2015 Chinese stock market crash

The ChineseSTOCK MARKET crash began with the popping of the stock market
bubble on 12 June 2015.[2] A third of the value of A-shares on theShanghai Stock
Exchange was lost within one month of the event.
Causes[edit]
In the year leading up to the crash, enthusiastic individual investors inflatedTHE STOCK
MARKET bubble through mass amounts of investments in stocks often using
borrowed money, exceeding the rate of economic growth and profits of the companies
they were investing in.[2] Investors facedmargin calls on their stocks and many were
forced to sell off shares in droves, precipitating the crash.[3]
By 89 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as
1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent
further losses.[4] Values of Chinese stock markets continued to drop despite efforts by
the government to reduce the fall.[5][6] After three stable weeks the Shanghai index fell
again on 27 July by 8.5 percent, marking the largest fall since 2007.[7]
Effects[edit]
Money magazine estimated that the potential negative impact on the United
States stock market may come about when Chinese investors begin to seek out
relatively stable U.S. investments in treasuries, stocks, and cash, and further strengthen
an already-strong U.S. dollar, thereby raising the prices on U.S. goods and diminishing
export profits.[8]
Global companies that relied on the Chinese market suffered from the crash. Stocks
that they own were devalued US$4 trillion. For example, French alcoholic beverage
company, Rmy Cointreau, and British luxury-goods company, Burberry, saw their
shares devalued and declining demand of their imports from Chinese distributors.
Second-quarterSALES of American fast food company, Yum! Brands, in China
dropped 10 percent, resulting in revenue going under the company's estimate. South
African ore mining company, Kumba Iron Ore, eliminated itsdividends on 21 July as the
61 percent loss of profit in the first half of the year was announced.[9]
Government response[edit]
The Chinese government enacted many measures to stem the tide of the crash.
Regulators limited short selling under threat of arrest.[10] Large mutual funds and pension
funds pledged to buy more stocks. The government stopped initial public offerings. The
government also provided cash to brokers to buy shares, backed by central-bank cash.
[11]
Because the ChineseMARKETS mostly comprise individuals and not institutional
funds (80 percent of investors in China are individuals [12]), state-run media continued to
persuade its citizens to purchase more stocks. In addition, China Securities Regulatory
Commission (CSRC) imposed a six-month ban on stockholders owning more than 5
percent of a company's stock from selling those stocks, resulting in a 6 percent rise
inSTOCK MARKETS .[13] Further, around 1,300 total firms, representing 45 percent of
the stock market, suspended theTRADING OF STOCKS starting on 8 July.[14]
Forbes contributor Jesse Colombo contended that the measures undertaken by the
Chinese government, along with cutting the interest rate, "allowing the use of property
as collateral for margin loans, and encouraging brokerage firms toBUY STOCKS with
cash from the People's Bank of China" caused Chinese stocks to begin surging in midJuly. He argued that in general, however, the outcomes of government intervention as it
relates to the crash will, by its nature, be difficult to predict, but saying that in the longer
term, the effect may be the development of an even larger bubble through creation of
a moral hazard.[10]
On 11 August, two months after the crash, the People's Bank of China devalued
the renminbi by 1.86 percent to CN6.2298 per US dollar.[15] On 14 August, the central
bank devalued it to CN6.3975 per US dollar.[16]
Black Monday, and Tuesday[edit]
Main article: Chinese black monday
On August 24th, the Shanghai main share index lost another 8.49%. As a result, bilions
of pounds were lost on international stock markets with some international
commentators labeling the day 2015 Black Monday.[17][18] There were similar losses on
Tuesday, leaving the market up 33% for the year.[19]

Financial management refers to the efficient and effective management of money

(funds) in such a manner as to accomplish the objectives of the organization. It is the
specialized function directly associated with the top management. The significance of
this function is not seen in the 'Line' but also in the capacity of 'Staff' in overall of a
company. It has been defined differently by different experts in the field.
It includes how to raise the capital, how to allocate it i.e. capital budgeting. Not only
about long term budgeting but also how to allocate the short term resources like current
liabilities. It also deals with the dividend policies of the share holders..
Definitions of Financial Management[edit]

Financial Management is the Operational Activity of a business that is

responsible for obtaining and effectively utilizing the funds necessary for efficient
operation. by Joseph Massie

Business finance deals primarily with rising administering and disbursing funds
by privately owned business units operating in non-financial fields of industry. by
Kuldeep Roy

Financial Management is an area of financial decision making, harmonizing

individual motives and enterprise goals. By Weston and Brigham

Financial management is the area of business management devoted to a

judicious use of capital and a careful selection of sources of capital in order to
enable a business firm to move in the direction of reaching its goals. by
J.F.Bradlery

Financial management is the application of the planning and control function to

the finance function. by K.D. Willson

Financial management may be defined as that area or set of administrative

function in an organization which relate with arrangement of cash and credit so that
organization may have the means to carry out its objective as satisfactorily as
possible . - by Howard & Opton.

Business finance can be broadly defined as the activity concerned with planning,
raising, controlling and administering of funds and in the business. by H.G
Gathman & H.E Dougall

Financial management is a body of business concerned with the efficient and effective
use of either equity capital, borrowed cash or any other business funds as well as taking
the right decision for profit maximization and value addition of an entity.- Kepher Petra;
Kisii University.
Finance management not only for the business but also for every expenses. Like its for
the home base expenses or the government expenses. The government also need to
manage the finance for the develop of the counter and the household also need to
manage their expenses properly - By Vinod Verma
Topics in financial management include:[1]

Managerial finance, a branch of finance concerned with the managerial

significance of finance techniques.

Corporate finance, a branch of finance concerned with monetary resource

allocations made by corporations.

Financial management for IT services, financial management of IT assets and

resources.

Financi Association, an organization for finance and economics students and

professionals.

Financial Management Service, a bureau of the U.S. Treasury which provides

financial services for the government.

Financial management, a professional designation in Canada indicating a

financial planner.

Finance is a field that deals with the allocation of assets and liabilities over time under
conditions of certainty and uncertainty. Finance can also be defined as the science of
money management. A key point in finance is the time value of money, which states that
purchasing power of one unit of currency can vary over time. Finance aims to price
assets based on their risk level and their expected rate of return. Finance can be broken
into three different sub-categories: public finance, corporate finance and personal
finance.
Personal finance[edit]
Questions in personal finance revolve around:

Protection against unforeseen personal events, as well as events in the wider

economy
Transference of family across generations (bequests and inheritance)
Effects of tax policies (tax subsidies and/or penalties) on management of
personal finances
Effects of credit on individual financial standing
Development of a savings plan or financing for large purchases (auto, education,
home)
Planning a secure financial future in an environment of economic instability

Personal finance may involve paying for education, financing durable goods such
as real estate and cars, buying insurance, e.g. health and property insurance, investing
and saving for retirement.
Personal finance may also involve paying for a loan, or debt obligations. The six key
areas of personal financial planning, as suggested by the Financial Planning Standards
Board, are:[1]
1. Financial position: is concerned with understanding the personal resources
available by examining net worth and household cash flow. Net worth is a
person's balance sheet, calculated by adding up all assets under that person's
control, minus all liabilities of the household, at one point in time. Household
cash flow totals up all the expected sources of income within a year, minus all
expected expenses within the same year. From this analysis, the financial
planner can determine to what degree and in what time the personal goals can
be accomplished.
2. Adequate protection: the analysis of how to protect a household from unforeseen
risks. These risks can be divided into liability, property, death, disability, health
and long term care. Some of these risks may be self-insurable, while most will
require the purchase of an insurance contract. Determining how much insurance
to get, at the most cost effective terms requires knowledge of theMARKET for
personal insurance. Business owners, professionals, athletes and entertainers
require specialized insurance professionals to adequately protect themselves.
Since insurance also enjoys some tax benefits, utilizing insurance investment
products may be a critical piece of the overall investment planning.
3. Tax planning: typically the income tax is the single largest expense in a
household. Managing taxes is not a question of if you will pay taxes, but when
and how much. Government gives many incentives in the form of tax deductions
and credits, which can be used to reduce the lifetime tax burden. Most modern
governments use a progressive tax. Typically, as one's income grows, a
higher marginal rate of tax must be paid. Understanding how to take advantage
of the myriad tax breaks when planning one's personal finances can make a
significant impact in which it can later save you money in the long term.

4. Investment and accumulation goals: planning how to accumulate enough

money - for large purchases and life events - is what most people consider to be
financial planning. Major reasons to accumulate assets include, purchasing a
house or car, starting a business, paying for education expenses, and saving for
retirement. Achieving these goals requires projecting what they will cost, and
when you need to withdraw funds that will be necessary to be able to achieve
these goals. A major risk to the household in achieving their accumulation goal
is the rate of price increases over time, or inflation. Using net present value
calculators, the financial planner will suggest a combination of asset earmarking
and regular savings to be invested in a variety of investments. In order to
overcome the rate of inflation, the investment portfolio has to get a higher rate of
return, which typically will subject the portfolio to a number of risks. Managing
these portfolio risks is most often accomplished using asset allocation, which
seeks to diversify investment risk and opportunity. This asset allocation will
prescribe a percentage allocation to be invested in stocks (either preferred stock
and/or common stock), bonds (for example mutual bonds or government bonds,
or corporate bonds), cash and alternative investments. The allocation should
also take into consideration the personal risk profile of every investor, since risk
attitudes vary from person to person.
5. Retirement planning is the process of understanding how much it costs to live
at retirement, and coming up with a plan to distribute assets to meet any income
shortfall. Methods for retirement plan include taking advantage of government
allowed structures to manage tax liability including: individual (IRA) structures,
or employer sponsored retirement plans.
6. Estate planning involves planning for the disposition of one's assets after death.
Typically, there is a tax due to the state or federal government at one's death.
Avoiding these taxes means that more of one's assets will be distributed to
one's heirs. One can leave one's assets to family, friends or charitable groups.
Corporate finance[edit]
Corporate finance deals with the sources of funding and the capital structure of
corporations and the actions that managers take to increase the value of the firm to the
shareholders, as well as the tools and analysis used to allocate financial resources.
Although it is in principle different from managerial finance which studies the financial
management of all firms, rather than corporations alone, the main concepts in the study
of corporate finance are applicable to the financial problems of all kinds of firms.
Corporate finance generally involves balancing risk and profitability, while attempting to
maximize an entity's wealth and the value of its stock, and generically entails three
primary areas of capital resource allocation. In the first, "capital budgeting",
management must choose which "projects" (if any) to undertake. The discipline
of capital budgeting may employ standard business valuation techniques or even extend
to real options valuation; see Financial modeling. The second, "sources of capital"
relates to how these investments are to be funded: investment capital can be provided
through different sources, such as by shareholders, in the form of equity (privately or via
an initial public offering), creditors, often in the form of bonds, and the firm's operations
(cash flow). Short-term funding orworking capital is mostly provided by banks extending
a line of credit. The balance between these elements forms the company's capital
structure. The third, "the dividend policy", requires management to determine whether
any unappropriated profit (excess cash) is to be retained for future investment /
operational requirements, or instead to be distributed to shareholders, and if so in what
form. Short term financial management is often termed "working capital management",
and relates to cash-, inventory- and debtors management.
Corporate finance also includes within its scope business valuation,STOCK INVESTING
, or investment management. An investment is an acquisition of an asset in the hope
that it will maintain or increase its value over time that will in hope give back a higher
rate of return when it comes to disbursing dividends. In investment management in
choosing a portfolio one has to use financial analysis to determine what, how
much and when to invest. To do this, a company must:

Identify relevant objectives and constraints: institution or individual goals, time

horizon, risk aversion and tax considerations;

Identify the appropriate strategy: active versus passive hedging strategy

Measure the portfolio performance

Financial management overlaps with the financial function of the accounting profession.
However, financial accounting is the reporting of historical financial information, while
financial management is concerned with the allocation of capital resources to increase a
firm's value to the shareholders and increase their rate of return on the investments.
Financial risk management, an element of corporate finance, is the practice of creating
and protecting economic value in a firm by using financial instruments to manage
exposure to risk, particularly credit risk and market risk. (Other risk types include foreign
exchange, shape, volatility, sector, liquidity, inflation risks, etc.) It focuses on when and
how to hedge using financial instruments; in this sense it overlaps with financial
engineering. Similar to general risk management, financial risk management requires
identifying its sources, measuring it (see: Risk measure: Well known risk measures),
and formulating plans to address these, and can be qualitative and quantitative. In the
banking sector worldwide, the Basel Accords are generally adopted by internationally
active banks for tracking, reporting and exposing operational, credit andMARKET
risks.
Financial services[edit]
An entity whose income exceeds its expenditure can lend or invest the excess income
to help that excess income produce more income in the future. Though on the other
hand, an entity whose income is less than its expenditure can raise capital by borrowing
or selling equity claims, decreasing its expenses, or increasing its income. The lender
can find a borrowerafinancial intermediary such as a bankor buy notes or bonds
(corporate bonds, government bonds, or mutual bonds) in the bond market. The lender
receives interest, the borrower pays a higher interest than the lender receives, and the
financial intermediary earns the difference for arranging the loan.
A bank aggregates the activities of many borrowers and lenders. A bank accepts
deposits from lenders, on which it pays interest. The bank then lends these deposits to
borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their
activity.
Finance is used by individuals (personal finance), by governments (public finance), by
businesses (corporate finance) and by a wide variety of other organizations such as
including schools and non-profit organizations. In general, the goals of each of the
above activities are achieved through the use of appropriate financial instruments and
methodologies, with consideration to their institutional setting.
Finance is one of the most important aspects of business management and includes
analysis related to the use and acquisition of funds for the enterprise.
In corporate finance, a company's capital structure is the total mix of financing methods
it uses to raise funds. One method is debt financing, which includes bank loans and
bondSALES . Another method is equity financing - the sale of stock by a company to
investors, the original shareholders (they own a portion of the business) of a share.
Ownership of a share gives the shareholder certain contractual rights and powers,
which typically include the right to receive declared dividends and to vote the proxy on
important matters (e.g., board elections). The owners of both bonds (either government
bonds or corporate bonds) and stock (whether its preferred stock or common stock),
may be institutional investors - financial institutions such as investment banks
and pension funds or private individuals, called private investors or retail investors.
Public finance[edit]
Public finance describes finance as related to sovereign states and sub-national entities
(states/provinces, counties, municipalities, etc.) and related public entities (e.g. school
districts) or agencies. It usually encompasses a long-term, strategic perspective
regarding investment decisions that affect public entities. [2] These long-term, strategic
periods usually encompass five or more years. [3] Public finance is primarily concerned
with:

Identification of required expenditure of a public sector entity

Source(s) of that entity's revenue

The budgeting process

Debt issuance (municipal bonds) for public works projects

Central banks, such as the Federal Reserve System banks in the United
States and Bank of England in the United Kingdom, are strong players in public finance,
acting as lenders of last resort as well as strong influences on monetary and credit
conditions in the economy.[4]
Capital[edit]
Capital, in the financial sense, is the money that gives the business the power to buy
goods to be used in the production of other goods or the offering of a service. (The
capital has two types of resources, Equity and Debt).
The deployment of capital is decided by the budget. This may include the objective of
business, targets set, and results in financial terms, e.g., the target set for sale, resulting
cost, growth, required investment to achieve the planned SALES , and financing source
for the investment.
A budget may be long term or short term. Long term budgets have a time horizon of 5
10 years giving a vision to the company; short term is an annual budget which is drawn
to control and operate in that particular year.
Budgets will include proposed fixed asset requirements and how these expenditures will
be financed. Capital budgets are often adjusted annually (done every year) and should
be part of a longer-term Capital Improvements Plan.
A cash budget is also required. The working capital requirements of a business are
monitored at all times to ensure that there are sufficient funds available to meet shortterm expenses.
The cash budget is basically a detailed plan that shows all expected sources and uses
of cash when it comes to spending it appropriately. The cash budget has the following
six main sections:
1. Beginning Cash Balance - contains the last period's closing cash balance, in
other words, the remaining cash from last years earnings.
2. Cash collections - includes all expected cash receipts (all sources of cash for
the period considered, mainly sales)
3. Cash disbursements - lists all planned cash outflows for the period such as
dividend, excluding interest payments on short-term loans, which appear in the
financing section. All expenses that do not affect cash flow are excluded from
this list (e.g. depreciation, amortization, etc.)
4. Cash excess or deficiency - a function of the cash needs and cash available.
Cash needs are determined by the total cash disbursements plus the minimum
cash balance required by company policy. If total cash available is less than
cash needs, a deficiency exists.
5. Financing - discloses the planned borrowings and repayments of those planned
borrowings, including interest.
Financial theory[edit]

Financial economics[edit]
Financial economics is the branch of economics studying the interrelation of
financial variables, such as prices, interest rates and shares, as opposed to goods and
services. Financial economics concentrates on influences of real economic variables on
financial ones, in contrast to pure finance. It centres on managing risk in the context of
the financial markets, and the resultant economic and financial models. It essentially
explores how rational investors would apply risk and return to the problem of
an investment policy. Here, the twin assumptions ofrationality and market efficiency lead
to modern portfolio theory (the CAPM), and to the BlackScholes theory for option
valuation; it further studies phenomena and models where these assumptions do not
hold, or are extended. "Financial economics", at least formally, also considers
investment under "certainty" (Fisher separation theorem, "theory of investment
value",Modigliani-Miller theorem) and hence also contributes to corporate finance
theory. Financial econometrics is the branch of financial economics that uses
econometric techniques to parameterize the relationships suggested.
Although closely related, the disciplines of economics and finance are distinctive. The
economy is a social institution that organizes a societys production, distribution, and
consumption of goods and services, all of which must be financed.
Economists make a number of abstract assumptions for purposes of their analyses and
predictions. They generally regard financialMARKETS that function for the financial
system as an efficient mechanism (Efficient-market hypothesis). Instead, financial
markets are subject to human error and emotion. [5] New research discloses the
mischaracterization of investment safety and measures of financial products and
markets so complex that their effects, especially under conditions of uncertainty, are
impossible to predict. The study of finance is subsumed under economics as financial
economics, but the scope, speed, power relations and practices of the financial system
can uplift or cripple whole economies and the well-being of households, businesses and
governing bodies within themsometimes in a single day.
Financial mathematics[edit]
Financial mathematics is a field of applied mathematics, concerned with financial
markets. The subject has a close relationship with the discipline of financial economics,
which is concerned with much of the underlying theory that is involved in financial
mathematics.
Generally, mathematical
finance will
derive,
and
extend,
the mathematical or numerical models suggested by financial economics. In terms of
practice, mathematical finance also overlaps heavily with the field of computational
finance (also known as financial engineering). Arguably, these are largely synonymous,
although the latter focuses on application, while the former focuses on modelling and
derivation (see: Quantitative analyst). The field is largely focused on the modelling
ofderivatives, although other important subfields include insurance mathematics and
quantitative portfolio problems. See Outline of finance: Mathematical tools; Outline of
finance: Derivatives pricing.
Experimental finance[edit]
Experimental finance aims to establish different market settings and environments to
observe experimentally and provide a lens through which science can analyze agents'
behavior and the resulting characteristics of trading flows, information diffusion and
aggregation, price setting mechanisms, and returns processes. Researchers in
experimental finance can study to what extent existing financial economics theory
makes valid predictions and therefore prove them, and attempt to discover new
principles on which such theory can be extended and be applied to future financial
decisions. Research may proceed by conductingTRADING SIMULATIONS or by
establishing and studying the behavior, and the way that these people act or react, of
people in artificial competitive market-like settings.
Behavioral finance[edit]
Behavioral finance studies how the psychology of investors or managers affects
financial decisions andMARKETS when making a decision that can impact either

negatively or positively on one of their areas. Behavioral finance has grown over the last
few decades to become central and very important to finance.[citation needed]
Behavioral finance includes such topics as:
1. Empirical studies that demonstrate significant deviations from classical theories.
2. Models of how psychology affects and impacts trading and prices
3. Forecasting based on these methods.
4. Studies of experimental asset markets and use of models to forecast
experiments.
A strand of behavioral finance has been dubbed Quantitative Behavioral Finance, which
uses mathematical and statistical methodology to understand behavioral biases in
conjunction with valuation. Some of this endeavor has been led by Gunduz
Caginalp (Professor of Mathematics and Editor of Journal of Behavioral Finance during
2001-2004) and collaborators includingVernon Smith (2002 Nobel Laureate in
Economics), David Porter, Don Balenovich, Vladimira Ilieva, Ahmet Duran). Studies by
Jeff Madura, Ray Sturm and others have demonstrated significant behavioral effects in
stocks andEXCHANGE TRADED funds. Among other topics, quantitative behavioral
finance studies behavioral effects together with the non-classical assumption of the
finiteness of assets.
Intangible asset finance[edit]
Intangible asset finance is the area of finance that deals with intangible assets such as
patents, trademarks, goodwill, reputation, etc.