Widespread Financial Alternatives

 

The major thing that keeps a business or an organization going is the cash flow. Cashflow is nothing but the incomes and expenditures of a business concern and it is very important that these are managed well to keep an eye on how the business is flourishing and what route is it taking towards achieving its annual goals. Every company does a periodic review of this statement to bring in changes in the patterns of the various expenses and the correct ways to tap into all the incomes on time. Now technology has also extended a great helping hand here by bringing in many useful apps for both the company and its customers.

Generally, expenses incurred by a company are mainly related to the business it is in and of course the other related expenses. Similarly, the incomes that come from the customers are for the services rendered by the company. Now to keep a check on both these, it becomes important and mandatory for the company to draw a plan or use a gauge that would check on all these and bring money on time. Now, this is where technology plays a very useful role by introducing many finance-related apps making the management and control of incomes and expenses easily possible.

Before and after Fintech

In the initial days, before the introduction of technology in the banking sector, it was all cash transactions for any and all kinds of payments and receipts. Now when it was decided that this would become technology-based, there was a little hesitation in the market since it was something new and people knew very little about this. The mobile payment apps were introduced and when this was put to test, it proved to be a very useful one. Following the successful testing of this new technology, it was slowly introduced into the market and people started using them.

A clear-cut payment solution

Now more than half of the financial dealings by and with the various companies use this technology in money transactions. It is not only a boon to the companies who make and receive payments but also to the customers who are now enjoying a lot of payment platforms for making all their monthly and annual payments. This is something that can actually make life simpler by reminding people about their payments pending, dues to be paid on time and many similar updates and for this, it is important that people and the companies using such transaction modes keep themselves updated to make use of them the best way possible.

IPOs Have Certain Disadvantages Too

Every strategy and every action has a reaction. Similarly, every process has some advantages and some disadvantages as well. When a company, irrespective of its size, decides to go public then there are many regulations and processes to follow and execute the plan in detail.

You need an army to complete the formal launch

It cannot be done by one person or a small team. The company has to have an army of people working for the IPO before it can be launched successfully. Planning is the most crucial step before launching an IPO. The team should consist of professionals required for various stages. For example, to follow the regulations, you need to have corporate lawyers. For financial decisions like a number of shares, price band etc., you need to have very experienced finance professionals guiding the company. Then you also need underwriters and book runners.

Thus we can see that there are many added costs if any company wants to launch an IPO. This is one of the biggest disadvantages when a small company wants to list on the stock market. It needs to spend a lot of money to get the advantage of IPO as the company has to ensure that the team comprises of experienced people and that costs money.

The company’s image is important

The company has to be in business and successful if it wants people to buy its shares. So its image has to be created, with an eye on people’s perceptions. The company should have a clear financial and successful record in the area of its services or manufacturing. The company might have been operating on a small scale. So a plan for the use of future capital inflow through the IPO has to be in place. It should be easily implemented once the capital comes in. The public should be able to understand the plan of investment and the future growth prospects, then only they will be encouraged to buy the stocks.

Create good defenses also

The company has to be prepared with a good plan in order to prevent any malpractices in terms of takeovers. It should also have complete compliance with governance in the corporate area. The financial statements need to be audited for any discrepancies and should follow all the accounting principles.

All the relevant information comes out in the public domain when an IPO is launched.It may include financial and business information. This may also be used by others such as competitive businesses or customers and may harm the IPO. Once the company is in public domain it is also liable for more scrutiny and litigation by people. Looking at all these points, a company has to be completely sure if it wants to go the IPO route or stay a private company.

Long-Term Capital Management- an analytical approach

Introduction:

We would have come across in the news about the financial crisis that occurs in our economy. It could be due to any reason related to the financial market and it could also go to an extent of collapsing of any entity as such. One such famous story in the history of finance was the Long Term Capital Management (LTCM) collapse, which was a threat to the world on the whole.

Let us take a look at the details of what are the causes of this and the key reasons for such a crisis and how it hindered the word of finance for the world.

Concept:

LTCM was a hedge fund that was proposed which was an institution with a huge net worth and well-reputed owners leading it. Also, it had very highly efficient investors who were Nobel Prize winners. All this added to its efficiency and working, on the large scale outlook.

Investors also had to invest with a minimum amount of certain agreed value and they could touch the funds for a period of three years. In spite of such restrictions also there was a huge crowd of investors, which kept this fund in high intensity always.

It was on the edge of a successful growth and it even helped for the 1997 Asian currency crisis. But it went into a sad state of affairs in the year 1998, but entirely failing and falling down. Since it was a huge fund, the Federal Reserve had resorted to help in bailing it out.

Causes:

This LTCM was based on a hedging policy which was against a predictable range of volatile foreign currencies. This was moving fine till Russia had announced currency devaluation which led to a hitting fall of this entire fund. And as a result, the funds in LTCM began to crumble beyond control. And finally, by end of August 1998, LTCM had fully collapsed.

The handy help from federal reserve:

It was the right time when the federal reserve convinced about 15 U.S banks to lend to bail out the LTCM fund out of the failure. It was indeed a timely resort for the failed fund and its members. It also assured the investors for the funs safety to a certain level.

Thus it is clear that a financial crisis can be caused by such sudden times causing the havoc of the entire financial situation that is prevailing ion the economy. It has no prevention as it is with no notice, therefore the risk management should be adjusted with such times also in mind.

 

 

Fund Management And A Fund Manager

When we discuss fund management it is inevitable to avoid discussing a fund manager for he is the one who manages and does this fund management job perfectly for his company. Apart from this, he is also responsible for designing and planning strategies related to the financial dealings of the company and he is the one who decides the portfolio trading activities. So in a broader sense, it is him who becomes and holds the responsibility of managing and advising any matter related to finances of a company and it is his decisions and final suggestions that gets accepted by the company when comes to fund management.

The challenges

Now that we have discussed what a fund manager does and what his major jobs and responsibilities are, the biggest challenge for a company is in finding the right fund manager for managing its funds. This mostly happens on a trial and error basis and the moment it manages to get one, it gets a good hold on its financial status. Generally, companies, at the beginning allocate a small portion of the company`s funds under the management of the fund manager to note his performance and thereby rate the financial performance and development of a company. It is based on this that a company rates the fund manager and appraises his fee or charges which is a percentage of the company`s assets that are under proper and regular management.

Generally, fund managers are taken on a permanent or temporary basis and the ones who come on a temporary note are generally awarded monthly fee which depends on the job delivered by them. The ones who get a permanent position in a company as a fund manager come under the regular payrolls of a company.

Fund manager`s style of working

Generally, a fund manager uses different theories and concepts in managing and handling the finances of a company. These theories are those based on the basic financial concepts and there is a different one used by him for different financial situations. When comes to investments that a company is interested in, he tries to use the best from the investment strategies and theories and in doing this, he tries all the related ones on a trial and error method and from the outcomes, tries to implement the best one that would suit the company`s plans at that point in time. So whether permanent or temporary, he becomes a part of the company he is working for when comes to such important and crucial decisions.

 

Long-Term Capital Management -Arbitrage Gone Wrong

 

Long-term capital management (LTCM) was a hedge fund launched in the USA with a strategy exploit the arbitrage between securities. It was founded in 1993 by renowned economists and Wall Street traders but led to near downfall of the worldwide finance structure. This is cause of their high-risk arbitrage trading systems.

The Good times

The fund was initially successful but the financial crisis in Asia caused a huge impact on them. The primary trading strategy of LTCM was to take advantage of the price inefficiencies among similar securities. The firm was smart enough to make the best of the capital gains tax that was prevalent in the US. The long-term capital gains were taxed at 20% whereas income was taxed at 39.6%. LTCM devised a financial plan to convert its income to capital so that it can enjoy a lesser tax liability and also maximize it long-term appreciation. It entered into an agreement with Union Bank of Switzerland that would defer its foreign income for seven years, thus it helped them to gain more from capital gains. LTCM witnessed a quick growth in its income. They traded with everyone on Wall Street.

The Glitches in the Investment Strategy

Since the instances or opportunities for arbitrage trading are minimal, they had to look out for other ways to maintain its portfolio. It borrowed money to create a portfolio which was several times the actual number of investors it held. It was forced to sell its securities to buy back the short selling arrangements it had in the market. These activities were performed without a look at it from the valuation perspective and thus it affected the whole portfolio.

Their Debt equity ratio was also not in a favorable position. The fund also had a big chunk of investments in the derivatives which were off-balance sheet. Most of the derivatives were interest rate swaps.

1997 Asian Crisis

LTCM had a good profit margin in 1997, but the Asia crisis has begun to have its effects on other regions as well. Investors started becoming more cautious when it came to making their investment decisions. The financial markets were heavily dependent on international funds and hence the crisis in Asia had a widespread effect on the security prices outside.

At this juncture, the liquid and highly priced securities became more expensive and the less liquid securities became cheaper. The strategy designed to gain from the arbitrage trading of these securities failed, thus incurring heavy losses. Even though LTCM had a diversified strategy, the shift from illiquid to liquid a lot more than what they had expected.

Bail Out

The funds started liquidating one after the other and caused a further decline in prices of the remaining stock. The markets were debating a forced liquidation. Wall Street feared that LTCM going into liquidation will lead to a never-ending reaction in the financial markets. There were some big investment companies that tried to strike a deal but none worked. Finally, The Federal Reserve Bank of New York decided to bail out to avoid further havoc with the financial system.