semianr ppts

8/7/2019 Semianr ppts

1/17

I!!!


2/17

financial

instruments!!


3/17

Where will I findthem??


4/17

What are

mygains..


5/17

And

losses???

Venture

Capital??


6/17

Instrumental financingInstrumental financing-sources, merits and demerits

Sunil

Susheel

Soni Rachel Oommen


7/17

Financial Instruments.Financial Instruments.

y Afinancial instrument is either cash;

evidence of an ownership interest in an

entity; or a contractual right to receive, or

deliver, cash or another financial

instrument.


8/17

Basic InstrumentsBasic Instruments

y Cash instruments are financial instruments whose value is determineddirectly by markets. They can be divided into securities, which are readilytransferable, and other cash instruments such as loans and deposits, whereboth borrower and lender have to agree on a transfer.

y Derivative instruments are financial instruments which derive their

value from the value and characteristics of one or more underlying entitysuch as anAsset an Index or an Interest Rate. They can be divided intoexchange-traded derivatives and over-the-counter (OTC) derivatives.

y Alternatively, financial instruments can be categorized by "asset class"depending on whether they are equity based (reflecting ownership of theissuing entity) or debt based (reflecting a loan the investor has made tothe issuing entity). If it is debt, it can be further categorised into short

term (less than one year) or long term.

y Foreign Exchange instruments and transactions are neither debt norequity based and belong in their ow


9/17

Basic InstrumentsBasic Instruments

Financialinstruments

Cashinstruments

Securities Loans/deposits

Derivativeinstruments

Exchangetraded

derivativesOTC

derivatives


10/17

Derivative instrumentsDerivative instruments

y They are financial instruments which

derive their value from the value and

characteristics of one or more underlying

entity such as anAsset an Index or an

Interest Rate.

y They can be divided into exchange-tradedderivatives and over-the-counter (OTC)

derivatives.


11/17

Ownership securitiesOwnership securities

Equity shares

These are also termed as ordinaryshares or common stock.

The owners of these shares are the real

owners of the company.


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Merits of equity sharesMerits of equity shares

Permanent capital

Borrowing base

Dividend payment discretion

Ex:

In 1986, RIL had to cut dividend rate from

50% to 25%. However when the

companys performance increased next

year, dividend rate was also increased


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Demerits of equity shares.Demerits of equity shares.

Cost

Ownership dilution

Earnings dilution

Voting rights may lead to proxy fights.


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Preference SharesPreference Shares

Preference share capital represents a

hybrid form of financing

it partakes some characteristics of

equity and some attributes of debentures.


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Preference Shares..Preference Shares..

Merits Demerits

Riskless leverage advantage

Dividend postponability

Fixed dividend

Limited voting rights

Non-deductibility of

dividend

Commitment to pay

dividend


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Debt securitiesDebt securities

It is a long-term promissory note for

raising loan capital.

The firm promises to pay interest as

stipulated.

The fixed interest is called coupon rate.

An alternative form of debenture is called

bond.


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DebenturesDebentures

Merits Demerits

Less costly

No ownership dilution

Fixed payment of interest

Reduced real obligation

Obligatory payments

Financial risk

Cash outflows

Restricted covenents

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