Submitted To

Prof. Riddhi Sanghvi

A Presentation

on Financial Strategy

and Planning(Ch -1)

Presented BY

Kailash Naghera

Palak Sukhanandi

Content

Financial sector reforms

Agency theory of employment

Limited liability partnership

Corporate governance

WTO

Financial sector reform

Meaning

Financial sector reforms aim at promoting a

diversified, efficient and competitive financial

sector

With ultimate objective of

Improving the allocative efficiency of

available resources

Increasing return

Promoting an accelerated growth of real

sector of economy

Areas of financial reforms

Framing guiding policies in structuring financial

system

Framing policies, rules and regulation to check

on financial intermediaries and their liquidity

Fixation of aims of development financial

institution

Policies for primary and secondary market

Continue….

Checking solvency and liquidity of financial

intermediaries

Linking growth of financial sector and growth of

economy

Development of financial instruments

Polices for restructuring of the business

enterprise

Continue…..

Regulating foreign exchange market

Financial and economic polices of globalization

and liberalization

Steps to improve free access to international

markets

Improvement of financial intermediaries

Policies for FDI and FII

Continue ….

Policies for interest rate, pre-emption of deposits,

direct credit

Measures to strengthen financial system

Fixation of roles of apex bodies

Access to capital market

Development of screen based trading of securities

Continue …

Encouragement for growth of derivatives

trading

Increase management competencies

Promotion of fair competition

Reduction in intermediation costs

Agency theory of

Employment

Meaning

Agency theory models a situation in

which a principal (owner) delegates

decision making authority to an agent (the

managers) who receives a reward in

return for performing some activity of the

principal

In a company from of organization there

is divorce of ownership and control

Agency cost

To minimize the dishonesty of managers

To monitor management action

To protect the owners

Opportunity cost of lost profits

Constituents of agency theory

Value maximization

Management risk

Monitoring

Motivation through incentives

Criticism of agency theory

Not feasible to compute the agency cost

accurately

No comparison could be made in the absence

of past record

The requirement of additional monitoring,

apart from the legal compulsion, is difficult to

judge mainly due to information asymmetry

Continue……

Does not distinguish loyal and disloyal managers

Does not incorporate many important factors like

Relationship with agent

Non financial motives

Principal’s trust in the agent

Limited Liability Partnership

Introduction

Key attribute of a limited company incorporated

under companies act, 1956

LLP which is a separate legal person will be

liable to the third parties

Registration under LLP act

Naresh chandra committee on regulation of

private companies and partnership

Meaning

Limited liability Partnership (LLP) - Hybrid of

Corporate & Partnership business Form.

Allows the benefits of limited liability with the

flexibility of organizing the internal structure as a

partnership based on mutually agreed Agreement

Gateway for Multi Disciplinary Professionals LLP

features

Body Corporat

e

Unlimited capacity

LLP has members

Limited Liability of Partners

Complete flexibility

Non applicabili

ty Of Partnershi

p Act

Separate Legal Identity

Perpetual Succession

Only with Profit Motive

Easy to FormNo Stamp

Duty as on

date

No Minimum

Contribution

Low cost of

Formation

Easy to Run

& Manage

Less Compliances

Less requirement as to

maintenance of statutory records

Less Government Intervention

No Minimum Alternate Tax

as on Date

Benefits

Who can be Partner?

Individual

Body Corporate

And/OR

Formation of LLP

• Deciding the Partners & Designated partners

Step-1

• Obtaining DPIN & Digital Signature

Step-2

•Checking name Availability for LLP

Step-3

• Drafting of LLP AgreementStep-4

• Filing of Incorporation Document

Step-5

•Certificate of IncorporationStep-6

Corporate Governance

Introduction

Contemporary corporate governance started in

1992 with the Cadbury report in the UK

Cadbury was the result of several high profile

company collapses

is concerned primarily with protecting weak and

widely dispersed shareholders against self-

interested Directors and managers

Meaning

It is the system by which companies are directed

and control

The board of director are responsible for the

governance of their company

The shareholders role in the governance is to

appoint the directors and the auditors

Continue….

It is a process or set of systems and processes

to ensure that a company is managed to suit the

best interests of all

The stakeholders may be internal stakeholders

and external stakeholders

Good governance means that the board agrees

to being accountable to the shareholder and as a

result takes on the responsibility of directing and

controlling management

Tests for effective corporate governance

Whether the fund of the company have been

deployed for pursuing the main object of the

company

Whether the funds raise from financial institution

and the capital market have been utilized for the

purposes for which they were intended?

Whether the company has the core competence

to effectively manage its diversification?

Continue….

Whether there has been diversion of funds by

way of funds and advances or investment

companies

Whether the personal properties of the directors

have been late-out at a fabulous rent to the

company

Whether the provisions of the companies act,

FERA, factories act and other statutes are

complied with in letter and in spirit?

Continue….

Whether the practices adopted by the company

and its management towards its shareholders,

customers, suppliers, employees and public at

large are ethical and fair?

Whether the directors are provided with

information on the working of the company and

whether institutional and non-executive directors

play an active role in the functioning of the

companies?

Continue……

Whether the internal control in place are

effective?

Whether there is transparent financial reporting

and audit practices and the accounting practices

adopted by the company are in accordance with

accounting standards of ICAI?

WTO

WTO

The World Trade Organization (WTO)

Established on 1st January 1995

As a result of the Uruguay Round negotiations (1986-1994)

Located in Geneva, Switzerland

At its simplest:

“A global organization dealing with rules of trade between nations”.

Continue…

A rules-based, member-driven organization.

“Its main function is to ensure that trade flows as

smoothly, predictably and freely as possible.”

Created by 120 nations to supersede and extend the GATT.

Now:

148 member nations (over 97% of world trade).

32 ‘observer’ countries.

GATT

The General Agreement on Tariffs and Trade (GATT) 1947

Before GATT: several joint declarations of free-trade ideals—and failed attempts to create an international trade institution.

Under US leadership, the GATT was created in 1947—as a step toward the “ITO.”

GATT: 19 original “contracting parties.”

(WTO has now 148 members.)

Regulated trade in goods, only.

The Uruguay Round (1986-1994)

123 participating countries

Most difficult—and most ambitious—among all rounds of negotiation.

Lasted almost 8 years (1986-1994, in effect since 1995): the longest round.

Created the WTO in 1995.

Ultimately, very successful.

Agreed on the following

To offer most favored nation treatment to all

member

To offer reduced tariffs

To remove all subsidies

To remove all restriction on imports and exports

To ensure intellectual property rights

India made following commitments

To reduce tariffs

Rationalize tariffs

Simplify tax laws

Liberalize licensing of industry

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Liberalize administered pricing

Decontrol banking

Make capital market reform

Encourage FDI in core areas

General principles and objectives

Three main principles

Trade related aspects of investment measures

Trade related aspects of intellectual property

rights

Trade in service

Functions

Administers the WTO Agreements and facilitates their operation and implementation

Responsible for the settlement of differences and disputes between members

Responsible for periodic reviews of the trade policies of members

Also provides technical assistance and training for developing countries

Cooperates with other international organisations on subjects of mutual interest