CA FINAL - AFM

ICAI MODULE INDEX

CA Divyesh Vaghela

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CONTENTS

CHAPTER 1 – FINANCIAL POLICY AND CORPORATE STRATEGY

1. Advanced role of CFO in various matters including Value Creation .............................. 1.1

2. Strategic Financial Decision Making Framework ......................................................... 1.2

3. Strategy at Different Hierarchy Levels ......................................................................... 1.4

4. Financial Planning ...................................................................................................... 1.5

5. Interface of Financial Policy and Strategic Management .............................................. 1.6

6. Balancing Financial Goals vis-à-vis Sustainable Growth .............................................. 1.8

CHAPTER 2 – RISK MANAGEMENT

1. Identification of types of Risk faced by an organization................................................ 2.1

2. Evaluation of Financial Risk ....................................................................................... 2.4

3. Value-at-Risk (VAR) ................................................................................................... 2.4

4. Appropriate Methods for Identification and Management of Financial Risk ................... 2.6

CHAPTER 3 – ADVANCED CAPITAL BUDGETING DECISIONS

1. Current trends in Capital Budgeting ............................................................................ 3.1

2. Dealing with Risk in Investment Decisions .................................................................. 3.9

3. Internal and External Factors affecting Capital Budgeting Decision ............................ 3.10

4. Methods of incorporating risk in Capital Budgeting .................................................... 3.11

5. Replacement Decision .............................................................................................. 3.35

6. Adjusted Present Value ............................................................................................ 3.39

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CHAPTER 4 – SECURITY ANALYSIS

1. Fundamental Analysis ................................................................................................ 4.2

2. Technical Analysis ................................................................................................... 4.14

3. Difference between Fundamental Analysis and Technical Analysis ............................ 4.29

4. Efficient Market Theory ............................................................................................ 4.29

5. Equity Research and tools available ......................................................................... 4.33

CHAPTER 5 – SECURITY VALUATION

1. Overview of Valuation ................................................................................................ 5.1

2. Return Concepts ........................................................................................................ 5.2

3. Equity Risk Premium .................................................................................................. 5.4

4. Required Return on Equity ......................................................................................... 5.5

5. Discount rate selection in relation to cash flows............................................................. 5.5

6. Valuation of Equity Shares ......................................................................................... 5.6

7. Valuation of Preference Shares ................................................................................ 5.14

8. Valuation of Debentures and Bonds .......................................................................... 5.15

9. Role and Responsibilities of Valuers ......................................................................... 5.28

10. Precautions need to be taken by a Valuer before accepting any valuation assignment ..... 5.31

CHAPTER 6 – PORTFOLIO MANAGEMENT

1. Introduction ................................................................................................................ 6.2

2. Phases of Portfolio Management ................................................................................ 6.4

3. Portfolio Theories ....................................................................................................... 6.7

4. Risk Analysis ............................................................................................................. 6.9

5. Markowitz Model of Risk-Return Optimization ........................................................... 6.29

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6. Capital Market Theory .............................................................................................. 6.32

7. Single Index Model ................................................................................................... 6.33

8. Capital Asset Pricing Model ...................................................................................... 6.37

9. Arbitrage Pricing Theory Model................................................................................. 6.45

10. Portfolio Evaluation Methods .................................................................................... 6.46

11. Sharpe’s Optimal Portfolio ........................................................................................ 6.49

12. Formulation of Portfolio Strategy .............................................................................. 6.50

13. Portfolio Revision and Rebalancing .......................................................................... 6.54

14. Asset Allocation Strategies ....................................................................................... 6.57

15. Fixed Income Portfolio .............................................................................................. 6.58

16. Alternative Investment Avenues ................................................................................ 6.60

CHAPTER 7 – SECURITIZATION

1. Introduction ................................................................................................................ 7.1

2. Concept and Definition ............................................................................................... 7.2

3. Benefits of Securitization ............................................................................................ 7.2

4. Participants in Securitization....................................................................................... 7.3

5. Mechanism of Securitization ....................................................................................... 7.5

6. Problems in Securitization .......................................................................................... 7.6

7. Securitization Instruments .......................................................................................... 7.7

8. Pricing of the Securitized Instruments ......................................................................... 7.9

9. Risks in Securitization ................................................................................................ 7.9

10. Tokenization ............................................................................................................ 7.10

11. Securitization in India ............................................................................................... 7.13

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CHAPTER 8 – MUTUAL FUNDS

1. Introduction ................................................................................................................ 8.1

2. Classification of Mutual Funds .................................................................................... 8.4

3. Types of Schemes...................................................................................................... 8.8

4. Advantages of Mutual Fund ...................................................................................... 8.13

5. Drawbacks of Mutual Fund ....................................................................................... 8.14

6. Terms associated with Mutual Funds ........................................................................ 8.15

7. Evaluation of Mutual Funds ...................................................................................... 8.18

8. Role of Fund Managers in Mutual Funds .................................................................... 8.20

9. Role of FIIs in Mutual Funds ..................................................................................... 8.21

CHAPTER 9 – DERIVATIVES ANALYSIS AND VALUATION

1. Introduction ................................................................................................................ 9.2

2. Forward Contract ....................................................................................................... 9.3

3. Future Contract .......................................................................................................... 9.4

4. Pricing / Valuation of Forward / Future Contracts ........................................................ 9.5

5. Types of Futures Contracts ........................................................................................ 9.9

6. Options .................................................................................................................... 9.17

7. Option Valuation Techniques .................................................................................... 9.21

8. Credit Derivatives ..................................................................................................... 9.33

9. Real Options ............................................................................................................ 9.37

10. Commodity Derivatives ............................................................................................. 9.44

11. Weather Derivatives ................................................................................................. 9.51

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12. Electricity Derivatives ............................................................................................... 9.52

13. Derivative Mishaps and Lessons............................................................................... 9.54

CHAPTER 10 – FOREIGN EXCHANGE EXPOSURE AND RISK MANAGEMENT

1. Introduction .............................................................................................................. 10.1

2. Role of SWIFT in Foreign Exchange ......................................................................... 10.3
3. National and International Payment Gateways .......................................................... 10.5

4. Nostro, Vostro and Loro Accounts ............................................................................ 10.6

5. Exchange Rate Quotation ......................................................................................... 10.8
6. Exchange Rate Forecasting .................................................................................... 10.14

7. Exchange Rate Determination ................................................................................ 10.14

8. Exchange Rate Theories ........................................................................................ 10.15
9. Foreign Exchange Market ....................................................................................... 10.20

10. Foreign Exchange Exposure ................................................................................... 10.21

11. Hedging Currency Risk ........................................................................................... 10.25
12. Forward Contract ................................................................................................... 10.28

13. Future Contracts .................................................................................................... 10.40

14. Option Contracts .................................................................................................... 10.41
15. Swap Contracts ...................................................................................................... 10.42

16. Popular Derivative Products ................................................................................... 10.44

17. Strategies for Exposure Management ..................................................................... 10.47
18. Conclusion ............................................................................................................. 10.49

CHAPTER 11 – INTERNATIONAL FINANCIAL MANAGEMENT

1. International Capital Budgeting .................................................... ……………………..11.1

2. International Sources of Finance ................................................................ ………..11.15

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3. International Financial Centre (GIFT City) ................................................... ………..11.20

4. Sovereign Funds ........................................................................................ ………..11.22

5. International Working Capital Management ............................................................. 11.23

CHAPTER 12 – INTEREST RATE RISK MANAGEMENT

1. Introduction .............................................................................................................. 12.1

2. Benchmark Rates ..................................................................................................... 12.2

3. Interest Rate Risk .................................................................................................... 12.3

4. Hedging Interest Rate Risk ....................................................................................... 12.6

CHAPTER 13 – BUSINESS VALUATION

1. Conceptual Framework of Valuation ......................................................................... 13.1

2. Important terms associated with Valuation ................................................................ 13.3

3. Approaches/ Methods of Valuation ........................................................................... 13.5

4. Measuring Cost of Equity ....................................................................................... 13.10

5. Relative Valuation .................................................................................................. 13.14

6. Other Approaches to Value Measurement ............................................................... 13.18

7. Arriving at Fair Value .............................................................................................. 13.26

8. Going concern and Non-Going concern valuation ...................................................... 13.27

9. Valuation of Distressed Companies ........................................................................ 13.27

10. Valuation of Start ups ............................................................................................. 13.29

11. Valuation of Digital Platforms .................................................................................. 13.35

12. Valuation of Professional/ Consultancy Firms.......................................................... 13.39

13. Impact of ESG on valuation .................................................................................... 13.39

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CHAPTER 14 – MERGERS, ACQUISITIONS AND CORPORATE RESTRUCTURING

1. Conceptual Framework............................................................................................. 14.2

2. Rationale for Mergers and Acquisitions ..................................................................... 14.4

3. Forms (Types) of Mergers ........................................................................................ 14.6

4. Financial Framework ................................................................................................ 14.8

5. Takeover Defensive Tactics.................................................................................... 14.10

6. Reverse Merger ..................................................................................................... 14.12

7. Divestiture.............................................................................................................. 14.13

8. Financial Restructuring ........................................................................................... 14.16

9. Ownership Restructuring ........................................................................................ 14.19

10. Unlocking the value through Mergers & Acquisitions and Business Restructuring .... 14.22

11. Premium and Discount ........................................................................................... 14.22

12. Mergers and Acquisitions Failures .......................................................................... 14.23

13. Acquisition through Shares ..................................................................................... 14.24

14. Cross-Border M&A ................................................................................................. 14.29

15. Special Purpose Acquisition Companies ................................................................. 14.29

CHAPTER 15 – STARTUP FINANCE

1. The Basics of Startup Financing ............................................................................... 15.1

2. Some of the Innovative Ways to Finance a Startup ................................................... 15.2

3. Pitch Presentation .................................................................................................... 15.3

4. Concept of Unicorn .................................................................................................. 15.6

5. Modes of Financing for Startups ............................................................................. 15.10

6. Venture Capital Funds in India ................................................................................ 15.16

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7. Startup India Initiative ............................................................................................. 15.18

8. Succession planning in Business ............................................................................ 15.21

APPENDIX

1. Exponential Table ......................................................................................................A.1

2. Natural Log Table.......................................................................................................A.2

3. Cumulative Area under Standard Normal Distribution ....................................................A.4

© The Institute of Chartered Accountants of India