tag:blogger.com,1999:blog-35733112523917931362024-02-20T20:21:21.484+05:00Karachi FinancialUnknownnoreply@blogger.comBlogger6125tag:blogger.com,1999:blog-3573311252391793136.post-16744677919845812812008-06-19T10:50:00.000+06:002008-06-19T10:52:52.803+06:00Analysis on Cement Sector of Pakistan focusing Lucky Cement Ltd<object codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" id="doc_531619840833658" name="doc_531619840833658" classid="clsid:d27cdb6e-ae6d-11cf-96b8-444553540000" align="middle" height="500" width="450"> <param name="movie" value="http://documents.scribd.com/ScribdViewer.swf?document_id=3282198&access_key=key-1m4pzh4pbc4awz5vnjek&page=1&version=1"> <param name="quality" value="high"> <param name="play" value="true"> <param name="loop" value="true"> <param name="scale" value="showall"> <param name="wmode" value="opaque"> <param name="devicefont" value="false"> <param name="bgcolor" value="#ffffff"> <param name="menu" value="true"> <param name="allowFullScreen" value="true"> <param name="allowScriptAccess" value="always"> <param name="salign" value=""> <embed src="http://documents.scribd.com/ScribdViewer.swf?document_id=3282198&access_key=key-1m4pzh4pbc4awz5vnjek&page=1&version=1" quality="high" pluginspage="http://www.macromedia.com/go/getflashplayer" play="true" loop="true" scale="showall" wmode="opaque" devicefont="false" bgcolor="#ffffff" name="doc_531619840833658_object" menu="true" allowfullscreen="true" allowscriptaccess="always" salign="" type="application/x-shockwave-flash" align="middle" height="500" width="450"></embed> </object><div style="font-size:10px;text-align:center;width:450"><a href="http://www.scribd.com/doc/3282198/Analysis-on-Cement-Sector-of-Pakistan-focusing-Lucky-Cement-Ltd">Analysis on Cement Sector of Pakistan focusing Lucky Cement Ltd</a> - <a href="http://www.scribd.com/upload">Upload a Document to Scribd</a></div><div style="display:none"> Read this document on Scribd: <a href="http://www.scribd.com/doc/3282198/Analysis-on-Cement-Sector-of-Pakistan-focusing-Lucky-Cement-Ltd">Analysis on Cement Sector of Pakistan focusing Lucky Cement Ltd</a> </div><div class="blogger-post-footer"><script type="text/javascript"><!--
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The investors should wait until the International community again supports Musharraf's regime and continuous there trade & investment in Pakistan.<br /></div><div align="justify"><div style="text-align: justify;"><br />On the other hand U.S. fears hit world markets & markets in Asia and Europe slump Friday, tracking losses on Wall Street overnight as investors worry about a possible end to U.S. interest rate cuts and a slowing American economy. Oil prices reached a new record high of $96.24 a barrel in electronic trading earlier Thursday. But light, sweet crude for December settled 42 cents lower to $93.07 a barrel in afternoon trade on the New York Mercantile Exchange.<br /><br />Citi shares tumbled after analysts downgraded the company's stock and added that Citigroup may have to cut its dividend in order to raise $30 billion in capital. News of the downgrade hit Citi stock and sparked fears that other major financial players were harder hit by this summer's subprime crisis than originally anticipated. Some investors worry that because the value of many of these mortgage-backed securities has not been determined, firms like Citi may have to take additional losses.<br /></div><br /><table id="AutoNumber2" style="color: rgb(17, 17, 17); border-collapse: collapse;" border="0" cellpadding="0" cellspacing="0" width="423"> <tbody> <tr> <td height="25" width="214"> <p align="center"><b><span style="font-family: Arial;">Index</span></b></p></td> <td style="padding: 0px;" align="center" height="25" width="108"><b><span style="font-family: Arial;">Value</span></b></td> <td style="padding: 0px;" align="center" height="25" width="88"><b><span class="changeup"><span style="font-family: Arial;">Change</span></span></b></td> <td style="padding: 0px;" align="center" height="25" width="67"><b><span class="changeup"><span style="font-family: Arial;">%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">DOW JONES INDUS. AVG </span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;">13,595.10</span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">27.23</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">0.20%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">S&P 500 INDEX</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;">1,509.65</span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">1.21 </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">0.08%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">NASDAQ COMPOSITE INDEX</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;">2,810.38</span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">15.55</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">0.56%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">FTSE 100 INDEX </span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(255, 0, 0); font-family: Courier;">6,530.60<span class="changedown"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">55.50</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">-0.84%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">CAC 40 INDEX</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(255, 0, 0); font-family: Courier;">5,720.42</span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">10.50 </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">-0.18%</span></span></b></td></tr> <tr> <td align="left" height="25" width="214"><b><span style="font-size: 85%;">DAX INDEX </span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(255, 0, 0); font-family: Courier;">7,849.49<span class="changedown"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">31.36</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">-0.40%</span></span></b></td></tr> <tr> <td align="left" height="25" width="214"><b><span style="font-size: 85%;">NIKKEI 225</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(255, 0, 0); font-family: Courier;">16,517.48<span class="changedown"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">352.92</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">-2.09%</span></span></b></td></tr> <tr> <td align="left" height="25" width="214"><b><span style="font-size: 85%;">HANG SENG INDEX</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(255, 0, 0); font-family: Courier;">30,468.34<span class="changedown"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">1,024.54</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(255, 0, 0); font-family: Courier;"><span class="changedown">-3.25%</span></span></b></td></tr> <tr> <td align="left" height="25" width="214"><b><span style="font-size: 85%;">BSE SENSEX 30 INDEX</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;">19,976.23</span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">251.88</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="changeup">1.28%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">GOLD 100 OZ FUT (USD/t oz.) </span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="style5">808.500</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">14.800 </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">1.86%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">SILVER FUTURE (USD/t oz.) </span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="style5">14.599</span><span class="tbl_txt_green"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">0.274</span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">1.91%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">U.S. DOLLAR vs EURO</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;">1.4498<span class="textpositive"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="textpositive">0.0092 </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="textpositive">0.64%</span></span></b></td></tr> <tr> <td height="25" width="214"><b><span style="font-size: 85%;">NYMEX CRUDE FUTURE</span></b></td> <td style="padding: 0px;" align="right" height="25" width="108"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_num">95.93</span><span class="tbl_txt_green"> </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="88"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">2.44 </span></span></b></td> <td style="padding: 0px;" align="right" height="25" width="67"><b><span style="color: rgb(0, 128, 0); font-family: Courier;"><span class="tbl_txt_green">2.61</span><span class="tbl_num">%</span></span></b></td></tr></tbody></table><br /></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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The KSE board, in its meeting held on Friday 24th Aug 07 under Chairman Shaukat Tarin, recommended the name of Adnan Afridi to the Securities and Exchange Commission of Pakistan (SECP) for its approval.<br /><br />The market seems to be very volatile in the coming week and I would recommend to start investing in valuation stock and build positions little by little and wait for market rebound (mainly after elections).<br /><br /><span style="font-weight: bold;">Recommendations</span><br />Sell on Strength: PSO, PICIC,<br />Buy on Weakness: PTC, OGDC, IGIIL, UBL, PPL, HUBCO, PGF, PIF<br /><br /><span style="font-weight: bold;">International</span><br /></div><p style="text-align: justify;"> The collapse in securities backed by subprime mortgages has caused losses at lenders around the world, helping send Asian banking stocks lower in the past month. Industrial & Commercial Bank of China Ltd., the world's largest bank by market value, said yesterday it had $1.2 billion of subprime-related securities. </p><div style="text-align: justify;"> </div><p style="text-align: justify;"> Defaults on home loans to people with poor credit have prompted a sell-off of debt-backed securities that spread to wider credit markets and wiped more than $5.5 trillion off the value of equities worldwide. </p><div style="text-align: justify;"> </div><p style="text-align: justify;"> Losses related to subprime loans damped enthusiasm for Bank of China even after it reported a 51 percent increase in first- half profit. The shares have fallen 10 percent in Hong Kong this year, the fourth-worst performance among companies on the benchmark Hang Seng index.</p><p style="text-align: justify;"><br /> </p><span class="NormalText"><strong>World Indices closing on Friday 24th Aug 07<br /><br /></strong></span> <p></p> <table style="width: 373px; height: 221px;" border="0" cellpadding="1" cellspacing="0"><tbody><tr><td width="7%"><br /></td> <td class="RightTablesHeading" align="left" valign="middle"><b>Index</b></td> <td class="RightTablesHeading" align="right" valign="middle"><b>Closing</b></td> <td class="RightTablesHeading" align="right" valign="middle" width="30%"><b>Chg% </b></td><td width="2"><br /></td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">DJIA</td> <td class="RightTables" align="right" valign="middle"> 13,378.87 </td><td class="RightTables" align="right" valign="middle"> 1.08 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">Nasdaq</td> <td class="RightTables" align="right" valign="middle"> 2,576.69 </td><td class="RightTables" align="right" valign="middle"> 1.38 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">S&P</td><td class="RightTables" align="right" valign="middle"> 1,479.37 </td><td class="RightTables" align="right" valign="middle"> 1.38 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">FTSE</td><td class="RightTables" align="right" valign="middle"> 6,220.10 </td><td class="RightTables" align="right" valign="middle"> 0.37 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_r.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">DAX</td><td class="RightTables" align="right" valign="middle"> 7,507.27 </td><td class="RightTables" align="right" valign="middle"> 0.06 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">CAC-40</td><td class="RightTables" align="right" valign="middle"> 5,569.38 </td><td class="RightTables" align="right" valign="middle"> 0.83 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_r.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">Nikkei</td><td class="RightTables" align="right" valign="middle"> 16,248.97 </td><td class="RightTables" align="right" valign="middle"> 0.40 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_r.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">H.Seng</td><td class="RightTables" align="right" valign="middle"> 22,921.89 </td><td class="RightTables" align="right" valign="middle"> 0.20 </td></tr> <tr class="RightTables"><td align="center" valign="middle"><img src="http://brecorder.com/images/arrow_g.gif" height="5" width="5" /></td> <td class="RightTables" valign="middle">Sensex</td><td class="RightTables" align="right" valign="middle"> 14,424.87 </td><td class="RightTables" align="right" valign="middle"> 1.84</td></tr></tbody></table><div class="blogger-post-footer"><script type="text/javascript"><!--
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</script></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-3573311252391793136.post-57563207052421538442007-08-09T01:58:00.000+05:002007-08-10T18:32:51.094+05:00Karachi Stock Exchange (KSE) Chaotic<div style="text-align: justify;"><div style="text-align: justify;">On the news of "Emergency" being declared in Pakistan due to internal & external threats, KSE plunged more then 600 points (the highest downward fall) but market managed to take advantage of discounted prices when President Pervez Musharraf rejected calls to declare emergency.<br /></div><ul style="text-align: justify;"><li>KSE 100 Index stood at 13181.94 down by -382.48 points.<br /></li></ul><ul style="text-align: justify;"><li>KSE 30 Index stood at 15848.71 down by -432.60 points.<br /></li></ul><ul style="text-align: justify;"><li>Market Capitalization fall by Rs. 98.275 billion.</li></ul><ul style="text-align: justify;"><li>BSE Sensex closed at 15100.15 down by -207.83 points</li></ul><ul style="text-align: justify;"><li>FTSE 100 Index stood at 6271.20 down by -122.70 points<br /></li></ul><ul style="text-align: justify;"><li>DJIA stood at 13270.68 down by -387.18 points<br /></li></ul><ul style="text-align: justify;"><li>NASDAQ stood at 2556.49 down by -56.49 points<br /></li></ul><ul style="text-align: justify;"><li>S & P 500 stood at 1453.09 down by -44.40</li></ul><ul style="text-align: justify;"><li>NIKKEI stood at 17170.60 up by +141.32<br /></li></ul><div style="text-align: justify;">The forth coming week seems to favor Bears at Karachi Stock Exchange with the cloud of uncertainty in the political environment in Pakistan. I would like to advice that don't make abrupt decisions in panic due to market volatility.<br /><br />If you have already taken position,<br /></div><ol style="text-align: justify;"><li>you should wait or try to average your positions.</li><li>you should sell out positions as prices go up and regain your positions as market further corrects itself.</li></ol><div style="text-align: justify;">For those who have squared there position either at loss or at gain, should wait for further correction in the market and should pickup positions where values seem attractive and correction sentiment seems over.<br /><br /><span style="font-weight: bold;"><u>Recommendations:</u></span> for coming week<br /><span style="font-weight: bold;"><span style="font-weight: bold;"></span></span><br /><span style="font-weight: bold;"><span style="font-weight: bold;"></span></span>Sell on Strength: PSO, PPL, POL, APL, , OGDC, MCB, NBP, ABL<br />Buy on Weakness: LUCK, PTC, UBL, IGIIL, NRL<br /><br /><div style="text-align: justify;">US Stocks also tumbled on Thursday, with the Dow and S&P down nearly 3 percent, after a French bank froze three funds that invested in U.S. subprime mortgages, prompting central banks to take steps to calm investors. Evidence the U.S. mortgage market crisis was having a global impact and spreading to other markets hammered financial stocks.<br /></div></div><span style="font-weight: bold;"><span style="font-weight: bold;"></span></span><br />Major central banks stepped in to calm the financial markets as banks scrambled for cash, with the European Central Bank injecting a record amount of liquidity to prevent the financial system from seizing up. The ECB pumped 94.8 billion euros ($130 billion) of emergency liquidity into Europe's money markets, while the Bank of Canada said it injected C$1.455 billion ($1.37 billion) into the markets to help with liquidity shortfalls. The U.S. Treasury said it was monitoring financial markets and remains vigilant.<br /><br /><br /></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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The two features of Financial Decision are that the costs & benefits are <span style="font-style: italic;">1)</span> Spread over time & <span style="font-style: italic;">2)</span> Are not know with certainty in advance.<br /><br /><span style="font-weight: bold;"><u>Benefits of Studying Finance:</u></span><br /><ul style="text-align: justify;"><li>To manage your personal resources.</li><li>To deal with the world of business.</li><li>To pursue interesting & rewarding career opportunities.</li><li>To make informed public choices as a citizen (how financial system works)<br /></li><li>To expand your mind (how the real world works)</li></ul><div style="text-align: justify;"><span style="font-weight: bold;"><u>Financial Decisions for Households:</u></span> Most households are families & face <span style="font-style: italic;">four</span> basic type of financial decisions<br /></div><ul style="text-align: justify;"><li>Consumption & Saving decisions</li><li>Investing decisions</li><li>Financing decisions<br /></li><li>Risk-Management decisions (how to reduce financial uncertainties)</li></ul><span style="font-weight: bold;"><u>Financial Decisions for Firms:</u></span> Firms are entities whose primary function is to produce goods & services<br /><ul style="text-align: justify;"><li>Capital Budgeting (deciding on acquiring long lived assets to operate business function)<br /></li><li>Capital Structure (feasible financing plan for the firm)<br /></li><li>Working Capital management (managing firms operating cash flows)</li></ul><span style="font-weight: bold;"><u>Financial Markets:</u></span><br /><br /><br /><table style="border-collapse: collapse; text-align: left; margin-left: 0px; margin-right: 0px;" id="AutoNumber2" border="0" bordercolor="#111111" cellpadding="0" cellspacing="0" height="85" width="100%"> <tbody><tr> <td align="justify" height="19"> <ol><li><b><u>Specific Contracts</u></b></li></ol> </td> <td align="justify" height="19"> <ol><li value="2"><b><u>Securities Market </u></b></li></ol> </td> </tr> <tr> <td height="1"> <ul><li>Non Transferable</li><li style="text-align: justify;">Non Negotiable</li></ul><div style="text-align: justify;"> </div><p style="text-align: justify;"> </p></td> <td style="text-align: justify;" height="1"> <ul><li>Capital Market <div></div>(a: Stock Market b: Bond Market)</li><li>Money Market</li><li>Derivatives</li></ul> </td> </tr> </tbody></table><div style="text-align: justify;"><div style="text-align: justify;"> A different classification is by the maturity of the claims being traded. The market for short term debt (less than one year) is called <span style="font-weight: bold;">Money Market</span> and the one for long-term debt & equity securities is called <span style="font-weight: bold;">Capital Market</span><br /><br /><span style="font-weight: bold;"><span style="font-style: italic;"> Money Market:</span></span> Money market instruments are mostly interest earning securities issued by Government (T-bills, Repo) & large Corporations<br /><br /><span style="font-weight: bold; font-style: italic;"> Capital Market:</span> In capital markets the total capital (bond & equity) are sold & purchased<br /><span style="font-style: italic;">Types:</span> a) Stock Market <span style="color: rgb(255, 255, 255);">...</span>b) Bond Market<br /><br /><span style="font-weight: bold;"><span style="font-style: italic;"> Derivatives:<span style="font-weight: bold;"><span style="font-style: italic;"> </span></span></span></span>Derivatives are financial instruments that drive their value from the prices of one or more other assets such as quity securities, foreign currencies or commodities. Their function is to serve as tools for managing exposures to the risk associated with the underlying assets.<br /><span style="font-style: italic;">Types:</span> a) Forward Contracts <span style="color: rgb(255, 255, 255);">...</span>b) Futures <span style="color: rgb(255, 255, 255);">...</span>c) Options<br /><div style="text-align: justify;"><br /><span style="font-weight: bold;"><u>Calculation:</u></span><br /></div><br /><span style="font-weight: bold; font-style: italic;"><u>Rate of Return in Other Currency:</u></span><br /><div style="text-align: justify;"><span><span style="font-style: italic;">Data: </span><span>Time Period = 1 year, Japanese Govt. Bond Rate = 3%, U.K Govt. Bond Rate = 9%, Exchange Rate is <span style="font-style: italic;">currently</span> 150 yen to the pound, <span style="font-style: italic;">Suppose</span> exchange rate after one year is 140 & you invest </span></span>£ 100 <span><span>in U.K Govt. Bonds.</span></span><br /></div><span><span><br /></span></span><div style="text-align: center;">Yen Rate of Return: <u>Interest Earned x Future price of ¥ - Investment<br /></u>Investment<br /></div></div><div style="text-align: center;"><br /><u>£ 109 x </u><u>¥</u><u>140 - </u><u>¥</u><u>15000<br /></u>¥15000<br /><br />= .017333 or 1.733%<br /><br /><div style="text-align: left;"><div style="text-align: justify;">Thus, your realized yen rate of return will be 1.733%, which is less than the 3% risk free yen interest rate you could have earned on one-year Japanese Bonds.<br /></div><br /><span style="font-weight: bold; font-style: italic;"><u>Rate of Return in Stock Equity:</u></span><br /><span><span style="font-style: italic;">Data: </span><span>Time Period = 1 year, Price of Share $ 100/-, One day later $ 101</span></span><span><span>/-.<br /><br /></span></span><div style="text-align: center;">Rate of Return: <u>Ending price - Beginning price<br /></u><span style="color: rgb(255, 255, 255);">...........................</span>Beginning price<br /></div><br /><div style="text-align: center;"><u>$ 101</u><span style="text-decoration: underline;"> - $ 100</span><br />$ 100<br /><br />= .01 or 1.0%<br /></div><br /><div style="text-align: justify;">Thus, your rate of return for the day is 1% & capital gain is of $ 1/-<br /><br /><span style="font-style: italic;">Suppose</span> you hold the stock for a year & at the end stock pays a dividend of $ 5/- and the price is $ 105/-<br /><br /></div><div style="text-align: center;"><span><span><br /></span></span> <div style="text-align: center;">Rate of Return: <u>Ending price - Beginning price + Cash Dividend<br /></u><span style="color: rgb(255, 255, 255);">...........................</span>Beginning price<br /></div><br /><div style="text-align: center;"><u>$ 105</u><span style="text-decoration: underline;"> - $ 100 + $ 5</span><br />$ 105<br />= .10 or 10.0%<br /><br /><div style="text-align: left;"><span style="font-weight: bold;"><u><span style="font-style: italic;">Inflation & Real Interest Rate:</span></u><span style="font-weight: bold;"><br /></span></span>To correct the effects of inflation, economists distinguish between<br /><ul><li><span style="font-weight: bold;">Nominal Price:</span> Prices in terms of some currency</li><li><span style="font-weight: bold;">Real Prices:</span> Prices in terms of purchasing power over goods & services</li></ul> <span><span style="font-style: italic;">Data: </span>Rate of Interest = 8%, Inflation = 5%<br /><br /></span> <div style="text-align: center;">Real Rate: <u>Nominal Interest Rate - Rate of Inflation<br /></u><span style="color: rgb(255, 255, 255);">.................</span>1 + Rate of Inflation<br /></div><br /><div style="text-align: center;"><u>0.08</u><span style="text-decoration: underline;"> - 0.05 </span><br />1.05<br />= 0.02857 or 2.857%<br /><div style="text-align: left;"><br /><span style="font-weight: bold; font-style: italic;"><u>Stock Market Index:</u></span><br /></div><div style="text-align: left;"><div style="text-align: justify;">Dow Jones Industrial Index (DJI) is the most cited stock index which is the index of prices of 30 stocks of major U.S Industrial Corporations but it has two major problems.<br /></div><ol style="text-align: justify;"><li>It is not diversified enough to accurately reflect the wide spectrum in the U.S.</li><li>It corresponds to a portfolio strategy that is not suitable as a performance benchmark</li></ol><div style="text-align: justify;">Therefore, most professional investors prefer to use other indexes like the Standard & Poor's 500 (S & P 500)<br /></div><br /><span style="font-style: italic;"><u>Illustration</u></span><u><br /></u><br /><table style="border-collapse: collapse; border-left-width: 0pt; border-bottom-width: 0pt;" id="AutoNumber2" border="1" bordercolor="#111111" cellpadding="0" cellspacing="0" height="202" width="100%"> <tbody><tr> <td rowspan="2" style="border-style: solid; border-width: 1px; border-left: 1px solid rgb(17, 17, 17);" align="center" height="51" width="116"> <u><b>Company</b></u></td> <td rowspan="2" style="border-style: solid; border-width: 1px;" align="center" height="51" width="116"> <u><b>Base Year</b></u></td> <td rowspan="2" style="border-style: solid; border-width: 1px;" align="center" height="51" width="115"> <u><b>Now</b></u></td> <td rowspan="2" style="border-style: solid; border-width: 1px;" align="center" height="51" width="116"> <b><u>No. of Shares</u></b></td> <td colspan="2" style="border-style: solid; border-width: 1px;" align="center" height="26" width="231"> <u><b>Market Value</b></u></td> </tr> <tr> <td style="border-right-style: solid; border-right-width: 1px; border-top-style: solid; border-top-width: 1px; border-bottom-style: solid; border-bottom-width: 1px;" align="center" height="25" width="116"> <u><b>Base Year</b></u></td> <td style="border-style: solid; border-width: 1px;" align="center" height="25" width="115"> <u><b>Now</b></u></td> </tr> <tr> <td style="border-style: solid; border-width: 1px; border-left: 1px solid rgb(17, 17, 17);" align="center" height="57" width="116"> IBM<p>DEC</p></td> <td style="border-style: solid; border-width: 1px;" align="center" height="57" width="116"> $ 100<p>$ 50</p></td> <td style="border-style: solid; border-width: 1px;" align="center" height="57" width="115"> $ 50<p>$ 110</p></td> <td style="border-left-style: solid; border-left-width: 1px; border-right-style: solid; border-right-width: 1px; border-top-style: solid; border-top-width: 1px;" align="center" height="57" width="116"> 200 million<p>100 million</p></td> <td style="border-style: solid; border-width: 1px;" align="center" height="57" width="116"> $ 20 billion<p>$ 5 billion</p></td> <td style="border-style: solid; border-width: 1px;" align="center" height="57" width="115"> $ 10 billion<p>$ 11 billion</p></td> </tr> <tr> <td style="border-left-style: none; border-left-width: medium; border-right-style: none; border-right-width: medium; border-bottom-style: none; border-bottom-width: medium;" colspan="3" rowspan="2" align="center" height="94" width="347"><br /></td> <td style="border-left-style: solid; border-left-width: 1px; border-right-style: solid; border-right-width: 1px; border-bottom-style: solid; border-bottom-width: 1px;" align="center" height="52" width="116"> Total</td> <td style="border-style: solid; border-width: 1px;" align="center" height="52" width="116"> $ 25 billion</td> <td style="border-style: solid; border-width: 1px;" align="center" height="52" width="115"> $21 billion</td> </tr> <tr> <td style="border-style: solid; border-width: 1px; border-bottom: 1px solid rgb(17, 17, 17);" align="center" height="42" width="116"> Weight</td> <td style="border-style: solid; border-width: 1px; border-bottom: 1px solid rgb(17, 17, 17);" align="center" height="42" width="116"> 20 / 25 = 0.8<p>5 / 25 = 0.2</p></td> <td style="border-style: solid; border-width: 1px; border-bottom: 1px solid rgb(17, 17, 17);" align="center" height="42" width="115"> Decline of<br /><u>25-21<br /></u>25<br />= 0.16 or 16%</td> </tr> </tbody></table><br /><br /><br /><div style="text-align: justify;"><div style="text-align: center;"><span style="font-weight: bold;">DJI - Type Index</span> = <u>Avg. of Current Stock Price</u> x 100<br /></div><div style="text-align: center;"><span style="color: rgb(255, 255, 255);">............................</span>Avg. of Base year Stock Prices<br /><br /><span style="color: rgb(255, 255, 255);">........................</span><u>($ 50 + $ 100) / 2</u> x 100<br /><span style="color: rgb(255, 255, 255);">................</span>($ 100 + $ 50) / 2<br /><br />= 106.67 or increase of 6.67%<br /><br /><div style="text-align: center;"><br /></div><span style="font-weight: bold;">S & P - Type Index</span> = (Weight of IBM x <span style="text-decoration: underline;">Current Price of IBM</span><br /><div style="text-align: center;"><span style="color: rgb(255, 255, 255);">....................................</span><span style="color: rgb(255, 255, 255);">.............................</span>Base year Stock Prices<br /><span style="color: rgb(255, 255, 255);">.......<span style="color: rgb(0, 0, 0);">+</span>.....</span>Weight of IBM x <span style="text-decoration: underline;">Current Price of DEC</span><br /><span style="color: rgb(255, 255, 255);">....................................</span><span style="color: rgb(255, 255, 255);">..............</span>Avg. of Base year Stock Prices) x100<br />(0.8 x 0.5 + 0.2 x 2.2) x 100<br /><span style="color: rgb(255, 255, 255);">.............L..........</span><br />= 0.84 or 84%, a decrease of 16%<br /><br /></div><div style="text-align: left;">Thus, the index shows a 16% decline, which accurately reflects the total market value of the all Stocks<br /></div><br /></div></div></div></div></div></div></div></div></div></div></div><div class="blogger-post-footer"><script type="text/javascript"><!--
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