MBPF Notes.pdf

Ipshita Bhadoo MBPF Notes Hemang Nagpal Tue, 10 Sep at 7:23 PM To: MODULE 1 → BASIC PRINCIPLES OF MONEY AND BANKING MONEY Money is a store of value & creates a surplus value in the process Eg: Passive Income throu...

Ipshita Bhadoo MBPF Notes Hemang Nagpal Tue, 10 Sep at 7:23 PM To: MODULE 1 → BASIC PRINCIPLES OF MONEY AND BANKING MONEY Money is a store of value & creates a surplus value in the process Eg: Passive Income through investing in stocks, bonds or precious metals Money acts as a medium of exchange It is a unit of account Evolution Derived from greek word Moneta MONEY AS A DEBT 1. Full Reserve System → Money backed by the Gold Rs 100 = Rs 100 worth of Gold 2. Proportional Reserve System → Proportionate amount of money is backed by gold 10:1 ratio → Rs 100 = Rs 10 worth of Gold 3. Minimum Reserve System → You can print any amount of currency, not at all backed by Gold → Fiat Characteristic i.e backed as a legal tender Eg: Zimbabwe & Germany in 1940s Countries following minimum reserve system can print more and more money keeping the minimum reserve the same Current Economy → Money is simply a debt instrument not backed by any real goods having intrinsic value and thus the Barter System was better in this regard. BRETTON WOODS AGREEMENT Read and Complete Notes POST NIXON DECLARATION  Dollar not backed by gold FULL RESERVE SYSTEM Intrinsic Value = Face Value FUNCTIONS OF MONEY 1. Medium of Exchange 2. Unit of Account 3. Store of Value MONEY IN THE BROAD SENSE It includes two things: 1. Money in the Narrow Sense 2. Money Substitutes Money in Narrow Sense Intrinsic Value Eg: Gold & other precious metals Credit Money Fiat Money Legalised by the government of that country as a medium of exchange Money Substitutes Token money → It has lesser value than it’s intrinsic value Eg: Booking a car worth 10L by paying 1L right now to reserve it Uncovered bank deposits & loans Money Certificates → Fixed dividend rate & Fixed maturity date Eg: Fixed Deposits, Debentures etc. BARTER SYSTEM OF EXCHANGE Merits One good is exchanged with another good → there is real value attached to these goods & they have certain intrinsic value Full reserve system was developed as an easier alternative to the Old Barter System Demerits Double Coincidence of Wants → Both parties must want the goods that the other party is wanting to sell  No Common measure of value Indivisibility of certain goods Store of Value Difficulty in making deferred payments → future payments for current outstanding debts Eg: Loans Lack of Specialisation Systems of Note Issue adopts it according to the country’s development stage. Full Reserve System Currency notes issued by the central bank are fully backed by reserved of gold/silver. Not commonly adopted these days Now days, with foreign security also. Example India - Minimum Reserve System. ( and partial Proportional Reserve Structure) 20-40 % percent Gold + partial foreign Currency → followed in India Gold and Foreign Securities are maintained together in lieu of not issue India has been following minimum Reserve System since 1956. → Currency generated for the circulation country - that is what is reserved created / kept in the country. 1. Full Reserve System – Currency notes issued by the central bank are fully backed by reserves of gold/silver. 2. Proportional Reserve System – Are backed by a certain proportion and the rest by govt securities.(1927 to 1957) 3. Minimum Reserve System – Central bank to maintain a minimum gold reserve. RBI to hold assets minimum of Rs. 515 crores worth of foreign reserves in which Rs. 115 Cr. of gold and Rs. 400 Cr. of foreign securities maintained. Barter System better than modern system? In which context, the barter system of exchange was better exchange compared to the modern system→ One good was exchanged with other good/goods, that mean something was back with other real goods. Whereas, present monetary system is debt. Types of Money Metallic Money 1. Standard or Full bodied Money → gold, silver - full intrinsic value. - definite value.  value won’t decrease over tie ; equal future and intrinsic value. - unlimited tender (choose any limit to store value) 2. Token or Subsidy → made from inferior metal ; aluminium, copper , that value of copper is less than the cost of coin. 3. Coins → Maximum to Rs 1000 → for coins of value above Rs.1 For coins og 50 paisa → Maximum Rs.10 Paper Money 1. Representative Money - certificates / representative money - in exchange of Started in USA 1933. Convertible to paper money- 1. Fiat Money Inconvertible paper money unlike representative money like in those cheque to cash, Limited legal Tender - how many coins that much value. Types of Money (a) Standard or Full-bodied Coins The gold and silver coins with definite weight and purity are called standard or full-bodied money. The face value of such money is equal to the intrinsic value. Its value does not fall even if sold by melting. This money is unlimited legal tender. Hence, people are ready to accept any quantity of it. (b) Token or Subsidiary Coins The money made of inferior metals is called token or subsidiary money. The coins made of aluminum, copper are token money. The face value of token money is higher than the intrinsic value. Its real value disappears if melted. Since this money is limited legal tender, nobody can be made to accept more than particular quantity. Such money works as subsidiary of other money in circulation in the country. Hence, they are called ‘subsidiary money’. The paper money– divided two parts:- (a) Representative Money It is expensive to circulate the goods like gold in large quantity. Hence, the goods are kept in reserve fund and the certificate of ownership is circulated. For example, U.S.A. had circulated certificates on the basis of gold reserve during 1900 to 1933. When cent percent reserve is kept in money, the paper money or note is called representative money. Since they can be converted into gold in case of need, they are also called convertible paper money. (b) Fiat Money If the gold is not kept in the reserve in full value, it is called fiat money. Since, it is issued by the state. It is unlimited legal tender. But there is no legal provision to convert into gold or silver. Hence, it is also called inconvertible paper money. The process of issuing such money is somewhat like the process of credit creation of commercial banks. Fractional Reserve Banking Money Multiplier Types of Money Flow : 1. M1 = currency notes and coins with the people + Demand deposits of commercial and co-operative banks + other deposits with RBI → Narrow Money Eg: Economy has 50,000 in total → Regulated money is 10% is 5000. Money in circulation is money supply thus the regulated money is not a part of money supply When CRR & SLR is reduced - additional money which was a part of regulated is introduced to money supply and this will also undergo credit creation Eg: 5000 worth of money (regulated money) used to buyback government securities from the bank - introduction of new money (not part of money supply) not part of Currency or Demand Deposits 2. M2 : M1 + short-term (money market) instruments. → Money market instruments have liquidity in less than 1 year and are as good as cash 3. **M3 :**M2 + long-term/capital market instruments. 4. **M4 :**M3 + Total post office deposits.( Here, Deposits in National Saving Scheme(NSS) and National Saving Certificates(NSC) excluded) CHANGES MADE BY THE YV REDDY COMMISSION 1998 MONEY MULTIPLIER Money Multiplier = 1/Reserve Ration (RR) Credit Creation → Money Multiplier * Initial Deposit This process of creating money is called bank’s contribution to money supply SITUATION 1 → Only public deposits Rs.1000 in the bank This money already existed in the system This needs to be deducted from the end amount SITUATION 2 → RBI buys Government Securities worth Rs.1000 This is new money added in the banking system → we do not need to deduct this initial amount from the credit creation amount because it is new money and was not a part of the money supply If they want to Increase Money Supply → Buy Government Security If they want to reduce money supply → Sell Government Security CHAGES IN MONEY SUPPLY Also referred to as Credit Creation Herein the initial deposit amount will be subtracted at the end while calculating credit creation since that money was already a part of the money supply Function of Money → discussed already in class Coin Issued by Minting & Issue The Government of India has the sole right to mint coins. The responsibility for coinage vests with the Government of India in terms of the Coinage Act, 1906 as amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India. Coins are minted at the four India Government Mints at Mumbai, Alipore(Kolkata), Saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP). The coins are issued for circulation only through the Reserve Bank in terms of the RBI Act. Denominations Coins in India are presently being issued in denominations of 10 paise, 20 paise, 25 paise, 50 paise, one rupee, two rupees and five rupees. Coins upto 50 paise are called 'small coins' and coins of Rupee one and above are called 'Rupee Coins'. Coins can be issued up to the denomination of Rs.1000 as per the Coinage Act, 1906. Notes issued by Notes in India are issued in the denomination of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.2000. These notes are called bank notes as they are issued by the Reserve Bank of India (Reserve Bank). The printing of notes in the denominations of Re.1 and Rs.2 has been discontinued as these denominations have been coinised. Reserve bank of India issues one rupee note and is usually signed by secretary to the finance dep.  However, such notes issued earlier are still in circulation. The printing of notes in the denomination of Rs.5 had also been discontinued; however, it has been decided to reintroduce these notes so as to meet the gap between the demand and supply of coins in this denomination. PARETO EFFICIENCY But the trickle-down effect needs to have compulsory compensation for loss however when someone gains 300 units, they will not voluntarily compensate the loser for 100 units GRESHAM’S LAW Muhammed Tughlaq example → Copper & Gold coins Gold Coins = Gold money Copper Coin = Bad money People will pay using copper & will hoard gold coins There was also counterfeiting of copper currency since it was easier to replicate THEORY OF MONEY MULTIPLIER HIGH POWERED MONEY Initial Monetary Base created for facilitating medium of exchange Currency in the form of Notes & Coins issued by the government H = C(P) + R → H = High Powered Money → C(P) = Currency Held by the Public → R = Reserves with commercial banks & Regulated Money Money Supply in Circulation = M1 M1 = C(P) + DD → C(P) = Currency Held by the Public → DD = Demand Deposits held by the Commercial Banks When you want to change currency in circulation or increase the monetary base, R i.e. Required Reserves such as SLR, CRR will be changed → High powered money will remain the same but credit creation will increase High Powered money is different from money supply → High Powered Money is used for being a medium of exchange → Money Supply also includes non-cash deposits such as cheques, demand deposits etc. Equation 1: C = c * DD → c = currency deposit ratio i.e. how much part of your salary you are retaining for medium of exchange purpose → C = Currency This determines how much part of the currency you are keeping as liquidity Equation 2: R = r * DD → r = Reserve deposit ratio → R = Reserves with commercial banks & Regulated Money From the above 2 equations we can write H as: H = cDD + rDD ……. (1) H = (c+r)DD …….. (2) DD = H/(c+r) …….. (3) M = c*DD + DD ……… (4) M = DD(c +1) ……… (5) Putting the value of DD (3) in (5) M = {(c+1)/(c+r)} * H m = {(c+1)/(c+r)} → m = money multiplier M=m*H m = M/H When we assume that currency deposit ratio i.e. “c” is 0 we get the following formula m = 1/r EXAMPLE H = 60 CR i.e. RBI is purchasing 60CR worth of securities from commercial banks i.e. “new money” → 20 CR = Currency held by public → 40 CR = Demand Deposit → 0.5 * 40 CR = 20CR i.e currency held by public r = 0.1 c = 0.5 Here we must learn this formula: C = c*DD C = c*(Income/new money -C) Out of the 40CR demand deposits → 4 CR is RR → 36 CR is demand deposits again This 36 CR will be divided again → 12 CR Currency held by Public → 24 CR Demand Deposits → 0.5 * 24 CR = 12CR i.e currency held by public Out of the 24CR demand deposits → 2.4 CR is RR → 21.6 CR is demand deposits again This process will keep on going Looking at this formula m = {(c+1)/(c+r)} m = (0.5+1)/(0.5+0.1) m = 2.5 Therefore Money Supply will be: M = m*H M = 2.5 * 60 CR M = 150 CR We will not deduct the initial 60 CR from this since it was new money FISCHER THEORY OF DEMAND FOR MONEY MV = PT MV → Money side of economy PT → Real side of economy = GDP cash transaction approach - He believed that money was only demanded for transaction purposes M = kPY GDP = Cash balance approach - you would want a certain amount of cash for investment purpose. The entire amount will not be kept for medium of exchange only DIFFERENT APPROACHES TOWARDS MONEY Classical - money is only a monetary phenomenon - it will only affect price Eg: Digital economy has a much higher velocity than normal cash money cash money is limited to market hours Digital money is not limited to any time constraints Increase in money supply leads to an increase in price (k and Y remain constant) LIQUIDITY TRAP MILTON FRIEDMAN THEORY U → New forms of currency Eg: Bitcoin, Metaverse Investment DEMAND FUNCTION MONEY AS A DEBT VIDEO Demand for Money - Active & Passive John Keynes → Demand for money theory Why do we need money? Money to buy goods and services → Transaction demand People need more money in a rich country It is dependant on the income of the people → The more you earn, the more you spend and more you demand money Savings set aside for contingencies → Precautionary Demand of Money Transaction Demand + Precautionary Demand = Demand for Active Balances PASSIVE DEMAND FOR MONEY Money as an asset Store of Value Speculative Demand of Money It is determined by interest rates - consider the opportunity costs of holding money instead of bonds and vice versa Money → No interest earned → most liquid Bonds → Interest is earned → less liquid If interest rate on bond is low → people will keep money as cash → demand for passive balances will be higher as opportunity cost is low VICE VERSA Passive Balances → Money kept as a speculation purpose and is compared to interest rates being earned by bonds ACTIVE BALANCE + PASSIVE BALANCE Combining the two curves Increase in Income will cause an increase in the demand for Active Balances BRIEF HISTORY OF US MONEY Radical shifting of rules during crisis 1907 → JP Morgan became the lender of last resort Federal Reserve → Private in nature → Stock of the FR held by the member banks and not the government of USA Federally Sponsored Cartel of Banks 1930 → Bank failure → led to reduced supply of money 1933 → Franklin Roosevelt → Seized all privately held gold and devalued the US Dollar → Earlier 21 Dollars for gold → Now 35 dollars Contractual obligations were nullified by the approval of the SC Complete control of the gold supply by exchanging 261 Million Pounds Gold for $11 Billion Led to storage issues as well Bretton Woods Conference → IMF was born → US dollar was made the global reserve currency → currencies had fixed rates to the dollar Keynes from UK suggested the setting up of an ITO → International Trade Organisation He also suggested that we should have ICE → International Currency Union → BANCOR can be international currency rather than any country currency They were also redeemable for $35 = 1 ounce of gold FR expanded the supply of each dollar and the value of gold reduced Vietnam War → budget cutting France redeemed the US dollars for gold but this led to decrease in supply 1969 → IMF developed the concept of “paper gold” → because they knew that the  actual gold reserves were depleting → SDR (Special Drawing Rights) was allotted to each member nation President Richard Nixon → Declared Force Majeure on 15th August 1971 → gold supply in USA was alarmingly low → Dollar is no longer backed by gold Ended the dollar convertibility and destroyed the foundation of the Bretton Woods Conference This meant that there was no limit on the printing of money US money was backed by Federal debt → and this kept on increasing post the Nixon Agreement slamming of the gold window i.e. the government is in debt to the Federal Reserve Total amount of money in circulation also increased significantly in the past years → till 1973 only $1 trillion in money stock was required i.e nearly 300 years post independence → Latest $1 Trillion was printed in less than 4.5 Months This is just a step away from hyper-inflation US Dollar remains the standard only because of a matter of convenience but there is nothing backing this position such as the Bretton Woods Agreement Triffin Dilemma → The Triffin dilemma (sometimes Triffin paradox) is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies Dilemma between Internal Stability & International Stability EFFECT OF DEVALUATION 1. Encourage Exports $1 = 60 rupees worth of export Post devaluation → $1 = 80 rupees worth of export → other countries will be more encouraged to buy your goods 2. Discourage Imports 60 Rupees = $1 worth of import Now, 80 Rupees = $1 worth of import → you have to pay more for the same amount of money CREDIT CREATION IN A FRACTIONAL RESERVE SYSTEM Same as credit creation Any money spent or saved will end up in banking system → Assumption Europe & USA have extremely low Required Ratios MODULE 2 → Indian Banking System NON-PERFORMING ASSETS Non-Performing Assets (NPAs) are loans or advances given by banks or financial institutions that have stopped generating income for the lender. Dues which are not paid beyond 90 days These assets would then be classified as Non-Performing Sub Standard Assets → Not giving returns upto 1 year i.e. 365 days Classification of Assets 1. Performing Asset → Standard Asset 2. Default in payment from 90 days to 365 days → Upto 1 year of default → Sub Standard Asset 3. Beyond 365 days they are called Doubtful Assets 4. Assets that cannot be recovered → Lost Assets What are Special Mention Accounts Special Mention Accounts (SMAs) are a classification used by banks to identify and monitor loans that are at risk of becoming Non-Performing Assets (NPAs). SMAs are essentially a preemptive measure to recognise and address potential credit issues before they escalate into more severe problems. SM 0 → dues not paid upto 30 days SM 1 → dues not paid from 31 days to 60 days SM 2 → dues not paid from 61 days to 90 days Beyond 90 days → NPA (Non-Performing Assets) WRITING OFF OF NPAs You can recover NPAs or Write them off They are a financial accounting practice used by banks and financial institutions to remove loans that are considered irrecoverable from their balance sheets.  When a loan is written off, the bank recognises that it is unlikely to recover the outstanding amount and, therefore, removes it as an asset in its financial statements. Writing off = Taking it off the balance sheet This is done to clean the balance sheets & meet with RBI Regulatory Compliances Complete notes sent by palak How to recover NPAs Informal Mechanisms → Follow Up Formal Mechanism 1. Serving of Notice 2. If unsecured personal or corporate loan → either DRT (given in the RDBPI Act wherein the original applicant will be bank) or NCLT 3. if secured personal or corporate loan → SARFAESI Act (original applicant will be the defaulter) & IBC Bank got adjudicating power in SARFAESI & they can sell the security in open markets Another example is settlement agreement PM Svarozgar Yojana → Self Employment Scheme Government provides significant subsidy ARC → Asset Reconstruction/Restructuring Companies Section 5B & 5C → banks can’t do business of profit & loss SPV → Special Purpose Vehicle Security Receipt of 180 Crores can be issued and they can be purchased by the open market SARFAESI ACT Established in 2002 Pre SARFAESI → Substantial NPAs Post SARFAESI → Reduced in number CDR → Corporate Debt Restructuring SDR → Strategic Debt Restructuring Forum Shopping COMPLETE PPT ON DETERRENCE EFFECT OF IBC GAME THEORY High Cost Game Theory Low Cost Game Theory Difference between Insolvency & Bankruptcy Assets > Liability Liability > Asset → Issue of Bankruptcy Operational Risk v. Market Risk Operational Risk Day to Day issues Market Risk ENTIRE PROCESS OF IBC Look at the diagram from the PPT Admission On paper → 14 days Actual Practice → 6 Months to 1 year As soon as admission happens → Moratorium Period starts All proceedings against a particular company will be stopped All payments, charges etc will be halted Full time & Full scope for CIRP process to figure out a solution You must mention who will be IRP (Interim Resolution Professional) in the present case 1. He will make a public announcement → make claims and file a notice in a specified time limit 2. COC (Committee of Creditors) will only have financial creditors Either same person (IRP) will be the RP(Resolution Professional) or they can appoint their own RP Information Memorandum will be prepared → all financial details (assets, liability, liquidity etc.) [Janam Kundli] RP will put proposals before the COC Approval will be taken from the Adjudicating Authority (i.e. NCLT) Whole process on paper must be completed within 180 days → 1st Extension will be of 90 days → SC judgement, final approval will be 330 days (another 60 days) If timeline is not followed & liabilities far exceed assets then this case will go for liquidation (selling of assets) Voting right reduced from 75% to 66% → based on how much debt you have in the current case TIME SERIES FORECASTING Time series forecasting occurs when you make scientific predictions based on historical time stamped data. It involves building models through historical analysis and using them to make observations and drive future strategic decision-making. Using existing data & then making forecasts about the future year performance Calculation of Fair Market Value: 1. Restructuring / Resolution → what is the market price Calculation of Liquidation Value: 1. Here the company is bankrupt and assets are being sold off 2. This also involves a calculation of brand value (goodwill) → Intangible Asset HOWEVER THIS PAPER FAILED TO LOOK AT ONE THING 3rd outcome other than resolution or liquidation Withdrawal of cases → rule 4 → very easy to do before COC constitution Led to out of court Settlement You can withdraw even after EOI - but 90% Even post EOI settlement is possible beyond law CIRP recovery rate = 43% time taken - 433 days Liquidation = 7% time taken - CIRP Time + 318 Settlement = Full or near to full (at least above 70%) IBC without settlement → Lost cost game IBC with settlement → High Cost Game Deterrence Effect also makes it high cost Threshold for filing application → was earlier 1L but in Covid increased to 1CR Usually operational creditor are less than 1CR and they cannot no longer file a case under IBC SLR + CRR = Variable Reserve Ratio 1991 → Narasimhan Rao Committee SLR → 38.5 CRR → 15 VRR = 38.5 + 15 53.5 40% of 53.5 → 21.4 Priority Sector Lending Total Regulated Money = 74.9% Unregulated Money = 25.1% Direct Credit Programme Priority Sector Lending This recommendation was not accepted NARASIMHAM COMMITTEE 1998 Problems identified by it- o Directed investment programme- o Directed credit program There was a recommendation to reduce private sector undertakings or lending but never got implemented. o Rate of interest structure Recommendations o Reduction in SLR and CRR- reduce from 38.5 to 25% and CRR from 15% o Phasing out directed credit program o Interest rate determination o Structural reorganizations of the banking sector – three to four big banks including SBI should be developed as international banks. Eight to ten having nationwide presence should concentrate on the national and universal banking services. o Establishment of the ARF tribunal- asset reconstruction fund including the asset managing company o Removal of dual control o Banking autonomy Amendments to RBI act for the monetary policy committee- came into force on June 27, 2016- six-member committee tasked with bringing value and transparency to monetary policy decisions will comprise three members from the RBI, including the governor who will be the ex-officio chairperson, a deputy governor and one officer fo the central bank o Section 7 of the RBI act- if invoked then they will be held responsible the committee focused on various areas such as adequacy, bank merger, bank legislation. It submitted its report in 1998 with following recommendations. In 1997 there were crises in the south east Asian nations. Recommendations given in 1998- o Strengthening banks in India- the committee considered the stronger banking system o Convertibility of the current account into the capital account- current reflects the export and imports of goods and services. LPG is giving the flexibility to export and import through this convertibility. Now not dependent on the forex for managing the market, now can go directly to the market. If you are paying more to the rest of the world, then cannot convert. If borrowing from the rest of the world then it is debt. Deficit in the current account but surplus in the capital , then good forex reserves. o Narrow banking- where weak banks will be allowed to place their funds only in short term and risk-free assets. Risk weighted assets Cash and cash with RBI 0% risk 50 cr value Loans and advances 100% risk 50 cr value Investment in government securities 20% risk 50 cr value Other assets 100% risk 50 cr value Cash & cash deposits with RBI Loan to Corporate 40 CR 20% 8 Loan to Small Business 40 CR 50% Prime Lender Other Investments & Off balance sheet exposures TIERS OF CAPITAL Capital Adequacy Ratio = Ratio of the bank capitals to it’s risks Capital to Risk Assets Ratio Tier 1 → Statutory Driven Tier 2 → Through public listing CAR = (Tier 1 Capital + Tier 2 Capital) / Assigned Risk Assets = Currently not measure 1 norms but measure 3 Norms (WHICH NORMS) Govt announced that Govt will pump money in the banking Difference between soft law & hard law DIFFERENT TYPES OF DEPOSITS General Utility Functions MODULE 3 → FINANCIAL MARKET Types of Markets 1. Money Market → Short Term Instruments 2. Capital Market → Long Term Instruments Equity Market Debt Market 3. Derivative Market → Derived from underlying assets (Forward & Future Market) CAPITAL MARKET Two types of markets 1. Primary Market Used for issuing of IPO Direct relationship between person & company Company provides you with an ownership right 1. Secondary Market → Used for issuing instruments beyond the IPO FPO → Follow on Public Offering Eg: Vodafone-Idea This market is also called as the stock market Generally low volume share are listed at BSE Generally high volume shares are listed at NSE Types of Orders in Secondary Market 1. Market Order → Whatever rate is prevailing in the market There may be small fluctuations 1. Stop Loss Order/ Limit Order → You fix the price at which you want to buy Eg: Market Price = 13.5, Stop Loss Order = 13.25 Intra Day Market  When price is going to go down → Short Sell When price is going to go up → Short Buy Leverage → buying stock beyond what money you have It is advisable to always keep a stop loss Oversubscription of Shares → More people have registered for getting the stock than it is possible to allot Eg: Premier Energies 30 times oversubscribed Algorithm will not allot shares to people who are related to each other Buy Back → When company wants to buy back its shares Eg: TCS Usually happens at a price higher than the market price Understand Call & Put