Repo and Reverse Repo

Repo (Repurchase) rate is the rate at which the Central Bank of a country lends shot-term money to the banks against securities. When the repo rate increases borrowing from Central bank becomes more expensive.  Therefore, we can say that in case,  Central Bank wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the Central Bank.  The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.     An increase in the reverse repo rate  means that the Central Bank  is ready to borrow money from the banks at a higher rate  of interest. As a result, banks would prefer to keep more and more surplus funds with Central Bank.

Forensic Accounting (FA)

Simply put, forensic accounting is accounting that is suitable for legal review, offering the highest level of assurance, and including the now generally accepted connotation of having been arrived at in a scientific fashion. Forensic accountants, also referred to as forensic auditors or investigative auditors, often have to give expert evidence at the eventual trial.

External Auditors find out the deliberate misstatements only but the Forensic Accountants find out the misstatements deliberately. External auditors look at the numbers but the forensic auditors look beyond the numbers.

Forensic accountant takes a more proactive, skeptical approach in examining the books of Accounting. They make no assumption of management integrity (if they can assume so then there is no need for their appointment) show less concerns for the arithmetical accuracy have nothing to do with the Accounting or Assurance standards but are keen in exposing any possibility of fraud.

Foreign Direct Investment (FII)

An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

•           by incorporating a wholly owned subsidiary or company

•           by acquiring shares in an associated enterprise

•           through a merger or an acquisition of an unrelated enterprise

•           participating in an equity joint venture with another investor or enterprise

Environment Audit

An assessment of the extent to which an organization is observing practices that seek to minimize harm to the environment. Environmental auditing started developing at the beginning of 70s of the past century in the United States of America and in the Western Europe. In that period the developed countries were adopting the environmental legislation in order to reduce the harmful consequences of the companies' actions that had affected the environment.

Independent third party assessment of the current status of an organization's compliance with local environmental laws and regulations.

Cloud Computing

Cloud computing refers to the delivery of computing and storage capacity as a service to a heterogeneous community of end-recipients. Cloud computing is simply a set of pooled computing resources and services delivered over the web. When you diagram the relationships between all the elements it resembles a cloud.

Cloud computing is using the internet to access someone else's software running on Someone else's hardware in someone else's data center. It is a style of computing in which IT-related capabilities are provided “as a service”, allowing users to access technology-enabled services from the Internet ("in the cloud") without knowledge of, expertise with, or control over the technology infrastructure that supports them. An emerging computing paradigm where data and services reside in massively scalable data centers and can be ubiquitously accessed from any connected devices over the internet. Cloud computing environments support grid computing by quickly providing physical and virtual servers on which the grid applications can run.

Book Building

When companies are on the look out to raise money for their business operations, they use various means for the same. Two of the most popular means to raise money are Initial Public Offer (IPO) and Follow on Public Offer (FPO). 

During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called as book building method

Book building is actually a price discovery method. In this method, the company doesn't fix up a particular price for the shares, but instead gives a price range, e.g. USDs 80-100. When bidding for the shares, investors have to decide at which price they would like to bid for the shares, for e.g. USD 80, USD 90 or USD 100. They can bid for the shares at any price within this range.

Based on the demand and supply of the shares, the final price is fixed. The lowest price (USD 80) is known as the floor price and the highest price (USD 100) is known as cap price.

The price at which the shares are allotted is known as cut off price

Mutual Fund

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities and Invest in capital Market. By investing in mutual fund the investor became a part of owner of assets of mutual fund.
Features
-Pooling of Resources
-Professional management
Net Assets Value of Mutual Fund (NAV)
The NAV of MF is the amount of which the unit holder would receive if the mutual fund were wound up today.
 Return to this investors-owner, emanate from the interplay of two elements (i) NAV and (ii) Cost of mutual fund. NAV will be calculated every trading day.

Capital Market

Capital Market is market for financial assets which have long and indefinite maturity.Both the stock and bond markets are parts of the capital markets.

Unlike money market instruments the capital market instruments become mature for the period above one year.

Capital market provides long term debt and equity finance for the government and the corporate sector. 

Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded.

A capital market is a market for securities (debt or equity), where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year

Money Market

The money market is nowadays a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less.

The money market is better known as a place for large institutions and government to manage their short-term cash needs. However, individual investors have access to the market through a variety of different securities.
One of the main differences between the money market and the stock market is that most money market securities trade in very high denominations. This limits access for the individual investor.

Capital Budgeting

Capital Budgeting (or investment appraisal) is the planning process used to determine whether an organization's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures.


Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark.

Popular methods of capital budgeting include net present value (NPV), internal rate of return (IRR), discounted cash flow (DCF) and payback period.

Adjusted NPV

Adjusted NPV is the NPV of project after considering the effect of financing. Two adjustment are relavant here  (a) Issue cost
(b) Tax shield on interest on debt
In other words The Net Present Value (NPV) of a project if financed solely by equity plus the Present Value (PV) of any financing benefits (the additional effects of debt).

 Adjusted Present Value (APV) is the net present value of a project if financed solely by ownership equity plus the present value of all the benefits of financing.
Steps in computation:
Step 1: Compute NPV on assumption that the project fully financed by equity.(Discount at cost of equity)
Step 2: Compute issue cost( It is already in today's value no need to discount)
Step 3: Compute tax saved on interest payable
Step 4: Compute PV of Tax Saved (at pretax cost of debt)
Step 5:ANPV=Base case NPV-Issue cost+PV of Tax Shield (Step1-Step 2+Step 4)

Profitability Index

Profitability Index is the measure of productivity of money means how much do we get for every single unit of money we spend.This is crucial when money is in short supply
Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project

PI is the ratio of present value of Inflow to present value of outflow with cost of capital being used as the discount rate.
Steps in computation:
Step1: Compute Present Value (PV) of Inflow
Step2: Compute PV of Outflow
Step3: PVI / PVO (Step1 / Step2)

If the index is greater than one the project will be selected
Between two project one with higher PI will be selected

Penny Stocks

Penny Stocks are low-priced stocks. There is no formal definition. Stocks that sell for less than $5 or their net tangible assets are less than 2 million dollars are considered as penny stocks. In India stocks under a price of Rs 50 are penny stocks.

The appeal of penny stocks comes from its low price as also investor’s psychology. Investors tend to think that a stock quoting Rs 10 rising to 20 is more possible than a stock quoting Rs 2700 growing to Rs 5400. If the fortune of the penny stock company turns around there is plentiful of opportunity to see share price appreciation. Penny stocks are popular among speculators.

Escrow Account

An escrow account is a designated account, the funds of which can be utilized only for a specified purpose. In other words, the bankers to the issue keep the funds in the escrow account on behalf of the prospective buyers. These funds are not available to the company till the issue is completed and allocation is made.

Primary Market

Stock Market generally divided into two segments
Primary market and Secondary market.

The primary market is the market in which investors have the first opportunity to buy a newly issued security.The primary market is not a physical place, it is merely refers to a situation where the action is not among investors inter-se but is between a company and the investors.Eg. Initial Public Offer (IPO), it includes right issue.
When a company needs an extremely large capital to run its business operations it cannot fund it all by itself.Hence it needs shareholders, which can be achieved only through primary market.

Excel Tip- Highlight the Row

Using the following code we can able to highlight the row where the cursor is available without affecting the data
Copy the code -Right click Tab Name > View code and paste the code there on the VBE window.

Audit Programme

An Audit programme is predetermined detailed plan of auditing work to be performed, specifying the procedure to be followed in verification of each item in the financial statement,allocation of the audit staff and the time framed to be allowed in conducting audit.
The audit programme also contains the audit objectives for each area of work to be performed.Thus, an audit programmes is written plan for conduct of an audit specifying what work to be done, when to be done and by whom to be done.

Carbon Credit

As nations have progressed we have been emitting carbon, or gases which result in warming of the globe. Some decades ago a debate started on how to reduce the emission of harmful gases that contributes to the greenhouse effect that causes global warming. So, countries came together and signed an agreement named the Kyoto Protocol.

The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s.

Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories.

A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies 'earn' credits.

India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit.

These credits are bought over by the companies of developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol.

Carbon credits are generated by enterprises in the developing world that shift to cleaner technologies and thereby save on energy consumption, consequently reducing their greenhouse gas emissions. For each tonne of carbon dioxide (the major GHG) emission avoided, the entity can get a carbon emission certificate which they can sell either immediately or through a futures market, just like any other commodity.

The certificates are sold to entities in rich countries, like power utilities, who have emission reduction targets to achieve and find it cheaper to buy 'offsetting' certificates rather than do a clean-up in their own backyard.

Articles of Association

A company is an incorporated body.  So there should be some rules and regulations are to be formed for the management of its internal affairs and conduct of its business as well as the relation between the members and the company.  Moreover the rights and duties of its members and the company are to be recorded.  There comes the need and origin of Articles of Association.

The Articles of Association is a document that contains the purpose of the company as well as the duties and responsibilities of its members defined and recorded clearly.  It is an important document which needs to be filed with the Registrar of companies.

It is the document for internal management of a company, it is necessary to know its contents before anyone who deals with company.

It is a document which is accessible to anyone just like memorandum of association

Memorandum of Association

A document that regulates a company's external activities and must be drawn up on the formation of a registered or incorporated company. As the company's charter it (together with the company's articles of association) forms the company's constitution.

The memorandum of association gives the company's name, names of its members (shareholders) and number of shares held by them, and location of its registered office. It also states the company's (1) objectives, (2) amount of authorized share capital, (3) whether liability of its members is limited by shares or by guaranty, and (4) what type of contracts the company is allowed to enter into.

Sweat Equity Shares

It means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights, or value additions, by whatever name called.

Normally this issue should be authorized by company in general meeting by passing special resolution. 

Preference shares

Preference shares as those shares which carry preferential rights as the payment of dividend at a fixed rate and as to repayment of capital in case of winding up of the company.

Thus, both the preferential rights viz. (a) preference in payment of dividend and (b) preference in repayment of capital in case of winding up of the company, must attach to preference shares.

The rate of dividend on these shares is fixed and the dividend on these shares must be paid before any dividend is paid to ordinary shares.

The main benefit to owning preference shares are that the investor has a greater claim on the company's assets than common stockholders.

In general, there are four different types of preferred stock: cumulative preferred stock, non-cumulative preferred stock, participating preferred stock, and convertible preferred stock. also called preferred stock.