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Reminders evaluating financial soundness of customers

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Unformatted text preview: e value over time 44 Selection Criteria Financial Risk – Uncertainty of the expected returns from a marketable security. security. Interest Rate Risk – Uncertainty of the expected returns from a marketable security attributable to changes in interest rate. security Taxability – Taxability Market yields are affected because of different tax structures with different market securities. structures eg – Govt./muncipal bonds are tax free eg 45 Selection Criteria Selection Liquidity Ability to transform a security into cash in no time. time. Yield Affected by all the four factors. If a given risk is assumed, such as lack of liquidity, then higher yield may be expected. 46 Types of Marketable Securities Term deposit with scheduled bank Banks accept deposit for periods ranging from 15 days to 5 years. interest rate varies from 4% - 10% interest Treasury Bills Short term obligations of the government, which have maturities like 91, 182, 364 days. It is sold at discount and redeemed at par. 47 Types of Marketable Securities Certificate of deposits Negotiable receipt of funds deposited with the bank with a fixed rate of interest. They can be transferred from one party to another. transferred Commercial Papers Short term unsecured promissory note with fixed maturity period issued by leading, nationally reputed creditworthy and large business firms to raise cash. raise 48 Types of Marketable Securities Types Mutual Fund Scheme – A financial intermediary ... investment objective. financial It accepts small amounts from small investors and further invests in huge securities. Inter- corporate deposits Short term deposit with other companies. Short It has high degree of risk and also it takes one month to convert them into cash. month 49 Types of Marketable Securities Bills discounting Seller discounts the bill with the bank and the bank releases the funds to the seller. bank Ready forward deal A commercial bank or some organization may do a ready forward deal with a company interested in deploying surplus funds on short term basis. in 50 Types of Marketable Securities Gilt- edged Securities Most government securities bong are gilt edged securities because of less risk involved. Their returns are lower than other forms of investment. returns Municipal Bonds Bonds raised by municipal bodies of local government for financing core urban infrastructure facilities like drinking water. infrastructure 51 THANK YOU 52...
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