1. INTRODUCTION

Today’s global capital market developed after the major nations of the world abandoned the adjustable peg system rates in the early 1970s and eliminated their grid foreign exchange controls that went with them. Advances in technology that enables great capital mobility, coupled with lack of fiscal discipline, mostly on the part the united states, made a quasi-fixed rate system unworkable and inefficient. In 20 years since abandonment, the resulting financial freedom and the boom in the technology, have allowed profit seeking investors, issuers, and intermediaries to create an ever expanding global market for financial instrument in all denominations. As trading volumes soared and the variety of instruments multiplied, this global market acquired considerable power.

But the process is only help complete. While the markets for the money ,foreign exchange and bonds have already became global, the equities market share only in the process of globalizing. Moreover, as bank deposits continue to be securitized around the world, more and more of the flow of funds in the economies of the developed world will be in instruments which can be traded and there by linked directly to the global capital market. Finally, more and more of the developing countries of the world are reforming there financial systems and, in the process linking into the global capital market.

As this process continues, the global capital market will continue to grow, becoming more powerful and integrated, until it reaches maturity sometime in the next century. Worldwide capital supply and demand will be intermediated through this market, which will be the mechanism for capital pricing and allocation.

The phenomenon of globalization began in a primitive form when humans first settled into different areas of the world; however, it has shown a rather steady and rapid progress in the recent times and has become an international dynamic which, due to technological advancements, has increased in speed and scale, so that countries in all five continents have been affected and engaged.

The financial crisis and worldwide recession has abruptly halted a nearly three-decade-long expansion of global capital markets. After nearly quadrupling in size relative to GDP since 1980, world financial assets including equities, private and public debt, and bank deposits fell by $16 trillion last year to $178 trillion in 2008, the largest setback on record. MGI research suggests that the forces fueling growth in financial markets have changed. For the past 30 years, most of the overall increase in financial depth the ratio of assets to GDP was driven by rapid growth of equities and private debt in mature markets. By 2007, the total value of global financial assets reached a peak of $194 trillion, equal to 343 percent of GDP. But the upheaval in financial markets in late 2008 marked a break in this trend. 

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2. GLOBALIZATION Globalization is defined as a process which, based on international strategies, aims to expand business operations on a worldwide level and was precipitated by the facilitation of global communications due to technological advancements, and socioeconomic, political and environmental developments. The goal of globalization is to provide organizations a superior competitive position with lower operating costs, to gain greater numbers of products, services and consumers. This approach to competition is gained via diversification of resources, the creation and development of new investment opportunities by opening up additional markets, and accessing new raw materials and resources. Diversification of resources is a business strategy that increases the variety of business products and services within various organizations. Diversification strengthens institutions by lowering organizational risk factors, spreading interests in different areas, taking advantage of market opportunities and acquiring companies both horizontal and vertical in nature. Globalization has become the buzz word of the new millennium. It is viewed as the cause of many of the world’s problems as well as a panacea. The debate over globalization is manifest both in public demonstrations against the WTO in Seattle in the Fall of 1999 and the IMF and World Bank earlier.

Industrialized or developed nations are specific countries with a high level of economic development and meet certain socioeconomic criteria based on economic theory such as gross domestic product, industrialization and human development index as defined by the International Monetary Fund, the United Nations and the World Trade Organization. Using these definitions, some industrialized countries in 2010 were: Austria, United Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway, Sweden, Switzerland, and the United States.

COMPONENTS OF GLOBALIZATION

The components of globalization include GDP, industrialization and the Human Development Index . The GDP is the market value of all finished goods and services produced within a country's borders in a year and serves as a measure of a country's overall economic output. Industrialization is a process which, driven by technological innovation, effectuates social change and economic development by transforming a country into a modernized industrial, or developed, nation. Until three years ago the consensus view among economists on the issue of the international integration of financial markets was very positive. The benefits of open capitalmarkets stressed include: optimal international resource allocation; inter temporal optimization;international portfolio diversification and discipline on policy makers

The Human Development Index comprises three components. Specifically, a country's

population's life expectancy,

(b) knowledge and education measured by the adult literacy and

(c) income. 

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THE ECONOMIC IMPACT ON DEVELOPED NATIONS

Globalization compels businesses to adapt to different strategies based on new ideological trends that try to balance rights and interests of both the individual and the community as a whole. This change enables businesses to compete world wide and also signifies a dramatic change for business leaders, labor and management by legitimately accepting the participation of workers and government in developing and implementing company policies and strategies. Risk reduction via diversification can be accomplished through company involvement with international financial institutions and partnering with both local and multinational businesses. Globalization brings reorganization at the international, national and sub-national levels. Specifically, it brings there organization of production, international trade and the integration of financial markets, thus affecting capitalist economic and social relations via multilateralism and microeconomic phenomena, such as business competitiveness, at the global level. The transformation of the production systems affects the class structure, the labor process, the application of technology and the structure and organization of capital. Globalization is now seen as marginalizing the less educated and low-skilled workers. Business expansion will no longer automatically imply increased employment. Additionally, it can cause high remuneration of capital due to its higher mobility compared to labor. The phenomenon seems to be driven by three major forces: globalization of all product and financial markets, technology and deregulation. Globalization of product and financial markets refers to an increased economic integration in specialization and economies of scale, which will result in greater trade in financial services through both capital flows and cross-border entry activity. The technology factor, specifically telecommunication and information availability, have facilitated remote delivery and provided new access and distribution channels while revamping industrial structures for financial services by allowing entry of non-bank entities such as telecoms and utilities .Deregulation pertains to the liberalization of capital account and financial services in products, markets and geographic locations. It integrated banks by offering a broad array of services, allowed entry of new providers and increased multinational presence in many markets and more cross-border activities. In a global economy, power is the ability of a company to command both tangible and intangible assets that create customer loyalty, regardless of location. Independent of size or geographic location, a company can meet global standards and tap into global networks, thrive and act as a world class thinker, maker and trader, by using its greatest assets: its concepts, competence and connections.

 

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BENEFICIAL EFFECTS

Some economists have a positive outlook regarding the net effects of globalization on economic growth. These effects have been analyzed over the years by several studies attempting to measure the impact of globalization on various nations' economies using variables such as trade, capital flows and their openness, GDP per capita, foreign direct investment and more. These studies examined the effects of several components of globalization on growing time series cross sectional data on trade, FDI and portfolio investment. Although they provide an analysis of individual components of globalization on economic growth, some of the results are inconclusive or even contradictory. However, overall, the findings of those studies seem to be supportive of the economists' positive position instead of the one held by the public and non-economist view. Trade among nations via the use of comparative advantage promotes growth, which is attributed to a strong correlation between the openness to trade flows and the affect on economic growth and economic performance. Additionally there is a strong positive relation between capital flows and their impact one economic growth. Foreign Direct Investment's impact on economic growth has had a positive growth effect in wealthy countries and an increase in trade and FDI resulted in higher growth rates. Empirical research examining the effects of several components of globalization on growth using time series and cross sectional data on trade, FDI and portfolio investment found that a country tends to have a lower degree of globalization if it generates higher revenues from trade taxes. Further evidence indicates that there is a positive growth-effect in countries which are sufficiently rich as are most of the developed nations. The World Bank reports that integration with global capital markets can lead to disastrous effects without sound domestic financial systems in place. Furthermore globalized countries have lower increases in government out lays, as well as taxes, and lower levels of corruption in their governments. One of the potential benefits of globalization is to provide opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk.

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HARMFUL EFFECTS

Non-economists and the wide public expect the costs associated with globalization to outweigh the benefits, especially in the short-run. Less wealthy countries from those among the industrialized nations may not have the same highly-accentuated beneficial effect from globalization as more wealthy countries measured by GDP per capita etc. Free trade, although increases opportunities for international trade, it also increases the risk of failure for smaller companies that cannot compete globally.

Additionally it may drive up production and labor costs including higher wages for more skilled workforce. Domestic industries in some countries may been dangered due to comparative or absolute advantage of other countries in specific industries. Another possible danger and harmful effect is the over use and abuse of natural resources to meet the new higher demand in the production of goods.

THE BOTTOM LINE

One of the major potential benefits of globalization is to provide opportunities for reducing macroeconomic volatility on output and consumption via diversification of risk. The overall evidence of the globalization effect on macroeconomic volatility of output indicates that, although in theoretical models the direct effects are ambiguous, financial integration helps in a nation's production base diversification, leads to an increase in specialization of production. However, the specialization of production based on the concept of comparative advantage can also lead to higher volatility in specific industries within an economy and society of a nation. As time passes, successful companies, independent of size, will be the ones that are part of the global economy.

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3. GLOBALIZATION OF FINANCIAL SERVICES

In this age of globalization, the key to survival and success for many financial institutions is to cultivate strategic partnerships that allow them to be competitive and offer diverse services to consumers. In examining the barriers to - and impact of - mergers, acquisitions and diversification in the financial services industry, it's important to consider the keys to survival in this industry:

1.Understanding the individual client's needs and expectations2.Providing customer service tailored to meet customers' needs and expectations

In 2008, there were very high rates of mergers and acquisition in the financial services sector. Let's take a look at some of the regulatory history that contributed to changes in the financial services landscape and what this means for the new landscape investors now need to traverse.

Diversification Encouraged by Deregulation Because large, international mergers tend to impact the structure of entire domestic industries, national governments often devise and implement prevention policies aimed at reducing domestic competition among firms. Beginning in the early 1980s, the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germaine Depository Act of 1982 were passed.

By providing the Federal Reserve with greater control over non-member banks, these two acts work to allow banks to merge and thrift institutions to offer checkable deposits. These changes also became the catalysts for the dramatic transformation of the U.S. financial service markets in 2008 and the emergence of reconstituted players as well as new players and service channels.

Nearly a decade later, the implementation of the Second Banking Directive in1993 deregulated the markets of European Union countries. In 1994, European insurance markets underwent similar changes as a result of the Third Generation Insurance Directive of 1994.

These two directives brought the financial services industries of the United States and Europe into fierce competitive alignment, creating a vigorous global scramble to secure customers that had been previously unreachable or untouchable.

The ability for business entities to use the internet to deliver financial services to their client else also impacted the product-oriented and geographic diversification in the financial services arena.

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GOING GLOBAL

Asian markets joined the expansion movement in 1996 when "Big Bang" financial reforms brought about deregulation in Japan. Relatively far- reaching financial systems in that country became competitive in a global environment that was enlarging and changing swiftly. By 1999, nearly all remaining restrictions on foreign exchange transactions between Japan and other countries were lifted.

Following the changes in the Asian financial market, the United States continued to implement several additional stages of deregulation, concluding with the Gramm-Leach-Bliley Act of 1999.This law allowed for the consolidation of major financial players, which pushed U.S.-domiciled financial service companies involved in M&A transactions to a total of $221 billion in2000.

According to a 2001 study by Joseph Teplitz, Gary Apanaschik and Elizabeth Harper Briglia in Bank Accounting & Finance, expansion of such magnitude involving trade liberalization, the privatization of banks in many emerging countries and technological advancements has become a rather common trend.

The immediate effects of deregulation were increased competition, market efficiency and enhanced consumer choice. Deregulation sparked unprecedented changes that transformed customers from passive consumers to powerful and sophisticated players. Studies suggest that additional, diverse regulatory efforts further complicated the running and managing of financial institutions by increasing the layers of bureaucracy and number of regulations.

Simultaneously, the technological revolution of the internet changed the nature, scope and competitive landscape of the financial services industry. Following deregulation, the new reality has each financial institution essentially operating in its own market and targeting its audience with narrower services, catering to the demands of a unique mix of customer segments. This deregulation forced financial institutions to prioritize their goals by shifting their focus from rate-setting and transaction-processing to becoming more customer-focused.

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CHALLENGES AND DRAWBACKS OF FINANCIAL PARTNERSHIPS

 Since 1998, the financial services industry in wealthy nations and the United States has been experiencing a rapid geographic expansion; customers previously served by local financial institutions are now targeted at a global level. Additionally, according to Alen Berger and Robert De Young in their Article” Technological Progress and the Geographic Expansion of the Banking Industry” of Journal of Money, Credit and Banking, September 2006, between1985 and 1998, the average distance between a main bank and its affiliates within U.S. multi bank holding companies has increased by more than 50%,from 123.4 miles to 188.9 miles. This indicates that the increased ability of banks to make small business loans at greater distances enabled them to suffer fewer diseconomies of scale and boost productivity.

Deregulation has also been the major factor behind this geographic diversification, and beginning in the early 1980s, a sequence of policy changes implemented a gradual reduction of intrastate and interstate banking restrictions.

In the European Union, a similar counterpart of policy changes enabled banking organizations and certain other financial institutions to extend their operations across the member-states. Latin America, the transitional economies of Eastern Europe and other parts of the world also began to lower or eliminate restrictions on foreign entry, thus enabling multinational financial institutions headquartered in other countries to attain considerable market shares.

 Transactions without Boundaries, Borders: Recent innovations in communications and information technology have resulted in a reduction in diseconomies of scale associated with business costs faced by financial institutions contemplating geographic expansion. ATM networks and banking websites has enabled efficient long-distance interactions between institutions and their customers, and consumers have become so dependent on their new found ability to conduct boundary-less financial transactions on a continuous basis that businesses lose all competitiveness if they are not technologically connected.

An additional driving force for financial service firms' geographic diversification has been the proliferation of corporate combination strategies such as mergers, acquisitions, strategic alliances and outsourcing. Such consolidation strategies may improve efficiency within the industry, resulting in M&As, voluntary exit, or forced withdrawal of poorly performing firms.

Consolidation strategies further empower firms to capitalize on economies of scale and focus on lowering their unit production costs. Firms often publicly declare that their mergers are motivated by a desire for revenue growth, an increase in product bases, and for increased shareholder value via staff consolidation, overhead reduction and by offering a wider array of products. However, the main reason and value of such strategy combinations is often related to internal cost reduction and increased productivity Unfavorable facts about the advantages and disadvantages of the major strategies used as a tool for geographic expansions within the financial services sectors were obscured in 2008 by the very high rates of M&As, such as those between Nations Bank and Bank of America, Travelers Group and Citicorp, JP Morgan Chase and Bank One. Their dilemma was to create a balance that maximized overall profit.

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4. MERGERS AND ACQUISITIONS

Mergers and acquisitions is an aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects, although it has not completely disappeared in all situations.

An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may be of 100%, or nearly 100%, of the assets or ownership equity of the acquired entity. Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies survives independently. Acquisitions are divided into "private" and "public" acquisitions, depending on whether the acquire or merging company is or is not listed on a public stock market. An additional dimension or categorization consists of whether an acquisition is friendly or hostile.

Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. The acquisition process is very complex, with many dimensions influencing its outcome.

As you can see, an acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another - there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile.

In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. An other possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y's assets for cash, which means that Company Y will have only cash. Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business.

Another type of acquisition is a reverse merger, a deal that enables a private company to get publicly-listed in a relatively short time period. A reverse merger occurs when a private company that has strong prospects and is eager to raise financing buys a publicly-listed shell company, usually one with no business and limited assets. The private company reverse merges into the public company, and together they become an entirely new public corporation with tradable shares.

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Distinction between mergers and acquisitions

Mergers Acquisitions

A merger involves the mutual decision of two companies to combine and become one entity; it can be seen as a decision made by two “equal”.

A takeover, or acquisition, on the other hand, is characterized by the purchase of a smaller company by a much larger one. This combination of “unequal’s” can produce the same benefits as a merger, but it does not necessarily have to be mutual decision.

The combined business, through structural and operational advantages secured by the merger, can cut cost and increase profits, boosting shareholders values for both groups of shareholders.

A larger company can initiate a hostile takeover of a smaller firm, which essentially amounts to buying the company in the face of resistance from the smaller company’s management.

A typical merger, in other words, involves two relatively equal companies, which combine to become one legal entity with the goal of producing a company that is worth more than the sum of its parts.

Unlike in a merger, in an acquisition, the acquiring firm’s usually offers a cash price per share to the target firm’s shareholders or the acquiring firm’s share’s to the shareholder of the target firm according to a specified conversion ratio.

In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for an equal number of shares in the merged entity.

Either way, the purchasing company essentially finances the purchase of the target company, buying it outright for its shareholders

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Types of Mergers And acquisitions

There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are listed below: 

o Horizontal Merger 

This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits. This kind substantially reduces the number of competitors in the segment and gives a higher edge over competition. 

o Vertical Merger

Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business. In this form, the companies in merger decide to combine all the operations and productions under one shelter. It is like encompassing all the requirements and products of a single industry segment.   

o Co-Generic Merger

Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies. It includes the extension of the product line or acquiring components that are all the way required in the daily operations. This kind offers great opportunities to businesses as it opens a hue gateway to diversify around a common set of resources and strategic requirements. 

o Conglomerate Merger

Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their operations overlap that of each other. This is just a unification of businesses from different verticals under one flagship enterprise or firm. 

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Mergers and Acquisitions Failure

Despite the goal of performance improvement, results from mergers and acquisitions are often disappointing compared with results predicted or expected. Numerous empirical studies show high failure rates of mergers and acquisitions deals. Studies are mostly focused on individual determinants.

A book by Thomas Straub 2007 "Reasons for frequent failure in Mergers and Acquisitions" develops a comprehensive research framework that bridges different perspectives and promotes an understanding of factors underlying mergers and acquisitions performance in business research and scholarship. The study should help managers in the decision making process.

The first important step towards this objective is the development of a common frame of reference that spans conflicting theoretical assumptions from different perspectives. On this basis, a comprehensive framework is proposed with which to understand the origins of mergers and acquisitions performance better and address the problem of fragmentation by integrating the most important competing perspectives in respect of studies on mergers and acquisitions

Furthermore according to the existing literature relevant determinants of firm performance are derived from each dimension of the model. For the dimension strategic management, the six strategic variables: market similarity, market complementarities, production operation similarity, production operation complementarities, market power, and purchasing power were identified having an important impact on mergers and acquisitions performance. For the dimension organizational behavior, the variables acquisition experience, relative size, and cultural differences were found to be important.

Finally, relevant determinants of mergers and acquisitions performance from the financial field were acquisition premium, bidding process, and due diligence. Three different ways in order to best measure post mergers and acquisitions performance are recognized: Synergy realization, absolute performance and finally relative performance.

Employee turnover contributes to mergers and acquisitions failures. The turnover in target companies is double the turnover experienced in non-merged firms for the ten years following the merger.

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5. CREDIT RATING AGENCY

The credit rating agency of debt securities began in USA in 1841.At present credit rating agency are operating throughout the globe. Credit rating agency can be define as the opinion expressed by an independent rating agency about the credit quality of the issuer of the debt instrument.

A credit rating agency (CRA) are the company’s that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In some cases, the servicers of the underlying debt are also given ratings.

In most cases, the issuers of securities are companies, special purpose entities, state and local governments, non-profit organizations, or national governments issuing debt-like securities that can be traded on a secondary market. A credit rating for an issuer takes into consideration the issuer's credit worthiness and affects the interest rate applied to the particular security being issued.

The value of such security ratings has been widely questioned after the 2007-09 financial crisis. In 2003, the U.S. Securities and Exchange Commission submitted a report to Congress detailing plans to launch an investigation into the anti-competitive practices of credit rating agencies and issues including conflicts of interest. More recently, ratings downgrades during the European sovereign debt crisis of 2010-11 have drawn criticism from the EU and individual countries.

A company that issues credit scores for individual credit-worthiness is generally called a credit bureau or consumer credit reporting agency . The rating agencies respond that their advice constitutes only a "point in time" analysis, that they make clear that they never promise or guarantee a certain rating to a tranche, and that they also make clear that any change in circumstance regarding the risk factors of a particular tranche will invalidate their analysis and result in a different credit rating.

Credit ratings are used by investors, issuers, investment banks, broker-dealers, and governments. For investors, credit rating agencies increase the range of investment alternatives and provide independent, easy-to-use measurements of relative credit risk; this generally increases the efficiency of the market, lowering costs for both borrowers and lenders. This in turn increases the total supply of risk capital in the economy, leading to stronger growth. It also opens the capital markets to categories of borrower who might otherwise be shut out altogether: small governments, startup companies, hospitals, and universities.

Credit rating agencies may also play a key role in structured financial transactions. Unlike a "typical" loan or bond issuance, where a borrower offers to pay a certain return on a loan, structured financial transactions may be viewed as either a series of loans with different characteristics, or else a number of small loans of a similar type packaged together into a series of "buckets". Credit ratings often determine the interest rate or price ascribed to a particular tranche, based on the quality of loans or quality of assets contained within that grouping.

Credit rating agency do not involve in any recommendation to purchase, sell or hold that Security.

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Credit Rating Agencies Of The World

Agencies that assign Credit Ratings for Corporations include:-

A. M. Best (U.S.) Baycorp Advantage (Australia) Bulgarian Credit Rating Agency (Bulgaria, European Union) Capital Intelligence (Cyprus) Capital Standards Rating (Kuwait) CARE Ratings (India) Credo line (Ukraine) Creditsiren (European Union) Credit Rating Information and Services Limited(CRISL), (Bangladesh) CRISIL (India) Dagong Global (People's Republic of China) Dominion Bond Rating Service (Canada) Egan-Jones Rating Company (U.S.) First Afghan Credit Risk Ratings (Afghanistan)FACRR First Report, (UK) Fitch Ratings (Dual-headquartered U.S./UK), 80% of which is owned by FIMALAC, a

French firm. Global Credit Ratings Co. (Africa) ICRA Limited (India) SMERA INDIA Japan Credit Rating Agency, Ltd. (Japan) Kroll Bond Rating Agency (U.S.) Moody's Investors Service (U.S.) Muros Ratings (Russia alternative rating agency) Rapid Ratings International (U.S.) Standard & Poor's (U.S.) Weiss Ratings (U.S.)

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Credit Rating Agencies Of The World

1. Standard & Poor's

Standard & Poor's is an American financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds. It is well known for its stock market indices, the U.S.-based S&P 500, the Australian S&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and India's S&P CNX Nifty. The company is one of the Big Three credit-rating agencies, which also include Moody's Investor Service and Fitch Ratings. Its head office is located on 55 Water Street in Lower Manhattan, New Yor The company traces its history back to 1860, with the publication by Henry Varnum Poor of History of Railroads and Canals in the United States. This book was an attempt to compile comprehensive information about the financial and operational state of U.S. railroad companies. Henry Varnum went on to establish H.V. and H.W. Poor Co. with his son, Henry William, and published annually updated versions of this book.

In 1906, Luther Lee Blake founded the Standard Statistics Bureau, with the view to providing financial information on non-railroad companies. Instead of an annually published book, Standard Statistics would use 5" x 7" cards, allowing for more frequent updates.

In 1941, Poor and Standard Statistics merged to become Standard & Poor's Corp. In 1966, the company was acquired by The McGraw-Hill Companies, and now encompasses the Financial Services d he company issues credit ratings for the debt of public and private corporations. It is one of several CRAs that have been designated a nationally recognized statistical rating organization by the U.S. Securities and Exchange Commission.

S&P issues both short-term and long-term credit ratings.

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2. MODDY’S

Moody’s is the oldest credit rating agency. It is also the first rating agency to be recognized by Nationally Recognized Statistical Rating Organizations (NRSRO) in 1975.  The company became public in 2000. It has been earning huge profits. Average profit margin was 53% from 2000 to 2007. Structured finance products was its top source of revenue by 2000.

Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international financial research on bonds issued by commercial and government entities and, with Standard & Poor's and Fitch Group, is considered one of the Big Three credit rating agencies.

The company ranks the creditworthiness of borrowers using a standardized ratings scale which measures expected investor loss in the event of default. Moody's Investors Service rates debt securities in several market segments related to public and commercial securities in the bond market. These include government, municipal and corporate bonds; managed investments such as money market funds, fixed-income funds and hedge funds; financial institutions including banks and non-bank finance companies; and asset classes in structured finance.[1] In Moody's Investors Service's ratings system securities are assigned a rating from Aaa to C, with Aaa being the highest quality and C the lowest quality.

Moody's was founded by John Moody in 1909 to produce manuals of statistics related to stocks and bonds and bond ratings. In 1975, the company was identified as a Nationally Recognized Statistical Rating Organization (NRSRO) by the U.S. Securities and Exchange Commission. Following several decades of ownership by Dun & Bradstreet, Moody's Investors Service became a separate company in 2000; Moody's Corporation was established as a holding company.

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3.Fitch Group

The Fitch Group is a jointly owned subsidiary of FIMALAC and Hearst Corporation. On April 12, 2012, Hearst increased their stake in the Fitch Group to 50%.[2] Fitch Ratings and Fitch Solutions are part of the Fitch Group.

Fitch Ratings, dual-headquartered in New York and London, was one of the three Nationally Recognized Statistical Rating Organizations designated by the U.S. Securities and Exchange Commission in 1975, together with Moody's and Standard & Poor's. It is considered one of the "Big Three credit rating agencies"

The firm was founded by John Knowles Fitch on December 24, 1913 in New York City as the Fitch Publishing Company. It merged with London-based IBCA Limited in December 1997. In 2000 Fitch acquired both Chicago-based Duff & Phelps Credit Rating Co. and Thomson Financial BankWatch Fitch Ratings is the smallest of the "big three" NRSROs, covering a more limited share of the market than S&P and Moody's, though it has grown with acquisitions and frequently positions itself as a "tie-breaker" when the other two agencies have ratings similar, but not equal, in scale.

In September 2011, Fitch Group announced the sale of Algorithmics to IBM for $387 million. The deal closed on October 21, 201

Credit rating agencies such as Fitch Ratings have been subject to criticism in the wake of large losses in the collateralized debt obligation market that occurred despite being assigned top ratings by the CRAs. For instance, losses on $340.7 million worth of collateralized debt obligations issued by Credit Suisse Group added up to about $125 million, despite being rated AAA by Fitch. However, differently from the other agencies, Fitch has been warning the market on the constant proportion debt obligations with an early and pre-crisis report highlighting the dangers of CPDO's

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Sebi orders operational audit of credit rating agencies

The Securities and Exchange Board of India (Sebi) has said all credit rating agencies have to get an internal audit done every six months.

The market regulator, in a note, said: “It (internal audit) shall cover all aspects of CRA operations and procedures, including the investor grievance redressal mechanism.”

The audit will be conducted by chartered accountants, company secretaries or cost and management accountants who are in practice and do not have any conflict of interest with the cras.

“The report shall state the methodology adopted, deficiencies observed and consideration of response of the management on the deficiencies,” the note added.

Sebi said the report should comment on the adequacy of systems adopted by the CRA for compliance with the regulations issued by it and for investor grievance redressal.

Roopa Kudva, managing director & CEO, Crisil, and Region Head, South Asia, Standard & Poor’s, said: “Crisil welcomes the move by Sebi to strengthen the control function at credit rating agencies. We are fully compliant with the Sebi Regulations, 1999. These internal audits are conducted by an independent chartered accountant firm, and cover compliance with Sebi guidelines.”

“The way our business is growing, we had appointed a firm to undertake internal audit. But the role was limited to doing a financial check. This year onwards, our board has already asked us to undertake operational audit. We have appointed an internal auditor to do the same,” said Care’s Managing Director, D R Dogra.

Agencies must get the internal audit report within two months from the end of the half-year. Then, their board will have to consider the report and take steps to rectify any deficiencies, and send an action taken report to Sebi within two months.

The move follows a review of the regulatory architecture initiated by the financial sector regulators in 2008. The exercise, initiated by the high-level committee on capital markets, which is headed by the Reserve Bank of India Governor, was spurred by international developments and the debate over the role played by rating agencies before the global financial crisis.

The committee had reviewed the functioning of the agencies last month, based on a paper prepared by Sebi and feedback from the agencies themselves.

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6.Emerging markets

Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. The economies of China and India are considered to be the largest. According to The Economist many people find the term outdated, but no new term has yet to gain much traction. Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion. The seven largest emerging and developing economies by either nominal GDP or GDP are China, Brazil, Russia, India, Mexico, Indonesia, and Turkey.

The ASEAN–China Free Trade Area, launched on January 1, 2010, is the largest regional emerging market in the world

N the 1970s, "less economically developed countries" was the common term for markets that were less "developed" than the developed countries such as the United States, Western Europe, and Japan. These markets were supposed to provide greater potential for profit, but also more risk from various factors. This term was felt by some to be not positive enough so the emerging market label was born. This term is misleading in that there is no guarantee that a country will move from "less developed" to "more developed"; although that is the general trend in the world, countries can also move from "more developed" to "less developed".

Originally brought into fashion in the 1980s by then World Bank economist Antoine van Agtmael, the term is sometimes loosely used as a replacement for emerging economies, but really signifies a business phenomenon that is not fully described by or constrained to geography or economic strength; such countries are considered to be in a transitional phase between developing and developed status. Examples of emerging markets include Indonesia, Iran, some countries of Latin America, some countries in Southeast Asia, South Korea, most countries in Eastern Europe, Russia, some countries in the Middle East, and parts of Africa. Emphasizing the fluid nature of the category, political scientist Ian Bremmer defines an emerging market as "a country where politics matters at least as much as economics to the markets".[6]

The research on emerging markets is diffused within management literature. While researchers including C. K. Prahalad, George Haley, Hernando de Soto, Usha Haley, and several professors from Harvard Business School and Yale School of Management have described activity in countries such as India and China, how a market emerges is little understood.

In the 2008 Emerging Economy Report, the Center for Knowledge Societies defines Emerging Economies as those "regions of the world that are experiencing rapid information nalization under conditions of limited or partial industrialization." It appears that emerging markets lie at the intersection of non-traditional user behavior, the rise of new user groups and community adoption of products and services, and innovations in product technologies and platforms.

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Newly industrialized countries as of 2010. This is an intermediate category between fully developed and developing.

The term "rapidly developing economies" is being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

In recent years, new terms have emerged to describe the largest developing countries such as BRIC that stands for Brazil, Russia, India, and China, along with BRICET i.e BRIC + Eastern Europe and Turkey, BRICS i.e BRIC + South Africa, BRICM i.e BRIC + Mexico, BRICK i.e. BRIC + South Korea, Next Eleven Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam and CIVETS i.e. Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. These countries do not share any common agenda, but some experts believe that they are enjoying an increasing role in the world economy and on political platforms.

It is difficult to make an exact list of emerging markets; the best guides tend to be investment information sources like ISI Emerging Markets and The Economist or market index makers such as Morgan Stanley Capital International. These sources are well-informed, but the nature of investment information sources leads to two potential problems. One is an element of historicity; markets may be maintained in an index for continuity, even if the countries have since developed past the emerging market phase. Possible examples of this are South Korea and Taiwan. A second is the simplification inherent in making an index; small countries, or countries with limited market liquidity are often not considered, with their larger neighbours considered an appropriate stand-in.

In an Opalesque.TV video, hedge fund manager Jonathan Binder discusses the current and future relevance of the term "emerging markets" in the financial world. Binder says that in the future investors will not necessarily think of the traditional classifications of "G10" versus "emerging markets". Instead, people should look at the world as countries that are fiscally responsible and countries that are not. Whether that country is in Europe or in South America should make no difference, making the traditional "blocs" of categorization irrelevant.

The Big Emerging Market economies are : Brazil, China, Egypt, India, Indonesia, Mexico, Philippines, Poland, Russia, South Africa, South Korea and Turkey.

Newly industrialized countries are emerging markets whose economies have not yet reached first world status but have, in a macroeconomic sense, outpaced their developing counterparts.

Individual investors can invest in emerging markets by buying into emerging markets or global funds. If they want to pick single stocks or make their own bets they can do it either through adrs or through exchange traded funds. The exchange traded funds can be focused on a particular country or region .

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7.GLOBAL EQUITY MARKET

A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

The size of the world stock market was estimated at about $36.6 trillion at the beginning of October 2008. The total world derivatives market has been estimated at about $791 trillion face or nominal value, 11 times the size of the entire world economy.[3] The value of the derivatives market, because it is stated in terms of notional values, cannot be directly compared to a stock or a fixed income security, which traditionally refers to an actual value. Moreover, the vast majority of derivatives 'cancel' each other out (Many such relatively illiquid securities are valued as marked to model, rather than an actual market price.

The stocks are listed and traded on stock exchanges which are entities of a corporation or mutual organization specialized in the business of bringing buyers and sellers of the organizations to a listing of stocks and securities together. The largest stock market in the United States, by market capitalization, is the New York Stock Exchange (NYSE). In Canada, the largest stock market is the Toronto Stock Exchange. Major European examples of stock exchanges include the Amsterdam Stock Exchange, London Stock Exchange, Paris Bourse, and the Deutsche Börse. In Africa, examples include Nigerian Stock Exchange, JSE Limited, etc. Asian examples include the Singapore Exchange, the Tokyo Stock Exchange, the Hong Kong Stock Exchange, the Shanghai Stock Exchange, and the Bombay Stock Exchange. In Latin America, there are such exchanges as the BM&F Bovespa and the BMV.

Market participants include individual retail investors, institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares. Some studies have suggested that institutional investors and corporations trading in their own shares generally receive higher risk-adjusted returns than retail investors.

A few decades ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen, usually with long family histories to particular corporations. Over time, markets have become more "institutionalized"; buyers and sellers are largely institutions

The rise of the institutional investor has brought with it some improvements in market operations. There has been a gradual tendency for "fixed" fees being reduced for all investors, partly from falling administration costs but also assisted by large institutions challenging brokers' oligopolistic approach to setting standardized fees.

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The equity market have been slower to globalize than the foreign exchange or the bond markets. Price linkages remain weak across equity markets. Significant differences in valuation still exist across different national equity market even for comparable companies in identical industries. Equity market have been difficult and slow to globalize for many reasons. Unlike foreign exchange and government bonds, equities and not pure commodities. The valuation of the equity of a company is highly unique to the particular circumstances of that company and the total amount of market value being traded can also be relatively small. As a result of both of these factors, these markets are less liquid and the full transaction costs such as equities, research, commission, etc. are higher than in the other markets. While the total daily volume of the global foreign exchange markets is on the market is on the order of $1 trillion a day and the total daily trading volume of the government bonds is on the order of $200 billion a day, the total daily volumeof all the world’s stock exchanges is only $23 billion a day

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DAILY TRADING VOLUME OF FOREIGN EXCHANGE, GOVERNMENT BONDS AND EQUITES 1992

Estimate based on U.S daily transaction volume

Strictly speaking there is no international equity market in the sense that there are international bond and international currency market. Rather many countries have their own domestic equity market in which stock are traded. The largest of these domestic equity market are to be found in the United States, Great Britain, Japan and Germany. Although each domestic equity market is still dominated by investors who are citizens of that country and companies incorporated in that country, development are internationalizing the world equity market. Investors are investing heavily in foreign equity markets to diversify the portfolio.

One of the greatest limitations to the globalization of the equity markets has been the lack of any agent to drive the process. The illiquidity and volatility of individual equity prices makes it prohibitively risky for the highly leveraged, multinational commercial banks to hold equities in volume for even a short period of time. As a result, multinational banks have historically been reluctant to try to make money by trading or investing in international equities, and therefore, have not driven the globalization of equity.

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8.STOCK EXCHANGES

A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities .Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. 

To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market .A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors that, as in all free markets, affect the price of stocks.

There is usually no compulsion to issue stock via the stock exchange itself, norms stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

Stock is basically part ownership of a business. A person invests his or her money in the business which the business uses to better the company. When the company does well, the person who invested in the company gets a certain percentage of the profits of the company. Depending on how well the business is doing, a percent of that business is worth a certain amount of money that can change either decreasing the money in the stockholder's pocket or increasing it. Trading stocks is a way for people to make money by investing money in companies.

There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

A stock exchange, share market or bourse is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks . And subsequent trading is done.

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The Role Of Stock Exchanges

o Mobilizing saving for investment

When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in a stronger economic growth and higherproductivity levels and firms

o .Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary businessassets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.

o Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.

o Corporate governance

By having a wide and varied scope of owners, companies generally tend to improve on theirmanagementefficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies tend to have better management records than privately-held companiescorporate governance on the part of some public companies. However, some well-documented cases are known where it is alleged that there has been considerable slippage in

o Gives the right to shareholders to vote in the general meetings

It permits for the investor to have a political power in the companies in which he investsits savings due that the acquisition of ordinary shares gives him the right to vote in the general shareholders meetings of the company in question

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o Creating investment opportunity of small investor

As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.

o Govt. capital- raising for development project

Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. The issuance of such bonds can obviate the need to directly tax the citizens in order to finance development, although by securing such bonds with the full faith and credit of the government instead of with collateral, the result is that the government must tax the citizens or otherwise raise additional funds to make any regular coupon payments and refund the principal when the bonds mature.

o Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

o To provide liquidity to the investors.

The investor can recover the money invested when needed. For it, he has to go to the stock exchange market to sell the securities previously acquired. This function of the stock market is done on the secondary market. It offers liquidity to the security investments, through a place in which to sell or buy securities

o Transparency

Investor make informed and intelligent decision about the particular stock based on information. Listed companies must disclose information in timely, complete and accurate manner to the Exchange and the public on a regular basis. Required information include stock price, corporate conditions and developments dividend, mergers and joint ventures, and management changes etc.

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9..MAJOR STOCK EXCHANGES

Rank Economy Stock Exchange HeadquartersMarket

Capitalization(USD Billions)

Trade Value(USD Billions)

1

 United States

 EuropeNYSE Euro next (US & Europe)

New York City

14,242 20,161

2

 United States

 EuropeNASDAQ OMX (US & North Europe)

New York City

4,687 13,552

3  Japan Tokyo Stock Exchange Tokyo 3,325 3,972

4  United Kingdom

London Stock Exchange London 3,266 2,837

5  ChinaShanghai Stock Exchange

Shanghai 2,357 3,658

6  Hong Kong Hong Kong Stock Exchange

Hong Kong 2,258 1,447

7  Canada Toronto Stock Exchange

Toronto 1,912 1,542

8  Brazil BM&F Bovespa São Paulo 1,229 931

9  Australia Australian Securities Exchange

Sydney 1,198 1,197

10  Germany Deutsche Börse Frankfurt 1,185 1,758

11  Switzerland SIX Swiss Exchange Zurich 1,090 887

12  China Shenzhen Stock Exchange

Shenzhen 1,055 2,838

13  Spain BME Spanish Exchanges

Madrid 1,031 1,226

14  India Bombay Stock Exchange

Mumbai 1,007 148

15  South Korea Korea Exchange Seoul 996 2,029

16  India National Stock Exchange of India

Mumbai 985 589

17  Russia MICEX-RTS Moscow 800 514

18 South

Africa JSE Limited Johannesburg 789 372

1. NASDAQ

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The NASDAQ Stock Market, also known as simply the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of January 25, 2011, there are 2,711 listings, with a total capitalization of over $4.5 trillion. The NASDAQ has more trading volume than any other electronic stock exchange in the world. The exchange is owned by NASDAQ OMX Group, which also owns the OMX stock exchange network.

NASDAQ was founded in 1971 by the National Association of Securities Dealers, who divested themselves of it in a series of sales in 2000 and 2001. It is owned and operated by the NASDAQ OMX Group, the stock of which was listed on its own stock exchange beginning July 2, 2002, under the ticker symbol NASDAQ: NDAQ. It is regulated by the Financial Industry Regulatory Authority the successor to the NASD. When the NASDAQ stock exchange began trading on February 8, 1971, it was the world's first electronic stock market. At first, it was merely a computer bulletin board system and did not actually connect buyers and sellers. The NASDAQ helped lower the spread but somewhat paradoxically was unpopular among brokerages because they made much of their money on the spread.

NASDAQ was the successor to the over-the-counter system of trading. As late as 1987, the NASDAQ exchange was still commonly referred to as the OTC in media and also in the monthly Stock Guides issued by Standard & Poor's Corporation.

Over the years, NASDAQ became more of a stock market by adding trade and volume reporting and automated trading systems. NASDAQ was also the first stock market in the United States to start trading online. Nobody before them had ever done this, highlighting NASDAQ-traded companies and closing with the declaration that NASDAQ is "the stock market for the next hundred years." Its main index is the NASDAQ Composite, which has been published since its inception. However, its exchange-traded fund tracks the large-cap NASDAQ-100 index, which was introduced in 1985 alongside the NASDAQ 100 Financial Index.

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2. BOMBAY STOCK EXCHANGE SENSEX

The Bombay Stock Exchange (BSE) is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The equity market capitalization of the companies listed on the BSE was US$1 trillion as of December 2011, making it the 6th largest stock exchange in Asia and the 14th largest in the world. The BSE has the largest number of listed companies in the world.

As of March 2012, there are over 5,133 listed Indian companies and over 8,196 scripts on the stock exchange, the Bombay Stock Exchange has a significant trading volume. The BSE SENSEX, also called "BSE 30", is a widely used market index in India and Asia. Though many other exchanges exist, BSE and the National Stock Exchange of India account for the majority of the equity trading in India. While both have similar total market capitalization, share volume in NSE is typically two times that of BSE.

The Phiroze Jeejeebhoy Towers house the Bombay Stock Exchange since 1980.The Bombay Stock Exchange is the oldest exchange in Asia. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE SENSEX in 1986, giving the BSE a means to measure overall performance of the exchange. In 2000 the BSE used this index to open its derivatives market, trading SENSEX futures contracts. The development of SENSEX options along with equity derivatives followed in 2001 and 2002, expanding the BSE's trading platform. Historically an open outcry floor trading exchange, the Bombay Stock Exchange switched to an electronic trading system in 1995. It took the exchange only fifty days to make this transition. This automated, screen-based trading platform called BSE On-line trading currently has a capacity of 8 million orders per day. The BSE has also introduced the world's first centralized exchange-based internet trading system, BSEWEBx.co.in to enable investors anywhere in the world to trade on the BSE platform. The BSE is currently housed in Phiroze Jeejeebhoy Towers at Dalal Street, Fort area. The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE.

\

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3. NATIONAL STOCK EXCHANGE

The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It is the 9th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading.

NSE has a market capitalization of around US$1.59 trillion and over 1,552listings as of December 2010. The NSE's key index is the S&P CNX Nifty,   known as the NSE NIFTY it means National Stock Exchange Fifty, an index of fifty major stocks weighted by market capitalization.

There are at least 2 foreign investors NYSE Euro next and Goldman Sachs who have taken a stake in the NSE. As of 2006, the NSEVSAT terminals, 2799 in total, cover more than 1500 cities across India. NSE is the third largest Stock Exchange in the world in terms of the number of trades in equities. It is the second fastest growing stock exchange in the world with a recorded growth of 16.6%.

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4. HANG SENG

The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 43 constituent companies represent about 60% of capitalization of the Hong Kong Stock Exchange.HSI was started on November 24, 1969, and is currently compiled and maintained by Hang Seng Index’s

Company Limited, which is a wholly owned subsidiary of Hang Seng Bank, one of the largest bank registered and listed in Hong Kong in terms of market capitalization. It is responsible for compiling, publishing and managing the Hang Seng Index and a range of other stock indexes, such as Hang Seng China Enterprises Index, Hang Seng China A Index Series, Hang Seng China H-Financials Index, Hang Seng Composite Index Series, Hang Seng China A Industry Top Index, Hang Seng Corporate Sustainability Index Series and Hang Seng Total Return Index Series.

There are four sub-indices established in order to make the index clearer and to classify constituent stocks into four distinct sectors. There are 43 HIS constituent stocks in total under the sub indices:

1) Hang Seng Finance Sub-index.2) Hang Seng Utilities Sub-index.3) Hang Seng Properties Sub-index.4) Hang Seng Commerce& Industry Sub-index.

On 12 November 1999, the Tracker Fund of Hong Kong, created by government intervention during the 1997 Asian financial crisis, had its introduction on the exchange.25 November 1999, two companies were jointly listed on the newly created Growth Enterprise Market .On 6 March 2000, The Stock Exchange, Futures Exchange and the Hong Kong Securities Clearing Company all became wholly owned subsidiaries of HKEx, which was in turn listed on 27 June 2000.On 23 October 2000, AMS/3 was implemented on the exchange.

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DIFFERENT STOCK EXCHANGE TIMINGS

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10.CROSS LISTING

The listing of a company's common shares on a different exchange than its primary and original stock exchange. In order to be approved for cross-listing, the company in question must meet the same requirements as any other listed member of the exchange, such as basic requirements for the share count, accounting policies, filing requirements for financial reports and company revenues.

Some of the advantages to cross-listing include having shares trade in multiple time zones and in multiple currencies. This gives issuing companies more liquidity and a greater ability to raise capital. Most foreign companies that cross-list in the U.S. markets do so via American depositary receipts.

The term often applies to foreign-based companies that choose to list their shares on U.S.-based exchanges like the New York Stock Exchange. But firms based in the U.S. may choose to cross-list on European or Asian exchanges, a strategy that may become more popular if the U.S. dollar struggles against major foreign currencies for a lengthy period of time. The adoption of Sarbanes-Oxley requirements in 2002 made cross-listing on U.S. exchanges more costly than in the past; the requirements put a heavy emphasis on corporate governance and accountability. This, along with generally accepted accounting principles accounting, makes for a challenging hurdle for many companies whose "home" exchange may have laxer standards.

Cross listing of shares is when a firm lists its equity shares on one or more foreign stock exchange in addition to its domestic exchange. Examples include: American Depository Receipt, European Depository Receipt , International Depository Receipt (IDR) and Global Registered Shares .

Generally such a company's primary listing is on a stock exchange in its country of corporation, and its secondary listing is on an exchange in another country. Cross-listing is especially common for companies that started out in a small market but grew into a larger market. For example, numerous large Canadian companies are listed on the New York Stock Exchange or NASDAQ as well as the Toronto Stock Exchange such as Enbridge and Research In Motion. Some organizations, such as Liberty Media, Comcast and Viacom, have multiple listings reflecting different voting rights.

A questionnaire asking managers of international companies has shown that firms cross-list in the US mainly because of specific US business reasons, liquidity and status of US capital markets, and industry specific reasons. Meeting SEC disclosure requirements and preparing US-GAAP reconciliations were cited as the most important disadvantages. Officials of ADR companies without an official listing perceived the expansion of the US shareholder base as the principal benefit followed by specific US business reasons. On the question of what deters them from an official US listing, they mentioned the time-consuming and expensive US-GAAP reconciliations as well as listing fees as the hardest impediments. Additional disclosure requirements were cited as less difficult to overcome.

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Motivations for cross-listing

The academic literature has identified a number of different arguments to cross-list abroad in addition to a listing on the domestic exchange. Roosenboom and van Dijk in 2009 distinguish between the following motivations:

Market segmentation

The traditional argument for why firms seek a cross-listing is that they expect to benefit from a lower cost of capital that arises because their shares become more accessible to global investors whose access would otherwise be restricted because of international investment barriers.

Market liquidity

Cross-listings on deeper and more liquid equity markets could lead to an increase in the liquidity of the stock and a decrease in the cost of capital.

Information disclosure

Cross-listing on a foreign market can reduce the cost of capital through an improvement of the firm’s information environment. Firms can use a cross-listing on markets with stringent disclosure requirements to signal their quality to outside investors and to provide improved information to potential customers and suppliers (for example, by adopting US GAAP). Also, cross-listings tend to be associated with increased media attention, greater analyst coverage, better analysts’ forecast accuracy, and higher quality of accounting information.

Investor protection

Recently, there is a growing academic literature on the so-called "bonding" argument. According to this view, cross-listing in the US acts as a bonding mechanism used by firms that are incorporated in a jurisdiction with poor investor protection and enforcement systems to commit themselves voluntarily to higher standards of corporate governance. In this way, firms attract investors who would otherwise be reluctant to invest.

Other motivations

Cross-listing may also be driven by product and labor market considerations .for example, to increase visibility with customers by broadening product identification, to facilitate foreign acquisitions, and to improve labor relations in foreign countries by introducing share and option plans for foreign employees.

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11. DEPOSITARY RECEIPT

A depositary receipt is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange but represents a security, usually in the form of equity, which is issued by a foreign publicly listed company. The depositary receipt, which is a physical, allows investors to hold shares in equity of other countries, which has been offering companies, investors and traders global investment opportunities since the 1920s

Depositary receipts make it easier to buy shares in foreign companies because the shares of the company don't have to leave the home state. Depositary receipts are created when a broker purchases the company's shares on the home stock market and delivers those to the depositary's local custodian bank, which then instructs the depositary bank, such as the bank of new york, to issue depositary receipts. Depositary receipts may trade freely, just like any other security, either on an exchange or in the over-the-counter market and can be used to raise capital.

When the depositary bank is in the u.s., the instruments are known as American depositary receipts. European banks issue European depositary receipts, and other banks issue global depositary receipts

Depositary receipts facilitate cross-border trading and settlement, minimize transaction costs and may broaden a non- us. company's potential investor base, particularly among institutional investors. Investors gain benefits of diversification while trading in their own market under familiar settlement and clearance condition .more importantly, depositary receipt investors will be able to reap the benefits of these usually higher risk, higher return equities, without having to endure the added risks of going directly into foreign markets, which may pose lack of transparency or instability resulting from changing regulatory procedures.

A depositary receipt typically requires a company to meet a stock exchange’s specific rules before listing its stock for sale. For example, a company must transfer shares to a brokerage house in its home country. Upon receipt, the brokerage uses a custodian connected to the international stock exchange for selling the depositary receipts. This connection ensures that the shares of stock actually exist and no manipulation occurs between the foreign company and the international brokerage house.

The depositary receipt functions as a means to increase global trade, which in turn can help increase not only volumes on local and foreign markets but also the exchange of information, technology, regulatory procedure as well as market transparency. Thus, instead of being faced with impediments to foreign investment, as is often the case in many emerging markets, the depositary receipt investors and company can both benefit from investment abroad.

A company may option to issue a depositary receipt to obtain greater exposure and raise capital in the world market. issuing depositary receipt has the added benefit of increasing the shares liquidity while booting the company’s prestige on its local market.

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36

Types Depositary Receipts

American Depositary Receipts

Unsponsor

ed

Sponsored

Level1

Level2

Level3

Restricted

Sec Rule 144-A

SEC Regulation S

Global Depositary

Receipt

Luxembourg Depositary

Receipt

European Depositary

Receipt

Indian Depository

Receipt

American Depositary Receipts

An American depositary receipts is a negotiable security that represents securities of a non-us company that trade in the us financial markets. Securities of a foreign company that are represented by an American depositary receipt are called American depositary shares.

Shares of many non-us companies trade on us stock exchanges through American depositary receipts. American depositary receipts are denominated and pay dividends in us dollars and may be traded like regular shares of stock.

The first American depositary receipts was introduced by j.p. morgan in 1927 for the British retailer Selfridges.

The regulation of American depositary receipts changed its form in 1955, when the u.s. securities and exchange commission established the from s-12, necessary to register all depositary receipt programs. The form s-12 was replaced by form f-6 later, but the principles remained the same till today. An American depositary receipt representing shares of a foreign company not directly involved in issuance of the adr. Unsponsored adrs are originated by a bank that independently purchases the foreign firm's shares, holds the shares in trust, and sells the adrs through brokerage firms. The depositary bank rather than holders of the adrs retains the right to vote shares held in trust. Compare sponsored American depositary receipt.

O Type American Depositary Receipt:

Unsponsored American Depositary Receipt

Unsponsored shares trade on the over-the-counter market. These shares are issued in accordance with market demand, and the foreign company has no formal agreement with a depositary bank. Unsponsored American depositary receipts are often issued by more than one depositary bank. Each depositary services only the American depositary receipts it has issued.

Due to a recent sec rule change making it easier to issue level i depositary receipts, both sponsored and unsponsored, hundreds of new American depositary receipts have been issued since the rule came into effect in October 2008. The majority of these were unsponsored level i American depositary receipts, and now approximately half of all American depositary receipts programs in existence are unsponsored.

An  American issued without the knowledge or cooperation of the company whose stock backs it. Unlike other sponsored adrs, which are treated just like common shares denominated in the u.s. Dollar, an unsponsored adr simply gives the monetary benefits of ownership. That is, the bank issuing the adr pays out dividends as if it were common stock, but the adr does not carry voting rights. Unsponsored adrs may not be traded on the new York stock exchange, and are usually traded over-the-counter.

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Sponsored Levels

Particular Level1 Level2 Level3

Trading pattern Only on over the counter

Listing allowed on stock exchange in usa

Listing allowed on stock exchange in usa

Registration with securities & exchange commission

American depositary receipt are registration and share are not registrated

American depositary receipt and share both are registrated

American depositary receipt and share both are registrated

Generally accepted accounting policy

Only nominally full fill

Partial full fill Full applicable

Disclosure Very less disclosure

Medium disclosure Full disclosure

Capital raising faculties

No public issue private placement

Public issue without fresh capital

Public issue with fresh capital

O RESTRICTED PROGRAMS

Foreign companies that want their stock to be limited to being traded by only certain individuals may set up a restricted program. There are two sec rules that allow this type of issuance of shares in the u.s.: rule 144-a and regulation s.

Privately Placed (Sec Rule 144a) American Depositary Receipts

Some foreign companies will set up an American depositary receipts program under sec rule 144a. This provision makes the issuance of shares a private placement. Shares of companies registered under rule 144-a are restricted stock and may only be issued to or traded by qualified institutional buyers .

Sec Regulation S American Depositary Receipts

The other way to restrict the trading of depositary shares to us public investors is to issue them under the terms of sec regulation s. This regulation means that the shares are not, and will not be registered with any united states securities regulation authority.

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Global Depositary Receipt

A global depository receipt or global depositary receipt is a certificate issued by a depository bank, which purchases shares of foreign companies and deposits it on the account. Global depository receipt represent ownership of an underlying number of shares. global depository receipts facilitate trade of shares, and are commonly used to invest in companies from developing or emerging markets. prices of global depositary receipt are often close to values of related shares, but they are traded and settled independently of the underlying shares. several international banks issue gdrs, such as JPMorgan chase, city group, deutsche bank, bank of new York. Gdrs are often listed in the Frankfurt stock exchange, Luxembourg stock exchange and in the London stock exchange. Normally 1 gdr = 10 shares, but not always. It is a negotiable instrument which is denominated in some freely convertible currency.

Indian Depository Receipt

An Indian depository receipt is an instrument denominated in Indian rupees in the form of a depository receipt created by a domestic depository against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities markets. the foreign company idrs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares would accrue to the depository receipt holders in India the ministry of corporate affairs of the government of India, in exercise of powers available with it under section 642 read with section 605a had prescribed the companies issue of Indian depository receipts rules, 2004 issue of Indian depository receipts rules vide notification number gsr 131(e) dated February 23, 2004.standard chartered plc became the first global company to file for an issue of Indian depository receipts in India. EUROPEAN DEPOSITARY RECEIPT 

A European depositary receipt  represents ownership in the shares of a non-European company that trades in European financial markets. The stock of many non-European companies trade on European stock exchanges like London through the use of european depositary receipt. European depositary receipt  enable European investors to buy shares in foreign companies without the hazards or inconveniences of cross-border & cross-currency transactions. Edrs carry prices in euro, pay dividends in euro, and can be traded like the shares of European-based companies.

LUXEMBOURG DEPOSITORY RECEIPTS

A Luxembourg depository receipts  is a certificate which represents the purchase, or ownership, of foreign assets which are deposited in a Luxembourg-based account. An ldr functions in much the same way as a global depositary receipt . Ldrs may represent ownership of either an underlying number of shares or a notional amount of bonds. Luxembourg depository receipts are particularly useful where an institution wants to ensure safe keeping of assets, i.e., in Luxembourg, but needs a specific national or regional banks' expertise in handling a variety of transactions. prices of ldrs are often close to the value of the real.

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12. BOND MARKET The environment in which the issuance and trading of debt securities occurs. The bond market primarily includes government-issued securities and corporate debt securities, and facilitates the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations. Most trading in the bond market occurs over-the-counter, through organized electronic trading networks, and is composed of the primary market and the secondary market. Although the stock market often commands more media attention, the bond market is actually many times bigger and is vital to the ongoing operation of the public and private sector.

 A bond is a negotiable certificate that acknowledges the indebtedness of the bond issuer to the holder. It is negotiable because the ownership of the certificate can be transferred in the secondary market. It is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest  to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals.

Thus a bond is like a loan or IOU: the holder of the bond is the lender, the issuer of the bond is the borrower, and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Certificates of deposit  or commercial paper are considered to be money market instruments and not bonds.

Bonds and stocks are both securities, but the major difference between the two is that stockholders have an equity stake in the company , whereas bondholders have a creditor stake in the company Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is a perpetuity .

In the UK, "bond" is also used to refer to a time deposit with a bank or building society, which in general is not marketable and is subject to different tax treatment from the bonds

Bonds are issued by public authorities, credit institutions, companies supranational institutions in the primary markets. The most common process of issuing bonds is through underwriting. In underwriting, one or more securities firms or banks, forming a syndicate, buy an entire issue of bonds from an issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. Primary issuance is arranged by book runners who arrange the bond issue, have direct contact with investors and act as advisers to the bond issuer in terms of timing and price of the bond issue. The book runners' willingness to underwrite must be discussed prior to opening books on a bond issue as there may be limited appetite to do so.

In the case of government bonds, these are usually issued by auctions, called a public sale, where both members of the public and banks may bid for bond. Since the coupon is fixed, but the price is not, the percent return is a function both of the price paid as well as the coupon.

Because the cost of issuance for a publicly auctioned bond can be cost prohibitive for a smaller loan, it is also common for smaller bonds to avoid the underwriting and auction process through the use of a private placement bond. In the case of a private placement bond, the bond is held by the lender and does not enter the large bond market.

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13. GLOBAL BOND MARKET

Asset-Backed securities

Asset-backed securities are bonds that are based on underlying pools of assets. A special purpose trust or instrument is set up which takes title to the assets and the cash flows are "passed through" to the investors in the form of an asset-backed security. The types of assets that can be "securitized" range from residential mortgages to credit card receivables.

All assets are usually illiquid and private in nature. A securitization occurs to make these assets available for investment to a much broader range of investors. The "pooling" of assets occurs to make the securitization large enough to be economical and to diversify the qualities of the underlying assets. asset-backed securities are securities which are based on pools of underlying assets.

Convertible Bond

A convertible bond is a bond that gives the holder the right to "convert" or exchange the par amount of the bond for common shares of the issuer at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Convertible bonds are bonds. They have a coupon payment and are legally debt securities, which rank prior to all equity securities in a default situation. Their value, like all bonds, depends on the level of prevailing interest rates and the credit quality of the issuer. The exchange feature of a convertible bond gives the right for the holder to convert the par amount of the bond for common shares a specified price or "conversion ratio". For example, a conversion ratio might give the holder the right to convert $100 par amount of the convertible bonds of Insolvents Corporation into its common shares at $25 per share. This conversion ratio would be said to be " 4:1" or "four to one".

Corporate Bonds

The creditworthiness of corporate bonds are tied to the business prospects and financial capacity of the issuer.The business prospects of companies are dependent on the economy and the competitive situation of industries. Issuers are grouped by industry, for example real estate, resource and retail bonds. Industries with stable revenues and earnings are called "non-cyclicals", where as those whose revenues and earnings rise and fall with the economy and commodity prices are called "cyclicals".Issuers are also grouped by their credit ratings. Companies that have financial risk because of high levels of debt and variable revenues and earnings are called "below investment grade" or "junk" bonds because of their speculative nature. Higher quality bonds are considered "investment grade".

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Euro Bonds

Eurobonds are bonds that are issued for sale outside of the issuer’s home country.

A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. Also called external bond; "external bonds which, strictly, are neither Eurobonds nor foreign bonds would also include: foreign currency denominated domestic bonds." It can be categorized according to the currency in which it is issued. London is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world - for example in Singapore or Tokyo. Eurobonds are named after the currency they are denominated in. For example, European and Eurodollar bonds are denominated in Japanese yen and American dollars respectively. A Eurobond is normally a bearer bond, payable to the bearer. It is also free of withholding tax. The bank will pay the holder of the coupon the interest payment due. Usually, no official records are kept.

The word Eurobond was originally created by Julius Strauss. The first European Eurobonds were issued in 1963 by Italian motorway network Autostrade. The $15 million six year loan was arranged by London bankers S. G. Warburg. The majority of Eurobonds are now owned in 'electronic' rather than physical form. The bonds are held and traded within one of the clearing systems . Coupons are paid electronically via the clearing systems to the holder of the Eurobond.

Extendible And Retractable Bonds

Extendible and retractable bonds have more than one maturity date. An extendible bond gives its holder the right to extend the initial maturity to a longer maturity date. A retractable bond gives its holder the right to advance the return of principal to an earlier date than the original maturity. Investors use extendible/retractable bonds to modify the term of their portfolio to take advantage of movements in interest rates. The characteristics of these bonds are a combination of their underlying terms. When interest rates are rising, extendible/retractable bonds act like bonds with their shorter terms When interest rates fall, they act like bonds with their longer terms.An extendible bond gives its holder the right to "extend" its initial maturity at a specific date or dates. The investor initially purchases a shorter term bond combined with the right to extend its term to a longer maturity date. An investor purchases an extendible bond to have the ability to take advantage of potentially falling interest rates without assuming the risk of a long term bond. As interest rates fall, the price of a shorter term bond rises less than the price of a longer term bond. This means the extendible bond begins to behave or "trade" as a longer term bond. On the other hand, if interest rates rose, the extendible bond would behave as a shorter term bond.With a retractable bond, an investor owns a longer term bond with the right to "retract" it at a specific date. Consider an investor that believes that interest rates will rise and bond prices will fall, but is not willing or able to sell out of bonds completely.

This investor can buy a longer term retractable bond which behaves initially as a similar term long term bond. As interest rates rise the bond falls in price. Once its price is low enough, it will begin to behave as a short term bond and its price fall will be much less than a normal long term bond. At worst, the investor can retract it at the retraction date and receive the par amount back to reinvest.

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Foreign Currency Bond

A "foreign currency" bond is a bond that is issued by an issuer in a currency other than its national currency. Issuers make bond issues in foreign currencies to make them more attractive to buyers and to take advantage of international interest rate differentials. Foreign currency bonds can "swapped" or converted in the swap market into the home currency of the issuer. Bonds issued by foreign issuers in the United States market in U.S. dollars are known as "Yankee" bonds. Bonds issued in British pounds in the British bond market are known as "Bulldogs". Yen denominated bonds by foreign issuers are known as "Samurai" bonds.

The development of the world bond markets allowed bond issuers to bring issues in other than their home markets. For example, since the 1970s, the Canadian provinces have used the U.S. bond market as a major source of funding. The Canadian province of Ontario is one of the world's largest and most sophisticated non-sovereign borrowers. It brings bond issues in many different currencies and markets, seeking to fund at the lowest possible absolute rate. In the U.S. bond market, Ontario and Ontario Hydro, its power corporation, have many "Yankee" issues and is considered an alternative to domestic U.S. corporate issuers.

The "euro market" is another major source of foreign currency bond issues. European investors will buy the bonds of well known issuers like Ford, Toyota or General Electric or their international subsidiaries, in many different currencies depending on their currency views. This makes for a constant arbitrage between the foreign and domestic bond markets as investors seek to gain the best possible yield employing currency hedges and swaps. A Canadian institutional investor does not really care if the original Ford Motor Credit Canada bond was issued in U.S. funds if he has swapped both the interest and principal payments into Canadian dollarsForeign currency bonds have a vocabulary all their own. Bonds issued in foreign currencies are given the names listed beside the currencies below:

"Yankee Bonds" for U.S. dollars;"Samurai Bonds" for Japanese Yen;"Bulldog Bonds" for British pounds; and"Kiwi Bonds" for New Zealand dollars.

A more recent innovation are bonds that are hybrids in currency terms, with their coupon and principal payments in different currencies. For example, some recent bonds have had their coupon payments in Yen with their principal amounts in Canadian dollars. This satisfies the needs of Japanese institutional investors for yen income while keeping the eventual return of principal in the national currency of the issuer. Foreign currency bonds have a much different risk and return profile than domestic bonds. Not only is their price affected by movements in a foreign country's interest rate, they also change in value depending on the foreign exchange rates. In Canada, for example, the Canadian dollar has moved upwards to 4% in U.S. dollar terms in very short periods of time. This exchange rate movement would result in price changes of 4% in Canadian dollars which completely overwhelms the coupon income of a bond. Studies have shown that the longer term risk and return characteristics of foreign bonds in domestic currencies are closer to domestic equity returns than domestic fixed income returns.

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GOVERNMENT BONDS

Supranational Agencies

A supranational agency, such as the World Bank, levies assessments or fees against its member governments. Ultimately, it is this support and the taxation power of the underlying national governments that allow these organizations to make payments on their debts.

National Governments

The "central" or national governments also have the power to print money to pay their debts, as they control the money supply and currency of their countries. This is why most investors consider the national governments of most modern industrial countries to be almost "risk-free" from a default point of view.

Provincial Or State Governments

Provincial or state governments also issue debt, depending on their constitutional ability to do this. Canadian provinces, notably Ontario, borrow more than many smaller countries. Most investors consider provincial or state issuers to be very strong credits because they have the power to levy income and sales taxes to support their debt payments. Since they can not control monetary policy like national governments, they are considered lesser credits than national governments.

Municipal And Regional Governments

Cities, towns, counties and regional municipalities issue bonds supported by their property taxes. School boards also issue bonds, supported by their ability to levy a portion of property taxes for education.

Quasi-Government Issuers

Many government related institutions issue bonds, some supported by the revenues of the specific institution and some guaranteed by a government sponsor. In Canada, Federal government agencies and Crown corporations issue bonds. For example, The Federal Business Development Bank and the Canadian Mortgage and Housing Corporation bonds are directly guaranteed by the Federal government. Provincial crown corporations such as Ontario Hydro and Hydro Quebec are guaranteed by the Provinces of Ontario and Quebec respectively.

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Emerging market debt

Emerging market debt is a term used to encompass bonds issued by less developed countries. It does not include borrowing from government, supranational organizations such as the IMF or private sources, though loans that are securitized and issued to the markets would be included. A broader discussion of all types of borrowing by developing countries exists at Developing countries' debt. Emerging market debt was historically a small part of bond markets, as primary issuance was limited, data quality was poor, markets were illiquid and crises were a regular occurrence. Since the advent of the Brady Plan in the early 1990s, however, issuance has increased dramatically. The market has continued to be more prone to crises than other debt markets, including the Tequila Crisis in 1994-95, East Asian financial crisis in 1997, 1998 Russian financial crisis and Argentine economic crisis in 2001-02. Investors tend to use mutual funds to invest in EMD, as many individual securities become more illiquid in secondary markets and bid/offer spreads are too wide to actively trade. The dominant market indexes for US-Dollar denominated investments are the JPMorgan EMBI+ Index, JPMorgan EMBI Global Index and JPMorgan EMBI Global Diversified Index. Other banks also provide indexes.

Inflation-Linked Bond

An inflation-linked bond is a bond that provides protection against inflation. Most inflation-linked bonds, the Canadian "Real Return Bond " the British "Inflation-linked and the new U.S. Treasury "inflation-protected security" are principal indexed. This means their principal is increased by the change in inflation over a period. In most countries, the Consumer Price Index (CPI) or its equivalent is used as an inflation proxy. As the principal amount increases with inflation, the interest rate is applied to this increased amount. This causes the interest payment to increase over time. At maturity, the principal is repaid at the inflated amount. In this fashion, an investor has complete inflation protection, as long as the investor's inflation rate equals the CPI.

We must compare an inflation-linked bond to a conventional or "nominal" bond to understand it properly. A normal bond pays its coupon on a fixed principal amount. Using the Government of Canada 8% bond maturing in 2023 as an example, we are due 8%, or $8 on every $100 of principal, each year until we are finally repaid our principal of $100 at maturity. Contrast this with the Canadian RRB, the 4.25% maturing in 2021. It pays a 4.25% "real" interest rate or $4.25 on its principal each year. But the principal increases with inflation, which is based on the Canadian CPI. For example, when Canadian inflation, the CPI, was 1.8% in 1995, the principal amount was increased by 1.8%. Since its issue in November 1991, the RRB has seen its principal amount increase by 8% to $108. The 4.25% coupon now generates a payment of $4.60 versus its original payment of $4.25. At maturity, when the principal will be repaid by the Canadian government, the principal amount will have increased to well over $200.

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14. FOREIGN EXCHANGE RISK

Foreign exchange risk also known as exchange rate risk or currency risk is a financial risk posed by an exposure to unanticipated changes in the exchange rate between two currencies. Investors and multinational businesses exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk which can have severe financial consequences if not managed appropriately.

Many businesses were unconcerned with and did not manage foreign exchange risk under the Bretton Woods system of international monetary order. It wasn't until the onset of floating exchange rates following the collapse of the Bretton Woods system that firms perceived an increasing risk from exchange rate fluctuations and began trading an increasing volume of financial derivatives in an effort to hedge their exposure. The outbreak of currency crises in the 1990s and early 2000s, such as the Mexican peso crisis, Asian currency crisis, 1998 Russian financial crisis, and the Argentine peso crisis, substantial losses from foreign exchange have led firms to pay closer attention to foreign exchange risk

Foreign exchange risk has been shown to be particularly significant and particularly damaging for very large, one-off investment megaprojects. Such projects are typically financed by very large debts denominated in foreign currencies. Megaprojects have been shown to be prone to ending up in debt traps where, due to cost overruns, schedule delays, unforeseen foreign currency and interest rate increases, the costs of servicing debt become larger than the revenues available to do so. Financial restructuring is typically the consequence and is common for megaprojects.

Managers of multinational firms employ a number of foreign exchange hedging strategies in order to protect against exchange rate risk. Transaction exposure is often managed either with the use of the money markets, foreign exchange derivatives such as forward contracts, futures contracts, options, and swaps, or with operational techniques such as currency invoicing, leading and lagging of receipts and payments, and exposure netting.

Firms may exercise alternative strategies to financial hedging for managing their economic or operating exposure, by carefully selecting production sites with a mind for lowering costs, using a policy of flexible sourcing in its supply chain management, diversifying its export market across a greater number of countries, or by implementing strong research and development activities and differentiating its products in pursuit of greater inelasticity and less foreign exchange risk exposure.

Translation exposure is largely dependent on the accounting standards of the home country and the translation methods required by those standards. For example, the United States Federal Accounting Standards Board specifies when and where to use certain methods such as the temporal method and current rate method. Firms can manage translation exposure by performing a balance sheet hedge. Since translation exposure arises from discrepancies between net assets and net liabilities on a balance sheet solely from exchange rate differences.

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o TYPES OF EXPOSURE

Foreign currency exposures are generally categorized into the following four distinct types:

TRANSACTION EXPOSURE

A firm has transaction exposure whenever it has contractual cash flows whose values are subject to unanticipated changes in exchange rates due to a contract being denominated in a foreign currency. To realize the domestic value of its foreign-denominated cash flows, the firm must exchange foreign currency for domestic currency. As firms negotiate contracts with set prices and delivery dates in the face of a volatile foreign exchange market with exchange rates constantly fluctuating, the firms face a risk of changes in the exchange rate between the foreign and domestic currency. Exchange rates may move by up to 10% within any single year, which can significantly affect a firm's cash flows, meaning a 10% decline in the value of a receivable or a 10% rise in the value of a payable.

ECONOMIC EXPOSURE

A firm has economic exposure to the degree that its market value is influenced by unexpected exchange rate fluctuations. Such exchange rate adjustments can severely affect the firm's position with regards to its competitors, the firm's future cash flows, and ultimately the firm's value. Economic exposure can affect the present value of future cash flows. Any transaction that exposes the firm to foreign exchange risk also exposes the firm economically, but economic exposure can be caused by other business activities and investments which may not be mere international transactions, such as future cash flows from fixed assets.

TRANSLATION EXPOSURE

A firm's translation exposure is the extent to which its financial reporting is affected by exchange rate movements. As all firms generally must prepare consolidated financial statements for reporting purposes, the consolidation process for multinationals entails translating foreign assets and liabilities or the financial statements of foreign subsidiaries from foreign to domestic currency. While translation exposure may not affect a firm's cash flows, it could have a significant impact on a firm's reported earnings and therefore its stock price. Translation exposure is distinguished from transaction risk as a result of income and losses from various types of risk having different accounting treatments.

CONTINGENT EXPOSURE

A firm has contingent exposure when bidding for foreign projects or negotiating other contracts or foreign direct investments. Such an exposure arises from the potential for a firm to suddenly face a transactional or economic foreign exchange risk, contingent on the outcome of some contract or negotiation. While waiting, the firm faces a contingent exposure from the uncertainty as to whether or not that receivable will happen. If the bid is accepted and a receivable is paid the firm then faces a transaction exposure, so a firm may prefer to manage contingent exposures.

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o MEASUREMENT

If foreign exchange markets are efficient such that purchasing power parity, interest rate parity, and the international Fisher effect hold true, a firm or investor needn't protect against foreign exchange risk due to an indifference toward international investment decisions. A deviation from one or more of the three international parity conditions generally needs to occur for an exposure to foreign exchange risk.

Financial risk is most commonly measured in terms of the variance or standard deviation of a variable such as percentage returns or rates of change. In foreign exchange, a relevant factor would be the rate of change of the spot exchange rate between currencies. Variance represents exchange rate risk by the spread of exchange rates, whereas standard deviation represents exchange rate risk by the amount exchange rates deviate, on average, from the mean exchange rate in a probability distribution. A higher standard deviation would signal a greater currency risk. Economists have criticized the accuracy of standard deviation as a risk indicator for its uniform treatment of deviations, be they positive or negative, and for automatically squaring deviation values. Alternatives such as average absolute deviation and semi variance have been advanced for measuring financial risk.

VALUE AT RISK

In financial mathematics and financial risk management, Value at Risk is a widely used risk measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, probability and time horizon, var is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon exceeds this value is the given probability level.

Common parameters for VAR are 1% and 5% probabilities and one day and two week horizons, although other combinations are in use.

The reason for assuming normal markets and no trading, and to restricting loss to things measured in daily accounts, is to make the loss observable. In some extreme financial events it can be impossible to determine losses, either because market prices are unavailable or because the loss-bearing institution breaks up. Some longer-term consequences of disasters, such as lawsuits, loss of market confidence and employee morale and impairment of brand names can take a long time to play out, and may be hard to allocate among specific prior decisions. VAR marks the boundary between normal days and extreme events. Institutions can lose far more than the VAR amount; all that can be said is that they will not do so very often.

The probability level is about equally often specified as one minus the probability of a VAR break, so that the VAR in the example above would be called a one-day 95% VAR instead of one-day 5% VAR. This generally does not lead to confusion because the probability of VAR breaks is almost always small, certainly less than 0.5.

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15. CONCLUSION

A number of important changes are taking place in global financial markets that need to be monitored carefully. There has been a considerable shift in the regional concentration of wealth. In addition to the traditional public capital markets, recent years have seen the emergence of private equity and sovereign wealth funds as major players in financial markets. Stock exchanges have transformed to become global entities. These changes have impacted the landscape of global financial markets.

Today global financial markets have grown tremendously, becoming large and liquid, andWith substantial depth. At the same time demand for capital has increased significantly, with capital markets continuing to play a dominant role in the allocation of capital. However, some major shifts are occurring in the roles of suppliers and users of capital. These shifts became even more apparent during the recent financial crisis. This chapter focuses on four such shifts that impact both global firms that are looking to raise funds and institutional investors that are suppliers of the capital. The four areas that are accounting for the major shifts are: the emergence of new countries and regions as financial powers; the growth of alternative investments as an asset class; the role of sovereign wealth funds as a source of capital; and the globalization and consolidation of stock exchanges. The recent global financial crisis has clearly highlighted the challenges that companies worldwide face in raising capital. Either funding is simply not available or the cost has gone up considerably. The combination of the global economic slowdown and challenges in raising funds in the capital markets has meant thatCompanies are cutting costs, capital investments, and jobs. The financial markets and financial institutions collapsed in a variety of ways, and this has resulted in structural and regulatory changes that will impact the raising of capital in global financial markets.

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16.BIBLIOGRAPHY

 s www.money.cnn.com   www.nasdaq.com    www.finance.yahoo.com   www.bseindia.com   www.nseindia.com   www.managementparadise.com   Economic Times www.business-standard.com.

Books-

Global Capital Markets-- Prof. Andrew Chisholm

Financial Services -- Prof. David H. Maister

Equity Markets --Prof. Robert Finkel

Mergers And Acquisitions-- Prof. Patrick A. Gaughan

Articles- McKinsey Global Institute

Think global act local

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