Raga -1010635 Prakruthi-1010657 Swati-1010663 Madhurya-1010671

A financial instrument is a tradable asset of any kind;

either cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument. Cash instruments are financial instruments whose value is determined directly by the markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer. Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be divided into exchange-traded derivatives and over-thecounter (OTC) derivatives.

Altering the terms of

issue in a novel way in order to achieve the predetermined purpose

 Different Type of Credit Control and Macro-

level Liquidity Management Matching Cash Flow Requirement of the Fund Raiser Satisfying other Objectives like Retaining Management Control More Effective Catering to the Needs of the Investors Better Treasury Managment

Liquidity Adjustment Facility (LAF)

{Repo and Reverse Repo} Collateralized Borrowing & Lending Obligations (CBLO) Market Stabilisation Scheme (MSS) Perpetual Bonds or Innovative Bonds

 Repo and Reverse Repo as part of LAF since

2000 Designed to form the Interest Rate Platform within which all short-term interest rates will lie Together with CRR, it has become an effective short-term liquidity management tool Needed to manage the unexpected movement of funds into and out of the country due to Hedge Funds and Others

 Introduced by CCIL in 2003 A Wider Call Money Market Participation by Pledging specified securities

with CCIL Participation by NBFCs and Corporate also apart from usual Call Money Market Players One Day or more Better Treasury Management by Corporate Better Profitability of Banks Cheaper Market than Call Money Market

 Launched in 2004 through an MOU between RBI

and the Central Government Part of a Longer Period Sterilisation of Market Managing Liquidity Problems arising out of Forex Remittances RBI to issue after consultation with Government Sale of Treasury Bills and Dated Securities through Auction Better Fiscal Accountability as they are issued against cash maintained by the Government with RBI

 Introduced in 2005
Issued by Scheduled Commercial Bankss 15 year Tenure with a Roll on forever at the

option of the Bank Part of Tier I Capital of Banks Enabling the Banks to meet Basel Norm regarding Capital Adequacy Ratio Insurance Companies are usually the investors

 Bonus Debenture Zero Coupon Bonds FCCB Multiple Option Bonds Infrastructure Bonds Commercial Paper Certificate of Deposit Forex Backed

Shares with Differential

Infrastructure Bonds

Voting Rights Bonus Preference Shares Time Share Plantation Share ADR/GDR Shares with Disproportionate Voting Rights

 Rewarding Shareholder by better Treasury

Management Hindustan Lever tried it in early 2000s Avoiding a Blown-up equity capital base Did not enthuse the investors much Concept did not catch the fancy of the market

 Interest in the form of discount on the face

value of bonds Cross Border Investment Taxation benefit Better Treasury Management since postponing the payment of interest on redemption Where convertibility alone is the consideration, saving of interest

 Provisions of FEMA
Convertibility is the cream Cross Border Investment

Gained Popularity Recently

 Reliance Industries pioneered it in India

Appealing to Different Requirements of

Investors for Income Planning Flexibility in Tax Planning of Investors Payment of Interest is staggered with varied options Became Popular and adopted for Infrastructure Bonds also

 short-term security Rated instrument Issued by listed companies Short-term source of finance for corporates Banks and other corporates invest SBI-DFHI tried to create a secondary market, but

failed Securities are held until maturity

 Banks allowed to issue COD by RBI since 1989

though US banks were issuing since 1961 Tapping large deposits of corporates and HNI Tenure is short-term for 3 months to one year Held until maturity SBI-DFHI buys the CODs No secondary market exists as SBI-DFHI is not able to accumulate sufficient CODs

 In 2009, For the First time RBI invested with a

private fund The UK Subsidiary of India Infrastructure Finance Company Ltd issued the bonds The RBI used its foreign exchange reserve to invest in the bonds Indian firms operating in foreign countries can augment the resources by issuing such bonds

 A product for the M&A era

Lesser Dilution of management control Each share carrying fraction of a vote

Share issued at a discount

Dividend is more than the dividend on the

normal shares Tata Motors issued in 2008 (one tenth of vote, 305 against 340 per share and 5% more dividend)-Gujarat NRE Coke in the same year

 In 2003, Sun Pharmaceuticals issued bonus

preference shares Better cash management Better than bonus debentures as there is no compulsion of payment of interest Did not enthuse the shareholders like the bonus equity shares Did not catch the fancy of the market

 Property sharing for a certain number of days

per year Used by Resorts in Tourist Destinations Sterling Group and a few other organisations tapped the market well Fancy ruled only for a few years

 Came out with big fanfare

Promised fantastic returns in the distant

future Many gullible investors were taken for a ride Least Liquid instrument Only a few firms have a token presence

 Instruments issued to foreign investors in lieu

of the shares deposited with a custodian in the home country Mainly to get the instruments of Instruments of Indian companies listed in foreign bourses Enhanced the image of Indian companies and added a global perspective Contributed to the volatility of Indian Market

 New Companies Bill is doing away with

shares with differential voting rights In its place, shares with superior voting rights are being proposed Helping the promoters to ward off hostile take-overs Lacking fairness

 Creating a hype
Not a proper study is made before the

introduction Complexity Complexity leads to lack of correction of wrong steps IT enabled financial system enables excesses which endanger the very survival of the firm Short term growth for higher managerial remuneration