About the Author I-5 Acknowledgement I-7 Preface to the Ninth Edition I-9 Chapter-heads I-11 Solved Paper CA Final May 2016 I-25

Size: px

Start display at page:

Download "About the Author I-5 Acknowledgement I-7 Preface to the Ninth Edition I-9 Chapter-heads I-11 Solved Paper CA Final May 2016 I-25"

Regina Jordan
5 years ago
Views:

Contents About the Author I-5 Acknowledgement I-7 Preface to the Ninth Edition I-9 Chapter-heads I-11 Solved Paper CA Final May 2016 I-25 1 FINANCIAL POLICY AND CORPORATE STRATEGY 1.

1 Contents About the Author I-5 Acknowledgement I-7 Preface to the Ninth Edition I-9 Chapter-heads I-11 Solved Paper CA Final May 2016 I-25 1 FINANCIAL POLICY AND CORPORATE STRATEGY 1.1 Financial Management Corporate Strategy Corporate Level Managers Business Level Functional Level Strategic Financial Management Features of SFM Basic Premises of Strategic Financial Management Interface of Financial Policy with Corporate Strategic Management Corporate Strategic Management Financial Policy Interface Strategic Decision Making Framework Strategic Decisions Framework Financial Goals vis-à-vis Sustainable Growth Sustainable Growth Financial Goals Balancing the Financial Goals vis-à-vis Sustainable Growth 1.9 THEORETICAL QUESTIONS FOREIGN EXCHANGE RISK MANAGEMENT 2.1 Foreign Exchange Arithmetic Three Types of Quotes Spot and Forward Rates 2.10 I-13

2 CONTENTS I Forward Margin (Premium or Discount) Cross Currency Rates Risk in Foreign Exchange Forward Exchange Contracts Futures Contracts Options Currency Swaps Money Market Operations Some Related Topics Purchasing Power Parity Theory The Fisher Effect Interest Rate Parity Theory (IRPT) Nostro Account and Exchange Position Arbitrage Opportunities Leading and Lagging Foreign Exchange Risk Exposure International Working Capital Management General Problems on FERM Practice 2.80 THEORETICAL QUESTIONS DERIVATIVES 3.1 Derivatives Users of Derivative Markets Cash Market v/s Derivatives Market Stock Market Derivatives in India Other Derivatives in India Options Intrinsic Value v/s Time Value of Option Trading Strategies General Problems on Options Option Valuation Put-Call Parity Theory (PCPT) Factors affecting the Option Premium under BS Model The Greeks Perfectly Hedged Situation Choice of Option Valuation Method 3.41

3 I-15 CONTENTS 3.3 Futures Share Index Futures Settlement of Stock Futures Mark to the Market Pricing the Futures Contracts Convergence Principal OTC Derivatives Cap, Floor and Collar Forward Rate Agreements Interest Swaps Swaptions (Swap options) Stock Market Derivatives in India Arbitrage Opportunities Arbitrage Opportunities : Options Arbitrage Opportunities : Futures Arbitrage with Options and Futures Commodities Derivatives Interest Rate Derivatives Practice 3.82 THEORETICAL QUESTIONS 3.83 APPENDIX A : SHARE PRICES INDEX NUMBERS (SHARE INDICES) 3.86 APPENDIX B : CALCULATION OF VALUE OF NATURAL LOG 3.89 APPENDIX C : FINDING THE VALUES OF N(D 1 ) AND N(D 2 ) RISK AND RETURN 4.1 Risk and Return Systematic and Unsystematic Risk Beta Standard Deviation v/s Beta Total Risk of an Investment Capital Asset Pricing Model The Principle of Higher the Return, Higher will be the Risk Overall Beta Portfolio Theory Fundamental Objective of Portfolio Management Portfolio Beta Minimum Risk Portfolio 4.28

4 CONTENTS I Reducing the Risk of a Portfolio Enhancing the Risk of a Portfolio Hedging the Portfolio Modern Portfolio Theory (Markowitz) Some More Aspects of Risk and Return Efficient Market Hypothesis Alpha Characteristic Line Security Market Line (SML) Capital Market Line (CML) Market Model Matrix Approach in Investment Decisions Portfolio Management General Problems International Investing Arbitrage Pricing Theory (APT) Arbitrage Sharpe Index Model Sharpe s Optimal Portfolio Practice THEORETICAL QUESTIONS APPENDIX A : SD AND VARIANCE APPENDIX B : DERIVATION FOR MINIMUM VARIANCE FORMULA MUTUAL FUNDS 5.1 Introduction Mutual Fund Schemes Regulation of Mutual Funds in India Establishment a Mutual Fund Asset Management Company Role of Mutual Funds in the Financial Markets Rights of a Mutual Fund Investor Advantages of Investing in a Mutual Fund Disadvantages of Investing in Mutual Funds Fund of Funds NAV 5.6

5 I-17 CONTENTS 5.2 Criteria for Evaluation of Mutual Funds/Portfolio Performance Sharpe ratio Treynor ratio Jenson s Alpha Practice 5.21 THEORETICAL QUESTIONS BOND VALUATION 6.1 Yield Current Yield Yield to Maturity Yield to Call Value of Bond Bond Risk Duration Yield Curve Forward Rates Convexity Convertible Bonds Interest Immunization Practice 6.29 THEORETICAL QUESTION PROJECT PLANNING & CAPITAL BUDGETING (CAPITAL EXPENDITURE DECISIONS) 7.1 Project Project Planning Project Report Feasibility Study of the Project Project Financing Social Cost Benefit Analysis Appraisal under Inflationary Conditions Capital Expenditure Decisions Method based on Accounting Profit Methods based on Cash Flows Borrowed Funds and Capital Budgeting 7.33

6 CONTENTS I Capital Rationing Inflation Capital Recovery Factor (CRF) Projects with Unequal Lives Foreign Exchange and Capital Budgeting Risk and Uncertainty Accounting Rate of Return CPM, PERT and Simulation Model Mutual Exclusive Projects IRR Complications Terminal Value Method Adjusted Present Value (APV) General Problems Practice THEORETICAL QUESTIONS APPENDIX A : SOME ASSUMPTIONS IN CAPITAL BUDGETING REAL OPTIONS 8.1 Introduction Types of Real Options Abandonment (NPV Method) Follow on Investment/Expansion Option (NPV Method) Follow on Investment/Expansion Option (Risk Neutral Method) Follow on Investment/Expansion Option (Black-Scholes Model) Investment Timing Option (NPV Method) Investment Timing Option (Black-Scholes Model) Some More Problems on Real Options (Risk Neutral Method and BS Model) LEASE DECISIONS 9.1 Introduction Advantages of Lease Financing Methods of Lease Decisions NPV Cost of lease by IRR method Williamson Method (B.S.W. Method) Calculation of lease rent - Four situations 9.6

7 I-19 CONTENTS 9.4 Lease vs. Hire Purchase Monthly lease instalments Calculation of cost of the machine Cross-Border lease Practice 9.28 THEORETICAL QUESTIONS DIVIDEND POLICY 10.1 Determinants of Dividend Policy Tax Considerations of Dividend decisions Pay-out Ratio v/s Shareholders Wealth Irrelevance Theory Relevance Theory Residual Theory of Dividend Linter s Model of Dividend Buy Back General Problems Relating to Dividend Practice THEORETICAL QUESTIONS FUNDAMENTAL ANALYSIS 11.1 The Concept of Fundamental Analysis Three Types of Analysis Economic Analysis Industry Analysis Company Analysis Valuation of Goodwill Valuation of Shares PE Ratio (also known as PE multiple) Accounting Ratios Solvency Ratios Profitability Ratios Activity Ratios Financial Leverage Ratios Share Valuation Ratios 11.20

8 CONTENTS I Dupont chart Practice THEORETICAL QUESTIONS APPENDIX A : NUMBER OF YEARS OF PURCHASE TECHNICAL ANALYSIS 12.1 Technical analysis The Fundamental Principles of Technical Analysis Charts Line Chart Bar Chart Japanese Candlestick Chart Trend Reversal of Trend Flat Trend Chart Patterns/Price Patterns Reversal Pattern Continuation Patterns Moving Average Simple Moving Average Exponential Moving Average Momentum Analysis/Relative Strength Index (RSI) Bollinger Bands VALUATION OF BUSINESS AND MERGER & ACQUISITION 13.1 Valuation of business Adjusted Book Value Method Value of Shares & Debt Method Comparison Method Discounted Cash Flow Method Practice Merger & Acquisition Merger Acquisitions and Takeovers Some related concepts Divesture Financial Restructuring Some related terms 13.23

9 I-21 CONTENTS Due Diligence Co-insurance Effect Dual Listing Exchange Ratios Maximum Exchange Ratio Minimum Exchange Ratio Two Important Exchange Ratios General problems Practice THEORETICAL QUESTIONS GENERAL PROBLEMS 14.1 Financing Rights Issue Interest Coverage Ratio Money Market EVA Sustainable Growth Bonus Shares Consumer Finance NBFC Miscellaneous Practice CAPITAL MARKET 15.1 Introduction Money Market v/s Capital Market Capital Market Regulator Capital Market Participants and Service Providers Stock Exchanges Merchant Bankers Depositories Credit Rating Agencies Venture Capital Restrictive Covenants Placed by a Lender on a Borrower Public Offerings Application Supported by Blocked Amount (ASBA) Book-Building 15.16

10 CONTENTS I Greenshoe Option Offer for Sale General Topics ESOP and ESPP Random Walk Theory Buy-back of Shares by Companies Call Option and Put Option with Reference to Debentures Zero Coupon Bonds Debt Securitization Refinancing THEORETICAL QUESTIONS INTERNATIONAL CAPITAL MARKET 16.1 Global Depository Receipts Double Taxation Agreements on GDRs Impact of GDRs on Indian Capital Markets American Depository Receipts External Commercial Borrowings Debt Route for Foreign Currency Funds Indian Depository Receipts 16.6 THEORETICAL QUESTIONS FOREIGN INVESTMENTS 17.1 India s Investments Abroad Foreign Collaborations Tax Issues in Foreign Collaborations FII Investments/Portfolio Investments Participatory Notes (P-Notes) Foreign Direct Investment in India 17.4 THEORETICAL QUESTIONS MONEY MARKET 18.1 Raising Funds against Receivables Factoring Forfaiting Factoring v/s Forfaiting Discounting of Bills 18.3

11 I-23 CONTENTS Discounting of Bills v/s Factoring Temporary Funds for Implementation of the Project Raising Funds for Regular Working Capital Requirements by the Corporate Raising Short-term Funds by the Banks Raising Short-term Funds by the Government RBI Regulations CRR Statutory Liquidity Ratio Primary Dealers System Call/Notice Money Repo and Reverse Repo Inter-Bank Participation Certificate Financing of International Trade Letter of Credit Packing Credit Post-Shipment Credit 18.9 THEORETICAL QUESTIONS INFLATION AND FINANCIAL MANAGEMENT 19.1 Inflation and Financial Management Inventory Management under Inflationary Conditions Impact of Inflation on Working Capital Management 19.3 THEORETICAL QUESTIONS GENERAL TOPICS 20.1 Consumer Finance Credit Cards Inter-Relationship between Investment, Financing and Dividend Decision Impact of Taxation on Corporate Financing Asset Securitization Exchange Traded Funds Economic Value Added Method Carbon Trading Self Insurance Special Economic Zones Private Equity Hedge Funds 20.10

12 CONTENTS I Embedded Options/Embedded Derivatives Curvilinear Break-even Analysis Financial Intermediation Shareholder Value Analysis Financial Engineering Non-Banking Finance Companies Big-ticket Lease Dow Jones Theory Corporate Governance Corporate Social Responsibility Information Technology Investment Banking Retail Banking THEORETICAL QUESTIONS APPENDICES APPENDIX A : MATHEMATICS OF FINANCE APPENDIX B : LEVERAGE APPENDIX C : COST OF CAPITAL TABLES A3 A7 A11 TABLE I : NORMAL PROBABILITY DISTRIBUTION TABLE (ONE TAIL) A21 TABLE II : CUMULATIVE DISTRIBUTION FUNCTION FOR THE STANDARD NORMAL RANDOM VARIABLE N (D) + A22 TABLE III : CUMULATIVE DISTRIBUTION FUNCTION FOR THE STANDARD NORMAL RANDOM VARIABLE N (D) A23 TABLE IV : AREAS UNDER THE NORMAL CURVE AREAS UNDER THE STANDARD NORMAL DISTRIBUTION A24 TABLE V : NATURAL LOGS, e x AND e -x VALUES A25 TABLE VI : PRESENT VALUE OF RE. 1 TO BE RECEIVED/PAID AFTER N PERIOD(S) A28 TABLE VII : PRESENT VALUE OF RE. 1 TO BE RECEIVED/PAID PERIODICALLY FOR N PERIOD(S) A31 TABLE VIII : LOGARITHMS A34 TABLE IX : ANTILOGARITHMS A38

Join with us https://www.facebook.com/groups/caultimates/ Professional Course: Syllabus 2016

Join with us https://www.facebook.com/groups/caultimates/ Professional Course: Syllabus 2016 Syllabus Structure Module V Paper 14: Strategic Financial Management A Investment Decisions 35% D 30% A 35% B Financial Markets and 20% Institutions C Security Analysis and Portfolio 15% Management D Financial