@Leisure - Vol-16 | srei
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@Leisure - Vol-16

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The Big Mac Index

In 1986, The Economist invented and published the Big Mac Index. It was a light hearted way of comparing currencies and the purchasing power parities (PPP) between different economies. A layman could read the findings of the Index and understand concepts that would otherwise have been incomprehensible.

The reasoning behind the Index was that there is a McDonald’s outlet in nearly every country in the world. The most popular item on the menu is the giant beef burger known as the Big Mac. It is made to nearly the same taste and the same specifications everywhere with the exception of India where it becomes a chicken burger known as the Maharaja Mac. Thus, you could compare the prices of the Big Mac in different countries to judge which economy was expensive, which one offered more value for money, and which currency was undervalued.

In January of 2015, a Big Mac could be purchased in the United States for $4.79 on an average. The same item in China cost $2.77 at market exchange rates. This showed that the yuan was undervalued by 42 percent to the dollar at that time. At the same time a Big Mac in Switzerland cost $7.54, which showed it to be the most expensive country on the Index. But you could buy this sandwich in Ukraine for as little as a dollar.

Over the years, the Big Mac Index has grown in popularity among serious economists even though it was never meant to be a precise gauge of exchange rates. It has been included in school textbooks and is the subject of several research studies. But the Index is not without its shortcomings.

While McDonald’s restaurants provide food for the common man in the United States, in countries like India, it is actually a hang-out place for the well-to-do families of the society. Compared to local restaurants and local food, McDonald’s outlets are quite expensive. Plus each restaurant is subject to local taxes, different levels of competition and import duties which differentiate its pricing structure from other outlets in other economies. Even inside India, the difference in state level tax policies make the cost of food cheaper in one state and more expensive in another.

But the drawbacks have not diminished the reputation of the Index and the seriousness with which its results are taken. In fact, it has now spawned several variants like the Tall Latte Index that involves a cup of Starbucks Coffee and the iPod Index based on the cost of selling an iPod created by the Australian bank, Commonwealth Securities.

 
 

Understanding the Srei BNP Line of Business

Srei BNP is one of the largest Non-Banking Finance Corporations (NBFCs) in India. The company is a 50:50 joint venture between Srei Infrastructure Finance Limited and BNP Paribas Lease Group. Srei Infrastructure Finance Limited is amongst the leading Indian NBFCs operating in the infrastructure financing sector. The Srei group has been operational for over 25 years, which puts behind us an experience of a quarter of a century. BNP Paribas Lease Group is amongst Europe’s largest leasing groups and operates in over 15 countries. BNP Paribas is also the leading bank in Eurozone. It manages over Euro 1.8 trillion of assets and has a presence in more than 75 countries with nearly 185,000 employees, more than 140,000 of whom are in Europe. BNP Paribas has key positions in its three main areas of activity retail banking, investment solutions, corporate and investment banking.

Srei BNP Paribas has a presence in approximately 19 states, including 74 branch offices and 11 regional offices across India and has around 1797 employees. The company has emerged amongst the largest construction and mining equipment financier in the country with a customer base of over 30,000. The infrastructure equipment finance division of Srei BNP Paribas works with not only first time users and buyers but also with the largest EPC firms. It finances equipment’s like tippers, backhoe loaders, etc. for first time users but more than just that it provides financing across the value chain. It works to provide technology solutions to customers and also finance purchases of IT hardware and software, supports finance of office automation and even furniture and fit outs. The healthcare financing arm of Srei BNP Paribas offers diagnostic and clinical equipment financing in the form of hypothecated loans and operating leases; in this area it serves both large and small hospitals, doctors and nurses. Srei BNP Paribas is also active in the rural equipment financing business where it provides finance for agriculture, farming and allied equipment like tractors to its customers.

Srei BNP Paribas has built valuable partnerships over the years. It has partnered with global players in the IT sector and beyond like Oracle, SAP, Fujitsu and EMC to provide the best technological solutions to its customers. It has manufacturer tie ups with several companies like Escorts, Tata Hitachi, Voltas, Volvo and more. The manufacturing tie-ups help customers make the right choice for their needs.

Srei BNP Paribas aims to provide a better tomorrow not only to its customers, but also to the nation at large by giving a boost to the country’s infrastructure sector and meeting their diverse needs. Srei BNP Paribas endeavors to make steady inroads into the ever-expanding equipment financing arena.

 
 

What does a default mean in NCDs?

An NCD (non-convertible debenture) is a debt instrument that a borrower (usually a company) issues to the lender or investor to raise funds for general business activities. It is a contract that lays down the terms and conditions that the borrower has to adhere to in order to fulfil its repayment and interest payment on the NCD. The borrower (also called the issuer) undertakes to make payment of coupons (interest) and maturity proceeds on the dates as mentioned in the NCD. It is expected of the issuer to make such payments promptly and fully. A credit rating is an indication of the issuer’s capability to make such payments as promised. Investors normally check the credit rating before investing money in the NCD.

Default: Failing to fulfil payment obligations

But there could arise a situation when the issuer’s financial health goes bad and it becomes unable to meet the contractual obligation of paying coupons or repaying principal at maturity. This is termed as DEFAULT in the legal parlance. It could be due to an economic situation, financial mismanagement or even unfair practices at the issuer’s end.

Is there a way to foresee the default?

Usually rating agencies keep a watch on the financial health of companies that they have rated. This is an ongoing exercise that will validate the rating given earlier. And normally, when rating agencies perceive a weakening of the issuer’s financial health, they either downgrade the rating or at least issue a negative outlook that denotes possible weakening. This is an early warning to investors that all is not well with the issuer.

Are investors protected in case of a default?

If the NCD is secured against the assets of the issuing company, the investor may hope to receive her dues, fully or at least partly. But this is a long drawn legal process that could take an extended route to completion. There could also be a Debenture Redemption Reserve (DRR) which could be used to meet the issuer’s obligations partially.

 
 

Buddy Jokes

Quotes & One liners:

"A budget is just a method of worrying before you spend money, as well as afterward." — Unknown

“Our incomes are like our shoes; if too small, they gall and pinch us; but if too large, they cause us to stumble and to trip.” - John Locke

“A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope

JOKES

I was in a job interview today when the manager handed me his laptop and said, "I want you to try and sell this to me." So I put it under my arm, walked out of the building and went home. Eventually he called my mobile and said, "Bring it back here right now!" I said, "£100 and it's yours."