Capital Market in Nepal

Transcription

1 Capital Market in Nepal Author: Pramod Bhattarai An experienced teacher- Bhundipuran Prakashan

2 CONTENTS Chapter One Investment Investment Investment Objectives 2 Investable Instruments 3 Risk Preferences 3 Government Policy ' 3 Tax Bracket 3 2. Investment Environment in Nepal 4 4 Security 4 Holding Period Return 4 Treasury Bills or T-bills 5 Long- term bonds 5 Common Stock 6 Security Markets 6 Financial Intermediaries 7 3. The Investment Process 7, ' 7 Set Investment Policy. 8 Security Analysis 8 Portfolio Construction 8 Portfolio Revision - 9 Portfolio Performance Evaluation 9 Chapter Two Nepal Security Board Nepal Security Board 10, 10 Objectives of SEBO 10 Functions of SEBO An Organized Market Capital Market 12 " 12 Primary Market 13

3 Pre-issue activities Issuing Activities Post issue Activities Role of Primary Market 4. Secondary Market Role of Secondary Market 5. Listing of Securities Types of Listing Temporary Listing, Permanent Listing Pre-requisites for listing Classification of Listed Securities Possibility of delisting Problems that can arise due to delisting Information 1. Information Sensitive Information Non-sensitive information 2. Nepal Stock Exchange Cost of Trading ' Trading Mechanism of Nepaiese and open Market Markers Member Brokers Order Registration Price Board Lot/ Market Lot Trading Hour Changes in quoted Price Circuit Breakers Types of Trading Off the floor transactions Matching Transactions Advantages Disadvantages act any system

4 Regular Transactions 34 Trading Procedures ' " 35 Notification to Clients 35 Settlement 36 Clearing 36 Blank Transfer. 3 6 Trading Procedures between market makers^and brokers Electronic trading mechanism of NEPSE 38 Order 39 Price 39 Execute at 39 Retain until Conditions, 40 Market Depth. 41 Settlement 41 Rate of Commission 41 SEBO Commission 41 Cost to investors Blank Transfer v_ 43 Other transactions 44 Odd lot transactions Problems Challenges and Possibilities 45 Rights of a shareholder 49 x Collective Rights 49 Specific Rights - ' 50 Mutual Funds 52 Advantages "of Funds 53 Types of Funds " 54 Chapter Four Fixed Rate Yielding Securities Fixed Rate Yielding Securities Features.or Characteristics of Bonds - 58 Types of Fixed Rate Yielding Securities 61 Fixed Rate Yielding Securities Market. ' 63 Primary Market > 64 Secondary Market Issuance of Government Securities in Nepal 65 Bond Market in Nepal 66 Securities Exchange Centre, 66 Initial Public Offering of Government Bond 66

5 Secondary Market ' 67 Selling/from NRB's Portfolio 67 Selling from SEC's Portfolio ' 68 Selling from Client to Client 68 Availability of fund 68 Transactions of Bonds 68 Types of Bonds 69- Promissory notes 69 Stocks 69 On the basis of maturity Period. 70 Short-term securities. 701 Long-term securities 71 On the basis of Issuers 71 Government bonds 71 Corporate bond. 72 Change in bond market.. 72 Chapter Five Trading Mechanism of Government Bonds Trading Mechanism of Government Bonds 73 Types of Members 74 Market Makers 74 Member Brokers 74 Capital Requirements 74 Price Fluctuations 74 Trading Procedures 75 Price Quotations 75 Written Documents V. 76 Client Notification Sheet 77 Settlement 77 Daily Transactions Sheet. 77 Clearing 78 Client Verification Cards 78 Major Challenges in bond market 79 Chapter Six Fixed Rate Yielding Securities Bond Fixed Rate Yielding Securities Yield to Maturity 87 Bond Valuation. ' - ' 89

6 Consols, Zeros, OIDs and LYON Buy and sale decision Bond Return Measures Yield to first call Expected rate of return Bond Risk Analysis Unsystematic Risk Systematic Risk Price Risk Reinvestment Risk Purchasing Power Risk Risk Measurement - Duration Types of Spreads ' Chapter Seven Capital Market Indicator 1. Capital Market Indicator Methods for the calculation of Indices Dow Jones Industrial Average (DJIA) Standard and Poor's Index Value Line Composite Index(VLCI) NEPSE Index '< i 1 1 ; Event Analysis in Nepaiese Context wnapier cigni j 1. Event Analysis in Nepaiese Context. 123 i 2. Efficiency and Effectiveness of Brokering Business in Nepal Dynamism of Nepaiese Capital Market 135! 4. Credit Rating with reference to Standard and Poor's Procedures 139 Long-term credit ratings 141 \ Short-term credit ratings 143 Some of the Sample Questions Set for Credit Rating The Performaace Evaluation Technique of Central Bank Some of the Selected Problems in Bond Analysis Glossary 165^ i