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Siddharth_kaushik
Frankbanker    Intern   Exp: Fresher   Enthusiast
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WHAT MAKES UP FOREX RESERVES OF INDIA

Foreign currency reserves, often known as forex reserves, are assets held by the Reserve Bank of India (RBI) to fund imports and defend against external shocks. The reserves are built up over time, with fluctuations caused by the RBI’s market ...Read more

Foreign currency reserves, often known as forex reserves, are assets held by the Reserve Bank of India (RBI) to fund imports and defend against external shocks. The reserves are built up over time, with fluctuations caused by the RBI’s market activities.

According to the Reserve Bank of India, India’s total Forex reserves are around US$604.003 billion on week ended April 8th, 2022, with the Foreign Currency Assets (FCA) component at around US$537.645 billion, Gold Reserves at around US$42.519 billion, SDRs at around US$18.738 billion, and Reserve Position in the IMF at around US$5.101 billion, as per Reserve Bank of India’s (RBI).

Foreign currency assets, gold, special drawing rights (SDRs), and the International Monetary Fund’s (IMF) reserve position are the four components of Forex reserves.

  • FOREIGN CURRENCY ASSETS [ FCA ]

FCA is the greatest component of the FX reserve. FCAs are assets that are valued in a currency other than the country’s native currency. Foreign currency assets represented in US dollars include the effect of non-US currency appreciation/depreciation (such as Euro, Sterling, and Yen) held in reserves.

  • SPECIAL DRAWING RIGHTS [ SDR’S ]

The SDR is an international reserve asset established by the IMF in 1969 to augment the official reserves of its member countries. The SDR’s value is computed using a weighted basket of major currencies, including the US dollar, euro, Japanese yen, Chinese Yuan, and British pound.

  • INTERNATIONAL MONETARY FUND’S (IMF)

A reserve tranche position signifies a portion of the necessary quota of currency that each member country must give to the International Monetary Fund (IMF) that can be used for its own purposes. The reserve tranche is essentially an emergency account that IMF members can access at any moment without having to agree to any restrictions or pay a service charge.

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Poojitha Gondesi
IMT Hyderabad    Student   Exp: Fresher   Enthusiast
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What is the difference between short selling and put options?

Short selling is restricted in India as in many countries in the world, while retail investors have no such obligations. Short selling is when you sell a security that you don’t own but have borrowed from the market. Traders use ...Read more

Short selling is restricted in India as in many countries in the world, while retail investors have no such obligations. Short selling is when you sell a security that you don’t own but have borrowed from the market. Traders use it when they believe a stock, currency, or other asset will have considerable negative movement in the future. Put options are a different approach to take a bearish position on stocks or indices. When you purchase a put option, you are purchasing the right to sell underlying assets at the option’s specified price. You are under no obligation to buy the asset backed by the put.

With short selling the maximum loss can be up to any extent the price of the stock goes to whereas in the case of put option, the maximum loss will be the price paid for the put.

Suppose let’s take the example of Tata power which has its current price 273.10 INR.

In case we buy a put option for 100 stocks, expecting the strike price to drop to Rs.260 and instead the price rises to Rs.280 the maximum loss will be Premium price of let’s say Rs.50. So total loss is Rs.50 In case of short selling, we have to bear the loss of increase i.e., 7*100= 700Rs

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Rishav Gupta
FrankBanker    Research Associate   Exp: Fresher   Enthusiast
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It can be a good initiative or good move by RBI to launch UPI on feature phone because it will not just give UPI access to the people who wasn’t having smartphone but can also reduce the Frauds happening in ...Read more

It can be a good initiative or good move by RBI to launch UPI on feature phone because it will not just give UPI access to the people who wasn’t having smartphone but can also reduce the Frauds happening in the Internet world as this service doesn’t need internet too.

However, the service was found to be cumbersome, not free & also not supported by all telcons as per the deputy governor T Rabi Sankar statement.

Therefore, it can create a problem for the feature phone user because most of the users of feature phone belongs to lower class & lower middle class. Those people won’t get easily familiar or use to these technology & they also don’t want to pay any fee to transfer money, so that can be a challenge for the RBI.

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Poojitha Gondesi
IMT Hyderabad    Student   Exp: Fresher   Enthusiast
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Is arbitrage allowed in India?

Yes, stock exchanges, commodities, and currencies may all engage in arbitrage. It provides the trader with the potential to make money without danger. Take for example, reliance. The current share price stands at 2552.45 and 2551.65 for BSE and NSE ...Read more

Yes, stock exchanges, commodities, and currencies may all engage in arbitrage. It provides the trader with the potential to make money without danger. Take for example, reliance. The current share price stands at 2552.45 and 2551.65 for BSE and NSE respectively. A trader may make a 0.03% profit on each share by buying shares on NSE and selling on BSE. Commodities and currencies can be traded in a similar fashion. In currency arbitrage, there is term called Triangular arbitrage which represents the exchange of a currency for a second, then a third, and finally back to the original currency in a short period of time.

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Khushi Dubey
FrankBanker    Intern   Exp: Fresher   Enthusiast
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A company’s beta is a measure of the volatility, or systematic risk, of a security, as it compares to the broader market. The beta of a company measures how the company’s equity market value changes with changes in the overall market. It is used ...Read more

A company’s beta is a measure of the volatility, or systematic risk, of a security, as it compares to the broader market. The beta of a company measures how the company’s equity market value changes with changes in the overall market. It is used in the capital asset pricing model (CAPM) to estimate the return of an asset.

Investors use different methods for calculating the beta of a public company versus a private company. In this article, we discuss the different approaches you can use to calculate a company’s beta.

Beta as an Indicator

Beta, specifically, is the slope coefficient obtained through regression analysis of the stock return against the market return. You can use the following regression equation to estimate the beta of the company:

ΔSi​=α+βi​×ΔM+e

where: ΔSi​=change in price of stock i

α=intercept value of the regression

βi=beta of the i stock return

ΔM=change in the market price

e=residual error term​

Calculating Beta From Comparable Public Companies

In this approach, we first need to find the average beta of the publicly traded companies that generate income from similar operations as the private company. This will be a proxy for the industry average levered beta. Second, we need to unlever the average beta using the average debt-to-equity (D/E) ratio for these comparable companies. The final step is to re-lever beta, using the private company’s target debt-to-equity ratio.

Earnings Beta Approach

Usually, listed companies are large companies that operate in more than one segment. Therefore, it may be problematic to find a comparable firm whose beta would adequately represent the business beta of the private company being valued. For instance, Apple Inc. (AAPL) has a diverse set of operations, including personal computers, smartphones, tablets, and other items. This company would likely be poorly comparable to a private company that has a single operation, such as smartphone production.

When it is difficult to obtain reliable comparable beta, a company’s earnings beta can be used as a proxy for the levered beta. In this method, the company’s historical earnings changes are regressed against the market returns. An appropriate market index can be used as a proxy for the market. For instance, if the company is operating in the U.S. market, the S&P 500 can be used as a proxy.

The Bottom Line

The valuation of private companies using CAPM can be problematic because there is no straightforward method for estimating equity beta. To estimate the beta of a private company, there are two primary approaches.

One approach is to obtain a comparable levered beta from an industry average or from a comparable company (or companies) that best mimics the current business of the private company, unlever this beta, and then find the levered beta for the private company using the company’s target debt-to-equity ratio. Alternatively, one can find the beta of the company’s earnings and use it as a proxy for the company after appropriate adjustments are made.

 

 

 

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