foreign exchange is the mechanism by which currency of one nation is converted into the currency of another nation.These conversion is done by the banks who deal with foreign exchange.They keep the stocks of one currency in the form of the balance of bank.It also refers to stock of other foreign assets.

In India, As per the Foreign Exchange management Act 1999 ,Foreign exchange means currency and it also includes the following:

• Deposits,credits and balance payable in  any foreign currency
• Draft,traveller’s cheque ,credits or bills of exchange expressed or drawn in  Indian currency but payable in any foreign currency.
• draft, traveller’s cheque,credits or bills drawn outside the India but payable in Indian currency.

Nature of foreign Exchange:

1. Volatile, affected by hedger and spectacular
2. Affected by demand and supply,rate of interest.
3. Affected by balance of payment , surplus, deficit .
4. Affected by economic stability, inflation rate and fiscal policy of government.

Institutional Framework in India to develop FEM:

• Foreign Exchange Regulation Act 1973 was replaced by modified Foreign exchange Management act ,1999.
• Money and Security Market set up  RBI in 1999 expanded in 2004 to include FEM.

FERA was pre liberalization Act . Voilation of it’s any rule was a criminal offence while FEMA is post liberalization Act .Through FEMA govt liberalized FDI limit, FII Investment , Import -export policy,cross border M&A etc.

Regulation and operator:

At present more than 70 %  transaction in foreign exchange is taking place in interbank market.The market consist of 90 Authorized dealers (mostly banks ) who transact currency among themselves.Trading is regulated by Foreign Exchange Dealer Association of India (FEDAI).

Commercial Banks,Central Banks, corporates and Exchange brokers are major participants .

Foreign Exchange Turnover:

The average daily turnover ,which was in vicinity of US $3 billion in 1998-99 and grew to US $18 bilion dollar during 2005-2006 and grew to 48 billion dollar in 2007-08 with monthly turnover crossing 65 billion in Feb 2007.

Instrument of FEM:

Foreign Exchange Forward,Currency Future,Currency Swap,Currency Option

we can about these instrument from derivative market study

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Traditionally, An Indian stock exchanges was an association of individual members called ,member brokers formed for the express purpose of self regulating and facilitating the buying and selling of securities by the public and institution at large.These member broker were essentially middlemen,who carried out the desired transaction in securities either on be half of public or on their own behalf.Some brokers used to be the important person of the association who used to cause issue of good governance.

There are currently 23 recognized stock exchanges.The 4 are national and 19  are regional exchanges.The four national level exchanges are Bombay Stock Exchange (BSE) , National Stock Exchange (NSE),OTC Exchange of India (OTCEI) with OTC standing for ‘Over The Counter ‘and Inter-connected Stock Exchange of India (ISE) .The Overall development and regulation of securities market was entrusted to the SEBI by act of Parliament ,1992.

BSE dominated the Indian stock market for well over a century until the NSE took the lead in early 90s .

The Inter-connected Stock Exchange of India Limited (ISE) was promoted by 14 regional stock exchanges, with a view to provide trading connectivity to all the member of of participating exchange , in a cost effective manner . Like other exchanges it also provide trading , clearing, settlement , risk management and surveillance etc in order to address the needs of smaller companies in and retail investors in smaller town.

OCTEI was promoted in 1990 as a profit making company , along the lines of NASDAQ in USA. Its main objective was to help enterprising promoter in raising finance for new projects and to provide investors with a transparent and efficient mode of trading. OCTEI introduced many novel concepts to Indian capital market.It was the first to offer screen-based nationwide trading , sponsorship of companies,market making and scripless trading .It primarily targeted technology related growth companies for listing.

The segregation of three arm that is ownership,membership and management of stock exchange , by giving them a corporate model is referred to as demutualization  .This ensures that the brokers were separated from the management and cant take advantage of being benefited themselves on the cost of other. This removed the bad governance in earlier association or exchange. NSE , from starting , was founded de-mutualated which is a advantage over the BSE.

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Here , I am going to discuss about the concept of two money market instruments, namely,Commercial Paper (CP) and Certificate of Deposits (CD) .They were launched in 1990s.

Commercial Paper :

Commercial Paper is unsecured money market instrument issued in the form of the promissory notes.It was introduced in India since 1990s with a view to enabling highly rated corporate borrowers to diversify their source of short term borrowing and to provide an additional instrument to investors .subsequently,primary dealers and all India financial institution were allowed to issue CP to enable them to meet their short term funding requirement .

Not all the corporate are eligible to issue the CP .There should be the following criteria for that 1.Tangible assets should not be less than 4 crore in balance sheet.2.company has been sanctioned working capital limit by all india financial institution .3 . The borrowal account of the company is classified as Standard Assets by financial institution.

The minimum credit rating should be A2 as per rating symbol prescribed by SEBI.

CP can be issued for the maturity period of 7 days to  a maximum of one year. CP can be issued in denomination of Rs 5 lakh or multiple thereof.Only a scheduled bank can act as Issuing and Paying Agent. (IPA). idividuals ,Banking companies, corporate bodies and unincorporated bodies,Non resident Indian (NRI) and foreign institutional Investors etc can invest in CPs.

Certificate of Deposits:

CD is a negotiable money market instrument and issued in dematerialised form or Usance Promissory Note against funds deposited at a bank or other financial institution for a specified period of time.

CDs can be issued by scheduled bank and all India Financial institution that have been permitted by RBI within umbrella limit fixed by RBI.

Minimum amount of CDs should be Rs 1 lakh and in multiple of Rs 1 lakh thereafter. CDs can be Issued to individuals ,corporation , companies , trust ,funds , association , NRI etc.

Maturity period is minimum 7 days and maximum  year. from the date of when issued by banks while when issued by the FIs , the minimum is 1 year and maximum 3 year from date of issue.

Cds are freely transferable by endorsement and delivery.Cds in demat form can be transferred as per procedure applicable in other demat securities.There is no lock in period in CDs.

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Treasury bills are short term(upto one year) borrowing instruments of Government of India which enable investors to park their short term surplus while reducing their market risk.Any person in India including individuals, corporate bodies ,companies , firms, trusts etc can purchase the bill .Till 1950, State govt also used to issue the TB but after that only RBI issue the same on be half of Central Govt. TBs are highly liquid after the Call loan. It doesn’t require any “grading” or endorsement or Acceptance as it it claims against governments. TBs are issued for meeting temporary govt deficit.

Following are some important qualities of TBs.

1.Highly liquidity 2.absence of risks 3.ready availability on tap 4.assured yield 5.low transaction cost 6.eligibility for inclusion in statutory liquidity ratio (SLR). and 7.negligible capital depreciation.

TBs are available with a minimum amount of Rs 25000 and in multiple of Rs 25000 there after.They are available both in primary and secondary market.

There are three type of maturity period for TBs.

91 days, 182 days and 364 days .The 91 day T-bills are issued on weekly auction basis while 182 days T -bills auction are held at Wednesday preceding non reporting Friday and 364 day T -bill auction are held on Wednesday preceding the  reporting Friday.

TYPES OF TB:

In India there are two type of TBs .Ordinary and Ad hoc .

Ordinary Bill: These are issued to the public and the RBI for enabling the government to meet the needs of supplementary short term finance.

Ad hoc TBs: The instrument of Ad hoc treasury and the system of issuing it were introduced in india in 1937. ad hocs are always issued in favour of RBI only . They are purchased  by RBI on the top and RBI is authorized to issue currency note against them.They are marketable ,sell them to RBI back.ad hoc serve govt in following ways:

• They replenish the cash balance of Central Govt.The central govt raise finance through ad hocs.
• They also provide an investment  medium for investing temporary surplus of state govt ,semi govt departments and foreign central banks.

PARTICIPANTS:

RBI , SBI , commercial banks , state government , DFHI, STCI , financial institution like GIC, LIC, UTI , corporate customer and public .

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Call money market is that part of national money market where the day -to-day surplus funds ,mostly of banks,are traded in.The loan made in this market are of short term nature,their maturity varying between 1 day to a fortnight .As these loans are repayable on demand and at the option of either the lender or the borrower ,they are highly liquid,their liquidity being exceeded only by cash .Nature of this market varies from country to country.Differences in institutional structures account for differences in nature ,participants ,purpose or types of transaction in such markets.All have one common feature that they deal loans which have very short maturity(1 to 2 days ) and are highly liquid.

Call Money Market in US: In US there are two market which can be said to form the call money market.1. Federal funds market.and 2.Call money market proper.

Call Money Market in UK:In UK Call money market is consist of three part :1.clearing banks’ loans to discounted houses 2.inter-bank loans; 3.mobilization of surplus money by discount houses among themselves before they approach the Bank of England for financial accommodation.

Call Money Market in India:In India ,Call loans are are given:1.to the bill market ,2.for the purpose of dealing in the bullion market and stocks exchanges.3.between the banks and 4.frequently to the individual of high financial status for ordinary trade purpose in order to save interest on cash credit and overdraft.Among these uses ,inter bank use has been most significant and their use on stock exchanges has been modest.Call money is used in India for the purpose of adjustment of reserves ration,it is similar to federal funds in the US; to the extent that call loan are given to security brokers they are similar to the “outside ” inter banks loans in the UK.

Interest Rates :Interest rates in these market are market determined i.e. by the demand and supply of short term loans.

In India, 80% demand comes from the public sector bank and 20% comes from private and foreign sector banks.Then around 80% of funds are supplied by Financial institution such as IDBI and LIC and rest 20% comes from the banks.

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National bank of Agriculture and Rural Development is a non -bank statutory financial organization .It is popular is in short form as NABARD.

DEFINITION :NABARD is a Development Bank with a mandate for providing and regulating credit and other facilities for promotion and development of agriculture ,small scale industries ,cottage and village industries,handcraft and other rural craft or any economic activity in rural areas with a view to promote integrated rural development and securing prosperity of rural areas .

ESTABLISHMENT:It was set up on July 12,1982 under an Act of Parliament as a central or apex institution for financing agriculture and rural sector.

Organizational structure: The Structure of NABARD comprises of Board of Directors,Chairman,Managing Director , 2 Executive Director .They All look after 26 Head Office Department ,28 Regional Offices ,6 Training Establishment.There are 391 District Development Offices and one Sub Office Special Cell under the Regional Offices.

Role of NABARD:

1.Act as coordinator in operation of Rural Credit Institution.

2.It gives assistance to the government ,RBI and other organization in matter relating to rural development.

3.It offers training and research facility for banks,cooperatives and other organization working in rural field.

4.Act as regulator of Cooperative Banks and RRBs.

5.It has been associate with the implementation of the many project from Word Bank and International Funds for Agriculture Development.(IFDA)

Function of NABARD:

• CREDIT FUNCTION :

1.Framing policy and guideline for rural financial institution.

2.Providing credit facilities to issuing organization

3. Monitoring the flow of ground level rural credit.

• Financial Function:

1.It provides short term and  medium term loans to RRBs (Regional Ruarl Bank), CCBs (central Cooperative bank) and SCBs(state Cooperative banks) and other institution involve in Agriculture and rural development.

2.It provides long term loan to the Agriculture and allied activities ,Artisans,small scale industries ,Handcrafts and other non form sectors.

3.It directly finance the ware houses,cold storage and cold chain infrastructures.also for food parks and food processing units.

• Development Function:

1.Help Cooperative banks and other rural banks to prepare their action plan.

2.Monitor implementation of development action plan of banks and fulfillment of obligation under MoU.

3.Provide financial support to training institutes of cooperative banks.

4.Helping in development of farm and non farm sector by giving financial,technical,educational and other supports.

• Supervisory Action:

1.Undertake inspection of RRBs,Cooperative Banks,SCARDBs,and apex non credit cooperative societies.

Resources:

Resources comprise of a line of credit from RBI,loans from Central Banks,Word banks,Sales of Bonds and debentures,deposits,gifts , grants,direct borrowing etc.

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DEFINITION:

Non banking Financial Companies (NBFC) is a company registered under the companies Act ,1956 engaged in a business of loans and advances , acquisition of shares/bonds/debentures/securities issued by government or local authority or other marketable securities of like nature ,leasing,hire purchase,insurance business ,chit business but doesn’t include any institution whose principle business is that of agriculture activity,industrial activity,sales/purchase /construction of immovable property.

From RBI (Amendment) Act ,1997 ,Investment and Loan companies came under NBFCs.

Distinguishable feature of NBFC from banks:

1.NBFC can’t accept the demand deposit.

2.they don’t form part of the payment and settlement system and cant issue the cheques drawn on itself.

3.Deposit insurance fecility of Deposit Insurance and Credit Guarantee Corporation is not available to depositor of NBFCs.

Certification of NBFCs:

A company incorporated under the company act 1956, and desirous of commencing business of non bankinf financial institution as defined under section 45 Ia of RBI act 1934 should comply with the following :

It should be company registered under  section 3 the company Act 1954 and it should have a minimum net owned fund of 2 crore.

Certain categories of NBFCs which are regulated by other regulator are exempted from certification from RBI in order to avoid dual regulation.example Venture Capital Funds /Stock broking companies/Merchant Banking companies registered with SEBI ,Insurance companies registered and regulated by IRDA,Housing Finance Company,Stock exchanges ,mutual benefit company,Chit companies,Nidhi Companies.

Categories of NBFCs:

1.Equipment leasing Company

2.Hire-Puchase Finance Company

3.Housing Finance Company

4.Loan Company

5.Investment Company

6.Mutual Benefit Financial Company:company which are notified by Central Govt under section 620 A of companies Act ,1956.

7. Residuary Non-banking Companies:  means a company which receives any deposit under any scheme or arrangement in one lump sum or in installments by the way of contribution or subscription or by the sale of certificate or instruments or in any manner which according to the definition contained in NBFC direction ,1977.

IMPORTANCE of NBFCs

They have been helping to bridge the credit gap in several sectors which traditional institution are unable to fill. they have been playing a positive role in accessing certain depositor segment and catering to specialized credit requirement of certain class of borrowers.They have served the household,farm,and enterprise sector on sustained basis.

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In our daily life we often heard about the lease in many business magazine and business newspapers.Let’s discuss what is lease , it’s type and organization involved .It will give the basic idea which will lead to study the depth of this concept later.

A lease is a financing device which has developed rapidly during the 1960s and 1970s in U.S. and in India just before middle of 1980s.

It is a form of financing employed to acquire the use of assets .Through lease ,firms can acquire the economic use of assets for a stated period of time without owing it.Every lease involves two party -the user of the assets known as lessee, and owner of the assets known as the lessor.

The asset may be plant and machinery ,land ,factory,building ,automobile,equipment ,aircraft and others.

There are two main type of the lease.

• Operating Lease:

A contract that allows for the use of an assets,but doesn’t convey the right of ownership of assets.In an operating lease ,substantially all the risks and reward incidental to the ownership are rented by lessor.Usually ,such a lease is for a term that is significantly shorter than the economic life of asset.An operating lease is not capitalized ,it is accounted as rental expense in balance sheet of the lessee.

• Finance Lease:

It is also called the Capital lease also.In this,  substantially all the risk and reward incidental to ownership of asset is transfer to the lessee.The lease term covers the major part of the economic life of the assets.Ownership transferred option at the end of the period is there with the lessee.Title might or might not be transferred eventually.

Tax Benefit:

In the operating lease ,lease payment is considered as expense .No depreciation can be claimed.While in Finance lease ,lessee can claim interest and depreciation both as it is considered as loan.

Lease Term:

In OL ,the lease term extends to less than  75% of the projected useful life of the leased assets.While in FL ,lease term is generally more than or equal to the economic life of leased assets.

Lease financial organization in India include many private sector non-bank financial companies,some private sector manufacturing companies,Infrastructure leasing and financial service limited,ICICI,Industrial Reconstruction Bank of India (IRBI),Housing Development Finance Corporation (HDFC),state industrial corporation in both private and public sectors and small manufacturing companies.The prospective entry of bank causes a very good growth of lease industry.

With a view to encourage healthy growth of financial leasing equipment as an additional source to finance ,The RBI has issued the policy guidelines in respect of role of commercial bank ,raising public deposit,capital issue and import of capital goods.

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If we compare the forms of financial saving,next to commercial banks ,the small saving organizations mobilize the largest volume of saving ,followed by co-operative banks ,and the UTI. Even after the two decades of nationalized banking,it is the agency of Post Offices, through which small saving scheme are administered, that has reached the largest no of villages in India.

Small Saving are directly available to Central Govt ,technically, as a part of budgetary resources and they constitute the non-marketable debt of the govt.

Post Office small saving Bank -included in the Union List vide Item no 39 of seventh schedule of constitution of India.

Characteristics of the Small Saving Media

1. These assets represent medium-term and long term investment opportunities.
2. Many of them are in the form of reinvestment plans.
3. These assets are liquid .With cumulative time deposit ,50% of the outstanding balance can be withdrawn twice ,which may be repaid in lump sum or in installments.

Types of instruments in small saving media

• Post Office Saving Bank Deposit(POSBD)

This Scheme has been in existence since 1896.At present it pays 4.0 % rate of interest.The limit of investment are a minimum of Rs 20 and Maximum of Rs 1 lakh in case of single account and Rs 2 lakh in case of a joint account.the interest earn is tax free ,but the amount of deposit itself is not deductible for tax purpose .

• Post Office Time Deposit (POCTD)

Interest rate is payable annually but calculated quarterly .from April 2014, the Interest rate is 8.4% for 1 or 2 or 3 year maturity while 8.5% for 5 year maturity.Minimum 200 and maximum is limitless to be deposited.When TD account is closed before on year ,interest @ saving account will be payable from time to time.After maturity account will be renewed for two year maturity with interest rate as above.The Investment under 5 year is qualifies the benefit of the Income tax under Act ,1961 from April 2007.

• Post Office Recurring Deposit (PORD) 

Interest rate payable is 8.4% (compounded quarterly)from April 2014.Maturity is 5 year and a minimum of 10 Rs can be deposited per month and with no max limit.One Withdrawal up to the 50% can be made after one year.

• Monthly Income scheme(MIS) Account

from April 2014 ,interest rate is 8.4 % .Maximum Investment limit is 4.5 lakh for single Account and  9 lakh for joint account.Maturity period is 5 year. all joint account holder will be equal shares. interest  can be drawn through auto credit in saving account in the same post office.We can prematurely en-cashed after 1 year but before 3 year at discount of 2% on deposit and after 3 years on discount of 1% on deposit.

• Senior Citizen Saving Scheme(SCSS)Account

The Interest rate is 9.3% .The account is opened for senior citizen for age of 60 or more.An individual between age of 55-60 can also open with some condition of retirement benefit.The maturity period is 5 year.There should be one deposit in multiple of Rs 1000 and maximum not exceeding Rs 1.5 lakh. Interest can be drawn through auto credit into the saving account opened in same post office.Premature closure is allowed after one year with a deduction of 1.5% of  deposit and after 2 years 1% of deposit.A TDS as deducted on interest earned , if the amount is more than 10000 per annum.

• National Saving Certificate (NSC)

Scheme is designed specially for govt employee,Businessman and other salaried person who are income tax assesses.No maximum limit for investment.Rate of interest is 8.5% for NSC VIII Issue while the interest is 8.8% for the NSC IX Issue.No tax deduction at source.Certificate Can be kept as collateral property to get loans from banks .Buy NSC every month for 5 years the reinvest it -on retirement it will fetch you monthly pension as NSC mature.Deposit qualify the tax  rebate under section 80 C of It Act.

• Kisan Vikas Patra(KVP)

Amount invested doubles in 100 month .Minimum deposit of Rs 1000 and no max limit .KVP can be purchased on any departmental post office.Certificate can be en-cashed after 2.5 years from date of issue.

• Sukanya Samriddhi Account 

Account is opened by a guardian in the name of a girl but maximum two account in the name of two girls.Account can be open at the age of 10 year of the girl.Interest rate is 9.3% per annum compounded yearly.Minimum Rs 1000 and Max Rs 1.5 lakh can be deposited in a FY.A minimum of Rs 1000 is necessary to deposit in a FY otherwise a penalty of Rs 50 has to be paid for the revival of the account.A 50% of total balance standing at the end of FY can be drawn at he age of 18 year of the girl .The account can be closed after 21 year of the girl’s age.

All these account can be opened at any branch of the Post Offices.There are other facilities also like nomination ,transfer of account from one branch to other, making a single account joint after sometimes, any no of accounts can be opened at any branch except POSBD .

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It is a contract in which an individual or entity receives financial protection or reimbursement against loss from a company .The company pools client’s risk to make payment more affordable for the insured.

In this contract ,between a client & a provider whereby the client makes monthly payment called Premium, in exchange for the promise that provider pay for certain expense. 

The company spreads the risk of any one’s expense by pooling the premium from many clients.It is a form of risk management primarily used to hedge against the risk of a uncertain loss.

Types of companies:

• Life Insurance Company:-These Companies deal with insuring lives ,pension product & annuities.
• General Insurance Company:-These Company provide all type of insurance apart from the Life Insurance.They include Automobile, Health, Credit ,Property  etc.

The distinction Between insuring against life and general business is that with regard to former ,the claim is fixed & certain But in that case of the latter,the claim is uncertain.

Investment of Money by Insurance Company:

There Is continuous inflows of funds for long period of time and liabilities in most of the cases is long term for ex many life policies are held for period of 30 or 40 or 50 or even more.As a result of these the liquidity is not problem for them. The guaranteed rate of return specified in insurance policies is relatively low.As a result of the combined result of all these facts ,the Investment of insurance companies have been largely in Government Bond ,Mortgage ,State and Local Govt Claim and Corporate Bonds.About 50% of the assets are invested in state and central govt Securities and some other approved security, presently by both LIC and GIC , at present.

Regulation :

Insurance Regulatory & Development Authority (IRDA) is a stuatory body set up for protecting the interest of policyholder and regulating ,promoting and ensuring orderly growth of Insurance Industry in India.It was contributed by parliament of India Act called Insurance Regulatory & Development Act 1999.

Headquarter lies in Hyderabad after being shifted from Delhi .Delhi and Mumbai being the regional offices. IRDA is 10 member body appointed by GOI .One is Chairman,Five whole time member ,Four Part time member.

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