CaseStudy.co.in» Economics

Costs Are Cool: The Strategic Value of Economic Clarity

admin — Sat, 07 Aug 2010 18:31:17 +0000

For most nonprofit organizations, the art of making tradeoffs is a condition of survival as well as a key element of success. With limited means to address substantial social challenges, nonprofit leaders constantly make choices about the most effective way to allocate available resources among competing priorities.
information about revenues (in the form of donations, grants, and earned income) is usually fairly solid, organizational knowledge about costs tends to be weak. This is particularly the case when it comes to the true, all-in costs of providing services, running programs and otherwise operating the organization. Lacking this information, nonprofit executives often end up having to make important resource-related decisions on the basis of intangibles such as intuition, the skills and knowledge of the program staff, or the preferences and inclinations of the organization’s funders.
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Delivering on the promise of non profit

admin — Sat, 07 Aug 2010 18:25:59 +0000

Tough times force hard choices. And these are rapidly becoming the toughest times most of us have ever seen. Even for nonprofit leaders who are accustomed to ‘making much of little,’ the repercussions of the unfolding economic downturn are likely to pose unprecedented challenges.
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Recession and Stimulus

vicky113 — Tue, 03 Aug 2010 17:49:53 +0000

Recently the markets are doing extremely well where the indices grew by 3-4% and that was great; my portfolio got a much needed kick. However, I cannot help to wonder about those millions of people that are unemployed and cannot even fathom the use of the markets to grow wealth for themselves and their families. In fact they are much more concerned about losing their unemployment benefits than anything else. I had a conversation with a very good friend of mine in the US who is unemployed and she went on and on about more stimulus and why she and other unemployed should not be used as a political football in an election year and that their elected officials should put politics aside and do what is right. Of course out of compassion I agreed with her but her questions got me to thinking so I did some research into more economic stimulus and what this would mean for American families.
Of course a lot of scholars are saying that this is the worse economic downturn since the depression in the 1930’s so that is where I started to get a sense of where we are right now. Herbert Hoover who was President during the early part of the crash decided that the best course of action was to implement an austerity plan to reduce government debt and this will in turn stimulate the economy and get Americans back to work. For obvious reasons this did not work all you have to be is a student of history to know that this was true. I also do not have to tell you that Hoover was voted out of office and was replaced with Roosevelt.
Roosevelt took a different approach and used great governmental stimulus to get people back to work and for the most part his plans worked. Growth was slow at first and it was argued that Roosevelt should have launched a larger stimulus plan and it was as fate would have it the outset of WWII that was the real driver of economic recovery. Now I am not suggesting that we start another world war but what I am suggesting based on historical context is that the government plays a significant role in providing jobs.
Let’s come back to where we are today, economies are more connected than ever before and right now what is happening in Europe and beyond is triggering fits of doubt and uncertainty of businesses and consumers alike. We are not spending we have shrank from participation in the economic flow for good it almost seems, not knowing that this pull back is contributing to our economic pain. Europe is now engaged in wholesale austerity plans where they are spending less in the hope that this action would turn things around long-term. However, economists have feared a double dip recession as a result of this action. Others are concerned that we are on our way to a third depression and perhaps the worse in history. I am not a fortune teller and although I am an MBA student and have a keen interest in economics I cannot tell the future. However, what I do know is history and history dictates that we should engage ourselves in more economic stimulus.
Let us look at today’s economic stimulus packages, some will argue that they did not go far enough and others will argue that they did not work at all. What I want to do here is focus on the family that still has a job or income still coming in. If the economic stimulus package was not put into place do you think you will still have your income? If the stimulus package was much smaller do you think you would still have your income? Those of you who have been unemployed long-term do you think you would have had that safety net renewed again and again? I can substantiate all these questions for you, my unemployed friend’s benefits would have run out a long time ago without the stimulus package and a lot of my other friends who are in respectable positions in businesses, would have laid -off more people and possibly gone out of their job themselves without the stimulus.
The point to this argument is that wholesale austerity is not the answer and arguing austerity for the sake of political gain is suicide for all of those who live in US if not the world. Now I do not live in a bubble and I do know that government debt will have to come under control but as it stands right now the government is the only real entity that can stave off a depression. Are you ready to go into a depression? I am aware that there are about 15 million people out of work; well triple that amount if US go into full fledged depression. That is 45 million people out of work and possibly more than that! I do not know about you but I don’t know a politician that has the political courage to explain why they did not do all they could have done to prevent a depression. Well if that is the case then why are so many governments feeling that reducing deficits is more important than getting people back to work?
Let’s put it this way, when someone is out of work they are not spending money. If we continue to hear about how bad things are from the press and analysts that are paid to track economic stories what do you think the rest of the people who do have income coming in are going to do; they are going to spend less! Don’t get me wrong I do believe that saving has a place in the American fabric and I do like the idea that everybody is becoming more prudent with their money but they are not spending at all in a lot of cases and this is killing economic growth and is not getting people back to work. So what can be done; economic stimulus is the answer for the short-term. In fact I would go as far as to say that they can do both stimulus and some austerity but they have to have the political will to do this and they are all going to have to give up something.
The problem is that I don’t know one American that is willing to give up something to benefit the whole nation, not one! Please forgive me for being cynical but the political climate for the past three years has been ridiculous and self serving for the good of one. Perhaps that is the problem all along and the reason for their predicament now. Selfishness has too much power right now and approving another stimulus to benefit all of the population is too benevolent on the part of the American people and perhaps for all.
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World Markets Vs. Economy

vicky113 — Tue, 03 Aug 2010 17:40:44 +0000

Although economics has many facets, the field is unified by several central ideas. In this article, we will take a closer look at Ten Principles of Economics. There is no question as to what an economy is. Whether we are talking about the economy of Los Angeles, England, or Australia, a healthy economy is based on several distinct variables. Because the behaviour of an economy reflects the behaviour of the individuals who make up the economy.
Principle 1: People Face Trade-offs
“There is no such thing as a free lunch.” To get one thing that we like, we usually have to give up another thing that we like. Nonetheless, acknowledging life’s trade-offs is important because people are likely to make good decisions only if they understand the options that they have available.
Principle 2: The Cost of Something Is What You Give Up to Get It.
Because people face trade-offs, making decisions requires comparing the costs and benefits of alternative courses of action. In many cases, however, the cost of some action is not as obvious as it might first appear.
Principle 3: Rational People Think at the Margin
Economists normally assume that people are rational. Rational people systematically and purposefully do the best they can to achieve their objectives, with the opportunities they have.
Michael Leary of Apex Investment Services says that rational people know that decisions in life are rarely black and white but usually involve shades of gray. Economists use the term marginal changes to describe small incremental adjustments to an existing plan of action.
Principle 4: People Respond to Incentives
An incentive is something that induces a person to act. Because rational people make decisions by comparing costs and benefits, they respond to incentives. You will see that incentives play a central role in economics.
Incentives are crucial to analyzing how markets work. For example, when the price of an apple rises, people decide to eat more pears and fewer apples because the cost of buying an apple is higher. At the same time, apple orchards decide to hire more workers and harvest more apples because the benefit of selling an apple is also higher.
When analyzing any policy, we must consider not only the direct effects but also the indirect and sometimes less obvious effects that work through incentives. If the policy changes incentives, it will cause people to alter their behaviour.
As we go about our lives, many of our decisions affect not only ourselves but other people as well. Now we will discuss the next three principles which examine with how people interact with one another.

Principle 5: Trade Can Make Everyone Better Off
It is easy to be misled when thinking about competition among countries. Trade between the United States and Japan is not like a sports contest in which one side wins and the other side loses. In fact, the opposite is true: Trade between two countries can make each country better off.
By trading with others, people can buy a greater variety of goods and services at lower cost.
Countries benefit from the ability to trade with one another. Trade allows countries to specialize in what they do best and to enjoy a greater variety of goods and services. The Japanese, as well as the French and the Egyptians and the Brazilians, are as much our partners in the world economy as they are our competitors.
Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
At first glance, the success of market economies is puzzling. After all, in a market economy, no one is looking out for the economic well-being of society as a whole. Free markets contain many buyers and sellers of numerous goods and services, and all of them are interested primarily in their own well-being. Yet despite decentralized decision making and self-interested decision makers, market economies have proven remarkably successful in organizing economic activity in a way that promotes overall economic well-being.
Principle 7: Governments Can Sometimes Improve Market Outcomes
If the invisible hand of the market is so great, why do we need government?
One reason we need government is that the invisible hand can work its magic only if the government enforces the rules and maintains the institutions that are key to a healthy economy. Most important, markets work only if property rights are enforced. A farmer won’t grow food if he expects his crop to be stolen; a restaurant won’t serve meals unless it is assured that customers will pay before they leave; and a music company won’t produce CDs if too many potential customers avoid paying by making illegal copies. We all rely on government provided police and courts to enforce our rights over the things we produce – and the invisible hand counts on our ability to enforce our rights.
How individuals make decisions, and how people interact with one another make up the many variables of “The Economy.”
Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services
The differences in living standards around the world are staggering. In 2007, the average American had an income of about $37,500. In the same year, the average Mexican earned $8,950, and the average Nigerian earned $900. Not surprisingly, this large variation in average income is reflected in the quality of life. Citizens of high-income countries have more TV sets, more cars, better nutrition, better healthcare, and a longer life expectancy than citizens of low-income countries.
What explains these large differences in living standards among countries and over time? The answer is surprisingly simple. Almost all variation in living standards is attributable to differences in countries’ productivity- the amount of goods and services produced from an employee’s time. In nations where workers can produce a large quantity of goods and services per unit of time, most people enjoy a high standard of living. Similarly, the growth rate of a nation’s productivity determines the growth rate of its average income.
Principle 9: Prices Rise When the Government Prints Too Much Money
In Germany in January 1921, a daily newspaper cost 0.30 marks. Less than 2 years later, in November 1922, the same newspaper cost 70,000,000 marks. All other prices in the economy rose by similar amounts. This instance is one of history’s most stunning examples of inflation.
What causes inflation? In almost all cases of large or persistent inflation, the culprit is growth in the quantity of money. When a government creates large quantities of the nation’s money, the value of the money falls. In Germany in the early 1920s, when prices were on average tripling every month, the quantity of money was also tripling every month. Although less dramatic, the economic history of the United States points to a similar conclusion: The high inflation of the1970s was associated with rapid growth in the quantity of money, and the low inflation of the 1990s was associated with slow growth in the quantity of money.
Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment
Although a higher level of prices is, in the long run, the primary effect of increasing the quantity of money, the short-run story is more complex and more controversial. Most economists describe the short-run effects of monetary injections as follows:
* Increasing the amount of money in the economy stimulates the overall level of spending and thus the demand for goods and services.
* Higher demand may over time cause firms to raise their prices, but in the meantime, it also encourages them to increase the quantity of goods and services they produce and to hire more workers to produce those goods and services.
* More hiring means lower unemployment.
This line of reasoning leads to one final economy wide trade-off: a short-run trade-off between inflation and unemployment. Although some economists still question these ideas, most accept that society faces a short-run trade-off between inflation and unemployment. This simply means that, over a period of a year or two, many economic policies push inflation and unemployment in opposite directions. This short-run trade-off plays a key role in the analysis of the business cycle-the irregular and largely unpredictable fluctuations in economic activity, as measured by the production of goods and services or the number of people employed.
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Investing In Real Estate

admin — Wed, 21 Jul 2010 13:56:14 +0000

Everything is fair in love and war! The war of superiority and the love of immortality!
The competition between stock market investing and real estate has been going on since the mid 1960s, in order to prove to be the best source of investment returns. The stock market was regarded as a place to invest, whereas the realty was considered to be more reliable in the past. The present scenario is more of a revolutionized kind. It showed visible signs of change in the mid 1990s and kept on changing since then.
At present real estate, especially the residential realty that is purchase, renting, reselling and holding of realty assets is the matter of investment choice for the most of investors. Money generally flows as a direct consequence of low interest rates. Mortgaging assets is safer than high-risk speculative stock investments. Residential realty demands have increased manifold throughout the urban areas in North America and to some extent Europe. This generally affects the condominiums and town homes located inside the urban cores but prove to be a boon for single-family assets. Real estate has been compared to gold, which in historical times was considered as a tangible store of value.

The primary reason of the investment revolution is the tangibility of assets. More often than not this is guided by the psychological reasons. Most of the investors would opt for real estate investment where they would be able to see, touch, paint and above all feel the sense of security and possession, rather than the purchase of a share into a distant company over which the investor cannot access any control. Apart from
psychological reasons it can be supported by a very valid reason, the reason of availability of financing. In the stock market, there is a constant fear of being severely affected by its loss, as millions of investors have been the victims of such losses, earlier. But, only a few buyers and sellers have been affected in the scandals relating to Real Estate. Lenders have become more comfortable with the purchase of realty
market values than that of stocks and bonds. Banks generally give loans on appraised values, and an appraiser of a residential realty determines its real market value with a relatively higher degree of accuracy. This is easier than a stock analyst trying to evaluate the books of a corporation accurately.

Buying real estate is about more than just finding a place to call home. Investing in real estate has become increasingly popular over the last fifty years and has become a common investment vehicle. Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. In this article, we’ll go beyond buying a home and introduce you to real estate as an investment.
This is an investment as old as the practice of landownership. A person will buy a property and rent it out to a tenant. The owner, the landlord, is responsible for paying the mortgage, taxes and costs of maintaining the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage (according to the U.S. Census Bureau, real estate has consistently increased in value since 1940), leaving the landlord with a more valuable asset.
A financial institution would lend money far more easily to a qualified real estate buyer than to a stock market investor. This is mainly because real estate assets could be of similar values if they are of similar infrastructure, located at the same place and having similar furniture. However, the same reasoning cannot be applied to different corporations because of several variables, such as location, number of employees, performance, technology, market sector, politics, taxes, rapid growth in population, density, age and other relevant factors in current context of Real Estate over the Stock Market.
People have grown smarter these days. They buy a house generally below the market price, and let the value grow and then capitalize in hundreds and thousands of different ways. Real estate investment is being considered more rewarding as compared to the stock market investment, as people just not believe in spinning money but also securing values…
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Better management of food economy is key for long-term food price stability.

admin — Mon, 12 Jul 2010 18:13:34 +0000

Inflation in India, essentially the food price inflation, is rising at a fas t clip, threatening to derail the growth momentum and triggering a rise i n the interest rate.
The situation is quite alarming. For the rich and upper middle-class people, this is not a big issue as they spend a very small proportion of their income on food . But for the poor and even for a section of the middle-class, this has really created havoc. Some people spend even up to 80% of their income on food.
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Do Inefficient Stock Markets Drive Bad Corporate Governance?

maddy — Thu, 01 Jul 2010 06:23:44 +0000

One of the major accomplishments of recent corporate governance research has been to expose the risks confronted by minority shareholders in public companies around the globe. Corporate ownership structures such as pyramids, business groups, and dual class shares leave control in the hands of a limited set of blockholders – exposing minority investors to potential expropriation.
But why do minority shareholders continue to hold stock despite the risk of expropriation by controlling shareholders?

Managing firms throughout the business cycle: The Davis Way!

maddy — Sat, 19 Jun 2010 11:29:55 +0000

The first decade of the 21st century has been a rollercoaster ride for economic activity. Business confidence was high at the start of the millennium. This was particularly fuelled by the growth of the internet as a means of buying and selling. A lot of companies have developed websites and there has been a rapid increase in online purchasing.
during 2008/9 the rapid growth of world markets came to a halt. Many of the problems stemmed from banks lending money to risky borrowers. When some of these failed to pay back this led to a rapid loss of confidence in the banking system. Banks became reluctant to lend.
The Davis Service Group provides textile maintenance services in the UK and Europe. This includes linen hire, work-wear rental, dust control mat, laundry and washroom services. The Group consists of two main operating companies each with its own directors and executive team.

These two operating companies delegate responsibility and authority to profit centres throughout the Group. Providing essential services enables the company to grow when economic activity is expanding in its various markets.
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Credit Ratings in the Private Equity Industry

admin — Tue, 15 Jun 2010 06:19:51 +0000

This paper provides insight into the credit rating agencies’ methodology for rating the senior debt used to finance leverage buy-out transactions. In particular, the study focuses on examining if the initial credit ratings of leverage buy-out are influenced by the financial strategies and reputation of the private equity sponsor managing the deal. We also examine whether ratings are impacted by the state of the business cycle around the transaction close date.
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Analysis of News’ Impact on Stock Prices

maddy — Tue, 15 Jun 2010 06:11:43 +0000

According to the Efficient Market Hypothesis stock prices should be affected by the release of new information. In this paper we analyse the effect of newspapers on stock prices provided that the newspapers do not have access to private information.
This research paper was published as University essay from Handelshögskolan i Stockholm.
To find an answer to this question, a random sample of stocks from OMX Stockholm Stock Exchange have been chosen. Stock data has been gathered together with articles about the stocks in the sample. The articles have been classified as positive, neutral and negative. That information have been plugged in a set of variables and then regressed with the daily abnormal returns of the stocks. Empirical data shows that newspapers have an overall significant effect on stock’s abnormal returns and therefore over stock prices.
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