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A newsletter of popular articles on financial markets and corporate finance

E-Magazine

Volume 4, Issue 1, September 2017

Artha - September 2017

Editorial

Artha has completed five years this month. We could continue this publication with the support of our contributors and readers. We have tried to cover insightful articles on financial markets, behaviour of market participants, corporate finance and corporate governance. We are adding a new section to mark our five years of existence- Voice of America where we would highlight recent trends in financial markets in USA from a broader perspective. Artha has evolved over the years to include separate sections for faculty, alumni and student community of IIM Calcutta.

In the first article, the author deals with the efficiency of audit market. The second piece argues the potential of AT1 bonds to wreak havoc in the global financial system from a systemic perspective. The third article explains the Credit Value Adjustment (CDA). In the fourth article, the author highlights that the board members should figure out that ‘default’ on any debt is a material event from the perspective of the shareholder. In the last piece, the author discuss about the massive growth of passive funds in Western markets in the last decade.

The Market Watch section in this issue highlights the Bitcoin crash after a China crackdown on crypto-currencies.

You may send your comments and feedback on this issue to ashok@iimcal.ac.in

Happy reading!

Ashok Banerjee

 

 

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Audit Market

Author: Ashok Banerjee and Leesa Mohanty*

Efficiency of any audit market is broadly measured by quality of audit. Audit quality, in turn, depends on two factors- (a) ability to identify misreporting and errors in financial statements; and (b) willingness to report such errors and/or misstatements. While the first factor relies on the skill and competence of auditors, the second one surely […]

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Alumni Corner

AT1 Bonds: the new Financial Weapons of Mass Destruction?

Author: Balachandran R ( Alumni Corner )

Credit Default Swaps (CDS) are financial derivatives that earned the notoriety of being characterized Financial Weapons of Mass Destruction in the aftermath of the 2007-8 financial crisis, which originated in the US. CDS is a kind of insurance against credit default. It was issued by insurers like AIG and other market participants, and bought by investment banks like Goldman Sachs, to protect their investment in subprime and other securities. Speculators too can buy the contract without holding the underlying security.

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Alumni Corner

Credit Value Adjustment – Explained

Author: Ritesh Chandra ( Alumni Corner )

Traditional view on OTC derivatives risk Until 2008, OTC derivatives focussed on market risk. Counterparty risk was considered secondary. Most counterparties had strong credit rating and the possibility of default was seen as remote. While Basel-II introduced a capital charge for counterparty risk in the trading book and accounting rules introduced in 2006 required counterparty […]

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Guest Column

How Board Members of Defaulted companies Oversaw Shareholder Value Erosion

Author: Deep N Mukherjee ( Guest Column )

SEBI Redeemed itself on 4th August, 2017. This it did by issuing the circular which mandated listed companies to report ‘default’ in servicing bank loan, within 24 hours of the default. Further it goes ahead to unambiguously define default as ‘non-payment of interest or principal amount in full on the pre-agreed date”. That the globally […]

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Voice of America

The Rise of the Passive Brigade

Author: Ayan Bhattacharya ( Voice of America )

At the heart of modern finance lies hidden a carefully concealed dichotomy. For financial markets to function well, prices must reflect fundamental information. Yet, it is precisely when markets are functioning well that incentives to gather information completely disappear! No recent phenomenon exemplifies this paradox better than the massive growth of passive funds in Western […]

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Market Watch

Bitcoin Tailspin; Chinese Cryptocurrency Ban

Author: Snehal Singhania ( Market Watch )

Bitcoin Price in INR (Last 1M) Source: Zebpay The Bitcoin went on a tailspin in India, falling 33% in less than two weeks, after a China crackdown on crypto-currencies and a public remark by an RBI official, criticising the digital currency. BTCChina, one of the biggest Bitcoin exchanges in the world announced on Thursday that all bitcoin trading activities on its […]

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