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October 21 ,2012

Company In Focus

Editoria

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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 :

Exchange Rate Regime

INSTITUTE OF MANAGEMENT TECHNOLOGY, GHAZIABAD

Cover Story

October 21 ,2012

EDITORIAL

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Dear Readers, Greetings from FinNiche! The most awaiting event of team FinNiche, Riscon ’12 had started marvelously yesterday. The enthusiasm within the students to learn more about the economic policies of India was served by various technical sessions conducted by many eminent speakers. The event was successfully conducted in association with Kotak Mahindra Bank and SafeXpress. We thank you all the support and encouragement given by the management and the students of IMT in helping us conduct the same. In this edition of FinXpress, the ‘Company in Focus’ features Reserve Bank of India. We have ‘Exchange Rate Regime’ as the ‘Term of the Week’. The ‘Markets This Week’ shows the rising Sensex, which in turn makes the economy more and more stabilized. In Special page we update you about the ‘Kingfisher Crisis’. We sincerely hope that the readers will find the content engaging. We would appreciate feedback and suggestions for improvement. We hope to bring to 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

October 21 ,2012

COMPANY IN FOCUS

Reserve Bank Of India

The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April, 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. The share capital was divided into shares of Rs. 100, each fully paid, which was entirely owned by private shareholders in the beginning. Following India's independence in 1947, the RBI was nationalised in the year 1949.

The RBI is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors-the Governor, four Deputy Governors, two Finance Ministry representative, ten Government-nominated Direc-tors to represent important elements from India's economy, and four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these Local Boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.

Main Functions

Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The RBI has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Since 1957, the RBI is required to maintain gold and foreign exchange reserves of Rs. 200 crore, of which at least Rs. 115 crore should be in gold and Rs. 85 crore in the form of Government Securities. The system as it exists today is known as the minimum reserve system.

Monetary authority The RBI is the main monetary authority of the country and acts as the bank of the national and state governments. Its objectives are maintaining price stability and ensuring adequate flow of credit to productive sectors. The central bank promotes an expansive monetary policy to push the private sector since the financial market reforms of the 1990s.

Regulator and supervisor of the financial system

The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by RBI for effective addressing of complaints by bank customers.

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October 21 ,2012

Managerial of exchange control

The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Its objectives are to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency

The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves.

Banker of Banks

RBI maintains banking accounts of all scheduled banks. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of checks between the commercial banks and helps inter-bank transfer of funds. It acts as the lender of the last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.

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TERM OF THE WEEK : Exchange Rate Regime

An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors.

The basic types are a floating exchange rate, where the market dictates movements in the exchange rate; a pegged float, where a central bank keeps the rate from deviating too far from a target band or value; and a fixed exchange rate, which ties the currency to another currency, mostly more widespread currencies such as the U.S. dollar or the euro or a basket of currencies.

TYPES

Float: Floating rates are the most common exchange rate regime today. For example, the dollar, euro, yen, and British pound all are floating currencies. However, since central banks frequently intervene to avoid excessive appreciation or depreciation, these regimes are often called managed float or a dirty float.

Pegged float: Pegged floating currencies are pegged to some band or value, either fixed or periodically

adjusted. Pegged floats are:

1. Crawling bands: The rate is allowed to fluctuate in a band around a central value, which is adjusted periodically. This is done at a preannounced rate or in a controlled way following economic indicators.

2. Crawling pegs: The rate itself is fixed, and adjusted as above.

3. Pegged with horizontal bands: The rate is allowed to fluctuate in a fixed band (bigger than 1%) around a central rate.

Fixed: Fixed rates are those that have direct convertibility towards another currency. In case of a separate currency, also known as a currency board arrangement, the domestic currency is backed one to one by foreign reserves. A pegged currency with very small bands (< 1%) and countries that have adopted another country's currency and abandoned its own also fall under this category.

Currency board: A monetary authority maintains a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target.

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MARKET THIS WEEK

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MARKET THIS WEEK

SENSEX gained 0.38% from last week and ended at 18682.31 this week.

Simple Moving Averages

Returns – BSE Sensex

The Nifty gained 0.14% from last week and ended at 5684.25 this week.

Simple Moving Averages

Returns – Nifty

30 Days 50 Days 150 Days 200 Days

18523.37 18155.06 17357.15 17337.37

YTD 20.88 % 1 Week 0.10 % 1 Month 1.80 % 3 Months 8.10 %

6 Months 6.70 % 1 Year 9.30 % 2 Years -6.50 % 3 Years 8.50 %

30 Days 50 Days 150 Days 200 Days

5617.11 5502.52 5264.83 5256.56

YTD 22.92 % 1 Week 0.10% 1 Month 2.30 % 3 Months 8.40 %

6 Months 6.60 % 1 Year 10.60 % 2 Years -5.70 % 3 Years 11.10 %

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October 21 ,2012

Overview

Sensex closed marginally higher by 7 points during the week. Due to the focus of investors on the RIL report, according to which there is fourth straight quarterly drop in profit investors sentiment suppressed. But Sensex maintained on 18682.31 because of strong buying in FMCG, Consumer Durables and Banking counters. Out of the total 30-share Sensex, 20 scrips finished with losses while 10 ended with gains.

Since Nifty is moving in the range of 5635-5725 for last 9 trading sessions no trading decisions will be made until this trend changes. ITC, Ambuja Cement, Dr Reddy, Infy, and Bharti Airtel were the top five Nifty gainers while Jindal Steel, Hindalco, BHEL, BPCL and Grasim were the top losers.

According to the brokers in the forthcoming monetary policy meeting on Oct30, there are hopes of cut in interest rates because of some short covering activity ahead of the expiry of October contract boosted investors sentiment. Also due to the on-going political chaos investors decided to book profits and play safe ahead of the expiry of derivatives contract on October 25.

Policy Rates Reserve Ratios Lending Deposit Rate

Bank Rate 9% CRR

4.50

% 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 Stand-

ing 9%

Exchange Rate

v/s INR

Commodi-

ties unit Rs./unit

%

change

Currency

Sym-

bol Rate

%

chang

e Gold 10gms. 31285 0.00 %

US Dollar $ 53.9 2.1% Silver 1 Kg. 59850 -2.1%

Euro € 70.35 3.1% Crude Oil 1 BBL 4912 1.02 %

Dirham AED 14.66 -2.2%

Japanese Yen ¥ 0.679 -1.4%

Chinese Yuan CNY 8.61 2.9%

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October 21 ,2012

NEWS OF THE WEEK

Kingfisher In Doldrums Aviation regulator DGCA today suspended the flying license of beleaguered Kingfisher Airlines for failing to come up with a viable plan for its financial and operational revival and resolve the impasse with its em-ployees over payment of their salary dues. Suspension of flying licence implies an immediate halt to all bookings on the entire Kingfisher network as well as through travel agents, the officials said. The liquor baron Vijay Mallya-owned carrier has been saddled with a loss of Rs 8,000 crore and a debt burden of another over Rs 7,524 crore, a large part of which it has not serviced since January. Asked why the license was suspended, the officials said the government did not want a situation where the airline, which was on cash-and-carry mode for almost all service providers, re-starts operations and then keeps flying in fits and starts, as has been happening since last year-end.The stock fell 4.58 percent to close at Rs 11.45 on Friday, which tanked nearly 18 percent in last 15 days.

TCS, HCL Tech's numbers stack up? Even as the second quarter earnings picture unfolds, it is clear that Infosys is no longer the "chosen one", while TCS has become the new blue-eyed boy of the stock market, closely followed by India's fourth largest IT player HCL Tech. HCL Tech's September quarter numbers beat analyst estimates by a comfortable margin. The catalysts for this healthy performance were several deal wins and business growth across its key geographies of US and Europe. Wipro, third largest IT player is yet to announce its results. Here is a look at the key operating numbers of the three companies during the quarter gone by.

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October 21 ,2012

Starbucks Opens First Cafe in India Starbucks Corporation in a joint venture with a Tata Group unit, Friday opened its first café in India--one of its last untapped markets."This is a major milestone for us," said Chief Executive Howard Schultz, add-ing that India and China would be the largest growth markets for the company. Seattle-based Starbucks, which has operations in 61 countries, has been looking at India for almost five years now, but there was "a lot of frustration and regret before we met the Tatas," Mr. Schultz said. Another reason why Starbucks delayed its entry into India was the country's restrictions on foreign direct investment, Mr. Schultz said. After years of prevaricating, the Indian government late last year allowed 100% foreign direct investment in single-brand retail. Recently, it allowed 51% FDI in the multi-brand retail--or supermarket--sector as well. It had said then that it plans to set up 50 stores by the end of this year.

Little Room for RBI to cut rates: Morgan Stanley The current economic scenario provides little room to the Reserve Bank of India (RBI) for lowering policy rates, says a report by Morgan Stanley. Morgan Stanley in a research note said that though there has been a growing clamor for rate cut, early rate cuts would raise the risk of renewed currency depreciation pressures."We believe that the current macro environment provides little room for immediate rate cuts ", Morgan Stanley said adding that "rather, it warrants a delay in policy rate cuts."India is facing a challenging situation, where growth rate has slowed down significantly, yet inflation levels remain high. Morgan Stanley further noted that instead of easing policy rate cuts, the country should look towards boosting investment levels, which in turn would lead to a sustained recovery in growth numbers."Policy reforms to boost investment will be the key to achieve a sustained recovery in growth," the report said.

Market week ahead: Rupee seen stabilizing The rupee which hit a one-month low on Friday is seen stabilizing, and is expected to hold in a 53.00 to 54.50 band next week, with exporters expected to step in to sell dollars. The impact of earnings reports on domestic share markets will be watched. Euro moves and broader global risk sentiment should also provide cues. The bond market is seen range-bound, with the benchmark 10-year debt expected to hold between the 8.10 to 8.20 percent band until the RBI review. Cash rates may edge up slightly due to the higher demand for cash from individuals and companies in the festival season.

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PAGE 9 http://www.imtgfinxpress.co.cc October 21 ,2012

COVER STORY

A government order suspending its licence indefinitely has grounded

Kingfisher Airlines, leaving the King of the sky’s future in doubt signaling

turbulent times for travellers, employees, lenders and shareholders.

Commercial banks which have lent over Rs.7000 crore to Kingfisher Airlines are closely monitoring the

situation and are tightening the noose around its promoter to protect their interest.

The airline’s permit had been suspended with effect from October 20 and would not be revived until it

submitted a concrete and reliable revival plan, a notification issued on Saturday by the Directorate

General of Civil Aviation said. The airline failed to submit a plan for resumption of flight operations and

asked for more time instead, which was rejected, the regulator said.

A special magistrate court here on Friday issued a non-bailable arrest warrant (NBW) against the Chairman

of Kingfisher Airlines, Vijay Mallya, and four other directors for non-appearance in cases relating to

bouncing of cheques issued in favour of GMR Hyderabad International Airport Limited (GHIAL) towards

user charges.

Four cheques totalling Rs.10.5 crore were issued since January this year to GHIAL, which operates Rajiv

Gandhi International Airport here. But, they were dishonoured when presented for clearance following

which legal notices were served on Kingfisher. As the airline did not make the payment, GHIAL filed a case

in the special court under the Negotiable Instruments Act in August.

Meanwhile, the experts say Vijay Mallya’s UB group needs to pump in over Rs. 3,000 crore to get King-

fisher airborne again as no foreign operator would come forward to invest in the airline in its present

state. “I think restarting a five aircraft operation without a significant recapitalisation of $600 million

immediately is meaningless. Kingfisher's turnaround could cost around $ 1 billion,” Kapil Kaul, CEO South

Asia, Centre for Asia Pacific Aviation (CAPA).

Experts say the airline’s exit from the Indian skies will prompt rival airlines to further jack up fares,

especially with festival season travel and higher demand for seats. “Other airlines have already taken a

long term view on fares and now they are already high. Now without Kingfisher, they will go up further. It

will be bad days for passengers,” said Jitender Bhargava, former executive director of Air India.

Mr. Bhargava said the government must now take a stand to protect the interests of the over 4,000

employees who remained unpaid for seven months and the banks who have a collective exposure of over

Rs. 7,500 crore. “The DGCA’s decision came too late. By suspending the licence, it has done Mallya a fa-

vour. The airline cannot revive with so much debt and no foreign airline will find it viable,” he added.

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

Kingfisher Crisis

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.

Feel free to write to us at : finniche.imt@gmail.com

Drop in your suggestions to the editorial team :

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

Articles/quiz : mishra.sutapa@gmail.com

LAST WEEK’S ANSWERS

SET A

1) Manchester United Glazer family

2) Liverpool Femway Sports Group

3) A.C. Milan Silvio Berlusconi

4) Paris Saint-Germain Qatar Invest-

ment Authority

5) Manchester City Sheikh Mansour

bin Zayed Al Nahyan

Winner: Ritesh Jain

We are on the web !

http://www.facebook.com/FinNiche

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Kroger Germany

Aldi UK

Tesco France

Carrefour US

October 21 ,2012 PAGE 10 http://www.imtgfinxpress.co.cc