Auditing and Assurance Notes Essay

Week 1 Purpose of audit – enhance the degree of confidence of intended users in the financial report. Expression of an opinion by the auditor on whether – the FR is prepared, in all material respects, in accordance with applicable financial reporting framework. Opinion – whether the FR is presented fairly, in all material aspects, give a true and fair view in accordance with the framework. ASA require auditor to exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit to Identify and assess risk of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment, including the entity’s internal control. Obtain sufficient appropriate audit evidence about whether material misstatement exist, through designing and implementing appropriate responses to the assessed risks. Audit process (planning, audit evidence, audit reporting) 1. Planning Understanding the business and determining risk Assessment of the internal controls Determining ‘significant risks’ for which special audit attention needs to be focused 2. Evidence gathering Tests of controls Substantive tests 3. Formation of the audit opinion Planning Risk identification what approaches/ procedure the auditor needs to adopt to reduce audit risk. Plan- so that audit will be performed in an effective manner. Key engagement team members in the planning  appropriate quality control procedures Consideration of comparisons of the entity’s financial information: Comparable information for prior periods  Anticipated results of the entity  Similar industry information Audit Risk- the risk of material misstatement of financial report Assertion level Inherent Risk (IR)  the susceptibility (æ„Ÿå â€"æ€ §) of an assertion(ä ¸ »Ã¥ ¼  ) to material misstatement, assuming there are no related controls, IR factors are generally business risks (BR) affecting a specific account assertion. Control Risk (CR) the risk of an assertion being materially misstated because controls will not prevent, or detect and correct errors on a timely basis. CR is the impact of the presence or absence of effective internal control designed to mitigate entity’s business risk Detection Risk (DR) the risk that the auditor will not detect the material misstatement. Can be reduced by proper planning, assignment of staff, professional scepticism (çâ€"‘éâ€" ®), supervision and review Planning Materiality ASA320 Materiality – no specific criteria for determining materiality, but rather considers it a matter of professional judgement. Determining materiality for planning- 2 stages 1. An appropriate benchmark need to be chosen 2. Risk assessment based on auditor’s knowledge of client’s business

Contribution Of Health To Economic Growth Economics Essay

The linkage between wellness status and economic activity has been debated several times in the yesteryear, and this issue became even more of import in the last few old ages. This relationship is instead complex. It has been already recognized that increased national wealth is linked with betterment of wellness at single and social degree. Furthermore, it is clear that improved wellness status has an consequence on economic activity and extent of economic growing. Several surveies in high- , middle- , and low-income states examined this linkage. These show that a important displacement in paradigm is discernible. Harmonizing to the new paradigm wellness was non considered as a pure byproduct of economic development, but as a cardinal factor and basic status for economic growing. This manner puting in wellness became a nucleus portion in many states ‘ development schemes and policies. At European degree the purpose of a competitory and dynamic cognition based community was set, enabling sustainable economic growing, invention and a stronger social coherence. The issue of part of human capital to economic growing was the footing for several treatments and analyses. Until now instruction was considered as the chief constituent of human capital. In the context of the neo-classical theory, economic growing is dependent on the undermentioned factors: stock of capital, stock of labour and productiveness. Productivity was considered in the first clip as a factor affected by outside forces. Subsequently on this point of position changed by looking at the investing into human capital as a possible beginning for heightening productiveness and invention. A research of Becker ( 1964 ) was based on the human capital formation. Harmonizing to him an addition in human capital raises the person ‘s productiveness. It is reached through investing into instruction, developing and wellness. The function of wellness as another of import constituent of human capital next to instruction was introduced by Grossman ( 1972 ) . Grossman constructed a theoretical account where the demand for wellness was applied in human capital theory. Grossman differentiated wellness as a ingestion good and as a capital good. In the instance of the ingestion good people practically enjoy their well-being and good wellness status. When looking at wellness as a capital good it reduces the figure of yearss spent badly. This manner it enhances the figure of productive on the job yearss and yearss spent for leisure activities. In this context wellness is non merely consumed ( enjoyed by persons ) , but produced at the same clip as good. Persons can put into wellness to keep and better it over clip. The theoretical account of Grossman received critics as good, but remained a cardinal theoretical account of analyzing the demand for wellness. Figure 1: Factors act uponing wellness and results Beginning: hypertext transfer protocol: //europa.eu.int/comm/health/ph_determinants/healthdeterminants_en.htm Figure 1 represents factors finding the wellness position at single and at society degree, and different channels through which wellness contributes to economic activity. On the left side factors are presented impacting wellness of persons: genetic sciences ( inherited ) life style, instruction, wellness attention and other socioeconomic and environmental factors. Many exogenic factors impacting the wellness position can be influenced by public policies. On the right side different ways are presented through which wellness exerts a direct consequence on economic results. When analyzing the linkage between wellness and economic growing the feedback of income on wellness should be taken into consideration excessively. Marmot ( 2002 ) provinces there are two ways of through which income influences wellness status. On one manus higher income can hold a direct affect on stuff conditions holding a positive impact on biological endurance. On the other manus higher income positively influences societal engagement. Therefore, persons have better conditions to pull off life fortunes and heighten the feeling of security. Based on Figure 1 there are four chief channels or mechanisms where the consequence of wellness on the economic system is explained. Labor productiveness Peoples with a good wellness position can bring forth more within a defined clip interval. Higher productiveness is arising from better physical and mental wellness. Furthermore, persons with improved physical and mental position can utilize engineering more efficient and they are expected to be more flexible excessively. Labor supply The direct consequence of wellness on the labour supply is non obvious in some instances. Good wellness status reduces the figure of ill yearss spent, therefore increasing the figure of productive on the job yearss. In this sense it influences determinations on labour supply every bit good, because of its impact on rewards and expected life-time. In the instance when rewards are connected to productivity a healthier worker can bring forth more, therefore heightening rewards and this manner the labour supply. On the other manus a better wellness position enables higher lifetime net incomes increasing the hazard of earlier backdown from working. The decision can be drawn that these effects are based on single penchants. Based on this wellness can impact the economic system in a similar manner as wellness affect single penchants. Education Based on the theory of human capital more educated people can make higher criterions in footings of productiveness and net incomes. With a good wellness persons can accomplish higher educational making lending significantly to future productiveness. Capital Formation The cardinal point here is, whether the effects of wellness at the micro degree are successfully applicable at macro or state degree, in footings of GDP and growing rate. The mentioned theoretical theoretical accounts already assumed that there should be a positive relationship. Now analyzing several empirical surveies the necessary grounds can be collected to do more accurate judgement sing this relationship. In first line, historical surveies contributed significantly to the research of this issue. Robert Fogel was considered as the innovator of the historical survey attack. These surveies examined the part of wellness to economic growing over a longer clip period ( 1-2 centuries ) . Fogel ( 1994 ) found that the development in wellness and nutriment resulted a 30 % addition in income and 1.15 % per capita in the instance of the UK, within two centuries. Researchers paid less attending to the part of wellness to economic growing in the instance of high-income states. Just a few surveies were made finding the impact of wellness on growing specifically. Some of them found even a negative relation between wellness and economic betterment, but this was chiefly due to the usage of imperfect wellness indexs and the institutional policy model for these states. Despite the few negative consequences wellness still remained as a robust determiner for economic growing. The most normally used placeholders for wellness are life anticipation and grownup mortality. Knowles and Owen ( 1997 ) made a research on 22 high-income states utilizing life anticipation as a placeholder for wellness and found an undistinguished relationship between wellness and economic growing. The consequences were adjusted by Tompa ( 2002 ) , where he stated that the undistinguished result of the survey was due to limited variableness of life anticipation within the chosen sample of states. More important consequences were achieved by Beraldo et Al. ( 2005 ) . He found that investings in wellness consequence a 16-27 % addition in growing rates. The work by Suhrcke and Urban ( 2005 ) followed a somewhat different manner by utilizing other indexs. They used non-communicable diseases as a footing to analyze the impact of wellness on growing in high-income states in a better manner. More specifically, cardiovascular disease ( CVD ) was used as a placeholder for wellness. 26 high income states were taken as a sample in the clip period of 40 old ages. Consequences showed that CVD is a robust index in the instance of high-income states. A decrease of 10 % in CVD resulted an addition in the growing rate of per capita GDP by 1 per centum point. The consequences of empirical surveies show that merely appropriate factors enable the accurate scrutiny of the relationship between wellness and economic growing. The best indexs are life anticipation and mortality rate, but in add-on CVD is good every bit good, because it shows more variableness among high-income states than life anticipation does. Furthermore, mental illness and other morbidity indexs for rich states are suggested by Tompa ( 2002 ) .

Merketing Segmentation of The Food Industry Essay

Merketing Segmentation of The Food Industry - Essay Example Markets have always been segmented and products have been differentiated on the basis of the ways in which suppliers have applied different techniques of competing in the market. The crucial evidence for the above aspect collected in recent times is that researchers have been using behavioural and economic theories along with sophisticated analytical techniques for identifying the various market segments and opportunities for product differentiation. The concepts of market segmentation and product differentiation have been discussed in literature for long. Shaw (1912) has described the strategy of market segmentation and product differentiation as that of trying to cater to human needs and wants more accurately than competition. The result of market segmenting and product differentiating is the creation of a potential which attains a price level which is higher than prevailing stock commodity. Researchers have identified the recent changes in the market environment of firms which hav e presented with new opportunities and chances of further segmentation of the market. However, the aspect of the possibilities of identifying the groups of customers as individual segments in the market in reality is an empirical one. Researchers are of the opinion that if it is possible to segment the market into individual and homogeneous segments, market segmentation could be effective only if the manageability and efficiencies of the marketing activities could be substantially influenced by the distinguishing and different groups of customers (Wedel & Kamakura, 2000, p.4). Globalization and technological advancement across the world along with fresh new developments have provided marketers with in-depth information regarding the actual behaviour of customers and having direct access to such information through database marketing or demographic segmentation (Wedel & Kamakura, 2000, p.4). As a consequent of this, the marketers have been found to be focussing more on the small segm ents using concepts like direct marketing and micro marketing approaches. However on account of globalization, the leading multi product manufacturers have been looking at the global markets beyond the geographical boundaries (Yankelovich, 1964). It is seen that if the various market segments respond to the marketing efforts they are considered to be responsive to the segmentation strategies. Responsiveness accounts for the success factor for any market segmentation strategy. Mere response from the segments to the advertising

Reaction essay of The Art of Lying By Gerald Torto

Reaction of The Art of Lying By Gerald Torto - Essay Example Effective lying may be hampered by an emotional relationship between the liar and those he/she knows because they can easily detect behavioral changes when one is lying. Psychopath lairs such as politicians show no guilt when lying and are thus able to convince others that they are telling the truth. There is also a co-relation between the symmetry of the face and the art of lying with psychologists citing that attractive people are easily trusted as opposed to unattractive people. Children who lie and get away with it develop a knack for lying thus becoming pathological liars. People with low self esteem also become habitual liars as they exaggerate facts to appear better than they actually are. It is often almost impossible to detect liars without the help of polygraph or brain printing machines, but common indicators include long pauses while talking, omission of details such as names and places, intensive facial expressions when

4 page essay Example | Topics and Well Written Essays - 1000 words

4 page - Essay Example An example is given where the regulators never reacted to the extra ordinary increase in the financial institutions leverage. this never reacted to the movement of assets worth trillions of dollars from banks balance sheet. This shows how the regulators did not do their work. Increasing the regulators power without checking the problem and trying to regulate it helps in solving nothing. Barth, Caprio and Levine studied that the governance of financial regulation the system that is supposed to design, implement and reform financial policies contributed highly to the crisis faced in the United States. The senior most officials are blamed for repeatedly designing implementing and maintaining policies that destabilized the financial markets. The Financial Guardians maintained the same policies even after learning that these policies were increasing the instability of the financial system in the country. Also, even after the authorities had discovered about what was happening, the regulators did not adjust their policies even when they had the time and power this came to one conclusion that the regulators never worked ii the interest of the public but their own. The group indicated in their book that the failures of the respective governments in the governance of the financial regulations played a crucial role in crisis by being part of the destructive policies created and maintained by the regulatory agencies. The proposals laid out by the institutions have not addressed the weighty issues including their weaknesses with governing financial regulation. The public is also not involved in the process as there is no mechanism laid down through which people can obtain well laid informed assessment of the financial institution. Since the public are the ones affected by these policies, it is highly recommended they get involved with the process. It is hard

Economic Policy Proposals of Barack Obama Essay Example | Topics and Well Written Essays - 500 words

Economic Policy Proposals of Barack Obama - Essay Example He intends to do so by extending tax cuts, curtailing the regulatory constraints, encouraging research and development, extending mortgage refinancing to responsible home owners and investing in the fast deteriorating infrastructure (Thoma, 2012). Obama’s proposals also made a mention of dealing with the budgetary deficit and regulating the financial markets (Thoma, 2012).  If one carries out a macroeconomic analysis of some of the salient proposals extended by President Obama, they do promise positive economic results in a long term context. For instance, Obama’s proposal of reviving the manufacturing sector by offering tax cuts is indeed favorable. There is no denying the fact that America has lost a large proportion of jobs at home owing to the flight of manufacturing to countries like China (Kind, 2006, p. 29). Manufacturing sector constitutes the cornerstone of any vibrant economy. Revival of the manufacturing sector clearly means the retention of good jobs at ho me that will directly translate into a good standard of living for the American citizens (Weiss, 2002, p. 83). Boosting the manufacturing sector will directly support Obama’s proposal of reviving exports. The export of goods produced by a competitive manufacturing sector will of course bring back the wealth generated by it to the local communities, through the sale of goods in the local and global markets. This will also have a positive spillover effect in the small businesses that serve as ancillary units supporting the big manufacturing companies.

Fieldler's Contingency Theory Research Paper Example | Topics and Well Written Essays - 750 words

Fieldler's Contingency Theory - Research Paper Example This scale measures the leadership style of an individual by taking into consideration the opinion of the persons that have been able to work the least well with the subject. The theory might seem a bit odd since one would think that the opinion of the person that you had trouble with would not be such an important factor. The theory can be used to differentiate between relationship motivated styles and task motivated leaders. There are three situational control variables that must be considered. The three situational control variables are leader-member relations, task structure, and position power. The Fieldler contingency theory can be used in the workplace to improve the performance of the workers by using the best leadership style based on the circumstances. Take for example a project manager leading a group of workers. The workers the project manager was given were a group of recently recruited employees. They lack a lot of experience at the work tasks and have little knowledge of the corporate culture of the firm. Based on this scenario it would be more effective for the project manager to use a task orientated leadership style. The project manager should pay close attention to each member of the crew to make sure that the workers understand what is expected of them. The project manager should establish good communications and relations with the workers to build a bond of trust. In the future once I reach a position where I have to exert leadership to manage a group of people I plan on using Fielder’s contingency theory to my advantage. If I was faced with leading a group of workers that had lots of experience, good interpersonal relations among themselves and with the boss, understanding of the culture of the firm and clear knowledge of what is expected of them I would use a relationship-motivated leadership style. A company that has utilized Fielder contingency theory to improve the performance of its workers is Sears Roebuck. Contingency theory has tremendous utility because it can be applied in a wide variety of industries. The theory allows the leader to adapt to the circumstances. The academic community has used Fieldler’s contingency theory in research studies to test different aspects of leadership. A study performed on 360 senior managers across 20 different British firms concluded that leadership and decision making must be analyzed form a contingency rather than a universalistic perspective (Heller, 1973). Fieldler’s work has evolved and recently the theory has evolved through the development of cognitive resource theory. The new cognitive approach states that that leader should use directive or nondirective behavior based on situational contingencies such as experience, support of the leader, and stress. For example when leaders have to manage a group of employees working on tight deadlines such as an accounting staff during the closing period the leader should not exert excessive pressure on the sta ff since the worker already realizes the deadlines they have to meet. Being a facilitator during these circumstances is a more effective leadership style. Contingency theories such as Fieldler’s direct their research towards discovering the variables that make certain leadership characteristics and behaviors effective in specific situations (Gunbayi, 2005). Contingency theory can be very effective in fast adaptive environments such as a casino operation. The casino

Postmodernity Essay Example | Topics and Well Written Essays - 1000 words

Postmodernity - Essay Example Talk about religion, culture, art and even technology and you are certainly confronted with both fundamentalists and a new wave of thinkers who will normally feel that postmodernism should be the accepted way of life (Anderson 2003). Well, it then begs the analysis of the whole concept of postmodernism to clearly see its true connotation and to draw lines between the term and the conventional modernism. Modernism, contrary to popular knowledge, has been in existence since somewhere in the late 17th or early 18th centuries (Chan, 2008). It is a period that radically transformed all manner of life in science, art, religion, culture etc. The ideas and thoughts propounded by postmodernists are normally subjects of much analysis. This arises out of the true nature of postmodernism. It has normally been seen that postmodernists are driven by that ultimate opposition and antipathy towards modernism. Whatever is conventional in the mindset of the modernist is therefore what the postmodernist seeks to prove wrong and nullify as old and traditional (Deely, 2001). A more recent trend seen is where postmodern fundamentalists have been constantly attacking and questioning some of the most celebrated knowledge in academic and professional realms (Eagleton, 2000). As a very special characteristic, postmodernism fundamentally relies on the voice of reason and the ability to inspire change through the avoidance of the bandwagon effect where humanity simply borrow from their past without much thought or ability to think and analyze what is good for them. With modernism, humanity evidenced the development of the Enlightenment era in which reason was used to establish fundamental truths about the world (Docherty, 2003). These truths have gradually been developed and have guided life for the past few centuries. Well, it has to be realized that postmoderns are normally against such guiding principles. To them, the concepts of morality and ethics, which are normally considered univer sal, are merely subjects of personal and subjective decision. In several instances, it can be seen that postmodernity tries to bridge the gap that is normally left with the flaws of modernism. In a critical perspective, postmodernism is not simply a way of life. On the contrary, the word is simply meant to address a wide range of social, economic, cultural and political changes that have lately inundated the world. It is the modernistic way of life supplemented with modern technology, globalization, individualism, feminism and multiculturalism (Gidders, 1999). On the cultural perspective, the move towards ethnic pluralism and relativism has made people to nostalgically think about their past cultures and what has been lost over time. Indeed much has been lost. On the social scale, the digital age has made the flow of information across the world as easy as possible. This has radically transformed lifestyles across many areas as new ways of life are adopted. Postmodernity encompasses that timeframe between the early 1980s to the present. It is a period that saw the emergence of a new economy-the postindustrial, which effectively replaced the earlier forms of life like aristocracy, working class and middle class (Zygmunt, 2000). Much of this era is however defined by the emergence of

Business project management Essay Example | Topics and Well Written Essays - 250 words

Business project management - Essay Example Includes uniqueness, multiple objectives, specific provisions, flexibility, time bound, interlinked process and well planned. They are unique as Ait uses both international and local bench markers. It also has multiple objectives to be achieved by only trained individuals responsible for managing the project thus making it have specific provision. It is also an interlinked process that follows specific steps thus making it well planned. The process is also flexible as it can be changed with time if the project objectives are not met. Has many advantages including increased concentration on specific objectives of the project, more efficient and good use of the company resources as well as making a company have a healthy competition. In addition, it increases product development, production speed and also improve team cohesion spirit Project management is an expensive venture that consumes a lot of time. Many resources both human and materials are usually needed to run the complete cycle of project management. It can also cause wrangles between the project manager and the members of the project management committee thus making the manager feel

For each of the following concepts provide a definition, a complete Essay

For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example. How are the paired concepts similar How are they different - Essay Example A general idea about the various important ecological issues become apparent in a profound analysis of some of the paired concepts such as Riparian vs. prior appropriation water rights, optimal instream flow vs. optimal reserve site selection, import dependency ratio vs. recycling ratio, maximum sustainable yield vs. minimum viable population, and sustainable vs. conventional agriculture. To define the concept of Riparian water rights, it refers to the system of distributing water among various people who own the land a propos the source of water and this water right has originated from the English common law. In various countries with a common law heritage to the English common law, Riparian rights are used as the major system of allocating water among the owners of the land about its source, and these countries include Canada, Australia, and states in the eastern United States. Thus, the Riparian rights are based on English common law principles and they are mainly used in humid east of the United States. At its acquisition dimension, the Riparian rights make the water available to riparian landowners who are adjacent to water and it is normally limited to land within a watershed. As against Riparian water rights, prior appropriation water rights, or the Colorado Doctrine, refers to the system of allocating water rights from a water source based on the principles o f Jeffersonian democracy and these rights distinctly differ from Riparian rights. According to prior appropriation water rights, the appropriation doctrine is developed in order to meet the scarcity of water in the particular area and these rights are used mainly in the western United States. Although the provisions in this water right vary from state to state, it generally maintains that water rights do not have any connection to land ownership and it gives provisions to sell or mortgage water in the vein of other properties of individuals. Optimal instream flow vs. optimal reserve site selection Optimal instream flow refers to the amount of water to be left in the stream and it has a significant relationship to optimal site selection. In an analysis of optimal instream flow vs. optimal reserve site selection, it becomes lucid that there is an increasing demand for instream flow protection from the ecological, aesthetic, and recreational perspectives and the legal status of instream flow protection varies from state to state. To define an instream flow, it refers to the quantity of water that emerges within a stream channel at a particular locality during a specific period and the economists would incorporate instream water rights within the water rights markets. The optimal stream flows mainly indicate how much water should be left in the stream based on the various questions such as social efficiency. Import dependency ratio vs. recycling ratio Similarly, there is a close relationship between import dependency ratio and recycling ratio and the similarity and the difference between these two concepts gain significance in an analysis of the

Dependent clause Essay Example for Free

Dependent clause Essay TRANSLATION: The process of turning an original or source text into a text in another language. TRANSLATION TECHNIQUES Direct Translation Techniques are used when structural and conceptual elements of the source language can be transposed into the target language. Direct translation techniques include: * Borrowing * Calque * Literal Translation Borrowing Borrowing is the taking of words directly from one language into another without translation. For example software, funk. English also borrows numerous words from other languages; abbatoire, cafe, passe and resume from French; hamburger and kindergarden from German; bandana, musk and sugar from Sanskrit. Calque A calque or loan translation is a phrase borrowed from another language and translated literally word-for-word. Examples that have been absorbed into English include standpoint and beer garden from German Standpunkt and Biergarten; breakfast from French dejeuner. Literal Translation A word-for-word translation can be used in some languages and not others dependent on the sentence structure: El equipo esta trabajando para terminar el informe would translate into English as The team is working to finish the report. Sometimes it works and sometimes it does not. And one sentence can be translated literally across languages does not mean that all sentences can be translated literally. El equipo experimentado esta trabajando para terminar el informe translates into English as The experienced team is working to finish the report (experienced and team are reversed). Oblique Translation Techniques Oblique Translation Techniques are used when the structural or conceptual elements of the source language cannot be directly translated without altering meaning or upsetting the grammatical and stylistics elements of the target language. Oblique translation techniques include: * Transposition * Modulation * Reformulation or Equivalence * Adaptation * Compensation Transposition This is the process where parts of speech change their sequence when they are translated. It is in a sense a shift of word class. Grammatical structures are often different in different languages. Transposition is often used between English and Spanish because of the preferred position of the verb in the sentence: English often has the verb near the beginning of a sentence; Spanish can have it closer to the end. This requires that the translator knows that it is possible to replace a word category in the target language without altering the meaning of the source text, for example: English Hand knitted (noun + participle) becomes Spanish Tejido a mano (participle + adverbial phrase). Modulation Modulation consists of using a phrase that is different in the source and target languages to convey the same idea: Te lo dejo means literally I leave it to you but translates better as You can have it. It changes the semantics and shifts the point of view of the source language. Through modulation, the translator generates a change in the point of view of the message without altering meaning and without generating a sense of embarrassment in the reader of the target text. It is often used within the same language. The expressions es facil de entender (it is easy to understand) and no es complicado de entender (it is not complicated to understand) are examples of modulation. Reformulation or Equivalence Here you have to express something in a completely different way, for example when translating idioms or advertising slogans. The process is creative, but not always easy. Adaptation Adaptation occurs when something specific to one language culture is expressed in a totally different way that is familiar or appropriate to another language culture. It is a shift in cultural environment. Should pincho (a Spanish restaurant menu dish) be translated as kebab in English? It involves changing the cultural reference when a situation in the source culture does not exist in the target culture (for example France has Belgian jokes and England has Irish jokes). Compensation In general terms compensation can be used when something cannot be translated, and the meaning that is lost is expressed somewhere else in the translated text. Peter Fawcett defines it as: making good in one part of the text something that could not be translated in another. One example given by Fawcett is the problem of translating nuances of formality from languages that use forms such as Spanish informal tu and formal usted, French tu and vous, and German du and sie into English which only has you, and expresses degrees of formality in different ways. WORD: It is one of the units of speech or writing that native speakers of a language usually regard as the smallest isolable meaningful element of the language, although linguists would analyze these further into morphemes There are eight different kinds of words in the English language. Nouns| Pronouns| Adjectives| Verbs| Adverbs| | Prepositions| | | Conjunctions| | | Interjections| | | NOUNS and VERBS are the most common and most essential. Every English sentence MUST contain a NOUN and a VERB. NOUNS name: people, places, things, ideas. They are always singular or plural. They are always common or proper. They may show ownership. PRONOUNS replace nouns. They have person, number, and case. ADJECTIVES describe nouns. They answer three questions: Which one? What kind? How many? VERBS have three jobs: show action, act like an equals sign, or hang around a main verb to show tense. They also have person, number, and case. ADVERBS describe verbs. They answer four questions: When? Where? How? How Much? PREPOSITIONS tell anywhere a mouse can run. CONJUNCTIONS connect things. INTERJECTIONS jump into show emotion. Sentence: it is a sequence of words capable of standing alone to make an assertion, ask a question, or give a command, usually consisting of a subject and a predicate containing a finite verb. Kinds of sentences. Simple Sentence it is a sentence having no coordinate clauses or subordinate clauses. Complex Sentence it is a sentence composed of at least one main clause and one subordinate clause. Compound Sentence it is a sentence composed of at least two coordinate independent clauses. Phrase it is a group of words forming an immediate syntactic constituent of a clause. Clause it is an expression including a subject and predicate but not constituting a complete sentence. Pre-modifier is a word (or words), usually adjectives or adverbs, that comes before the word that it describes. Basic Modifiers * Adjectives * Adverbs * Prepositional Phrases More Modifiers * Degree Modifier * Presumptive Modifier * Summative Modifier Post-modifier is a word, phrase, or clause that functions as an adjective or adverb to limit or qualify the meaning of another word or word group. Adjective Order Adjectives can be used to describe lots of things, from physical size, age, shape, colour, material, to more abstract things like opinion, origin and purpose. We can use adjectives together to give a detailed description of something. Adjectives that express opinions usually come before all others, but it can sometimes depend on what exactly you want to emphasize. For instance: That nice, big, blue bag. (You like the bag. ) That big, nice, blue bag. (You like the colour. ) When adjectives are together there is a general rule for the position of each type adjective, these are: Position| 1st*| 2nd*| 3rd| 4th| 5th| 6th| 7th| 8th| | Opinion| Size| Age| Shape| Colour| Material| Origin| Purpose| | Nice| Small| Old| Square| Black| Plastic| British| Racing| | Ugly| Big| New| Circular| Blue| Cotton| American| Running|.

Doctrinal and philosophical dimension of Buddhism

Doctrinal and philosophical dimension of Buddhism Buddhism has over three million followers world-wide, is the state religion in Burma, Thailand, Cambodia and Laos, and maintains a tremendous influence in other countries such as Ceylon, Tibet, China, and Japan. The Oxford Dictionary defines religion as a belief in the existence of a superhuman controlling power, especially of God or gods or, as a particular system of faith and worship. (Hawkins, 2002). The dictionarys short descriptive passage does not take into account the spiritual well being, security, and comfort, a religion gives to its followers, and therefore may be seen to be inadequate and superficial. The doctrinal and philosophical dimension of Buddhism emerged at a time of political and economic instability. The Buddha was born in the 6th century Before The Christian Era (Robinson, 2009). Large, powerful tribes began to invade the Ganges Basin, and society became more complex as the populous moved towards the newly instituted metropolitan centres. During this time a strict and rigid caste system was in place, which did not allow for movement within its structure. The Buddha, as a member of the warrior elite, would have had considerable wealth and standing within the tribe, but he became disenchanted with this way of life, and ultimately rejected it to become a wanderer (Robinson, 2009). The wanderers believed that anybody, regardless of caste, could be wise and good. These qualities could be achieved by rejecting or renouncing life at home, which was dirty and cramped and instead, going out into the wider world which was . completelyperfect and pure (Robinson, 2009). Such renounces believed in the re-incarnation of the spirit, but what or whom you returned as in the next life, depended on how you had conducted yourself in the previous one. By leading a life of purity and devotion one could escape the agony of re-birth and thereby obtain Nirvana or liberation (Robinson, 2009). Such a pure and devoted lifestyle could be achieved by accepting the Four Noble Truths. The first truth was that of suffering; birth, ageing, death, sorrow and defilement (Buddahnet.net, 2010). The second truth was that the causes of suffering were human traits such as greed, and sexual desire. The third Noble Truth stated that suffering can be eliminated if the way of the fourth truth, or Nobe l Eight Fold Path, was followed. This would result in salvation by releasing the follower from perpetual re-birth. This last truth was a guideline to redemption which could only be obtained by correct behaviour, such as correct attitude and correct speech. The method of obtaining Nirvana in conjunction with correct behaviour is by meditation; by having the correct mental attitude one can only think good thoughts and therefore the intentions or deeds are pure also. This is known as Karma or mental work (Hawkins, 2002). Once Nirvana has been achieved, the follower becomes designated as a Buddha or enlightened one and these saints reside on a higher plane. Since the time of Buddha two main proponents of Buddhism have developed, namely Therevada, predominant in South Asia and Mahayana, followed in North Asia. The former believes that the only way to obtain Nirvana is by being a monk or a nun, and may therefore be considered as an elitist form of Buddhism, while the latter shows more liberal qualities and is sympathetic to others (Robinson, 2009). The narratives of Buddhism, the Pali Scriptures and Jakata tales, are important in the historical sense as they give an insight into the words and meanings of the Buddha, and may be construed as being inspirational to his followers (Buddahnet.net, 2010). The oral nature of these stories could possibly lead to them being misinterpreted and lost in translation and therefore their actual meaning may become muted and distorted. Although some of these tales may be deemed to be of a mythical nature, such as the Buddha being conceived by his mothers union with a white elephant they, as in parables from other religions, cannot be taken as literal, historical facts, but could quite possibly contain a hidden meaning (Buddahnet.net, 2010). Therefore because Buddhism uses such stories to accentuate its teachings, it is similar to other faiths and does not detract from its perceived status as a religion. The practical and ritualistic dimension, especially in Mahayana Buddhism, is extremely important. This dimension contains the preaching, prayers and worship element of a religion. By travelling the Ganges Basin in its entirety the Buddha and his followers went to great lengths to make Buddhism accessible to all and encouraged others into believing that salvation was at hand if the proper codes of conduct were adhered to. Buddhists offer prayers to the Buddha as much in the same way that Christians offer prayers to Jesus Christ, they are both a vehicle unto God or Nirvana., which has been thought by some writers to be a Buddhists substitute for God (Buddahnet.net, 2010). The Christian word worship, the worship of a God, constitutes the major problem in the definition of Buddhism as a religion. The Buddha stated that he was neither a messenger from God nor his emissary and denounced the notion that there was a God (Buddahnet.net, 2010). This has led to Buddhists being considered as Ath eists, but Buddhism is a cosmopolitan religion which embraces other beliefs and cultures and ultimately their gods. Therevada Buddhists acknowledge other gods but they maintain that it is the Buddha who is supreme and it is these other, lesser gods who defer to him (Bullitt, 2005). The Buddha is revered by his devotees and may be seen as the object of worship, as prayers are chanted praising him and asking for salvation, and gifts placed at his shrines and temples (Bullitt, 2005). At the New Year festival, the water festival, Buddhas name is used to ward away evil spirits The ethical dimension of a religion is its moral code. The laws and rules that a particular religion abides by are usually, in a mono-religious state those that govern society, as in Islam and Christianity. A religion must be able to teach a moral code and give guidance to a society as to what would be morally abhorrent and that which is deemed as acceptable behaviour. As much in the same way that Christianity has the Ten Commandments, The Buddhists rules or virtues are called Dhammapada, the way of virtue (Jung, 2010). These rules give guidance and a set of guidelines on the proper behaviour of a Buddhist, such as compassion and denounce improper thoughts and actions such as greed, vice, hatred and envy (Jung, 2010). The experiential and emotional dimension is the feeling of perhaps exultation or sense of peace that the follower of a particular religion can get from for example, reciting a prayer, liturgy, or chant (Buddahnet.net, 2010). These feelings can also be shown in many other ways such as a Buddhist attaining enlightenment, or by using meditation as a way of clearing the mind from the mundane aspects of life. A Christian may achieve an emotional experience by seeing a sign from God, chanting a prayer of contemplation, or just from a general sense of well being and contentment. The social and institutional dimension is the self containment of the organisation for its own protection. The Buddhists, like many new groups were persecuted for their beliefs and radical outlook from their foundation (Buddahnet.net, 2010). Buddhism has its own structure, although not hierarchical as in other religions, the monks are seen as the closest to obtaining the goal of Nirvana. It was, and still is the foundation within the lives of its followers, especially those living in remote areas where the rules passed to them from the Buddha and his followers, is followed without deviation. A religion can be interpreted by its followers in many different ways. It can be seen as providing, a comforting belief in the hereafter, and spiritual well-being, while also supplying a code of behaviour and a sense of belonging. Buddhism certainly follows these pre-requisites and although some commentators view Buddhism as atheistic, its followers worship the Buddha as a god, and Buddhism shows numerous similarities to many other widely accepted religions. Regardless of criticism Buddhism is considered a religion by its millions of followers, which today include the peoples of both Eastern and Western civilisations.

Innovative Financial Instruments

Innovative Financial Instruments Methodology Collection of secondary data: Historical data from sites of NSE, BSE, SEBI etc Getting Data from newspapers Getting data from the Various Research papers published. Collecting data from various Books available on the topic. Review of Previous Management Research Reports Getting Access to Instruments available in India from SEBI websites. Findings and Conclusions In India financial market majorly denotes equity markets. Indian debt market is not well developed and still 80% of market is under Government securities. Securitization has to be done on assets held by Banks. Bond market needs a great consideration in terms of junk bonds An effort can be made to develop Carbon Emission and National growth index. Commodities Options should be developed in India. Credit derivatives should be developed with consideration of all the possible types of Credit derivatives. In a country with major income from Agriculture, Weather derivatives should be introduced to protect the interest of various involved parties. To mitigate the Catastrophe hazards new technique for risk management should be introduced. Financial development Index to measure the developments in various parameters to conclude growth in real terms. Conclusion Despite the accelerated industrial growth experienced this decade from recent economic reforms, most major investors around the globe do not yet see India as an ideal country for foreign investment. The competition for global capital will only get tougher in the years to come, and unless the political, judicial and economic environments are right, India will lag behind many other emerging nations. More importantly, the rising expectations of the middle-class, widening income and wealth inequalities between the haves and have-nots, require efficient initiatives from Government and corporate to attract and accommodate the funds available. Variety of financial products like mutual funds, insurance, shares, debentures, derivative instruments, etc. are available in India. However, the reach of these products is very limited and the features of many of these products are very basic in nature. Further development and innovation in these products would be faster if they are accessed by all classes of investors in urban as well as rural areas. The thrust lies mainly on the development of new financial products to deepen the improvements in the product distribution itself. The responsibility of ensuring these improvements vests with all the stakeholders in the financial services industry. ABSTRACT The Indian financial market has been primarily divided into three categories namely: Equity; Debt; Derivatives. Every category has its own importance in the development of financial markets. In most of the developed nations after the development of Equity now the major focus is on Debt and Derivatives market. The reason for this focus can be many supportive benefits which accrue to a market by development of double D market. Surprisingly in financial market is used as a synonym for equity market which has completely under deployed Debt and derivative markets. The importance and potentials of debt market are still under a doubtful impression in India and no major revolution has been brought to this effect in the recent periods. Focus of more and more to just equity markets has created saturation in Indian stock market. So willingly or unwillingly now the focus has to be shifted towards other possible avenues. Some of the possible avenues have been categorized during this research conducted on various instruments which are globally available but cannot find place in Indian markets. Now these instruments are also categorized in the various forms and accrue to a specific market. Firstly the focus is laid on so called Backbone of Indian Financial system Vis the Indian equity market, which has incorporated every possible instrument which can be accommodated in Indian family of Equity instruments. Few instruments has been recognized which can be absorbed in Indian market, which can be Indian Depository Receipt (IDR), Non-Voting Shares, Cumulative convertible preference shares (CCPS), Debt-equity swap. Secondly it comes the most awaited Debt market which needs great development especially in case of corporate bonds. In India 80% of bonds are Govt. issued and 80% of remaining by institutional investors. So there has to happen lot of work by GOI (Government of India). In this few instruments which can be of utmost importance for Indian environment can be Inflation linked bonds (ILB), junk bonds, Specialized debt fund for infrastructure funding, securitization of debt. Thirdly it comes to the funds of masses i.e. pension funds and retirement schemes which are always backed by government and also has gained support from the government. In this case one of the major innovative works can be on New Pension Scheme. Fourthly, it comes to mutual funds which has the role of UTI, SEBI, RBI, AMFI and other such authorities which are regulating the workings of mutual funds in India. One of New Direction in mutual funds can be Investment funds in international Markets. Fifthly it comes to the derivatives market, which can be divided in two major forms futures and options. In future major development can be in the newly arrived concepts which can become, Instruments of masses. These include Futures on the Index of Industrial and Economy growth and Index and futures for Carbon Emission in the country. Further option market again has a lot of scope for improvements in the fields of Weather derivatives, Commodity Options, Credit derivatives. Last but not the least there is an open category which also has few innovative instruments to be captured. These can be Index for Natural Disaster and risk Management and Financial development Index. Important consideration to be noticed here is that India is a great Economy with tremendous growth opportunities has to cater with ongoing global competition in terms of capital and Money markets developments. Another important issue here is that India has to balance its Financial market with the equitable share of debt and equity. It should be open for latest and innovative types of instruments suitable for the growth and development of financial system. New concepts like Carbon Emission index should be a given a proper research and find out the ways to develop and implement it. INTRODUCTION INTEGRATION OF GLOBAL CAPITAL MARKETS In this age of globalization and liberalization domestic markets alone cannot cater to the growing needs of corporate and individuals. As a result of which there is a need of finance from various new sources which has led to the integration of world markets. As a result we have seen development of various financial products in past few years. Financial globalization has brought considerable benefits to economies and to investors and has also changed the structure of markets, creating new risks and challenges for market participants and policymakers. Globalization has also increased the scope of many new financial products. Two decades ago, someone building a new factory would probably have been restricted to borrow from a domestic bank. Today it has many more options to choose from. It can also shop around the world for loan with lower interest rate and can borrow in foreign currency if foreign-currency loans offer more attractive terms than domestic-currency loans; it can issue stocks or bonds in either domestic or international capital markets. The evolution of new financial products has increased the size of global capital markets considerably over the years. Market capitalization and year to date turnover of twenty major stock exchanges is given below : THE INDIAN CAPITAL MARKET A capital market is a place where both government and companies raise long term funds to trade securities on the bond and the stock market. It consists of both the primary market where new securities are issued among investors, and the secondary markets where already existent securities are traded. In the capital market, commodities, bonds, equities and other such investment funds are traded. There are 22 stock exchanges in India, first being the Bombay Stock Exchange (BSE), which began formal trading in 1875. Over the past few years, there has been a swift change in the Indian capital markets, especially in the secondary market. In terms of the number of companies and total market capitalization in share market, the Indian equity market is considered large relative to the countrys stage of economic development. CONVENTIONAL PRODUCTS IN INDIAN CAPITAL MARKETS EQUITY Equity shares are issued by the companies in primary market to raise capital from public and corporate houses. It provides a share in the earnings of the company and the equity shareholder can participate in decision making of the company also. There are three basic types of equity: Common stock or ordinary shares [1] Common stock, as it is known in the United States, or ordinary shares, according to British terminology, is the most important form of equity investment. An owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. Common stock holders benefit most from improvement in the firms business prospects. But they have a claim on the firms income and assets only after all creditors and all preferred stock holders receive payment. Some firms have more than one class of common stock, in which case the stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class. This is often the case with family owned firms which sell stock to the public in a way that enables the family to maintain control through its ownership of stock with superior voting rights. Preferred stock [2] Also called preference shares, preferred stock is more akin to bonds than to common stock. Like bonds, preferred stock offers specified payments on specified dates. Preferred stock appeals to issuers because the dividend remains constant for as long as the stock is outstanding, which may be in perpetuity. Some investors favor preferred stock over bonds because the periodic payments are formally considered dividends rather than interest payments, and may therefore offer tax advantages. The issuer is obliged to pay dividends to preferred stock holders before paying dividends to common shareholders. If the preferred stock is cumulative, unpaid dividends may accrue until preferred stock holders have received full payment. In the case of non cumulative preferred stock, preferred stock holders may be able to impose significant restrictions on the firm in the event of a missed dividend. Warrants [3] Warrants offer the holder the opportunity to purchase a firms common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price. The tangible value of a warrant is the market price of the stock less the strike price. If the tangible value when the warrants are exercisable is zero or less the warrants have no value, as the stock can be acquired more cheaply in the open market. A firm may sell warrants directly, but more often they are incorporated into other securities, such as preferred stock or bonds. Warrants are created and sold by the firm that issues the underlying stock. In a rights offering, warrants are allotted to existing stock holders in proportion to their current holdings. If all shareholders subscribe to the offering the firms total capital will increase, but each stock holders proportionate ownership will not change. The stock holder is free not to subscribe to the offering or to pass the rights to others. In t he UK a stock holder chooses not to subscribe by filing a letter of renunciation with the issuer. RECENT DEVELOPMENT IN EQUITY MARKET Free pricing- The abolition of office of the controller of capital issue resulted in the emergence of new era in primary markets. All controls on designing, pricing and tenure were abolished. The investors were given the freedom to price an instrument. Entry Norms- Hitherto no restrictions for a company to tap the capital markets. This resulted in massive surge of small cap issues. The need for transparent free entry was felt by SEBI. Disclosures- the quality of disclosure in the offer document was really poor. A lot of vital adverse information was not disclosed. SEBI stringent discloser norms were introduced. Book Building- It is the process of price discovery. One of the drawbacks of free pricing was price mechanism. The issue price has to be decided around 60-70 days before the opening at issue. Introduction to price building has overcome the limitation of price mechanism. Streamlining the procedures- all the procedures was streamlined. Many aspects of the operations have been made transparent. SCOPE OF FURTHER EQUITY INSTRUMENTS INDIAN DEPOSITORY RECEIPTS (IDR) After the success of American Depository Receipts and Global Depository Receipts the Indian regulatory body, SEBI also allowed foreign companies to raise capital in India through INDIAN DEPOSITORY RECEIPTS (IDRs). IDRs can be understood as a mirror image of well-known ADRs/GDRs. In an IDR, foreign companies issue the shares to an Indian Depository, which would, issue Depository Receipts to investors in India. The Depository Receipts would be listed in Indian stock exchanges and would be freely transferable. The actual shares of the IDRs would be held by an Overseas Custodian, who shall authorize the Indian Depository to issue the IDRs. The Overseas Custodian must be a foreign bank having business in India and needs approval from the Finance Ministry for acting as a custodian while the Indian Depository needs to be registered with the SEBI. Following rules were established by SEBI for listing through IDR: ISSUERS ELIGIBILITY CRITERIA: [4] Must have an average; turnover of US$ 500 million during the previous 3 financial years. Must have capital and free reserves which must aggregate to at least US$100 million. Must be making a profit for the previous 5 years and must have declared a dividend of 10% in each such year. The pre issue debt-equity ratio must be not more than 2:1. Must be listed in its home country. Must not be prohibited by any regulatory body to issue securities Must have a good track record with compliance with securities market regulations. Must comply with any additional criteria set by SEBI REASONS FOR DORMANCY IN ISSUE OF IDR: Stringent rules set by SEBI made foreign companies stay away from Indian market. The rules were made more stringent after the Global economic crisis. Availability of easy funds in foreign markets. Rate of interest in foreign banks is also less which made them prime source of funds for companies. Uncertainty of subscription in Indian markets. Indian companies have been highly active in foreign markets by raising funds through ADR and GDR but till date no foreign company has raised money through IDRs. Standard Chartered is the first company to allow its plan to issue IDR and has received the clearance from RBI also. The bank has yet to announce the size of the IDR issue, though the figures are expected to vary from Rs 2,500 to Rs 5,000 crore. Non -Voting Shares A non- voting share is more or less similar to the ordinary equity shares except the voting rights. It is different from a preference share in the sense that in case of a possible winding up of the company, the preference shareholders get their shares of dividends repaid before the owners of the non-voting shareholders. The companies with the constant track record and a strong dividend history can issue these kinds of instruments. They are basically focused to small investors who are normally not interested in the management of the firm. Hence non promoting share are a good tool for the promoters of the company to increase the share capital without diluting the control. However if the company does not fulfill the commitment of higher dividend then these shares are automatically converted to shares with voting rights. Hence it is very important for the companies to assess the characteristics of future cash flow and determine whether paying a higher rate of dividend is practicable for them or not. Debt for equity and equity for debt swaps Adebt for equity swapis not an instrument but a situation where a company offers its shareholders and creditors debt in exchange for equity or stock. The value of the stock is determined on current market rates. The company may, however, offer a higher value to attract more shareholders and debt holders to participate in the swap. Equity for debt swapis the opposite of the above process. In this swap, the creditors to the company agree to exchange the debt for equity in the business. How do creditors benefit Creditors such as banks and other financial institutions provide capital to large businesses. If the business gets into financial trouble, it may sometimes not be a good idea to allow the company to close down and go bankrupt. In these situations, these creditors find it easier to allow the business to take the form of going concern and become the shareholders in this business. The debt or the assets of the company may be so big that there would be no any profit or advantage to the banks in seeking its closure. At times, the company may also be seeking a restructuring of its capital for certain reasons. These include meeting contractual obligations, taking advantage of current stock valuation in the market or to avoid making coupon and face value payments. How debt for equity swap takes place Let us assume that a shareholder or investor of some company has $1000 worth of stock. The company offers the option to swap equity withdebtat a rate of 1:1. This means that for $1000 worth of stock, the investor would get $1000 worth of debt or bonds in the company. At times, the company may offer a ratio of 1:2 to attract more stock for its debt. This could mean an additional gain in the form of $1000 worth of stock for the investor. But it is also important to note that the investor would lose their rights as a shareholder, the moment he swaps his stock orequity for debt. Original shareholders often find themselves deprived of their voting rights when such swaps take place. DEBT MARKET Traditionally, the Indian capital markets are more synonymous with the equity markets both on account of the common investors preferences and the huge capital gains it offered no matter what the risks involved are. On the other hand, the investors preference for debt market has been relatively a recent phenomenon an outcome of the shift in the economic policy, whereby the market forces have been accorded a greater leeway in influencing the resource allocation. If we talk about the Indian debt market bond market has formed its own place in the financial systems. All the recent developments are accrued to bonds market in India. Size of debt market If we look at worldwide scenario, debt markets are three to four times larger than equity markets. However, the debt market in India is very small in comparison to the equity market. This is because the domestic debt market has been deregulated and liberalized only recently and is at a relatively nascent stage of development. Interest rate deregulation The last two decades witnessed a gradual maturing of Indias financial markets. Since 1991, key steps were taken to reform the Indian financial markets. With the introduction of auction systems for rising Government debt in the 1990s, along with the decision to put an end to the monetization of Government deficits, started the gradual process of deregulation of interest rates. While the immediate effect of deregulation of interest rates was associated with rising interest rates, deft debt management policy by the RBI and the improvements in the market micro structure saw a gradual decline in the interest rates. Abolition of tax deduction at source Tax deduction at source (TDS) used to be major barrier to the development of the government securities market in India. Recognizing this, the RBI convinced the Government to abolish it. The removal of TDS on Government securities was apparently a small but a major reform in removing pricing distortions for Government securities. Introduction of auctions For Auctions a major policy shift from administered interest rate regime to a market based regime, the choice of auction system needed to be carefully drawn, in order to give a comfort level to the government as a borrower as also to moderate the risks that might be faced by the uninitiated market participants. Accordingly, it was decided to begin with the sealed bid auction system with a post bid reserve price (since the RBI as an agent to government participates in the auctions as a non-competitive bidder.) Banks investments in Government securities valuation/accounting norms Concomitantly, regulatory initiatives in introducing international best practices in valuation/accounting norms for the banks investment portfolios (comprising mainly government securities) also necessitated the banks to mark to market their investment portfolios and forced them to actively trade. This gave an added impetus to the incipient trading activity. Consolidation of stocks Primary issuance strategy was further fine tuned towards issuance of benchmark securities to improve liquidity. Alignment of coupon payment dates for the new issuances has been consciously attempted to promote stripping of government securities (STRIPS), which if once materializes, can facilitate the establishment of zero coupon yield curve and also can take care of the segmental needs in terms of asset liability matching. Zero coupon curve for pricing[5] To bring further improvements in the pricing mechanism in debt market, a need was felt to promote a zero coupon yield curve (ZCYC). As indicated earlier, STRIPS (Separate Trading of Registered Interest and Principal of Securities) can facilitate a ZCYC. This curve is being used for pricing NSEs interest rate futures transactions. FIMMDA/PDAI, publishes a monthly ZCYC for the market participants to value their government securities portfolios. However, the ZCYC based pricing has not been popular with the Indian market participants. SCOPE OF INNOVATIONS IN BOND MARKET Inflation linked bonds (ILB)[6] The recent Monetary Policy released by RBI laid its thrust on controlling the spiraling inflation, especially the food price inflation. One of the reasons behind the CRR hike was to curtail the rising inflationary expectations (higher expected price trends) In the past RBI has been concerned about the fact that a common man does not have any protection against rising prices, Vis No Inflation Hedge. The common man has to rely on traditional but inefficient methods to hedge the real inflation risks, such as Gold and real assets such as commodities or real estate or even excessive stocking of goods In developed markets like US, the government has issues Treasury Inflation Protected Securities known as TIPS. Globally more than USD 1 trillion worth inflation linked bonds must be outstanding. Inflation linked bonds (ILB) securities give an opportunity to market participants and investors to hedge against inflation. The coupon (interest rate) of ILB is fixed but the underlying principal would move in tandem with the inflation levels in the country. At redemption of the securities the higher of the value (adding inflation) thus arrived or face value is paid off. Banks and Financial Institutions usually buy wholesale and create retail market for such securities. With right access retail investor can easily buy such securities to protect himself from inflation and this could have following advantage to investors and the government. The inflation linked bonds can make the governments accountable for higher inflation since the cost of borrowings will be linked to inflation (if coupon paid is inflation hedged). Rising inflation will also raise the repayment of inflation linked bonds. It will help government to broaden the investor base by offering inflation linked bonds at the retail level, where the participation now is minimal. Government can diversify the debt service costs in a deflationary (falling prices) scenario. It is very likely that the existence of inflation linked bonds might reduce the inflation risk premium embedded in government bonds. For the inflation linked bonds to be an effective hedge GOI should ensure that the underlying inflation index is representative of real or actual inflation on the streets. RBI can precisely quantify control the inflationary expectations embedded in the economy as well as in the markets. RBI can use inferences from trading in such bonds in formulating its monetary policy stance The onus on monetary policy tools such as interest rates, to contain inflation will reduce if RBI can guide or influence the inflationary expectations through the demand/supply of inflation linked bonds and with an excellent communication policy. For Investors in general, inflation linked bonds would provide distinct advantages: It allows investors to hedge the purchasing power (inflation) risk. The capital is inflation risk protected and the income (coupon) can be structured that way too. Inflation linked bonds universally are regarded as a separate asset class would provide diversification benefits to a portfolio due to its negative co relation with returns from traditional asset classes. Such bonds provide positive risk reward relationship too. Inflation linked bonds are effective vehicle for hedging risks for institutional investors, where the long term liabilities are inflation linked or linked to future wage levels or banks who face the inflation risk on their assets side due to their GOI Bond holdings. Access of FIIs to the inflation linked bonds can allow them to hedge their inflation risks in India which are currently expressed in the currency markets. The USD/INR (currency) volatility can hence come down hence. Junk bonds Sharp movements in the Indian equity market may be par for the course. But when it comes to the market for corporate bonds, its constantly stagnant. The reason is, we dont have a corporate bond market. But this is overwhelmingly dominated by government securities (about 80% of the total). Of the remaining, close to 80% again comprises privately placed debt of public financial institutions. An efficient bond market helps corporate reduce their financing costs. It enables companies to borrow directly from investors, bypassing the major intermediary role of a commercial bank. One of the important instruments in corporate market is Junk Bonds which could be great source of financing for countries like India where markets are not much regulated. A speculative bond rated BB or below. Junk bonds are generally issued by corporations of questionable financial strength or without proven track records. They tend to be more volatile and higher yielding than bonds with superior quality ratings.Junk bond funds emphasize diversified investments in these low-rated, high-yielding debt issues. Thus, these are high-yielding, high-risk securities issued by companies with less robust finances.[7] Need for Junk Bonds in India The major issue amongst Indian bond markets has been how companies with poorer ratings can raise funds. At times the banks and FIs are reluctant to invest in even the AAA-rated companies. In fact for progress of a developing nation like India, this would give a wonderful opportunity for the smaller companies to get funds and implement their ideas. However, a proper regulatory mechanism also needs to be set-up to avoid high risk of default in the case of junk bonds. Currently, there are only two instruments that FIIs can invest in India, i.e., equity and debt. The cap on FII debt investment varies from time to time between $1.5 billion and $2 billion. The Asset Reconstruction Company of India Ltd. (ARCIL), Indias first asset reconstruction company, has vied for permitting FIIs to invest in a new instrument in India distressed assets. ARCIL has recommended SEBI, RBI and the Finance Ministry to allow FII investment in a new category, which is neither equity nor debt but a separate lucrative instrument security receipts with underlying distressed assets. Proposed Junk Bond Market in India Scenario (Optimistic Realistic) Anoptimistic scenariowould be having junk bonds in the market ideally for funding by FIIs and Institutions for financing the small Indian companies. However, considering the risk associated with these bonds it might not be possible in near future because economy is still in its nascent phase and on a fast development track.So any move which is risky and can affect future inflows of foreign funds and investor confidence would not be ideal. The only way an investor should invest in junk bonds is by diversifying. A selection of at least half a dozen issues will afford the investor some protection. High risk is inherent in high yield bonds. Nevertheless, your portfolio may well have a place for some of these securities if you are not risk-averse. By having junk bond markets, it would in fact signify deepening and maturing of Indian debt markets. In India, companies are hamstrung by the fact that investment relaxations may come in only when the debt markets get deeper, so that insurance companies can increase their portfolio yield without exposing themselves to risk for long tenures by investing in junk bonds. Impact of Junk Bonds on Indian Economy[8] A well-functioning corporate bond market allows firms to tailor their assets and liability profiles. If companies fear they will not be able to raise long-term resources, they are likely to stay away from long-term investments or entrepreneurial ventures that have a long-term payoff. In the long run, this can affect economic growth. The corporate bond and the junk bond market could fill this vacuum. In the absence of a corporate bond market, a large part of debt funding comes from banks. In the process, banks assume a significant amount of risk due to maturity mismatch between short-term deposits that can be readily withdrawn and relatively long-term illiquid loan assets resulting in high NPAs. An active and efficient bond market gives companies an alternative means of raising debt capital in the event of a credit crunch. It also leads to better pricing of credit risk (since expectations of all market participants are incorporated into bond prices). FIIs are major players in the equities market. However, thanks to the ceiling on their investment in the debt market (currently, there is a cumulative sub-ceiling of $0.5 bn on investment in corporate debt), they are present only in a limited way in the bond market. Pension funds and the insurance sector could be another constituency, but the absence of pension funds and low insurance penetration has meant limited demand for lon Innovative Financial Instruments Innovative Financial Instruments Methodology Collection of secondary data: Historical data from sites of NSE, BSE, SEBI etc Getting Data from newspapers Getting data from the Various Research papers published. Collecting data from various Books available on the topic. Review of Previous Management Research Reports Getting Access to Instruments available in India from SEBI websites. Findings and Conclusions In India financial market majorly denotes equity markets. Indian debt market is not well developed and still 80% of market is under Government securities. Securitization has to be done on assets held by Banks. Bond market needs a great consideration in terms of junk bonds An effort can be made to develop Carbon Emission and National growth index. Commodities Options should be developed in India. Credit derivatives should be developed with consideration of all the possible types of Credit derivatives. In a country with major income from Agriculture, Weather derivatives should be introduced to protect the interest of various involved parties. To mitigate the Catastrophe hazards new technique for risk management should be introduced. Financial development Index to measure the developments in various parameters to conclude growth in real terms. Conclusion Despite the accelerated industrial growth experienced this decade from recent economic reforms, most major investors around the globe do not yet see India as an ideal country for foreign investment. The competition for global capital will only get tougher in the years to come, and unless the political, judicial and economic environments are right, India will lag behind many other emerging nations. More importantly, the rising expectations of the middle-class, widening income and wealth inequalities between the haves and have-nots, require efficient initiatives from Government and corporate to attract and accommodate the funds available. Variety of financial products like mutual funds, insurance, shares, debentures, derivative instruments, etc. are available in India. However, the reach of these products is very limited and the features of many of these products are very basic in nature. Further development and innovation in these products would be faster if they are accessed by all classes of investors in urban as well as rural areas. The thrust lies mainly on the development of new financial products to deepen the improvements in the product distribution itself. The responsibility of ensuring these improvements vests with all the stakeholders in the financial services industry. ABSTRACT The Indian financial market has been primarily divided into three categories namely: Equity; Debt; Derivatives. Every category has its own importance in the development of financial markets. In most of the developed nations after the development of Equity now the major focus is on Debt and Derivatives market. The reason for this focus can be many supportive benefits which accrue to a market by development of double D market. Surprisingly in financial market is used as a synonym for equity market which has completely under deployed Debt and derivative markets. The importance and potentials of debt market are still under a doubtful impression in India and no major revolution has been brought to this effect in the recent periods. Focus of more and more to just equity markets has created saturation in Indian stock market. So willingly or unwillingly now the focus has to be shifted towards other possible avenues. Some of the possible avenues have been categorized during this research conducted on various instruments which are globally available but cannot find place in Indian markets. Now these instruments are also categorized in the various forms and accrue to a specific market. Firstly the focus is laid on so called Backbone of Indian Financial system Vis the Indian equity market, which has incorporated every possible instrument which can be accommodated in Indian family of Equity instruments. Few instruments has been recognized which can be absorbed in Indian market, which can be Indian Depository Receipt (IDR), Non-Voting Shares, Cumulative convertible preference shares (CCPS), Debt-equity swap. Secondly it comes the most awaited Debt market which needs great development especially in case of corporate bonds. In India 80% of bonds are Govt. issued and 80% of remaining by institutional investors. So there has to happen lot of work by GOI (Government of India). In this few instruments which can be of utmost importance for Indian environment can be Inflation linked bonds (ILB), junk bonds, Specialized debt fund for infrastructure funding, securitization of debt. Thirdly it comes to the funds of masses i.e. pension funds and retirement schemes which are always backed by government and also has gained support from the government. In this case one of the major innovative works can be on New Pension Scheme. Fourthly, it comes to mutual funds which has the role of UTI, SEBI, RBI, AMFI and other such authorities which are regulating the workings of mutual funds in India. One of New Direction in mutual funds can be Investment funds in international Markets. Fifthly it comes to the derivatives market, which can be divided in two major forms futures and options. In future major development can be in the newly arrived concepts which can become, Instruments of masses. These include Futures on the Index of Industrial and Economy growth and Index and futures for Carbon Emission in the country. Further option market again has a lot of scope for improvements in the fields of Weather derivatives, Commodity Options, Credit derivatives. Last but not the least there is an open category which also has few innovative instruments to be captured. These can be Index for Natural Disaster and risk Management and Financial development Index. Important consideration to be noticed here is that India is a great Economy with tremendous growth opportunities has to cater with ongoing global competition in terms of capital and Money markets developments. Another important issue here is that India has to balance its Financial market with the equitable share of debt and equity. It should be open for latest and innovative types of instruments suitable for the growth and development of financial system. New concepts like Carbon Emission index should be a given a proper research and find out the ways to develop and implement it. INTRODUCTION INTEGRATION OF GLOBAL CAPITAL MARKETS In this age of globalization and liberalization domestic markets alone cannot cater to the growing needs of corporate and individuals. As a result of which there is a need of finance from various new sources which has led to the integration of world markets. As a result we have seen development of various financial products in past few years. Financial globalization has brought considerable benefits to economies and to investors and has also changed the structure of markets, creating new risks and challenges for market participants and policymakers. Globalization has also increased the scope of many new financial products. Two decades ago, someone building a new factory would probably have been restricted to borrow from a domestic bank. Today it has many more options to choose from. It can also shop around the world for loan with lower interest rate and can borrow in foreign currency if foreign-currency loans offer more attractive terms than domestic-currency loans; it can issue stocks or bonds in either domestic or international capital markets. The evolution of new financial products has increased the size of global capital markets considerably over the years. Market capitalization and year to date turnover of twenty major stock exchanges is given below : THE INDIAN CAPITAL MARKET A capital market is a place where both government and companies raise long term funds to trade securities on the bond and the stock market. It consists of both the primary market where new securities are issued among investors, and the secondary markets where already existent securities are traded. In the capital market, commodities, bonds, equities and other such investment funds are traded. There are 22 stock exchanges in India, first being the Bombay Stock Exchange (BSE), which began formal trading in 1875. Over the past few years, there has been a swift change in the Indian capital markets, especially in the secondary market. In terms of the number of companies and total market capitalization in share market, the Indian equity market is considered large relative to the countrys stage of economic development. CONVENTIONAL PRODUCTS IN INDIAN CAPITAL MARKETS EQUITY Equity shares are issued by the companies in primary market to raise capital from public and corporate houses. It provides a share in the earnings of the company and the equity shareholder can participate in decision making of the company also. There are three basic types of equity: Common stock or ordinary shares [1] Common stock, as it is known in the United States, or ordinary shares, according to British terminology, is the most important form of equity investment. An owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. Common stock holders benefit most from improvement in the firms business prospects. But they have a claim on the firms income and assets only after all creditors and all preferred stock holders receive payment. Some firms have more than one class of common stock, in which case the stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class. This is often the case with family owned firms which sell stock to the public in a way that enables the family to maintain control through its ownership of stock with superior voting rights. Preferred stock [2] Also called preference shares, preferred stock is more akin to bonds than to common stock. Like bonds, preferred stock offers specified payments on specified dates. Preferred stock appeals to issuers because the dividend remains constant for as long as the stock is outstanding, which may be in perpetuity. Some investors favor preferred stock over bonds because the periodic payments are formally considered dividends rather than interest payments, and may therefore offer tax advantages. The issuer is obliged to pay dividends to preferred stock holders before paying dividends to common shareholders. If the preferred stock is cumulative, unpaid dividends may accrue until preferred stock holders have received full payment. In the case of non cumulative preferred stock, preferred stock holders may be able to impose significant restrictions on the firm in the event of a missed dividend. Warrants [3] Warrants offer the holder the opportunity to purchase a firms common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price. The tangible value of a warrant is the market price of the stock less the strike price. If the tangible value when the warrants are exercisable is zero or less the warrants have no value, as the stock can be acquired more cheaply in the open market. A firm may sell warrants directly, but more often they are incorporated into other securities, such as preferred stock or bonds. Warrants are created and sold by the firm that issues the underlying stock. In a rights offering, warrants are allotted to existing stock holders in proportion to their current holdings. If all shareholders subscribe to the offering the firms total capital will increase, but each stock holders proportionate ownership will not change. The stock holder is free not to subscribe to the offering or to pass the rights to others. In t he UK a stock holder chooses not to subscribe by filing a letter of renunciation with the issuer. RECENT DEVELOPMENT IN EQUITY MARKET Free pricing- The abolition of office of the controller of capital issue resulted in the emergence of new era in primary markets. All controls on designing, pricing and tenure were abolished. The investors were given the freedom to price an instrument. Entry Norms- Hitherto no restrictions for a company to tap the capital markets. This resulted in massive surge of small cap issues. The need for transparent free entry was felt by SEBI. Disclosures- the quality of disclosure in the offer document was really poor. A lot of vital adverse information was not disclosed. SEBI stringent discloser norms were introduced. Book Building- It is the process of price discovery. One of the drawbacks of free pricing was price mechanism. The issue price has to be decided around 60-70 days before the opening at issue. Introduction to price building has overcome the limitation of price mechanism. Streamlining the procedures- all the procedures was streamlined. Many aspects of the operations have been made transparent. SCOPE OF FURTHER EQUITY INSTRUMENTS INDIAN DEPOSITORY RECEIPTS (IDR) After the success of American Depository Receipts and Global Depository Receipts the Indian regulatory body, SEBI also allowed foreign companies to raise capital in India through INDIAN DEPOSITORY RECEIPTS (IDRs). IDRs can be understood as a mirror image of well-known ADRs/GDRs. In an IDR, foreign companies issue the shares to an Indian Depository, which would, issue Depository Receipts to investors in India. The Depository Receipts would be listed in Indian stock exchanges and would be freely transferable. The actual shares of the IDRs would be held by an Overseas Custodian, who shall authorize the Indian Depository to issue the IDRs. The Overseas Custodian must be a foreign bank having business in India and needs approval from the Finance Ministry for acting as a custodian while the Indian Depository needs to be registered with the SEBI. Following rules were established by SEBI for listing through IDR: ISSUERS ELIGIBILITY CRITERIA: [4] Must have an average; turnover of US$ 500 million during the previous 3 financial years. Must have capital and free reserves which must aggregate to at least US$100 million. Must be making a profit for the previous 5 years and must have declared a dividend of 10% in each such year. The pre issue debt-equity ratio must be not more than 2:1. Must be listed in its home country. Must not be prohibited by any regulatory body to issue securities Must have a good track record with compliance with securities market regulations. Must comply with any additional criteria set by SEBI REASONS FOR DORMANCY IN ISSUE OF IDR: Stringent rules set by SEBI made foreign companies stay away from Indian market. The rules were made more stringent after the Global economic crisis. Availability of easy funds in foreign markets. Rate of interest in foreign banks is also less which made them prime source of funds for companies. Uncertainty of subscription in Indian markets. Indian companies have been highly active in foreign markets by raising funds through ADR and GDR but till date no foreign company has raised money through IDRs. Standard Chartered is the first company to allow its plan to issue IDR and has received the clearance from RBI also. The bank has yet to announce the size of the IDR issue, though the figures are expected to vary from Rs 2,500 to Rs 5,000 crore. Non -Voting Shares A non- voting share is more or less similar to the ordinary equity shares except the voting rights. It is different from a preference share in the sense that in case of a possible winding up of the company, the preference shareholders get their shares of dividends repaid before the owners of the non-voting shareholders. The companies with the constant track record and a strong dividend history can issue these kinds of instruments. They are basically focused to small investors who are normally not interested in the management of the firm. Hence non promoting share are a good tool for the promoters of the company to increase the share capital without diluting the control. However if the company does not fulfill the commitment of higher dividend then these shares are automatically converted to shares with voting rights. Hence it is very important for the companies to assess the characteristics of future cash flow and determine whether paying a higher rate of dividend is practicable for them or not. Debt for equity and equity for debt swaps Adebt for equity swapis not an instrument but a situation where a company offers its shareholders and creditors debt in exchange for equity or stock. The value of the stock is determined on current market rates. The company may, however, offer a higher value to attract more shareholders and debt holders to participate in the swap. Equity for debt swapis the opposite of the above process. In this swap, the creditors to the company agree to exchange the debt for equity in the business. How do creditors benefit Creditors such as banks and other financial institutions provide capital to large businesses. If the business gets into financial trouble, it may sometimes not be a good idea to allow the company to close down and go bankrupt. In these situations, these creditors find it easier to allow the business to take the form of going concern and become the shareholders in this business. The debt or the assets of the company may be so big that there would be no any profit or advantage to the banks in seeking its closure. At times, the company may also be seeking a restructuring of its capital for certain reasons. These include meeting contractual obligations, taking advantage of current stock valuation in the market or to avoid making coupon and face value payments. How debt for equity swap takes place Let us assume that a shareholder or investor of some company has $1000 worth of stock. The company offers the option to swap equity withdebtat a rate of 1:1. This means that for $1000 worth of stock, the investor would get $1000 worth of debt or bonds in the company. At times, the company may offer a ratio of 1:2 to attract more stock for its debt. This could mean an additional gain in the form of $1000 worth of stock for the investor. But it is also important to note that the investor would lose their rights as a shareholder, the moment he swaps his stock orequity for debt. Original shareholders often find themselves deprived of their voting rights when such swaps take place. DEBT MARKET Traditionally, the Indian capital markets are more synonymous with the equity markets both on account of the common investors preferences and the huge capital gains it offered no matter what the risks involved are. On the other hand, the investors preference for debt market has been relatively a recent phenomenon an outcome of the shift in the economic policy, whereby the market forces have been accorded a greater leeway in influencing the resource allocation. If we talk about the Indian debt market bond market has formed its own place in the financial systems. All the recent developments are accrued to bonds market in India. Size of debt market If we look at worldwide scenario, debt markets are three to four times larger than equity markets. However, the debt market in India is very small in comparison to the equity market. This is because the domestic debt market has been deregulated and liberalized only recently and is at a relatively nascent stage of development. Interest rate deregulation The last two decades witnessed a gradual maturing of Indias financial markets. Since 1991, key steps were taken to reform the Indian financial markets. With the introduction of auction systems for rising Government debt in the 1990s, along with the decision to put an end to the monetization of Government deficits, started the gradual process of deregulation of interest rates. While the immediate effect of deregulation of interest rates was associated with rising interest rates, deft debt management policy by the RBI and the improvements in the market micro structure saw a gradual decline in the interest rates. Abolition of tax deduction at source Tax deduction at source (TDS) used to be major barrier to the development of the government securities market in India. Recognizing this, the RBI convinced the Government to abolish it. The removal of TDS on Government securities was apparently a small but a major reform in removing pricing distortions for Government securities. Introduction of auctions For Auctions a major policy shift from administered interest rate regime to a market based regime, the choice of auction system needed to be carefully drawn, in order to give a comfort level to the government as a borrower as also to moderate the risks that might be faced by the uninitiated market participants. Accordingly, it was decided to begin with the sealed bid auction system with a post bid reserve price (since the RBI as an agent to government participates in the auctions as a non-competitive bidder.) Banks investments in Government securities valuation/accounting norms Concomitantly, regulatory initiatives in introducing international best practices in valuation/accounting norms for the banks investment portfolios (comprising mainly government securities) also necessitated the banks to mark to market their investment portfolios and forced them to actively trade. This gave an added impetus to the incipient trading activity. Consolidation of stocks Primary issuance strategy was further fine tuned towards issuance of benchmark securities to improve liquidity. Alignment of coupon payment dates for the new issuances has been consciously attempted to promote stripping of government securities (STRIPS), which if once materializes, can facilitate the establishment of zero coupon yield curve and also can take care of the segmental needs in terms of asset liability matching. Zero coupon curve for pricing[5] To bring further improvements in the pricing mechanism in debt market, a need was felt to promote a zero coupon yield curve (ZCYC). As indicated earlier, STRIPS (Separate Trading of Registered Interest and Principal of Securities) can facilitate a ZCYC. This curve is being used for pricing NSEs interest rate futures transactions. FIMMDA/PDAI, publishes a monthly ZCYC for the market participants to value their government securities portfolios. However, the ZCYC based pricing has not been popular with the Indian market participants. SCOPE OF INNOVATIONS IN BOND MARKET Inflation linked bonds (ILB)[6] The recent Monetary Policy released by RBI laid its thrust on controlling the spiraling inflation, especially the food price inflation. One of the reasons behind the CRR hike was to curtail the rising inflationary expectations (higher expected price trends) In the past RBI has been concerned about the fact that a common man does not have any protection against rising prices, Vis No Inflation Hedge. The common man has to rely on traditional but inefficient methods to hedge the real inflation risks, such as Gold and real assets such as commodities or real estate or even excessive stocking of goods In developed markets like US, the government has issues Treasury Inflation Protected Securities known as TIPS. Globally more than USD 1 trillion worth inflation linked bonds must be outstanding. Inflation linked bonds (ILB) securities give an opportunity to market participants and investors to hedge against inflation. The coupon (interest rate) of ILB is fixed but the underlying principal would move in tandem with the inflation levels in the country. At redemption of the securities the higher of the value (adding inflation) thus arrived or face value is paid off. Banks and Financial Institutions usually buy wholesale and create retail market for such securities. With right access retail investor can easily buy such securities to protect himself from inflation and this could have following advantage to investors and the government. The inflation linked bonds can make the governments accountable for higher inflation since the cost of borrowings will be linked to inflation (if coupon paid is inflation hedged). Rising inflation will also raise the repayment of inflation linked bonds. It will help government to broaden the investor base by offering inflation linked bonds at the retail level, where the participation now is minimal. Government can diversify the debt service costs in a deflationary (falling prices) scenario. It is very likely that the existence of inflation linked bonds might reduce the inflation risk premium embedded in government bonds. For the inflation linked bonds to be an effective hedge GOI should ensure that the underlying inflation index is representative of real or actual inflation on the streets. RBI can precisely quantify control the inflationary expectations embedded in the economy as well as in the markets. RBI can use inferences from trading in such bonds in formulating its monetary policy stance The onus on monetary policy tools such as interest rates, to contain inflation will reduce if RBI can guide or influence the inflationary expectations through the demand/supply of inflation linked bonds and with an excellent communication policy. For Investors in general, inflation linked bonds would provide distinct advantages: It allows investors to hedge the purchasing power (inflation) risk. The capital is inflation risk protected and the income (coupon) can be structured that way too. Inflation linked bonds universally are regarded as a separate asset class would provide diversification benefits to a portfolio due to its negative co relation with returns from traditional asset classes. Such bonds provide positive risk reward relationship too. Inflation linked bonds are effective vehicle for hedging risks for institutional investors, where the long term liabilities are inflation linked or linked to future wage levels or banks who face the inflation risk on their assets side due to their GOI Bond holdings. Access of FIIs to the inflation linked bonds can allow them to hedge their inflation risks in India which are currently expressed in the currency markets. The USD/INR (currency) volatility can hence come down hence. Junk bonds Sharp movements in the Indian equity market may be par for the course. But when it comes to the market for corporate bonds, its constantly stagnant. The reason is, we dont have a corporate bond market. But this is overwhelmingly dominated by government securities (about 80% of the total). Of the remaining, close to 80% again comprises privately placed debt of public financial institutions. An efficient bond market helps corporate reduce their financing costs. It enables companies to borrow directly from investors, bypassing the major intermediary role of a commercial bank. One of the important instruments in corporate market is Junk Bonds which could be great source of financing for countries like India where markets are not much regulated. A speculative bond rated BB or below. Junk bonds are generally issued by corporations of questionable financial strength or without proven track records. They tend to be more volatile and higher yielding than bonds with superior quality ratings.Junk bond funds emphasize diversified investments in these low-rated, high-yielding debt issues. Thus, these are high-yielding, high-risk securities issued by companies with less robust finances.[7] Need for Junk Bonds in India The major issue amongst Indian bond markets has been how companies with poorer ratings can raise funds. At times the banks and FIs are reluctant to invest in even the AAA-rated companies. In fact for progress of a developing nation like India, this would give a wonderful opportunity for the smaller companies to get funds and implement their ideas. However, a proper regulatory mechanism also needs to be set-up to avoid high risk of default in the case of junk bonds. Currently, there are only two instruments that FIIs can invest in India, i.e., equity and debt. The cap on FII debt investment varies from time to time between $1.5 billion and $2 billion. The Asset Reconstruction Company of India Ltd. (ARCIL), Indias first asset reconstruction company, has vied for permitting FIIs to invest in a new instrument in India distressed assets. ARCIL has recommended SEBI, RBI and the Finance Ministry to allow FII investment in a new category, which is neither equity nor debt but a separate lucrative instrument security receipts with underlying distressed assets. Proposed Junk Bond Market in India Scenario (Optimistic Realistic) Anoptimistic scenariowould be having junk bonds in the market ideally for funding by FIIs and Institutions for financing the small Indian companies. However, considering the risk associated with these bonds it might not be possible in near future because economy is still in its nascent phase and on a fast development track.So any move which is risky and can affect future inflows of foreign funds and investor confidence would not be ideal. The only way an investor should invest in junk bonds is by diversifying. A selection of at least half a dozen issues will afford the investor some protection. High risk is inherent in high yield bonds. Nevertheless, your portfolio may well have a place for some of these securities if you are not risk-averse. By having junk bond markets, it would in fact signify deepening and maturing of Indian debt markets. In India, companies are hamstrung by the fact that investment relaxations may come in only when the debt markets get deeper, so that insurance companies can increase their portfolio yield without exposing themselves to risk for long tenures by investing in junk bonds. Impact of Junk Bonds on Indian Economy[8] A well-functioning corporate bond market allows firms to tailor their assets and liability profiles. If companies fear they will not be able to raise long-term resources, they are likely to stay away from long-term investments or entrepreneurial ventures that have a long-term payoff. In the long run, this can affect economic growth. The corporate bond and the junk bond market could fill this vacuum. In the absence of a corporate bond market, a large part of debt funding comes from banks. In the process, banks assume a significant amount of risk due to maturity mismatch between short-term deposits that can be readily withdrawn and relatively long-term illiquid loan assets resulting in high NPAs. An active and efficient bond market gives companies an alternative means of raising debt capital in the event of a credit crunch. It also leads to better pricing of credit risk (since expectations of all market participants are incorporated into bond prices). FIIs are major players in the equities market. However, thanks to the ceiling on their investment in the debt market (currently, there is a cumulative sub-ceiling of $0.5 bn on investment in corporate debt), they are present only in a limited way in the bond market. Pension funds and the insurance sector could be another constituency, but the absence of pension funds and low insurance penetration has meant limited demand for lon