Banking and Financials

Commercial banks are inspired to earn profit. There are many reasons for the goal of gaining profit. A bank is legal, it can do nothing alone. It is an invisible and non-living thing. We can see only its building. But there are two bodies to run such a legal person in the bank. One of them is the supreme body of the bank that is a general meeting and the other is the board of directors of the bank. The whole shareholders make the general meeting. The shareholders are the owner of the bank. The board of directors is the agent of the bank. It operates (runs) the bank. To run the banks, many employees are appointed. It needs a great number of expenses in the bank. In addition, the aim of any person or the institution to invest the money in the bank is to earn more profit only. A bank established without the aim of gaining profit is the central bank. Other banks are inspired with eh objective of earning profit and helping the economic development and finally to take social responsibility.

Importance of Investment in International Securities Market Investors and corporations can participate worldwide for the most attractive investment opportunities. The globalization of securities market has enabled rapid increase in the international mobility of capital. The growth and importance of international securities markets can be highlighted as follows: Attraction of Additional Capital The increasing competition between marketplaces including greater breadths, depth, and liquidity of markets have reduced execution and financing costs significantly for the benefits of investors, government and corporate issuers. All of these factors are encouraging broader public ownership of securities. It is notable that those countries which enjoy the broadest public ownership of securities, also generally enjoy the greatest political and economic stability. This, in turn, attracts additional capital both from within and abroad. The international securities markets are becoming ever m

International investment offers potential for higher return but at the same time bears additional risk than investing in domestic securities. The risk associated with international investing are described below: Political Risk Investors in developed countries have to be aware of potential political risk. The political risk arises from an unstable government. In the country of investment. Many parts of the world are ongoing immense changes, including the Middle East, parts of Asia, and Latin America. Some countries within these regions are not only new to capitalism but also new to democracy and the rights of workers as well as investors. An emerging nation might be a safe and stable place to invest until a new regime is voted into power. Practically overnight, a nation can change from a conducive place for outside investors to a destabilized country. Investors also bear the risk of civil unrest and war, which can greatly affect the value of their investments. Political instability

Before exploring the relationship between investment and the economic environment, we first present the different phases of economic environment. Economy is never stable; it passes through different phases. These different phases are known as recovery, expansion, decline and recession . Recovery is the phase in business cycle following a recession. The economy takes growth path in recovery. An expansion follows recovery and economic activity rises substantially in this phase. The expansion hits a point known as peak and takes a downturn. Now, the economic activities slow down. This phase is known as decline. The decline phase extends and economic activities slow down further. This phase is known as recession. The economy is in growth path during recovery and expansion and in decline path during decline and recession phases. Between these two paths there is no change in direction. The expansion hits the peak and changes the direction to decline and the recession dips to trough

Ethics refers to moral principles that control or influence a person’s behaviors. In abstract terms, ethics are described as the fragrance of wisdom. In practical terms, ethics are moral rules people apply in making decisions. Individual ethics are determined by family and peer influences, experiences, personal values and morals, and situational factors. Though ethics is a personal issue and is determined by a host of factors, we expect an individual’s ethical behavior to confirm generally accepted social norms. Ethical investment or socially responsible investment is broadly defined as “The integration of personal values, social considerations, and economic factors influencing the investment decisions. Financial returns remain an important outcome but it is not the sole criterion driving investments; ethical concerns are also included (Michelson, G, et al). It is said, “There is nothing wrong with making money but it’s how you make the money that counts” (Murray, L.).

Meaning of Investment Vehicle Investment vehicles refer to the investment alternatives in which investors can invest their funds. They differ in terms of cost, risk, return, maturity, and tax considerations. At this stage, it is useful to understand the fundamentals of investment alternatives so that we can make the proper choices. These alternatives may be classified into many ways such as: Short-term Vehicles Common stock Fixed-income securities Mutual Funds Derivative securities Others Short-term Vehicles Short-term vehicles are of less than one-year maturity. They are highly liquid and less risky, therefore, they yield a low return. Treasury bills, commercial papers, bankers’ acceptance, negotiable certificates of deposits, etc., are examples of short-term vehicles. Common Stock Common stock is an ownership securities. It means the investors of common stock becomes the owner of the company. Each share of common stock represents a fractional ownership interest i

  Meaning of Mutual Fund A mutual fund is also called an open-ended investment company. It stands ready at all times to purchase its own share and issue new shares to investors. Since capitalization of a mutual fund is open, the number of shares outstanding changes frequently. There are two methods of selling mutual fund shares: direct marketing and the use of salesforce . With direct marketing, mutual funds sell shares directly to investors without the use of a sales organization. In such a situation, the open-end companies, known as no-load funds, sell their shares at a price equal to their net asset value. Another method of selling shares involves the use of a sales force that is paid a commission based on the number of shares it sells. This sales force often involves brokers, financial planners, and employees of Insurance Companies. Advantages of Mutual Fund The popularity of mutual funds is increasing day by day because it provides important advantages to investors. T

  Think of some activities such as buying stock of Nepal Bank Ltd, bond issued by the government, or a piece of land in your town. These activities, which are examples of investment, have some common characteristics: you need money to get the assets now, you do so in an expectation of returns in future, and you bear risk when you buy these assets. Based on common characteristic of investments, we may define investment  as commitment of current resources in the expectation of deriving greater resources  in the future. In other words, it is the sacrifice of certain present value for ( possibly uncertain) future value. Investments is made broadly into two types of assets: Real assets and Financial Assets. Real assets possess productivity capacity, hence are used to produce goods and services. Examples of real assets are property, land, building, human capital, plants, equipment, etc., Financial assets represent claim on income and other assets and define the allocation of wealth or

BROKER MARKET and DEALER MARKET On the basis of the way the securities are traded in secondary market, they are classified into two segments called broker market and dealer market. The broker market consists of organized securities exchanges and dealer markets consist of the OTC market. These two markets are different in terms of techniques of executing trades. In a broker market, the buyer and seller of the securities are brought together through a broker. In other words, the buyers buy the securities from the seller through the broker and the sellers sell the securities to the buyers through the broker. Thus, the securities change the hands effectively in the broker market with the help of brokers. However, in the dealer markets, the orders of buyers and sellers are never brought together. Instead, the sellers sell their securities to securities dealers and the buyers buys their securities from the same dealer or different ones. Thus, one side of transactions in dealer market al

  The general market conditions in a security market can be classified as a bull market and a bear market. Bull and bear markets are the terms used to describe how stocks are doing in general, that is, whether they are appreciating or depreciating in value. At the same time, because the market is determined by investors' attitudes, these terms also denote how investors feel about the market and ensuing trends. They are described below: Bull Market A market condition is said to be a bull market when securities prices are rising. It refers to the market that is on the rise. The bull market condition implies that investors are confident in the market. The market confidence is reflected in terms of increasing prices and rising market indices. In a bull market, the number of shares traded is also high and even the number of companies entering the stock market shows that the market is confident. Besides, the bull market condition also represents that investors are optimistic abo

  Before making a public offering of securities, the issuing corporation must obtain approval from the annual general meeting (AGM) of shareholders. It must also certify the legitimacy of the financial disclosure of the corporation from the auditor. The public offering of securities involves the following processes in Nepal: Preliminary Decision The firm itself makes some preliminary decisions concerning public issues of securities. These decisions involve the rupee amount of new capital to be raised and types of securities to be issued. The firm can issue shares of common stock, debentures, bonds, or some combinations of these securities. The issuing firm also should decide the way by which it deals with the investment bankers. The firm can offer a block to its securities for sale to the highest bidder, or it can negotiate a deal with an investment banker. These two procedures are called competitive bids and negotiated deals. Selection of Issue Manager An issue ma