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How to Prepare with Financial Analyst Interview Questions?

Posted on by Imarticus Learning

Entering the financial analysis field after completing your BCom is a significant step towards a rewarding career. Financial analysis combines analytical skills, financial acumen, and strategic thinking-all of which are highly valued in the industry. Preparing for financial analyst job interviews is crucial in standing out from your peers.

Senior levels of financial analysis jobs, in the context of organisational size and geographical location, go between $120,000 more to as much as $200,000 yearly. In this article, we provide you with key actionable insights and tips that you will learn for acing the interviews so you can land on the right career in high paid money.

Financial Analyst Interview Questions: Important Areas to Cover

The financial analyst interview questions broadly fall in the ambit. Knowing the main themes will prepare you well.

1. Technical Skills

What kind of tools used for financial analysis are you well-versed in?

How would you approach financial modeling and valuation?

Technical skills are going to form the backbone of an analyst’s work. While it may be updated about tools that are more general such as Excel, Tableau or even proprietary software can be more industry-specific like SAP or Bloomberg that differentiates one person from another. Enumerate skills parallel to earlier experience in making financial models as well as market analyses of real projects on presenting tools.

2. Problem-Solving Ability

Can you recall a situation in which you recognised a financial risk and how you controlled it?

How would you approach the analysis of the financial position of a firm?

Demonstrate how you solve a problem. What you need is an approach to analysing surroundings, risks, and practical ways of solving them. Prepare examples of how you have minimised the financial risks of the company or what contribution you could make in strategic decisions on how you approached it and its impact.

3. Industry Knowledge

What do you know about our company and the industry that we operate in?

How would you keep abreast of changes in the world of finance?

Interviewers also judge how much you know about their company and the industry in general. Find out the financial performance of the company, its competitors, and the market trends. Identify particular challenges or opportunities in the industry and how you could help address those.

4. Soft Skills

How do you manage tight deadlines?

Tell me about a time when you had to explain complex data to a nonfinance audience.

Not a secret that it is not an exception. More than often wanted by employers are those who can really communicate very effectively and well with teams as well as really very efficient with the use of one’s time. Provide examples on how you exercised those skills such as explaining technical complicated financial jargons into layman terms or the multi-projects almost at-tight deadlines

Tips for Financial Analyst Job Interview

General advice to most help you with the process of preparation:

  1. Get to Know the Company

You must have a good understanding of the company’s mission, financial condition, and industry positioning. All your answers should be written in line with the objectives of the company. The internet, annual reports, and news articles have been researched to discover all this information.

  1. Review of Key Financial Concepts

Review of basics of financial statement analysis, ratio analysis and valuation. Master these really well. Practice financial statement interpretation as well as interpretation of KPIs.

  1. Practice Common Questions

Use a mentor or peer to simulate answering common interview questions for financial analysts. Practice follow-up questions and tighten the responses so they are as brief as possible, yet powerful.

  1. Exhibit Problem-Solving Skills

Be prepared to take the interviewer through your thought process using past experiences or hypothetical scenarios. Be clear in your answers by using frameworks like STAR when answering.

  1. Display Relevant Courses and Certifications

Some of the courses and certifications, for example, Financial Analysis Course, will convey that you are very well-prepared and dedicated. Ensure to tell how these credentials have best prepared you with hands-on skills in practice and industry knowledge.

  1. Get Ready for Behavioural Questions

Behavioral questions basically test your adaptability, leadership, and teamwork. Think about previous situations where you could deliver high-quality results or you had to handle some challenges.

Common Financial Analyst Interview Questions

  • How would you approach a financial forecast?
  • Can you explain a recent trend in financial markets and its implications?
  • What methods of equity valuation do you use?
  • Describe how you would communicate an unresolved disagreement with a more senior manager on a financial recommendation.
  • How do you prioritise tasks when managing multiple deadlines?

Each question allows you to demonstrate technical skill, analytical capacity, and strategic perspective. So be prepared to develop constructed and detailed answers to all these questions.

Why Take a Postgraduate Financial Analysis Program?

A postgraduate financial analysis program places skills into work on the job immediately. Some of those are:

  1. Advanced Financial Modeling and Valuation

Learn state-of-the-art ways to develop financial models and valuation. Know DCF analysis, comparative valuation, and precedent transactions.

  1. Industry-relevant tools

Know how to excel in Excel, PowerPoint, and simulation tools that really simulate the process of actual real-world financial analysis. This goes into reports, presentations, and dynamic financial models.

  1. Personal Branding

Create a professional presence through personal branding projects and LinkedIn challenges. You get to showcase your skills and accomplishments to potential employers.

  1. Job Assurance

Guaranteed interviews and job assurance through structured placement support. You get opportunities with top finance firms and global organisations.

  1. Practical Experience

Case studies, simulations, and live projects are used for practical exposure. Such activities help you apply theoretical knowledge to practical scenarios, hence improving your problem-solving abilities.

FAQs

  1. What are the required skills for a financial analyst?

A good analytical mind, along with an appropriate understanding of various financial tools and effective communication with a better conceptual understanding of finances, are also high among these important skills. Adaptability as well as careful attention to the details ranks quite high.

  1. How will a course in financial analysis aid one in interviews?

Such courses provide more practical training and industry insights, making you more skilled in the context of being able to answer technical questions as well as being more skilled to showcase practical skills. It also showcases interest in professional development.

  1. Are BCom graduates certified?

It is not required, but if you are taking CFA or specialised courses in financial analysis, then you will be in a great position in terms of finding jobs. The certification speaks of your ability, and that gives you an added competitive edge above your competition.

  1. How to stay updated with your knowledge in finance?

Follow industry news, attend webinars, and follow other financial professionals through LinkedIn. It also helps when you subscribe to financial publications or join professional associations.

  1. List the key hurdles financial analysts meet.

The principal challenges are mostly handling massive databases, finishing your work on very narrow deadlines, as well as struggling with changes within the market’s situations. Becoming great problem solvers or analysts will challenge these head-to-head.

Conclusion

Interview skills of understanding the question and the answer of a financial analyst’s technical knowledge, and analytical skill besides effective communication also require. As you are being guided through this tips, that would lead toward a financial analysis course where there is a possibility of more power in cracking out the interviews.

Seal up your future and prepare towards career success because knowledge regarding that financial job skill also other credentials needs to abreast.

Career Options After BCom: A Guide to Financial Accounting Jobs

Posted on by Imarticus Learning

Getting a BCom degree is quite a milestone. The journey in the fascinating finance and accounting world hasn’t begun yet. There is a plentitude of opportunities in financial accounting for ambitious professionals like you. Just consider the best career options after BCom and strategically prepare for it.

This is an industry where, purely due to numbers, jobs can prove rewarding for investments if one is particular about his numbers, strategy, or financial planning. Senior roles will command anywhere from ₹20,00,000 to ₹50,00,000 a year in India and $150,000 to $300,000 in the U.S. There could be controllers and even CFOs.

In this article, we will see how you must prepare for successful career options after a BCom—Financial Accounting job, your career, and the best pathways you might take by realising what is required in each one.

Now that you have your BCom, the world has some of the best career options. Let’s take some of the top financial accounting careers after BCom and what they could mean for you.

1. Chartered Accountant (CA)

CA degree is one of the very prestigious ones that help a student specialise in areas related to taxation, auditing, and financial management. The most coveted career option, especially for BCom pass-outs, is in CAs. It offers professional training with one of the toughest exams ever taken. Thus, it delivers an immense payback in terms of rewards. Now, CAs are in extreme demand worldwide.

2. Certified Management Accountant (CMA)

The CMA is specialised in financial strategy, planning, and management accounting. This is globally recognised and, hence, suitable for multinational companies. It has equipped you with financial planning, analysis, control, and decision-support skills.

3. Financial Analyst

As a financial analyst, one will analyse financial data, identify trends in the market, and give proper investment or business strategy proposals. This work requires powerful analytical skills and a keen eye for detail. Hence, this is an ideal occupation for anyone who likes data interpretation.

4. Tax consultant

Tax consultants help entities and individuals understand this immensely complex body of tax laws. Therefore, such a role is critical in complying with and optimising their tax liabilities. Tax consultants primarily work either individually or in consulting firms.

5. Auditor

Auditing is very, very important because it plays the role of confirming the accuracy and adherence of the financial documents. This is the critical point of using internal and external auditors while evaluating the validity of the financial statements, plus internal controls ensure legal requirements; therefore, perfect professional practice.

6. Accounting Career Options for BCom Graduates

The diversified and highly rewarding accounting career options that can be availed of for BCom graduates range from junior accountants to financial planners. The jobs function as stepping stones to other posts, such as financial controllers or CFOs.

7. Financial Planner

Financial planners help individuals and organisations achieve financial goals through customised investment, saving, and retirement planning schemes. This is a brilliant profession for BCom pass-outs who like direct client interaction.

Steps towards achieving Financial Accounting Jobs after BCom

  1. Strong Foundation

Master accounting principles, financial reporting, and taxation using the BCom curriculum. The right foundation leads to a promising career. Focus on key subjects like:

  • Financial Accounting
  • Corporate Finance
  • Cost Accounting
  • Taxation
  1. Specialised Program

A postgraduate Financial Management Course will dramatically improve your skills and employment prospects. For instance, the Imarticus Learning Post Graduate Financial Accounting and Management Course gives you:

  • Practical projects
  • Industry tools usage
  • Job-readiness skills

Such courses help bridge the gap between your theoretical knowledge and industry needs.

  1. Get Top-notch Certifications

Professional certifications go a long way in upgrading your resume. Among the most recognised ones include:

Besides opening up global job prospects, these certifications will get your skills noticed.

  1. Gain Practical Exposure

Experience is the best teacher, especially when it comes to financial accounting. Take up internships, part-time work, or freelancing work. Experience of working with others in this field will expose you to things you could never learn from textbooks.

  1. Networking is the Key

Professional networking is one of the most vital processes involved in career development. Focus on attending seminars, webinars, and networking events affiliated with various industries to meet people with similar interests and potential employers. Apart from that, use LinkedIn to present your skills and expand your professional community.

  1. Development of Soft Skills

Technical skills are not to be underestimated. However, communication, time management, and problem-solving skills are par with this. Most accountants function in cross-functional teams. Therefore, interpersonal skills are of prime importance in a career.

Popular Career Options after BCom

Entry-Level Jobs

For a fresher BCom graduate, entry-level positions provide the perfect base to start and acquire knowledge through experience. These are some of the usual entry-level jobs:

  • Junior Accountant
  • Accounts Assistant
  • Financial Planning Associate
  • Middle-Level Jobs

Once you get some experience, you can move to the middle-grade group whose jobs are said to increase in responsibilities, but also the salaries tend to boost; among the most desired jobs that seem trendy in this level are: 

  • Financial analyst
  • Management accountant
  • Tax expert
  • Top-level Jobs
  • Financial controller
  • Director of Finance
  • Chief Financial Officer

The same roles might have some advanced certifications along with huge experience; but in exchange, they offer great remuneration as well as power.

Why Financial Accounting & Management at Imarticus Learning?

Industry-First Curriculum

The curriculum at Imarticus has been designed keeping in mind the fast-changing demands of the world of financial accounting. Curriculums are made basic and advanced to hone the skills from basic level to advanced level required to perform in a job or career.

Proactive learning for job readiness

It has a one-on-one approach using actual projects that make a student job-ready for those demanding roles. Pragmatic learning through such an approach ensures that one can very confidently apply his skills to real-world practice.

Exemplary Outcomes

  • 100% job guarantee
  • 7 assured interviews
  • Average starting salaries of 6-8 LPA & 60% hike in salary

Trusted Partner for Success

Since Imarticus Learning is a good brand with over 1,000 hiring partners as well as a track of excellence, it ensures learning to reach the desired careers in an efficient manner.

FAQs

What are the highest-paid jobs in financial accounting right after BCom?

The most fulfilling and highest-paid jobs encompassed by these three professional tracks are Chartered Accountant, Financial Analyst, and CFO. These occupations most frequently appear in virtually every industry. The profession typically encompasses tremendous benefits coupled with attendant responsibilities.

  1. What can a master’s degree in financial management do for me?

These courses equip you with relevant knowledge, hands on practices, and the certificates enhance your employability even in the competitive markets. It prepares you for work beyond providing you with hand-on exposure in the industries

  1. Entry-level accounting average pay salary

In India there is an entry-level accounting position that is earning annually around ₹2,00,000- ₹3,50,000. With experience and some added qualifications, it increases tenfold.

  1. Do I require other certificates after BCom?

Though it is not mandatory, a choice of CA, CMA, or ACCA while applying to jobs works superbly well. It gives the required skill certification that eventually yields better salary pay.

  1. How will I know the trends prevailing in this industry?

Read financial news services. Attend webinars and continuing education classes. Attend webinars and take continuing education classes to network with other professionals. Current trends will stay current when networking with other professionals and joining professional associations.

Conclusion

The net result of joining the field of financial accounting is much stronger in terms of a sound combination of strong foundational knowledge, relevant certifications, and practical experiences. The best options after BCom, along with upskilling based on learning industry-focused courses might prepare you to have accelerated growth in one’s career that may create avenues for having an outstanding financial accounting future for individuals.

I would tell the reader never wait for doors to be opened; make a door. Learn from Postgraduate Financial Accounting and Management from Imarticus Learning today itself and walk out a victorious financial accountant.

Your Guide to Career Options After BCom

Posted on by Imarticus Learning

Finding perfect career options after BCom is quite challenging, especially if your specialisation is in financial accounting and management. This article will walk through the most promising opportunities, the skills you have to acquire, and how specialised programs will help you get at the top of your finance career.

“According to research, the demand for financial accounting and management professionals is massive worldwide as markets interlink. There are massive opportunities for skilled professionals in the U.S., Canada, UK, Australia, and Europe.”

Why Choose Financial Accounting and Management?

Financial accounting and management lie at the core of any organisation. These functions provide stakeholders with much-needed information about the health and direction that strategic decisions in the firm should take. Such roles will be undertaken forthwith by BCom graduates with core knowledge.

Industry Insights

Financial accounting and management is not simply concerned with record-keeping. Instead, it is a strategic function that: 

  • Inspires confidence in lenders to trust it.
  • Ensures that funds are available to carry out or expand the operations.
  • Enhances practices of decision-making and planning.
  • Supports companies in functioning in line with the law and regulations.

The heavy demand globally calls for a career in this field. The firms rely more on professional accountants to handle international situations and maximise their activities.

Career Options After BCom

There are several lucrative career options after BCom. Well, let’s discuss a few good options after BCom:

  1. Chartered Accountant (CA)

CA is a demanding career with a strong promise of securing jobs and excellent pay scales. This career option is professionally oriented towards special areas such as auditing, taxation, and financing management. Consequently, completing a CA qualification after BCom enhances your resume and opens doors to senior accounting jobs after BCom.

  1. Cost and Management Accounting (CMA)

Specialises in controlling costs and financial strategies, therefore always a strong requirement in manufacturing companies, IT firms, consultancy organisations, etc. This requires a financial person with all kinds of analytics know-how. That is one decisive way of elevating employment levels and, therefore, your wage.

  1. Financial Analyst

Financial analysts interpret data to make the right investment decisions for organisations. It is a perfect fit for BCom graduates who are analytical and detail-oriented. Roles in this field often lead to opportunities in investment firms, equity research, and corporate finance departments, making it one of the best jobs for BCom graduates.

  1. Banking and Insurance Roles

The banking sector provides retail, corporate, and investment banking careers. The insurance industry also employs trained persons in underwriting, claims, and risk evaluation. They offer a secure career path with a high potential for career progression.

  1. Tax Consultant

Graduates from this discipline will be helpful to you as tax consultants if they can keep an eye on all the tax laws. It is a field with fantastic growth and specialisation opportunities. You can either work for a consultancy firm or have your practice to consult businesses and individuals.

  1. Financial Accounting and Management

A dedicated course like Postgraduate Financial Accounting and Management by Imarticus Learning can keep you one step closer to grabbing in-demand financial accounting and management roles. The curriculum helps provide practical knowledge and a theoretical understanding of success in the financial domain.

Skills Required to Excel

A successful Financial accounting and management career requires technical expertise blended with soft skills. Here is what you will need for this role:

  • Technical Skills: Proficiency in accounting software, financial modelling, and data analysis.
  • Analytical Thinking: The ability to comprehend financial information and translate this into advice on strategy.
  • Communication Skills: The ability to convey to all stakeholders in view is critical for any role of this nature.
  • Ethical Integrity: Upholding ethical standards is non-negotiable in financial roles.
  • Leadership Skills: High-level positions involve team as well as project management. So, leadership skills shall be required.

How to Start Your Journey?

One must be an ever-learning and developing process to excel in this field. The Postgraduate Financial Accounting and Management Program will act as a boon as this is the perfect course to provide you with the needed edge.

Why Choose the Postgraduate Financial Accounting and Management Program at Imarticus?

Industry-First Course Structure

  • This will give you a finance base as well as practical skills.
  • Covers all the significant areas of financial reporting, management accounting, and strategic planning.

Proactive Learning for Job Readiness

  • One-to-one, group discussions, and hands-on projects based on individual requirement
  • Mock interviews and resume-building workshop for enhanced employability

Job Assurance and Salary Hikes

  • 100% job assurance
  • 4 LPA average salary and 60% hike for the professionals who have experience between 0-3 years

Unmatched Industry Experience

  • Awarded the Best Education Provider in Finance at the 30th Elets World Education Summit 2024
  • Recognised for being an outcome-based education.

Extensive Hiring Partners

  • Has collaborated with more than 1000 hiring partners from top finance and consulting companies.

7 Guaranteed Interviews

  • Guarantees that you get enough opportunities to show your skills to the recruiters.

FAQs

  1. What are some of the good jobs for BCom students?

Job roles such as Chartered Accountant, Financial Analyst, banking and insurance-related jobs are among the best jobs for BCom graduates. Specialised courses can build a strong stand in financial accounting and management.

  1. Is a financial management course worth it?

Of course. A specialised finance management course comprising hands-on training opens doors to many opportunities in top-notch financial organisations. Such an advancement in career is what every finance professional dreams of. 

  1. How can I enhance my career after BCom?

Enrol in some of the best in-demand courses like CA, CMA, or even the Postgraduate Financial Accounting and Management Course. All this develops a career further with networking and internship opportunities.

  1. What is the salary for BCom graduates in financial accounting?

The minimum pay scale starts from up to 4-6 LPA for a fresher, but due to time and experience coupled with the requisite qualification, one progresses into a quite reasonable pay scale. The pay scale offered for the professional course is much higher than that of the former.

  1. Which countries offer the best opportunities in financial management?

There is a massive demand in countries like the U.S., Canada, the UK, Australia, and most of Europe. Here, comparatively competitive salary levels, apart from growth and career opportunities, can be achieved.

Conclusion

The career options after BCom are abundant and promising. Once one gets a good BCom base and continues training, he will quickly land a lucrative financial accounting and management job. Imarticus Learning offers you the ideal springboard towards the Postgraduate Financial Accounting and Management Program. With this program, you can learn in-depth, get a guarantee for your job, and receive industry recognition, so you are set for growth and success in this dynamic field. Take that first step to a bright future today.

The Role of Financial Markets in the Growth of Economy

Posted on by Imarticus Learning

Are you curious about what creates an economy with thriving businesses, which makes makes people invest in the future confidently? It is nothing but an intricate web of financial markets. From helping investments to shaping government policies, it is the backbone of economies in the current modern world. Be it a person working in finance or someone who wants to know the real role of financial markets in economic development – this guide will take you through their profound impact.

What Are Financial Markets?

Financial markets are avenues wherein buyers and sellers can transact on financial instruments which include stocks, bonds, commodities, and derivatives. These markets are put forward as a pathway amongst investors looking for possibilities and firms that need cash. These markets enable a smooth and fair price for trades while providing a safe haven for these transactions to take place – a necessity for keeping the economy stable and growing.

The Role of Financial Market in Economic Growth

The financial market is indeed the most important thing in driving up the economy. All economies without exception regard this market as the lifeblood of any economy, as it channels effective resource allocation via transferring funds from savers to borrowers. The following is how financial markets contribute to economic growth:

✅ Capital Formation:

The financial markets allow money flow for organization activities like expansion and innovation. They have become life caves in creating jobs. Indeed, this increases productivity and has a direct relationship with economic output.

✅ Investment Promotion:

Financial markets give the investor confidence because they are transparent and have regulatory oversight. A well-functioning market encourages both individuals and institutions to invest, which fuels economic activity further.

✅ Government Financing:

The government relies on financial markets to issue bonds for infrastructure projects, healthcare, and other public services, which has a direct impact on economic growth.

✅ Global Integration:

Financial markets connect domestic economies to the global market, fostering trade and investment opportunities across borders.

✅ Economic Indicators:

Financial markets are well-recorded for indicating the economic conditions. The share price in the stock market, the returns on bonds and exchange rates are indicators that measure economic ups and downs.

Types of Financial Markets

Awareness of the various forms of financial markets helps finance professionals understand their specific contribution to economic growth. Some of the most significant types include:

✅ Capital Markets:

Capital markets, specifically stock and bond markets, provide long-term financing to businesses and governments.

✅ Money Markets:

Money markets are the short term financing instruments for businesses and governments to easily manage their liquidity needs.

✅ Foreign Exchange Markets:

Forex markets facilitate exchange of currencies that is much required for international trade and investment.

✅ Derivatives Markets:

These facilitate trading of contracts based on underlying assets. They help mitigate risk and bring in financial stability.

✅ Commodity Markets:

Commodity markets deal with physical products such as oil, gold, and agricultural products which have both local and global influences.

Impact of Financial Markets on the Economy

The influence of financial markets on the economy is quite significant and touches several areas of economic activity:

✅ Growth

Financial markets accelerate economic development through the mobilization of savings into productive investments.

✅ Entrepreneurship

Access to finance empowers entrepreneurs to launch and scale businesses, creating innovations and jobs.

✅ Stability

Regulated financial markets mitigate economic shocks through the provision of risk management tools such as derivatives.

✅ Consumer Confidence

A stable financial market reassures consumers, encouraging spending and investment.

✅ Improving Infrastructure Investments

Infrastructure projects that have high-priority economic growth requirements are mainly funded through government bond markets.

The Role of Financial Professionals in Financial Markets

Finance experts play a fundamental role in the efficient and effective running of financial markets. The main duty of being in finance requires all the finance professionals to keep themselves completely aware of all the changes that take place in market trends, regulatory patterns, and even economic indicators.

One way to improve your proficiency is through a CFO program. Such programs give you a broad knowledge of financial management, strategic planning, and risk analysis, which helps to make the right decisions that improve organizational and economic growth.

How to Succeed as a Finance Professional in Financial Markets

Here are some practical actions to enhance your expertise

✅ Stay updated:

Keep checking the market news, trends, and global economic information

✅ Develop analytical skills:

Analyze financial data and economic indicators in order to interpret them properly.

✅ Get Certified:

Apply for courses that specialize, like a CFO course, in order to improve your position in the field and help further economic development.

✅ Network:

Make contacts within the finance sector in order to share information and get input from colleagues.

✅ Be Tech-Savvy:

Apply AI, blockchain, and data analytics in order to take better investment and business decisions.

FAQs

  1. What is the economy’s main function of financial markets?

By moving the funds of savers to borrowers, the financial market’s principal purpose is enabling investments and encourage economic growth by facilitating the effective allocation of resources.

  1. How do financial markets impact entrepreneurship?

Financial markets offer entrepreneurs opportunities to secure funding – allowing them to launch and grow their enterprises. This promotes innovation, employment generation and economic growth.

  1. What are the key types of financial markets?

The key types of financial markets include capital markets, money markets, foreign exchange markets, derivatives markets, and commodity markets.

  1. In what ways can finance professionals contribute to economic growth?

Finance professionals contribute by monitoring market trends, maintaining regulatory requirements, and taking strategic decisions in investments that enhance performance for both organizations and economics.

  1. What is the importance of a CFO Course to Finance Professionals? 

The CFO course is meant to give an acute edge in financial management strategy and risk analysis to finance professionals, enabling them to make excellent leaders in the organization and contribute to growing the economy.

Final Thoughts

There is no doubt that financial markets play a role in economic growth, and this is the pillar or base upon which modern economies rest. Besides making capital available to create new entrepreneurial possibilities, financial markets innovate, create jobs, and uplift the standard of living. As a finance professional, therefore, knowing the intricacies in financial markets becomes all so important, for it forms the basis of making informed decisions that can have positive impacts on the economy.

Continuously charging your skills with things like a CFO course, understanding the current trends in the marketplace, and utilizing technology would keep you in the active role of shaping that thriving economic future.

A Beginner’s Guide to Derivative Securities and Their Uses

Posted on by Imarticus Learning

Derivative securities are financial instruments whose value derives from an underlying asset such as a stock, a bond, interest rates, a commodity, an index, or even a basket of cryptocurrencies such as spot ether ETFs. These derivatives can be complex financial instruments that subject novice users to increased risk. 

Often used primarily for three purposes:

  • Hedge
  • Speculate 
  • Leverage a position

Many derivative instruments include: 

  • Options,
  • Swaps
  • Futures and forward contracts
  • Collateralised debt obligations

Derivative securities are widely used and vary widely in risk, but on the whole, they represent a sound way for a seasoned trader to take on the financial markets.

Definition for derivatives:

Securities Contracts (Regulation) Act, 1956 defines a derivative as under:

“Derivative” includes—

(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security,

(B) a contract which derives its value from the prices, or index of prices, of underlying securities.

(Source: https://www.indianemployees.com/acts-rules/details/securities-contracts-regulation-act-1956)

Types of derivative securities

There are 5 main types of derivative financial instruments

  • Options
  • Futures
  • Forwards
  • Swaps 
  • Warrants
  1. Options

Options are contracts given to their owners to either buy or sell a security for a particular price either on or before a given date. While a put option allows its owners the right to sell something whereas the call option gives the owners the right to buy something.

Premium-  what an option buyer pays to the option seller for the option contract. Moreover, this premium depends on factors such as:

  • Strike price
  • The amount of time remaining before its expiry
  • The volatility of the underlying asset

Speaking of standardised options, these options are traded through public exchanges like NYSE and Nasdaq, or they can be exchanged privately between parties without the intervention of an exchange in the over-the-counter (OTC) market.

Well, honestly, if we say different investors use different options for different purposes, they mostly use hedge positions or speculate on future price movements of various securities.

  1. Futures

A futures contract lets the buyer acquire and the seller t sell a specific quantity of a particular security
 e.g.

– Corn

– Crude oil

At a given price, usually the prevailing market price of the security on a specific date is stated in the future. Well, one could easily say that the buyer and seller can “lock in” the current price of an asset for a date in the future when purchasing a future contract.

For instance, if an investor feels that oil prices will increase in the next 6 months, he can go ahead and buy a future contract. This will bind him to purchase X number of barrels of crude at today’s market price even 6 months from now. Als,o if  in case the price of oil does increase, they can either sell the contract to another buyer at a higher premium or wait till the contract’s expiry date and take possession of the barrels at the now discounted price.

While futures most often deal with commodities but the contracts also exist for:

  •  stock indexes
  •  individual stocks
  • Currencies
  • bonds.

Meanwhile, futures have standardised terms and trade on public exchanges.

  1. Forward:

A forward contract is the same as a future in the fact that it’s a type of agreement where two parties agree to purchase/ sell a particular asset on a specific date for a given price. Forward differs from futures, though; the terms of every such contract are not standardised as the parties involved in negotiating to determine them. Thus, forward contracts are only traded over the counter market and not through the public exchanges.

Secondly, while futures contracts settle daily and retail traders may buy and resell without taking delivery of the physical commodity up to expiration, forward contracts settle only when delivery occurs. That means a forward contract buyer needs to take delivery of the asset in question, for example, 10,000 pounds of corn. That is why the forward contracts are preferred mostly by the actual producers as well as users of the physical assets.

  1. Swaps

A swap is a customised derivative contract by which two parties agree to exchange the payments or cash flows from two assets at a predetermined frequency for an agreed period of time. Such contracts are negotiated privately—generally between businesses and/or institutional investors rather than individual investors—through the over-the-counter market.

One payment or cash flow is usually fixed, while the other varies depending on some factor—examples include interest rates, currency exchange rates, stock index values, and commodity prices. The 2 most popular types of swap contracts are:
– Fixed-vs-variable interest rate swaps and
– currency swaps

  1. Warrants

Warrants are similar to options, which give the right to buy or sell a security like a stock on or before a specific date called the expiration date at a specific strike price. In contrast, however, with options contracts, the company itself issues stock warrants and represents new shares; thus, if an investor exercises one, the shares they buy from the company add to the company’s total outstanding shares, hence diluting the value of all existing shares. The terms of warrants also often run considerably longer than standard options, with many maturing five or even ten years from the date they are originally issued. In addition, contracts which are customised and not standardised are traded over the counter rather than on public exchanges. 

How do derivatives work? 

  • Derivatives are financial contracts whose values depend on the performance of an underlying asset, such as stocks, commodities, currencies, or indices.
  • These contracts detail terms such as the price, date of expiration, and settlement conditions between the parties involved.
  • The value of a derivative fluctuates based on changes in the underlying asset’s price or performance.
  • In the futures contract, a purchaser agrees to buy while agreeing for his counterparty to sell at the specified price at some given future date.
  • The option contract gives the buyer of the option a right without obligation to either purchase or sell the underlying asset based on a specific time by a specified price.
  • A derivative is utilised to hedge risks. Through these arrangements, parties will have chances of being protected from any changes in prices against which they would be hedged.
  • They also facilitate speculation, as speculative traders make money by just changing the price without any interest in the underlying asset.
  • Arbitrage opportunity- This occurs when derivative traders are making money out of differences in prices for the same underlying asset between different markets.
  • Flexibility and leverage offered by derivatives come with massive risks, as they expose them to market volatility and counterparty default.

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Uses of Financial Derivatives:

  • Managing Risks: Derivatives help people and businesses guard against unexpected changes in prices. For instance, a business can lock in the raw material cost using futures contracts to avoid surprises.
  • Earning Profits: A trader uses derivatives to take a bet on how the price will move without even owning the asset. In this way, one wins big or loses big on the market.
  • – Taking Advantage of Price Gaps: Derivatives allow traders to profit from identifying and exploiting price differences between different markets for the same asset.
  • Doing more with less: Derivatives enable you to control big investments with small amounts, thereby giving you greater returns on investment or risks as the case may be.
  • Diversifying It: Investments via derivatives create a diversity aspect by incorporating commodities or a foreign currency to further limit risks.
  • Price Determination: How the derivative instrument trades further helps to analyse prices on commodities like petroleum or gold and equities going into the future of trade to enable an estimate by many of what has transpired in the markets.
  • Opening New Doors: Derivatives make it easier to invest in markets or assets that might otherwise be too tricky or expensive to trade directly.
  • Creating Custom Solutions: Businesses can use customised derivatives to tackle specific challenges, such as dealing with interest rate changes or currency fluctuations.

FAQs

  1. What are the fundamental types of derivative securities?

Answer: The major Derivative Securities are Options, Futures, Forwards, Swaps, and Warrants. Each of the instruments gives a different mode wherein the investor could hedge risks, speculate market movements, or leverage position. For instance, options give the right to buy or sell an asset, while futures contracts give a locked price of any commodity for a future date.

  1. How do derivative securities function in finance? 

Answer: The purchaser and the seller will define the terms of trading an asset important to them, such as price, for a date of settlement based on their agreement through contract. Derivative securities allow a market player to hedge, speculate on price movements, and take profit from arbitrage opportunities made possible by market inefficiencies.

  1. What are the risks and advantages of derivative securities?

Answer: The primary benefits of Derivative Securities can be realized in the subsequent aspects, as they allow an investor to hedge against price movements, diversify his portfolio, and use leverage investment with a small capital base. Derivatives are risky, in addition to these, they have associated risks, particularly those of market volatility and default risk by the counterpart. Speculative financial derivative investments can lead to both pronunciations of profits and losses. Such gains or losses arise when the market turns against the investor’s position.

Conclusion: 

In conclusion, Derivative Securities are intricate financial instruments that present considerable sources of hedging and speculation and leverage positions. They are also very risky, particularly for beginners in trading. Therefore, understanding the Types of Derivative Securities and How Derivatives Work is vital for anyone intending to make efficient navigation through the markets.

If you want to learn more about the financial market, risk management or strategic financial decision-making capabilities then the cfo course is usually the best choice. From this cfo course, you will learn how to handle financial risks, make data-driven financial decisions and lead a financial operation in any form of organisation. 

Challenges CFOs Face in International Business Operations

Posted on by Imarticus Learning

In the globalisation era, international business operations are a prime growth driver for an organisation which is willing to expand markets and exploit the opportunities around the globe. It all depends on the CFO, who will work in managing the complexity of multinational operations. However, leading financial strategy in this dynamic and unpredictable environment comes with significant challenges.

We talk about the leading challenge CFOs face when internationalising their business, with how it affects their firms’ strategic choices and financial well-being.

Regulatory and Compliance Challenges

Regulatory compliance is one of the most significant challenges that CFOs face in managing international business operations. Each country has its own set of tax codes, labour laws, and financial reporting standards. Diversity often leads to conflicts and makes it challenging for the CFO to ensure smooth compliance. For example, the General Data Protection Regulation in the European Union adds complexity while managing data from multiple regions.

Non-compliance can have severe consequences, including heavy fines, operational disruptions, and reputational damage. One can expect the CFO to oversee these intricate requirements while offering transparency in financial reporting. This dimension of CFO role in multinational companies has become even more challenging amidst rising global scrutiny on regulations.

Managerial Control of Foreign Exchange Risks

Among the constant issues CFOs have when conducting business internationally is dealing with exchange rate risks. As it stands, the change of a few points in any exchange rate can impact profitability substantially. The decline in the value of a domestic currency against the dollar might strip away revenue generated by a local market.

A Deloitte survey points out that 60% of CFO role in multinational companies consider foreign exchange volatility as a critical risk to business operations. These fluctuations require CFOs to adopt strategies like hedging while closely monitoring global economic indicators. Balancing these risks with other financial priorities remains an ongoing challenge.

Harmonizing Cross-Border Financial Reporting

Operating in multiple jurisdictions means that there are a variety of accounting standards – GAAP in the United States and IFRS in Europe and other regions. It makes it difficult to align these frameworks toward accurate financial reporting, but aligning them is necessary to maintain confidence among investors and stakeholders.

For CFO role in multinational companies, differences in financial reporting can prevent the proper making of decisions and cause expensive mistakes. An international business strategy for CFOs should be structured in such a way that advanced financial systems are integrated, and are capable of handling multi-standard reporting with ease. Most CFOs also engage in specialized training, like a CFO course, to develop their skills in global financial management.

Talent Acquisition and Workforce Management

Managing a global workforce is another key challenge for CFOs involved in international business. Attracting and retaining skilled professionals across different regions requires navigating complex labour laws and adapting to local cultural norms. Moreover, remote work and hybrid models have added new layers of complexity to cross-border workforce management.

According to a PwC survey, talent acquisition and retention is seen as a major barrier to the global business strategy for 55% of the CFOs. Other than the aspect of compliance, CFOs have to align compensation packages, benefits, and training programs with both local and organizational goals.

Managing Political and Economic Uncertainty

Political instability and economic volatility are always intrinsic risks in international business operations. Trade disputes, sanctions, and sudden changes in policy can cause shocks in supply chains, increase operation costs, and also threaten long-term investments. This is what happened to businesses relying on global supply chains during the US-China trade war.

According to a McKinsey report in 2023, 72% of CFOs mentioned political and economic uncertainty as one of the top concerns. These risks make the CFOs walk on tightropes between long-term growth strategies and short-term financial safeguards. Diversifying supply chains and building contingency plans are critical in countering such uncertainties.

Acquiring and Managing Technology

Technology is a key enabler to help CFOs streamline international operations. From ERP supporting multi-currency transactions through advanced analytics tools that have insights into international markets, technological adoption is critical but challenging to implement and then manage across regions.

CFOs need to confront challenges such as differences in technological infrastructure, integration complications, and increased cybersecurity vulnerabilities. Moreover, protecting financial information is a priority when everything is digital. In CFO role in multinational organisations, ensuring strong cybersecurity protection is part of their overarching international business strategy for CFOs.

    

Cost Optimisation vs Expansion

Expanding into new markets requires significant investments in infrastructure, compliance, and workforce development. CFOs are tasked with ensuring that these expenses align with the organisation’s broader financial objectives. This dual mandate—balancing cost optimisation with expansion—is particularly challenging in volatile markets where unforeseen expenses can derail plans.

Advanced training programs, such as a CFO course, are commonly resorted to by CFOs to hone their skills in strategic decision-making at times like these. Sustained growth is thus realised through the development of financial models that take into account regional risks and opportunities.

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Adopt Sustainability and ESG Compliance

Sustainability in international business is no longer an option but a compulsion. CFOs are also under pressure to deliver improved performance on environmental, social, and governance (ESG) factors for their respective organisations. ESG compliance, from carbon footprints to ethical supply chains, has become the heart and soul of corporate strategy.

A 2024 survey of EY revealed that 68% of multinational companies’ CFOs indicated that complying with ESG regulations should be at the forefront of priorities. In turn, this requires resource management in the most appropriate ways possible and sustainability reporting transparent to stakeholders’ expectations.

Cultural and Communication Barriers: 

Cultural differences and communication barriers are often overlooked challenges in international business operations. Misunderstanding local customs or failing to adapt to regional communication styles can hinder negotiations, affect partnerships, and disrupt internal operations.

For CFOs, fostering cross-cultural understanding is essential to maintaining smooth operations. Hiring local experts and implementing comprehensive cultural training programs can bridge these gaps and create a more inclusive workplace.

Check out all the details you need to know about our CFO course.

The Need for Continuous Learning

International business is fast-paced; therefore, CFOs should be one step ahead regarding emerging trends and challenges. Whether it is new regulations on finance, advanced technology, or geopolitical risk management, learning is a process that must be continuous.

Enrolling in a CFO course that is focused on global financial strategy and leadership would equip CFOs with skills to deal with these issues effectively. Moreover, the participation of CFOs in global forums and networking with peers will provide valuable insights into the hurdles of international business operations.

FAQs

  1. What are the important CFO responsibilities in international business?

Answer: CFOs in international business are responsible for financial compliance across different jurisdictions, currency exchange risk management, harmonisation of cross-border financial reporting, and budget alignment with global strategies. They also play an important role in talent acquisition, sustainability initiatives, and technology adoption for the smooth running of global operations.

  1. What are the greatest challenges that CFOs in international business face?

Answer: CFOs are facing issues related to regulatory compliance, volatility in foreign exchange, talent management, political and economic uncertainty, and ESG requirements. The cultural barriers and adaptation of advanced technologies have also challenged them to maintain operational efficiency and financial stability in international markets.

  1. In what ways can a CFO course help overcome international business challenges?

Answer: A specialised CFO course will equip professionals with the knowledge and skills to navigate the complexities of international business operations. The course covers global financial strategies, compliance, risk management, and leadership techniques that will help CFOs address the challenges of multinational companies effectively.

Conclusion

The CFO role in multinational companies has dramatically changed, with greater responsibilities and heightened expectations. From regulatory compliance and currency risks to talent management and sustainability, the challenges are multifaceted and demand a strategic approach.

These are just some of the challenges for CFOs who, once embracing these, change and adapt their strategies in ways that result in an organisational edge to further ensure financial stability and growth in an increasingly globalised world. For those aspiring CFOs or interested in adding depth to existing skills, a balanced and comprehensive CFO course will certainly be the perfect springboard to navigating international business challenges CFOs face and excelling in their leadership positions.

By understanding and dealing with these issues, the future of their organisations is guaranteed by the CFO while simultaneously taking a leadership position in moulding the future global business scenario.

What Is Commodities Trading? Everything You Need to Know

Posted on by Imarticus Learning

To start with the basics, commodity trading is all about buying and selling various raw materials and derivative products. These commodities cover a broad spectrum, i.e., from agricultural goods to natural resources. 

These commodities are divided into four board categories: 

  •  Metal
  •  energy
  • livestock and meat, and
  •  agricultural products

It is said that commodities are one of the essential ways to diversify investors’ portfolios beyond just traditional securities. 

Commodities Market Basics: 

When we talk about commodities market basics, well it can be broadly classified into two main categories i.e. commodities market basics.

  1. Hard Commodities 
  2. Soft Commodities 

Hard Commodities: 

These types of commodities are mined or extracted from the earth and it is essential for manufacturing and energy industries. 

E.g. Crude oil

Gold 

Natural gas

Soft Commodities:

These types of commodities include agriculture and livestock products that are grown or harvested and are important in food production and textiles.

E.g. Wheat

 Coffee

 Cotton etc.

Types of Commodities: 

Now let’s look at the types of commodities in detail to understand it better. 

Metals

Commodities in metals include gold, silver, platinum and copper. During times of market volatility or bear markets, many investors invest in precious metal like gold due to its status of holding reliable value. To hedge against the high inflation or currency devaluation investors tend to do this as well. 

In the past few years, the dominant narrative in these commodities has revolved around the tech sector’s demand for rare earth elements, in addition to the conventional trade in metal for value storage and industrial production. Certain elements, such as dysprosium, erbium, europium, gadolinium, and holmium, are utilized in speakers, electric car motors, and smartphones. Gallium, another element, is commonly present in semiconductors and LEDs, while tantalum and niobium are essential in the manufacture of capacitors and resistors.

 Without these metals, it’s hard to envision how many advanced products would have been miniaturised.

Essential metals such as lithium, cobalt, and nickel, which are crucial components in batteries, are experiencing high demand for storing renewable energy. There exists considerable competition for access to such critical metals. 

E.g. European, American and Chinese companies have sourced some of these metals in several African countries (including Congo), which raises ethical and political questions about who benefits from the trade, especially while mining some of these metals creates problems for ecological as well as social problems for humans. 

Energy

Energy products are crude oil, heating oil, natural gas, and gasoline. Global economic activities and reduced oil production from conventional oil wells worldwide have caused increases in oil prices throughout history because demand for energy-based products has increased as the supplies of oil decreased simultaneously.

Investors who are interested in exposure to the energy sector must be aware of how economic recessions, OPEC-enforced production shifts, and advances in alternative energy sources—wind power, solar energy, and biofuels, for example—all have a huge impact on the market prices for energy commodities.

That’s not to say that the trade in oil has been going away: In 1998, daily oil production around the world was 73.6 million barrels a day, whereas in 25 years the figure soared to 93.9 million barrels per day.

Livestock and Meat

Livestock refers to the domesticated animals reared on farms for purposes such as food, work, and beyond. The propagation and culling of these creatures fuel the commerce in meat, milk, dairy, animal derivatives utilized in industrial and domestic products, leather, and wool. In essence, livestock as a commodity is primarily esteemed for its meat. Farm animals are also livestock assets of agricultural commodity markets, extensively affecting world food supplies.

The most frequently exchanged meats encompass beef, pork, lamb, and poultry like chicken and turkey. The meat market is global, and agreements concerning tariffs and international relations help define how trade occurs in the meat sector. The supply chain of meat products encompasses animal breeding, slaughtering, processing, and distribution. Good logistics can enhance quality and safety; market prices and availability might vary based on logistics.

That’s a result of global growth in incomes and populations. Asia and the Middle East have growing livestock trade to meet domestic demand, even though their local production can’t be enough to keep up. In the last few years, demand for imports in many Asian countries with middle- and high-income standards has increased due to the consumption of more animal products in diets. International agreements have been crucial in setting special provisions for meat in these agreements to enhance trade opportunities and establish new trade arrangements. The provision of beef, pork, poultry, and sheep meat is projected to increase by 5.9%, 13.1%, 17.8%, and 15.7% respectively from the present time until 2030.

(Source: Fortune Business Insights)

One of the widely noted trends in the livestock trade is the rising preference for poultry as opposed to other sources of protein. There are several reasons for this shift, but too stand out: Poultry is a less expensive source of meat globally, and white meat is considered a healthier alternative and easier to cook. By 2030, poultry is projected to account for 41% of sources of meat protein. 

(Source: ChileCarne)

Meanwhile, the livestock commodities sector has been exposed to increasing sustainability and environmental accountability demands.

Consumers are becoming more interested in knowing, for example, the industry’s carbon footprint and seek protein from sources that farm more sustainably.

Agricultural Products

Agricultural commodities – one of the categories of commodities that include:

  • Corn
  • Soybeans
  • Wheat
  • Rice
  • Cocoa
  • Coffee
  • Cotton and 
  • Sugar 

Population growth and limited agricultural supplies could bring returns to investors interested in the farm sector through higher prices for agricultural commodities.

Over the past decades, there has been a drastic change in the agricultural sector as it concerns technological change, environmental concerns, and changes in the dynamics of market and policy.

Here are the main changes shaping the sector:

Climate change: 

This is vital for any discussion on the future of this sector. Shifts in weather patterns, heightened frequency of severe weather incidents, and shifting climate zones have already impacted crop production, pest and disease trends, and agricultural methods.

Consumer shifts: 

Organic and local food trends have brought a change in consumer preference. In turn, these shifts changed the kind of farming used, what is farmed, and the way farmed products are marketed and distributed.

Genetic modification and biotechnology: 

In the past, the decision regarding genetically modified organisms and biotechnology has been contentious and revolutionary. With advances in biological sciences being applied to agriculture, varieties of crops are developed to be resistant to pests and diseases and also environmental stresses. 

However, they also raise debates regarding health and environmental effects.

Globalisation: 

The worldwide expansion of agricultural commerce implies that scarcely any farming communities globally aren’t contributing to the international market. This brings increased competition, changes crop choice, and shifts supply chains around the globe. Trade policies and agreements also have significantly changed the nature of markets and farm management.

Government policies and subsidies: 

Subsidies, support programs and regulations by government interventions have affected farming practices, crop choices and the viability of different agricultural sectors. 

Sustainable farming:

The availability of beef, pork, chicken, and lamb is projected to increase by 5.9%, 13.1%, 17.8%, and 15.7% respectively over the period leading to 2030

There has been a growing emphasis on sustainable farming because of climate change and the ecological effects of large factory farming. 

This entails an inclination toward organic farming, integrated pest management, and conservation agriculture, all of which ensure that environmental degradation from agriculture is minimal.

The technological aspect: 

The adoption of technology within agriculture has produced enormous changes in the whole sector. GPS systems, Internet of Things devices, drones, automatic machinery, and even big data analytics have revolutionised how farming is practised, making more efficient practices and yields manifold.

Urban growth and alterations in land utilization:

The growth of urban regions and modifications in land utilization have diminished the quantity of land accessible for farming in certain areas, necessitating farming techniques that can enhance productivity per acre.

How to trade commodities? 

Commodity market trading is straightforward and is similar to stock tradition. Here are a few simple steps to follow: 

Step 1: Select a Broker

Select a commodity trading broker. There are several commodity brokers in India, which give entry to the commodity exchanges such as MCX or NCDEX. Ensure that he is reliable and charges a decent commission.

Step 2: Open a Trading Account

After selecting your broker, open a commodity trading account. This is nothing different than opening a stock trading account. You may need to go through the KY or Know Your Customer process which entails presenting identification and address proof.

Step 3: Fund Your Account

Make a deposit once your account is ready. This overall depends on the commodity that you wish to trade and also depends on the requirement of the broker. 

Step 4: Analyse the Market

Technical analysis is the type that may involve checking price charts and trends, while fundamental analysis deals with factors such as supply and demand. It will therefore assist in making a good decision regarding either buying or selling.

Step 5: Start Trading

Make transactions through selling or buying of futures contracts. This entails an agreement to sell a given commodity at a definite date in the future as per the agreed price and value. You can also earn profits by guessing fluctuating prices.

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FAQs

  1. What are commodities, and why should I invest in them?

Ans: These commodities are the primary products or raw materials like metals, energy sources, agricultural products and livestock. Investing in commodities will further diversify your portfolio, thus guarding you against an inflation hedge and exposing yourself to the world’s trends in the market. It will help you bring an equilibrium of the risk factors associated with conventional investment instruments like stocks and bonds.

  1. What is the difference between hard and soft commodities?

Ans: Hard commodities refer to primary goods extracted from natural resources. Some examples include -gold, crude oil, and natural gas -these are industrials required by the industries to make goods like manufacturers and energy. Soft commodity includes the produce of agricultural activities, for example, wheat and cotton and the produce in the livestock industries like coffee, such an activity is required both by the food and textile industry.

Conclusion:

Commodity trading is another way to invest beyond stocks and bonds. It is all about getting the pulse of the market. Be it metals, energy, livestock or agriculture and making decisions from that knowledge.  

Our Executive Programme in Corporate and Investment Banking by IIM Lucknow can help you deepen your knowledge of financial markets and trading strategies. This corporate banking course has been designed to help master the skills required to tackle the dynamic world of corporate finance and investment banking. This is your chance to take a step closer to your goals!

The Evolving Role of Treasury Management in Global Markets

Posted on by Imarticus Learning

Nowadays, companies have gone global in the past decade. You have wondered how they can manage their money across borders on earth. Even global treasury management is not the exclusive purview of large enterprises anymore in regard to managing cash flow internationally. Based on your core strategy, such implementation would not be an option for many companies because they are not large enough to require such a service or would prefer to save costs or manage the service themselves.

his function can also help manage financial risks and offer you more control over your money, but it still requires you to do your diligence and stay compliant.

What is treasury management? 

Treasury management is the strategic planning, execution, and control of an organisation’s resources. The process of treasury management encompasses several tasks: 

  • cash forecasting
  •  managing liquidity
  •  processing payments 
  •  managing investments 

 thereby optimising cash flow, mitigating risks and creating returns.

Whereas, Global Treasury Management refers to an umbrella term referring to all the practices and strategies used to help businesses manage investments and cash flow, besides any other finance-related activity done in different currencies or even countries. It can signify that a company has its reserves ready to meet its duties at hand or revamp an investment strategy.

Since cash flow is the blood of any business, its function is crucial for every company. Its primary objectives include optimising cash flow (making sure that money goes in and out as planned), managing financial risk (keeping the business safe from anything that might happen), and liquidity (having enough liquid assets to meet its obligations).

Role of treasury management

This makes treasury a part of the financial management function along with accounting, tax, investor relations and FP&A, manages the cash at the end of the A/R process, at the beginning of the A/P process and in-between at any time that requires, as a financial supply chain hub of the organisation.

The core role of treasury management is to support business strategy through funding revenue generation, keeping costs at a minimum, and ensuring compliance with regulations. Treasury seeks, therefore, to be seen and in control of incoming payments on the A/R side, to have better cash collection, and, on the A/P side, to schedule disbursements so that cash usage can be optimised.

Collaboration and communication with a host of internal departments, for instance, procurement, HR, tax, accounting, and IT, amongst others, are essential to gathering and sharing information by treasury. Given the influence these departments wield on treasury management, the treasury function should frequently interact with them to ensure alignment with its objectives.

Treasury Operations in Global Markets

Treasury operations are very important and help manage the financial resources of a company, ensuring liquidity and risk mitigation. For global markets, however, these operations become much more complex due to multiple currencies, diverse regulations, and different market dynamics. 

Treasury operations in global markets can be summed up as follows: 

  •  Cash Management: This involves the management of cash flows to ensure liquidity at all times and cater to operational needs while optimising return on any surplus cash.
  • Foreign Exchange (FX) Management: It relates to managing currency risks accompanying international transactions. It involves hedging strategies to hedge against adverse currency movements.
  • Risk Management: Detection, measurement, and reduction of financial risks related to interest rates, currency, and credit. The most commonly applied tools are forwards, options, and swaps.
  • Investment Management: Administration of investment portfolio of the company for alignment with its risk management program and liquidity. 
  • Funds and capital management- This requires a source of funds such as raising funds from banks using long-term sources by various tools namely loan issues, long-term sources using bonds equity issuance and then managing how best the firm’s equity stands.
  • Compliance/Report – ensuring compliance is required across both international and country finances, meaning that sound statutory accountancy financial reporting

Challenges in Global Treasury Operations

  • Currency Volatility: Exposure to changing exchange rates that affect profitability and cash flow.
  • Regulatory Differences: Complexity from a myriad of different regulations between countries.
  • Technological Integration: Integrating global treasury operations into a cohesive system, often involving different platforms and technologies.
  • Market Liquidity: Dealing with varying levels of market liquidity, which can impact the ability to execute large transactions efficiently.
  • Credit Risk: Evaluate and manage counterparties’ credit risk across various markets.

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Centralisation of Treasury Functions

Instead of having treasury operations in various locations around the world, consolidation in one unit can make coordination a lot easier. With this type of consolidating, it’s likely that your business will be better controlled over liquidity, cash, operations, risk, and more. In order to implement this, you have to take a couple of steps; the first one is evaluating the current state of your processes.

Through this analysis, you might spot a few inefficiencies and areas that would benefit from new centralisation approaches. From there, you could outline what your goals are for this new approach, select a central location, invest in the right technologies, standardise all your policies and procedures for consistency, and communicate all of this to the right stakeholders.

Cash Flow Forecasting

Understanding where and when your money is coming in and going out will help you anticipate your financial situations early, nipping those potential times of excess or shortfalls. When you have a clear picture through forecasting models, data analysis tools, and scenario planning software, you can use every cent wisely and prepare for the unexpected. Make sure you employ various tools to touch on every aspect of forecasting and involve diverse teams for broader insights.

Multi-Currency Accounts

Every international business needs to have multi-currency accounts to hold and make transactions in multiple currencies through a single account. That is correct—you no longer have to open accounts at other financial institutions in different currencies. You can avoid paying all those costs of currency conversion through local currency accounts, where you send and receive payments in the currency you need in that moment. Financial reporting also gets much smoother, as you can track your revenue in various currencies all in one place without having to work with conversions.

Select financial software that is designed for multi-currency transactions and has plenty of currency offerings, tools to ensure compliance and international efficiency, and other business tools such as invoicing and overseas batch payments.

FAQs

  1. What are the key components of treasury management?

Treasury management covers a number of essential activities, including cash forecasting, liquidity management, payment processing, and investment management. Its purpose is to maximise cash flows, mitigate financial risk, and realise returns, thus making sure a company has liquid assets in place for its obligations.

  1. How does global treasury management differ from traditional treasury management?

Global treasury management includes all the practices and strategies used in managing investments and cash flows in several currencies and countries. Diverse regulations, financial systems, and risks in managing currency add to the complexity when compared to traditional domestic treasury management.

Conclusion: 

Effective treasury management is key to businesses in the current global market. With proper knowledge and implementation of global treasury management strategies, companies can optimise their cash flow, mitigate risks, and ensure financial stability. For those looking to advance their career in this field, the CFO course–  Postgraduate Certificate Programme for Emerging CFOs, a specialised finance program created with IIM Indore, offers comprehensive training for professionals with over five years of experience. This program, delivered by IIM Indore faculty, equips future CFOs with strategic, analytical, and tech-focused skills necessary for the role, focusing on financial technology, strategic thinking, fintech, business valuation, and risk management.

ney Markets vs. Capital Markets: Key Differences Explained

Posted on by Imarticus Learning

Financial markets are significant to the economy of any country. They provide individuals with a way to invest. Organisations also benefit by availing themselves of these services to improve financial resources. In such cases, money market vs capital market is the general comparison that is made to get to understand these two areas better. Understanding the money market vs capital market is important; however, knowing about their basic features is also important which we will cover in this blog. 

Money Market Definition: 

There are multiple money market definitions. Let’s look at this two money market definition to understand it better. 

Author Geoffrey Crowther in his book “An Outline of Money” has stated :

“Money market is a collective name given to the various forms and institutions that deal with the various grades of near money.”

( Source: The strategy watch)

Another money market definition quoted by Nadler and Shipman, “A money market is a mechanical device through which short-term funds are loaned and borrowed through which a large part of the financial transactions of a particular country or world are degraded. A money market is distinct from but supplementary to the commercial banking system.”

(Source: thetreasurenotes)

Types of Money Market

There are different types of money market instruments, each of them being used to increase the gross domestic product of a nation. It also generates returns with security for those investors who are looking to invest in low-risk propositions with a short tenure.

Here is a list of examples of money markets: 

  • Certificate of Deposit

Lending significant financial resources to an organisation can be done against a certificate of deposit. The operating procedure is much like that of a fixed deposit, except for the higher negotiating capacity, as well as the lower liquidity of the former.

  • Commercial Paper

This is a kind of money market instrument which acts as a promissory note raised by a company to collect short-term funds. It is unsecured and therefore can be utilised only by large-cap companies with excellent market reputations.

The maturity period of these debt instruments is between 7 days to one year; hence, the interest rate on offer is lesser as compared to equivalent securities offered in the capital market.

  • Treasury Bills

These are issued by the central government of a country only when it requires funds to meet its short-term obligations.

These securities do not incur interest but allow an investor to gain capital as it sell at a discounted rate with the entire face value at the time of maturity.

Since treasury bills are secured by the government, default risk is almost nil, and thus it is taken to be an ideal investment vehicle for risk-averse investors.

– Repurchase Agreements

Commonly called Repo, it is one form of short-term financing instrument through which the borrowing issuer is obliged to repay (repurchase) that in the future.

Usually, repurchase agreements typically involve the exchange of government securities. They are subject to market interest rates and are backed by the government.

– Banker’s Acceptance

One of the widely traded money market instruments within the financial sector, the banker’s acceptance is a loan made to the bank specified. The guarantee of repayment in the future is signed.

Money market instruments are traded over the counter wholesale. This means that it cannot be bought in standard units by an individual investor.

Money market instruments, however, are available for investment through money market mutual funds. The latter are interest-earning open-ended funds and thus carry very low risks given their short maturity period as well as the collateral guarantee offered by the central government in most cases.

Money market investments should ideally be taken up when the stock market poses a great degree of volatility. At this time, investing in equity and debt instruments in the capital market has high risk associated with it, as the chances of underperforming are immense.

The government, in general, tries to increase the money circulation in the country to reduce market fluctuations. Therefore, government-backed instruments provide higher returns in such conditions to increase the demand for the same. To know more about the money market and its function, check out the blog here. 

Capital Market Definition

The capital market definition is “a financial market in which long-term debt or equity-backed securities are bought and sold, typically used to raise funds for businesses and governments” is a general description commonly found in financial literature.

The capital market is further divided into two parts:

  • Primary Markets- New equity bonds and securities are sold to investors. 
  • Secondary Markets- Trade of existing securities

Primary Markets 

A company engages in the primary capital market when it publicly sells new stocks or bonds for the first time, such as in an initial public offering (IPO). This market is sometimes referred to as the new issues market. The company that offers the securities hires an underwriting firm when investors purchase securities on the primary capital market. It goes to the house and writes a prospectus that spells out the issue price and any other detail concerning the securities to raise cash for business operations.

Any issues through the primary market are always highly regulated. Firms have to first file their statements with the SEC and all other agencies offering securities before they can publicly issue any of the issued securities.

Small investors frequently cannot purchase securities on the primary market since the corporation and its investment bankers want to sell all the available securities during a short period in order to meet the required volume. They must focus on the marketing of sales to institutional investors who can purchase more quantities of securities at one single time.

Marketing the sale to investors is often a roadshow, or dog and pony show, in which investment bankers, along with the company’s leadership, travel to meet with prospective investors, convincing them that the value of the security being issued is worthwhile.

Secondary Markets

The secondary market involves venues regulated by an independent regulatory body such as the SEC where these already-issued securities are traded between investors. Issuing companies don’t have a stake in the secondary market. NSE, BSE, NYSE and Nasdaq are some examples of the secondary markets.

The auction market and the dealer market form the two categories in the secondary market. The auction market is where the open outcry system is found where buyers and sellers will usually gather in one location, and they will advertise prices at which they’re ready to buy and sell their respective securities. The NYSE is one such example. People trade through electronic networks in dealer markets. Most small investors trade through dealer markets.

Types of capital markets

  • Equity Market: Shares like Infosys, Reliance, HDFC being traded in NSE and BSE
  • Debt Market: Government Securities (G-Secs) issued by the Reserve Bank of India.Corporate bonds by companies like Tata Steel and NTPC.
  • Derivatives Market: Equity Futures and Options on NSE. Currency and commodity Derivatives on Multi Commodity Exchange (MCX).
  • Mutual Funds: Available for companies such as SBI Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund.
  • Exchange-Traded Funds (ETFs): Bharat 22 ETF and Nippon India ETF.

Globally

  • New York Stock Exchange (NYSE) Trading equities of the companies, such as Apple and Microsoft.
  • The NASDAQ is a leading hub for tech stocks such as Google and Amazon.
  • London Stock Exchange (LSE): It is famous for share dealing in global companies, like BP and HSBC.

These examples showcase how capital markets provide platforms for investment, trading, and economic growth. To know more about capital markets, check out the blog here. 

Difference between money market vs capital market 

Difference between money market vs capital market 

To sum it up and to make the concepts much clearer and easier to understand, presenting the differences between the money market vs capital market in a tabular format.

(Source: ClearTax)

Check out this video to know about the money market vs capital market in detail. 

FAQs

Q1: What is the main difference between money market and capital market?

Ans: The money market works with short-term financial products such as Treasury Bills and Commercial Papers, whereas the capital market works with long-term securities such as stocks and bonds. 

Q2: What are the types of capital markets?

Ans: Some examples of capital markets are: equity markets, debt markets, derivatives markets, mutual funds, and exchange-traded funds.

Q3: Why is the money market considered low-risk?

Ans: The money market is less risky in that it consists of highly liquid short-term instruments backed by such stable institutions as central banks and governments.

Conclusion: 

The money market and the capital market are the two fundamental segments of the economy which support short-term liquidity requirements as well as long-term investment demands. Understanding their differences empowers the individual and the organizations in making proper financial decisions.

For finance professionals who aspire to grow, the IIM Lucknow corporate banking course is an excellent opportunity. The 11-month program dives deep into financial modelling, valuation, mergers and acquisitions, and more. Take your career to the next level-explore the program today!

Revenue Management Strategies for Business Success: Boost Profitability & Competitiveness

Posted on by Imarticus Learning

Revenue management uses deep insight into data analysis to help optimise profitability. Looking inside customer behaviour at the microscopic level, it calibrates product price and changes availability levels to maximise revenue.

Why is revenue management significant? 

Business firms use the weapon to separate ancillary data and strategy into pieces to identify places ripe for incremental revenue and maximised profit. It provides a financial boost for corporations to boost their financial position and gain an advantage.

In addition, revenue management gives management teams the power to make informed, data-driven decisions, taking them out of guesswork or intuition. 

The compass guides companies toward financial success and staying ahead of competitors.

Revenue management strategies for your business

  • Dynamic pricing strategy: 

Dynamic pricing, a cornerstone of revenue management strategies, embodies a responsive approach to price setting, adapting swiftly to real-time market shifts. This strategy empowers businesses to flexibly adjust their prices based on dynamic factors like market demand, timing, and customer behaviour.

Online retailers, especially during high-stakes sales events, use dynamic pricing to fine-tune their prices about competitor rates or changes in consumer demand. In this way, these retailers can optimise their profits while remaining highly competitive in the market landscape.

The beauty of dynamic pricing is agility and responsiveness. It’s a dynamic process, leveraging insights in terms of historical data, market trends, and even customer preferences to inform its pricing decisions. For example, in the hospitality sector, hotels dynamically adjust their room rates according to seasons, future demand patterns, and even local events. This agile approach ensures that hotels maximise revenue at peak times without deterring potential guests, balancing profitability with occupancy rates.

  •  Segmentation and targeting: 

Segregation and targeting, a crucial revenue management strategy, involves an artful categorisation of customers based on shared characteristics or behaviours. After stratification, specific offers or marketing approaches are created for each segment. Let us take the case of hospitality as an apt example of using segmentation and targeting.

Hotels use this approach by segmenting their customers based on their preferences or loyalty status and then curating special packages or incentives for the different groups. This ensures that the various segments of customers receive offers perfectly suited to their preferences, thus deepening the feeling of loyalty and enhancing the revenue streams.

The magic of segmentation and targeting lies in its ability to recognise and cater to the unique needs of various customer groups. It is not just an issue of identifying these segments but also creating customised strategies that resonate with each group’s preferences. For instance, in retail, companies segment customers based on their purchase history or preferences, delivering targeted promotions or loyalty rewards, eventually leading to stronger brand allegiance and increased sales.

  • Yield management:

Yield management is the art of fine-tuning prices to extract maximum revenue from perishable resources or services. In this practice, airlines are maestros. They adjust ticket prices in ways that consider the timing of bookings and availability of seats, all aimed at optimising revenue generation without a single seat going unfilled. This is a complex strategy where each flight becomes a profit powerhouse, accommodating diverse customer behaviours, especially for direct bookings.

Yield management has benefits because it considers a mix of factors influencing the willingness and decisions of consumers to pay for any particular good. Based on customer booking behaviour, an airline can then price accordingly to dynamically strike the right balance between maximum revenue generation and maximum seat occupation.

This practice is not exclusive to airlines. It is also common in industries like hospitality, where hotels alter room rates by anticipating demand through patterns and booking time. This way, they maximise revenue while ensuring maximum occupancy without turning away potential guests. Yield management, therefore, stands as testimony to the art of strategically tweaking prices to ensure profitability while catering to diverse customer behaviours and preferences.

  • Overbooking and Capacity Management: 

Overbooking and capacity management are two integral revenue management strategies that include overbooking reservations or tickets to a level above capacity, based on the possibility of cancellations or no-shows. This is one of the strategic manoeuvres in the hospitality industry, again hotels and airlines. The key to successful capacity management lies in ensuring the hotels don’t disappoint their potential customers while simultaneously maximising occupancy.

Overbooking and capacity management, therefore, constitute an art of risk assessment and strategic planning. It is far from merely selling more than what exists. It instead forms a strategy with inbuilt probabilistic consideration to mitigate possible revenues lost on account of not being utilised.

This concept does not only apply to hotel revenue management for business revenue optimization. Airlines do it by selling more seats than they probably will have available because passengers cancel their reservations or no-show for their flights. The idea is to balance between making the most revenue and avoiding disappointing the customer. So, overbooking and capacity management, in this way, represent strategic tools within revenue management, walking this thin line between revenue optimisation and customer satisfaction.

  • Upselling and cross-selling: 

Upselling and cross-selling are dynamic revenue strategies that possess the power to enhance profit by encouraging a customer to buy more additional products or services. These techniques strategically position complementary or upgraded items, hence elevating the purchase value.

Picture a software company employing an upselling tactic, presenting a premium version of their product with advanced features. Conversely, cross-selling comes into play by suggesting related add-ons or accessories that complement the primary purchase. Software companies might encourage software protection sales when they sell a program to get more from the sale.

Upselling and cross-selling help companies add value to real-time transactions while building customer loyalty and satisfaction. It’s not just about selling more, although it might increase sales. It is also about steering customers toward a better quality experience, which might meet other needs or desires they hadn’t initially thought of.

  • Subscription-based models: 

Subscription-based models yield a predictable revenue stream for their products or services. This can be seen in the mainstream, such as streaming services and media, and then further into the tech industry. Businesses benefit as this provides regular, predictable revenue, which improves the predictability of cash flow. Also, offering tiered plans allows companies to vary across different customer segments, thus maximising revenue by presenting the options that fit most into the preferences and budgets.

Implementing a combination of these revenue management strategies into your business, tailored to your respective needs and industry dynamics, will lead to sustained growth with improved profitability and enhanced customer satisfaction.

For more information and key principles of revenue principles, check out the blog here.

Good Revenue Growth Strategies

For a manager in charge of business finances, an RMS simplifies decision-making. An RMS is a powerhouse that breaks down a company’s available resources, market demands, and consumers’ price preferences and demographics. This includes different categories of consumers, such as business, leisure, loyalty, or transient.

Revenue management in the contemporary world relies on four main elements:

– Insight into competitor strategies: Knowing competitors’ pricing is crucial in determining the best rates for your highest profit margin products. Their pricing is a benchmark, shaping customers’ perception of a product’s value. It is the critical baseline that aids companies in optimising their pricing strategies.

– Product and service evaluation: A product or service review of a company’s product or service compared to competitors allows for the critical understanding it provides. This analysis examines features and reviews to facilitate envisioning something unique by a company- that is, its value proposition and competitive advantage. Such insight enables more precise positioning in the prospect’s mind.

– Leveraging automation technology: This is a key enabler for revenue managers through automation. Current software enables revenue managers to set up automated alerts that provide continuous support to strategies around the clock. Such real-time alerts help revenue management be prompt and responsive.

– Routine consistency: Revenue management habits provide insight. A revenue manager who remains consistent in daily routines ensures that they get to make adjustments on an ongoing basis, ensuring the synchronisation between subscription strategies and software functionalities.

FAQs

  1. What industries benefit most from revenue management strategies?

Revenue management strategies are widely applicable across industries such as hospitality, airlines, retail, e-commerce, and subscription-based services. Any business that experiences variable demand, perishable inventory, or diverse customer segments can benefit from adopting revenue management practices.

  1. How does automation enhance revenue management?

Automation streamlines revenue management by using advanced software to analyze real-time data, set dynamic pricing, and send alerts. It eliminates manual effort, ensures precision, and helps businesses remain agile in responding to market changes, thus optimizing revenue and customer satisfaction.

  1. What are the challenges of implementing revenue management strategies?

Key challenges include understanding customer behavior accurately, integrating advanced technologies, training staff on new systems, and aligning strategies with market trends. However, with robust planning, the right tools, and consistent execution, these challenges can be effectively managed.

Conclusion: 

In conclusion, revenue management is an absolutely imperative tool for businesses targeting an optimised profit and acquiring competitiveness. Data-driven insights allow for more effective pricing, segmentation, yield management, overbooking, upselling, and subscription models, empowering business houses to maximize earnings along with enhancing customer satisfaction and loyalty.

Implementing a robust revenue management system (RMS) simplifies decision-making by providing comprehensive insights into competitor strategies, product evaluations, and consumer behaviours. Coupled with automation technology and consistent routine practices, an RMS ensures that businesses remain agile and responsive to market dynamics.

If one wants to upgrade his strategic management ability, the Senior leadership program of IIM Nagpur offers the most promising and transformative experience. Such a programme enhances the proficiency of the executive class through the use of essential leadership skills as well as practical business strategy, and of course a certificate from the IIM Nagpur platform, as it readies them as next-gen CXOs.