Module-1 Investments Assignment for EMBA-IV, 2021

Max Marks=25

1. Name 5 Global Stock Exchanges outside India.

Ans:
1. New York Stock Exchange ( NYSE)
2. NASDAQ
3. Shanghai Stock Exchange
4. Hong Kong Stock Exchange
5. Shenzhen Stock Exchange

2. Which are the parties involved in the issue of shares in the stock market?

Ans:

The important parties involved in the issue of shares in the stock market

 Mangers to the issue: The issuing company first appoints the managers to
manage the activities related to the new issue of shares. A division led by
merchant bankers, a subsidiary of commercial banks, is competent to act as
managers to the issue. Such as

Drafting of prospectus
Preparing budgeted expenses related to the new issue
Determining the appropriate time of the issue
Advising the company relating to the appointment of registrars, underwriters,
brokers, bankers to the issue, advertising agencies

 Registrar to the issue

After consulting with the lead managers, the company would appoint a registrar
concerning the issue. The same would be made Based on the SEBI guideline laid
down relating to the appointment. Those companies with competency and
expertise, workforce, and infrastructure can appoint a registrar for the new issue
—the registrar's appointment is basically with the allotment of securities.

 Underwriters

Underwriting is a type of contract in which the underwriter guarantees a

subscription to the new issue of shares. Underwriters would be financial
institutions, banks, and approved investment companies.
While appointing an underwriter, the issuing company considers their financial
strength, decent track record in the issuance of share in the primary market, past
underwriting performance, outstanding underwriting commitment, investor
clientele, etc.
 Post closure of subscription, the company furnishes the details of shares that are
yet to be subscribed to the underwriter. They would take up the agreed portion
of the shares. If they fail to do so, the company may claim damages from the
underwriter for any loss suffered during the process.

 BANKERS

The role of Investment bankers in connection with the issue is vital. They have
been assigned the responsibility to collect application money along with
application forms. They would also charge a commission or fee for the service
rendered or performed by the issuing company.

 Advertising agencies

Advertising plays a vital role in promoting the new issue of share. Before
selecting an advertising company or agency, the company will look into the
competency & the record of the advertising agency. Based on these factors, a
company would consider the appointment of an advertising agency, Further,
they will scrutinize the provisional estimate of advertising agency cost before
choosing an agency. Eventually, they would appoint a suitable agency after
consulting with the lead managers concerning with issue of shares
Advertising agencies provided publicity at the time of issue or going to the public
first time through media such as newspapers, magazines, bill boards, television,
etc.

3. Differentiate between capital and money market securities. Explain the

commonly available money market securities.
Ans:

Money market is where short-term instruments maturing within a period of one

year are traded.
Financial instruments such as treasury bills, commercial papers, call money,
certificate deposits, etc. are dealt here.
It is a wholesale market and the participants are large institutional investors,
commercial banks, mutual funds, and corporate bodies.

Capital market deals with longer maturity financial assets and claims.

Financial instruments being dealt here are shares (equity as well as preference),
debentures, public sector bonds and units of mutual funds.
Small individual investors can deal by sale or purchase of shares, debentures or
mutual funds units.
4. The aggressive investor buys more of
a) money market instruments
b) gold
c) equity shares
d) Options and futures
Ans : Equity Shares. Because Aggressive investors who are willing to take on
investment risk and understand what is crucial to generating long term return. Before
investing in equity shares, investors adopt aggressive investment strategy which they
believe high risk, high reward approach towards investing.

5) Infosys stock is trading at a price of Rs.1000. Nikhila instructs her stock broker
to execute the trade if stock touches Rs.950.
Nikhila bought a share of Infosys at ₹950 and holds for a year and gets a dividend of ₹
50. She expects at least 20% return on her investment so at what price she should sell
the share?

Ans:

Nominal value of share = 1000

Market value of share = 950
Dividend = 50
Expected return on investment = 20% of 950 = 190
Expected selling price to earn 20% return = 950+190-50 = 1090

6) What is investment and what are the characteristics of investments?

Investment is the act of deployment of money out of savings into financial or non-
financial products with the expectation of earning higher returns over a period of time,
for e.g. financial products viz Fixed deposit (FD) in bank, buying shares in Stock market,
investing in Mutual funds etc. and non-financial products viz purchase of land, gold
silver etc. The period for investment can be short, medium or long term. It is normal for
returns investment to rise or fall over time.

Characteristics of investment

Capital growth- Investing helps to increase the capital. When the industry to company
belongs is sound, then your investment will also flourish with high income.
Tax implications- Tax implied on securities should be taken seriously. Large investors do
not consider it that important, whereas small investors cautious about their investment may
find it tax heavy.
Purchasing power- Investment is the employment of funds to earn a return or capital gain. In
other words, current funds are invested to earn more significant amounts of future funds. So,
the investor should consider the purchasing power of future funds. To maintain the stability
of purchasing power, the investor should analyze the expected price level inflation and the
possibilities of gains and losses in the investment available to them.
Legality- Securities that you are investing in should be approved by law; they should be
legal. Seek proper knowledge before investing otherwise;, you may lead to trouble.
Liquidity- Liquid funds or stocks means that can easily convert into cash. Liquid investments
help investors meet emergencies. A portfolio of liquid investments enables the investors to
raise funds through the sale of liquid securities or borrowing by offering them collateral
security.

Safety- Safety is essential as people invest their hard-earned money, which requires proper
security. The company you are investing in should be sound enough, and the broker you are
making investments through should be reliable.

7) What is the difference between Investment and speculation?

Investment Speculation
1. The speculation involves taking risky
1. Investment is the purchase of an
positions in the market, usually against the
asset or security with an aim to
market, and expecting to earn substantial
generate stable and expected returns
returns
2. Timeline of investments is long
2. Speculation is short term in nature
term in nature
3. Nature of risks involved in
3. The speculation involves high to extremely
investments varies from extremely
high levels of risks
low to moderate
4. Investors usually use their own 4. Speculators tend to use a lot of leverage,
funds for investments and hence use borrowed funds
5. Investment is a prerogative of 5. Speculators tend to be careless and
cautious and conservative investors extremely aggressive in their positions
6. Investment involves a lot of study
6. The speculation involves technical analysis
into the fundaments and the market
and is much more based on behavioural
economics related to the particular
analysis and individual opinions
stock or commodity or asset

8) What are the factors influencing risk? Write types of risk?

There are several different kinds or risk, including investment risk, market risk, inflation risk,
Business risk, liquidity risk etc.
There are four main factors that influence risk:
 The size of the sale.
 The number of people who will be affected by the buying decision.
 The length of life of the product. ...
 The customer's unfamiliarity with you, your company, and your product or service
9) Sibani'sVenture returns for the last 5 years are as below calculate the
Arithmetic mean and Geometric mean?
Return
Year s (%)
2016 17.2
2015 23.6
2014 -3.1
2013 8.4
2012 -12.5

Arithmetic Mean = (17.2+23.6+ (-3.1) +8.4+ (-12.5)

5
= 6.72 %

Geometric Mean = [(1+17.2%)*(1+23.6%)*(1+ (-3.1%)*(1+8.4%)*(1+ (-12.5)] ^

(1/5)-1
= 5.89%

10. Prepare the balance sheet of Indian commercial bank as on 31 March 2016
clearly classifying the Real and financial assets along with the weightage of each
component also calculate the net worth.

RBIfunds and repurchase

agreements 72,68,913.10
Investment securities 31,818,951.50
7,63,21,445.1
Loans and Leases 0
cash 92,91,000.10
netto
Solution fixed
theassets
question no 10 11,30,412.20
4,22,29,608.5
other assets 0
Assets Amount (Rs) % 7,77,81,449.7
Liablities Amount (Rs) %
Deposits
Real Assets 0
2,76,14,096.1
RBI Funds &
Borrowed
Net Fixed funds 0 Repurchase
assets 11,30,413 1% agreements 72,68,913
Deposits 7,77,81,450
Borrowed funds 2,76,14,096 70%
Financial
Assets
 Net worth 4,81,26,959 30%
Cash 92,91,000
Investment
securities 3,18,18,952
73%
loans and
leases 7,63,21,445
other assets 4,22,29,609 26%
16,07,91,41 16,07,91,41
Total Assets 8 100% 8 100%