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June 30, 2013

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Term of the Week :

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story : Quantitative Easing Is Not

'Printing Money'

EDITORIAL

Dear Readers,

Greetings from Team FinNiche!!!

Finally, after a brief hiatus due to summer internships we are happy to announce that FinXpress is back

and ready to serve all its dedicated readers with some insightful articles. We would like to welcome our

juniors from the 2013-15 batch and wish them all the best over the next two years. Not to forget the

seniors who are back as well after a period of 2 months giving their best for their summer internships.

In this edition of FinXpress, we have Ernst & Young as the ‘Company in Focus’. The ‘Term of the Week’

would help to increase your knowledge about ‘Syndicated Loan. Apart from this, we will see the Indian

stocks rising in the ‘Markets This Week’ section. The special page will talk about the “Quantitative Easing

is not Printing Money”.

We hope that you find the content engaging and informative. As always we welcome your valuable

feedback and suggestions for improvement that can enhance this publication.

This Year we are looking forward to an enthusiastic response to the open houses of various clubs and

committees and wish all the juniors the very best in their selection processes for the same.

Till then, “Enjoy Reading”!

Yours Sincerely

The Editorial Board

FinXpress

June 30, 2013 PAGE 1 http://www.imtgfinxpress.co.cc

COMPANY IN FOCUS

June 30, 2013 PAGE 2 http://www.imtgfinxpress.co.cc

Ernst & Young

Ernst & Young at a glance Global headquarters: London Global Chairman and CEO: James S. Turley. Number of people globally: 167,000 (as of 30 June 2012). Global revenues: US$24.4 billion (Financial Year 12, ending 30 June 2012). Geographic Areas: Americas; Europe, Middle East, India and Africa; Far East; Japan; Oceania. Offices: 709 in 140 countries. Service lines: Assurance and Advisory Business Services, Tax, Transaction Advisory Services. Founded: 1989 through the merger of Ernst & Whinney and Arthur Young & Co. Oldest component from 1849. Ernst & Young in India at a glance Country headquarters: Gurgaon Country Managing Partner: Rajiv Memani Number of people: Over 6700 people across locations including personnel from other member firms of Ernst & Young Global in India Locations in India: Gurgaon, Delhi, Mumbai, Bangalore, Kolkata, Hyderabad, Chennai, Ahmedabad and Pune Ernst & Young (EY) is one of the largest professional service firms in the world and one of the "Big Four" accounting firms, along with Deloitte, KPMG and PricewaterhouseCoopers (PwC). Ernst & Young is a global organization of member firms with 167,000 employees in more than 140 countries, headquartered in London, England. It was ranked by Forbes magazine as the eighth-largest private company in the United States in 2012. Ernst & Young is the result of a series of mergers of ancestor organizations. In 1903, the firm of Ernst & Ernst was established in Cleveland by Alwin C. Ernst and his brother Theodore and in 1906 Arthur Young & Co. was set up by the Scotsman Arthur Young in Chicago. In 1989, the number four firm Ernst & Whinney merged with the then number five, Arthur Young, on a global basis to create Ernst & Young. EY is the most globally managed of the Big Four firms. EY Global sets global standards and oversees global policy and consistency of service, with client work being performed by its member firms. Each EY member country is organized as part of one of four areas. This is different from other professional services networks which are more centrally managed. The four areas are:

EMEIA: Europe, Middle East, India and Africa

Americas

Asia-Pacific

Japan

Each area has an identical business structure and one management team that is led by an Area Managing Partner is part of the Global Executive board. The aim of this structure is to effectively cater for an increasingly global clientele, who have multinational interests.

EY has four main service lines and share of revenues in 2012:

Assurance Services (46%): comprises Financial Audit (core assurance), Financial Accounting Advisory Services, Fraud Investigation & Dispute Services, and Climate Change & Sustainability Services.

Tax Services (26%): includes Business Tax Compliance, Human Capital, Customs, Indirect Tax, International Tax Services, Tax Accounting & Risk Advisory Services, Transaction Tax.

Advisory Services (19%): consisting of four subservice lines: Actuarial, IT Risk and Assurance, Risk, and Performance Improvement.

Transaction Advisory Services (TAS) (9%): deals with companies' capital agenda – preserving, optimizing, investing and raising capital.

EY has been always honoured by respected organizations that recognize its achievements. In 2012, Stonewall 2012 Workplace Equality Index (UK) recognized EY as Employer of the Year. Ernst & Young was ranked No. 1 in the Forbes Magazine's The Best Accounting Firms to Work For in 2012, claiming that EY treats its employees better than other big firms. It was ranked 57 overall. Teleos, based out of Hong Kong bestowed upon it Most Admired Knowledge Enterprise, 2010. It was awarded Accountancy Firm of the Year Award by CFO Awards 2009 (Australia). EY accolades in India include:

India’s tier-one tax firm for the 9th consecutive year – Euro money ITR, World Tax Guide 2011.

It has been ranked No 1 Financial Advisor in India by Bloomberg for nine consecutive years for most number of deals.

Most Active Transaction Advisor Award, PE and M&A for 2010 & 2009 - Venture Intelligence.

2009 Asia M&A Atlas Award for Asia-Pacific M&A Investment Bank of the Year and Asia-Pacific M&A Deal of the Year.

Financial Advisor of the Year M&A Award – India, in 2008 and 2009–by Financial Times & Merger market.

OpRisk and Compliance magazine consultancy rankings: Winner in a survey of over 300 risk and compliance professionals. Risk & business advisory relationship with 160 of the BSE300 companies.

Ernst & Young, a global leader in professional services, announces the opening of nominations for the Entrepreneur of the Year 2012 Program. In its 14th year in India, the program aims to ‘honour the engineers of growth’- the most exceptional entrepreneurs, who are laying the foundation of a new tomorrow with their vision, diligence and ingenuity. These also include entrepreneurs based in tier II & tier III cities, presenting them an opportunity to mark their presence on the national stage.

On 8 September 2011, Rio 2016 made the announcement that Ernst & Young will be a tier 2 official spon-sor of the XXXI Olympic Summer Games to be held in Brazil, as the exclusive provider of professional ser-vices – consulting and auditing – for Rio 2016 organizing committee. Ernst & Young also has a longstanding relationship with the 2011 Tour de France winner Cadel Evans.

June 30, 2013 PAGE 3 http://www.imtgfinxpress.co.cc

TERM OF THE WEEK :

Syndicated Loan

Syndicated loan is a commercial loan provided by a group of lenders and is arranged, and monitored by one or several commercial banks or investment banks known as arrangers. Two particular features characterize syndicated loans or syndicated credit. The transaction must involve more than one lender, and each lender has a separate, severable obligation as an underwriter of a portion of the total in its own right. Syndicated credit is governed by a common agreement and a single set of documentation. Syndicated loans can be both secured and unsecured, but are always senior debt. Leveraged syndicated loans are typically senior to all other debt in the borrower’s capital structure, while syndicated loans of investment grade firms are often at the same level of seniority as senior bonds. Thus, holders of syndicated loans have priority over the claims of most or all other creditors and must be repaid in full before the claims of debt holders below in seniority level are satisfied. Syndicated loans allow borrowers to access a larger pool of capital than any one single lender may be prepared to make available and they tend to allow the originating lender the opportunity to provide greater customization than with traditional bilateral relationship-based loans. One large syndicated loan is also simpler to arrange and more likely to be cheaper than borrowing the same amount from a number of lenders through traditional loan underwriting techniques in part because the lead lender may be able to pass on to the borrower savings from not having to incur full capital allocations for loans that are syndicated. Syndicated loans are majorly used:

to support a merger- or acquisition-related transaction,

to support a recapitalization of a company’s balance sheet,

to refinance debt,

To fund general corporate purposes or project finance. Types of syndications: Underwritten deal: An underwritten deal is one for which the arrangers guarantee the entire commitment, and then syndicate the loan. A contract between a group of investment bankers who form an underwriting group or syndicate, and the issuing corporation of a new securities issue is an underwritten deal. The under-writing agreement contains the details of the transaction, including the underwriting group's commitment to purchase the new securities issue, the price that the underwriting group will pay to the issuing corporation and the initial resale price. Underwritten loans usually require more lucrative fees because the agent is on the hook if potential lenders balk. Of course, with flex-language now common, underwriting a deal does not carry the same risk it once did when the pricing was set in stone prior to syndication. Best-efforts syndication A “best-efforts” syndication is one for which the arranger group commits to underwrite less than the entire amount of the loan, leaving the credit to the vicissitudes of the market. If the loan is undersubscribed, the credit may not close—or may need major surgery to clear the market. Traditionally, best-efforts syndications were used for risky borrowers or for complex transactions. Club deal A “club deal” is a smaller loan (usually $25 million to $100 million, but as high as $150 million) that is remarketed to a group of relationship lenders. The arranger is generally a first among equals and each lender gets a full cut, or nearly a full cut, of the fees.

June 30, 2013 PAGE 4 http://www.imtgfinxpress.co.cc

MARKET THIS WEEK

SENSEX

SENSEX rose by 2.75% from last week and ended at 19395.81 this week.

Simple Moving Averages

Returns – BSE Sensex

NIFTY

The NIFTY rose by 2.81% from last week and ended at 5842.20 this week.

30 Days 50 Days 150 Days 200 Days

19,422.57 19,535.93 19,400.33 19,199.11

YTD : -0.16% 1 Week 3.30% 1 Month: -3.80% 3 Months: 3.00%

6 Months: -0.30% 1 Year : 14.20% 2 Year : 4.90% 3 Year : 9.10%

June 30, 2013 PAGE 5 http://www.imtgfinxpress.co.cc

Simple Moving Averages

Returns – NSE Nifty

Overview: The BSE Sensex rose nearly 2 percent on Thursday to its highest in more than a week as energy firms such as Reliance Industries gained on expectations that the government would increase domestic prices of gas. Although the current account data on its own is unlikely to spark a rally in the near term, analysts said the hike helped ease some of the concerns after the Indian currency had touched a record low of 60.76 to the dollar. Trading was volatile due to the expiry of derivatives at the end of the session. On Friday, the focus returned to foreign investors, who have net sold 111.33 billion rupees within the week. The Indian government is looking to curb gold imports to improve the current account deficit that hit a record high in the October-December quarter.

30 Days 50 Days 150 Days 200 Days

5,878.88 5,924.04 5,879.34 5,821.36

YTD : -1.07% 1 Week 3.10% 1 Month: -4.40% 3 Months: 2.80%

6 Months: -1.10% 1 Year : 13.50% 2 Year : 5.40% 3 Year : 9.50%

Exchange Rates vs. INR

Currency Symbol Rates % Change

US Dollar $ 59.39 -1.29%

Euro € 77.45 -0.88%

Dirham AED 16.21 -0.82%

Japanese Yen ¥ 0.59 -2.14%

Chinese Yuan CNY 9.70 -1.16%

Commodities Unit Rs. / Unit % Change

Gold 10gms. 25665 0.26 %

Silver 1 Kg. 40172 -0.71%

Crude Oil 1 BBL 5758 -0.83%

June 30, 2013 PAGE 6 http://www.imtgfinxpress.co.cc

POLICY RATIOS

Bank Rate 8.75%

Repo Rate 7.25%

Reverse Repo rate 6.25%

Marginal Standing 8.75%

RESERVE RATIOS

CRR 4.00%

SLR 23.0%

LENDING DEPOSIT RATE

Base Rate 9.75%-10.50%

Savings Deposit Rate 4.00%

Term Deposit Rate 8.50%-9.00%

NEWS OF THE WEEK

Uttarakhand death toll may cross 10,000, says state assembly speaker Uttarakhand state assembly speaker Govind Singh Kunjwal on Saturday triggered a fresh controversy by stating that the number of the dead post-disaster could cross the 10,000 mark. The official figures projected by the state government, however, put the death count at 1,000. Kunjwal made this observation following the feedback he reportedly got during and after his visit to the rain-hit local areas. "No one can give the exact death count but after travelling to different disaster affected areas and information gathered from victims and other locals of the area I could say that death toll is around 10,000," said Kunjwal. This is the second time in the past 14 days of disaster hit areas of the state that Kunjwal has spoken on deaths toll. A week ago, he had claimed during his visit to the disaster hit areas that around 5,000 persons had died of rain fury in the state. According to the Congress sources, the speaker's statement, belying the official figures, may put the state government to embarrassment. PM targets 1.15 lakh crore investments in PPP projects in six months In a bid to perk up the log-jammed infrastructure sector, Prime Minister Manmohan Singh has set a target of awarding projects worth Rs 1.15 lakh crore in the public-private partnership model over the next six months. These include the Rs 30,000-crore Mumbai Elevated Rail Corridor, power and transmission projects worth 40,000 crore, two new airports worth Rs 20,000 crore, and a Rs 10,000-crore port project in either Andhra Pradesh or West Bengal. Singh set the targets at a review meeting with the six core ministries-coal, power, railways, roads, shipping and civil aviation-on Friday. Finance Minister P Chidambaram and Planning Commission deputy chairman Montek Singh Ahluwalia were also present at the meeting. "A lot of work still needs to be done and there should be no slackening of the pace of work," Singh said, highlighting the need to ramp up investment in infrastructure to revive investor sentiment. The prime minister has set up a steering group to monitor the award and implementation of infrastructure projects to be bid out on a fast-track basis this year. Utilise 51% before seeking higher FDI: Anand Sharma tells retailers Investors should first come at 51% and respect the government's decision to allow foreign direct investment (FDI) in multi-brand retail, commerce and industry minister Anand Sharma said on Friday, indicating that he was not yet keen on raising the limit. He was replying to a query if the government would consider increasing FDI limit for the multi-brand sector to 74% as suggested by a committee headed by the Department of Economic Affairs (DEA) secretary Arvind Mayaram. Finance minister has said the government would take up the reform of the FDI regime in the third week of July. Even after nine months of opening FDI in multi-brand retail, the government has not received any investment proposal from foreign retailers who have expressed reservations about the various conditions imposed by the government and may also be jittery about policy reversal should there be a regime change after the next elections. Fitch affirms US AAA rating but outlook still negative Fitch Ratings on Friday affirmed the United States' top level credit rating at AAA but held the outlook at negative, citing still elevated debt levels that leave it vulnerable to shocks unless more deficit reduction measures are adopted. The affirmation reflects strong economic and credit fundamentals, the firm said in a statement. Fitch said it will conduct a further review of the credit rating by the end of 2013. "The outlook remains negative due to continuing uncertainty over the prospect for additional deficit-reduction measures necessary to reduce government indebtedness over the medium to long term," Fitch said.

June 30, 2013 PAGE 7 http://www.imtgfinxpress.co.cc

Fitch also said the negative outlook reflects "near-term risks associated with the expiration of federal appropriations authority at the end of the current fiscal year (30 September 2013) and in particular a timely increase in the debt limit." On June 10, rival Standard & Poor's, which cut the US credit rating to AA-plus from AAA in August 2011, revised its outlook on the credit to stable from negative, removing the near-term threat of a downgrade because of an improving economic and fiscal outlook. China banking system 'stable' despite fund squeeze China's bank regulator said today that a recent liquidity squeeze would not hurt the stability of the banking system, in the latest government effort to soothe concerns over the funding shortage. For three weeks, funds have been in short supply on China's interbank market, and the interest rates banks charge to lend to each other have surged to record highs. Head of the China Banking Regulatory Commission, Shang Fulin, said the overall banking system had adequate liquidity, echoing comments by the central bank earlier in the week. "These days the issue with tight liquidity in the interbank market has started to ease," Shang told a financial forum in Shanghai. "This situation will not affect the overall pattern of stable operations in the domestic banking sector," he said, adding domestic financial institutions had excess reserves of 1.5 trillion yuan (USD 244 billion) yesterday. China's central bank chief Zhou Xiaochuan, speaking a day earlier, offered assurances that the People's Bank of China would use multiple tools to "ensure the overall stability of the market". There are worries tight liquidity among banks could prompt them to tighten lending, which threatens to carry over into the real economy. Banks should have separate wealth management unit: RBI The Reserve Bank of India (RBI) has proposed tough norms for banks involved in wealth and portfolio management services (W/PMS), mandating them to segregate sales and advisory activity, and threatened to bar them from money markets for violation of guidelines. It plans to put a blanket ban on the practice of bank staff earning incentives for selling third-party products, since it promoted mis-selling and encourages structuring transactions to help customers evade tax, and fraudulent transfer of funds. Cash transaction for third-party insurance and mutual fund investments will be capped at Rs 50,000 and the payment should be directly debited from the customers account and not with cheques from another bank. "Conflict of interest arises mainly from the juxtaposition of the marketing, distribution function and the advisory or funds management function,'' says the draft guidelines on wealth management. "To address the issue of conflict of interest arising from the single entity conducting both the activities of advisory, fund management as well as marketing, it is proposed to segregate the two functions.'' Government clears YES Bank's proposal to raise Rs 2,650 crore The government has cleared the proposal of private sector lender YES Bank to raise Rs 2,650 crore through qualified institutional placement (QIP) from overseas. The approval, given by the Cabinet Committee on Economic Affairs (CCEA), would result in foreign investment amounting to about Rs 2,650 crore being received in the country, Finance Minister P Chidambaram told reporters here today. YES Bank proposes to increase the foreign equity participation upto 60 per cent through a QIP of its equity shares to eligible non-resident investors. Qualified institutional placement is a capital raising tool for listed Indian companies. The proposal was cleared by the Foreign Investment Promotion Board (FIPB) in April, but since the investment was of more than Rs 1,200 crore, a CCEA nod was required which was given yesterday. Earlier, the bank had got its board approval to raise up to $500 million. YES Bank posted 33.2 per cent jump in net profit at Rs 362.15 crore for the fourth quarter ended March 31, 2013. Total income of the bank rose to Rs 2,667.03 crore in January-March quarter as compared to Rs 2,051.4 crore in the same period of previous fiscal.

June 30, 2013 PAGE 8 http://www.imtgfinxpress.co.cc

COVER STORY

Why has quantitative easing coexisted with price stability in the United States? Or, as I often hear, “Why

has the Federal Reserve’s printing of so much money not caused higher inflation?”

Inflation has certainly been very low. During the past five years, the consumer price index has increased at

an annual rate of just 1.5%. The Fed’s preferred measure of inflation – the price index for personal

consumption expenditures, excluding food and energy – also rose at a rate of just 1.5%.

By contrast, the Fed’s purchases of long-term bonds during this period have been unprecedentedly large.

The Fed bought more than $2 trillion of Treasury bonds and mortgage-backed securities, nearly ten times

the annual rate of bond purchases during the previous decade. In the last year alone, the stock of bonds

on the Fed’s balance sheet has risen more than 20%.

The historical record shows that rapid monetary growth does fuel high inflation. That was very clear

during Germany’s hyperinflation in the 1920’s and Latin America’s in the 1980’s. But even more moderate

shifts in America’s monetary growth rate have translated into corresponding shifts in the rate of inflation.

In the 1970’s, US money supply grew at an average annual rate of 9.6%, the highest rate in the previous

half-century; inflation averaged 7.4%, also a half-century high. In the 1990’s, annual monetary growth

averaged only 3.9%, and the average inflation rate was just 2.9%.

That is why the absence of any inflationary response to the Fed’s massive bond purchases in the past five

years seems so puzzling. But the puzzle disappears when we recognize that quantitative easing is not the

same thing as “printing money” or, more accurately, increasing the stock of money.

The stock of money that relates most closely to inflation consists primarily of the deposits that businesses

and households have at commercial banks. Traditionally, greater amounts of Fed bond buying have led to

faster growth of this money stock. But a fundamental change in the Fed’s rules in 2008 broke the link

between its bond buying and the subsequent size of the money stock. As a result, the Fed has bought a

massive amount of bonds without causing the stock of money – and thus the rate of inflation – to rise.

Quantitative Easing Is Not

'Printing Money'

June 30, 2013 PAGE 9 http://www.imtgfinxpress.co.cc

The link between bond purchases and the money stock depends on the role of commercial banks’ “excess

reserves.” When the Fed buys Treasury bonds or other assets like mortgage-backed securities, it creates

“reserves” for the commercial banks, which the banks deposit at the Fed itself.

Commercial banks are required to hold reserves equal to a share of their checkable deposits. Since

reserves in excess of the required amount did not earn any interest from the Fed before 2008, commercial

banks had an incentive to lend to households and businesses until the resulting growth of deposits used

up all of those excess reserves. Those increased deposits at commercial banks were, by definition, an

increase in the relevant stock of money.

An increase in bank loans allows households and businesses to increase their spending. That extra

spending means a higher level of nominal GDP (output at market prices). Some of the increase in nominal

GDP takes the form of higher real (inflation-adjusted) GDP, while the rest shows up as inflation. That is

how Fed bond purchases have historically increased the stock of money – and the rate of inflation.

The link between Fed bond purchases and the subsequent growth of the money stock changed after 2008,

because the Fed began to pay interest on excess reserves. The interest rate on these totally safe and liquid

deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits

to absorb the increased reserves, as they would have done before 2008.

As a result, the volume of excess reserves held at the Fed increased from less than $2 billion in 2008 to

$1.8 trillion now, effectively severing the link between Fed bond purchases and the resulting stock of

money. The size of the broad money stock (known as M2) grew at an average rate of just 1.5% a year from

the end of 2008 to the end of 2012.

So it is not surprising that inflation has remained so moderate – indeed, lower than in any decade since

the end of World War II. And it is also not surprising that quantitative easing has done so little to increase

nominal spending and real economic activity.

The absence of significant inflation in the past few years does not mean that it won’t rise in the future.

When businesses and households eventually increase their demand for loans, commercial banks that have

adequate capital can meet that demand with new lending without running into the limits that might

otherwise result from inadequate reserves. The resulting growth of spending by businesses and

households might be welcome at first, but it could soon become a source of unwanted inflation.

The Fed could, in principle, limit inflationary lending by raising the interest rate on excess reserves or by

using open-market operations to increase the short-term federal funds interest rate. But the Fed may

hesitate to act, or may act with insufficient force, owing to its dual mandate to focus on employment as

well as price stability.

That outcome is more likely if high rates of long-term unemployment and underemployment persist even

as the inflation rate rises. And that is why investors are right to worry that inflation could return, even if

the Fed’s massive bond purchases in recent years have not brought it about.

Source: Project Syndicate

June 30, 2013 PAGE 10 http://www.imtgfinxpress.co.cc

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CARTOONS:

FinQuiz Match the Following: L&T Finance Unit Trust of India

Vanguard 500 Fund Royal and Sunalliance Insurance

Wall Street Journal Fidelity India

US 64 scheme Warren Buffet

Sundaram Finance Charles Dow and Edward Jones

Oracle of Omaha John Bogle

June 30, 2013 PAGE 11 http://www.imtgfinxpress.co.cc