Financial Markets

Financial Markets — No Comments
27
Nov 11

FDI in Retail

Government of India has opened up the retail sector of India to the world by allowing FDI in retail. Now the basic question is what does FDI in retail mean, well in simple words FDI in retail refers to opening of retail sector to foreign investors. Now foreign companies will able to set up and invest into retail market of India, and one would be soon seeing international retail giants like Wal-Mart coming to Indian retail market.

FDI in retail will be helpful for domestic retail companies also and the first questions which come to investors was which companies will get benefit out of FDI in retail and that is the reason why some of the retail stocks like Pantaloon, Provogue, Koutons, Vishal Retail saw buying by investors and they rose close to 15 to 25 percent since the news of FDI in retail was made public. It’s still not certain whether these companies will get substantial benefit out of this news; still it is positive news for retail sector as a whole.

There has been lot of opposition in India due to FDI in retail both from political parties and also from small retail shop owners and their point of contention is that in the long run FDI in retail will be detrimental to all whether its farmers, small shop owners or ultimate consumers. Whether government is correct or the people who are opposing it only time will tell because it has both advantages and disadvantages and it is difficult to know at this point whether it’s a good or bad because every country is different and it is not necessary that thing which was successful or unsuccessful in other countries would meet the same fate in this economy.

Financial Markets — No Comments
5
Oct 11

What is Effective Annual Interest Rate

Interest rate is generally expressed yearly that means if for example rate of interest on loan of $10000 is 12 percent then it would imply that interest on loan would be $1200. However in some transactions interest is payable quarterly or monthly and that is where effective annual interest rate comes into play.

Effective annual interest rate is the rate which takes into account the effect of compounding, which is when the interest has to be paid more than 1 time in a year. It can be calculated by the following formula

(1+ I/n)ⁿ – 1

Where I – Interest rate

N – Number of times interest has to be paid in a year

Now suppose the interval for payment of interest is quarterly or 4 times in a year and interest rate is 12 percent then putting the figures in above formula (I is .12 and N is 4) effective annual interest rate will be 12.55 percent and not 12 percent.

Financial Markets — No Comments
29
Sep 11

Causes of Financial Crisis

Financial crisis has been in limelight for too long right from the start of year 2008 when there was sub-prime mortgage crisis in the USA and now even bigger financial crisis is looming over the world in the form of euro zone crisis which is essentially a debt crisis and right steps are not taken it can lead to bankruptcy of one or two European nations. Financial crisis do not happen overnight but rather there are some reasons or causes due to which they happen, given below are some of the causes of financial crisis –

The root cause behind financial crisis is the nature of human being which implies in today’s world all want to earn quick money and have become greedy which leads to some irrational behavior by such individuals and it all comes back to haunt them in the form of financial crisis.
Another reason behind financial crisis is the presence of too much debt, both at individual and company level which implies that people or companies tend to spend more than they earn which in turn leads to mounting debts and eventually results in such crisis like situations.
Presence of speculators and hedge funds is another reason; they tend to push the prices of all assets classes whether its commodities real estate or stocks to such an extent which are not sustainable and finally it tend to blow up leading to financial crisis.
Financial crisis used to happen 50 years back also but the present financial crises are much bigger and one of the reasons behind it is the presence of structured products like derivatives and swaps.
With many countries spending majority of their money on defense and military, the governments all over the world do not have enough resources to reduce the effect of such financial crisis.

Financial Markets — No Comments
26
Sep 11

How to Get Out of Debt

Debt sounds like death and in times of high interest rates it has the same effect. Debt is like a slow poison which kills you gradually and if you do not pay attention to it, in the end the result of it can be catastrophic. Before knowing how to get out of debt one must know what is debt, well Debt refers to that borrowing on which a person has to pay interest regularly and on maturity of debt you have to pay principal amount to the creditor.

Debt is a vicious circle and if you are one of those who is trapped in it than to get out of that vicious circle you need to be fully prepared to follow strict finance discipline. Given below are some of the steps which help you in getting out of debt easily –

The first and foremost step is to pay the installments on time and include more principal amount in installment and less interest because people keep paying interest without thinking about repaying principal amount which results in principal loan being intact and therefor the period of loan gets extended.
You should avoid unnecessary expenditure and divert that money towards settling of debt because your holidays, expensive cars and other such things can wait. It is always better to settle the debt and then go for such extravagant expenditure because when you are in debt you will not enjoy all this luxury things because at the back of your mind there will be always that thought that I have to repay my debt.
One should try to increase the sources of his or her income so that debt can be repaid easily and quickly. However it does not mean that you resort to unethical ways of earning money but one can certainly improvise it. For example if you have bought a home by taking home loan and rent is higher in that area than one can give his or her house on rent for 2 or 3 years and move to other area where rent is low, by doing so you can use that money to repay your loan.
One should never take another loan if you are already having one because it will only compound the problem and you will find yourself in debt till you die. The right way is to pay first loan and then if you want than you can take the second loan.
If you are one of those who have 2 or 3 loans than you should plan the repayment in such a way that debt which is having highest interest rate should be paid first and then other loans should be paid.

Well above steps can help you in getting out of debt, but the best advice one can give to anybody is if you are one those who do not want to earn for banks or credit companies but for yourself than stay away from debt unless it is a situation where debt is the only option.

Financial Markets — No Comments
15
Jul 11

Types of Shares

A share in stock market refers to individual units which are sold by the company to its shareholders so that they can be part of the profits of the company. Shares can be of many types, given below are the various types of shares which are issued by the company -

Equity Shares – Equity shares are the most popular type of shares, equity shares are those shares which give the shareholder a part in the profits of company in the form of dividend and capital appreciation. Equity shares are the most risky type of share because equity share price tend to fluctuate the most and also equity shareholders get dividend only after payment of interest on debentures and dividend to preference shareholders.
Preference Shares – Preference shares are those shares which get fixed dividend, irrespective of profit or loss earned by the company. However there is no scope for capital appreciation in case of preference shares and also preference shareholders are not entitled to vote.
Bonus Shares – Bonus shares are issued by the company to its existing shareholders free of cost so as to capitalize the profits of the company. Bonus shares are issued to existing shareholders in certain proportion which may be 1:1 or 1:2 and so on.
Right Shares – Right issue or right shares are those shares which are issued by the company to its existing shareholders when it is in need of money for expansion purpose, these shares may be issued at lower than current market price of the stock.

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