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What is Private Banking/Wealth Management? Private Banking, also known as Wealth Management, is a specialized division of banks that provides bespoke financial services and products to high-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs). These services go beyond the standard offerings available at local bank branches and cater to the unique needs of wealthy clients, providing them with exclusive access to financial advisors and tailored investment strategies. Key Terminology Investable Assets : These are liquid assets that an individual is willing to invest or has already invested, including stocks, bonds, index funds, and gold. Real estate, except for the primary residence, is also typically included. HNIs (High Net-Worth Individuals) : Individuals with significant investable assets, typically starting at USD 1 million. UHNIs (Ultra High Net-Worth Individuals) : Individuals with investable assets ranging from USD 10 million to USD 50 million or more. These t...

What is Leveraged Finance? Leveraged Finance involves using significant levels of debt to finance strategic corporate actions such as acquisitions, share repurchases, recapitalizations, and capital expenditures. Unlike typical financing, leveraged finance deals with disproportionate amounts of debt relative to equity and reserves. Leveraged Finance teams at banks serve as intermediaries, helping companies raise funds using these strategies. They handle advisory services, structuring, and the execution of these deals. Job Description Leveraged Finance (LevFin) teams assist clients in raising financing for highly leveraged and strategic business purposes. The “highly leveraged” aspect implies that the amount of debt involved is significantly higher than the industry norm, resulting in greater credit and performance risks, lower credit ratings, and higher yields. The “strategic” aspect refers to financing for acquisitions, leveraged buyouts, or significant capital expenditures, rather tha...

Understanding the difference between Enterprise Value and Equity Value is fundamental for anyone involved in finance, investment banking, or corporate valuation. These two metrics serve distinct purposes and offer different insights into a company's valuation. This comprehensive guide will clarify these concepts, address common points of confusion, and explain the nuances introduced by recent accounting changes. What Are Enterprise Value and Equity Value? Equity Value: A Definition Equity Value represents the value of a company available to its equity investors. It includes all the company's assets and liabilities but only accounts for what is attributable to common shareholders. In simple terms, Equity Value is the market value of a company's equity, often referred to as "Market Capitalization" or "Market Cap." Formula: Equity Value = Shares Outstanding × Current Share Price \text{Equity Value} = \text{Shares Outstanding} \times \text{Current Share Pr...

Disclaimer: This article provides general information about investment and merchant banks. The specifics of services and roles can vary by institution and region. Readers should consult with a financial advisor for personalized advice. Investment banks and merchant banks are financial institutions that cater to different types of clients and financial activities. While both do not typically serve individual or small to mid-sized businesses, their roles and services differ significantly. Investment banks engage primarily in trade finance activities, whereas merchant banks focus on international finance and underwriting. Key Takeaways Merchant banks provide international finance, business loans for companies, and underwriting services. Investment banking clients include institutional investors, governments, and corporations. Merchant banks assist companies and high-net-worth individuals (HNWIs). Investment Banks Investment banks act as intermediaries for large, complex financial trans...

Understanding financial terminology is crucial whether you're pursuing a career in finance or aiming to manage your personal finances more effectively. Familiarity with these terms can enhance your financial decision-making, assist in discussions with financial professionals, and improve your ability to navigate financial topics in professional settings. Here are 25 essential financial terms and their definitions to help you build your financial vocabulary. Why Knowing Financial Terms is Important Knowledge of financial terms is vital for managing personal finances or the financial health of a business. This understanding can help you make informed decisions about loans, property transactions, and retirement planning. Additionally, staying informed about financial terms can keep you updated on economic news and trends. For professionals in finance, accounting, sales, or leadership roles, these terms are used daily to perform tasks and communicate effectively with colleagues, client...

What is an OID? An Original Issue Discount (OID) refers to a feature of debt financing where the issuance price is less than the stated redemption price. In simpler terms, OID occurs when debt securities are sold below their redemption price, which is the par value. How to Calculate OID An OID is created when debt instruments are sold at a discounted price lower than their redemption price. The formula for calculating OID is: OID = Redemption Price − Issuance Price Redemption Price: The par value of the bonds, i.e., the amount obligated to be returned on the date of maturity. Issuance Price: The offering price that the bonds were sold for on the date of sale. Example of OID Calculation Suppose a company wants to raise $100,000 in debt. To make the financing more appealing, the company offers to accept $98,000 in capital. However, on maturity, the borrower still has to pay back the full $100,000 plus periodic interest based on the stated interest rate and the $100,000 principal. Borrowe...

Basis Points (bps) are a standard unit of measurement for interest rates and other percentages in finance, equating to 1/100th of 1.0%. This term is frequently used in discussions about interest rate environments, such as those involving the Federal Reserve or bond and fixed-income securities. Understanding Basis Points (bps) How to Calculate Basis Points One basis point is equal to one-hundredth of a percentage point, or numerically, 1/100th of 1.0%. In the finance industry, discussing interest rates in terms of basis points is common practice, especially for smaller figures. This practice reduces misinterpretations as basis points are absolute figures, making them easier to understand compared to small percentages. Using basis points to describe interest rates, spreads, and yields is more precise because minor changes can significantly impact the economy or financial instruments. Basis points, pronounced as “bips,” are relevant in contexts involving government bonds, corporate bonds,...

Disclaimer: This blog is intended for informational purposes only and should not be considered financial advice. Consult with a financial advisor for advice tailored to your individual circumstances. The Secured Overnight Financing Rate (SOFR) is poised to replace the London Interbank Offered Rate (LIBOR) as the global benchmark for lending rates by mid-2023. Derived from the Treasury "repo" market, SOFR represents the borrowing costs of cash collateralized by Treasury securities. What is SOFR? SOFR stands for the "Secured Overnight Financing Rate" and reflects the costs associated with borrowing cash collateralized by Treasury securities in the repo market. The repo market involves short-term borrowing and lending transactions secured by highly liquid securities, primarily U.S. Treasury securities. Participants in the Repo Market Key participants in the repo market include: Banks and Financial Institutions (Primary Dealers) Corporations Governments (e.g., NY Fed, C...

A fixed interest rate remains constant for the entire duration of the loan agreement. Unlike floating interest rates, which are tied to a prime rate or underlying index and can fluctuate, fixed interest rates offer stability and predictability. How to Calculate Fixed Interest Rates When a loan or bond is priced at a fixed interest rate, the interest expense amount due each period is set and does not change over time. Fixed pricing is more common with bonds and riskier debt instruments lower in the capital structure, rather than senior debt provided by banks. The primary benefit of a fixed interest rate is the predictability it offers. Borrowers do not need to worry about changing market conditions that could impact the amount of interest due. This stability mitigates the risk of substantial increases in interest expenses. Borrowers are more likely to choose fixed rates in low interest rate environments to "lock-in" favorable borrowing terms for the long term. Fixed Interest R...

A floating interest rate, also known as a variable rate, refers to a loan pricing mechanism where the interest rate fluctuates over the borrowing term. This fluctuation occurs because the interest rate is tied to an underlying index. Understanding Floating Interest Rates A floating interest rate is contingent on an underlying benchmark and is expressed as a percentage of the outstanding loan amount. Unlike fixed interest rates, which remain constant throughout the borrowing period, floating interest rates change based on prevailing economic conditions. Calculating Floating Interest Rates The interest rate pricing of debt with floating interest rates is typically expressed in two parts: Base Rate (e.g., LIBOR) Spread Floating Interest Rate Formula Floating Interest Rate (%) = Base Rate + Spread This formula calculates the interest expense on securities priced on a variable basis. Generally, floating interest rates are associated with senior debt, whereas fixed interest rates are more co...

Inflation to ease to 4.6% in first three quarters 2024-25: RBI' RBI Forecasts: Inflation Outlook and Global Factors In its December 2023 bulletin, the Reserve Bank of India (RBI) anticipates a moderation in inflation, projecting a decline to 4.6% during the initial three quarters of the fiscal year 2024-25 (FY25). This follows India's recent retail inflation report for November, which stood at a three-month high of 5.6%. The RBI attributes the surge to recurring spikes in food prices, disrupting the brief relief experienced in September and October. Global Commodity Prices and Food Inflation Concerns While global commodity prices, especially in agriculture, have witnessed a softening trend, the RBI points out exceptions, highlighting rice. The bulletin emphasizes that the near-term inflation outlook will be influenced by uncertain food prices. High-frequency indicators indicate potential increases in key vegetable prices, posing a short-term risk to Consumer Price Index (CPI) i...

What is Custom Duty? Customs duty, a type of indirect tax, is charged on all imported commodities and some items that are exported outside of the country. Import tariffs and export duties are terms used to describe taxes imposed on the import and export of products, respectively. Customs taxes are imposed on the import and export of commodities all over the world in order to generate income and/or protect domestic institutions from foreign competitors. Custom duties are taxed on consumers for harmful products such as tobacco and alcohol to discourage public use. There various type of duties and Basic Custom Duty is one of them! Basic Customs Duty: This duty is imposed on the value of goods at a specified rate as it is fixed on an ad-valorem basis. After being amended time and again, it is currently regulated by the Customs Tariff Act, 1975. The Central Government, however, holds the rights to exempt specific goods from this tax. Other Custom Duty Countervailing Duty: CVD or Additional ...

 Understanding first the meaning of Impairment. In accounting, impairment is a permanent reduction in the value of a company asset. It may be a fixed asset or an intangible asset. When testing an asset for impairment, the total profit, cash flow, or other benefits that can be generated by the asset is periodically compared with its current book value. If the book value of the asset exceeds the future cash flow or other benefits of the asset, the difference between the two is written off, and the value of the asset declines on the company's balance sheet. Basics for why impairment happen? Impairment can occur as the result of an unusual or one-time event, such as a change in legal or economic conditions, a change in consumer demand, or damage that impacts an asset. Assets should be tested for impairment regularly to prevent overstatement on the balance sheet. Impairment exists when an asset's fair value is less than its carrying value on the balance sheet. If impairment is confi...

 Full forms- MAT- Minimum Alternative Tax AMT- Alternate Minimum Tax Objective of Levying MAT Certain organizations before the MAT provisions were introduced were benefiting from different assessment exceptions, deductions, depreciation reliefs, and so forth to reduce or to keep away from tax payments despite already having benefits. To put an end to this, The Finance Act, of 1987 launched MAT or Minimum Alternate Tax, to ensure that all companies pay tax. Provisions of AMT Non-corporate citizens are entitled to AMT provisions in a personalized model. At the end of the day, MAT is relevant for organizations and AMT is relevant to individuals. The AMT arrangements are determined under Sections 115JC to 115JF.

The full form of LRS is Liberalised Remittance Scheme. Meaning- Liberalised Remittance Scheme (LRS) allows resident individuals to remit up to USD 2,50,000 per financial year (April to March) for any permitted capital account transaction, current account transaction, or a combination of both. Liberalised Remittance Scheme (LRS) is a scheme that allows resident individuals to remit a certain amount of money during a financial year to another country for investment and expenditure. As per the FEMA regulations, resident individuals may remit up to USD 250,000 per financial year for any permissible current or capital account transaction or a combination of both. This money can be used to pay expenses related to travelling (private or for business), medical treatment, studying, gifts and donations, maintenance of close relatives and so on.