Q1; trading on equity

Trading on equity is the financial process of using debt to produce gain for the residual owners. The practice is known as trading on equity because it is the equity shareholders who have only interest (or equity) in the business income.

The term owes its name also to the fact that the creditors are willing to advance funds on the strength of the equity supplied by the owners. Trading feature here is simply one of taking advantage of the permanent stock investment to borrow funds on reasonable basis.

When the amount of borrowing is relatively large in relation to capital stock, a company is said to be ‘trading on this equity’ but where borrowing is comparatively small in relation to capital stock, the company is said to be trading on thick equity.

Effects of Trading on Equity:

Trading on equity acts as a lever to magnify the influence of fluctuations in earnings. Any fluctuation in earnings before interest and taxes (EBIT) is magnified on the earnings per share (EPS) by operation of trading on equity larger the magnitude of debt in capital structure, the higher is the variation in EPS given any variation in EBIT.

Solution:

Impact on trading on equity, will be reflected in earnings per share available to common stock holders. To calculate the EPS in each of the four alternatives EBIT has to be first of all calculated.

Proposal A

Rs.

Proposal B

Rs. Proposal C Rs.Proposal D Rs.

EBIT 1,20,000 1,20,000 1,20,000 1,20,000

Less; interest 25,000 60,000

Earnings before taxes 11,20,000 95,000 60,000 1,20,000

Less; taxes @ 50% 60,000 47,100 30,000 60,000

Earnings after taxes 60,000 47,500 30,000 60,000

Less; Preferred stock

dividend 25,000

Earnings available to 60,000 47,500 ,30,000 35,000

common stock holders 20,000 15,000 10,000 15,000

No. of

common shares

EPS Rs. 3.00 3.67 3.00 2.33

Effects of trading on equity can be explained with the help of the following example.

Example:

Prakash Company is capitalized with Rs. 10, 00,000 dividends in 10,000 common shares of Rs. 100 each. The management wishes to raise another Rs. 10, 00,000 to finance a major programme of expansion through one of four possible financing plans.

Then management

A) may finance the company with all common stock,

B). Rs. 5 lakhs in common stock and Rs. 5 lakhs in debt at 5% interest,

C) all debt at 6% interest or

D) Rs. 5 lakhs in common stock and Rs. 5 lakhs in preferred stock with 5-4 dividend.

The company’s existing earnings before interest and taxes (EBIT) amounted to Rs. 12,00,000, corporation tax is assumed to be 50%

Thus, when EBIT is Rs. 1,20,000 proposal B involving a total capitalisation of 75% common stock and 25% debt, would be the most favourable with respect to earnings per share. It may further be noted that proportion of common stock in total capitalisation is the same in both the proposals B and D but EPS is altogether different because of induction of preferred stock.

While preferred stock dividend is subject to taxes whereas interest on debt is tax deductible expenditure resulting in variation in EPS in proposals B and D, with a 50% tax rate the explicit cost of preferred stock is twice the cost of debt.

Q2: sebi

The overall objectives of SEBI are to protect the interest of investors and to

promote the development of stock exchange and to regulate the activities

of stock market. The objectives of SEBI are:

1. To regulate the activities of stock exchange.

2. To protect the rights of investors and ensuring safety to their investment.

3. To prevent fraudulent and malpractices by having balance between self

regulation of business and its statutory regulations.

4. To regulate and develop a code of conduct for intermediaries such as

brokers, underwriters, etc.

Functions of SEBI:

The SEBI performs functions to meet its objectives. To meet three

objectives SEBI has three important functions. These are:

i. Protective functions

ii. Developmental functions

iii. Regulatory functions.

1. Protective Functions:

These functions are performed by SEBI to protect the interest of investor

and provide safety of investment.

As protective functions SEBI performs following functions:

(i) It Checks Price Rigging:

Price rigging refers to manipulating the prices of securities with the main

objective of inflating or depressing the market price of securities. SEBI

prohibits such practice because this can defraud and cheat the investors.

(ii) It Prohibits Insider trading:

Insider is any person connected with the company such as directors,

promoters etc. These insiders have sensitive information which affects the

prices of the securities. This information is not available to people at large

but the insiders get this privileged information by working inside the

company and if they use this information to make profit, then it is known as

insider trading, e.g., the directors of a company may know that company

will issue Bonus shares to its shareholders at the end of year and they

purchase shares from market to make profit with bonus issue. This is

known as insider trading. SEBI keeps a strict check when insiders are

buying securities of the company and takes strict action on insider trading.

(iii) SEBI prohibits fraudulent and Unfair Trade Practices:

SEBI does not allow the companies to make misleading statements which

are likely to induce the sale or purchase of securities by any other person.

(iv) SEBI undertakes steps to educate investors so that they are able to

evaluate the securities of various companies and select the most profitable

securities.

(v) SEBI promotes fair practices and code of conduct in security market by

taking following steps:

(a) SEBI has issued guidelines to protect the interest of debenture-holders

wherein companies cannot change terms in midterm.

(b) SEBI is empowered to investigate cases of insider trading and has

provisions for stiff fine and imprisonment.

(c) SEBI has stopped the practice of making preferential allotment of

shares unrelated to market prices.

2. Developmental Functions:

These functions are performed by the SEBI to promote and develop

activities in stock exchange and increase the business in stock exchange.

Under developmental categories following functions are performed by

SEBI:

(i) SEBI promotes training of intermediaries of the securities market.

(ii) SEBI tries to promote activities of stock exchange by adopting flexible

and adoptable approach in following way:

(a) SEBI has permitted internet trading through registered stock brokers.

(b) SEBI has made underwriting optional to reduce the cost of issue.

(c) Even initial public offer of primary market is permitted through stock

exchange.

3. Regulatory Functions:

These functions are performed by SEBI to regulate the business in stock

exchange. To regulate the activities of stock exchange following functions

are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate

the intermediaries such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview

and private placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers,

share transfer agents, trustees, merchant bankers and all those who are

associated with stock exchange in any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

(vi) SEBI conducts inquiries and audit of stock exchanges.

Q3:merchant banker

Merchant Banking is a combination of Banking and consultancy services. It provides consultancy to its clients for financial, marketing, managerial and legal matters. Consultancy means to provide advice, guidance and service for

a fee. It helps a businessman to start a business. It helps to raise (collect) finance. It helps to expand and modernize the business. It helps in restructuring of a business. It helps to revive sick business units. It also helps companies to register, buy and sell shares at the stock exchange. In short, merchant banking provides a wide range of services for starting until running a business. It acts as Financial Engineer for a business.

Q4: value based management

http://www.valuebasedmanagement.net/faq_what_is_value_based_management.html

q5: break even analysis

An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels.

For example, if it costs $50 to produce a widget, and there are fixed costs of $1,000, the break-even point for selling the widgets would be:

If selling for $100: 20 Widgets (Calculated as 1000/(100-50)=20)

If selling for $200: 7 Widgets (Calculated as 1000/(200-50)=6.7)

In this example, if someone sells the product for a higher price, the break-even point will come faster. What the analysis does not show is that it may be easier to sell 20 widgets at $100 each than 7 widgets at $200 each. A demand-side analysis would give the seller that information.

Q6: pecking order theory

In corporate finance, pecking order theory (or pecking order model) postulates that the cost of financing increases with asymmetric information.

Financing comes from three sources, internal funds, debt and new equity. Companies prioritize their sources of financing, first preferring internal financing, and then debt, lastly raising equity as a “last resort”. Hence: internal financing is used first; when that is depleted, then debt is issued; and when it is no longer sensible to issue any more debt, equity is issued. This theory maintains that businesses adhere to a hierarchy of financing sources and prefer internal financing when available, and debt is preferred over equity if external financing is required (equity would mean issuing shares which meant 'bringing external ownership' into the company). Thus, the form of debt a firm chooses can act as a signal of its need for external finance.

The pecking order theory is popularized by Myers and Majluf (1984)[1] where they argue that equity is a less preferred means to raise capital because when managers (who are assumed to know better about true condition of the firm than investors) issue new equity, investors believe that managers think that the firm is overvalued and managers are taking advantage of this over-valuation. As a result, investors will place a lower value to the new equity issuance.

Q7: sick industrial company

Industrial sickness is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year".

Q8:due diligence

An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.

2. Generally, due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

1. Offers to purchase an asset are usually dependent on the results of due diligence analysis. This includes reviewing all financial records plus anything else deemed material to the sale. Sellers could also perform a due diligence analysis on the buyer. Items that may be considered are the buyer's ability to purchase, as well as other items that would affect the purchased entity or the seller after the sale has been completed.

2. Due diligence is a way of preventing unnecessary harm to either party involved in a transaction.

Q9: discounted cash flow

Discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity. DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used to evaluate the potential for investment. If the value arrived at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one

Calculated as:

Q10:p/e approach

The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative to its per-share earnings.

The price-earnings ratio can be calculated as:

Market Value per Share / Earnings per Share

For example, suppose that a company is currently trading at $43 a share and its earnings over the last 12 months were $1.95 per share. The P/E ratio for the stock could then be calculated as 43/1.95, or 22.05.

EPS is most often derived from the last four quarters. This form of the price-earnings ratio is called trailing P/E, which may be calculated by subtracting a company’s share value at the beginning of the 12-month period from its value at the period’s end, adjusting for stock splits if there have been any. Sometimes, price-earnings can also be taken from analysts’ estimates of earnings expected during the next four quarters. This form of price-earnings is also called projected or forward P/E. A third, less common variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

Q11: Main Financing Mechanisms for Infrastructure Projects

A number of financing mechanisms are available for infrastructure projects, and for public-private partnership (PPP) projects in particular.

Government Funding Corporate or On-Balance Sheet Finance Project Finance

Government Funding

The Government may choose to fund some or all of the capital investment in a project and look to the private sector to bring in expertise and efficiency. This is generally the case in a so-called Design-Build-Operate project where the operator is paid a lump sum for completed stages of construction and will then receive an operating fee to cover operation and maintenance of the project. Another example would be where the Government chooses to

source out the civil works for the project through traditional procurement and then brings in a private operator to operate and maintain the facilities or provide the service.

Even where Governments prefer that financing is raised by the private sector, increasingly Governments are recognizing that there are some aspects of the project or some risks in a project that may be easier or more sensible for the Government to take. This is discussed in Government Support in financing PPPs.

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Corporate or On-Balance Sheet Finance

The private operator may accept to finance some of the capital investment for the project and decide to fund the project through corporate financing – which would involve getting finance for the project based on the balance sheet of the private operator rather than the project itself. This is typically the mechanism used in lower value projects where the cost of the financing is not significant enough to warrant a project financing mechanism or where the operator is so large that it chooses to fund the project from its own balance sheet.

The benefit of corporate finance is that the cost of funding will be the cost of funding of the private operator itself and so it is typically lower than the cost of funding of project finance. It is also less complicated than project finance. However, there is an opportunity cost attached to corporate financing because the company will only be able to raise a limited level of finance against its equity (debt to equity ratio) and the more it invests in one project the less it will be available to fund or invest in other projects.

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Project Finance

One of the most common - and often most efficient - financing arrangements for PPP projects is “project financing”, also known as “limited recourse” or

“non-recourse” financing. Project financing normally takes the form of limited recourse lending to a specially created project vehicle (special purpose vehicle or “SPV”) which has the right to carry out the construction and operation of the project. It is typically used in a new build or extensive refurbishment situation and so the SPV has no existing business. The SPV will be dependent on revenue streams from the contractual arrangements and/or from tariffs from end users which will only commence once construction has been completed and the project is in operation. It is therefore a risky enterprise and before they agree to provide financing to the project the lenders will want to carry out an extensive due diligence on the potential viability of the project and a detailed review of whether the project risk allocation protects the project company sufficiently. This is known commonly as verifying the project’s “bankability”. For more, go to Risk Allocation, Bankability and Mitigation.

Q12:symptoms of sickness

Page 950

Q13: private placements

Private placement (or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors. PIPE (Private Investment in Public Equity) deals are one type of private placement.

If securities are sold directly to an institutional investor, such as a corporation or bank, the transaction is called a private placement.

Unlike a public offering, a private placement does not have to be registered with the Securities and Exchange Commission (SEC), provided the securities are bought for investment and not for resale.

Q14: key financial intermediaries

Page 33

Q15: long term

Page 429

The sources from which a finance manager can raise long-term funds are broadly classified as 1) External Sources 2) Internal Sources.

Internal sources include retained earnings, depreciation (as depreciation only represents reduction in the value of the asset through wear and tear, obsolescence etc, and is not an actual cash outflow).

The focus in this article is on the long-term external source of finance.

Various sources of long-term finance are

Share capital

* Equity share capital

* Preference share capital.

Debenture Capital

* Non-Convertible Debentures (NCD)

* Fully Convertible Debentures (FCD)

* Partly Convertible Debentures (PCD)

Term Loans

* Rupee term loans

* Foreign currency terms loans.

There are many other sources of long-term finance like deferred credit, unsecured loans and deposits, suppliers credit scheme, leasing and hire purchase which are beyond the scope of this article.

Equity Capital:

Equity capital represents the ownership capital. The equity shareholders collectively own the company and enjoy all the rewards and the risks associated with the ownership. However, unlike the sole proprietor or the partner of the firm, the downside risk of the shareholders is limited to their capital contribution.

Residual Claim: It refers to the residual income on which the shareholders have a right. Residual income is the income left after the claims of all others lenders of long-term finance in the form of interest and taxes have been met.

It is the figure of profit after tax less dividend to be paid to preference shareholders.

The equity shareholders have a residual claim on the income of the company. The company has distributed the whole profit as dividend to the equity holders or the company may retain a part of its profit. The dividend decision is the decision of the board of directors. Equity Shareholders cannot contest it in a court of law.

Liquidation: Refers to the closure of a company. It may be due to losses and non-viability of the operations. The capital contributed by the equity shareholders cannot be redeemed until the liquidation of the company.

From the company’s point of view funds through equity capital has both advantages and disadvantages.

The main advantages are:

* It is a source of permanent capital

* Payments of dividend is not a legal obligation

* Equity capital provides the base for raising debt as equity represents the commitment of promoters to the growth of the company.

The main disadvantages are:

* Non-voting shares refer to the equity shares which do not carry voting rights. Thus, non-voting shareholders do not involve in making management decisions.

* Public offer of equity capital can result in a dilution of the effective control exercised by the existing shareholders. However, this can be avoided by issuing of non-voting shares (which no corporate is yet allowed to do).

* Unlike interest on debentures, dividends on equity are not tax deductible. Out-flow amounts on dividends will not provide any tax-shield.

Q17: problems associated with disinvestment of psu in india

Disinvestment of Public sector undertakings

Disinvestment is a wider term extending from dilution of the stake of the government to a level where there is no change in the control to dilution that results in the transfer of management. The transfer of ownership may occur when in an enterprise the dilution of government ownership is beyond 51 percent. The disinvestment implies that the government will sell to public or private enterprises / public institutes part of its holding in public sector enterprises.

Reasons for disinvestment

The public sector in India at present is at cross roads. The new economic policy initiated in July – 1991, clearly indicated that the public sector undertakings have shown a very negative rate of return on capital employed. On account of this phenomenon many public sector undertakings have become burden to the government. They are infact turning out to be liabilities to the government rather than being assets.

This is a sector which the government clearly wants to get rid off. In this direction the government has adopted a new approach to reform and improve the public sector undertakings performance i.e 'Disinvestment policy'. This has gained lot of importance especially in latter part of 90s. At present the government seriously perceives the disinvestment policy as an active tool to reduce the burden to financing the public sector undertakings.

Problems of Public sector undertakings

The most important criticism levied against public sector undertakings has been that in relation to the capital employed, the level of profits has been too low. Even the government has crticised the public sector undertakings on this count. Of the various factors responsible for low profits in the public sector undertakings, the following are particularly important :-

i. Price policy of public sector undertakings

ii. Under – utilization of capacity

iii. Problem related to planning and construction of projects

iv. Problems of labour, personnel and management

v. Lack of autonomy

The government in order to put an end to these problems, decided to disinvest its stake in the PSUs. The companies traditionally established as pillars of growth have now become a burden on the economy. Except few mighty oil and petroleum companies, almost all other PSUs are incurring losses. The national gross domestic product and gross national savings are also adversely effected by low returns from PSUs. About 10 to 15 % of the total gross domestic savings are reduced on account of low savings from PSUs.

Q18:derivative

A derivative is a contract between two parties which derives its value/price from an underlying asset. The most common types of derivatives are futures, options, forwards and swaps. Description: It is a financial instrument which derives its value/price from the underlying assets

Q19: adjusted book value approach to corporate valuation

The adjusted book value method of valuation is most often used to assign value to distressed companies facing potential liquidation or companies that hold tangible assets such as property or securities. Analysts may use adjusted book value to determine a bottom line price for a company's value when anticipating bankruptcy or sale due to financial distress.

A measure of a company's valuation after liabilities, including off-balance sheet liabilities, and assets are adjusted to reflect true fair market value. The potential downside of using an adjusted book value is that a business could be worth more than its stated assets and/or liabilities because it fails to value intangible assets, account for discounts or factor in contingent liabilities. It is not often accepted as an accurate picture of a profitable company's operating value, however it can be a way of capturing potential equity available in a firm.

q19:functions of crisil

CRISIL is acronym for Credit Rating Information Services of India Limited. CRISIL is India's leading Ratings, Financial News, Risk and Policy Advisory company. Since 1987 when CRISIL was incorporated, CRISIL has played an integral role in India's development milestones

The main functions of CRISIL can be classified into following subheads:

1. Ratings

CRISIL Ratings: It is the only ratings agency in India with sectoral specialization It has played a critical role in the development of the debt markets in India. The agency has developed new ratings methodologies for debt instruments and innovative structures across sectors. CRISIL Ratings provides technical know-how to clients all over the world and has helped set up ratings agencies in Malaysia (RAM), Israel (MAALOT) and in the Caribbean.

2. Research

CRISIL Research: It provides research, analysis and forecasts on the Indian economy, industries and companies to over 500 Indian and international clients across financial, corporate, consulting and public sectors.

CRISIL FundServices: It provides fund evaluation services and risk solutions to the mutual fund industry.

The Centre for Economic Research: It applies economic principles to live business applications and provide benchmarks and analyses for India's policy and business decision makers.

Investment Research Outsourcing: CRISIL added equity research to its wide bouquet of services, by acquiring Irevna, a leading global equity research and analytics company. Irevna offers investment research services to the world's leading investment banks and financial institutions.

3. Advisory

CRISIL Infrastructure Advisory: It provides policy, regulatory and transaction level advice to governments and leading organisations across sectors.

Investment and Risk Management Services: CRISIL Risk Solutions offers integrated risk management solutions and advice to Banks and Corporates by leveraging the experience and skills of CRISIL in the areas of credit and market risk.

Q20:revival of sick unit

Page 954

Q21:interest rate swaps

An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for another based on a specified principal amount. Interest rate swaps often exchange a fixed payment for a floating payment that is linked to an interest rate (most often the LIBOR). A company will typically use interest rate swaps to limit or manage exposure to fluctuations in interest rates, or to obtain a marginally lower interest rate than it would have been able to get without the swap.

Interest rate swaps are simply the exchange of one set of cash flows (based on interest rate specifications) for another. Because they trade OTC, they are really just contracts set up between two or more parties, and thus can be customized in any number of ways.

Generally speaking, swaps are sought by firms that desire a type of interest rate structure that another firm can provide less expensively. For example, let's say Cory's Tequila Company (CTC) is seeking to loan funds at a fixed

interest rate, but Tom's Sports Inc. (TSI) has access to marginally cheaper fixed-rate funds. Tom's Sports can issue debt to investors at its low fixed rate and then trade the fixed-rate cash flow obligations to CTC for floating-rate obligations issued by TSI. Even though TSI may have a higher floating rate than CTC, by swapping the interest structures they are best able to obtain, their combined costs are decreased - a benefit that can be shared by both parties.

Q22:role of sebi

SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Indian investors.

1. Power to make rules for controlling stock exchange :

SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers :

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and financial and insurance companies who want to issue it, must take permission from SEBI."

3. To Stop fraud in Capital Market :

SEBI has many powers for stopping fraud in capital market.

It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market.

It can impose the penalties on capital market intermediaries if they involve in insider trading.

4. To Control the Merge, Acquisition and Takeover the companies :

Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market.

5. To audit the performance of stock market :

SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges.

6. To make new rules on carry - forward transactions :

Share trading transactions carry forward can not exceed 25% of broker's total transactions.

90 day limit for carry forward.

7. To create relationship with ICAI :

ICAI is the authority for making new auditors of companies. SEBI creates good relationship with ICAI for bringing more transparency in the auditing work of company accounts because audited financial statements are mirror to see the real face of company and after this investors can decide to invest or not to invest. Moreover, investors of India can easily trust on audited financial reports. After Satyam Scam, SEBI is investigating with ICAI, whether CAs are doing their duty by ethical way or not.

8. Introduction of derivative contracts on Volatility Index :

For reducing the risk of investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative contracts on Volatility Index, subject to the condition that;

a. The underlying Volatility Index has a track record of at least one year.

b. The Exchange has in place the appropriate risk management framework for such derivative contracts.

2. Before introduction of such contracts, the Stock Exchanges shall submit the following:

i. Contract specifications

ii. Position and Exercise Limits

iii. Margins

iv. The economic purpose it is intended to serve

v. Likely contribution to market development

vi. The safeguards and the risk protection mechanism adopted by the exchange to ensure market integrity, protection of investors and smooth and orderly trading.

vii. The infrastructure of the exchange and the surveillance system to effectively monitor trading in such contracts, and

viii. Details of settlement procedures & systems

ix. Details of back testing of the margin calculation for a period of one year considering a call and a put option on the underlying with a delta of 0.25 & -0.25 respectively and actual value of the underlying. Link

9. To Require report of Portfolio Management Activities :

SEBI has also power to require report of portfolio management to check the capital market performance. Recently, SEBI sent the letter to all Registered Portfolio Managers of India for demanding report.

10. To educate the investors :

Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may 2010 SEBI imposed workshop.

Q23:vcinvstment opprtunities

It’s a 5 step venture capital investment model, so that you can find the right venture capital investment opportunities:

Origination of the deal Screening Due Diligence or Evaluation Structuring of the deal Activity Post Investment and Exit

Q24:book building process of ipo

Book building is a systematic process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery.

http://www.slideshare.net/Dharmikpatel7992/book-building-process-of-ipo-24277766

q25: functions of investment banking

Raising Capital & Security Underwriting. Banks are middlemen between a company that wants to issue new securities and the buying public.

Mergers & Acquisitions. Banks advise buyers and sellers on business valuation, negotiation, pricing and structuring of transactions, as well as procedure and implementation.

Sales & Trading and Equity Research. Banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities

Retail and Commercial Banking. After the repeal of Glass-Steagall in 1999, investment banks now offer traditionally off-limits services like commercial banking.

Front office vs back office. While the sexier functions like M&A advisory are “front office,” other functions like risk management, financial control,

corporate treasury, corporate strategy, compliance, operations and technology are critical back office functions.

History of the industry. The industry has changed dramatically since John Pierpont Morgan had to personally bail out the United States from the Panic of 1907. We survey the important evolution in this section.

After the 2008 financial crisis. The industry has not fully recovered from the financial crisis that gripped the world in 2008. How has the industry changed and where is it going?

Q26:hw rating agency rate financial instrument

http://www.slideshare.net/stephen_j_omalley/rating-financial-instruments-db-method

q27: loan syndication

Loan syndication is a lending process in which a group of lenders provide funds to a single borrower

The process of involving several different lenders in providing various portions of a loan. Loan syndication most often occurs in situations where a borrower requires a large sum of capital that may either be too much for a single lender to provide, or may be outside the scope of a lender's risk exposure levels. Thus, multiple lenders will work together to provide the borrower with the capital needed, at an appropriate rate agreed upon by all the lenders.