Audit and Assurance Value Measurements and Complex Estimates

Question: Depict about the Audit and Assurance for Value Measurements and Complex Estimates. Answer: 1 - Business Risk and Inherent Risk Assessment: a It is apparent that the business danger of HIH is interrelated to the worldwide, neighborhood and the control ecological components. The hazard depends on the comprehension of the protection part alongside the operational usefulness of HIH with the goal that it can fit itself under the hazard assessment parameters Evaluating the benefit and the structure: One of the best methodology for surveying the business danger of HIH is evaluating the productivity and the structure of the business under which it works. This will help in evaluating the serious condition of the business in regards to the ascent in rivalry with the expansion in value extend. In light of hazard evaluation, treatment of protection in Australian industry turns out to be generally simpler who are new to the modern guidelines (Glover et al., 2016). The protection and the superannuation commission of is the administrative collection of Australia holding the Australian Prudential Regulatory Authority. Deciding the indebtedness chance: There are various methods to choose the bankruptcy as far as assessing the jobs of the hazard evaluation, which depend on the estimation of inspecting dangers. There are all inclusive similarities, which are intended to grasp the capacity with the goal that it can meet the sum past due of the organization. By taking the assistance of gainfulness structure and liquidation chance, there is a much fundamental need to accentuation the emphasis on the business enterprise, which will have little quantities of clients to begin the business (Griffiths, 2012). The calculated system is identified with the limit of meeting the obligations of the organization. In this way, there is a need to decide the dissolvability of the organization which at last evaluating the money related and the non-monetary contemplations. 1.b The hazard, which HIH as of now can deal with, is identified with the reviewing hazard components since it empowers the issue of unfit review having its base on the specific class of monetary reports. These are generally founded on holding the technique and arranging as per the hazard, for example, inalienable hazard, control hazard and recognition chance. Characteristic hazard: The hazard is worried, with the danger of the budget report where the HIH insurance agency incorporates the conservation of the dissolvability edges, charging adequate premiums and the liquidity factor of the associations (Kogan et al., 2014). This comprises of reinsuring the specific various strategies just as giving the record of marine protection rehearses which to a great extent from the callings of protection. Control chance: The control hazard contains the material error which the inside control framework neglects to distinguish. For HIH, it has been comprehended that the fulfillment and exactness of the general record for compromise of the record and the ledger that has not been performed by the associations (Griffiths, 2012). The money related situation of the associations depends on the level of distinction in the midst of considerable procedure, which stresses a more noteworthy level of dependence on outer strategy of documentation. The expansion of the record accounts and the distinctive ledgers helps in the valuation of physical resources of the associations. Location of hazard: The theoretical structure of hazard discovery is worried about the various methods of performing review, which depends on the budgetary exhibition, that don't identify the mistakes in material or any attestations (Shin et al., 2014). This shows the HIH must take a shot at the ideal arranging and viably diminish the conditions of inability to recognize the material misquote. It is seen that HIH interior reports can't lead the proper meaningful methodology, as this will assist with managing better execution of inadequate arranging and generosity for future tax breaks. 2 Legal Liability: a. This identifies with the issue of inadequate review technique concerning the review chance, which isn't overseen by the association. The examiners have restricted comprehension of the innate hazard, which stays unrecognized from the modifications made in the earlier year by HIH. The significant weight that is presented on the evaluating report, mirrors the examining rehearses followed by the HIH (Abbas Iqbal, 2012). The evaluator doesn't totally research the inspecting rehearses, which it can inform to the various practices. The issues are typically identified with the insufficient evaluators autonomy, which is connected with the introduction of the non-inspecting work and understanding the HIH business activities because of high business chance. For customers: The emphasis depends on the money related situation of the associations introducing the deficient arranging of altruism too for the conceded securing cost and the annual tax cuts. It is mirrored that in the event that clients utilize previous reviewers, at that point this will make a significant impact on the freedom of the outside examining. The investigation features that the previous inspectors have been holding a decent coordinated effort with the reviewing group. This comprises of holding up higher impact on the present reviewers relying on the position (Schmidt et al., 2016). It is vital to mean that there is a nearness of good relations between previous reviewers and the current evaluators as they can recognize and deal with the issues with the related clients, which they hold. For leasers: The loan bosses need to weight on the littlest measure of dissolvability prerequisite, under which the association can stay dissolvable at the hour of declaration of executive. The reports are interrelated with the assurance of the board dependent on going concern. It is important to indicate that HIH must put their emphasis on the liquidity position of the association where the liquidity position is predominantly worried about the operational and monetary exercises of HIH (Schmidt et al., 2016). The hazard was fundamentally worried about the valuing capacity and remarkable cases of the associations in consistence with the booking strategy of HIH for dealing with and taking a shot at the ventures choices. The portrayals depends on the correct treatment of the arrangements where there is a requirement for prudential edges. 2.b The conditions, which have prepared for carelessness activities of HIH protection is essentially worried about the increasing velocities of the changes, made in the enactments. It is apparent from the investigation that blends of second rate chance valuing capacity, foolish ventures and under-saving the strategies prompted weariness of money related assets of gathering. Imperfect corporate administration practices of HIH: In view of the examination, it is contended that more profound explanations behind partnerships liquidation generally includes the office cost issue emerging from the office strife in the midst of the owners, chiefs and the account holders inside the associations. An enormous region of the issues was identified with the modifications, which are politically strengthened with direct obligation example of the legislature. The initiation of the authoritative changes is connected with the open liabilities and lacking danger the board assumes the job for in fitting administration. Proof gives that deficient hazard the board is because of the disappointment in forming the administration approaches and practices (Pitt, 2014). The chiefs have been thoughtless to assess the system for speculation with energy about hazard, which is worried about various wellsprings of data. Absence of freedom for non-official chief: From the recently referenced data, it is comprehended that freedom of the non-official chiefs is qualified to be addressed and unquestionably, it isn't as perfect as it has all the earmarks of being. Among the five official executives, two chiefs are past accomplice of Arthur Anderson secretarial firm. It was seen that HIH had paid an entirety of $1.7 million to Anderson for inspecting administrations alongside this a whole of $1.631 million for the arrangement of non-evaluating administrations (Bagshaw, 2013). As it is gotten that, evaluating administrations is perceived as primary wellspring of derogations from the free reviewer and other related executives. Either straightforwardly or in a roundabout way, the acts of corporate administration of HIH are liable for carelessness activities, which unmistakably characterizes that the core value or strategy because of need autonomous examination of the administration. Absence of freedom data assets: It is far reaching clear that the bookkeeping frameworks assumes a huge job in the elements of business incomparability frameworks. For an association like HIH, it isn't practicable for the non-official executives to accumulate and process the data fundamental for them to execute the duties of their chiefs (Pitt, 2014). Along these lines, the non-official chiefs obligations must be undermined as on the grounds that there is no other options yet to stay subject to the bookkeeping frameworks arranged and coordinated by the administration. Obviously, this represents inborn dangers of the business frameworks. 3-Ethics: a The emphasis has been on the lacking proof before the discharging the review report with the progressions that has been made concerning various records. On the presentation of cozy associations with the non-reviewing administrations has lead to the refusal of paid evaluating administrations (Bagshaw, 2013). HIH needed to enlist the individuals for its outside review group are because of following reasons; To reviewers were natural to the organization The reviewers are thought to have the productive involvement in the diverse monetary and financial issues The administration depends on the holding up crafted by review so as to build up a solid relationship with the outer inspectors. The evaluators need to have confidence on the administrators of customers to such a degree, that it isn't limiting the opportunity of the outer inspectors. The reviewers need

Financial Statement Fraud Investigations Essay Example | Topics and Well Written Essays - 1000 words

Fiscal report Fraud Investigations - Essay Example The inventories were shared between the different stores of the organization to help deals. Different outside merchants were organized to deliver stocks of the organization asserting phony limits. Heaps of stocks were offered to wholesalers and afterward the receipts were spread to singular stores of the organization. This illicit cash was entered and coursed between the Antar family and was stopped into undisclosed outside ledgers. The underlying reports recommend that when Crazy Eddie opened up to the world around twenty years back, its offers were exchanged at $8. The company’s shares have expanded multiple times during the years because of control of records. By indicating counterfeit deals, distorted inventories, doctoring and window dressing fiscal reports, the organization had the option to conceal its actual image of money related situation from people in general. In this way, the company’s stocks looked more appealing from outside than it really was. The deals of the organization never fell since the stocks flowed between the different stores and was treated as incomes. Such fake practices helped Crazy Eddie to keep up a sound twofold digit development and thus expanded the company’s share costs. ... Because of this, the banks got the feeling that the company’s request was unparalleled and subsequently they broadened the credit time frame. The installments of genuine deals were made in portions. Every portion of a specific deal was treated as individual deals. The sharing of inventories between somewhere in the range of forty stores helped the organization disguise verifiable realities. The extent of Examination Financial articulation fakes difficulties the honesty and corporate social duty of organizations. These fakes might be acts of neglect as purposeful distortion, adjustment of money related reports, adulteration, doctoring business records and business exchanges, intentional window dressing and misapplication of bookkeeping arrangements, blowing up deals and inventories, pay-offs, imaginary incomes, over or under-representations in fiscal summaries, etc. The fiscal summary extortion assessment intends to actualize uprightness and CSR in all organizations by empoweri ng straightforward, solid, and speculator well disposed budget report. Fiscal summary assessment legitimizes the idea of reviews and builds up the certainty of society just as all market members. It attempts to make the capital market increasingly productive by giving ideal data to all members. Money related outrages not just ruin the notoriety of the organization, it may likewise make negative assessments in capital markets, influences the nation’s financial development and success. It gives the offenders one progressively opportunity to confess and redress bookkeeping practices and acts of neglect. Misrepresentation assessment can help shield the company’s minority shareholders’ from potential insolvency or significant financial loses.â

G?m? Th??ry 101 D?finiti?n, Ex?l?in?d, Ex?m?l??

G?m? Th??ry 101 D?finiti?n, Ex?l?in?d, Ex?m?l?? Ev?r? ?hild understands wh?t g?m?? ?r?. Wh?n ??m??n? ?v?rr???t?, we sometimes say “it’? ju?t a g?m?.”Games ?r? ?ft?n not ??ri?u?. G?m?? theories ?n th? other h?nd are mu?h different. They ?r? u?u?ll? ??ri?u? business.Th? ?ur???? of game theory fr?m it? b?ginning? in 1928 w?? t? be ???li?d to serious situations in ???n?mi??, politics, bu?in???, ?nd ?th?r areas.Ev?n w?r? ??n b? analysed by g?m? theory. G?m? th??r? i? u?u?ll? ???n ?? a m?th?m?ti??l g?m? where ?v?r? m?v? i? calculated ??r?full? in other to achieve th? ?x???t?d r??ult.HERE ARE SOME COMPONENTS OF A GAMERulesM?th?m?ti??l g?m?? h?v? ?tri?t rul??. Th?? specify wh?t i? allowed ?nd wh?t i?n’t.Th?ugh m?n? r??l-w?rld g?m?? ?ll?w for discovering n?w m?v?? ?r w??? to act, games th?t ??n b? analysed mathematically h?v? a rigid ??t ?f ????ibl? m?v??, u?u?ll? ?ll known in ?dv?n??.Outcomes ?nd payoffsChildr?n (?nd gr?wn-u?? too) play games f?r h?ur? for fun. M?th?m?ti??l g?m?? may h?v? many possible ?ut??m??, ???h ?r?du?ing pay offs f?r th? ?l???r?.Th? payoffs may b? m?n?t?r?, ?r th?? m?? express ??ti?f??ti?n. Y?u w?nt t? win the g?m?.Un??rt?int? ?f th? OutcomeA m?th?m?ti??l game i? “thrilling” in th?t its ?ut??m? ??nn?t b? predicted in ?dv?n??.Sin?? its rul?? are fix?d, this im?li?? th?t a g?m? must ?ith?r ??nt?in ??m? random ?l?m?nt? or h?v? m?r? than ?n? ?l???r.D??i?i?n makingA g?m? with n? decisions might be boring, at l???t f?r th? mind. Running a 100 m?t?r race d??? n?t r??uir? m?th?m?ti??l ?kill?, only fast l?g?.H?w?v?r, most ???rt g?m?? ?l?? inv?lv? decisions, and can therefore ?t l???t ??rtl? b? ?n?l?z?d by g?m? theory.N? ?h??tingIn r??l-lif? g?m?? ?h??ting i? ????ibl?. Ch??ting m??n? n?t ?l??ing by th? rul??.If, when ??ur ?h??? ????n?nt i? distracted, ??u t?k? ??ur ?u??n ?nd ?ut it on a b?tt?r ??u?r?, ??u are ?h??ting, as in ??k?r, wh?n you exchange ?n 8 in your h?nd with ?n ??? in your ?l??v?.G?m? theory doesn’t even ??kn?wl?dg? th? ?xi?t?n?? ?f ?h??ting.BASICS OF GAME THEORY: GAME, PLAY, MOVEA play i? an instance of th? game. In ??rt?in ?itu?ti?n?, called ???iti?n?, a ?l???r has d? m?k? a decision, ??ll?d a m?v? ?r an ??ti?n. Thi? i? not th? same ?? ?tr?t?g?. A ?tr?t?g? i? a ?l?n th?t tells th? player wh?t m?v? to choose in every ????ibl? ???iti?n.R?ti?n?l behaviour i? usually ???um?d for all ?l???r?. Th?t is, ?l???r? ?r? ???um?d to h?v? ?r?f?r?n???, styles ?nd beliefs ?b?ut th? w?rld ?nd then th?? tr? t? ?l?? th?ir game ?? th?? b??t ??? fit.It i? ???um?d th?t th? opposite play wants t? win and f?r th?t t? h????n, he h?? t? b? very rational with hi? ?r h?r b?h?vi?ur.M?r??v?r, ?l???r? ?r? ?w?r? that other players ?r? tr?ing t? ??timiz? th?ir payoffs ?nd beat th?m and thi? inf?rm? th?ir d??i?i?n m?king.First let’s get a ??r????tiv? of wh?t game th??r? is all aboutW?, humans cannot survive with?ut interacting with ?th?r hum?n?, and ir?ni??ll?, it sometimes ???m? th?t w? h?v? ?urviv?d despite th??? int?r??ti?n? in th? ??n?? th?t th??? int?r??ti?n? h?v? included w?r?, fighting, killing? ?t?.Pr?du?ti?n and exchange require cooperation b?tw??n individu?l? at ??m? l?v?l but th? same int?r??ti?n? m?? also lead to di???tr?u? confrontations. Hum?n hi?t?r? i? ?? mu?h a hi?t?r? of fight? ?nd w?r? ?? it i? a hi?t?r? ?f ?u?????ful ?????r?ti?n ?nd fri?nd?hi??.Many hum?n int?r??ti?n? carry the ??t?nti?l? of ?????r?ti?n ?nd h?rm?n? ?? w?ll ?? conflict, di?tru?t ?nd sometimes outright di???t?r.Ex?m?l?? in?lud?: r?l?ti?n?hi?? ?m?ng ??u?l??, ?ibling?, countries, m?n?g?m?nt ?nd labor uni?n?, n?ighb?r?, ?m?l???r ?nd ?m?l?????, and ?? on.On? ??n ?rgu? th?t th? in?r???ingl? ??m?l?x technologies, in?tituti?n?, ?nd ?ultur?l n?rm? that have ?xi?t?d in human ???i?ti?? have been there in ?rd?r t? facilitate ?nd r?gul?t? th??? int?r??ti?n?.F?r ?x?m?l?, internet t??hn?l?g? gr??tl? facilitates buyer-seller tr?n???ti?n?, but ?l?? ??m?li??t?? th?m furth?r by increasing ????rtuniti?? for ?h??ting ?nd fr?ud.Workers and managers h?v? usually opposing interests wh?n it ??m?? to w ?g?? ?nd working ??nditi?n?, ?nd labour uni?n? ?? w?ll ?? l?b?ur l?w? ?r?vid? ?h?nn?l? ?nd rul?? through which ?n? potential ??nfli?t between them can be ?ddr????d.T?n?’? ???id?ntWh?n ?n? of us (Steve) w?? a ??ll?g? ?tud?nt, hi? fri?nd T?n? ??u??d a minor traffic ???id?nt. W?’ll l?t him t?ll th? ?t?r?:The car ?f th? vi?tim, wh?m I’ll ??ll Vic, w?? slightly scraped. T?n? didn’t w?nt t? t?ll hi? in?ur?n?? company. The n?xt m?rning, T?n? ?nd I w?nt with Vi? t? vi?it ??m? b?d? shops. Th? u??h?t was th?t th? r???ir w?uld ???t $80.Tony ?nd I had lunch with a bottle of wine, ?nd thought ?v?r th? ?itu?ti?n. Vic’s ??r was far fr?m new ?nd h?d ???umul?t?d m?n? ??r????. R???iring the f?w th?t T?n? h?d caused w?uld improve th? ??r’? ?????r?n?? ?nl? a littl?.W? figur?d that if Tony ??nt Vi? a ?h??k f?r $80, Vi? w?uld ?r?b?bl? ju?t ???k?t it. Perhaps, we thought, Tony ?h?uld ??k t? see a receipt ?h?wing th?t th? r???ir? h?d ??tu?ll? b??n performed b?f?r? he ??nt Vi? the $80.A g?m? th? ?ri?t w?uld represent thi? ?itu?ti?n b? a game tr??. For definiteness, w?’ll ???um? that th? v?lu? to Vic ?f r???iring th? d?m?g? is $20.Explanation ?f th? game tree:T?n? goes first. H? h?? a ?h?i?? of two ??ti?n?: send Vic a ?h??k f?r $80, or d?m?nd a r???i?t ?r?ving that th? work h?? b??n d?n?.If T?n? sends a check, th? g?m? ?nd?. Tony i? ?ut $80; Vi? will no doubt k??? the m?n??, so he h?? g?in?d $80. W? r??r???nt th??? ????ff? b? th? ?rd?r?d ??ir (-80, 80); the fir?t numb?r i? Tony’s ????ff, the ????nd i? Vi?’?.If T?n? d?m?nd? a r???i?t, Vi? has a ?h?i?? ?f two ??ti?n?: r???ir the ??r and send T?n? th? r???i?t, ?r just forget th? wh?l? thing.If Vi? r???ir? th? car ?nd ??nd? T?n? th? r???i?t, th? g?m? ?nd?. T?n? ??nd? Vi? a ?h??k f?r $80, so he i? ?ut $80; Vi? u??? th? check t? ??? for the r???ir, ?? his g?in is $20, the v?lu? ?f the r???ir.If Vi? decides to forget th? wh?l? thing, h? ?nd Tony each ?nd u? with a g?in ?f 0Assuming that we h?v? ??rr??tl? sized u? th? ?itu?ti? n, w? ??? th?t if Tony demands a receipt, Vi? will have to d??id? between tw? ??ti?n?, one th?t giv?? him a ????ff ?f $20 ?nd one that giv?? him a payoff ?f 0. Vic will ?r??um?bl? ?h???? t? repair th? ??r, which giv?? him a better payoff. T?n? will th?n b? ?ut $80.Our ??n?lu?i?n was th?t Tony w?? out $80 wh?t?v?r he did. We did n?t like thi? game.When th? bottle w?? n??rl? finished, w? th?ught ?f a third ??ur?? ?f ??ti?n th?t T?n? could t?k?: ??nd Vi? a check for $40, ?nd t?ll Vi? th?t h? would ??nd th? r??t when Vi? provided a r???i?t ?h?wing th?t th? w?rk h?d ??tu?ll? b??n d?n?. The game tr?? n?w l??k?d lik? this:Most ?f th? g?m? tr?? l??k? lik? th? fir?t ?n?. H?w?v?r:If Tony t?k?? hi? new ??ti?n, ??nding Vic a check f?r $40 ?nd asking f?r a receipt, Vi? will have a ?h?i?? ?f two ??ti?n?: repair the ??r, ?r don’t.If Vic r???ir? the ??r, th? game ?nd?. Vi? will ??nd Tony a r???i?t, ?nd T?n? will send Vi? a ????nd check f?r $40. Tony will b? ?ut $80. Vi? will use b?th ?h??k? to pa y for th? r???ir, ?? he will h?v? a n?t g?in ?f $20, the v?lu? ?f the r???ir.If Vi? d??? n?t repair the ??r, ?nd ju?t ???k?t? th? the $40, th? g?m? ends. T?n? i? ?ut $40, ?nd Vi? h?? g?in?d $40. Ag?in ???uming th?t w? have ??rr??tl? ?iz?d u? th? ?itu?ti?n, w? ??? th?t if T?n? sends Vi? a check f?r $40 and asks f?r a r???i?t, Vic’s best ??ur?? ?f action i? t? keep th? m?n?? ?nd n?t m?k? th? repair. Thu? T?n? is ?ut only $40.T?n? ??nt Vic a ?h??k for $40, t?ld him h?’d ??nd th? r??t when he saw a receipt, ?nd n?v?r h??rd from Vi? ?g?in.E??n?mi??, sociology, ????h?l?g?, ?nd ??liti??l ??i?n?? ?r? ?ll d?v?t?d to studying hum?n b?h?vi?ur in different realms of social life.H?w?v?r, in m?n? in?t?n??? th?? tr??t individu?l? in i??l?ti?n, f?r convenience if n?t f?r ?n?thing ?l??. In ?th?r w?rd?, th?? ???um? th?t to understand ?n? individual’s b?h?vi?r.It i? safe to ???um? that his or her b?h?vi?r d??? not h?v? a significant ?ff??t ?n ?th?r individu?l?. In some cases, and d???nding u??n th? ?u??ti?n ?n? i? ??king, this assumption m?? b? w?rr?nt?d.For ?x?m?l?, wh?t a small f?rm?r in a l???l market, l?t’? ??? in M?nt?n?, ?h?rg?? for wheat i? n?t likely t? have ?n effect on the w?rld wh??t prices.Simil?rl?, th? probability th?t m? vote will ?h?ng? th? ?ut??m? ?f th? U.S. presidential ?l??ti?n? is n?gligibl? small.So, if we ?r? interested in the w?rld wh??t ?ri?? or th? r??ult ?f th? ?r??id?nti?l ?l??ti?n?, w? m?? ??f?l? ???um? th?t ?n? individu?l ??t? ?r b?h?vi?r will n?t ?ff??t th? outcome.In many cases, however, thi? ???um?ti?n m?? l??d to wrong ??n?lu?i?n?. F?r ?x?m?l?, h?w mu?h ?ur f?rm?r in M?nt?n? ?h?rg??, ??m??r?d t? th? ?th?r f?rm?r? in Montana, ??rt?inl? ?ff??t? h?w mu?h h? ?r ?h? and other f?rm?r? make. If ?ur f?rm?r ??t? a ?ri?? that i? l?w?r th?n th? prices set by th? ?th?r f?rm?r? in th? local m?rk?t, ?h? w?uld ??ll m?r? than th? others, and vi?? versa.Th?r?f?r?, if we ???um? th?t they d?t?rmin? th?ir prices with?ut t?king thi? ?ff??t int? ????unt, w? a re not lik?l? to get ?n?wh?r? n??r und?r?t?nding their b?h?vi?r.Simil?rl?, the v?t? of ?n? individual m?? r?di??ll? ?h?ng? the ?ut??m? ?f voting in ?m?ll ??mmitt??? and ???uming th?t they v?t? in ign?r?n?? ?f th?t f??t i? likely t? be mi?l??ding.Aft?r ?ll, ?v?n ?du??t?d ??n?t?r? ??m?tim?? turn their votes b???d on ?n? ??r??n’? idea.S? what i? g?m? th??r??Game th??r? i? ?x??tl? th??? interactions within a gr?u? of individuals (?r g?v?rnm?nt?, firm?, ?t?.) wh?r? th? actions ?f ???h individual have ?n ?ff??t on th? ?ut??m? th?t i? of interest t? everybody.Yet, thi? is n?t ?n?ugh f?r a ?itu?ti?n t? be a ?r???r ?ubj??t ?f game th??r?: th? w?? th?t individu?l? act has to be ?tr?t?gi?, i.?., they ?h?uld b? ?w?r? ?f the f??t th?t th?ir ??ti?n? ?ff??t others.Th? fact th?t m? ??ti?n? h?v? ?n ?ff??t on th? ?ut??m? does n?t n??????ril? translate t? strategic b?h?vi?ur if I ?m n?t aware ?f th?t f??t. Therefore, w? say th?t game th??r? ?tudi?? strategic int?r??ti?n within a group of individuals .B? strategic int?r??ti?n w? m??n th?t individu?l? kn?w th?t th?ir ??ti?n? will have an ?ff??t on th? ?ut??m? and th?n ??t? accordingly. It b??i??ll? m??n? acting in such a w?? t? m?ni?ul?t? ?n ?ut??m? in ??ur favour. Look ?t th? ?x?m?l? ?b?v?â€"“J?hn’? ???id?nt”Having determined the t???? ?f situations th?t g?m? th??r? d??l? with, w? h?v? to now di??u?? h?w it ?n?l???? these ?itu?ti?n?.Like ?n? ?th?r th??r?, the objective ?f g?m? th??r? i? t? ?rg?niz? ?ur knowledge ?nd in?r???? ?ur understanding of th? outside w?rld.A scientific th??r? tri?? t? abstract th? m??t ????nti?l aspects ?f a giv?n ?itu?ti?n, analyze them using ??rt?in ???um?ti?n? ?nd ?r???dur??, and ?t th? end derive ??m? g?n?r?l ?rin?i?l?? and ?r?di?ti?n? th?t can b? ???li?d to individual in?t?n???.F?r it to h?v? ?n? ?r?di?tiv? ??w?r, game theory has t? assume some rules according t? whi?h individu?l? m?? ??t. If w? d? n?t d???rib? how individu?l? behave, what th?ir ?bj??tiv?? ?r? ?nd h?w they tr? to ??hi?v? th??? ?bj??tiv?? w? ??nn?t derive ?n? ?r?di?ti?n? at ?ll in a giv?n ?itu?ti?n.F?r example, ?n? w?uld get ??m?l?t?l? diff?r?nt ?r?di?ti?n? r?g?rding th? ?ri?? of wh??t in a local m?rk?t if one ???um?? th?t farmers simply flip a ??in and ?h???? b?tw??n $1 ?nd $2 a pound ??m??r?d t? if ?n? assumes they tr? t? m?k? as mu?h m?n?? ?? ????ibl?.Therefore, t? bring ??m? discipline t? th? ?n?l??i? ?n? has t? intr?du?? ??m? ?tru?tur? in terms of th? rules ?f the game. Th? most important, and m??b? ?n? of th? m??t controversial, assumption ?f game theory whi?h brings ?b?ut this di??i?lin? i? th?t individuals ?r? rational.Rationality im?li?? that individu?l? know the strategies ?v?il?bl? t? ???h ?f th?m, h?v? ??m?l?t? and ??n?i?t?nt ?r?f?r?n??? over ????ibl? outcomes, ?nd th?? ?r? ?w?r? ?f th??? ?r?f?r?n???.Furth?rm?r?, they ??n determine the b??t strategy f?r themselves ?nd flawlessly im?l?m?nt it.If t?k?n literally, th? ???um?ti?n of rationality i? ??rt?inl? ?n unr??li?ti? ?n?, ?nd if applied to ??r ti?ul?r ????? it m?? ?r?du?? r??ult? that are ?t ?dd? with r??lit?. We ?h?uld fir?t note th?t game th??ri?t? ?r? ?w?r? of th? limit?ti?n? im????d b? this ???um?ti?n ?nd th?r? is ?n active r????r?h area ?tud?ing th? implications ?f l??? d?m?nding f?rm? ?f rationality, ??ll?d bounded r?ti?n?lit?.It i? n?t enough th?t I know th?t m? ??ti?n?, as w?ll ?? ??ur?, affect the outcome, but I mu?t ?l?? kn?w th?t you kn?w this fact. T?k? th? example ?f tw? wheat f?rm?r? b?th farmer A and B kn?w th?t their respective ?h?i??? of ?ri??? will ?ff??t their profits f?r the d??.But suppose, A d??? not kn?w that B kn?w? thi?.Now, from the ??r????tiv? of f?rm?r A, f?rm?r B i? ??m?l?t?l? ign?r?nt of what is g?ing ?n in th? market ?nd h?n?? f?rm?r B might ??t any ?ri??.Thi? makes f?rm?r A’? d??i?i?n quite difficult in itself because he h?? n? r?ti?n?l ground t? stand on to compete with f?rm?r B b???u?? f?rm?r B ??uld set ?n? price (he could set a ?ri?? lower than the ???t ?ri?? whi?h will m?k? it imposs ible f?r f?rm?r A t? compete).T? model th? ?itu?ti?n more r??li?ti??ll?, w? then have t? assume th?t th?? b?th kn?w th?t th?? kn?w th?t their prices will affect their ?r?fit?.On? ??tu?ll? h?? t? ??ntinu? in this f??hi?n ?nd assume th?t the rul?? ?f the game, in?luding h?w ??ti?n? ?ff??t th? ??rti?i??nt? ?nd individuals’ r?ti?n?lit?, ?r? ??mm?n kn?wl?dg?.A fact “X” i? common kn?wl?dg? if everybody knows it, if ?v?r?b?d? kn?w? that ?v?r?b?d? kn?w? it, if everybody kn?w? th?t ?v?r?b?d? kn?w? th?t ?v?r?b?d? kn?w? it, ?nd so on.Thi? has ??m? philosophical im?li??ti?n? ?nd is ?ubj??t t? a l?t ?f controversy, but f?r the m??t part w? will ?v?id th??? di??u??i?n? and take it as giv?n.In sum, we m?? define g?m? theory ?? f?ll?w?: Game th??r? i? a ???t?m?ti? study ?f ?tr?t?gi? interactions ?m?ng r?ti?n?l individu?l?.It? limit?ti?n? ??id?, game theory h?? b??n fruitfull? ???li?d to m?n? situations in th? r??lm ?f ???n?mi??, political ??i?n??, bi?l?g?, l?w, ?t?.In the rest ?f thi? ?rti?l? , w? will illu?tr?t? th? m?in ideas ?nd ??n???t? of g?m? th??r? ?nd ??m? ?f it? ???li??ti?n? using simple ?x?m?l??.An ?x?m?l?Su????? th?t B??ing ?nd Airbu? are asked t? ?ubmit ???l?d bid? on th? ?ri?? ?f t?n jet ?irlin?r? t? a f?r?ign n?ti?n?l ?irlin?. B?th ??m??ni?? d?ubt that th?? will ??m??t? in ?imil?r w??? in th? futur?. Both companies ??n ??l??t ?ith?r a high price ?r a l?w price.If ?n? ??m??n? bid? high and th? ?th?r bids l?w, the ?rd?r goes t? th? low bidder; if b?th ??m??ni?? submit th? same bid, they ??lit the order. E??h firm h?? the capacity t? build ?ll t?n ?ir?l?n??.B?th companies privately ?h???? their bids ?t th? ??m? tim?. Th? r??ulting ????ff? (profits ?x- pressed in milli?n? ?f dollars) d???nd ?n both firms’ choices.L?w ?ri??â€"100 milli?n each High ?ri??â€"150 million ???hCONCEPTS IN GAME THEORYDominant Str?t?gi?? A d?min?nt strategy ?xi?t? wh?n it i? optimal for a firm t? ?h???? th?t ?tr?t?g? n? m?tt?r what its rival d???. In the ?x?m?l? above, b?th firm? have a d?min?nt ?tr?t?g?â€"?h???? the l?w ?ri??.To illu?tr?t?, consider B??ing’? position. If Airbu? chooses a high ?ri??, B??ing ???tur?? th? entire ?rd?r b? submitting a l?w ?ri??. The resulting payoff of $1 billi?n is high?r th?n the payoff ?f $750 milli?n if both firm? ?ri?? high ?nd ??lit th? order.If Airbus ?h????? a l?w ?ri??, B??ing i? clearly b?tt?r ?ff t? ?ri?? l?w ?nd ??lit the order instead of l??ing ?ut entirely. It? alternative is t? ?ri?? high and sell n? ?l?n??.Examining the r?w?, the ??m? l?gi? h?ld? for Airbus. Giv?n th??? strong incentives, th? likely ?ut??m? is f?r b?th firms to ?ubmit a l?w ?ri??. N?t? th?t the firm? w?uld b? better ?ff if th?? j?intl? were t? ?ubmit high ?ri???. But thi? ?ut??m? i? unlikely with?ut r????t?d int?r??ti?n?. (Thi? ?r?bl?m h?? the same ?tru?tur? ?? th? well-known prisoners’ Dilemma)Nash Equilibrium M?n? ?f th? w?rld’? markets ?r? lik? the ??mm?r?i?l ?ir?r?ft industry in that th?r? ?r? a f?w l?rg? firms wh? ?r? th? m?j?r players. I n thi? type of market, it i? g?n?r?ll? important f?r m?n?g?r? t? consider riv?l?’ r????n??? wh?n making m?j?r decisions.Firms d? n?t always h?v? d?min?nt ?tr?t?gi??. For in?t?n??, suppose in ?ur ?x?m?l?, the U.S. g?v?rnm?nt ?l???? ?r???ur? ?n th? foreign ??untr? to have its n?ti?n?l ?irlin? purchase planes fr?mB??ing (governments ??tu?ll? have d?n? thi? for their d?m??ti? producers). Th? ?irlin? still ??lit? th? ?rd?r when the bid? are the ??m? ?nd awards B??ing th? entire ?rd?r if B??ing is th? low bidd?r. But du? t? this ??liti??l ?r???ur?, if B??ing bids high and l???? th? bid, the ?irlin? will bu? f?ur ?l?n?? fr?m B??ing ?t th? high ?ri?? on a ?id? deal ?ft?r purchasing the t?n ?l?n?? from Airbu? ?t the low ?ri??.Ch???ing a low price i? still a d?min?nt ?tr?t?g? for Airbus. Boeing, h?w?v?r, does not have a d?min?nt ?tr?t?g?. If Airbu? ?ri??? high, it i? ??tim?l f?r Boeing to ?ri?? l?w t? capture th? entire ?rd?r, wh?r??? if Airbu? ?ri??? l?w, it is b?tt?r for Boeing to price h igh ?nd make the side deal.When d?min?nt strategies d? not exist, th? ??n???t ?f a Nash equilibrium is useful in ?r?di?ting th? ?ut??m?. A Nash equilibrium i? a set ?f ?tr?t?gi?? (?r ??ti?n?) in whi?h each firm i? doing th? b??t it ??n, giv?n the ??ti?n? of it? rival.Th? ??mbin?ti?n ?f a l?w Airbu? ?ri?? ?nd a high Boeing price i? a Nash ??uilibrium. Neither firm w?uld w?nt t? ?h?ng? it? ?ri?? given the price ?ubmitt?d by th? ?th?r firmA ??rti?ul?r problem might have multiple Nash ??uilibri?Nash equilibria ?r? not n??????ril? th? ?ut??m?? th?t maximize the j?int payoff ?f the ?l???r?.F?r in?t?n??, fr?m th? ?x?m?l? ?b?v?, th? ?ut??m? where both firm? ?ubmit l?w prices i? a N??h ??uilibrium.Y?t b?th firms w?uld b? b?tt?r ?ff if th?? j?intl? ?ubmitt?d high prices.M?n?g?m?nt ImplicationsTh? ??w?r of a Nash equilibrium t? ?r?di?t the ?ut??m? in strategic ?itu?ti?n? ?t?m? fr?m the f??t th?t N??h ??uilibri? ?r? ??lf-?nf?r?ing: They are stable ?ut??m??. For instance, if Boeing can forecast Airbu?’? ?h?i?? (??rh??? b???u?? it und?r?t?nd? that Airbu? has a dominant ?tr?t?g?), it i? ??tim?l for Boeing t? choose it? ??uilibrium ??ti?n, a high ?ri??.And Airbus h?? n? in??ntiv? t? ?v?id its ??uilibrium choice, a l?w ?ri??. Thu?, ?v?n if b?th firms can forecast the outcome, neither firm h?? ?n in??ntiv? to ?h???? ?n? other ??ti?n.Alth?ugh th? id?? ?f a N??h ??uilibrium i? ?uit? useful, it is n?t ?? ??w?rful in ?r?di?ting the ?ut??m?? ?f strategic int?r??ti?n? ?? th? ??n???t of a dominant ?tr?t?g?. Wh?n dominant ?tr?t?gi?? exist, th?r? ?r? ?tr?ng ?riv?t? in??ntiv?? t? choose them r?g?rdl??? of wh?t th? ?th?r player d???.Thu?, it i? ?uit? predictable th?t riv?l? will ?h???? d?min?nt ?tr?t?gi??. With a Nash ??uilibrium, your best choice g?n?r?ll? i? ??nting?nt ?n wh?t you ?x???t ??ur rival t? do.In m?n? ????? it i? r????n?bl? to expect that a Nash ??uilibrium will occur. Thi? is more likely to b? true wh?n th? rivals have m?r? ?x??ri?n?? in similar ?tr?t?gi? ?r?bl?m?, h?v? b? tt?r inf?rm?ti?n ?b?ut ???h ?th?r, or wh?n the N??h equilibrium is what i? ??ll?d a n?tur?l f???l ??int.F?r example, ??n?id?r the ?r?bl?m again.If Boeing has r????n?bl? inf?rm?ti?n ?b?ut potential payoffs ?nd Airbu?’? l??k ?f ??liti??l ??w?r within th? specific country (it understands that th?r? is a close w?rking r?l?ti?n?hi? between th? l???l ?nd U.S. governments), it will r??liz? th?t Airbu? has a d?min?nt strategy t? ?ubmit a l?w ?ri??.B??ing ??rr????ndingl? will ?h???? a high priceâ€"the N??h equilibrium.Wh?n riv?l? kn?w littl? about th? setting ?r ???h ?th?r ?nd wh?n th?r? i? n?t a n?tur?l focal point, ?ut??m?? other than N??h equilibria (n?n-??uilibrium ?ut??m??) ?r? m?r? lik?l? t? ???ur.Str?t?g?It i? th? ?r?-d?t?rmin?d rul? b? whi?h ???h ?l???r decides hi? ??ur?? ?f action fr?m hi? li?t ?v?il?bl? t? him. How one course ?f action i? selected out of v?ri?u? ??ur??? ?v?il?bl? t? him i? known ?? ?tr?t?g? ?f the g?m?.T???? ?f Str?t?g?G?n?r?ll? tw? types ?f strategy ?r? ?m?l???d Pur? Str?t?g?: It i? th? predetermined ??ur?? ?f action to b? ?m?l???d by th? ?l???r. The ?l???r? kn?w it in ?dv?n??. It i? usually r??r???nt?d b? a numb?r with which the course ?f ??ti?n is ?????i?t?d.Mixed Str?t?g?: In mix?d ?tr?t?g? the ?l???r d??id?? hi? course ?f ??ti?n in accordance with some fix?d probability distribution. Pr?b?bilit? ?r? ?????i?t?d with ???h course ?f ??ti?n ?nd th? ??l??ti?n i? done ?? ??r th??? ?r?b?biliti??. In mix?d ?tr?t?g? th? ????n?nt ??nn?t be sure ?f th? ??ur?? ?f ??ti?n to be t?k?n ?n ?n? ??rti?ul?r ?????i?n.Decision ?f a G?m?In G?m? theory, best ?tr?t?g? for ???h ?l???r i? d?t?rmin?d ?n th? b??i? of ??m? rul?. Sin?? both th? ?l???r? ?r? ?x???t?d to b? rational in th?ir ???r???h this is known ?? th? ?rit?ri? ?f ??tim?lit?.Each player lists the ????ibl? ?ut??m?? fr?m hi? ??ti?n ?nd ??l??t? the b??t ??ti?n t? ??hi?v? hi? ?bj??tiv??.This criteria of ??tim?lit? is ?x?r????d ?? M?ximin f?r the m?ximi?ing ?l???r ?nd Minim?x f?r the minimi?ing player.Th? Prisoners Dil?mm? Th?r? ?r? m?n? situation in lif? wh?r? ??u ?h???? to do ??m?thing th?t is b??t f?r you, r?th?r than best f?r th? group, b???u?? ??u h?v? n? way ?f estimating h?w ??mmitt?d the ?th?r ????l? ?r? t?w?rd? th? gr?u? int?r??t?.Y?u kn?w that the ?ut??m? ?f being ??lfi?h can ??t?nti?ll? be b?d for ?v?r??n?, but ??u ?r?f?r th?t ?v?r??n? gets screwed r?th?r th?n b?ing the ?v?rl? ??n?id?r?t? gu? ?v?r??n? ??r?w?.F?r ?x?m?l?, if I h?v? no id?? if ??u are g?ing t? pay taxes, why w?uld i bother t? ??? t?x?? f?r th? new public swimming pool in whi?h you will di? your ?h????k?t? int??I would prefer th?t there b? n? swimming ???l ?t all th?n t? b? th? dumm? wh? pays f?r ?th?r ????l?? ?tuff.Suppose ?n th? ?th?r hand, th?r? ?r? ?l?nt? ?f l?w ?biding ?itiz?n? out th?r? ???ing t?x??, then why not avoid ???ing taxes so I dip my own ??? in th? swimming pool with?ut ???ing for it!   In ?th?r w?rd?, ??ting ?nti-???i?l m?k? ??n?? f?r me ??r??n?ll? r?g?rdl??? of h?w ??n?id?r?t? ?th?r people ? r?.The prisoners dil?mm? i? a v?r? popular example of a two-person game of strategic int?r??ti?n, ?nd its a common intr?du?t?r? ?x?m?l? in many g?m? th??r? textbooks. Th? l?gi? ?f th? g?m? i? ?im?l?:Th? tw? players in th? game have b??n ???u??d ?f a ?rim? and h?v? b??n placed in ????r?t? r??m? so that th?? cannot communicate with ?n? ?n?th?r. (In other words, th?? cant ??llud? ?r commit t? ?????r?ting.)Each player i? asked ind???nd?ntl? whether h? i? g?ing to ??nf??? t? th? ?rim? ?r r?m?in ?il?nt.B???u?? each of the tw? ?l???r? h?? tw? possible ??ti?n? (?tr?t?gi??), there ?r? f?ur possible ?ut??m?? t? th? g?m?.If both ?l???r? confess, they each get sent to j?il, but f?r f?w?r ???r? th?n if ?n? of th? ?l???r? g?t r?tt?d ?ut b? th? ?th?r.If one ?l???r confesses ?nd th? ?th?r remains ?il?nt, th? silent player g?t? punished severely whil? th? player who ??nf????d g?t? t? go fr??.If b?th players r?m?in ?il?nt, they ???h get a punishment th?t is l??? ??v?r? th?n if they b?th confess.In th ? g?m? itself, ?uni?hm?nt? (?nd r?w?rd?, where relevant) are r??r???nt?d b? utility numb?r?.Positive numb?r? represent g??d ?ut??m??, n?g?tiv? numbers r??r???nt b?d ?ut??m??, ?nd ?n? outcome i? b?tt?r th?n ?n?th?r if th? numb?r associated with it i? greater.Analysing the Pl???r? O?ti?n?On?? a game i? d?fin?d, the n?xt ?t?? in analysing th? game i? to ?????? th? ?l???r? ?tr?t?gi?? ?nd try t? und?r?t?nd h?w th? ?l???r? ?r? likely to b?h?v?. E??n?mi?t? m?k? a f?w assumptions when they ?n?l??? games: first, they assume th?t b?th ?l???r? are ?w?r? ?f the ????ff? b?th f?r th?m??lv?? and f?r th? ?th?r ?l???r, ?nd, ????nd, th?? ???um? th?t both ?l???r? ?r? l??king to rationally m?ximiz? their ?wn ????ff fr?m the g?m?.One ???? initi?l ???r???h i? t? l??k ?t their d?min?nt strategies- ?tr?t?gi?? that are best r?g?rdl??? ?f what ?tr?t?g? th? ?th?r ?l???r chooses. In the ?x?m?l? above, choosing t? ??nf??? i? a d?min?nt ?tr?t?g? f?r both ?l???r?:Confess i? b?tt?r for ?l???r 1 if ?l???r 2 ?h????? t? confess ?in??C?nf??? i? b?tt?r for player 1 if ?l???r 2 ?h????? to r?m?in ?il?ntC?nf??? is better f?r ?l???r 2 if ?l???r 1 ?h????? to ??nf???Confess is b?tt?r f?r ?l???r 2 if ?l???r 1 ?h????? to r?m?in ?il?ntW?rr?n Buff?tt ?r?vid?? ??m? illumin?ti?n ?? t? how the Prisoners Dilemma plays out in business in th? 1985 Berkshire Hathaway Annu?l r???rtTh? domestic t?xtil? indu?tr? operates in a commodity bu?in???, ??m??ting in a w?rld market in whi?h substantial ?x???? ?????it? ?xi?t?.Much ?f the trouble w? experienced w?? ?ttribut?bl?, b?th dir??tl? ?nd indir??tl?, t? ??m??titi?n fr?m f?r?ign ??untri?? wh??? w?rk?r? ?r? paid a small fr??ti?n of the U.S. minimum wage.But th?t in n? way m??n? that ?ur l?b?r f?r?? deserves any bl?m? f?r ?ur ?l??ing. In fact, in ??m??ri??n with employees ?f American indu?tr? generally, ?ur w?rk?r? w?r? ???rl? ??id, as h?? been th? ???? throughout th? t?xtil? bu?in???. In ??ntr??t n?g?ti?ti?n?, union l??d?r? and members w?r? sensitive t? ?ur di??dv?nt?g?? u? ???t ???iti?n and did n?t ?u?h f?r unrealistic w?g? in?r????? ?r un?r?du?tiv? work ?r??ti???.T? the contrary, they tri?d just ?? h?rd ?? w? did t? keep us competitive. Even during our li?uid?ti?n ??ri?d they ??rf?rm?d superbly. (Ir?ni??ll?, w? w?uld h?v? b??n b?tt?r off fin?n?i?ll? if ?ur uni?n h?d b?h?v?d unr????n?bl? some ???r? ?g?; we th?n w?uld h?v? recognized th? im????ibl? future th?t we faced, ?r?m?tl? closed down, ?nd ?v?id?d ?ignifi??nt futur? l?????.)Ov?r the ???r?, we h?d th? ??ti?n of m?king large capital expenditures in the t?xtil? operation th?t would h?v? allowed us t? ??m?wh?t reduce variable ???t?. E??h proposal to do ?? looked like an imm?di?t? winn?r.Measured b? ?t?nd?rd return-on-investment t??t?, in f??t, th??? ?r?????l? usually ?r?mi??d gr??t?r ???n?mi? benefits than w?uld have r??ult?d fr?m ??m??r?bl? expenditures in ?ur highly-profitable candy ?nd n?w?????r businesses.But th? promised b?n?fit? fr?m these t?xtil? investments were illusory. M?n? ?f ?ur compe titors, both d?m??ti? and foreign, were stepping u? t? th? same kind ?f expenditures ?nd, once enough companies did so, their reduced ???t? b???m? the b???lin? f?r r?du??d ?ri??? indu?tr?-wid?.Vi?w?d individually, each ??m??n?? capital investment d??i?i?n ?????r?d ???t-?ff??tiv? ?nd rational; vi?w?d collectively, the d??i?i?n? n?utr?liz?d each ?th?r ?nd w?r? irrational (ju?t ?? h????n? when each ??r??n watching a ??r?d? decides h? can ??? a littl? better if h? ?t?nd? ?n ti?t???). After ???h r?und of inv??tm?nt, ?ll th? ?l???r? had m?r? m?n?? in th? game ?nd returns r?m?in?d ?n?mi?.Thu?, w? f???d a mi??r?bl? ?h?i??: hug? capital inv??tm?nt would h?v? helped to k??? ?ur t?xtil? bu?in??? alive, but would h?v? l?ft u? with terrible returns on ?v?r-gr?wing amounts ?f ???it?l. Aft?r the investment, m?r??v?r, th? f?r?ign ??m??titi?n would ?till h?v? r?t?in?d a m?j?r, continuing ?dv?nt?g? in labor costs.A refusal to inv??t, h?w?v?r, would m?k? us in?r???ingl? n?n-??m??titiv?, ?v?n m???ur?d ?g?in?t d?m??ti? textile manufacturers. I ?lw??? thought m???lf in th? ???iti?n d???rib?d by W??d? All?n in ?n? of hi? m?vi??: “M?r? th?n any other tim? in hi?t?r?, mankind faces a crossroads. One ??th l??d? t? d????ir and utt?r h???l???n???, th? other t? t?t?l extinction. Let us ?r?? we h?v? th? wisdom to choose ??rr??tl?.”For an understanding of h?w th? t?-inv??t-?r-n?t-t?-inv??t dil?mm? ?l??? ?ut in a ??mm?dit? business, it i? instructive to l??k at Burlingt?n Industries, b? far the l?rg??t U.S. t?xtil? ??m??n? both 21 ???r? ago ?nd n?w. In 1964 Burlington h?d ??l?? ?f $1.2 billion against ?ur $50 milli?n.It had ?tr?ngth? in b?th di?tributi?n ?nd ?r?du?ti?n that we ??uld n?v?r h??? t? m?t?h ?nd ?l??, ?f ??ur??, had ?n earnings r???rd far ?u??ri?r t? ?ur?. It? stock sold ?t 60 ?t th? ?nd of 1964; ours w?? 13.Burlingt?n m?d? a decision t? ?ti?k t? th? t?xtil? business, and in 1985 had sales of about $2.8 billion. During th? 1964-85 ??ri?d, th? ??m??n? m?d? capital ?x??nditur?? of about $3 billion, f?r m?r? than any ?th?r U.S. t?xtil? company and m?r? th?n $200-per-share on th?t $60 ?t??k.A very l?rg? part ?f th? ?x??nditur??, I ?m ?ur?, w?? d?v?t?d to cost im?r?v?m?nt ?nd ?x??n?i?n. Given Burlingtons b??i? ??mmitm?nt t? stay in t?xtil??, I w?uld ?l?? surmise th?t th? companys ???it?l decisions were quite r?ti?n?l.N?v?rth?l???, Burlington has l??t ??l?? volume in r??l d?ll?r? ?nd h?? far l?w?r returns ?n ??l?? and ??uit? now th?n 20 years ago. S?lit 2-f?r-1 in 1965, th? ?t??k n?w ??ll? at 34 â€" on ?n ?dju?t?d b??i?, ju?t a littl? ?v?r it? $60 price in 1964. M??nwhil?, th? CPI h?? m?r? th?n tri?l?d.Th?r?f?r?, each share ??mm?nd? about ?n?-third the ?ur?h??ing ??w?r it did ?t th? end ?f 1964. Regular divid?nd? h?v? b??n paid but th??, t??, h?v? ?hrunk ?ignifi??ntl? in ?ur?h??ing ??w?r.This d?v??t?ting ?ut??m? for th? ?h?r?h?ld?r? indicates what can happen wh?n much brain ??w?r and ?n?rg? are ???li?d t? a f?ult? ?r?mi??. The ?itu?ti?n is suggestive ?f S?mu?l J?hn??n? h?r??: “A horse that ??n count t? ten is a r?m?rk?bl? horse â€" n?t a remarkable m?th?m?ti?i?n.” Lik?wi??, a t?xtil? ??m??n? that allocates ???it?l brilli?ntl? within it? indu?tr? is a r?m?rk?bl? t?xtil? company â€" but n?t a r?m?rk?bl? bu?in???.My ??n?lu?i?n from m? ?wn ?x??ri?n??? ?nd fr?m mu?h ?b??rv?ti?n ?f ?th?r bu?in????? i? th?t a good managerial record (m???ur?d b? economic r?turn?) i? far m?r? a function ?f wh?t business boat ??u g?t int? th?n it i? ?f h?w ?ff??tiv?l? ??u r?w (though int?llig?n?? ?nd ?ff?rt h?l? considerably, ?f ??ur??, in ?n? bu?in???, g??d ?r bad).S?m? ???r? ago I wrote: “When a m?n?g?m?nt with a r??ut?ti?n for brilli?n?? t??kl?? a bu?in??? with a r??ut?ti?n for ???r fund?m?nt?l ???n?mi??, it i? th? reputation ?f th? bu?in??? that r?m?in? int??t.” N?thing h?? since ?h?ng?d m? ??int ?f view ?n that matter. Sh?uld ??u find yourself in a chronically-leaking b??t, ?n?rg? d?v?t?d to changing v????l? i? likely to b? m?r? ?r?du?tiv? th?n ?n?rg? d?v?t?d t? ??t?hing l??k?.GAME THEORY STRATEGIESThe ?ri??n?r? dilemma l??? th? f?und?ti?n f?r advanced game th??r? ?tr?t?gi??, ?f whi?h th? ???ul?r ones in?lud?:M?t?hing P?nni??This i? a z?r?-?um g?m? th?t inv?lv?? tw? ?l???r? (??ll them Player A ?nd Player B) ?imult?n??u?l? placing a ??nn? ?n th? t?bl?, with th? ????ff d???nding ?n whether the ??nni?? m?t?h.If both pennies ?r? h??d? ?r t?il?, Pl???r A wins ?nd k???? Player B’? ??nn?. If they do n?t match, Player B wins and keeps Pl???r A’s ??nn?.D??dl??kThis i? a social dil?mm? ???n?ri? like ?ri??n?r’? dilemma in th?t tw? ?l???r? ??n ?ith?r cooperate ?r d?f??t (i.?. not ?????r?t?). In deadlock, if Pl???r A ?nd Player B both cooperate, they ???h g?t a ????ff ?f 1, and if they b?th defect, th?? ???h g?t a ????ff of 2.But if Pl???r A ?????r?t?? ?nd Pl???r B defects, th?n A g?t? a payoff ?f 0 ?nd B g?t? a ????ff ?f 3. In th? payoff di?gr?m b?l?w, th? fir?t numeral in th? cells (?) thr?ugh (d) r??r???nt? Player A’s ????ff, ?nd the ????nd num?r?l i? th?t of Player B:D??dl??k P???ff M?trixPl???r BC????r?t?D?f??tPlayer ACooperate(?) 1, 1(b) 0, 3Defect(?) 3, 0(d) 2, 2D??dl??k diff?r? fr?m ?ri??n?r’? dilemma in th?t th? action of gr??t??t mutual benefit (i.?. b?th defect) i? also th? d?min?nt ?tr?t?g?. A d?min?nt ?tr?t?g? f?r a ?l???r i? d?fin?d ?? one th?t produces th? high??t payoff ?f any available strategy, r?g?rdl??? of th? strategies employed by the ?th?r players.A ??mm?nl? ?it?d example ?f deadlock is th?t ?f two nuclear ??w?r? tr?ing t? r???h ?n agreement to ?limin?t? th?ir ?r??n?l? ?f nu?l??r bombs. In thi? case, cooperation implies adhering t? the ?gr??m?nt, whil? defection means secretly reneging on th? ?gr??m?nt ?nd r?t?ining th? nu?l??r arsenal.Th? b??t ?ut??m? f?r ?ith?r n?ti?n, unf?rtun?t?l?, i? t? renege on the agreement and r?t?in the nu?l??r ??ti?n whil? the ?th?r n?ti?n ?limin?t?? it? ?r??n?l, ?in?? thi? will give the f?rm?r a tr?m?nd?u? hidd?n ?dv?nt?g? ?v?r the latter if w?r ?v?r breaks ?ut b?tw??n th? tw?.The ????nd-b??t ??ti?n is for b?th t? defect or n?t cooperate, ?in?? this retains th?ir ?t?tu? as nu?l??r ??w?r?.C?urn?t CompetitionThi? m?d?l is ?l?? ??n???tu?ll? ?imil?r t? prisoner’s dil?mm?, and i? n?m?d after Fr?n?h mathematician Augustin Cournot, wh? intr?du??d it in 1838.Th? m??t ??mm?n application ?f th? C?urn?t m?d?l i? in d???ribing a du???l? ?r two main producers in a market.For ?x?m?l?, ???um? companies A ?nd B ?r?du?? an id?nti??l ?r?du?t and can produce high ?r l?w ?u?ntiti??. If th?? b?th cooperate ?nd ?gr?? t? ?r?du?? ?t l?w levels, th?n limit?d supply will tr?n?l?t? into a high price f?r th? ?r?du?t ?n th? market and ?ub?t?nti?l ?r?fit? f?r b?th ??m??ni??.On th? other h?nd, if they d?f??t ?nd ?r?du?? ?t high l?v?l?, th? m?rk?t will be swamped ?nd r??ult in a l?w price for the product and ??n???u?ntl? l?w?r ?r?fit? f?r both. But if one cooperates (i.e. produces ?t low l?v?l?) and th? ?th?r d?f??t? (i.?. ?urr??titi?u?l? produces ?t high l?v?l?), then th? former ju?t br??k? ?v?n whil? the latter ??rn? a high?r profit th?n if th?? b?th ?????r?t?.The ????ff m?trix f?r companies A ?nd B is shown (figures r??r???nt ?r?fit in milli?n? ?f dollars). Thu?, if A ?????r?t?? ?nd produces ?t l?w l?v?l? while B d?f??t? and produces ?t high levels, th? ????ff i? as shown in ??ll (b)â€"br??k-?v?n for ??m??n? A ?nd $7 million in ?r?fit? for ??m??n? B.Cournot Payoff MatrixCompany BC????r?t?D?f??tCompany ACooperate(?) 4, 4(b) 0, 7Defect(?) 7, 0(d) 2, 2C??rdin?ti?nIn coordination, ?l???r? ??rn higher ????ff? when th?? select th? ??m? course ?f action.A? ?n example, consider tw? t??hn?l?g? gi?nt? wh? ?r? d??iding between intr?du?ing a r?di??l new t??hn?l?g? in memory ?hi?? th?t ??uld ??rn th?m hundreds ?f milli?n? in ?r?fit?, or a revised v?r?i?n ?f an ?ld?r t??hn?l?g? that would ??rn them much l???.If ?nl? ?n? ??m??n? d??id?? t? go ?h??d with the new t??hn?l?g?, rate ?f ?d??ti?n by ??n?um?r? w?uld b? significantly l?w?r, ?nd ?? a r??ult, it w? uld ??rn l??? than if both ??m??ni?? d??id? ?n th? same ??ur?? ?f ??ti?n. The ????ff m?trix i? shown b?l?w (figur?? r??r???nt ?r?fit in milli?n? ?f d?ll?r?).Thus, if b?th ??m??ni?? d??id? t? introduce th? n?w technology, th?? w?uld earn $600 milli?n apiece, while intr?du?ing a r?vi??d v?r?i?n ?f the ?ld?r technology w?uld earn them $300 milli?n ???h, as shown in th? ??ll?.But if C?m??n? A decides alone t? intr?du?? th? n?w t??hn?l?g?, it would ?nl? ??rn $150 million, ?v?n th?ugh C?m??n? B w?uld ??rn $0 (?r??um?bl? b???u?? ??n?um?r? m?? n?t b? willing to pay f?r its now-obsolete t??hn?l?g?).In thi? case, it m?k?? ??n?? for both companies t? work together rather th?n on their ?wn.Coordination Payoff MatrixCompany BNew technologyOld technologyCompany ANew technology(?) 600, 600(b) 0, 150Old technology(?) 150, 0(d) 300, 300C?nti??d? G?m?Thi? i? an ?xt?n?iv?-f?rm game in whi?h two players ?lt?rn?t?l? get a chance t? t?k? th? l?rg?r share ?f a slowly in?r???ing m?n?? ?t??h.Th? ??nti??d? g ?m? i? ???u?nti?l, since the ?l???r? make th?ir m?v?? one ?ft?r ?n?th?r rather th?n ?imult?n??u?l?; each ?l???r also knows th? ?tr?t?gi?? ?h???n b? th? ?l???r? who played b?f?r? them. The game concludes as ???n as a ?l???r takes th? ?t??h, with th?t player g?tting the l?rg?r ??rti?n ?nd th? ?th?r player g?tting th? ?m?ll?r ??rti?n.A? ?n ?x?m?l?, assume Pl???r A g??? fir?t and h?? t? d??id? if h? should “t?k?” ?r “pass” th? ?t??h, whi?h ?urr?ntl? amounts to $2. If h? t?k??, th?n A ?nd B g?t $1 ???h, but if A passes, th? d??i?i?n to take or pass now has to be m?d? b? Pl???r B. If B t?k??, ?h? gets $3 (i.e. th? ?r?vi?u? stash ?f $2 + $1) and A g?t? $0.But if B passes, A n?w g?t? to d??id? wh?th?r t? t?k? or pass, and so ?n. If both players ?lw??? ?h???? t? ????, th?? ???h r???iv? a ????ff ?f $100 ?t the ?nd ?f th? g?m?.Th? point ?f th? g?m? i? if A ?nd B b?th ?????r?t? ?nd ??ntinu? to pass until the ?nd ?f th? g?m?, th?? get the m?ximum ????ut ?f $100 ???h. But if th?? distrust th? ?th?r ?l???r ?nd ?x???t th?m to “t?k?” ?t the fir?t ????rtunit?, Nash ??uilibrium ?r?di?t? th? players will take th? lowest ????ibl? claim ($1 in thi? ????).Ex??rim?nt?l ?tudi?? h?v? ?h?wn, however, this “r?ti?n?l” b?h?vi?ur (as ?r?di?t?d b? g?m? theory) i? ??ld?m ?xhibit?d in r??l lif?. Thi? i? n?t intuitiv?l? ?ur?ri?ing given th? tin? size of th? initial ????ut in r?l?ti?n t? th? fin?l ?n?. Simil?r b?h?vi?r b? ?x??rim?nt?l ?ubj??t? has ?l?? b??n ?xhibit?d in th? tr?v?ll?r’? dil?mm?.Traveler’s Dil?mm?Thi? n?n-z?r? ?um g?m?, in whi?h both ?l???r? ?tt?m?t t? m?ximiz? their ?wn ????ut with?ut regard to the ?th?r, w?? devised by ???n?mi?t K?u?hikB??u in 1994.F?r example, in tr?v?l?r’? dil?mm?, ?n ?irlin? agrees t? ??? tw? travellers ??m??n??ti?n for damages t? id?nti??l it?m?.However, the two travellers are ????r?t?l? required t? estimate th? value ?f the item, with a minimum ?f $2 ?nd a m?ximum ?f $100. If both writ? d?wn th? ??m? v?lu?, th? ?irlin? will r?imbur?? ? ??h of th?m that ?m?unt. But if the v?lu?? diff?r, th? ?irlin? will ??? them th? l?w?r value, with a b?nu? ?f $2 f?r th? tr?v?ll?r who wr?t? d?wn this l?w?r value ?nd a ??n?lt? of $2 f?r th? tr?v?ll?r who wrote d?wn th? higher v?lu?.Th? N??h equilibrium l?v?l, b???d ?n b??kw?rd indu?ti?n, is $2 in this ???n?ri?. But ?? in th? ??nti??d? g?m?, laboratory experiments consistently d?m?n?tr?t? m??t ??rti?i??nt?, n?iv?l? or ?th?rwi??, ?i?k a numb?r much high?r th?n $2.Tr?v?l?r’? dilemma can b? ???li?d to ?n?l?z? a v?ri?t? of r??l-lif? situations. Th? ?r????? ?f backward induction, for ?x?m?l?, ??n h?l? explain h?w tw? ??m??ni?? ?ng?g?d in ?utthr??t competition ??n steadily r?t?h?t product ?ri??? l?w?r in a bid t? gain m?rk?t ?h?r?, whi?h m?? r??ult in th?m in?urring in?r???ingl? gr??t?r l????? in th? process.Wh?t i? a Zero-Sum G?m?Z?r?-?um is a ?itu?ti?n in game th??r? in whi?h ?n? ??r??n’? gain i? ??uiv?l?nt t? ?n?th?r’? l???, ?? the n?t ?h?ng? in w??lth or b?n?fit is zero. A z?r?- ?um g?m? m?? h?v? as few ?? two ?l???r?, ?r milli?n? of ??rti?i??nt?.Z?r?-?um games ?r? f?und in g?m? th??r?, but ?r? l??? common th?n n?n-z?r? ?um g?m??. Poker ?nd gambling ?r? ???ul?r examples ?f z?r?-?um g?m?? ?in?? th? sum ?f th? amounts w?n b? ??m? ?l???r? equals th? ??mbin?d l????? ?f th? ?th?r?.Games lik? chess ?nd t?nni?, where th?r? is ?n? winner ?nd ?n? l???r, ?r? also zero-sum g?m??. In the fin?n?i?l markets, ??ti?n? and futur?? ?r? ?x?m?l?? of z?r?-?um games, ?x?luding tr?n???ti?n ???t?. F?r every ??r??n wh? g?in? on a ??ntr??t, there is a ??unt?r-??rt? wh? l????.BREAKING DOWN Z?r?-Sum GameIn g?m? th??r?, the g?m? ?f matching ??nni?? i? often ?it?d ?? an ?x?m?l? of a zero-sum g?m?. Th? game inv?lv?? tw? ?l???r?, A and B, ?imult?n??u?l? ?l??ing a ??nn? ?n the t?bl?.Th? payoff depends ?n wh?th?r th? pennies match ?r not. If b?th ??nni?? ?r? h??d? ?r t?il?, Player A wins ?nd k???? Pl???r B’s penny; if th?? d? not match, Player B win? and k???? Pl???r A’? ??nn?.This is a z?r?-?um game because one player’s gain is th? ?th?r’? loss. Th? ????ff? for Pl???r? A ?nd B are ?h?wn in th? t?bl? b?l?w, with the fir?t num?r?l in ??ll? (a) thr?ugh (d) representing Player A’? payoff, ?nd th? ????nd num?r?l Pl???r B’s ?l???ff. A? ??n b? ???n, th? ??mbin?d ?l???ff for A and B in ?ll f?ur ??ll? i? z?r?.Most ?th?r popular game th??r? strategies lik? the ?ri??n?r’? dil?mm?, Cournot C?m??titi?n, Centipede G?m? and Deadlock are n?n-z?r? ?um.Zero-sum games are the opposite of win-win situations â€" ?u?h ?? a trade ?gr??m?nt that ?ignifi??ntl? increases trade b?tw??n tw? n?ti?n? â€" or lose-lose situations, like war f?r instance. In r??l lif?, however, thing? ?r? not ?lw??? ?? ?l??r-?ut, ?nd g?in? ?nd l????? ?r? ?ft?n diffi?ult to ?u?ntif?.In th? ?t??k m?rk?t, tr?ding is ?ft?n thought ?f a z?r?-?um game. H?w?v?r, b???u?? tr?d?? ?r? m?d? ?n the b??i? ?f futur? ?x???t?ti?n? ?nd tr?d?r? have diff?r?nt ?r?f?r?n??? f?r risk, a trade can be mutu?ll? b?n?fi?i?l. Inv?? ting l?ng?r t?rm is a ???itiv? ?um ?itu?ti?n b???u?? ???it?l fl?w? f??ilit?ti?n ?r?du?ti?n ?nd j?b? th?t th?n provide ?r?du?ti?n ?nd j?b? that th?n provide ??ving? and in??m? th?t th?n provide investment to ??ntinu? the cycle.Pri?ing G?m?This example ??int? a v?r? grim ?i?tur? of human int?r??ti?n?. Indeed, m?n? times we observe ?????r?ti?n r?th?r than it? ??m?l?t? failure. One important ?r?? ?f r????r?h in game theory is th? analysis of ?nvir?nm?nt?, in?tituti?n?, ?nd n?rm?, which ??tu?ll? ?u?t?in cooperation in th? face ?f such ???mingl? h???l??? ?itu?ti?n? ?? th? ?ri??n?r?’ dilemma.Just t? illu?tr?t? ?n? ?u?h ???n?ri?, ??n?id?r a r???titi?n ?f the Prisoners’ Dil?mm? g?m?. In a r????t?d int?r??ti?n, each ?l???r h?? t? take int? ????unt n?t ?nl? wh?t i? their ????ff in ???h interaction but ?l?? h?w th? ?ut??m? ?f ???h ?f these int?r??ti?n? influences the futur? ones.F?r ?x?m?l?, ???h ?l???r m?? induce ?????r?ti?n b? th? ?th?r player b? ?d??ting a ?tr?t?g? th?t ?uni?h?? b?d b?h? vi?r ?nd rewards good b?h?vi?r.LIMIT?TI?NS ?F THE GAME THEORYInfinit? number of ?tr?t?g?In a g?m? th??r? we ???um? that th?r? is finit? numb?r ?f ????ibl? ??ur??? of action available to ???h player. But in practice a ?l???r may have infinit? numb?r ?f strategies or ??ur??? of ??ti?n.Kn?wl?dg? ?b?ut ?tr?t?g?Game theory ???um?? that each player ?? the knowledge ?f ?tr?t?gi?? ?v?il?bl? to his ????n?nt. But ??m? tim?? knowledge ?b?ut strategy about th? opponent is n?t ?v?il?bl? to ?l???r?. Thi? l??d? t? th? wr?ng conclusions.Z?r? ?ut??m??W? have ???um?d that g?in of one person i? th? l??? of another person. But in practice g?in ?f ?n? ??r??n m?? n?t b? ??u?l t? th? l??? ?f another person i.?. opponent.Ri?k ?nd un??rt?int?G?m? th??r? does not t?k?? into consideration th? concept of ?r?b?bilit?. So game th??r? u?u?ll? ignores th? ?r???n?? ?f ri?k ?nd un??rt?int?.Finit? numb?r of ??m??tit?r?Th?r? ?r? finit? numb?r? ?f ??m??tit?r? ?? h?? b??n ???um?d in th? g?m? theory. But in real ?r??ti?? th?r? ??n b? more th?n th? ?x???t?d number of ?l???r?.C?rt?int? of P?? offG?m? th??r? ???um?? th?t ????ff is always kn?wn in advance. But ??m?tim?? it i? impossible to kn?w th? pay ?ff in ?dv?n??. The d??i?i?n ?itu?ti?n in f??t becomes multidimensional with large numb?r ?f v?ri?bl??.Rul?? ?f G?m?Ev?r? g?m? i? ?l???d ????rding t? the ??t ?f rul?? i.?. specific rul?? whi?h g?v?rn the b?h?vi?ur of th? players. As th?r? we h?v? set of rules ?f playing Ch???, B?dmint?n, Hockey ?t?. G?m? th??r? ???um?? ?v?r? player kn?w? th??? rules.

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Monoamines in Nociception Serotonin (5-HT) and norepinephrine are primary neurotransmitters of the monoamine pathway and have been implicated in chronic pain (Bardin, 2011). These monoamines, particularly in areas such as the PAG, form a depression-pain interface. The PAG takes information sent from the amygdala, neocortex, and hypothalamus, processes the information, and then sends the modified signals to the brainstem, particularly the RVM (Millan, 2002). Approximately 20% of the neurons within the RVM are serotoninergic. Depending on the receptor, dose, and chronology, 5-HT within the CNS can be either pro- or antinociceptive (Bannister et al., 2009). As such 5-HTs influence on pain modulation can be quite complex. 5-HT3 receptors in†¦show more content†¦Activation of prefrontal 5-HT2A receptors is associated with elevated mood and improvement in several forms of cognitive function (Fisher et al., 2009; Vollenweider, Vontobel, Hell, Leenders, 1999; Williams, Rao, Goldman-Rakic, 2002). Estrogen can increase the density of these receptors in the brain in rats (Summer Fink, 1995). In post-menopausal human women estrogen replacement therapy increases 5-HT2A binding in prefrontal areas of the brain (Kugaya et al., 2003). In the raphe nucleus and spinal cord, 5-HT1A receptor activation is associated with inhibition of nociception (Bardin, Tarayre, Malfetes, Koek, Colpaert, 2003; Mico, Berrocoso, Ortega-Alvaro, Gibert-Rahola, Rojas-Corrales, 2006). Though not yet tested in humans, tests in laboratory animals suggest that certain 5-HT1A agonists rival morphine in their ability to inhibit pain (Colpaert, 2006). Estrogens rapidly downregulate activity in these receptors in the brain in short terms (Mize, Poisner, Alper, 2001) while long-term low estrogen concentration also decrease 5-HT1A receptor binding in many areas of the brain (Le Saux Di Paolo, 2005). More recently discovered and less well understood, the 5-HT7 receptor in the spinal cord and thalamus appear to modulate nociception (Bannister, Lockwood, Goncalves, Patel, Dickenson, 2017; Dogrul, Ossipov, Porreca, 2009). Intrathecal injections of 5-HT were shown to haveShow MoreRelatedUnit 2 study guide8637 Words   |  35 Pages(mechanonociceptors) and/or extremes of temperature(mechanothermal nociceptors) Occurs quickly. Carry well localized, sharp pain sensations and are important in initiating rapid reactions to stimuli (fast pain). Mechanical, thermal, and chemiacal nociception are transmitted by excitation of polymodal nociceptors and are carried on small unmyelinated C fibers. The small unmyelinated C polymodal nociceptors are responsible for the transmission of the diffuse burning or aching sensations that follow (slow

Teenage Pregnancy Essay - 674 Words

Teenage Pregnancy Over one million teenage girls become pregnant each year. In the next 24 hours, about 3,312 girls will become pregnant. In addition, 43% of all adolescents become pregnant before the age of 20. These are incredible statistics when you consider that there are only 31 million females. The United States has the highest adolescent pregnancy rate in the developed world. As statistics show one in nine women between the ages of 15 through 19 become pregnant each year. Also, every 26 seconds a teenage girl becomes pregnant and every 56 seconds a child of a teenage mother is born. A child needs a nurturing and stable environment in order to prosper and grow. A child born to a single teenage mother is much less likely to†¦show more content†¦By having all these new problems to deal with without a fully developed maturity the mother can also suffer from emotional and mental stagnation. Her peers may reject her as society deems teenage pregnancy unacceptable. She may feel humiliated and ashamed after her pregnancy begins to show, so then she refuses to finish school and as a result she lessens her ability to effectively raise her child. When teenage mother are pregnant, they are the least likely of all maternal age groups to get early and regular prenatal care. There are many teen mothers who receive late or no prenatal care at all. After giving birth, the majority of girls drop out of school in order to care of the baby. If there is no one else to share the endless amount of work, she must assume full responsibility. She may be forced to pursue employme nt with a minimal of earning potential due to her lack of education. This scenario tends to breed an unstable and financially insecure parent, and the child may also suffer from neglect by the constantly working mother. The teenage social experience is a fundamental stage of development. How a teenager develops socially dictates how effective she will be as an adult. Through interaction with peers, a teenager learns about herself. This is an important period of time to construct personal identity. If this period is cut short, she will not be competent to meet the challenges that come with raising a child. Teenagers also tend have poor eatingShow MoreRelatedTeenage Pregnancy2330 Words   |  10 PagesAdolescent pregnancy is considered as a pregnancy in a female who is less than 20 years of age at the end of the pregnancy. It can occur in a fertile female either at puberty before the occurrence of her first menstrual period, or after the first period. The first menstrual period in nourished girls occurs at around 12 or 13 years of age. Pregnant teenagers experience many issues similar to other women. However, there would be other medical issues for mothers under 15 years. Teenage mothers ofRead MoreTeenage Pregnancy And Teen Pregnancy2089 Words   |  9 Pageswas at a store when I came across a very young girl. She must have been no older than seventeen, but was so obviously pregnant. This did not surprise me since this is something common here in the Imperial Valley; we have such a high rate of teen pregnancy. What really caught my attention was that she was not alone; she had in her cart a toddler that kept referring her to mom. All I could think of was that such a young girl should not be concerned with raising a child, especially not two. Most youngRead MoreTeen Pregnancy And Teenage Pregnancy2011 Words   |  9 Pagesproblems among teenagers is teen pregnancy. Throughout high school and college, teenagers are getting pregnant at an age they are incapable of taking care of a child. Along with hearing about teens getting pregnant, television shows are displaying it to you like 16 and Pregnant. Though the pregnancy rates have fallen over previous years, the United States still has the highest rates than any other Western industrialized country. Along with the teen pregnancies comes sexually transmitted diseasesRead MoreTeenage Pregnancy And Teenage Pregnancies1364 Words   |  6 PagesThe amount of teenage pregnancies in America has skyrocketed in the last few decades. Young, uneducated children are having sexual intercourse without a clear understanding of the serious consequents behind their actions, but it is not entirely their fault because their parents and school’s curriculum have failed to bestow a clear and concise grasp of sex. Sexual education is typically incorporated into an academic setting either in middle school or high school when an adolescent is hitting pubertyRead MoreThe Factors Of Teenage Pregnancy1558 Words   |  7 PagesTeenage pregnancy is normally i dentified as a deprived life choice, for example, tasks of teenage parenting have long-term impact on the mental health of the mother and children (Statistics New Zealand, 2003). It is important to identify the socioeconomic factors of teenage pregnancy to lower the chances of mental health problems in young mothers. In this paper the aim is to analyse the main socioeconomic factors of teenage pregnancy and discuss how it affects the mental health of an adolescent motherRead MoreTeenage Pregnancy And Teen Teens903 Words   |  4 Pagesmay make, on average, $20,000 to $40,000 a year. The reality of teenage pregnancies can cause many disturbances in an adolescent s life. High school pregnancies are not glitz and glamour like television may portray, in reality, expecting teenage mothers are not exposed to that fashionable life that most teenagers strive for. A student s normal like will be affected by problems with friends, family, and emotional experiences. Teenage friendships are what shapes a human into the people that they becomeRead MoreTeenage Pregnancy : A Social Issue1551 Words   |  7 PagesTeenage pregnancy rates have been declining in the United States, but when compared to pregnancy rates in other industrial countries such as Canada and the United Kingdom they are still relatively high. (Office of Adolescent Health, 2016). Teenage pregnancy is defined by UNICEF, as an adolescent between the ages of thirteen to nineteen becoming pregnant. (UNICEF Malaysia Communications). Teenage pregnancy is viewed as a social issue because of the way it affects a country’s economy, the mother andRead MoreTeenage Pregnancy1812 Words   |  8 PagesTeenage Pregnancy I. Introduction Teenage pregnancy is one of the major problem that the world is facing today. Early pregnancy or teenage pregnancy is dangerous to teenage girls’ health because it may cause cervical cancer, aids, and eventually death. Teenage pregnancies are often associated with an increased rate of delinquent behaviors including alcohol and substance abuse. To begin with, majority of them belong to the low income group. To prevent this dilemma, there are some preventionsRead MoreTeenage Pregnancy And Teen Pregnancy1664 Words   |  7 PagesMaria Isabel Terrazas English 4 Miss Stahlecker 4 November 2015 Teenage Pregnancy According to cda.org, in 2013, a total of 273,105 babies were born to women that were in between the ages of 15-19 years old. Teenage pregnancy is a major concern in today’s society. This paper will talk about teenage pregnancy, statistics, ways to prevent teenage pregnancy, and after birth options. So why is teenage pregnancy so important? Some people are concerned about teens getting pregnant at such an early ageRead MoreTeenage Pregnancy And Teen Pregnancy1546 Words   |  7 PagesTeenage pregnancy is pregnancy in human females under the age of 20 at the time that the pregnancy ends. Low-income communities have the highest teenage pregnancy rates in the United States. Because of the fact that this is a very controversial issue in the United States, it is very important that most questions be addressed. Questions like, why is a teenage girl in Mississippi four times as likely to give birth as a teenage girl in New Hampshire? Or why is the teen birth rate in Massachusetts 19

Investment Analysis and Portfolio Management Free Essays

EXECUTIVE SUMMARY In an economy, people indulge in economic activity to support their consumption requirements. Savings arise from deferred consumption, to be invested, in anticipation of future returns. Investments could be made into financial assets, like stocks, bonds, and similar instruments or into real assets, like houses, land, or commodities. We will write a custom essay sample on Investment Analysis and Portfolio Management or any similar topic only for you Order Now The aim of Portfolio Manager is to provide a brief overview of three aspects of investment: * The various options available to an investor in financial instruments. The tools used in modern finance to optimally manage the financial portfolio. * Lastly the professional asset management industry as it exists today. Returns more often than not differ across their risk profiles, generally rising with the expected risk, i. e. , higher the returns, higher the risk. The underlying objective of portfolio management is therefore to create a balance between the trade-off of returns and risk across multiple asset classes. Portfolio management is the art of managing the expected return requirement for the corresponding risk tolerance. Simply put, a good portfolio manager’s objective is to maximize the return subject to the risk-tolerance level or to achieve a pre-specified level of return with minimum risk. 1. Investment and Its objectives Mini Content 2. 1 Define Investment 2. 2 Defining Investment Objectives 2. 3 Goals and Needs 2. 4 Types of investors 2. 5 Investment Process 2. 6 Investments available in India Define Investment Investment is putting money into something with the expectation of gain that upon thorough analysis has a high degree of security for the principal amount, as well as security of return, within an expected period of time. . The action or process of investing money for profit or material result. 2. Two main classes of investment are (i)  Fixed income investment  such as  bonds,  fixed deposits,  preference shares, and (ii)  Variable  income investment such as  business  ownership  (equities), or property ownership. In  economics, investment  means  creatio n of  capital  or  goods  capable of  producing  other goods or  services. Expenditure  on  education  and  health  is recognized as an investment in  human capital, and  research and development  in  intellectual capital. Return on investment (ROI)  is a key  measure  of an  organization’s  performance. DEFINING YOUR INVESTMENT OBJECTIVES: Investing wisely is a function of your speci? c needs and goals. Each investor has different objectives that need to be met depending on age, income, planned activities, and attitudes about risk. How can you work with your investment advisor to best determine which investments are right for you? Among the important factors to consider are personal status, plans, and constraints. Some of the issues that you and your advisor should consider in de? ning the objectives that are right for you are listed below. Goals and Needs: You may have speci? goals and requirements that you want your investment portfolio to ful? ll. For example, you may be funding college for children, business expansion, travel plans, or retirement needs. You should identify these goals and needs clearly with your investment advisor so that his or her recommendations for your portfolio can assist you in meeting them. Age: Your age is an important consideration when deciding how mu ch risk to assume. Portfolio assets that are riskier and that will ? uctuate more over time may be appropriate for younger investors but not for others. An individual who does not expect to liquidate the assets in his or her portfolio for a number of years has more time to recover from a market downturn, while an investor close to retirement may be more likely to prefer stable assets and capital preservation. Age also affects the choice between income-earning securities and those oriented toward capital gains. An investor who is employed and near peak earning power will probably want to minimize paying taxes, and will therefore lean toward investments that do not provide current income. Income : Both your absolute income level and your income requirements in? uence your investment objectives in several ways. First, income, like age, in? uences the choice between dividend-paying or interest-paying investments, and those whose primary return is in the form of capital gains. You may prefer income-producing investments if you need to supplement or replace earned income. Your income level also affects your investment choices because it determines your tax rate. Low-tax-bracket investors — generally those whose income is lower — will be more likely to prefer income-producing investments. High-tax-rate investors are more likely to choose tax-deferred or tax-sheltered assets. Income also may in? uence risk preferences. High income investors may be more willing to choose higher risk investments since they can more easily contribute additional investment capital should they sustain losses. Taxes Your after-tax return is the return that matters. You should fully inform your investment advisor about your tax rate and any special tax circumstances that might apply to you. This will determine whether you should seek tax exempt or tax-sheltered securities as a part of your portfolio. The appropriateness of income or capital gains should be discussed in the context of your personal situation, so you may want your investment advisor to consult with your accountant. Occupation Your occupation also can affect portfolio objectives. Some professions produce more stable incomes than others, enabling the investor to tolerate more investment ? uctuations. Your profession also may determine other assets. For example, does your job provide an adequate retirement plan, or must you fund your retirement from your investment portfolio? If your employer provides a stock-purchase plan, this may be a substantial part of your personal wealth, and you should consider it as a diversi? cation issue when you make other portfolio choices. If you receive tax-quali? ed or tax-deferred assets from your job, these also will in? uence your investment decisions. Wealth Investment objectives should take into consideration the assets you hold outside the portfolio. For example, if you have substantial equity in your home, you may want to minimize real estate holdings in your ? nancial assets, or you may need to consider a different type of real estate asset. If you hold illiquid assets, then new investments may emphasize liquidity. The value of your existing assets will probably affect your tolerance for risk. In addition, your level of wealth has probably in? uenced your lifestyle. Maintaining a desired lifestyle into retirement and throughout will need to be factored into your investment objectives. Time Horizon An important consideration in setting investment objectives is your time horizon. When do you expect to liquidate a portfolio? Should you choose assets of short or long maturity? Do you have time to recover from a declining market, or is capital preservation important to meet an immediate ? nancial need? Liquidity Liquidity is the ease with which you can convert your assets to cash at fair market value. It is essential that you recognize the need to convert your assets into cash at the appropriate times. Do you require a portfolio that can be liquidated easily, or can you afford to wait? Since greater liquidity generally results in lower return, it is necessary to give serious consideration to the inherent tradeoffs. Tolerance for Risk Your tolerance for risk is a very personal decision, and a question that is dif? ult for many investors to answer. In general, markets tend to provide higher returns in exchange for bearing higher risks. Often you will ? nd that the investments with the highest long-term returns are very volatile in the short run. It is important to be honest with yourself in assessing whether you are comfortable with market volatility, and the level you can tolerate. While it is easy in hindsight to wish you had invested in a risky segment of the market that has performed well recently, a more realistic view is to look forward at the risk that might occur in the future. Other Special Circumstances Are there other considerations of which your advisor should be aware? Consider here any special needs, goals, or problems you have not already addressed. Types of investors There is wide diversity among investors, depending on their investment styles, mandates, horizons, and assets under management. Primarily, investors are either individuals,in that they invest for themselves or institutions, where they invest on behalf of others. Risk appetites and return requirements greatly vary across investor classes and are key determinants of the investing styles and strategies followed as also the constraints faced. A quick look at the broad groups of investors in the market illustrates the point. Individuals While in terms of numbers, individuals comprise the single largest group in most markets, the size of the portfolio of each investor is usually quite small. Individuals differ across their risk appetite and return requirements. Those averse to risk in their portfolios would be inclined towards safe investments like Government securities and bank deposits, while others may be risk takers who would like to invest and / or speculate in the equity markets. Requirements of individuals also evolve according to their life-cycle positioning. For example, in India, an individual in the 25-35 years age group may plan for purchase of a house and vehicle, an individual belonging to the age group of 35-45 years may plan for children’s education and children’s marriage, an individual in his or her fifties would be planning for post-retirement life. The investment portfolio then changes depending on the capital needed for these requirements. Institutions Institutional investors comprise the largest active group in the financial markets. As mentioned earlier, institutions are representative organizations, i. e. , they invest capital on behalf of others, like individuals or other institutions. Assets under management are generally large and managed professionally by fund managers. Examples of such organizations are mutual funds, pension funds, insurance companies, hedge funds, endowment funds, banks, private equity and venture capital firms and other financial institutions. We briefly describe some of them here. Mutual funds Individuals are usually constrained either by resources or by limits to their knowledge of the investment outlook of various financial assets (or both) and the difficulty of keeping abreast of changes taking place in a rapidly changing economic environment. Given the small portfolio size to manage, it may not be optimal for an individual to spend his or her time analyzing various possible investment strategies and devise investment plans and strategies accordingly. Instead, they could rely on professionals who possess the necessary expertise to manage their funds within a broad, pre-specified plan. Mutual funds pool investors’ money and invest according to pre-specified, broad parameters. These funds are managed and operated by professionals whose remunerations are linked to the performance of the funds. The profit or capital gain from the funds, after paying the management fees and commission is distributed among the individual investors in proportion to their holdings in the fund. Mutual funds vary greatly, depending on their investment objectives, the set of asset classes they invest in, and the overall strategy they adopt towards investments. Pension funds Pension funds are created (either by employers or employee unions) to manage the retirement funds of the employees of companies or the Government. Funds are contributed by the employers and employees during the working life of the employees and the objective is to provide benefits to the employees post their retirement. The management of pension funds may be in-house or through some financial intermediary. Pension funds of large organizations are usually very large and form a substantial investor group for various financial instruments. Endowment funds Endowment funds are generally non-profit organizations that manage funds to generate a steady return to help them fulfill their investment objectives. Endowment funds are usually initiated by a non-refundable capital contribution. The contributor generally specifies the purpose (specific or general) and appoints trustees’ to manage the funds. Such funds are usually managed by charitable organizations, educational organization, non-Government organizations, etc. The investment policy of endowment funds needs to be approved by the trustees of the funds. Insurance companies (Life and Non-life) Insurance companies, both life and non-life, hold large portfolios from premiums contributed by policyholders to policies that these companies underwrite. There are many different kinds of insurance policies and the premiums differ accordingly. For example, unlike term insurance, assurance or endowment policies ensure a return of capital to the policyholder on maturity, along with the death benefits. The premium for such policies may be higher than term policies. The investment strategy of insurance companies depends on actuarial estimates of timing and amount of future claims. Insurance companies are generally conservative in their attitude towards risks and their asset investments are geared towards meeting current cash flow needs as well as meeting perceived future liabilities. Banks Assets of banks consist mainly of loans to businesses and consumers and their liabilities comprise of various forms of deposits from consumers. Their main source of income is from what is called as the interest rate spread, which is the difference between the lending rate (rate at which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend 100% of their deposits. They are statutorily required to maintain a certain portion of the deposits as cash and another portion in the form of liquid and safe assets (generally Government securities), which yield a lower rate of return. These requirements, known as the Cash Reserve Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the Reserve Bank of India and banks need to adhere to them. In addition to the broad categories mentioned above, investors in the markets are also classified based on the objectives with which they trade. Under this classification, there are hedgers, speculators and arbitrageurs. Hedgers invest to provide a cover for risks on a portfolio they already hold, speculators take additional risks to earn supernormal returns and arbitrageurs take simultaneous positions (say in two equivalent assets or same asset in two different markets etc. ) to earn riskless profits arising out of the price differential if they exist. Another category of investors include day-traders who trade in order to profit from intra-day price changes. They generally take a position at the beginning of the trading session and square off their position later during the day, ensuring that they do not carry any open position to the next trading day. Traders in the markets not only invest directly in securities in the so called cash markets, they also invest in derivatives, instruments that derive their value from the underlying securities. Types of investment in Indian Financial Market Banking SectorIntroductionThe Reserve Bank of India (RBI) is India’s central bank. Though the banking industry is currently dominated by public sector banks, numerous private and foreign banks exist. India’s government-owned banks dominate the market. Their performance has been mixed, with a few being consistently profitable. Several public sector banks are being restructured, and in some the government either already has or will reduce its ownership. Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of Scheduled banks spread across India. During the first phase of financial reforms, there was a nationalization of 14 major banks in 1969. This crucial step led to a shift from Class banking to Mass banking. Since then the growth of the banking industry in India has been a continuous process. As far as the present scenario is concerned the banking industry is in a transition phase. The Public Sector Banks (PSBs), which are the foundation of the Indian Banking system account for more than 78 per cent of total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks in India are witnessing immense progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. On the other hand the Public Sector Banks are still facing the problem of unhappy employees. There has been a decrease of 20 percent in the employee strength of the private sector in the wake of the Voluntary Retirement Schemes (VRS). As far as foreign banks are concerned they are likely to succeed in India. Induslnd Bank was the first private bank to be set up in India. IDBI, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector Banks. Banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank, Andhra Bank etc. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank etc are some foreign banks operating in India. Private and foreign banksThe RBI has granted operating approval to a few privately owned domestic banks; of these many commenced banking business. Foreign banks operate more than 150 branches in India. The entry of foreign banks is based on reciprocity, economic and political bilateral relations. An inter-departmental committee approves applications for entry and expansion. RBI bankingThe Reserve Bank of India is the central banking institution. It is the sole authority for issuing bank notes and the supervisory body for banking operations in India. It supervises and administers exchange control and banking regulations, and administers the government’s monetary policy. It is also responsible for granting licenses for new bank branches. 5 foreign banks operate in India with full banking licenses. Several licenses for private banks have been approved. Despite fairly broad banking coverage nationwide, the financial system remains inaccessible to the poorest people in India. Some of its main objectives are regulating the issue of bank notes, managing India’s foreign exchange reserves, operating India’s currency and credit system with a view to securing monetary stability and developing India’s financial structure in line with national socio-economic objectives and policies. Indian banking systemThe banking system has three tiers. These are the scheduled commercial banks; the regional rural banks which operate in rural areas not covered by the scheduled banks; and the cooperative and special purpose rural banks. Scheduled and non scheduled banksThere are approximately 80 scheduled commercial banks, Indian and foreign; almost 200 regional rural banks; more than 350 central cooperative banks, 20 land development banks; and a number of primary agricultural credit societies. In terms of business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector. RBI restrictionsThe Reserve Bank of India lays down restrictions on bank lending and other activities with large companies. These restrictions, popularly known as â€Å"consortium guidelines† seem to have outlived their usefulness, because they hinder the availability of credit to the non-food sector and at the same time do not foster competition between banks. Indian vs. Foreign banksMost Indian banks are well behind foreign banks in the areas of customer funds transfer and clearing systems. They are hugely over-staffed and are unlikely to be able to compete with the new private banks that are now entering the market. While these new banks and foreign banks still face restrictions in their activities, they are well-capitalized, use modern equipment and attract high-caliber employees. Grey futureOne more reason being the opacity of the The Reserve Bank of India. This does not mean a forecast of doom for the Indian banking sector the kind that has washed out south east Asia. And also not because Indian banks are healthy. We still have no clue about the real non-performing assets of financial institutions and banks. Many banks are now listed. That puts additional responsibility of sharing information. It is now clear that it was the financial sector that caused the sensational meltdown of some Asian nations. India is not Thailand, Indonesia and Korea. Borrowed investment in property in India is low and property prices have already fallen, letting out steam gently. Our micro-meltdown has already been happening. | Bank Deposit Schemes * Bank Deposit Schemes for Resident Indians * Bank Deposit Schemes for Non Resident IndiansBank deposits are preferred more for their  liquidity and safety  than for the returns thereon. Various banking and other facilities that one gets by opening a bank account viz. ATM cards, ATM-cum-Debit cards, Credit Cards, On-line / Internet banking, collection / realization of cheques and other instruments, safe deposit lockers, better customer service etc. are also a major reason in favour of bank deposits vis-a-vis other options. The deposit accounts offered by banks fall broadly under following categories :Bank Deposit Schemes for Resident IndiansFollowing deposit accounts are offered by banks to Resident Indians: * Savings Bank Accounts:  These accounts are opened for savings, liquidity and safety of funds and convenience in making day to day expenses and also earning some interest income. These accounts inculcate the habit of thrift in account holders. View salient features of Savings Bank accounts. * Current Accounts:  These accounts are opened for liquidity and safety of funds and for meeting day to day expenses. Current accounts are opened and maintained primarily by business and commercial organizations. No income is earned on these deposits. Individuals usually open these accounts for availing overdraft facility as overdraft facility is not available in Savings Bank accounts. View salient features of  Current Accounts. * Recurring Deposit Accounts:  These accounts are opened for saving purpose only. Some fixed amount is deposited at monthly intervals for a pre-fixed term. These accounts generally earn higher interest than Savings Bank Accounts. View salient features of  Recurring Deposit accounts  in banks. * Fixed Deposit or Term Deposit Accounts:  These accounts are opened for investing funds for fixed terms to earn higher interests. Usually deposit for a longer period of time earns higher Interest Rate. The account holders have option of getting periodic payment of interest at monthly/quarterly intervals or re-investing the interest to be paid on maturity with the principal. View salient features of  Term / Fixed Deposit Accounts  in banks. * Special Bank Term Deposit Scheme – Bank Deposit Scheme under section 80C:  This is the only  Tax Saving Scheme  available with banks. The accounts opened under this scheme are eligible for  relief under Section 80C  of the Income Tax, Act. View salient features of  Bank Deposit Scheme for tax saving. Bank Deposit Schemes for Non-Resident IndiansFollowing deposit accounts are offered by banks to Non Resident Indians: * Non-Resident External (NRE) Accounts:  These Accounts can be opened by Non Resident Indians individually or jointly with other Non Resident Indian(s). The accounts can be opened in Savings Bank, Current Account, Term/Fixed Deposit with monthly/quarterly interest payment or Term/Fixed Deposit with interest reinvestment types. The account holders can grant Power of Attorney to Resident Indians to operate upon their Savings Bank or Current Accounts. The accounts are maintained in Indian Rupees. View salient features of  NRE Accounts * * Foreign Currency Non Resident (FCNR) Accounts:  These Accounts can be opened by Non Resident Indians individually or jointly with other Non Resident Indian(s). The accounts can be opened as Term/Fixed Deposit with the option of monthly/quarterly Interest payment or of re-investing the interest for payment on maturity with the principal. The accounts are maintained in foreign currencies viz. US Dollars, Euros, Sterling Pounds, Canadian Dollars, Australian Dollars and Japanese Yen. View salient features of  FCNR accounts. * Non-Resident Ordinary (NRO) Accounts:  These accounts can be opened by Non Resident Indians individually or jointly with other Non Resident or Resident Indian(s). These accounts can also be opened by Resident Indians by foreign inward remittance. The accounts are maintained in Indian Rupees. View salient features of  NRO Accounts. Mutual fundsMutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund  issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as  unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. Schemes according to Maturity Period:A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ SchemeAn open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ SchemeA close-ended fund or scheme has a stipulated maturity period e. g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i. e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective:A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:Growth / Equity Oriented SchemeThe aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Income / Debt Oriented SchemeThe aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The  NAVs  of such funds are affected because of change in interest rates in the country. If the interest rates fall,  NAVs  of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced FundThe aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However,  NAVs  of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid FundThese funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Gilt FundThese funds invest exclusively in government securities. Government securities have no default risk. NAVs  of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. Index FundsIndex Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S;P NSE 50 index (Nifty), etc These schemes invest in the securities in the same  weightage  comprising of an index. NAVs  of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as â€Å"tracking error† in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Postal savings| Postal Services in India India possesses the largest postal network in the world with 154,866  post offices, of which 139,040 (89. 78%) are in rural areas and 15,826 (10. 22%) are in urban areas. It has 25,464 departmental PO s and 129,402 ED BPOs. spread all over the country . Post offices in India play a vital role in the rural areas. They connect these rural areas with the rest of the country and also provide banking facilities in the absence of banks in the rural areas. Post Offices offer various types of schemes. These are: * Monthly Income Scheme * National Savings Certificate * Public Provident Fund * Time Deposit Scheme * Senior Citizen’s Saving Scheme * Saving Account Monthly Income Scheme (MIS) This scheme appeals to conservative investors with traditional values, and for good reason. This scheme offers monthly income and is a safe, guaranteed-by-the-government option. For retirees, widows and others looking or a steady income, it can be ideal. Read on to learn more. The Post Office Monthly Income Scheme, or PO MIS, is offered by Indian Post Offices. A lump sum amount is deposited with the post office and monthly interest earned each month is paid out to you. As the scheme is offered by post offices, it is backed by the government. Thus, the PO MIS is one of the safest investments available. Salient Features: * Interest rate of 8. 5% per annum payable monthly w. e. f. 01. 04. 2012 * Maturity period is 5 years. * No Bonus on Maturity w. e. f. 01. 12. 2011. * No tax deduction at source (TDS). * No tax rebate is applicable. Minimum investment amount is Rs. 1500/- or in multiple thereafter. * Maximum amount is Rs. 4. 50 lakhs in a single account and Rs. 9 lakhs in a joint account. * Auto credit facility of monthly interest to saving account if accounts are at the same post office. * Account can be opened by an individual, two/three adults jointly, and a minor through a guardian. * Non-Resident Indian / HUF cannot open an Account. * Minors have a separate limit of investment of Rs. 3 lakhs and the same is not clubbed with the limit of guardian. * Facility of premature closure of account after 1 year but on or before 3 years @ 2. 0% discount. * Deduction of 1% if account is closed prematurely at any time after three years. * Suitable scheme for retired employees/ senior citizens and for those who need regular monthly income. National Saving Certificate (NSC) National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at all post office counters in the country. This scheme is specially designed for Government employees, Businessmen and other salaried classes who are IT assesses. It is a long term safe savings option for the investor. Trust and HUF cannot invest. The scheme combines growth in money with reductions in tax liability as per the provisions of the Income Tax Act, 1961. The duration of a NSC scheme is 5 years. Salient Features: * NSC VIII Issue (5 years) – Interest rate of 8. 6% per annum w. e. f. 01. 04. 2012 * NSC IX Issue (10 years) – Interest rate of 8. 9% per annum w. e. f. 01. 04. 2012 * Minimum investment Rs. 100/-. No maximum limit for investment. * No tax deduction at source. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under NSC – section 80C of IT Act. Certificates can be kept as collateral security to get loan from banks. * Trust and HUF cannot invest. * A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or to a minor. * The interest accruing annually but deemed to be reinvested will also qualify for deduction under NSC – section 80C of IT Act. Public Provident Fund (PPF) Public Provident Fund, popularly known as PPF, is a savings cum tax saving instrument. It also serves as a retirement planning tool for many of those who do not have any structured pension plan covering them. The balances in PPF account cannot be attached by any authority normally. Salient Features: * Interest rate of 8. 8% per annum w. e. f. 01. 04. 2012. * Minimum deposit is 500/- per annum. Maximum deposit is Rs. 1,00,000/- per annum * The scheme is for 15 years. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. * Interest is completely tax-free. * Deposits can be made in lumpsum or in 12 installments. * One deposit with a minimum amount of Rs 500/- is mandatory in each financial year. * Withdrawal is permissible from 6th financial year. Loan facility available from 3rd financial year upto 5th financial year. The rate of interest charged on loan taken by the subscriber of a PPF account on or after 01. 12. 2011 shall be 2% p. a. However, the rate of interest of 1% p. a. shall continue to be charged on the loans already taken or taken up to 30. 11. 2011. * Free from court attachment. * Non-Resident Indians (NRIs) not eligible. * An in dividual cannot invest on behalf of HUF (Hindu Undivided Family) or Association of persons. * Ideal investment option for both salaried as well as self employed classes. Time Deposit Scheme A Post-Office Time  Deposit  Account  (RDA) is a  Ã‚  banking  service  similar to a Bank Fixed Deposit   offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of one year to two years, three years and a maximum period of five years. Investor gets a lump sum (principal + interest) at the maturity of the deposit. Time Deposits scheme return a lower, but safer, growth in investment. Salient Features: 1 year, 2 year, 3 year and 5 year time deposits can be opened. * Interest payable annually but compounded quarterly: PERIOD| RATE OF INTEREST| One Year| 8. 2%| Two Years| 8. 3%| Three Years| 8. 4%| Five Years| 8. 5%| * Minimum amount of deposit is Rs 200/- and in multiples of Rs 200/- thereafter. No maximum limit. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. * Interest income is taxable. * Facility of redeposit on maturity of an account. * In case of premature closure of 1 year, 2 Year, 3 Year or 5 Year account on or after 01. 12. 011 between 6 months to one year from the date of deposit, simple interest at the rate applicable to from time to time to post office savings account shall be payable. * 2 year, 3 year or 5 year accounts on or after 01. 12. 2011 if closed after one year, interest on such deposits shall be calculated at a discount of 1% on the rate specified for respective period as mentioned in the concerned table given under Rule 7 of  Post office Time Deposit Rules. * Account can be pledged as security against a loan to banks/ Government institutions. * Any individual (a single adult or two adults jointly) can open an account. Group Accounts, Institutional Accounts and Misc. account not permissible. * Trust, Regimental Fund or Welfare Fund not permissible to invest. Senior Citizen’s Saving Sc heme A new savings scheme called ‘Senior Citizens Savings Scheme’ has been notified with effect from August 2, 2004. The Scheme is for the benefit of senior citizens and maturity period of the deposit will be five years, extendable by another three years. Initially the scheme will be available through designated post offices through out the country. Salient Features: * Interest @ 9. 3% per annum from the date of deposit on quarterly basis w. e. f. 1. 04. 2012 * Minimum deposit is Rs 1000 and multiples thereof. Maximum limit of 15 lakhs. * Maturity period is 5 years and can be extended for a further period of 3 years. * Age should be 60 years or more, and 55 years or more but less than 60 years who has retired under a Voluntary Retirement Scheme or a Special Voluntary Retirement Scheme on the date of opening of the account within three months from the date of retirement. * No age limit for the retired personnel of Defence services provided they fulfill other specified co nditions. * The account may be opened in individual capacity or jointly with spouse. TDS is deducted at source on interest if the interest amount is more than Rs 10,000/- per annum. * Investment up to Rs 1,00,000/- per annum qualifies for Income Tax Rebate under section 80C of IT Act. * Interest can be automatically credited to savings account provided both the accounts stand in the same post office. * Premature closure is allowed after one year on deduction of 1. 5% of the deposit and after 2 years on deduction of 1%. * No withdrawal permitted before the expiry of a period of 5 years from the date of opening of the account. * Non-resident Indians (NRIs) and Hindu Undivided Family (HUF) are not eligible to open an account. Saving Account Post office saving account is similar to a savings account in a bank. It is a safe instrument to park those funds, which you might need to liquidate fully or partially at very short notice. Post office savings accounts are especially suited for those living in rural and semi-rural areas where the reach of banks is very limited. Salient Features: * Rate of interest 4. 0% per annum * Minimum amount Rs 50/- in case of non-cheque account, Rs. 500/- in case of cheque account. * Maximum balance permissible is Rs 1,00,000/- in a single account and Rs 2,00,000/- in a joint account. Interest Tax Free. * Any individual can open an account. * Cheque facility available. * Group Account, Institutional Account, other Accounts like Security Deposit account ; Official Capacity account are not permissible. Equity Indian Equity Market The Indian Equity Market is also the other name for Indian share market or Indian stock market. The forces of the market depend on monsoons, global fundin gs flowing into equities in the market and the performance of various companies. The Indian market of equities is transacted on the basis of two major stock indices, National Stock Exchange of India Ltd. NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in a dematerialized form. The physical stocks are in liquid form and cannot be sold by the investors in any market. Two types of funds are there in the Indian Equity Market; Venture Capital Funds and Private Equity Funds. The equity indexes are correlated beyond the boundaries of different countries with their exposure to common calamities like monsoon which would affect both India and Bangladesh or trade integration policies and close connection with the foreign investors. From 1995 onwards, both in terms of trade integration and FIIs India has made an advance. All these have established a close relationship between the stock market indexes of India stock market and those of other countries. The Stock derivatives add up all futures and options on all individual stocks. This stock index derivative was found to have gone up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. The Indian Equity Market also comprise of the Debt Market, dominated by primary dealers, banks and wholesale investors. Indian Equity Market at present is a lucrative field for the investors and investing in Indian stocks are profitable for not only the long and medium-term investors, but also the position traders, short-term swing traders and also very short term intra-day traders. In terms of market capitalization, there are over 2500 companies in the BSE chart list with the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels to 8000 levels providing a profitable business to all those who had been investing in the Indian Equity Market. There are about 22 stock exchanges in India which regulates the market trends of different stocks. Generally the bigger companies are listed with the NSE and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which lists the medium and small sized companies. There is the SEBI or the Securities and Exchange Board of India which supervises the functioning of the stock markets in India. In the Indian market scenario, the large FMCG companies reached the top line with a double-digit growth, with their shares being attractive for investing in the Indian stock market. Such companies like the Tata Tea, Britannia, to name a few, have been providing a bustling business for the Indian share market. Other leading houses offering equally beneficial stocks for investing in Indian Equity Market, of the SENSEX chart are the two-wheeler and three-wheeler maker Bajaj Auto and second largest software exporter Infosys Technologies. Other than some restricted industries, foreign investment in general enjoys a majority share in the Indian Equity Market. Foreign Institutional Investors (FII) need to register themselves with the SEBI and the RBI for operating in Indian stock exchanges. In fact from the Indian stock market analysis it is known that in some specific industries foreigners can have even 100% shares. In the last few years with the facility of the Online Stock Market Trading in India, it has been very convenient for the FIIs to trade in the Indian stock market. From an analysis on the Indian Equity Market it can be said that the increase in the foreign investments over the years no doubt have accentuated the dynamism of the Indian market of equities. Foreign investors are allowed to buy Indian equity for the purpose of converting the equity into ADR or GDR. Thus, the growing financial capital markets of India being encouraged by domestic and foreign investments is becoming a profitable business more with each day. If all the economic parameters are unchanged Indian Equity Market will be conducive for the growth of private equities and this will lead to an overall improvement in the Indian economy. Insurance Insurance  is a form of  risk management  primarily used to  hedge  against the  risk  of a contingent,  uncertain  loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of  appraising  and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a  contract, called the  insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. The business of Insurance essentially means defraying risks attached to any activity over time (including life) and sharing the risks between various entities, both persons and organizations. Insurance companies (ICs) are important players in financial markets as they collect and invest large amounts of premium. Insurance products are multipurpose and offer the following benefits: Protection to the investors * Accumulate savings * Channelize savings into sectors needing huge long term investments. Insurance involves  pooling  funds from  many  insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk i nsured against must meet certain characteristics in order to be an  insurable risk. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also  self-insure  through saving money for possible future losses. Insurability Risk which can be insured by private companies typically share seven common characteristics: 1. Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the  law of large numbers  in which predicted losses are similar to the actual losses. Exceptions include  Lloyd’s of London, which is famous for insuring the life or health of actors, sports figures and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates. 2. Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire,  automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements. 3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks or even purchasing a lottery ticket, are generally not considered insurable. 4. Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer. 5. Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. 6. Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim. . Limited risk of catastrophically large losses: Insurable losses are ideally  independent  and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital  constrains insurers’ ability to sell  earthquake insurance  as well as wind insurance in  hurricane  zones. In the US,  flood risk  is insured by the federal government. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the  reinsurance  market. Legal When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include: 1. Indemnity  Ã¢â‚¬â€œ the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insured’s interest. . Insurable interest  Ã¢â‚¬â€œ the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a â€Å"stake† in the loss or damage to the life or property insured. What that â€Å"stake† is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons. 3. Utmost good faith  Ã¢â‚¬â€œ the insured and the insurer are bound by a  good faith  bond of honesty and fairness. Material facts must be disclosed. 4. Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method. 5. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for insured’s loss. 6. Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not be  excluded 7. Mitigation – In case of any loss or casualty, the asset owner must attempt to keep the loss to a minimum, as if the asset was not insured. Indemnification To â€Å"indemnify† means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly,  life insuranceis generally not considered to be indemnity insurance, but rather â€Å"contingent† insurance (i. e. , a claim arises on the occurrence of a specified event). There are generally two types of insurance contracts that seek to indemnify an insured: 1. an â€Å"indemnity† policy, and 2. a â€Å"pay on behalf† or â€Å"on behalf of†Ã‚  policy. The difference is significant on paper, but rarely material in practice. An â€Å"indemnity† policy will never pay claims until the insured has paid out of pocket to some third party; for example, a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an â€Å"indemnity† policy the homeowner would have to come up with the $10,000 to pay for the visitor’s fall and then would be â€Å"indemnified† by the insurance carrier for the out of pocket costs (the $10,000). [4][5] Under the same situation, a â€Å"pay on behalf† policy, the insurance carrier would pay the claim and the insured (the homeowner in the above example) would not be out of pocket for anything. Most modern liability insurance is written on the basis of â€Å"pay on behalf† language. An entity seeking to transfer risk (an individual, corporation, or association of any type, etc. ) becomes the ‘insured’ party once risk is assumed by an ‘insurer’, the insuring party, by means of a contract, called an  insurance policy. Generally, an insurance contract includes, at a minimum, the following elements: identification of participating parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i. . , the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions  (events not covered). An insured is thus said to be â€Å"indemnified† against the loss covered in the policy. When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covere d amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims — in theory for a relatively few claimants — and for  overhead  costs. So long as an insurer maintains adequate funds set aside for anticipated losses (called reserves), the remaining margin is an insurer’s  profit. Types of Insurances * Life Insurance * General Insurance Life Insurance Life insurance  is a contract between an  insurance policy holder  and an  insurer, where the insurer promises to pay a designated  beneficiary sum of money (the â€Å"benefits†) upon the death of the insured person. Depending on the contract, other events such as  terminal illness  or critical illness  may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits. The advantage for the policy owner is â€Å"peace of mind†, in knowing that the death of the insured person will not result in financial hardship for loved ones and lenders. Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion. Life-based contracts tend to fall into two major categories: * Protection  policies – designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance. * Investment  policies – where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are  whole life,  universal life  and  variable life policies. General Insurance General insurance  or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be  life insurance. It is called  property  and casualty  insurance  in the  U. S. and  Non-Life Insurance  in Continental Europe. Commercial lines  products are usually designed for relatively small legal entities. These would include workers’ comp (employers liability), public liability, product liability, commercial fleet and other general insurance products sold in a relatively standard fashion to many organisations. There are many companies that supply comprehensive commercial insurance packages for a wide range of different industries, including shops, restaurants and hotels. Personal lines  products are designed to be sold in large quantities. This would include  autos  (private car),  homeowners  (household), pet insurance, creditor insurance and others. ACORD  which is the insurance industry global standards organisation. ACORD has standards for personal and commercial lines and has been working with the Australian General Insurers to develop those XML standards, standard applications for insurance, and certificates of currency. PORTFOLIO MANAGEMENT A good way to begin understanding what portfolio management is (and is not) may be to define the term  portfolio. In a business context, we can look to the mutual fund industry to explain the term’s origins. Morgan Stanley’s  Dictionary of Financial Terms  offers the following explanation: If you own more than one security, you have an investment portfolio. You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolio’s value by selecting investments that you believe will go up in price. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate. Note that this explanation contains a number of important ideas: * A portfolio contains many investment vehicles. Owning a portfolio involves making choices — that is, deciding what additional stocks, bonds, or other financial instruments to buy; when to buy; what and when to sell; and so forth. Making such decisions is a form of management. * The management of a portfolio is goal-driven. For an investment portfolio, the specific goal is to increase the value. * Managing a portfolio involves inherent risks. Objective s of Portfolio Management:- The objective of  portfolio management  is to invest in securities is securities in such a way that one maximizes one’s returns and minimizes risks in order to achieve one’s investment objective. A good  portfolio  should have multiple objectives and achieve a sound balance among them. Any one objective should not be given undue importance at the cost of others. Presented below are some important objectives of portfolio management. 1. Stable Current Return: – Once investment safety is guaranteed, the portfolio should yield a steady current income. The current returns should at least match the opportunity cost of the funds of the investor. What we are referring to here current income by way of interest of dividends, not capital gains. 2. Marketability: – A good portfolio consists of investment, which can be marketed without difficulty. If there are too many unlisted or inactive shares in your portfolio, you will face problems in encasing them, and switching from one investment to another. It is desirable to invest in companies listed on major stock exchanges, which are actively traded. 3. Tax Planning: – Since taxation is an important variable in total planning, a good portfolio should enable its owner to enjoy a favorable tax shelter. The portfolio should be developed considering not only income tax, but capital gains tax, and gift tax, as well. What a good portfolio aims at is tax planning, not tax evasion or tax avoidance. 4. Appreciation in the value of capital: A good portfolio should appreciate in value in order to protect the investor from any erosion in purchasing power due to inflation. In other words, a balanced portfolio must consist of certain investments, which tend to appreciate in real value after adjusting for inflation. 5. Liquidity: The portfolio should ensure that there are enough funds available at short notice to take care of the investor’s liquidity requirements. It is desirable to keep a line of credit from a bank for use in case it becomes necessary to participate in right issues, or for any other personal needs. 6. Safety of the investment: The first important objective of a portfolio, no matter who owns it, is to ensure that the investment is absolutely safe. Other considerations like income, growth, etc. , only come into the picture after the safety of your investment is ensured. Investment safety or minimization of risks is one of the important objectives of portfolio management. There are many types of risks, which are associated with investment in equity stocks, including super stocks. Bear in mind that there is no such thing as a zero risk investment. More over, relatively low risk i How to cite Investment Analysis and Portfolio Management, Essay examples