Wealth Maximization Objective

Value Maximization Objective

Other Maximization Objectives

Risk and Return in Financial Planning

Costing and Risk

Risk-Return Trade off

Impact of Taxation and Inflation

Impact of Business Taxation

Finance Manager as Tax Planner

Tax Planning and Tax Avoidance

Objectives of Depreciation Policy