Corporate Action

                                        When any public company issued some securities and it initiate an even regarding that securities is called Corporate Action. Dividend is one of the types of CA.
The primary reasons for CA
• Return profit to the shareholders
• Influences the share prices
• Corporate restructuring-
Ways of announcing CA
Dividend: Here dividend is the classical example to CA. Company will distribute the profit to the entire share holder. Equity price in the secondary market get adjust because of this CA but as point of the company it is positive sentiment in the secondary market for their equity.
Bonus: company performs well and they want to share the profit to the share holders in the form equity. Equity price will adjust in the market because of this CA but company prospective liquidity will increase in the secondary market. There is an issue here, some share holder are not qualified to take the bonus so they will accrue the loss.
Stock splitting: increase or decrease the number of shares in the market to increase or decrease the price of the stock market
Spinoffs: Are an example of a corporate action where a company breaks itself up in order to focus on its core competencies.                                                                                                                                    
      Following List shows how many ways of announcing CA

• Cash Dividend,
• Optional Dividend,
• Stock Dividend,
•  Stock Split,
• Spin Off,
•  Acquisition,
•  Rights Offering,
•  Debt Redemption,
•  Bonds Exchange,
•  Bankrupts,
• Debt Repurchase,
• Reclassification,
• Buyback Offer,
• Pay in Kind.

An Option -One of The Derivative

An option is a contract to buy or sell a specific financial product officially known as the option's underlying instrument or underlying interest.It has an expiration date. When an option expires, it no longer has value and no longer exists.
Options come in two varieties, calls and puts, and you can buy or sell either type.
Buying and Selling
If you buy a call, you have the right to buy the underlying instrument at the strike price on or before the expiration date. If you buy a put, you have the right to sell the underlying instrument on or before expiration. In either case, as the option holder, you also have the right to sell the option to another buyer during its term or to let it expire worthless.

When you sell a call as an opening transaction, you're obligated to sell the underlying interest at the strike price, if you're assigned. When you sell a put as an opening transaction, you're obligated to buy the underlying interest, if assigned.
At a Premium
When you buy an option, the purchase price is called the premium. If you sell, the premium is the amount you receive. The premium isn't fixed and changes constantly - so the premium you pay today is likely to be higher or lower than the premium yesterday or tomorrow.

Investment Banking

Raising the capital to the Corporation or Government by underwriting and acting as agent in the issuance of the securities.it also assists companies involved in mergers and acquisitions, divestitures.
An investment Bank is spited into so called Front-office ,middle office and Back Office.
Front-Office deals the sales and trading,research on the market
Middle-Office deals with the Risk Management,Corporate Treasury ,Financial Control and Corporate sategy
Back-Office deals with the Operation and technologies
                  For Corporations investment bankers offers when and how to place their investments in the market .Investment Bank mainly to satisfy both issuers and investor.Here investors are expecting the high returns on their investments .In other side Issuers are expecting more capital with lowest interest rates for a long time.

Forex Markets - Trade Life Cycle

Trading Position
1.When you buy / sell a currency , you are said to hold a Position
2.Position denotes your size of holding in that currency
3.When you buy – “going long or overbought”
4.When you sell – “going short or oversold”
5.If you have no position – “ being square”
FORWARD CONTRACT :
A contractual commitment to buy or sell a specified amount of
foreign exchange for a specified price (forward exchange rate )
at a specified future date (maturity of contract ).
Premium/ Discount :
.Forward exchange rates can be higher or lower than the applicable spot rate.
.The difference between spot rate and forward rate is called ‘swap premium or discount’
.If the base currency interest rate is higher – discount – forward rate is lower
.If the base currency interest rate is lower – premium – forward rate is higher
What is a Swap?
1 Exchange of two currencies and their re-exchange later
2 A swap is a lending and borrowing transaction achieved through the foreign exchange market.
3 Instead of lending(borrowing) and borrowing(lending), we just sell(buy) and buy(sell) in the forex market.
Different Financial Markets
Listed Market –
. Exchanges where an Auction method is used at a physical location. (e.g.) The New York Stock Exchange (NYSE)
. Exchanges where trade execution is automated using Order Matching Systems
. All the exchanges are registered with the SEC / SEBI.
. e.g. stock markets
Over-the-Counter Market (OTC, Unlisted) –
. A negotiated market without a physical location where transactions are done via telecommunications.
. e.g. Currency markets
OTC Markets
. Currency Markets are traded entirely OTC
. OTC price information is either published periodically in paper form, disseminated over telephone lines, or displayed real-time electronically

short selling

short selling (also known as shorting or going short) is the practice of selling assets, usually securities that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender (expecting a bearish market)

short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than the seller received on selling them
Naked Short selling
Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale.

The transaction generally remains open until the shares are acquired by the seller, or the seller's broker, allowing the trade to be settled. If it is not settled the trade is considered to have “failed to deliver”
Mechanism of short selling..
1.The investor instructs the broker to sell the shares and the proceeds are credited to his broker's account.
2.Upon completion of the sale, the investor has 3 days (in the US) to borrow the shares. If required by law, the investor first ensures that cash or equity is on deposit with his brokerage firm as collateral for the initial short margin requirement
3.The investor may close the position by buying back the shares (called covering). If the price has dropped, he makes a profit. If the stock advanced, he takes a loss.
4.Finally, the investor may return the shares to the lender or stay short indefinitely.
5.At any time, the lender may call for the return of his shares e.g. because he wants to sell them. The borrower must buy shares on the market and return them to the lender (or he must borrow the shares from elsewhere). This is called ‘called away’ This happens when many people short sells a particular security

Hedge Accounting

A method of accounting where entries for the ownership of a security and the opposing hedge are treated as one. Hedge accounting attempts to reduce the volatility created by the repeated adjustment of a financial instrument's value, known as marking to market. This reduced volatility is done by combining the instrument and the hedge as one entry, which offsets the opposing movements.

Hedge accounting modifies the usual accounting treatment of a hedging instrument and/or a hedged item to enable gains and losses on the hedging instrument to be recognised in the income statement in the same period as offsetting losses and gains on the hedged item. This is a matching concept. A pre-requisite for hedge accounting is that a hedging instrument, normally a derivative, is designated as an offset to changes in the fair value or cash flows of a hedged item.

Why hedging and hedging accounting
1.Most business activity involves risks and uncertainties, and it is necessary of elaborating effective financial strategies in order to manage these risks and uncertainties.
2.One way in which this can be done is to enter into transactions that expose the entity to risk and uncertainty that fully or partially offsets one or more of the entity’s other risks and uncertainties, transactions known as ‘hedges’.
3.The instrument acquired to offset risk or uncertainty is known as ‘hedging instrument’ and the risk or uncertainty hedged is known as ‘hedged item’.
4.When certain criteria are met, International Accounting Standard (IAS) 39 “Financial instruments: Recognition and Measurement” permits entities to apply special accounting treatment, so-called ‘hedge accounting‘.
Types of Hedge Accounting
1.Cash flow Hedging
2.Fair Value Hedging
3.Hedge of a Net Investment

Electronic Clearing System

Coverage
Bulk payment transaction like periodic payments defined as “User”

The transactions to move from a single User source to a large number of Destination Account Holders

The credit instructions from the User to the Destination Account Holders would be on media (tape/floppy/CD/pen drive) and would form the basis for the Sponsor Bank to debit the User’s account and the Destination Bank branches to credit the beneficiaries' Accounts

Such other payment transactions involving a single debit to a User’s account at one bank and multiple credits to a large number of beneficiaries at many banks to be specified by National Clearing Cell (NCC) / Clearing House (CH) after ascertaining the level of infrastructure available at the Service/Main branches of member banks.

ECS Process Cycle
1.Guidelines for Input Preparation and Input Submission ( User Institution -> Sponsor Bank -> Clearing House) )
2.Record layout of inward data for destination banks ( Clearing House -> Destination Banks)
3.Record layout of return data ( Destination Banks -> Clearing house)
4.Record layout of Final Output Data after return processing (Clearing House -> Sponsor Bank -> User Institution)


Return of processed output
If a Destination Bank branch is not in a position to credit a particular transaction for reasons like “Account closed/transferred”, “No such Accounts”, “Account description does not tally”, etc., it should report the same with a Return Memo . The same would be forwarded to its Service Branch/Main Branch on day-1