Investment Valuation in India

LIBOR LIBOR stands for London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged while borrowing from other banks. It is the primary benchmark, along with the Euribor, for short term interest rates around the world. As a popular benchmark, it is used for US Dollar, GB Pound, Euro, Swiss Franc, Canadian Dollar and Japanese Yen. Libor rates are calculated for ten currencies and 15 borrowing periods ranging from overnight to one year and are published daily at 11:30 am (London time) by Thomson Reuters. The British Bankers Association (BBA) collects data from 16 banks to calculate LIBOR for each maturity and for each currency. It weeds out the best four and the worst four and then calculates the average of remaining 8 rates which is published as LIBOR. Many financial institutions, mortgage lenders and credit card agencies set their own rates relative to it. At least $350 trillion in derivatives and other financia...

India is in a rising interest rate environment. We have already seen the RBI raising interest rates five times since March 2010. Last week, in its policy review, the central bank left rates unchanged, merely reducing the SLR to 24% from 25%. However, this is certainly not the end of the story. With the inflation showing no signs of easing in the medium term, raising interest rates is one of the most important tools in the hands of the government/central bank. Rising interest rates are generally not taken well by the investors at large. Firstly because it directly hurts the pockets of the individuals. The interest rates are increased to suck money out of the system and to curb the inflation. As rates increase, banks pass on the increase in rates to its customers and consequently home loans become more expensive. People having loans have less disposable income as their monthly payments increase. Let's see how this impacts the businesses. Companies need funds to operate and ...

Its Global Liquidity Crisis ! We all have been listening to this for a while now and are adversely affected by this. the global markets are down and money is flowing out of the emerging economies. I am being asked a very valid question time and again. If money is flowing out of (say) India, it must be going somewhere. For every outflow of money, there must be a corresponding inflow somewhere. But that's not the case. the whole world is facing this liquidity crisis. A gentleman (he invested a lot in the equities and has lost millions due to fall in the market; "the FIs are selling") came up with an answer that the FIs are sitting on cash. OK! lets take this for a while. But are they hold currency notes. Nopes. This money shud then be deposited in the bank accounts. But again this liquidity crisis is most faced by banks. the banks dont have money to lend, the interest rates are shooting up. So is it that the banks are holding money with themselves are not willing to lend. N...

Flat rate of interest Very often banks offer flat rate of interest to their consumers on products like credit cards and personal loans or other smaller loans. Flat rate of interest sounds good because the rates quoted by the banks are lower than the reducing balance interest rates and an average consumer understands the flat rate very easily. The simplest explanation - when you take a flat rate loan, you are asked to pay interest on the whole amount (principal) during the whole tenure of the loan even when the principal is gradually reducing during the term of the loan. Suppose you take a loan of 1 lakh rupees at 15% flat rate of interest for 1 year. The EMI or equal monthly loan installment that you pay consists of both interest and a part of the principal. So, as you pay the EMIs, the principal goes on reducing. However, even as the principal is reducing, you are still paying the interest on the whole amount (1 lakh rupees). Flat rate of interest is the interest charged on the full a...