ASSIGNMENT

FINANCIAL MARKET
MBA 3RD SECTION ‘C’
(HR+FINANCE)

SUBMITTED TO: - SUBMITTED BY: -

INTEKHAB KHAN ATUL KUMAR (MBAN1MG22208)

 IPO through Stock Exchange Online System

Definition: An Initial Public Offering (IPO) is a process by which a private company

becomes publicly traded by issuing shares to the general public for the first time. The IPO
process can be facilitated through a stock exchange's online system, allowing for electronic
trading of newly issued securities.

how it works:

o Company Preparation: Before going public, a company prepares by meeting

regulatory requirements, financial disclosures, and appointing underwriters
(investment banks) to manage the IPO process.

o Filing Prospectus: The company files a prospectus with the relevant

regulatory authorities, providing detailed information about the company, its
financials, risks, and the offering.

o Underwriting: Investment banks assess the company's value and help

determine the IPO price. They purchase shares from the company at a
negotiated price and then sell these shares to investors in the primary market.

o Online Auction: Some IPOs use an online auction system where individual
investors can directly bid for shares, while others allocate shares to
institutional investors through a book-building process.

o Listing: Once shares are allocated and the IPO is completed, the company's
shares are listed on a stock exchange, and trading begins on the secondary
market.

Key Characteristics:

1. Capital Raising: The primary purpose of an IPO is to raise capital for the issuing
company. By going public, the company can access a broader pool of investors and
raise funds to support its growth, expansion, and various corporate initiatives.
2. Regulatory Requirements: Issuers must comply with regulatory requirements and
disclose extensive information about their financial health, operations, risks, and
management in a prospectus. This document is scrutinized by regulatory authorities
before the IPO can proceed.
3. Underwriting: Investment banks often play a crucial role in the IPO process. They
help the company determine the offering price, market the securities to potential
investors, and may agree to purchase shares from the issuer and resell them to the
public.
4. Online Auctions: In some IPOs, especially in modern markets, companies may use
online auction systems. This allows individual investors to directly participate in the
allocation of shares alongside institutional investors.
5. Market Listing: Once the IPO is completed and the shares are issued to investors, the
company's shares are listed on a stock exchange. Investors can then trade these shares
in the secondary market.
6. Price Volatility: IPOs can be subject to significant price volatility during their initial
trading days, as market demand and supply dynamics are established.
 PROSPECTUS

A prospectus is a legal document provided to potential investors by a company or issuer that

offers securities (e.g., stocks or bonds). It contains essential information about the issuer and
the securities being offered. There are two main types of prospectuses:

Preliminary Prospectus: Also known as a red herring prospectus, this is the initial document
filed with regulatory authorities before an IPO. It provides detailed information about the
offering but may lack certain final details.

Key Characteristics:

1. Advanced Disclosure: The preliminary prospectus includes extensive information

about the issuing company, its financial statements, management team, business
operations, and the terms of the securities being offered. This disclosure allows
potential investors to evaluate the offering and make informed decisions.
2. Lack of Final Details: The term "red herring" serves as a cautionary notice to
investors that certain details of the offering are not finalized. For example, the
offering price and the number of shares to be sold may not be determined at this stage.
3. Regulatory Filing: Companies looking to go public or issue securities must file the
preliminary prospectus with the relevant regulatory authorities, such as the U.S.
Securities and Exchange Commission (SEC) in the United States. Regulatory
agencies review the document to ensure compliance with securities laws and
regulations.
4. Investor Education: The preliminary prospectus helps educate potential investors
about the company and the offering, allowing them to assess the risks and rewards
associated with investing in the securities.
5. Marketing and Roadshows: The red herring prospectus is often used in the
marketing and promotion of the offering. It is distributed to potential investors and
used during presentations and roadshows to generate interest in the securities.
6. Final Prospectus: After regulatory approval and before the securities are offered to
the public, the preliminary prospectus is updated to include all final details of the
offering. This updated document is known as the final prospectus and contains the
exact offering price and the total number of shares to be sold.
 7. Investor Orders: Investors who are interested in participating in the offering can
submit conditional orders based on the preliminary prospectus. These orders are not
finalized until the final prospectus is available and the terms are confirmed.
8. Timing: The red herring prospectus is typically made available to potential investors
before the roadshow and marketing efforts begin. It serves as a starting point for
investor due diligence.
9. Risk Factors: The preliminary prospectus includes a section on risk factors,
highlighting potential risks associated with the company and the offering. This
information is crucial for investors to assess the level of risk they are taking.

Final Prospectus: After regulatory approval and before the securities are offered to the
public, the preliminary prospectus is updated to include all final terms and details of the
offering. It is then distributed to potential investors.

Key Characteristics:

1. Comprehensive Disclosure: The final prospectus contains comprehensive

information about the issuing company, its financial condition, management team,
business operations, and the terms of the securities being offered. It offers a detailed
view of the company's operations and financial health.
2. Finalized Offering Terms: Unlike the preliminary prospectus, the final prospectus
includes all final details of the offering. This information includes the exact offering
price per share, the total number of shares to be sold, and other terms and conditions
of the offering.
3. Regulatory Approval: Before being distributed to potential investors, the final
prospectus undergoes a thorough review and approval process by the relevant
regulatory authorities, such as the U.S. Securities and Exchange Commission (SEC)
in the United States. Regulatory agencies ensure compliance with securities laws and
regulations.
4. Investor Education: The final prospectus serves as an educational tool for potential
investors. It provides them with in-depth insights into the company's financials,
operations, and risks, allowing them to make informed investment decisions.
5. Marketing and Distribution: The final prospectus is an integral part of the
marketing and distribution efforts for the offering. It is used in roadshows,
 presentations, and meetings with potential investors to generate interest in the
securities.
6. Legal Document: The final prospectus is a legally binding document, and its contents
must be accurate and complete. It includes statements and certifications from the
company's management, underwriters, and legal counsel attesting to the accuracy of
the information presented.
7. Investor Orders: Once the final prospectus is available, investors who expressed
interest in participating in the offering based on the preliminary prospectus can
finalize their orders. These orders are based on the finalized terms provided in the
final prospectus.
8. Due Diligence: Investors are encouraged to conduct due diligence by carefully
reviewing the final prospectus to understand the risks and rewards associated with the
securities being offered. The prospectus contains a section on risk factors that outlines
potential risks.
9. Timing: The final prospectus is typically made available to potential investors shortly
before the securities are offered to the public. Investors have a window of time to
review the document before participating in the offering.
10. Regulatory Filings: After the offering is complete, the final prospectus, along with
other required filings, is maintained as a historical record by regulatory authorities
and the issuing company.
 MONEY MARKET

The money market is a segment of the financial market where short-term debt securities are
bought and sold. It primarily deals with instruments that have maturities of one year or less.
The money market plays a crucial role in the overall financial system and serves various
purposes for different participants. Here are key characteristics and components of the money
market:

1. Short-Term Instruments: Money market instruments have relatively short maturities,

typically ranging from overnight to one year. They are considered highly liquid and low-risk
due to their short duration.

2. Low Risk: Money market instruments are generally considered low-risk investments
because they are typically issued by entities with strong creditworthiness, such as
governments, financial institutions, and highly rated corporations.

3. High Liquidity: Liquidity is a hallmark of the money market. Investors can easily buy or
sell money market instruments at their prevailing market prices, often with minimal
transaction costs.

4. Predominantly Wholesale Market: While individual investors can participate in the

money market, it is primarily a wholesale market where financial institutions, corporations,
and governments engage in short-term borrowing and lending activities.

5. Market Participants: Key participants in the money market include banks, central banks,
financial institutions, corporations, government entities, money market mutual funds, and
individual investors.

6. Types of Money Market Instruments: Money market instruments include Treasury bills
(T-bills), certificates of deposit (CDs), commercial paper, repurchase agreements (repos),
federal funds, banker's acceptances, and short-term municipal securities.
7. Role of Central Banks: Central banks, such as the Federal Reserve in the United States,
play a significant role in the money market. They set short-term interest rates, conduct open
market operations, and influence the money supply to implement monetary policy.

8. Investment and Hedging: - Market participants use the money market for various
purposes, including short-term investment of excess cash, funding operational needs,
managing liquidity, and hedging interest rate risk.

9. Discounted Instruments: Treasury bills (T-bills) and some other money market
instruments are sold at a discount to their face value. Investors receive the face value at
maturity, and the difference represents the interest earned.

10. Regulatory Oversight: - Money market activities are subject to regulatory oversight to
ensure transparency, fairness, and the stability of the market. Regulatory authorities establish
rules and regulations governing money market instruments.

11. Market Rates: - Money market rates, such as the federal funds rate in the United States,
serve as benchmarks for short-term interest rates and have a significant impact on overall
interest rate levels in the economy.

12. Risk Factors: - While money market instruments are generally low-risk, they are not
entirely risk-free. Risks can arise from issuer defaults, interest rate fluctuations, and changes
in market conditions.

13. Short-Term Financing: - Corporations and financial institutions often use the money
market to secure short-term financing to meet working capital needs, fund operations, or
bridge temporary cash flow gaps.

14. Market Operations: - Money market transactions can occur in both primary and
secondary markets. The primary market involves the issuance of new instruments, while the
secondary market involves the trading of existing money market instruments.

Main Players of Money Market:

The money market consists of several key players:

o Banks: Banks are central players in the money market. They lend and borrow
funds in the interbank market, trade money market instruments, and provide
short-term financing to businesses and individuals.

o Central Banks: Central banks play a significant role by setting short-term

interest rates, conducting open market operations, and regulating the money
supply to control monetary policy.

o Financial Institutions: These institutions, including commercial banks,

investment banks, and finance companies, actively participate in the money
market to manage their short-term liquidity needs.

o Corporations: Large corporations often invest their excess cash in money

market instruments like commercial paper and certificates of deposit to earn a
return on their idle funds.

o Government Entities: Governments and government-sponsored agencies

issue Treasury bills and other short-term securities in the money market to
finance their operations and manage liquidity.
 International Credit Agencies

International credit rating agencies are organizations that assess the creditworthiness of
governments, corporations, and other entities by assigning credit ratings. These ratings
provide investors and creditors with insights into the risk associated with lending money or
investing in the debt securities of these entities. Here are some well-known international
credit rating agencies:

1. Standard & Poor's (S&P):

Description: Standard & Poor's is one of the most prominent and widely recognized credit
rating agencies in the world. It provides credit ratings, research, and analysis on a wide range
of entities, including governments, municipalities, corporations, and structured finance
products.

Key Characteristics: S&P uses letter grades, such as AAA, AA, A, BBB, etc., to indicate
credit quality, with AAA being the highest rating. Its ratings and research reports influence
investment decisions and credit risk assessments globally.

2. Moody's Investors Service:

Description: Moody's is another major credit rating agency that assesses the creditworthiness
of governments, municipalities, and corporations. It is known for its credit ratings and
research reports on various issuers and debt instruments.

Key Characteristics: Moody's credit ratings use letter grades as well, with Aaa, Aa, A, Baa,
etc., representing different credit levels. Its ratings help investors gauge credit risk and make
informed investment decisions.

3. Fitch Ratings:

Description: Fitch Ratings is a global credit rating agency that evaluates the creditworthiness
of entities and their debt securities. It provides credit ratings, research, and analysis to assist
investors and creditors.
Key Characteristics: Fitch's credit ratings also utilize letter grades, including AAA, AA, A,
BBB, etc. It assesses a wide range of issuers and financial products, contributing to the
assessment of credit risk in the financial markets.

4. DBRS Morningstar:

Description: DBRS Morningstar is a credit rating agency that provides credit ratings and
research on a variety of issuers and structured finance products. It is known for its expertise
in rating mortgage-backed securities and other structured financial instruments.

Key Characteristics: DBRS Morningstar's credit ratings are represented by letter grades,
with AAA as the highest rating. It offers insights into the creditworthiness of entities and
helps investors understand risk.

5. Japan Credit Rating Agency (JCR):

Description: JCR is a credit rating agency based in Japan. It provides credit ratings and
research on Japanese issuers, including corporations and government entities.

Key Characteristics: JCR's credit ratings are used primarily in the Japanese market, and it
assesses credit risk for a range of Japanese entities and financial instruments.

6. China Chengxin International Credit Rating (CCXI):

Description: CCXI is a credit rating agency based in China. It specializes in providing credit
ratings and research on Chinese issuers, including corporations and financial institutions.

Key Characteristics: CCXI plays a significant role in the Chinese credit markets, offering
insights into the creditworthiness of Chinese entities and helping international investors
assess risk in the Chinese market.
 Mutual funds

A mutual fund is an investment vehicle that pools money from multiple investors and uses
that pool of funds to purchase a diversified portfolio of stocks, bonds, or other securities.
Mutual funds are managed by professional portfolio managers or investment teams who make
investment decisions on behalf of the fund's shareholders.

key characteristics that make them attractive to a wide range of investors:

1. Diversification: Mutual funds provide diversification benefits by holding a variety of

securities within their portfolios. This diversification helps spread risk because if one
investment performs poorly, it may be offset by better-performing investments in the
fund.

2. Professional Management: Mutual funds are managed by professional portfolio

managers or investment teams. These experts make investment decisions, conduct
research, and actively manage the fund's assets in line with its stated investment
objectives.

3. Liquidity: Mutual funds are typically highly liquid investments. Investors can buy or
sell fund shares on any business day at the net asset value (NAV) price, which is
calculated at the end of each trading day.

4. Affordability: Mutual funds allow investors to participate in a diversified portfolio of

securities with relatively low investment amounts. This makes them accessible to both
small and large investors.

5. Transparency: Mutual funds provide regular updates and reports to investors.

Investors can easily access information about the fund's holdings, performance,
expenses, and distribution of income and capital gains.

6. Professional Research and Analysis: Mutual fund managers have access to

extensive research and analysis resources. They use this information to make
informed investment decisions and select securities for the fund's portfolio.

7. Variety of Investment Options: Mutual funds come in various types and categories,
catering to different investment goals and risk tolerance levels. These categories
include equity funds, bond funds, money market funds, and hybrid funds.
 8. Dividend and Interest Income: Many mutual funds generate income for investors in
the form of dividends from stocks and interest payments from bonds held in the
portfolio. This income is typically distributed to shareholders regularly.

9. Automatic Reinvestment: Mutual funds often offer the option to automatically

reinvest dividends and capital gains back into the fund, allowing for the compounding
of returns over time.

10. Regulation and Oversight: Mutual funds are subject to regulatory oversight to
protect investors. Regulatory authorities require funds to follow specific rules and
disclose information in a standardized manner.

11. Risk and Return Options: Investors can choose from a wide range of mutual funds
with varying risk profiles and expected returns. Some funds aim for capital
appreciation with higher risk, while others focus on income generation with lower
risk.

12. Tax Efficiency: Mutual funds can offer tax advantages, such as tax-deferred growth
in retirement accounts or potential capital gains tax benefits when selling shares.

13. Professional Asset Allocation: In the case of balanced or target-date funds,

professional asset allocation is designed to match an investor's risk tolerance and
investment horizon, simplifying the investment process.

14. Reinvestment Options: Mutual funds often offer systematic investment plans (SIPs)
and systematic withdrawal plans (SWPs), allowing investors to contribute or
withdraw money at regular intervals.

Drawbacks of Mutual Funds:

While mutual funds offer diversification and professional management, they have some
drawbacks:

o Fees and Expenses: Many mutual funds charge management fees, sales loads,
and other expenses that can eat into returns over time.
 o Lack of Control: Investors have limited control over the specific securities
held in the fund's portfolio.

o Tax Inefficiency: Mutual funds can generate taxable capital gains, which
investors must pay taxes on, even if they didn't sell their shares.

o Lack of Personalization: Mutual funds have predefined investment strategies

that may not align with an individual's specific financial goals or risk
tolerance.

o Market Risk: Mutual funds are subject to market fluctuations, and investors
can experience losses, especially in bear markets.

o Redemption Fees: Some mutual funds charge redemption fees if investors

sell their shares shortly after purchasing them, discouraging short-term
trading.

Investors should carefully consider these drawbacks and assess whether mutual funds align
with their investment objectives and risk tolerance.