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SEPTEMBER 2 ,2012

Company In Focus

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Company in

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Term of t

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Mark

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News of t

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Cover Sto

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Fun Corner

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Term of the Week

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story : Debt to more debt

SEPTEMBER 2 ,2012

EDITORIAL

Dear Readers, Greetings from FinNiche! There is a sense of relief amongst the first year students after completing the first end terms of their two year jour-ney. As we all know that change is the only constant thing in this world, thus, there is a start of new semester from tomorrow, for those who want to make a fresh start, here is the opportunity. Team FinNiche thereby give its best wishes to all the students of IMT Ghaziabad for their second semester, especially for the OLT quizzes. In this edition of FinXpress, we have JP Morgan Chase in the “Company in Focus” section. In the “Term of the Week”, from concepts of Hedging we move on to Derivatives. We bring you “News of the Week” and “Markets this week” where the Sensex snapped its four-week gaining streak and tumbled to end at one month low due to fall in metal, realty, auto and banking counters on the back of weak global cues. In the “Cover Story” we have Debt to more Debt. We sincerely hope that the readers find our content engaging. We would appreciate feedback and suggestions for improvement. We hope to bring you more information in the future thus keeping you updated and adding to your knowledge base. Till then, “Enjoy Reading”! Yours Sincerely, The Editorial Board “FinXpress”

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SEPTEMBER 2 ,2012

COMPANY IN FOCUS

JP Morgan Chase & Co.

About JP Morgan Chase

JPMorgan Chase & Co. is an American multinational banking corporation of securities, investments and retail. It is the largest bank in the United States by assets. It is a major provider of financial services, with assets of $2 trillion and according to Forbes magazine is the world's second largest public company based on a composite ranking. The hedge fund unit of JPMorgan Chase is one of the largest hedge funds in the United States. It was formed in 2000, when Chase Manhattan Corporation merged with J.P. Morgan & Co. The J.P. Morgan brand is used by the investment banking as well as the asset management, private banking, private wealth management and treasury & securities services divisions. Fiduciary activity within private banking and private wealth management is done under the aegis of JPMorgan Chase Bank. The Chase brand is used for credit card services in the United States and Canada. JPMorgan Chase is one of the Big Four banks of the United States with Bank of America, Citigroup and Wells Fargo. According to Bloomberg, as of October 2011 JPMorgan Chase surpassed Bank of America as the largest U.S. bank by assets. Recent Acquisitions

In 2006, JPMorgan Chase purchased Collegiate Funding Services, a portfolio company of private equity firm Lightyear Capital, for $663 million. CFS was used as the foundation for the Chase Student Loans, previ-ously known as Chase Education Finance.

In April 2006, JPMorgan Chase announced it would swap its corporate trust unit for The Bank of New York Co.'s retail and small business banking network. The swap valued The Bank of New York business at $3.1 billion and JPMorgan's trust unit at $2.8 billion and gave Chase access to 338 additional branches and 700,000 new customers in New York, New Jersey, and Connecticut.

In March 2008, JPMorgan acquired the UK-based carbon offsetting company ClimateCare.

In November 2009, JPMorgan announced it would acquire the balance of JPMorgan Cazenove, an advisory and underwriting joint venture established in 2004 with the Cazenove Group, for GBP1 billion.

Structure OF JPMorgan Chase JPMorgan Chase & Co. owns five bank subsidiaries in the United States namely JPMorgan Chase Bank, National Asso-ciation; Chase Bank USA, National Association; Custodial Trust Company; JPMorgan Chase Bank, Dearborn; and J.P. Morgan Bank and Trust Company, National Association. JPMorgan Chase's activities are organized, for management reporting purposes, into six business seg-ments investment banking, card services and consumer lending, commercial banking; personal and business banking, home lending, treasury & securities services, asset management, corporate; including private equity and treasury and corporate functions. The investment banking division at J.P. Morgan is divided by teams: industry, M&A and capital markets. Industry teams include consumer health care and retail, diversified industries and transportation, natural resources, financial institutions, metals and mining, real estate and technology, media and telecommunica-tions.

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SEPTEMBER 2,2012

JP Morgan Chase in India India is an important focus for J.P. Morgan’s expansion in the Asia Pacific region. The lines of business include the Investment Bank, the Global Corporate Bank, Private Equity, Asset Management and Treasury and Securities Ser-vices. J.P. Morgan offers clients an integrated range of services that combine specialist local knowledge with leader-ship positions across these lines of business. Additionally, J.P. Morgan has a large Global Service Center in India that is rapidly expanding in scope and size. The service center has delivered process innovations that benefit our lines of business and support operations across the world. The firm's roots in India date back to 1922, when J.P. Morgan & Co. in New York and Morgan Grenfell, its affiliated partnership in London, took an ownership interest in the Calcutta merchant banking firm of Andrew Yule & Co. Ltd.

Financial analysis of JP Morgan Chase

Revenue has increased in last ended quarter of the year. Revenue in last quarter was $7.01 billion which is 0.08 percent greater as compared to quarter ended as on September 30, 2010. According to the data shown, it appears that JPMorgan illustrated mix performance and its greatest revenue was in the second quarter of the year which stands at $7.10 billion. The revenue in the first and third quarters was $4.53 billion and $6.20 billion respectively.

The JPMorgan engendered net income of $4.83 billion in last quarter which is better than previous quarter’s net income of $4.41 billion. Moreover, net income has increased which led to increase EPS for the current quarter.

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SEPTEMBER 2 ,2012

TERM OF THE WEEK : Derivatives

The primary objectives of any investor are to maximize returns and minimize risks. De-

rivatives are contracts that originated from the need to minimize risk.

The word 'derivative' originates from mathematics and refers to a variable, which has

been derived from another variable. Derivatives are so called because they have no value

of their own. They derive their value from the value of some other asset, which is known as the underlying.

For example, a derivative of the shares of Infosys (underlying), will derive its value from the share price (value) of

Infosys. Similarly, a derivative contract on soybean depends on the price of soybean.

Derivatives are specialized contracts which signify an agreement or an option to buy or sell the underlying asset of

the derivate up to a certain time in the future at a prearranged price, the exercise price. The contract also has a fixed

expiry period mostly in the range of 3 to 12 months from the date of commencement of the contract. The value of

the contract depends on the expiry period and also on the price of the underlying asset.

For example, a farmer fears that the price of soybean (underlying), when his crop is ready for delivery will be lower

than his cost of production. Let's say the cost of production is Rs 8,000 per ton. In order to overcome this uncertainty

in the selling price of his crop, he enters into a contract (derivative) with a merchant, who agrees to buy the crop at a

certain price (exercise price), when the crop is ready in three months time (expiry period).

In this case, say the merchant agrees to buy the crop at Rs 9,000 per ton. Now, the value of this derivative contract

will increase as the price of soybean decreases and vice-a-versa.

If the selling price of soybean goes down to Rs 7,000 per ton, the derivative contract will be more valuable for the

farmer, and if the price of soybean goes down to Rs 6,000, the contract becomes even more valuable. This is because

the farmer can sell the soybean he has produced at Rs .9000 per ton even though the market price is much less.

Thus, the value of the derivative is dependent on the value of the underlying.

If the underlying asset of the derivative contract is coffee, wheat, pepper, cotton, gold, silver, precious stone or for

that matter even weather, then the derivative is known as a commodity derivative.

If the underlying is a financial asset like debt instruments, currency, share price index, equity shares, etc, the deriva-

tive is known as a financial derivative.

Derivative contracts can be standardized and traded on the stock exchange. Such derivatives are called exchange-

traded derivatives. Or they can be customized as per the needs of the user by negotiating with the other party in-

volved. Such derivatives are called over-the-counter (OTC) derivatives. However, exchange traded derivatives have

some advantages like low transaction costs and no risk of default by the other party, which may exceed the cost as-

sociated with leaving a part of the production uncovered.

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SEPTEMBER 2 ,2012

MARKET THIS WEEK

Sensex fell 1.99% from last week and ended the week at 17,429.56.

Simple Moving Averages

Returns – BSE Sensex

Nifty gained 2.7% from last week and ended the week at 5258.50

Simple Moving Averages

Returns – Nifty

30 Days 50 Days 150 Days 200 Days

17405.01 17340.36 17197.51 16923.56

YTD 12.78 % 1 Week -2.30% 1 Month 0.80% 3 Months 7.20 %

6 Months -2.10 % 1 year 3.30 % 2 Year -3.30 % 3 Year 10.90%

30 Days 50 Days 150 Days 200 Days

5,276.65 5,258.50 5,218.36 5,121.48

YTD 13.71 % 1 Week -2.40 % 1 Month 0.60% 3 Months 6.80%

6 Months -2.40 % 1 year 4.30 % 2 Year -2.70 % 3 Year 12.80 %

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SEPTEMBER 2 ,2012

Overview

Indian stock indices fell after rising for three successive weeks, fueled by steady FII inflows and amid expectations of some reforms going through. A surprise drop in inflation for July also raised hopes of a possible rate cut at next month’s RBI policy meeting. Data on indirect tax receipts and SEBI’s measures to boost the capital markets also had a positive rub-off on the markets.

However, data on exports and imports continues to be grim, serving as a cruel reminder of challenges emanating from the overseas markets. The release of the controversial CAG reports in the Parliament also re-ignited fears of a wider political backlash.

Much will hinge on the way global markets unfold. With the US economy showing resilience, the focus will be on the Eurozone and China. The current global risk-on trade has been fueled by hopes of fresh policy stimulus from both these regions. Any disappointment on that front could lead to a reversal.

Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR 4.75% Base Rate 10%-10.5%

Repo Rate 8% SLR 23%

Savings Deposit Rate 4%

Reverse Repo Rate 7%

Term Deposit Rate 8%-9.25%

Margin Standing 9%

Exchange Rate v/s INR Commodities unit Rs./unit

% change

Currency Symbol Rate %

change Gold 10 gms. 31220 0.90%

US Dollar $ 55.72 0.57% Silver 1 Kg. 59000 9.1%

Euro € 69.65 1.30% Crude Oil 1 BBL 5361.01 0.14%

Dirham AED 15.11 0.59%

Japanese Yen ¥ 0.708 0.10%

Chinese Yuan CNY 8.74 0.45%

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SEPTEMBER 2 ,2012

NEWS OF THE WEEK

Delay GAAR by 3 Years; Retain Mauritius Benefits, Recommends Shome Panel

In what could be a huge relief to both corporates and financial markets, the Review Committee on General Anti Avoidance Rules (GAAR) headed by Parthasarathi Shome has recommended a delay in implementation by three years. The panel wants GAAR to kick in from 2015-16. Another major recommendation of the panel is with respect to continuation of Mauritius benefits. The original draft of GAAR denied corporates the tax benefits, but the Shome panel is believed to have suggested that the benefits still be given. The third recommendation which may greatly dilute the original GAAR is that all pre-GAAR investments will not come under the ambit of the rule. The recommendations if implemented will provide corporates time to prepare for the introduction of GAAR. The markets are likely to view this development as another positive signal from the Finance Ministry. The committee had been set up by the government to examine all issues related to the controversial GAAR. Introduction of GAAR, pro-posed in the 2012-13 Budget to check tax evasion, had triggered strong opposition by foreign investors following which its implementation was postponed till April next year.

Q1 GDP Grows At 5.5%, Languishes Around 3-Year Low

The Gross Domestic Product (GDP) for the first quarter of the current financial year grew at a greater than expected level of 5.5 per cent as opposed to 5.3 per cent in the January-March quarter. The quarterly GDP at factor cost at constant (2004-2005) prices for Q1 of 2012-13 is estimated at Rs 13,06,276 crore, as against Rs 12,38,738 crore in Q1 of 2011-12. According to Central Statistical Organization (CSO), the economic activities which registered significant growth in Q1 of 2012-13 over Q1 of 2011-12 are 'construction' at 10.9 per cent, 'financing, insurance, real estate and business ser-vices' at 10.8 per cent and 'community, social and personal services' at 7.9 per cent. The services sector of the econ-omy grew at 6.9 per cent and the industrial sector recorded a growth of 3.6 per cent in the first quarter of the cur-rent financial year. The agricultural sector expanded at a higher than anticipated level of 2.9%. The manufacturing sector of grew at 0.2 per cent as against a contraction of 0.3 per cent in the previous quarter. The gross fixed capital formation, a measure of investments, rose less than one per cent. At current prices GDP ex-panded at 13.5%, in line with the 14% assumed in the budget. This suggests that as far as tax collections are con-cerned GDP estimates are fine. The private consumption growth moderated further at 4%, suggesting a moderation in both demand and investments. The hit in consumer sentiment is also visible in the low 4% growth in trade, hotels and transport sector. The government's stimulus spending continues to provide support to the economy.

Ben Bernanke Lifts Wall Street, Keeps Stimulus in Play

US stocks rose on Friday after Federal Reserve Chairman Ben Bernanke, expressing "grave concern" for the stagnat-ing US job market, said the central bank was prepared to take further steps to strengthen the economy if necessary. Though Bernanke, speaking in Jackson Hole, Wyoming, dashed some hopes for a signal of quick action, his comments bolstered bets that the central bank was closer to providing more stimulus for an economy that is close to stalling. Stocks had been flat for much of the week ahead of Bernanke's speech, though expectations of additional stimulus from the Fed helped the market this month. All three indexes posted gains for August. Energy and materials shares were among the best performers, with the S&P energy index up 0.9 per cent and the S&P materials index up 1.1 per cent. The Fed's next policy meeting is in mid-September, and many analysts are looking to it for a decision on a third round of quantitative easing. The Dow Jones industrial average was up 90.13 points, or 0.69 per cent, at 13,090.84. The Standard & Poor's 500 Index was up 7.10 points, or 0.51 per cent, at 1,406.58. The Nasdaq Composite Index was up 18.25 points, or 0.60 per cent, at 3,066.96.

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SEPTEMBER 2 ,2012

Eurozone Jobless Numbers Hit Record 18 Million

Jobless numbers across the eurozone hit a record 18 million in July, said new figures released on Friday by Eurostat. The headline jobless figure was the highest since records began in 1995, and left the European Commission fretting over potential unrest on the streets of Europe's capitals. Coupled with annualised inflation rising to 2.6 percent in August according to a separate Eurostat release, the figures had analysts warning of ever-tighter household spending acting as a drag on governments' hopes of recovery. The eurozone is faring far worse than its main international eco-nomic rivals. Japan's unemployment rate was flat at 4.3 percent in July even as the US rate rose to 8.3 percent. Ekkehard Ernst, a senior economist at the UN body, told a German daily that close to one in 10 would be without a job even in powerhouse Germany by 2014, nearly twice the current level. France has even higher numbers, upcom-ing August data seemingly sure to crash through the three-million mark. Annual unemployment increases in Spain and Greece were easily the highest, and both countries, labouring under sovereign and banking debt crises, logged jobless rates among the key under-25s age-group of more than 50 percent. According to research firm Markit, the eurozone is facing a fall of up to 0.6 percent in gross domestic product for the third quarter, which would meet the widely accepted definition of recession, two successive quarters of economic contraction.

Carrefour to cut 500-600 French jobs

Carrefour, the world's second-largest retailer, plans to cut up to 600 jobs in France as part of plans by new boss Geor-

ges Plassat to cut costs and put the struggling company back on track. The cuts, aimed at "boosting efficiency and

reducing overheads", will target jobs at the group's headquarters and support functions such as marketing and pur-

chasing across France.

Carrefour had 112,440 workers on its French payroll as of Dec. 31, 2011, making it one of the country's biggest pri-

vate-sector employers. With the French jobless rate at a 13-year high, the new Socialist government said last week it

would look closely at the French retailer's situation after unions warned of job cuts to come. Plassat, who has a repu-

tation as a ruthless cost-cutter, took over in May with a brief to revive the company's performance in Europe and

halt its domestic market share decline. Having pulled out of Greece in July and announced plans this week to close its

two Singapore hypermarkets, Carrefour could exit more countries to reduce debt.

.

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AUGUST 05 ,2012 PAGE 9 http://www.imtgfinxpress.co.cc SEPTEMBER 2, 2012

COVER STORY

“If you suffer from small loans, you have a problem; but when you

borrow alarmingly large sums, then it is the lender who will suffer a

greater problem!”Simply put, this is the dangerous financial position

of the US presently, undermining its continued ability to raise bor-

rowings or to service them. If its debt bubble bursts, it is feared that

the global economy will bear the brunt, reminiscent of the 1929 Great Depression.

DEBT ADDICTION

The national official debt of the US Treasury capped at $14 trillion has made Standard and Poor’s downgrade US

credit rating for the first time ever. Add to this the “unofficial” part, which includes social security promises and the

defense expenditures, after deducting all the expected tax collections of the Federal Government — and the fiscal

gap could be to unimaginable levels.The last three decades saw a massive tenfold increase in the debt of the US,

from $5 trillion in 1980 to about $54 trillion today.

The gap between official debt and overall debt as shown by the chart is not known, but even the official debt of $14

trillion can, by no means, be a comforting figure to either the borrowers or lenders.During the same period, interest

rates on savings were drastically cut to discourage savings, driving households to move their savings to the stock

market.They not only spent at levels that exhausted their savings but also went beyond and borrowed heavily, the

repayment of which was contingent on a stagnated market.Post 9/11, the stock market suffered as a sequel to the

“dotcom bubble” and the economy took a beating.The Federal Reserve reduced interest rates to attractive lower

levels, making it easier for financial institutions to borrow money and continue issuing debt liberally, and at very low

interest rates.Such loans were made to ‘sub-prime’ customers who were unable to make mortgage payments when

the economic situation took a turn for the worse. The interest rate on these mortgage loans started increasing in

2007, creating a housing crisis in 2008 which spun out of control.The economy took a further beating, the stock mar-

ket plummeted, and there was further unemployment.

A common factor in this escalating crisis is the constantly rising level of debt, both at the household and the Govern-

ment levels. This trend persists, despite the continued recessionary trend in the economy.Debt has been tackled not

by encouraging savings. Heightened consumerism has resulted in unsustainable levels of debt, and created an un-

abated appetite for US borrowings.The perceived strength of the US currency is under challenge.The US, in the last

few decades, has been the beneficiary of large FDI flows into its economy, along with talent.Its continued ability to

attract capital and talent is under threat. This is contracting the economy and increasing joblessness.The capacity to

spend will also fall, further contracting the economy.

LEARNING FROM ASIA

The West will have to borrow the idea of savings from its Asian counter-parts, in the place of its debt-driven consum-

erism, to reverse its declining trend.Asian countries are no exceptions to this global problem of household debt, but

they are expected to have relatively greater resilience.Their savings, and the family acting as an informal institution

of insurance, will enable them to “de-couple” from external uncertainties for a longer period of time.This would also

be an eye-opener that inter-dependence within family as an institution is a more sustainable approach than height-

ened individualism, with strong dependence on the state.This holds true, no matter how good the delivery systems

of the state may be.

Source: The Hindu Business Line

Debt to more debt, but for how long ??

PAGE 9 http://www.imtgfinxpress.co.cc

SEPTEMBER 2 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc

CAN YOU SOLVE IT?

Match the following:

CARTOONS:

**Rush in your entries to : finniche.imt@gmail.com

The right entries will get their name featured in the next issue of FinXpress. So hit the quiz fast & get yourself visible among 1000 odd in the campus.

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Drop in your suggestions to the editorial team :

Magazine design/news : discover.ajay.kr@gmail.com

Articles/quiz : jackruzario@gmail.com

LAST WEEK’S ANSWERS

SET A

1) JPMC Jamie Dimon

2) Deloitte Stephen Almond

3) Texas Instruments Rich Templeton

4) Crisil Douglas Peterson

5) SBI Pratip Chaudhari

Winner: Krishna Koundinya

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CTS Jack Palmer