investment banking,capital market,Finance questions for interviews

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*any can always look into my book which is a black book the order is right from beginning to the end It contains
only accounting & investment banking questions only
& this Word document does not keep any behavioral questions
Questions asked in Ofss interview
Tell me about yourself
PE Ratio
Difference between cash flows & fund flow statements
What is accounting standards?
Gaap
What is capitalization?
Questions asked in ORACLE FINANCIAL SOFTWARE SERVICES
Questions asked in WNS For investment banking profile (source Gajanan)
What is capital market?
It is a place where for buying & selling of equity & debt securities takes place.
In other words
A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold.
What are the instruments traded in capital market?
Ans – Debt instruments, equity instruments, derivative instruments, preference shares
Intrinsic value
The intrinsic value is the actualvalue of a company or an asset based on an underlying perception of its true value
including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the
same as the current market value.
Why does intrinsic value matter to an investor? In the listed models above, analysts employ these methods to see if
whether or not the intrinsic value of a security is higher or lower than its current market price - allowing them to
categorize it as "overvalued" or "undervalued." Typically, when calculating a stock's intrinsic value, investors can
determine an appropriate margin of safety, where the market price is below the estimated intrinsic value.
For instance, suppose in one year you find a company that you believe has strong fundamentals coupled with excellent
cash flow opportunities. That year it trades at $10 per share, and after figuring out its DCF, you realize that its intrinsic
value is closer to $15 per share - a bargain of $5. Assuming you have a margin of safety of about 35%, you would
purchase this stock at the $10 value. If its intrinsic value drops by $3 a year later, you are still saving at least $2 from your
initial DCF value and have ample room to sell if the share price drops with it.
Intrinsic value is a topic discussed in philosophy wherein the worth of an object or endeavor is derived in-and-of-itself - or
in layman's terms, independent of other extraneous factors. A stock also is capable of holding intrinsic value, outside of
what its perceived market price is, and is often touted as an important aspect to consider by value investors when picking
a company to invest in.

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Outside of this area of analysis, some buyers may simply have a "gut feeling" about the price of a good without taking
into deep consideration the cost of production, and roughly estimate its value on the expected utility he or she will derive
from it. Others may base their purchase on the much publicized hype behind an asset ("everyone is talking positively
about it; it must be good!") However, in this article, we will look at another way of figuring out the intrinsic value of a
stock, which reduces the subjective perception of a stock's value by analyzing its fundamentals and determining the worth
of a stock in-and-of-itself (in other words, how it generates cash).
For the sake of brevity, we will exclude intrinsic value as it applies to call and put options.
Dividend Discount Model
When figuring out a stock's intrinsic value, cash is king. Many models that calculate the fundamental value of a security
factor in variables largely pertaining to cash: dividends and future cash flows, as well as utilize the time value of money.
One model popularly used for finding a company's intrinsic value is the dividend discount model. The basic DDM is:
Where:
Div = Dividends expected in one period
r = Required rate of return
One variety of this model is the Gordon Growth Model, which assumes the company in consideration is within a steady
state - that is, with growing dividends in perpetuity. It is expressed as the fo
Discounted Cash Flow
A discounted cash flow (DCF) is a valuation method used to estimate the attractiveness of an investment opportunity.
DCF analysis uses future free cash flow projections and discounts them to arrive at a present value estimate, which is used
to evaluate the potential for investment.
Finally, the most common valuation method used in finding a stock's fundamental value is discounted cash flow (DCF)
analysis. In its simplest form, it resembles the DDM:
Where:
CFn = Cash flows in period n.
d = Discount rate,Weighted Average Cost of Capital (WACC)
In finance, discounted cash flow (DCF) analysis is a method of valuing a project, company, or asset using the concepts of
the time value of money. All future cash flows are estimated and discounted by using cost of capital to give their present
values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV),which is
taken as the value of the cash flows in question
What is a debt & equity?
A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at
a later date, usually with interest.
Debts are the instruments which carry an interest & maturity date & money to be invested.
Equity -A stock or any other security representing an ownership interest is known as equity

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What is bid & ask price?
A bid price is the minimum price at which security can be bought the price of bid will be less than ask price
An ask price is the price at which an investor is willing to sell the security.
The price at which ask and bid price is matched is called as market price
What are options?
options are contracts that grant the right, but not the obligation to buy or sell an underlying asset at a set price on or before
a certain date. The right to buy is called a call option and the right to sell is a put option.
What are different types ofoptions available in the market?
Call option
Call holdersandput holders(buyers) are notobligatedtobuyorsell respectively.Theyhave the choice toexercisetheir
rightsif theychoose.Thislimitsthe riskof buyersof options,sothatthe mosttheycan everlose isthe premiumof their
options.
Put options
 Call writersandput writers(sellers),however, areobligatedtobuyor sell.Thismeansthata sellermaybe requiredto
make goodon a promise tobuyor sell.Italsoimpliesthatoptionsellershave unlimited risk,meaningthattheycan lose
much more than the price of the optionspremium.
Call option Put option
It gives the right to buy but not obligation to buy the
option contracts
It gives right to sell but not obligation to sell the contract
Writer of call option has obligation to sell the contract Writer of a put option has obligation to but the contract
Limited risk (premium will be lost) Unlimited risk(more than premium can be a loss)
Value of an optionwill increaseasthe prices of underlying
increases
Value of of an option decreases as the underlying
increases
What does'In The Money' mean?
In the moneymeansthata call option'sstrike price is below the marketprice of the underlyingassetorthatthe strike
price of a put optionisabove the marketprice of the underlyingasset.Beinginthe moneydoesnotmeanyouwill
profit,itjustmeansthe optionisworthexercising.Thisisbecause the optioncostsmoneytobuy.
Suppose marketvalue of niftyis8600 & strike price is8500 & we are excersizingthatwill be calledas
What is capital assetpricing model?
Understand& ask to priyeshorbhaiyabecause itsimportant
What is alpha & beta?
Beta

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Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a
whole. Beta is used in the capital asset pricing model (CAPM),which calculates the expected return of an asset based on
its beta and expected market returns.
Alpha
Alpha is the excess return an investment produces compared to a benchmark
It gauges investment performance given its price risk or volatility as compared to other investments
If alpha is positive the investment has outperformed & should be seen as selected
If it is not positive than it has underperformed & should not be selected
In comparison with government bonds yields ofa corporate bond would be?
Lower because governments will be issued without any credit risk so it will involve as compared to corporate bonds
Corporate bonds are issued for more than 1 year to raise capital
Other questions without answers
Most imp questions
IFRS VS GAAP
Accouning standards
What is futures, forwards,options, stocks, swaps?
Types of futures
1 financial future
2 commodity future
Difference between shares & equity
Difference between futures & options
Walk me through cash flow statements SEE 29 PAGE
Arbitrage pricing theory
Black schole model
Capital pricing theory
Define Over head in the terms ofaccounting
It is the indirect expenditure of a company such as salaries, rent taxes etc.
Pivot tables
Vlook up
Hlookup

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Prepare about you HR project welfare facilities provided by PNB bank
Other questions asked in investment banking related interviews
Market capitalization
The total market value of a company‘s outstanding shares .Market capitalization is calculated by the following formula
Total no. of outstanding shares * Market price per share
Example = If there are 100 outstanding shares & each o/s share is worth of 350 Rs so the total capitalization would be
35000 Rs
What is a financial analyst?
Financial analyst researches Macroeconomic& micro economic conditions along with company fundamentals to make
business, sector,& industry recommendations,they often recommend a course of actions, such as to buy or sell a
company’s stocks based upon its overall current & predicted strengths.
An analyst must be aware of current developments in the field in which he or she specializes as well as in prepare a future
course of action.
Is it possible for a company to show positive cash flows but in grave trouble
Yes (1.) It involves unsustainable improvements in working capital of the company (A company is selling of inventory &
delaying payables.)
(2) It involves lack of revenues going forward in pipeline
How is income statement linked to the balance sheet?
GST EXPLAIN
France was the first country which implemented GST First in 1954
Countries accept GST
1 Australia -10 %
2 France- 19.6 %
3 Canada- 5 %
4 Germany -19 %
5 Japan-5 %
6 Singapore- 7 %
7- Sweden -25 %
8- India-12 %
9 –Pakistan- 18 %
Facts about GST

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1. GST is a transparent tax & also reduces number of indirect taxes
2 Biggest benefits is that multiple taxes like Octroi, centralsales tax, licence fees,turnover tax etc will no longer present
& will be bought under GST
What are the items on which GST will be not applied?
Alcohol, tobacco, petroleum products are likely to be out of GST
Explain Sensex (Followinbox for more details)
First compiled in 1986, Sensex is a basket of 30 constituent stocks representing a sample of large, liquid and
representative companies.
Sensex is calculated using the "Free-float Market Capitalization" methodology. As per this methodology, the level of
index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The
market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by
the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market
capitalization.
Understanding Free-float Methodology
Free-float market capitalization is defined as that proportion of total shares issued by the company that are readily
available for trading in the market.
It generally excludes promoters' holding, government holding, strategic holding and other locked-in shares that will not
come to the market for trading in the normal course
Example (provided by rediff.com reader MunishOberoi):
Suppose the Index consists of only 2 stocks: Stock A and Stock B.
Suppose company A has 1,000 shares in total, of which 200 are held by the promoters, so that only 800 shares are
available for trading to the general public. These 800 shares are the so-called 'free-floating' shares.
Similarly, company B has 2,000 shares in total, of which 1,000 are held by the promoters and the rest 1,000 are free-
floating.
On - Line Computation ofthe Index
During trading hours, value of the indices is calculated and disseminated on realtime basis. This is done automatically on
the basis of prices at which trades in index constituents are executed.
The BSE Indices Department keeps a close watch on the events that might affect the index on a regular basis and carries
out daily maintenance of all BSE Indices.
 Adjustments for Rights Issues
When a company, included in the compilation of the index, issues right shares,the free-float market capitalization
of that company is increased by the number of additional shares issued based on the theoretical (ex-right) price.
An offsetting or proportionate adjustment is then made to the Base Market capitalization.
 Adjustments for Bonus Issue
When a company, included in the compilation of the index, issues bonus shares,the market capitalization of that

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company does not undergo any change. Therefore,there is no change in the Base Market capitalization; only the
'number of shares' in the formula is updated.
Formula for calculating Sensex
No. of shares *price of the stock*free float factors
What is investment banking?
A specific division of banking related to the creation of capital for other companies.
Investment banks under write New debt & equity securities for all types of corporations
An investment bank also helps in safe guarding of some securities for all type of corporations
It helps in facilitating mergers & acquisitions, reorganizations & broker trades for both institutions & private investors
It helps in calculations in pricing of new securities in an IPO
What is a short position?
The sale of a borrowed security, commodity or currency with the expectation that it will fall in value
For example
An investor who borrows shares of stock from a broker & sells them on the open market is said to have a short position in
the stock, The investor must eventually return the borrowed stock by buying it back from the market. If the stock falls in
price, the investor buys it back for less than he or she sold it, thus making a profit
What is a bond?
A debt instrument issued for a period of more than one is with the purpose of raising capital by borrowing.A bond is a
promise to repay the principal along with interest ( coupon) on a specified date (Called maturity as well)
Some bonds does not require to pay interest, but all bonds require a payment of principle, when an investor buys a bond
he becomes a creditor of the company.
A bond might be sold at above or below the par value ( The amount paid at maturity but the market price will approach
par value as the bond approaches par value as the bond approaches the maturity)
Types of bonds
Perpetual bonds – Theyare those bonds which have no maturity
High yield bonds – Also known as junk bonds ,They are the bonds below the investment grade by credit rating agencies
Corporate bonds-5-12 years- A corporate bond is issued in order to raise money for a variety of reasons such as to
ongoing operations, M & A, or to expand business. The term is used for longer than 1 year
• Bearer bond is an official certificate issued without a named holder. In other words, the person who has the paper
certificate can claim the value of the bond. Often they are registered by a number to prevent counterfeiting, but may be
traded like cash. Bearer bonds are very risky because they can be lost or stolen. Especially after federalincome tax began
in the United States, bearer bonds were seen as an opportunity to conceal income or assets.[8]U.S. corporations stopped
issuing bearer bonds in the 1960s, the U.S. Treasury stopped in 1982, and state and local tax-exempt bearer bonds were
prohibited in 1983.[9]

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Convertible bonds- In finance,a convertible bond or convertible note or convertible debt (or a convertible debenture if it
has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of
common stock in the issuing company or cash of equal value.
A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion
of its nominal value to either cash or a specified number of common shares of equal value. A corporation issues a
convertible bond to take advantage of reduced interest rates,since the presence of the conversion option provides upside
potential for the bondholders, and these bonds tend to demand lower interest rates compared to standard nominal bonds.
Another advantage of issuing convertible bonds rather than equity is the tax deduction ofinterest,which lowers the cost
of capital for a company. Also, as the bonds are converted to equity, a company has no more obligations. However,
depending on the number of additional shares issued as a result of conversion, shareholders' equity value declines as a
result of stock dilution.
Convertible Bonds
Convertible bonds are typically issued by firms with substandard credit ratings and high expected growth.
Zero coupon bonds- A zero coupon bonds is a bond which does not yield any interest & is issued at a discounted price &
at the maturity dates they are paid in full amount for example: - A 100 Rs worth bought at 70 Rs but at the maturity it is
paid at 100 Rs only
Callable bonds- It is one that can be paid before the maturity date. If the rate of interest rates is higher for new issues they
can rise up the bond value. If the bond is sold at higher rates it’s called premium & if it is sold at lower prices it is called
as at discount.
Term bonds- Term bonds are bonds which mature or come due on a single date...Term bonds that have a callfeature
can be redeemed at an earlier date than the other issued bonds.
Serial bonds - A serial bond is a bond issue that is structured so that a portion of the outstanding bonds mature at
regular intervals until all of the bonds have matured. Because the bonds mature gradually over a period of years,
these bonds are used to finance projects that provide a consistent income stream for bond repayment.
Angel bonds – A bond which carries lower amount of interests because of higher investment ratings
Climate bonds- They are also known as green bonds, they are fixed income financial instruments linked in some way to
climate change solutions
Government bonds –Carries lower rates of interests because of higher credit ratings
Municipal bonds- It is a debt security that is issued by state, municipality, or country to finance its capital expenditures,
including the construction of highways, bridges & schools.
Others are
Free float bonds
Or floating rate bonds
Floating rate bonds –They are the bonds which have a comparable ratio with money market reference rate like
Libor, Mibor etc. They are also termed as variable coupon
What is accounting rate of return
Accounting rate of return

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High yield bonds
Fixed rate bonds
Bull Market?
A financial market of group of securities in which prices are rising or expected to rise.
Fundamental analysis
Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock.
Fundamental analyst study everything from overall economy & industry conditions to the financial conditions
&management conditions to predicting future or future course of action of the stocks.
Technical analysis
Technical analysis is the evaluation of securities by means of studying charts,volumes, & identifying patterns of the
stocks, It does not take intrinsic value concept to evaluate value of the stocks.
Main elements of financial statement
There are four main types of financial statements,which are as follows:
 Income statement. This report reveals the financial performance of an organization for the entire report period. It
begins with sales, and then subtracts out all expenses incurred during the period to arrive at a net profit or loss.
Earnings per share figure may also be added if the financial statements are being issued by a publicly-held
company. This is usually considered the most important financial statement, since it describes performance.
 Balance sheet. This report shows the financial position of a business as of the report date (so it covers a specific
point in time). The information is aggregated into the general classifications of assets,liabilities, and equity. Line
items within the asset and liability classification are presented in their order of liquidity, so that the most liquid
items are stated first. This is a key document, and so is included in most issuances of the financial statements.
 Statement of cash flows. This report reveals the cash inflows and outflows experienced by an organization during
the reporting period. These cash flows are broken down into three classifications, which are operating activities,
investing activities, and financing activities. This document can be difficult to assemble, and so is more
commonly issued only to outside parties.
 Statement of changes in equity. This report documents all changes in equity during the reporting period. These
changes include the issuance or purchase of shares,dividends issued, and profits or losses. This document is not
usually included when the financial statements are issued internally, as the information in it is not overly useful to
the management team.
Definition ofswaps
A swap is a derivative instrument in which two counter parties exchange cash flows of one party’s financial instrument for
other financial instruments. Usually it is done in over the counter Market
Types
1 Interest rate swaps- Floating with fixed interest rates

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2 Currency swaps
3 Credit default swaps
4 Plain vanilla swaps-
In this type of swaps Party A agrees to party B fixed rate of interest & party B agrees to pay floating rates of interests
Types of Market participants in financial markets
1 Hedgers- An investor who is trying to reduce the risk is called as hedger
2- Speculators -Usually try to project the price movements & enter into respective positions in order to maximize their
gains. We can say that they are the risk takers
3- Arbitrageurs- They usually participates in extremely rapid environment, with the decisions made in blink of an eye.
Sometimes the price of the commodity may be below or exceed its price in derivatives markets.
Arbitrageurs usually takes to dispose of such imperfections & in efficiencies in the market, They also play a key role in
increasing market liquidity
Debenture
In corporate finance, A debenture is a medium to long term debt instrument used by large companies to follow money ,At
a fixed rate of interest . A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is
liable to pay a specified amount with interest.
Although the money raised by the debentures becomes a part of company’s capital structure & it does not become share
capital
Debentures are not secured by any asset & generally sold at general creditworthiness of the issuer
Types of Debentures
Secured (Mortgaged)
Secured by some assets or set of assets which is known as secured or mortgage debenture
Unsecured debenture (Naked) – when it is issued solely on the credibility of the issuer is known as naked or unsecured
debenture
Redeemable or irredeemable debentures
Convertible or not convertible debentures
Fully or partially convertible debentures
Fixed & floating rate debentures
Zero coupon debentures
Derivative – A derivative is a contract between two or more parties whose value is based on underlying asset ,index or
security.
Commonly used Derivatives are futures,options, swaps,forwards
SWAPS & FORWARDS are traded over the counter they are customized contracts

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Whereas futures are traded on exchanges
Derivatives are used for hedging purposes,
Derivatives are of two types One privately traded over the counter derivatives, such as swaps which are traded over the
counter & they do not go by any exchanges &Second are traded through specialized exchanges
IPO (Initial public offer)
IPO’S are usually issued by smaller companies seeking the capital to expand ,but can be done by larger privately owned
companies to become publically traded companies
Process ofgoing for an IPO
A brief note on the promoters & management
Company profile
Copy of annual reports for three years
Copies of draft offer document
Memorandum & article of association
The mutual funds offers newfunds in the markets is also termed as
New fund offer
Followon offering
A follow-on public offer (FPO) is an issuing of shares to investors by a public company that is already listed on an
exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed
and has gone through the IPO process. FPOs are popular methods for companies to raise additional equity capital in
the capital markets through a stock issue.
Read more on investopedia
Feeder fund
A feeder fund is one of the number of fund that all put investment capital into an over arching umbrella fund that is called
master fund, for which one investment advisor handles all portfolio investment & trading
Profits from master funds are then split or distributed, proportionally to the feeder funds based on the percentages of the
investment capital they have contributed to the master fund
It is commonly used by hedge funds as a means of assembling a larger portfolio account by pooling investment capital.
In regard to feeder funds operating in the United States,it is common for the master fund to be established as an offshore
entity. This frees up the master fund to accept investment capital from both tax-exempt and U.S.-taxable investors. If,
however, an offshore master fund elects to be taxed as a partnership or limited liability company (LLC) for U.S. tax
purposes, then onshore feeder funds receive pass-through treatment of their share of the master fund's gains or losses, thus
avoiding double taxation.

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Financial market
Capital market
Money market
Derivatives market
Indirect investments
Capital market
Primary market –When new securities are issued for the first time is called as primary market most of the time it is done
for IPO of equities & bonds
Secondary market- When already listed securities are traded is called as secondary markets
Money market - What is a 'Money Market'
Money markets are safe liquid investors they invest in safe & steady funds viz treasury funds and commercial paper
For example some company wants to want to keep the money invested for less than 1 year one can choose money market
funds
Treasury funds are offered for a period of less than 1 year
Commercial papers are offered for a period of 270 days
The one who invest in these funds can withdraw the investment any point of time
Money market instruments have some differences with savings accounts I.e Minimum investments ,maturity date is
required,
It generates more returns than any saving accounts & it is more convenient for short term investors
The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by
participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to
just under a year. Among the most common money market instruments are eurodollar deposits, negotiable certificates of
deposit (CDs),bankers acceptances,U.S. Treasury bills, commercial paper, municipal notes, federalfunds and repurchase
agreements (repos).
Money market transactions are wholesale, meaning that they are for large denominations and take place between financial
institutions and companies rather than individuals.
Money marketinstruments
They usually have a maturity les then one year
Treasury bills –They are issued by govt to raise funds
Certificate of deposit-It is a document with a fixed maturity date ,specified fixed interest rate & can be issued in any
denomination aside from minimum investment requirements. A CDS restricts access to the funds until the maturity date of
maturity.
Commercial bills

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Commercial papers
Negotiable certificates
Derivatives
Options
Futures
Rights & warrants
In other words
Forex or interbank market
Primary or secondary markets’
Over the counter markets
Over the counter- It refers to the stocks which are not traded in a stock exchange such as Nasdaq or Nse etc.
What is a public company?
A company whose shares are traded on the stock exchange are called public company
What is private company?
A company whose shares are not traded in stock exchange is called a private company
List ofindices
NIFTY, SENSEX,S& P ASIA 50,CSE 30
Name of stock exchange in ASIA
NASDAQ- New York
FTSE- LONDON
CAC – France
Dax –Germany
Nekkei –Japan
Strait times –SINGAPORE
Hengseng –Hong kong
Jakarta- Indonesia
Shanghai-China
Countries& their capital

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Israil – jerusalem
Jamiaca – Kingston
Kenya –Nairobi
Japan- tokyo
Malasia –kula lampur
Maurituis – port louis
Nepal – Kathmandu
Netherland – Amsterdam
New zealand- wellington
Oman- muscat
Qatar- Doha
Thailand –bangkok
United state-Wasington d.c
Zimbabwe-Harare
United kingdom- London
Russia – moscow
United arab emirates- abu dhabhi
PE RATIO
Market value per share/Earning per share=pe ratio
It is the amount which an investor is willing to pay
Or it shows the sum of money an investor is willing to pay for each rupee worth of the earnings of the company
The investor should always compare the pe ratios of companies from the same industry with similar characteristics.
The Higher pe ratio does not mean that its better or lower pe ratio vice versa
In different words
It is one of the most widely used tools for stocks selection. It is calculated by dividing the current market value divided by
earnings of the share
It shows the sum of money you are willing to pay for each rupee worth of earning of the company
Earing yield – it is simply the inverse of the earning multiple .So a stock with an earing multiple of five or 5 has an
earning multiple of 1/5 i.e. .2 or 20%
Ordinarily a high earning yield tells that investor stock is able to generate a large amount of earning relative to share price

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Market price =𝑀𝑎𝑟𝑘𝑒𝑡 𝑐𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑧𝑎𝑡𝑖𝑜𝑛/no of shares outstanding
Current ratio =Current assets/Current liabilities
Profitability ratio or Return on assets=Net income/AVGtotal assets
Earnings per share=Net income/no. of shares outstanding
Book value per share=common stock equity/no of outstanding shares
Debt equity ratio – It is a debt ratio used to measure a company’s total liabilities by its shareholders equity .It measures
how much a company is investing by debt or using the debt to finance its assets relative to the amount of value
represented in share holder’s equity
It is also known as Capital gearing ratio
According to some books or read material best debt to equity ratio is 2:1
Conventions ofaccounting
Monetary measurement –The things which can be measured in terms of money comes into the picture of accounting
Separate entity- In accounting Owner and business keep a separate entity
Realization- It will take the things which has been realized on any dates
Materiality – It will take things which has material or real effect on the company or companies earnings
Accounting concepts
Going concern- The accounting keep the records in such a way that it will keep running continuously
Consistency – The rules are such that it will take same rule each year continuously
Matching concept- The records kept in accounting will match other books of accounts as double entry keep each records
in two books of accounts or each transaction has two effects on the company’s books of accounts which has to be matched
each accounting period
Accrualconcept
Conservatism- It is quite true that it takes the ways which will help the company in some ways like it will take that way
which will benefit the company –Example- Straight line method
Accounting period- Each company decides accounting periodic transactions viz 1 jan to 31st
dec.or 1april to 31st
march
Full disclosure- Accounts should be kept in such a manner that all the information are kept in such a manner that it keep
all the information disclosed
Monetary measurement- it will take into consideration which has a monetary affects on the company
Holding company – A company which does not produce any goods or services itself but for a parent company
A parent company holds all the outstanding stocks of the company
Parent company- it’s a company that owns enough voting stock in another firm (Subsidiary) to control management &
operations by influencing or electing its board of directors

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A parent company could simply be a company that wholly owns another company. This would be known as “wholly
owned subsidiary”
Difference between financial & management accounting
FA- it refers to accounting practices used in preparing various accounting statements used by various stakeholders of the
business.
It is used for various stakeholders, govt, any other associated party
It is compulsory to prepare it from the law’s point of view.
MA- it is used for managerial purposes such as cost cutting, income & expenditure & various internal decisions involved.
It is used for internal use
It is done for companies its own purposes not to abide by any rules & regulations.
Financial accounting vs Cost accounting
FA- It encompassesall accounts presented on the face of the financial statement & its presentations.
CA- whereas cost accounting is only focused on the cost of inventory
What are the 4 phases ofaccounting
Recording
Classifying
Summarizing
Interpretation
What is a basic accounting equation
Assets-liabilities= owners equity
What’s is the difference between p & l account & income expenditure
Profit and loss account is prepared for the organizations whose aim is to earn profits
Whereas income expenditure accounts are prepared for nonprofit organizations (Whose motive is not to earn profits)
Spot price
It is the price at which any security can be bought & sold at a particular time
What are the types ofrisks
Systematic risk
Interest rate risk,
Market risk
Inflation risk

17
Foreign exchange risk
Political risk
Unsystematic risk
Business risk
Financial risk
Operational risk
ThomsonReuters (For any behavioral que look into black book 14 may 2014) Page no.
Instruments ofcapital market
Debts- Bonds, debentures
Equity- Also known as common stock
Derivatives-Futures, options, swaps, rights, exchange traded instruments,
Where does bond come?
Bond comes under Debt instruments
Difference between bonds & equity
What are the different users offoreign exchange?
Governments
Commercial & investment Banks
Central banks
Fund manager
Internet based trading platforms
Traders
Brokers
Exchange
Corporations
Investment funds
Howcan common man participate in foreign exchange market?
Anyone can participate in foreign exchange market this does not mean that one has to get a Demat account if a person is
traveling to abroad may need money & exchange the money this also would be called as foreign exchange.
What is foreign exchange?

18
An institution or system for dealing in the currencies of other countries.
Can you tell me sth about Indian market regarding some specific company which is doing good its results came
good or bad?
Which counties use Euro
Euro is used in Austria,Belgium,finland,france,germany ,Greece,Ireland,ItalyLuxembourg,Netherland,
Do you have any question for me Aditya ?
Answer was; - You have mentioned your weakness & that’s a weakness that’s what I see ,You need to work a lot on that
stuff
Probably you need to improve a lot, It’s not that about putting /converting sth to sth,If you know stuff you would
probably be easy to to talk on that,If you are not through with that you will not be able to answer or put a message,That’s
it from me Aditya ,THANK YOU
& you can leave for the day Yashashwini will be point of contact
Other countries & their currencies
Peso –Argentina
Dollar- Australia, Canada, educor,Fiji
Real- Brazil
Dinar-Iraq
Yen- Japan
Pound sterling- Georgia,United kingdom
Rupee – India ,Indonesian rupiah ,Pakistan,Mauritius,Pakistan,Srilanka
Malaysia –Ringgit
Dollar- Australia, Canada,hongkong ,new zealanad,Singapore,
Switzerland-swiss Franc
Kotak securities
Small cap – 500 million dollars to 2 billion dollars
Mid cap – 2 billion dollars to 10 billion
Large Cap- Also known as blue chip companies 10 billion companies
Difference between bonds & stocks
Stocks Bonds
They have equity stake in the company They have a creditor stake in the company

19
Being creditor of the company they have a creditor stake in
the company & paid before stock holders of the company
They are paid after bond holders
Bond have definite term or maturity They are typically outstanding indefinitely
The shareholder/Stake holders have voting rights They do not carry voting rights
In case of insolvency or liquidations the equity shareholders
will be paid after bondholders
At the liquidation they will be paid before shareholders
Insider trading
The trading of securities /shares based on knowledge not available to the rest of the world or general public
What is equity shares & stock difference?
Difference between Preference shares & Equity shares
PREFERNCE SHARE Equity shares
Preference shares are paid dividend before the equity
shareholders
Equity shareholders are paid dividend after the dividend
paid to the pref shareholders
Rate of dividend is fixed Rate of dividend is decided be board of directors
Preference shares can be converted into equity shares Equity share can’t be converted
Preference shares don’t have right to participate in mgt of
company
Equity shares have this right
At the time of winding up of the company pref.
shareholders are paid first
On winding up equity share capital is repaid after pref share
capital is paid up
HEDGE FUNDS
A hedge fund uses a wide range of investment techniques & invest in a wide array of assets to generate higher returns for
a given level of risk than what’s expected of normal investments
In many cases Hedge funds are managed to generate a consistent level of return regardless of what market does
A hedge fund has ways to reduce the risk without cutting into investment income
Difference between Hedge funds & Mutual funds
Hedge funds Mutual funds
Managers have more freedom in their use of investment
tools
Managers must adhere to the strategy described
There is no limit on fees charged a hedge fund can charge
its investors
Mfs fees & expenses are disclosed are disclosed in detail
Hedge funds unlike mfs are not required to register with
SEC
MF has to be registered under SEC

20
They can run highly concentrated portfolio The objective is to protect investors investment & hence
diversification is the key principal
Fee charged is 2% Of AUM & 20 % OF PROFIT Annual expenses vary from 2.25 % to 2.5 %
Brokerages For securities
0.55 % to 2.50 % on transactions
Inflation vs Deflation
Inflation Deflation
Prices are rising Prices are decreasing
High demand of products & services Less demand & competition is high
Dividend
A sum of money that is divided among a number of people such as part of a company’s profits paid to its shareholders is
called as dividend
Dividend yield
A financial ratio that shows how much a company pays as dividend each year relative to its share price .
In the absence of any capital gains the dividend yield is return on investment
Dividend yield = Annual dividend /Price per shares
Capital gains –The amount of profit by which an investment’s selling price exceeds its purchase price
Bid & offer – Buy price is also known as bid price & sell price is known as offer price
Bid & Ask spread – It is the difference between bid& ask price
Tick size – It is the minimum movement of a security price most of the liquid stocks have 0.05 as a tick size
What are the companies which are called blue chip companies?
The company whose capitalization is above 10 billion dollar is called as blue chip companies. They are the most liquid
securities traded in a stock exchange
Earnings per share: -Net income /no of outstanding shares
It is the value which is earned from each share
Where does futures & forwards are traded?
The futures are traded on stock exchange where clearing houses are there to settle each transactions
Forwards are traded on over the counter where only two parties are involved Forwards are regularized by forward market
commission
Difference between futures & Forwards

21
Futures Forwards
They are highly standardized They are privately negotiated
Futures are traded on an exchange They are traded in over the counter market
Futures contracts have clearing houses which guarantee the
transactions
Because forwards contracts are private agreements, there is
always a chance that a party may default
They are settled daily which means that daily changes are
settled day, until the end of the contract
Forwards contracts are settled at the end of the contract
Options spreads
Bullish spreads
Straddle
Diagonal spreads
Marking to market – in futures market, while contracts have a maturity of several months’ profits or losses are settled on
day to day basis called Mark to market settlement The exchanges collects margins on day to day basis if losses are
incurred (MTM) from the loss making participants this is also known as margin calls as well
Variation margin -Variation Margin is additional amount of deposit you need to make to your trading account in order to
maintain sufficient money for loss deduction after significant losses have taken place.
Price band- Price range within which contract or a security is permitted to trade during the day
Key factors which is used to determine a stocks future price/ Or used to predict a company’s futures
Earnings per share – Net income /no of outstanding shares (It tells how much is the earnings per share)
Profit margins- Net profit/revenue (It checks how much profit is made in respect of revenues earned)
Return on equity- Net income/ shareholder’s equity (How much returns have been incurred in respect of equity provided
by the shareholders)
Peg ratio- (Price earning & growth ratio)-Pe ratio/Growth over 12 months
MUTUAL FUNDS
A mutual fund is a pool of investment is a pool of saving of a number of investors who share a common financial goal, the
money thus collected & invested in equities, debentures, & other securitiesRegulation All mutual funds need to be
registered under SEBI So its surveillance is under SEBI’S directives
Related question Objectives of mutual funds study
 To check mutual funds schemes available in the market
 To compare various mf vs shares
 To know awareness about the mfs
 To assess perception of investors towards mutual funds
Concepts ofMutual Funds
Step 1 -Many investors with common financial objectives pool their money
Step 2- Investors, on a proportionate basis allot the units for the sum contributed to the pool

22
Step 3- The money collected from investors is invested in shares,debentures,& other securities
Step 4- The fund manager realizes gains or losses & collects dividends or interests
Types of mutual funds available now days
1. Money market funds
These funds invest in short-term fixed income securities such as government bonds, treasury bills, bankers’ acceptances,
commercial paper and certificates of deposit. They are generally a safer investment, but with a lower potential return then
other types of mutual funds. Canadian money market funds try to keep their net asset value (NAV) stable at $10 per
security.
2. Fixed income funds
These funds buy investments that pay a fixed rate of return like government bonds, investment-grade corporate bonds and
high-yield corporate bonds. They aim to have money coming into the fund on a regular basis, mostly through interest that
the fund earns. High-yield corporate bond funds are generally riskier than funds that hold government and investment-
grade bonds.
3. Equity funds
These funds invest in stocks. These funds aim to grow faster than money market or fixed income funds, so there is usually
a higher risk that you could lose money. You can choose from different types of equity funds including those that
specialize in growth stocks (which don’t usually pay dividends), income funds (which hold stocks that pay large
dividends), value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or combinations of these.
4. Balanced funds
These funds invest in a mix of equities and fixed income securities. They try to balance the aim of achieving higher
returns against the risk of losing money. Most of these funds follow a formula to split money among the different types of
Investors
Fund
manager
Securities
Returns

23
investments. They tend to have more risk than fixed income funds, but less risk than pure equity funds. Aggressive funds
hold more equities and fewer bonds, while conservative funds hold fewer equities relative to bonds.
5. Index funds
These funds aim to track the performance of a specific index such as the S&P/TSXComposite Index. The value of the
mutual fund will go up or down as the index goes up or down. Index funds typically have lower costs than actively
managed mutual funds because the portfolio manager doesn’t have to do as much research or make as many investment
decisions.
6. Fund-of-funds ( May be termed as feeder funds)
These funds invest in other funds. Similar to balanced funds, they try to make asset allocation and diversification easier
for the investor. The MER for fund-of-funds tend to be higher than stand-alone mutual funds.
7. Specialty funds
These funds focus on specialized mandates such as real estate,commodities or socially responsible investing. For
example, a socially responsible fund may invest in companies that support environmental stewardship, human rights and
diversity, and may avoid companies involved in alcohol, tobacco, gambling, weapons and the military.
Schemes examined
Axis equity fund
Axis mid cap fund(Dividends)
Axis mid cap fund(growth)
Axis gold etf
Axis focused 25(g) funds
L&t gilt fund
Mfs according to investment objective funds
1 Growth oriented funds
2 Income or debt oriented funds
3 Balanced funds
4 Money market or liquid funds
5 Gilt funds- They invest in govtsecurities ,Ingovt securities they are preferred by risk averse investors who want to invest
in shadow of secure govtbonds,In this kind of bonds or funds investors are protected from credit risk
ACTIVE VS PASSIVE MANAGEMENT
Active management means that the portfolio manager buys and sells investments, attempting to outperform the return of
the overall market or another identified benchmark. Passive management involves buying a portfolio of securities
designed to track the performance of a benchmark index. The fund’s holdings are only adjusted if there is an adjustment in
the components of the index.

24
Findings
Investors are mainly concerned about risk factors of mfs
There are various mfs schemes available about which common man is not aware of
What is NAV?
NAV=
Assets ofthe bonds – Liabilities ofthe bonds /No ofunits outstanding
 How do you calculate NAV
Calculating the Net Asset Value ofa Fund
Net asset value (NAV)is significant only for open-end mutual funds. It is a simple calculation - just take the current
market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares
outstanding. Thus, if a fund has total net assets of $50 million and there are one million shares of the fund, then
the NAV is $50 per share. (Fund liabilities include items such as fees owed to investment managers.)
For closed-end funds, share value is determined in the secondary markets (the formal exchanges) where the shares are
traded. The NAV of a closed-end fund is the price per share multiplied by the total number of shares. Obviously, the value
of a closed-end mutual fund changes continuously throughout the trading day.
It is the value of Mutual fund at which a mf unit can be bought or sold
Margin Call –A small amount of money has to be paid if the value of stocks comes down
Same applies into the futures as well (If futures value comes down the buyer has to pay losses incurred on that day till the
time of expiry so this is also known as Marking to market in futures segment)
Inc.
Inc. is the abbreviation for incorporated. An incorporated company, or corporation, is a separate legal entity from the
person or people forming it. Directors and officers purchase shares in the business and have responsibility for its
operation. Incorporation limits an individual's liability in case of a lawsuit. The corporation, as a legal entity, is liable for
its own debts and pays taxes on its earnings, and can also sell stock to raise money. A corporation is also able to continue
as an entity after the death of a director or stock sale. A corporation is formed according to state law, through application
to the secretary of state and filing articles of incorporation. Because corporations cost more to administer and are legally
complex, the U.S. Small Business Administration recommends that small businesses not incorporate unless they become
established as a large company. In most states,corporations must add a corporate designation, such as Inc. after their
business name.
Ltd.
A limited company can be abbreviated to Ltd. This structure is used mostly in European countries and Canada. In a
limited company, directors and shareholders have limited liability for the company's debt, as long as the business operates
within the law. Its directors pay income tax and the company pays corporation tax on profits. Responsibility for company
debt is usually limited to the amount a person has invested in the company. A limited company can be set up in four
different ways. In some companies, a shareholder's liability is limited to specific predetermined amounts, drawn up in a
memorandum. These businesses are known as "private company limited by guarantee," and shareholders are called
guarantors. Charities and social enterprise groups frequently use this structure. In England, limited companies must also
have a pay-as-you-earn system established for collecting income tax payments and National Insurance contributions from
all employees.

25
Co (Company)
Co. is an abbreviation for company, a catchall phrase for an association of people working together in a commercial or
industrial enterprise, such as in a sole proprietorship, limited liability company or corporation. The abbreviation Co., like
the word company, does not carry meaning as a specific legal structure on its own.
LLC
LLC stands for "limited liability company." An LLC brings together some features of both business partnerships and
corporations, although it is more like a partnership. Owners,also called "members," are protected from liability, but the
business's earnings and losses pass through to owners, who report them on their personal income taxes. This makes its
structure less complex than that of a corporation, but like a corporation, LLCs must offer stock. Members share profits as
they like. Members are considered self-employed and must pay self-employment tax. When a member of the LLC leaves,
the business is dissolved and the remaining members decide if they want to start a new business. An LLC is also formed
according to state law, through application to to the secretary of state and filing articles of incorporation. LLCs must also
indicate in their names that they are an LLC or limited company.
Operating profit
Operating profit margin is one of the key profitability ratios that investors and analysts consider when evaluating a
company. Operating margin is considered to be a good indicator of how efficiently a company manages expenses, because
it reveals the amount of revenue returned to a company once it has covered virtually all of both its fixed and variable
expenses except for taxes and interest.
The best way to evaluate a company's operational efficiency is to view the company's operating margin as it changes over
time. Increasing operating margins show a company that is managing to control costs and increase profits as the company
grows.
Types ofmergers
Horizontal merger
Verticle merger
Conglomerate merger
Concentric merger/congeneric merger
Amalgmationvs acquisitions
List ofrating agencies
Crisil ltd
ICRA LTD-investment information & Credit rating agency
CARE-credit analysis & research ltd
Brickwork rating agency
SME Ratingindiapvt ltd
What is GDP
Gross domestic product –

26
It Is a monetary measure of the value of all goods & services produced in a period (quarterly or yearly)
GDP VS GNP
GDP defines its scope according to location while GNP defines its scope according to location,while GNP define its scope
according to ownership
It was 1.877 trillion dollar
Its figure has fallen by 5.7 % from last quarter
WHAT is repo rate, what is reverse repo rate
Repo rate- 6 %
Reverse repo rate 5.75 %
What is CRR
Cash reserve ratio
What is slr
Statutory liquidity ratio
IIP Index of industrial production
The index of industrial production in an index which details out growth of production in various sectors in an economy
Such as mining, electricity, manufacturing
Importance of IIP
As IIP shows the status of industrial activity whether it got increased or decreased or remained same. Better the IIP figure
indicates in industrial production. It makes investor & stock markets become more optimistic.
ITS relation with stock market
The optimism among the stock markets & investors translates into the markets going up. Thus ultimately it results to
growth in the country’s GDP thus making it an attractive investment destination to foreign.
CPI Data
Consumer price index measures the price changes of goods & services that households acquire for the purpose of
consumption.
CPI numbers are widely used as a macroeconomic indicator of inflation.
As a tool by govt. & centralbanks for inflation targeting monitoring, price stability
CPI is also used for indexing dearness allowance to employee for increase in prices. CPI therefore considered as one of
the important economic indicators.
WPI
Wholesale price index is the main measure of inflation, It measure the price of a representative basket of goods. It is
widely used by govts. ,banks ,industry & business circle.

27
What is FDI
A Foreign direct investment is an investment made by company or entity based in one country ,into a country based in
another country
Exp. An example of foreign direct investment would be an American company taking a majority stake company in china
FDI investment in India
Food products, pharma,aviation,animal husbandry, railway infrastructure telecom,education,agriculture is allowed by 100
% Credit rating ,Insurance ,power & stock exchange 49 % is allowed
Methods of investing in different sectors through FDI
By acquiring share
By incorporating a wholly owned subsidiary or company anywhere
Through mergers & acquisitions
Yield- the current yield is simply the annual interest payments divided by current market price of a share
Yield =
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝐶𝑀𝑃
Yield to maturity = which is more useful to measure the return of a bond.
Indenture= An indenture is a formal debt agreement that establishes the terms of the bond issue
Convenents= The clauses of such an agreements are called convenents,Convenents are the rights & obligations of the
bondholders & it also contains rules which are prohibited from performing.
Can I use the current yield to compare a bond to an equity investment?
Investors should be carefulwhen comparing the current yield on a debt security with the growth of an equity security.
Yield is normally all a bondholder receives in terms of return. Shareholders can see their stock values appreciate and
receive dividends. Moreover, higher bond yields are always an indication of higher return, while higher dividend yields
can be a misleading sign of stock trouble.
Understanding Current Yield on Bonds
It is important for bond investors to be aware there are different types of bond yield. The current yield is only the
appropriate metric to review for specific intentions. Investors need to also understand the different risks associated with
each type of investment, not just the return.
Stocks are the most common equity security. Consider the different components that affect a shareholder's return: share
price, dividends and yield. Each of these is variable and affects how the other two are interpreted. On the surface,this is
similar to the interaction between a bond's coupon and its secondary market price.
Stock price and dividend are often inversely correlated, but it is possible for a stock's price, dividend and yield to all
increase over a period of time; this is not possible with a bond. For example, a stock could trade at $20, have annual
dividends of $1 and a yield of 5% in period one; it could then trade at $25, have annual dividends of $5 and a yield of
20% in period two.

28
Types Of Corporate Actions
 Stock Split and Reverse Spilt:A corporate action in which a company’s existing shares are divided into multiple
shares. For Ex. A company with 100 shares of stock price Rs 50 per share (100*50 = 5000). The company splits it
shares 2 for 1. There are now 200 shocks for Rs 25 each (200*25 = 5000) . The reason why companies split their
stock is to make them more affordable to investors because stock price reduces after it is split. Likewise, reverse
split increases the stock price while reducing number of outstanding shares.
 Spin-Offs: Spin off means a company breaking up itself into smaller units. The creation of an independent
company through the sale or distribution of new shares of an existing business/division of a parent company.
 Dividend Payouts:Dividend is the payment made to the investor for sharing the profits a company has made.
 Mergers and Acquisitions:Mergers is a event where two or more companies merge into one aiming to be more
competitive and for more profitability. Likewise Acquisition means a bigger company acquiring a smaller one for
further expansion.
 Bonus Issue:It is an additional dividend given to the shareholders that can be in cash or in the form of stock.
When companies have outstanding performance with surplus profit, they may decide to issue bonus to the
shareholders.
Voluntary Corporate Action : Voluntary corporate actions, are actions requiring a decision from the investor on whether
or not to participate.
 Buyback:Buyback is an action in which company offers to buys back its stock from the current share holders at
an attractive price. The reason is to reduce the shares outstanding in the market or to reduce the stake of
shareholders in company.
 Rights Issue:It refers to offering additional shares to the current shareholders of the stock. This is done by
companies to raise capital for further expansion which provide its existing shareholders the right to buy the stock
at discounted rates than price making it more lucrative.
Highest rating ofa bond
AAA TO DIt varies where AAA is the highest rating & D is the lowest rating
A transaction where financial securities are issued against the cash flowgenerated from a pool of assets is
called:
It is called as Securitization
Securitization –It is the process of turning illiquid assets into securities
Currency appreciation
Currency appreciation is an increase in the value of one currency in terms of another. Currencies appreciate
against each other for various reasons, including government policy, interest rates,trade balances and business
cycles.
By contrast, a currency similarly represents the economy of a country, and a currency rate is quoted by pairing
two countries and calculating an exchange rate of one currency relative to the other. Consequently, the underlying
economic factors of the representative countries has an effect on that rate. An economy experiencing growth
results in a currency appreciating, and the exchange rate adjusts accordingly. The country with the weakening
economy may experience currency depreciation, which also has an effect on the exchange rate.

29
For an example: - If rupee value is appreciating so it is better for importing country viz ONGC
So the equation becomes :- RS VS USD 64 RS VS 1 DOLLAR is better than RS VS USD 65 RS as the importing
companies have to pay lesser money
Inter-Bank Offer Rate
When a bank offers loan to other banks (or any other financial institutions), then it charges interest on that loan.
The interest rates charged on the loans vary from bank to bank. But these rates need to follow a benchmark, so
that interest rates does not differ too much among them (meaning, it should not happen, that an X bank charges 10
% interest per annum on a loan, whereas,Y bank charges 20 % on the same type of loan, it should be at par)
Generally, Inter-bank offer rate is of short-term nature (overnight to 1 year), and is followed for deciding interest
rates to be charged on the loans offered to other banks (refer Call / Notice / Term Money) (inter-bank market). It
acts like a benchmark for deciding interest rates.
Several financial markets follow different Inter-bank offer rates, like -
 London Inter-Bank Offer Rate (LIBOR) –It is announced by 11:30 am local time
 Mumbai Inter-Bank Offer Rate (MIBOR)-9:40 AM ,1130 AM
 Tokyo Inter-Bank Offer Rate (TIBOR)-
 Singapore Inter-Bank Offer Rate (SIBOR)
 Hong Kong Inter-Bank Offer Rate (HIBOR),etc.
Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a
maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter.
Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according
to a prearranged formula. They can be regarded as portfolios of forward contracts. The two
commonly used swaps are :
� Interest rate swaps:These entail swapping only the interest related cash flows between the
parties in the same currency.
� Currency swaps: These entail swapping both principal and interest between the parties,
with the cashflows in one direction being in a different currency than those in the opposite
direction.
Introduction to futures
Futures markets were designed to solve the problems that exist in forward markets. A futures
contract is an agreement between two parties to buy or sell an asset at a certain time in the
future at a certain price. But unlike forward contracts,the futures contracts are standardized
and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies

30
certain standard features of the contract. It is a standardized contract with standard underlying
instrument, a standard quantity and quality of the underlying instrument that can be delivered,(or which can be used for
reference purposes in settlement) and a standard timing of such settlement.
A futures contract may be offset prior to maturity by entering into an equal and opposite
transaction. More than 99% of futures transactions are offset this way.
The standardized items in a futures contract are:
� Quantity of the underlying
� Quality of the underlying
The date and the month of delivery
� The units of price quotation and minimum price change
� Location of settlement
Optionsvsforward or futures contract
Options are fundamentally different from forward and futures contracts. An option gives the
holder of the option the right to do something. The holder does not have to exercise this right.
In contrast, in a forward or futures contract, the two parties have committed themselves to doing
something. Whereas it costs nothing(exceptmargin requirements) to enter into a futures contract,
the purchase of an option requires an up–front payment.
American options: American options are options that can be exercised at any time upto the expiration date. Most
exchange-traded options are American.
European options: European options are options that can be exercised only on the expiration date itself. European options
are easier to analyze than American options, and properties of an American option are frequently deduced from those of
its European counterpart.
How to value a portfolio?
How to Calculate Portfolio Value
Any investment worth owning is worth learning how to measure. While brokers are required to send you a monthly
statement that includes your current portfolio value, it is important to be able to verify this number with your own
calculations. You can use one method recommended by the IRS. It is referred to as mark-to-market and involves
multiplying the current share price of the stock by the number of shares owned and summing these values for a total
portfolio value.
Step
Determine the current value of each stock in your portfolio. Let's say you own a portfolio with two stocks: Stock A is
priced at $10 a share, Stock B at $12 per share.
Step

31
Determine the number of shares of each stock you own. Let's say you own 1,000 shares of Stock A and 100 shares of
Stock B.
Step
Multiply the current price by the number of shares owned to find the current market value of each stock in your portfolio.
Stock A has a market value of $10,000 (1,000 $10) and Stock B has a market value of $1,200 ($12 100).
Step
Sum both amounts for the total market value. The amount is $10,000 + $1,200 = $11,200. This is the total value of your
portfolio.
Comparison chart
GAAP versus IFRS comparison chart
GAAP IFRS
Stands for Generally Accepted Accounting Principles International Financial Reporting
Standards
Introduction Standard guidelines and structure for
typical financial accounting.
Universal financial reporting method
that allows international businesses to
understand each other and work
together.
Used in United States Over 110 countries, including those in
the European Union
Performance
elements
Revenue or expenses,assets or liabilities, gains,
losses, comprehensive income
Revenue or expenses,assets or
liabilities
Required
documents in
financial
statements
Balance sheet,income statement, statement of
comprehensive income, changes in equity, cash
flow statement,footnotes
Balance sheet,income statement,
changes in equity, cash flow statement,
footnotes
Inventory
Estimates
Last-in, first-out; first-in, first-out; or weighted-
average cost
First-in, first-out or weighted-average
cost
Inventory
Reversal
Prohibited Permitted under certain criteria
Purpose ofthe
framework
US GAAP (or FASB) framework has no
provision that expressly requires management to
consider the framework in the absence of a
Under IFRS, company management is
expressly required to consider the
framework if there is no standard or

32
GAAP versus IFRS comparison chart
GAAP IFRS
standard or interpretation for an issue. interpretation for an issue.
Objectives of
financial
statements
In general, broad focus to provide relevant info
to a wide range of stakeholders. GAAP provides
separate objectives for business and non-
business entities.
In general, broad focus to provide
relevant info to a wide range of
stakeholders. IFRS provides the same
set of objectives for business and non-
business entities.
Underlying
assumptions
The "going concern" assumption is not well-
developed in the US GAAP framework.
IFRS gives prominence to underlying
assumptions such as accrualand going
concern.
Qualitative
characteristics
Relevance,reliability, comparability and
understandability. GAAP establishes a hierarchy
of these characteristics. Relevance and
reliability are primary qualities. Comparability
is secondary. Understandability is treated as a
user-specific quality.
Relevance,reliability, comparability
and understandability. The IASB
framework (IFRS) states that its
decision cannot be based upon specific
circumstances of individual users.
Definition ofan
asset
The US GAAP framework defines an asset as a
future economic benefit.
The IFRS framework defines an asset
as a resource from which future
economic benefit will flow to the
company.
Various Journal entries
Explain your understanding of accrued income and the journal entry.
Accrued income is the entry where amount has not been received by the firm during the year
It is an asset so it will be under asset side in balance sheet & entry will be like
Accrued income dr.
To income account
A leveraged buyout (LBO) is a financial transaction in which a company is purchased with a combination
of equity and debt, such that the company's cash flow is the collateral used to secure and repay the borrowed
money.
The term LBO is usually employed when a financial sponsor acquires a company. However,many corporate transactions
are partially funded by bank debt, thus effectively also representing an LBO. LBOs can have many different forms such as
management buyout (MBO), management buy-in (MBI), secondary buyout and tertiary buyout, among others, and can

33
occur in growth situations, restructuring situations, and insolvencies. LBOs mostly occur in private companies, but can
also be employed with public companies (in a so-called PtP transaction – Public to Private).
As financial sponsors increase their returns by employing a very high leverage (i.e., a high ratio of debt to equity), they
have an incentive to employ as much debt as possible to finance an acquisition. This has, in many cases,led to situations
in which companies were "over-leveraged", meaning that they did not generate sufficient cash flows to service their debt,
which in turn led to insolvency or to debt-to-equity swaps in which the equity owners lose control over the business to the
lenders.
LBOs have become attractive as they usually represent a win-win situation for the financial sponsor and the banks: the
financial sponsor can increase the rate of returns on his equity by employing the leverage; banks can make substantially
higher margins when supporting the financing of LBOs as compared to usual corporate lending, because the interest
chargeable is that much higher. Banks can increase their likelihood of being repaid by obtaining collateral or security.
REAL ACCOUNTS
DEBIT WHAT COMES IN
CREDIT WHAT GOES OUT
PERSONAL ACCOUNTS
DEBIT THE RECEIVER
CREDIT THE GIVER
NOMINAL ACCOUNTS
DEBIT ALL EXPENSES AND LOSSES
CREDIT ALL INCOMES AND REVENUES AML
BASIS FOR
COMPARISON
BONDS DEBENTURES
Meaning A bond is a financial instrument
showing the indebtedness of the issuing
body towards its holders.
A debt instrument used to raise
long term finance is known as
Debentures.
Collateral Yes,bonds are generally secured by
collateral.
Debentures may be secured or
unsecured.
Interest Rate Low High
Issued by Government Agencies, financial
institutions, corporations, etc.
Companies
Payment Accrued Periodical
Owners Bondholders Debenture holders

34
Risk factor Low High
Priority in repayment at
the time of liquidation
First Second
A debenture is a debt instrument used for supplementing capital for the company. It is an agreement between the
debenture holder and issuing company, showing the amount owed by the company towards the debenture holders. The
capital raised is the borrowed capital, that is why the status of debenture holders is like creditors of the company.
Debentures carry interest, which is to be paid at periodic intervals. The amount borrowed is to be repaid at the end of the
stipulated term, as per the terms of redemption. Issue of debentures publicly requires, credit ratings. Debentures are
classified in the following categories:
Key Differences between Bonds and Debentures
The following are the major differences between bonds and debentures:
1. A financial instrument issued by the government agencies, for raising capital is known as Bonds. A financial
instrument issued by the companies whether it is public or private for raising capital is known as Debentures.
2. Bonds are backed by assets. Conversely, the Debentures may or may not be backed by assets.
3. The interest rate on debentures is higher as compared to bonds.
4. The holder of bonds is known as bondholder whereas the holder of debentures is known debenture holder.
5. The payment of interest on debentures is done periodically whether the company has made profit or not while
accrued interest can paid on the bonds.
6. The risk factor in bonds is low which is just opposite in case of debentures.
7. Bondholders are paid in priority over debenture holders at the time of liquidation.
What is dematerialization?
Dematerialization is a process by which physical certificates of an investor are converted to an equivalent number of
securities in electronic form and credited into the investor’s account with his/her DP.
Define IPO and FPO.
Initial Public Offering (IPO),also referred to simply as a “public offering”, is when a company issues common stock or
shares to the public for the first time. In an IPO,the issuer may obtain the assistance of an underwriting firm, which helps
it determine what type of security to issue (common or preferred),best offering price and time to bring it to market.

35
If an existing company to collect additional capital makes a fresh allotment of shares,then it is known as follow on offer
(FPO). FPO results in contribution of supplementary shares.
List out things that fall under intangible assets
Patents
Copyrights
Trademarks
Brand names
Domain name & so on
What is contigent liability?
A contigent liability is a potential liability that may occur depending on the outcome of an uncertain future event.
Accrual concept
The accrual concept in accounting means that expenses & revenues are recorded in the period they occur, Whether or not
cash is involved
Face value- The face value of a share of stock is known as par value
Book value- It is the value at which the asset is carried out to the balance sheet & calculated by taking the cost of asset –
depreciation.
Face value
Face value is the nominal value or dollar value of a security stated by the issuer. For stocks, it is the original cost of the
stock shown on the certificate. For bonds, it is the amount paid to the holder at maturity, generally $1,000. It is also
known as "par value" or simply "par."
*LOOK INTO YELLOWBOOK From here
What is accounting rate ofreturn?
Accounting rate of return is also known as average rate of return which gives the financial ratio used in capital budgeting
.The ratio takes time value of money factor which calculates the return & net income can be generated from the capital
investment.
ARR=Average profit /average investment
What is meant by book keeping?
Book keeping is mainly concerned with recording of financial data relating to business operations in a significant &
manner.
What is trial balance?
Trial balance is the statement which contains the various ledger balances on a particular date. Trial balance proves the
arithmetic accuracy of a business transaction.
What is bank reconciliation statement?

36
It is a statement reconciling the balance shown by the pass book & the cash book
Accrued income
It is the income which has been earned by the business during the accounting year but which has not been so far been
received by the firm.
Journal entry
Accrued income a/c dr.
To income account
What is owner’s equity?
Owner’s equity is also known as capital of the business is the claim of the business is the claim of the owner of the
business against the assets of the business
Total equity-equity of creditors = Owner’s equity
Acid test ratio /Quick ratio
Current assets –inventory / current liabilities
It measures the ability of a company to use its near cash or quick assets to extinguish its current liabilities
Or how easily current assets can be converted into cash in respect of current liabilities
What is accounts payable?
It is the basic cost levied on the company to run business process that is outstanding accounting payable for one company,
it might be accounting receivable for another company.
What is a liability? What all included in current liabilities?
Liablity can be defined as an obligation towards another company or party
They may include
Accounts payable
Interest and dividend payable
Short term loans
Consumer deposits
Reserves for federaltaxes
Difference between depreciation & amortization
Depreciation Amortization
It refers to prorating a tangible asset’s costs over assets life It refers to prorating an intangible assets cost over that asset
life,
for example on a patent on a piece of medical equipment
usually have 17 years life
for an example an office building usually it is used for
assets like goodwill, patents,brands,copyrights etc

37
Define Debit note & credit note?
Debit notes-it is an intimation sent to a person dealing with the business that his account is being debited for the purpose
indicated therein. The original one is send to the party to whom the goods are returned & duplicate copy is kept for office
purposes.
Credit note – it is an intimation sent to a person sent to a person dealing with the business that his account is being
credited for the purpose indicated therein.
Words used in reading comprehensions
Pervert –( 1 )Alter from its original meaning or state of what was first intended (2) A person with abnormal or
unacceptable behavior
Arbiter – a person who settles a dispute 2 a person who has influence over sth.
Q: Is it possible for a company to show positive cash flows but be in grave trouble?
A: Absolutely. Two examples involve unsustainable improvements in working capital (a company is selling off inventory
and delaying payables), and another example involves lack of revenues going forward.in the pipeline.
Q: How is it possible for a company to show positive net income but go bankrupt?
A: Two examples include deterioration of working capital (i.e. increasing accounts receivable, lowering accounts
payable), and financial shenanigans.
Cash flow statements
It is a statement showing changes in cash position of the firm from one period to another, it explains inflows & outflows
of cash over a period of time. The inflow may occur from sale of assets,receipts from debtors, interest & dividend, rent,
issue of new shares,debentures, raising capital
Walk me through a cash flow statement. (In form of steps)
A. Start with net income, go line by line through major adjustments (depreciation, changes in working capital and
deferred taxes) to arrive at cash flows from operating activities.
B. Mention capital expenditures, asset sales, purchase of intangible assets,and purchase/sale of investment securities
to arrive at cash flow from investing activities.
C. Mention repurchase/issuance of debt and equity and paying out dividends to arrive at cash flow from financing
activities.
Cash flows
It only measures cash position of the business for a time period
It is a statement showing changes in cash position of the firm from one period to another period.
It explains inflows & outflows of cash over a period of time
Cash flows in form of these three activities (in the form of general descriptions )

38
Operating activities – It includes all standard business operations, cash receipts from selling goods & services represent
the inflows. The revenues (Only revenuesnot paying ofdividend) from interest & dividends are also included here.
Investment activities – Investing activities include transactions with assets,marketable securities & credit
instruments.The sale of property,plant,equipments or marketable securities will come under cash outflows.
The inflow occurs from sale of asset,receipts from debtors, rent, and issue of new shares & debentures rising of loans,
short term borrowing etc
Financing activities- the receipts come from borrowing money or issuing stock.the out flows occur when a company
repays loans,paying out dividends or purchase treasury stocks
Fund flow
It states changes in working capital of business in relation to the operations in one time period.
The main components of working capital are
Current assets
Receivable
Inventory
Cash
Current liabilities
Accounts payables
Difference between fund flow & cash flow statement
fund flow statement cash flow statement
fund flow statement is based on broader concept i.e
working capital
cash flow statement is based on narrow concept i.e cash
which is only one of the elementsof working capital
Fund flow statement is more useful in assessing long term
financial strategy
it is useful in understanding short term phenomena
affecting liquidity of the business
it shows the causes of changes in working capital it shows causes of change in cash
Advantages ofcash flowstatement
It shows the actualposition of cash available with the company between two balancesheet dates which fund flow & profit
& loss account are unable to show
it helps the company in accurately protecting the future liquidity position of the company .
Disadvantages
Since it shows only cash position.it is not possible to deduce actualprofit & loss of the company by just looking at this
statement
In isolation this is of no use & it requires other financial statements like profit & loss account etc.
Advantages offund flow statement

39
A fund flow statement is prepared to show changes in (working capital) assets,liabilities,& equity between two
balancesheet dates
Advantages
fund flow statement reveals the net result of business operations done during the year
it shows how the funds have been raised from various sources & also how these funds were deployed by the company
in addition it serves as an additional reference for many interested parties like analyst, creditors,suppliers govt. to look
into financial positions of the company
it helps deciding future course of action
Disadvantages
It has to be used along with balancesheet & profit & loss account for inference of financial strenth & weakness
Fund flow statemment does not revealthe cash position of the company ,so the company has to prepare cash flow
statement
It is historic in nature & it does not communicate any thing about future
Conclusion
We can conclude that shorter the planning period more relevant is cash flowstatement & longer the planning
period fund flow statemment is more relevant.
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