ASSIGNMENT

PROGRAM - BBA
SEMESTER 5
SUBJECT CODE & NAME BB0022 CAPITAL AND MONEY MARKET

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Q. No 1 Explain the securities market and discuss the methods of underwriting the securities.
ANSWER:
Explanation of securities market:
Securities market is an economic institute within which takes place the sale and purchase transactions of
securities between subjects of the economy, on the basis of demand and supply. Also we can say that
securities market is a system of interconnection between all participants (professional and
nonprofessional) that provides effective conditions: to buy and sell securities, and also

to attract new capital by means of issuance new security (securitization of debt),

to transfer real asset into financial asset,

to invest money for short or long term periods with the aim of deriving profitability.

commercial function (to derive profit from operation on this market)

price determination (demand and supply balancing, the continuous process of prices movements
guarantees to state correct price for each security so the market corrects mispriced securities)

informative function (market provides all participants with market information about participants
and traded instruments)

regulation function (securities market creates the rules of trade, contention regulation, priorities
determination)

Specific functions of the securities market

Transfer of ownership (securities markets transfer existing stocks and bonds from owners who no
longer desire to maintain their investments to buyers who wish to increase those specific investments.
There is no net change in the number of securities in existence, for there is only a transfer of
ownership. The role of securities market is to facilitate this transfer of ownership. This transfer of
securities is extremely important, for securities holders know that a secondary market exists in which
they may sell their securities holdings. The ease with which securities may be sold and converted into
cash increases the willingness of people to hold stocks and bonds and thus increases the ability of
firms to issue securities)

Insurance (hedging) of operations though securities market (options, futures, etc.)

Explanation of methods of underwriting the securities:

Debt Capital Markets
Debt Capital Markets Services (DCMS) is responsible for soliciting, structuring and executing Morgan
Stanley's investment grade debt and related product businesses, including new issues of both public and
private debt. Other product areas include liability management, asset-backed finance, project finance,
equipment finance, Yankee new issues, continuously offered products and preferred stock. DCMS also
establishes and maintains an active dialogue with Morgan Stanley clients and provides ongoing advice on
all debt-related issues. The Group generates new product ideas and helps clients achieve short- and longterm capital objectives in their current business configurations as well as through strategic transactions

that transform a company's capital structure. DCMS provides an important link between the Banking
Group and Fixed Income division to solicit and execute all investment grade debt-related business.
Leveraged Finance Capital Markets Services
The Leveraged Finance Capital Markets Services (LFCMS) works closely with corporate finance and
dedicated high yield sales, trading and research professionals in the Fixed Income Division to originate,
structure and execute public and private placements of high yield debt securities for non-investment grade
domestic and emerging market corporations and sovereign entities. LFCMS also structures and
underwrites floating-rate syndicated loans, primarily for non-investment grade borrowers in North
America, Europe and the emerging markets.
LFCMS is involved in deal execution from start to finish and plays a very active role in transaction
pricing. Morgan Stanley's clients rely upon LFCMS to assess current and future market conditions as
these factors relate to deal structure and new issue levels for potential issuers. LFCMS provides an
important link between the Investment Banking and Fixed Income divisions.

Equity Capital Markets Services

Equity Capital Markets Services (ECMS) undertakes the origination, structuring, marketing and pricing
of public offerings and private placements of equity and equity-related securities. ECMS also advises
Morgan Stanley clients on financing strategies in the context of merger and acquisition activity and public
market restructurings and monetization programs. ECMS provides an important link between the Banking
Group and Equity divisions to solicit and execute all of the Firm's equity-related business.

2 List out the primary stock exchanges operating in India and the causes of price fluctuations of
shares.
ANSWER:

Listing of primary stock exchange: Bombay Commodity Exchange (estwhile the Bombay
Oilseeds and Oils Exchange)

Bombay Stock Exchange (BSE)

Calcutta Stock Exchange (CSE)
Cochin Stock Exchange
Inter-Connected Stock Exchange of India (ISE)
Multi Commodity Exchange of India (MCX)
National Commodity & Derivatives Exchange (NCDEX)
National Stock Exchange of India (NCE)
OTC Exchange of India (Exchange for Technology and Growth Stocks)
Pune Stock Exchange (PSE)

Causes of price fluctuations of shares:

The prices of securities are determined by the forces of demand for and supply of shares in the stock
market. The factors which affect the demand for and apply of securities resulting in their price fluctuation
are to follows:
1.

POLITICAL CONDITION:
The price of shares is directly affected by the political developments

taking place both at home and abroad. The political instability in the country, the fear of war with
neighbors country, the danger of spreading war on international level, bring a set back prices of securities.
If there is political stability at home and abroad the price of shares moves up.
1.

Business condition:
Political stability brings economic stability in country. If a government carries on

economic policies in the planned manner, it then establishes strong Industrial base in country, the price of

shares tend to move up. In case there are a rapid change in economic policies and budget are announced
and revised time and again the price of securities go down.
1.

Fear of nationalization:
If a government adopts a policy of nationalization of industries, the investment

on the part of the private sector will be at the lower ebb. The prices of the securities are bound to go
down. In case the private sector is encouraged for investment by going them due to concessions, the
prices of the securities shoot up.
1.

Trade activities:
The prices of the securities are directly influenced by the conditions of boom

and slump. In the days business prosperity, the prices of the securities move up. If the depression is
hovering over the country, it leads to a fall in the security prices.
1.

Monopoly:
If the firm has monopoly in the production of a commodity, the share prices of that firm will

go up. In case stiff competition by the competing firms for the production of a particular commodity,
there will be a decline or a nominal rise in the stock pieces of the competing firms depending on the
situation.
1.

Bank rate:
Bank rate exercises a powerful influence on security price. If the interest rate on the short

term loans fall, the speculators borrow money and purchase the securities which leads to the rise in the
price of shares. When the money is dear, there is a fall in the prices of securities.
1.

Distribution of dividend:
If the company enjoys a reputation of distributing dividend regularly to the

shareholder, the share prices of that company rise up. In case the dividend in not distributed and the
financial position of the company is weak, the prices of the shares go down.
1.

The stock exchange Zoo:

The stock exchange which consists of Bulls, Bear and Stage (speculators)
also influence the security pieces. When the speculators run for the purchase of securities, the prices of
the stocks move up and vice versa.
1.

Inflation and deflation:

When the prices are rising in the country, the industrialist makes profit. The

prices of the shares go up. When the country is in the grip of deflation, the prices of the shares go down.
10. Market psychology:
The price of securities sometime also fluctuates without any valid reason. The
people who deal in securities

3 Explain the meaning, requirements, criteria, advantages and limitations of Listing.

ANSWER:
Explanation of meaning and requirements:
In corporate finance, a listing refers to the company's shares being on the list (or board) of stock that are
officially traded on a stock exchange. Normally the issuing company is the one that applies for a listing
but in some countries the exchange can list a company, for instance because its stock is already being
actively traded via informal channels. Initial listing requirements usually include a history of a few years
of financial statements (not required for "alternative" markets targeting young firms); a sufficient size of
the amount being placed among the general public (the free float), both in absolute terms and as a
percentage of the total outstanding stock; an approved prospectus, usually including opinions from
independent assessors, and so on. Stocks whose market value and/or turnover fall below critical levels can
get officially delisted; delisting is often the result of a merger or takeover, or the firm going private.
Listing requirements are the criteria set by a stock exchange to list the stock of a public company on that
exchange. In the US, the New York Stock exchange has the most demanding criteria for listing. The
listing requirements of the American Stock Exchange are the easiest for a smaller company to meet.
Example listing requirements include minimums for revenue, earnings, market capitalization, and share
price. Listing requirements are periodically updated. The exchange can delist a company that no longer
meets the exchange's listing requirements. Delisting is not necessarily immediate, with a possibility for

appeal or a limited amount of time to return to meeting the listing requirements. An exchange may have
more than one scenario of listing requirements to accommodate a few different types of companies.

i.

Explanation of criteria and advantages: Paid up Capital & Market Capitalisation

The paid-up equity capital of the applicant shall not be less than

and the market capitalisation of the applicant's equity shall not be less than

Provided that the requirement of

10 crores *

25 crores**

25 crores market capitalisation under this clause 1(a)

shall not be applicable to listing of securities issued by Government Companies, Public Sector
Undertakings, Financial Institutions, Nationalised Banks, Statutory Corporations and Banking
Companies who are otherwise bound to adhere to all the relevant statutes, guidelines, circulars,
clarifications etc. that may be issued by various regulatory authorities from time to time.
or

The paid-up equity capital of the applicant shall not be less than

case the market capitalisation is less than

25 crores * (In

25 crores, the securities of the company should

be traded for at least 25% of the trading days during the last twelve months preceding the date of
submission of application by the company on at least one of the stock exchanges where it is traded.)
or

The market capitalisation of the applicant's equity shall not be less than

crores. **

50

or

The applicant Company shall have a net worth of not less than

50 crores in

each of the three preceeding financial years. The Company shall submit a certificate from the
statutory auditors in respect of networth as stipulated above***.
* Explanation 1 For this purpose the existing paid up equity capital as well as the paid up equity
capital after the proposed issue for which listing is sought shall be taken into account.
** Explanation 2 The market capitalisation shall be calculated by using a 12 month moving average
of the market capitalisation over a period of six months immediately preceding the date of
application. For the purpose of calculating the market capitalisation over a 12 month period, the
average of the weekly high and low of the closing prices of the shares as quoted on the National
Stock Exchange during the last twelve months and if the shares are not traded on the National Stock
Exchange such average price on any of the recognised Stock Exchanges where those shares are
frequently traded shall be taken into account while determining market capitalisation after making
necessary adjustments for Corporate Action such as Rights / Bonus Issue/Split.
*** Explanation 3 Networth means Paid up equity capital + Free Reserves i.e. reserve, the
utilization of which is not restricted in any manner may be taken into consideration excluding
revaluation reserves Miscellaneous Expenses not written off Balance in profit and loss account
to the extent not set off.
ii.

Conditions Precedent to Listing:

The applicant shall have adhered to conditions precedent to listing as emerging from inter-alia,
Securities Contracts (Regulations) Act 1956, Companies Act 1956, Securities and Exchange Board
of India Act 1992, any rules and/or regulations framed under foregoing statutes, as also any circular,
clarifications, guidelines issued by the appropriate authority under foregoing statutes.

iii. Atleast three years track record of either:

the applicant seeking listing; or

the promoters****/promoting company, incorporated in or outside India or

For this purpose, the applicant or the promoting company shall submit annual reports of three
preceding financial years to NSE and also provide a certificate to the Exchange in respect of the
following:

The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR)

The networth of the company has not been wiped out by the accumulated losses resulting
in a negative networth.

The company has not received any winding up petition admitted by a court.
**** Promoters mean one or more persons with minimum 3 years of experience of each of them in the
same line of business and shall be holding at least 20% of the post issue equity share capital
individually or severally.

iv. The applicant should have been listed on any other recognized Stock Exchange Listed for atleast last
three years or listed on the exchange having nationwide trading terminals for at least one year.
v. The applicant has paid dividend in atleast 2 out of the last 3 financial years immediately preceding the
year in which listing application has been made
or
The applicant has distributable profits ( as defined under section 205 of the Companies Act, 1956) in at
least two out of the last three financial years (an auditors certificate must be provided in this regard).
or

The networth of the applicant is atleast

50 crores******

While considering the profitability / ability to distribute dividend, the non recurring
income/extraordinary income shall be excluded from the total income. Further in case of companies
where networth criteria is satisfied on account of shares being issued at a premium for consideration
other than cash, such cases be referred to the Listing Advisory Committee (LAC) for consideration.

CONTACT ME TO GET FULLY SOLVED SMU

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4 Discuss the shortcomings of Indian money markets

ANSWER: Indian money market is regarded as underdeveloped money market. The main shortcomings
of Indian money market are as follows:
1. Absence of Coordination:
There is no coordination between organised and unorganized sectors of the money market. At times there
is even wasteful competition between them.
Such a situation is extremely harmful for the economic progress of the country.
2. Absence of Developed Bill Market:
An important shortcoming of Indian Money Market is the absence of a well developed money market.
Though both inland and foreign bills are traded in Indian Money Market yet its scope is very limited. In
spite of the efforts of Reserve Bank in 1952 and in 1970, only a limited bill market exists in India. Thus,
an organised bill market in the real sense of the term has not yet been fully developed in India. The main
obstacles in the development of bill market appear to be the following:
(i) The lack of uniformity in drawing bills in different parts of the country,
(ii) The large use of cash credit as the main form of borrowing from commercial banks, (iii) Presence of
Inter-call money market and
(iv) The pressure of cash transactions. Thus, Bill Market is relatively underdeveloped.
3. Shortage of Funds in Money Market:

The Indian money market is characterised by shortage of funds. The funds available in the market are
inadequate to meet the requirements of trade and industry. The main reasons responsible for shortage of
funds are poverty, low level of income and low savings. Inadequate banking facilities are also one of the
main causes of shortage of funds.
4. Seasonal Stringency of Funds:
Another defect of Indian Money Market is the stringency of credit in particular seasons of the year.
During the harvest time (April to November) there is substantial rise in demand for credit. The supply of
credit at such a time does not increase in the same proportion in which demand increases.
Consequently, rate of interest shoots up during the busy season. On the other hand, during the slack
season, due to fall in demand for credit, the interest rate declines. These wide variations in the supply and
demand for money are due to inelastic supply of money.
5. Lack of Uniformity in Interest Rates:
In Indian Money Market, there is no uniformity in rates of interest. The lending rates of commercial
banks differ from those of the Rural Regional Banks and cooperative banks. There is also wide variation
in the rates of interest charged by the banks of organised sector and of indigenous banks. The bill finance
rate also differs from hundi rate.
6. Underdeveloped Banking Habits:
Inspite of rapid branches expansion of banks and spread of banking to unbanked and rural centres, the
banking habits in India are still underdeveloped, (i) There are several reasons for it.
Whereas in U.S.A. for every 1400 persons there is a branch of a commercial bank, in India there is a
branch for every 13,000 people, (ii) The use of cheques is restricted, (iii) The majority of transactions are
settled in cash, (iv) The hoarding habit is widespread.
7. Dominance of Indigenous Bankers:
The indigenous banker still dominates the banking scene in India. Even after banking expansion in the
rural areas, the money lenders still continue to be the only source to the agriculturists. They exploit their
customers by adopting malpractices and charging exorbitant rate of interest The Reserve Bank exercises
no control over them.

5 What do you mean by Bullish and Bearish. Explain the attitudes of buyers and sellers of call
and put options
ANSWER:
Meaning of bullish and bearish:
Bull Market
A bull market is when the market appears to be in a long-term climb. Bull markets tend to develop when
the economy is strong, the unemployment rate is low, and inflation is under control. The emotional and
psychological state of investors also affects the market. For example, if investors have faith that the
upward trend in stock prices will continue, they are likely to buy more stocks. If there are more buyers
interested in buying shares at a given price than there are sellers who are willing to part with their shares
at that price, stock prices will continue to rise.
Bear Market
A bear market describes a market that appears to be in a long-term decline. Bear markets tend to develop
when the economy enters a recession, unemployment is high, and inflation is rising. Investors lose faith in
the market as a whole, which in turn decreases the demand for stocks. Keep in mind that a sustained bear
market is something that you should expect to occur from time to time, and that, in the past, the stock
market has risen more than it has declined.
Explanation of attitudes of buyers and sellers of call and put options:
What is the put-call ratio and why should I pay attention to it?
The put-call ratio is a popular tool specifically designed to help individual investors gauge the overall
sentiment (mood) of the market. The ratio is calculated by dividing the number of traded put options by
the number of traded call options. As this ratio increases, it can be interpreted to mean that investors are
putting their money into put options rather than call options. An increase in traded put options signals that
investors are either starting to speculate that the market will move lower, or starting to hedge their
portfolios in case of a sell-off.
Why should you pay attention to this? An increasing ratio is a clear indication that investors are starting to
move toward instruments that gain when prices decline rather than when they rise. Since the number of

call options is found in the denominator of the ratio, a reduction in the number of traded calls will result
in an increase in the value of the ratio. This is significant because the market is indicating that it is starting
to dampen its bullish outlook.
The put-call ratio is primarily used by traders as a contrarian indicator when the values reach relatively
extreme levels. This means that many traders will consider a large ratio a sign of a buying opportunity
because they believe that the market holds an unjustly bearish outlook and that it will soon adjust, when
those with short positions start looking for places to cover. There is no magic number that indicates that
the market has created a bottom or a top, but generally traders will anticipate this by looking for spikes in
the ratio or for when the ratio reaches levels that are outside of the normal trading range.
This indicator can be created within a spreadsheet with relative ease. The data used for the calculation is
available through various sources, but most traders will use the information found on the Chicago Board
Options Exchange (CBOE) website.

6 Explain the importance of credit rating agencies. List out the credit rating agencies operating in
India and describe the rating system.
ANSWER: Importance of credit rating agencies:
Credit rating agencies provide investors and debtors with important information regarding the
creditworthiness of an individual, corporation, agency or even a sovereign government. The credit rating
agencies help measure the quantitative and qualitative risks of these entities and allow investors to make
wiser decisions by benefiting from the skills of professional risk assessment carried out by these agencies.
The quantitative risk analysis carried out by credit rating agencies include comparison of certain financial
ratios with chosen benchmarks and the qualitative analysis focuses on the management character, legal,
political and economic environment in a jurisdiction.
Development of Financial Markets

Credit rating agencies help provide risk measures for various entities and make it easier for
financial market participants to assess and understand the credit risk of the parties involved in the
investing process. Individuals can get a credit score in order to be eligible for easy access to credit cards
and other loans. Institutions can borrow money easily from banks without having to go through lengthy

evaluations from each individual lender separately. Also corporations and governments can issue debt in
the form of corporate bonds and treasuries to attract investors based on the credit ratings.
Credit Rating Agencies Help Regulate Financial Markets

The credit ratings provided by popular rating agencies including Moodys, Standard & Poors and
Fitch, have become a benchmark for regulation of financial markets. Legal policies require certain
institutions to hold investment graded bonds. Bonds are classified to be investment graded based on their
ratings by these agencies, any corporate bond with a rating higher than BBB is considered to be
investment graded bond.
Estimation of Risk Premiums

The credit ratings provided by these agencies are used by various banks and financial institutions
in determining the risk premium they will charge on loans and corporate bonds. A poor credit rating
implies a higher risk premium with an increase in the interest rate charged to corporations and individuals
with a poor credit rating. Issuers with a good credit rating are able to raise funds at a lower interest rate.
Enhanced Transparency in the Credit Markets

The credit rating agencies provide improved efficiency in the credit markets and allow for more
transparency in dealings. The ratings help monitor the credit soundness of various borrowers through a set
of well-defined rules.
Standardization of the Evaluation Process

Most credit agencies use their own methodology for determining credit ratings, but since only a
handful of popular credit rating providers exist, this adds a great deal of standardization in the rating
process. The credit ratings of different borrowers can be easily compared using ratings provided by a
credit rating company and the applications can be easily sorted.

Listing of credit rating agencies:

CARE Ratings
ONICRA Credit Rating Agency

 Fitch Ratings
ICRA
Explanation of rating system:
The resources below provide information to help consumers identify products on the market with more
sustainable attributes and avoiding those that have less attributes. Other sections, such as "company
sustainability initiatives", provide information on company-wide sustainability programs. This section is
devoted exclusively to rating systems developed by organizations to aide in the research of particular
products.
Alonovo: Intelligent Marketplace
This site allows users to register their personal value systems (how important various issues are on a scale
of 1-5) to measure the social consciousness of each individual. Then you can shop for clothes and other
items online and obtain ratings of companies based on your value system. Alonovo is essentially allowing
you to define your own eco-label and then find products that meet the criteria of your label. The
organization also contribute 20% of revenues (based upon your purchases through alonovo.com) to the
organizations you designate as your beneficiary organization. Check it out!
Campaign for Safe Cosmetics
The Campaign for Safe Cosmetics is a coalition effort launched in 2004 to protect the health of
consumers and workers by securing the corporate, regulatory and legislative reforms necessary to
eliminate dangerous chemicals from cosmetics and personal care products. The Campaign for Safe
Cosmetics also coordinated the Compact for Safe Cosmetics, which is a voluntary pledge for companies
to embrace safety and transparency. This has been beneficial for shifting the industry to making its
products safer and making information more widespread in the absence of actual government regulations.
Consumer Reports- Greener Choices
Consumer Reports has been rating products on the market since 1936 and have recently expanded into the
environmental rating sector with the development of Greener Choices. The organization will rate a dozen
products across several categories, including electronics, appliances, home and garden, automobiles, and
food. The "green ratings" section will rate a product's energy, water and fuel efficiency performance, and
provide environmental and health assessments for various food products. In addition, the Greener Choices

web site provides information on important environmental issues, such as energy and climate change, and
connects these issues to the products people buy. Users also have access to tools such as energy
calculators, rebate information, food label meanings, and links to more information.
Dow Jones Sustainability Index (DJSI)
DJSI is the first global index to track the financial performance of the worlds top sustainable companies.
Global 100
The Global 100 is a list of the 100 most sustainable corporations in the world. The companies on the list
are the best in their industries at managing environmental and social risks and opportunities. The list is
prepared by Innovest Strategic Value Advisors.
PVC free products database
Greenpeace is a nonprofit organization, with a presence in 40 countries across Europe, the Americas, Asia
and the Pacific. As a global organization, Greenpeace focuses on the most crucial worldwide threats to
our planet's biodiversity and environment. Greenpeace has a database of construction materials that can
be searched by consumers who would like to find PVC (polyvinyl chloride) free products from around the
world.