organizational structure tt and h (1)

8/2/2019 Organizational Structure TT and H (1)

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Proposed Company Structure of NIEH Ltd

Introduction

The Consultation starts from the position that Moyle Interconnector Ltd

(MIL) should be incorporated into Northern Ireland Energy Holdings Ltd (NIEHL)

and that the only issues to be resolved relate to the adequacy or otherwise of the

consumer protection measures set out. In support of this contention, much is made

of the financial benefits available through both gas and electricity assets being

brought together within the one Company structure, but no quantification of these

benefits has been provided. It therefore impossible to assess whether this argument

is conclusive.

Most importantly, the question that has not been addressed anywhere in the

Consultation is why MIL should be owned by a not-for-profit Company that is

limited by guarantee. There is no exploration of the rationale underlying this

proposal, nor any explanation as to why this solution is superior to either a

nationalised corporation or a public limited company. We have serious concerns

as to the policy management and directional control of NIEH.

Our final concern lies in the lack of any analysis of the impact of this

mutualised structure on promotion of the open and fair competition that ultimately

benefits customers through lower prices.

Proposed benefits

It is disappointing to note that the proposed benefits of the incorporation are

based only on preliminary analysis and, with the exception of the tax benefit,

contain no detail of the mechanism whereby these benefits will be delivered, or


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any quantification of their value. Indeed the benefits are only classified as

"potential" at this stage.

"Significant operational efficiency gains" are proposed, but does thismean 1m or 10m per annum will be saved through administration efficiencies?

"Creation of a much more robust structure for the management" issuggested, although both the gas and electricity businesses would be ringfenced

and with their own Licences. Is it expected that the stakeholder and consumer

interests represented in the membership will provide a better level of direction and

control of the Company than would be provided by shareholders in a public

company. Perhaps it is the addition of more non-executive Directors on the Board

of NIEH Ltd that will strengthen the management. Electricity Distribution

businesses in GB have for many years provided mutual support and contingency

cover for storms and other disasters, yet this mutual benefit is provided by public

companies that are in commercial competition with each other.

"Tax benefits arising out of grouping the two assets" would be onearea where clear quantification of the benefits of grouping gas and electricity

businesses could be publishedirrespective of the ultimate ownership structure of

NIEH. It is disappointing that no indication of the scale of this benefit is provided,

particularly as this would represent a short (?) term subsidy to the gas transport

business. In terms of the NIEH Company structure, it is not clear whether this tax

argument is intended to support combining gas and electricity asset businesses, or

is a justification for this being done within a Company limited by guarantee.

"Combining knowledge and expertise acquired by those involved inthe mutualisation ..... will facilitate future energy asset acquisitions by NIEH."

We take this to be a policy statement, that NIEH will seek to acquire other energy

assets in NI, rather than an indication that incorporation of both PTL and MHL


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within NIEH will lead to more efficiently and effectively run businesses. We

believe this expansionist ethos represents a kind of back-door nationalisation of

key electricity assets; At the very least it represents a return to the "City Electricity

Department" type structure that was common in the early years of the last century.

We do not see how this is likely to promote competition and encourage market

entry.

"The creation of a holding company .... with sufficient influence andcapability to act in the interests of energy consumers, for example in any future all-

island energy market negotiations", suggests that NIEH is intended to act as a

consumer lobby group. The consumer interests that are stated to be

"a primary focus, which in turn ensures that NIEH's ultimate accountability

is to consumers"

must be subservient to the Directors' fiduciary duty to put the interests of

NIEH Ltd first. The intended consumer focus appears to be based on the

Memorandum of Association requirement "having regard to the interests of the

energy consumers of Northern Ireland". All successful commercial organisations

have at least as much regard for the interests of their customers as is implied by

this statement, otherwise their customers will choose another supplier.

Potential risks

In addition to the NGC/Lattice example quoted, there have recently been

sales of gas distribution businesses in GB to co-located electricity distribution

companies. Part of the rationale for the electricity companies has been the

intention to multi-skill the workforce to operate in either business, building on

experience operating gas connection businesses. We do not see this type of


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approach as putting either of the businesses at risk; of more concern would be the

potential for NIEH to use its multi-monopoly strength to force up prices for asset

users, with a view to having larger sums available with which to acquire other

energy assets, or indeed to move into the Supply business as a competitor, or one

of the unrelated business areas permitted by the Memorandum of Association, such

as "to act as bingo club proprietors" (MoA 3.9).

The main risk we see with NIEH is that it is a Company without effective

means of control. With nationalised businesses, the Treasury, a minister, or some

other form of legal control is in place to ensure delivery of policy objectives. With

a public company, an external organisation can mount a takeover if the business is

under-performing. With NIEH a major Company is proposed that is without

effective control. Members are selected from interest groups and are bound "to

further to the best of his ability the objects of the Company ...". (There is no

mention of representation for those who de facto fund the Company; electricity

interconnector users.) Notwithstanding their theoretical constituencies, members

can therefore direct the Company in any direction they choose and into any type of

business they choose, in any country they choose; providing they always have

regard for the interests of the energy consumers of Northern Ireland. There is no

restriction in the Memorandum of Association on the type of businesses they can

pursue and there is no guarantee that the stated potential benefit, of a much more

robust management structure, will not be undermined by diversionary acquisition

or non-energy related business development. Accountability of the Board to

Members is clear, but accountability to Ofreg, or any other statutory authority, for

delivery of the proposed benefits is unclear.


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Competition is mentioned four times in the Consultation; once to say that

MIL and PTL are in competition with each other (p10), once to say that Ofreg's

analysis of competition and regulatory issues concluded that the merger would not

be detrimental to energy consumers (p11), once to say that Ofreg's principal

objective in relation to energy "is to protect the interests of consumers of electricity

wherever appropriate by promoting effective competition between relevant

industry participants" and once to say that NIEH can co-operate with other entities

to limit competition (MoA Art 3.19). No information has been provided to

substantiate the conclusion of Ofreg's analysis that incorporation of MIL into

NIEH is not detrimental to consumers. We cannot find anything in the

Consultation that specifically addresses the issue of how the proposed arrangement

will promote competition in electricity Supply and deliver real benefits to

customers in NI; a key issue they face is the high level of energy costs. We would

have expected the Consultation to have addressed the way in which incorporation

of MIL into NIEH, and specifically the limited by guarantee aspect of the

proposal, will promote competition and help reduce the cost of electricity.

Summary and conclusion

The Consultation advances no substantive pro-competition justification for

the proposed ownership of MIL and the assertions that "having regard to the

interests of energy consumers" is the same as "consumer interests are always a

primary focus" and NIEH having "ultimate accountability to consumers" are

wishful thinking in the context of Members' primary legal obligation being to the

interests of NIEH.

The proposed tax and operational efficiencies from combining PTL and MIL

within NIEH are "potential" and based on "preliminary analysis". No sensible


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decision on the structure of an important asset owner should be made on un-

quantified and untested assertions.

We do not accept that the case for a company limited by guarantee has been

made. Indeed, with the virtually unlimited scope of activities in which NIEH may

engage, we see the lack of external control and sanction on engaging in activities

unconnected with ownership of energy assets is a major risk.

In conclusion, Airtricity does not accept that the proposal to incorporate

MIL into NIEH is demonstrably in the best interests of either consumers directly,

or in promoting the competition that will meet their general need for competitive

pricing and reliability of supply.

Cultural diversity

HOW IS CULTURAL DIVERSITY GENERATED?

Originally the word culture, as in agriculture or, in Spanish, puericultura

the raising of childrenimplied the activity of cultivation. This is lost when

cultures are taken to mean something fixed or inanimate, like rocks. On the other

hand, cultivating the human spiritis endless, and when nurtured bountifully, can

raise a persons feeling for love and life or a peoples common endeavour to great

heights. If we did not believe this we would not fight to preserve the great

architecture of the past and present civilizations or the cultural landscapes created

by countless men and women joining hands to make the earth bountiful in food,

beauty and remembrance. Indeed, there would be no World Heritage List from

which new artists and architects could continue to draw inspiration for monuments

in their own time.

The question of the origins of cultures has been frequently aired in the

popular press in recent times. Scientific debates are revealing how humans evolved


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into different strands after their appearance in Africa, then dispersed to the Near

and Far East and Europe. Racists may interpret these discussions as indicating that

there are historic differences between races, a term now being substituted by

them for cultures as an innovative object. In fact, very recent DNA findings and

archaeological diggings have confirmed that we are all descended from one group

of human ancestors who first appeared in Africa approximately 4.4 million years

ago; about one million years ago they had spread to the whole of Eurasia; they

were already in what is now Israel 1.4 million years ago and in Java 1.8 million

years ago. Findings also show that other hominid species, such as the

Neanderthals, existed as well.

Diversity, therefore, was already present as human life dawned. The

difference between hominids and Homo sapiens was cultural. Homo sapiens, the

group to which all human beings in the world today belong, showed a much greater

capacity to make sophisticated weapons and household utensils and, notably, to

evolve social organization and artistic creation.

One may well ask why this was so. Genetics explains that the human

genome has gone through many mutations and probably gave our hominid

ancestors advantages in acting together, hunting, taking care of children and elders

and adapting or migrating to different environments. The rates of mutations, in fact

are one of the ways in which DNA analysis helps reconstruct the early history of

human diversity. Genetic evidence indicates thatdiversity within sub-Saharan

Africa was greater than outside Africa. It also shows that DNA diversity outside

Africa is a subset of what found within Africa, thus strengthening the argument

that our earliest ancestors all came from this continent.

What happened next? There are two hypotheses, both based on genetic

evidence. The first one suggests that the human species has existed as a single

subdivided population for the past 100,000 years or so. Gene flow therefore played


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a major role in maintaining genetic similarity among regions. This means that there

were considerable exchanges of men and women as marital partners. The second

onethe weak Garden of Eden hypothesis holds that long ago humans

separated into small regional groups with differing levels of gene exchange. In

other words, some mixed more than others.

Archaeology has produced evidence that gender was the first form of human

diversity. Men most probably developed hunting tools while women invented

agriculture and ceramics. Thus, cultural practices led to a stronger marking of

sexual differencessexual dimorphismbetween men and women than between

the sexes in most of our primate cousins.

(World Culture Report 2000)

Marketing strategy

Marketing strategy is a process that can allow an organization to

concentrate its limited resources on the greatest opportunities to increase sales and

achieve a sustainablecompetitive advantage

Developing a marketing strategy

Marketing strategies serve as the fundamental underpinning ofmarketing

plansdesigned to fill market needs and reachmarketingobjectives.[2]Plans and

objectives are generally tested for measurable results. Commonly, marketing

strategies are developed as multi-year plans, with a tactical plan detailing specific

actions to be accomplished in the current year. Time horizons covered by the

marketing planvary by company, by industry, and by nation, however, time
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horizons are becoming shorter as the speed of change in the environment

increases.[3]Marketing strategies are dynamic and interactive. They are partially

planned and partially unplanned. Seestrategy dynamics.

Marketing strategy involves careful scanning of the internal and external

environments.[4]Internal environmental factors include themarketing mix, plus

performance analysis and strategic constraints.[5]External environmental factors

include customer analysis,competitor analysis,target marketanalysis, as well as

evaluation of any elements of the technological, economic, cultural or

political/legal environment likely to impact success.[3][6]A key component of

marketing strategy is often to keep marketing in line with a company's overarching

mission statement.[7]

Once a thorough environmental scan is complete, astrategic plancan be

constructed to identify business alternatives, establish challenging goals, determine

the optimal marketing mix to attain these goals, and detail implementation.[3]A

final step in developing a marketing strategy is to create a plan to monitor progress

and a set of contingencies if problems arise in the implementation of the plan.

Price
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One of the most difficult, yet important, issues you must decide as an

entrepreneur is how much to charge for your product or service. While there is no

one single right way to determine your pricing strategy, fortunately there are some

guidelines that will help you with your decision.

Before we get to the actual pricing models, here are some of the factors that

you need to consider:

Positioning - How are you positioning your product in the market? Ispricing going to be a key part of that positioning? If you're running a discount

store, you're always going to be trying to keep your prices as low as possible (or at

least lower than your competitors). On the other hand, if you're positioning your

product as an exclusive luxury product, a price that's too low may actually hurt

your image. The pricing has to be consistent with the positioning. People really do

hold strongly to the idea that you get what you pay for.

Demand Curve - How will your pricing affect demand? You're goingto have to do some basic market research to find this out, even if it's informal. Get

10 people to answer a simple questionnaire, asking them, "Would you buy this

product/service at X price? Y price? Z price?" For a larger venture, you'll want to

do something more formal, of course -- perhaps hire a market research firm. But

even a sole practitioner can chart a basic curve that says that at X price, X'

percentage will buy, at Y price, Y' will buy, and at Z price Z' will buy.

Cost - Calculate the fixed and variable costs associated with yourproduct or service. How much is the "cost of goods", i.e., a cost associated with

each item sold or service delivered, and how much is "fixed overhead", i.e., it

doesn't change unless your company changes dramatically in size? Remember that

your gross margin (price minus cost of goods) has to amply cover your fixed


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overhead in order for you to turn a profit. Many entrepreneurs under-estimate this

and it gets them into trouble.

Environmental factors - Are there any legal or other constraints onpricing? For example, in some cities, towing fees from auto accidents are set at a

fixed price by law. Or for doctors, insurance companies and Medicare will only

reimburse a certain price. Also, what possible actions might your competitors take?

Will too low a price from you trigger a price war? Find out what external factors

may affect your pricing.

The next step is to determine your pricing objectives. What are you trying to

accomplish with your pricing?

Short-term profit maximization - While this sounds great, it maynot actually be the optimal approach for long-term profits. This approach is

common in companies that are bootstrapping, as cash flow is the overriding

consideration. It's also common among smaller companies hoping to attract venture

funding by demonstrating profitability as soon as possible.

Short-term revenue maximization - This approach seeks tomaximize long-term profits by increasing market share and lowering costs through

economy of scale. For a well-funded company, or a newly public company,

revenues are considered more important than profits in building investor

confidence. Higher revenues at a slim profit, or even a loss, show that the company

is building market share and will likely reach profitability. Amazon.com, for

example, posted record-breaking revenues for several years before ever showing a

profit, and its market capitalization reflected the high investor confidence those

revenues generated.


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Maximize quantity - There are a couple of possible reasons to choosethe strategy. It may be to focus on reducing long-term costs by achieving

economies of scale. This approach might be used by a company well-funded by its

founders and other "close" investors. Or it may be to maximize market penetration

- particularly appropriate when you expect to have a lot repeat customers. The plan

may be to increase profits by reducing costs, or to upsell existing customers on

higher-profit products down the road.

Maximize profit margin - This strategy is most appropriate when thenumber of sales is either expected to be very low or sporadic and unpredictable.

Examples include custom jewelry, art, hand-made automobiles and other luxury

items.

Differentiation - At one extreme, being the low-cost leader is a formof differentiation from the competition. At the other end, a high price signals high

quality and/or a high level of service. Some people really do order lobster just

because it's the most expensive thing on the menu.

Survival - In certain situations, such as a price war, market decline ormarket saturation, you must temporarily set a price that will cover costs and allow

you to continue operations.

Now that we have the information we need and are clear about what we're

trying to achieve, we're ready to take a look at specific pricing methods to help us

arrive at our actual numbers.


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Arbitration

Arbitration often allows you to resolve disputes more quickly and cheaply

than by going to court. Instead of judges or juries, arbitrators decide if wrongdoing

occurred and how to correct or compensate you for it.

When the arbitration is over, the decisions of the arbitrators are final and not

subject to appeal. If you are unhappy with the result, you cannot go to court to try

again. The arbitrators' decisions can only be challenged under very limited

circumstancesfor example, if you can demonstrate that an arbitrator was biased.

If you want to challenge an arbitrator's decision you must do so within three

months or less in a "motion to vacate." You'll find more information about

challenging an arbitrator's decisionelsewhere in Fast Answers.

If you have a brokerage account, you probably signed an agreement that

requires you to settle any disputes with your broker through arbitration rather than

the courts.

Time is of the essence. To take advantage of your legal rights, you must

take legal action promptly or you may lose the right to seek a remedy or recover

funds. Time restrictions, called "statutes of limitations," vary from state to state.

For example, federal securities laws generally require that you bring a court action

within two years of the date that you should have reasonably discovered the

wrongdoing, but in no case later than five years from the date the wrongdoing

actually occurred. Arbitrators look to either a federal or state statute of limitations,
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depending on whether your claim is a violation of federal or state law. You

generally cannot pursue an issue through arbitration if it is more than six years old.

To file arbitration action

The majority of arbitration claims are filed with the Financial Industry

Regulatory Authority (FINRA) Dispute Resolution, Inc. The remaining claims are

filed with the exchanges, particularly the New York Stock Exchange.

Simplified arbitration. If your claim is $25,000 or less, you generally will

not have to appear in person at a hearing. Insimplified arbitrations, the arbitrator

will make a decision on your case by reviewing documents and written

descriptions of what happened from you and your broker. This is a less costly

alternative because you do not have to travel to a hearing and appear in person to

give testimony and answer questions. You should carefully review the rules

governing simplified arbitration before you file a claim.

Mediation. Mediation is also an option you should consider before going to

arbitration. Mediation may allow you to save time and money because it is quicker

than arbitration. Mediation also can be less confrontational than arbitration. If you

can't reach an agreement through mediation, you can still go to arbitration

Panel Selection. Certain arbitrations may require the selection of a panel of

three arbitrators. FINRA rules provide investors in these arbitrations with two

options for selecting this panel. Under the first option, the panel will be comprised

of two public arbitrators and one arbitrator with a connection to the securities

industry. Under the second option, the panel will be comprised of all public

arbitrators. Investors electing to use the all-public option must affirmatively select

the all-public option instead of the majority public option within 35 days of service

of the Statement of Claim. The all-public option is available to all cases requiring
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a three arbitrator panel in which arbitrator lists have not been sent as of January 31,

2011.

Caution. When deciding whether to arbitrate, bear in mind that if your

broker or brokerage firm goes out of business or declares bankruptcy, you might

not be able to recover your moneyeven if the arbitrator or court rules in your

favor. That's one of the reasons why it is so important to investigate the

disciplinary history of your broker or brokerage firm before you invest.

How Do You Find a Lawyer Specializing in Securities?

If you need help in finding a lawyer who specializes in securities complaints,

read our publication entitledArbitration, How to Find a Lawyer Specializing in

Securities.

What If You Cannot Hire a Lawyer?

Certain law schools in California, Florida, Illinois, Massachusetts, New

York and Pennsylvania provide some investors with legal representation through

arbitration/mediation clinics. These clinics may be able to help investors who have

smaller claims and who are unable to hire a lawyer.
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International trade

International trade comprises the theory of international trade and

international finance. The former concerns the theory of trade and gain from it

through specialization. The latter concerns a theory of different currencies and

currency flows among nations.

Trade can be : inter-personal ; regional ; and national trade.

International trade is just a form of exchange

and an application of micro-theory of pure exchange. The main conclusion is

:

Voluntary exchange is mutually beneficial.

1 Why Do Countries Trade ?

There are many misleading arguments against exchanges (without

production) :

Trade involves the exchange of goods. As the total amount of goodsavailable is the same, exchange itself is not productive.

Imports will compete with local products so that it leads to an outflowof local currency and decreases the job opportunity of the local citizens.

Nations with abundant resources and already reaching a level of self-sufficiency need not trade with others for any gain.

2 Special Features Of International Trade


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Factor mobility is low among nations so that absolute advantage existsfor long. The differences in endowments of resources make production varied in

quantity and quality. The principle of exchange

is to explain this idea.

It involves the exchange of two or more currencies so that a theory ofexchange rate is needed.

Nations have their specific trade policies to deal with internationaltrade problems.

There are already suitable statistical information for analysis inpractice.

Special terms to note :

Self-sufficiency : nations consume their local products only (

may be with exports ).

Specialization : the production of goods more than the nation

consumes. The remaining output is sold to other nations. The term

complete specialization means the production of one goods only.

Autarky : self-sufficiency without any international trade.

3 Basis of Trade

difference in the tastes of different nations ( in MUV or MRS ) ; difference in the level of technology used in production ; difference in the cost of production ( production function, economies

of scale, factor endowment ... )


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well-defined property rights and negligible transaction costs inexchange.

II The Principles of Exchange

1 Theory of Trade

It proposes that labour time determines the value of production of

goods and services. That is, the cost of production depends on the amount of

labour time needed.

Absolute Advantage

A nation, using the same ( quantity / amount / cost on ) resources, can

produce a goods or service more than another nation and is said to have an

absolute advantage over the other nation.

Comparative Advantage ( Relative Opportunity Cost Or Relative Efficiency

)

A nation can produce a goods or service at a lower opportunity cost

than another nation ( or any other nation ) and is said to have a comparative

advantage on that goods or service.

A lower opportunity cost means that a nation can forgo less labour

(time) in the production of the same amount of goods compared with another

nation.

2 Gain From Specialization

Assumptions of Comparative Advantage


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It is a two nations and two goods model. Perfect competition prevails, i.e. there is perfect mobility of factor

within the nation but immobile among other nations ; and zero transportation cost.

Labour is the only variable factor in production, i.e. technology is alsofixed.

Specialization occurs at a constant opportunity cost. Resources can be aggregated into some composite units.

Conclusion :

Whenever a nation enjoys a comparative advantage on a goods, it canproduce more of the goods and has more real income after specialization on

production of that goods and imports other goods that are comparatively

disadvantage in production.

Sources of Comparative Advantage

geographical diversity, e.g. climate. difference in the capital-labour endowment.

Other Forms of Gain From Trade

economies of scale from production and economic efficiencyachieved.

competition leads to economic growth.

3 Terms of Trade


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If a nation is in autarky, the exchange ratio of goods is the same as the

relative opportunity cost in equilibrium, i.e. the market equilibrium price = its

marginal cost in production.

The terms of trade means the amount of domestic produced goods that

must be exported in order to get one unit of imported goods, i.e. QX / QM .

Whenever two nations trade, their international terms of trade ( I T T )

must lie between the exchange ratios that have prevailed in the nations in the

absence of trade.

An Example :

Cl

oth

Wi

ne

Exchange

ratio : A

Exchange

ratio :B

2

1

1

1

If nation A wants to get 1 unit of wine, its domestic sacrifice is 2 units of

cloth. Hence trade is only possible if nation A can get 1 unit of wine by giving

up no more than 2 units of cloth.

If nation B is willing to sacrifice 1 unit of wine, its domestic gain is 1

unit of cloth. Hence trade is only possible if the gain is greater than 1 unit of cloth

by giving up 1 unit of wine.

In other words, to get 1 unit of cloth, the domestic sacrifice of nation

B is 1 unit of wine so that trade is only possible if the sacrifice is less than 1 unit of

wine. The international terms of trade ( I.T.T. ) is :


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1 W : 1 to 2 C

The terms of trade is important because it determines how much a

nation will gain. The I.T.T. of a nation is more favourable if it can use a lesser

amount of exports to exchange for the same amount of imports.

The greater the divergence between the I.T.T. and the domestic

exchange ratio ( the more favourable the terms of trade ), the greater the gain in

real income by that nation.

An index is used to express the overall price level.

Index of Export Prices

PX

Terms of Trade Index =

=

Index of Import Prices

PM

If the index increases, it is said to be favourable to the nation and vice

versa.

4 Gain From Trade With A Production Possibility Curve


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The Supply Side : A Concave

P.P.C.

It implies that the opportunity

costs vary along the PPC.

In terms of cloth (wine), the

opportunity cost of wine (cloth) is increasing

from point A to B.

The P.P.C. With Relative Prices

If prices are initially denoted by

the price line P0 and the optimal point is A

where the relative price ratio ( P0 ) is tangent

to the P.P.C.

That is, Opportunity Cost

in production = Relative Prices

Wine

B

A

O

Cloth

IfP0 changes to P1 that implies

the price of wine relative to the price of cloth

rises.

P1is greater than MC of wine.

Firms would increase the production of wine

by reducing the output of cloth. The

production point moves from A to B.

Producers should produce more

Wine

B

P1

A


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wine as it is now

profitable and the new optimal

point is B.

Likewise ifPw drops or Pc rises,

the new optimal

may be at C.

P0

C

P2

O

Cloth

The Demand Side : The Community Indifference Curve

It illustrates the demand of a whole nation with a constant income

distribution.

Together with the P.P.C. both demand and supply conditions are

known and beneficial exchanges can

then be explained. The gain from trade is in fact consisted of :

One is the gain from exchange with the presence of international priceratio.

The other one is the gain from specialization based on the principle ofcomparative advantage.

Finally the gain is obtained through the actual export and import of

goods.

Gain From : Exchange & Specialization

Good B

Initially the domestic price is PD PE


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with an autarky equilibrium at E.

C1

With free trade the nation, having a PD C0comparative advantage on the goods

A, faces a higher price of A = PE .

U2

The consumers gain by reaching their

optimum at C0 ; ignoring temporary

U1the reaction of the producers. E

The gain from exchange is from point E

U0

to C0 or from U0 to U1 .

F

The domestic producers will then expand itsproduction on goods A and lower the

production of goods B. In equilibrium the

production optimum is at point F .

O

Good A

Final Results :

The overall gain from trade is composed of a gain from exchange anda gain from specialization.


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Total Gain ( U0 to U2 ) = Gain from exchange ( E to C0 ) + Gain from

specialization ( C0 to C1 )

The re-allocation of resources should be based on the principle ofcomparative advantage and the process of specialization. There is a diversity in

consumption ( C1 ) and production ( F ) with trade. The final pattern of

consumption is a combination somewhere outside the PPC.

Any nation can enjoy a level of consumption well beyond itsproduction capacity so long as trade is allowed. It provides a theoretical ground to

support the argument of free international trade.

Bank

A bank is afinancial institutionand afinancial intermediarythat accepts

depositsand channels those deposits intolendingactivities, either directly or

throughcapital markets. A bank connects customers that have capital deficits to

customers with capital surpluses.

Due to their critical status within thefinancial systemand the economy[citation

needed] generally, banks arehighly regulatedin most countries. Most banks operate

under a system known asfractional reserve bankingwhere they hold only a small

reserveof the funds deposited and lend out the rest for profit. They are generally

subject tominimum capital requirementswhich are based on an international set of

capital standards, known as theBasel Accords.

The oldest bank still in existence isMonte dei Paschi di Siena,

headquartered inSiena,Italy, which has been operating continuously since 1472
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Definition

The definition of a bank varies from country to country. See the relevant

country page (below) for more information.

UnderEnglish common law, a banker is defined as a person who carries on

the business of banking, which is specified as:[6]

conductingcurrent accountsfor his customers payingchequesdrawn on him, and collectingchequesfor his customers.In most common law jurisdictions there is a Bills of Exchange Act that

codifies the law in relation tonegotiable instruments, includingcheques, and this

Act contains a statutory definition of the term banker: bankerincludes a body of

persons, whether incorporated or not, who carry on the business of banking'

(Section 2, Interpretation). Although this definition seems circular, it is actually

functional, because it ensures that the legal basis for bank transactions such as

cheques does not depend on how the bank is organized or regulated.

The business of banking is in manyEnglish common lawcountries not

defined by statute but by common law, the definition above. In other English

common law jurisdictions there are statutory definitions of the business of banking

or banking business. When looking at these definitions it is important to keep in

mind that they are defining the business of banking for the purposes of the

legislation, and not necessarily in general. In particular, most of the definitions are

from legislation that has the purposes of entry regulating and supervising banks

rather than regulating the actual business of banking. However, in many cases the

statutory definition closely mirrors the common law one. Examples of statutory

definitions:

"banking business" means the business of receiving money on currentor deposit account, paying and collecting cheques drawn by or paid in by
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customers, the making of advances to customers, and includes such other business

as the Authority may prescribe for the purposes of this Act; (Banking Act

(Singapore), Section 2, Interpretation).

"banking business" means the business of either or both of thefollowing:

1. receiving from the general public money on current, deposit, savingsor other similar account repayable on demand or within less than [3 months] ... or

with a period of call or notice of less than that period;

2. paying or collecting checks drawn by or paid in by customers[7]Since the advent ofEFTPOS(Electronic Funds Transfer at Point Of Sale),

direct credit,direct debitandinternet banking, the cheque has lost its primacy in

most banking systems as a payment instrument. This has led legal theorists to

suggest that the cheque based definition should be broadened to include financial

institutions that conduct current accounts for customers and enable customers to

pay and be paid by third parties, even if they do not pay and collect checks.

Banks act as payment agents by conductingchecking or current accountsfor

customers, payingchecksdrawn by customers on the bank, and collecting checks

deposited to customers' current accounts. Banks also enable customer payments via

other payment methods such asAutomated Clearing House(ACH),Wire transfers

ortelegraphic transfer,EFTPOS, andautomated teller machine(ATM).

Banks borrow money by accepting funds deposited on current accounts, by

acceptingterm deposits, and by issuing debt securities such asbanknotesand

bonds. Banks lend money by making advances to customers on current accounts,

by makinginstallment loans, and by investing in marketable debt securities and

other forms of money lending.
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Banks provide almost all payment services, and a bank account is considered

indispensable by most businesses, individuals and governments. Non-banks that

provide payment services such as remittance companies are not normally

considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses,

and lend most funds to households and non-financial businesses, but non-bank

lenders provide a significant and in many cases adequate substitute for bank loans,

and money market funds, cash management trusts and othernon-bank financial

institutionsin many cases provide an adequate substitute to banks for lending

savings too.

Channels

Banks offer many different channels to access their banking and other

services:

Automated Teller Machines Abranchis a retail location Call center Mail: most banks accept cheque deposits via mail and use mail to

communicate to their customers, e.g. by sending out statements

Mobile bankingis a method of using one's mobile phone to conductbanking transactions

Online bankingis a term used for performing transactions, paymentsetc. over the Internet

Relationship Managers, mostly for private banking or businessbanking, often visiting customers at their homes or businesses

Telephone bankingis a service which allows its customers to performtransactions over the telephone withautomated attendantor when requested with

telephone operator
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Video bankingis a term used for performing banking transactions orprofessional banking consultations via a remote video and audio connection. Video

banking can be performed via purpose built banking transaction machines (similar

to an Automated teller machine), or via avideo conferenceenabled bank

branch.clarification

Business model

A bank can generate revenue in a variety of different ways including

interest, transaction fees and financial advice. The main method is via charging

intereston the capital it lends out to customers[citation needed]. The bank profits from

the difference between the level of interest it pays for deposits and other sources of

funds, and the level of interest it charges in its lending activities.

This difference is referred to as the spreadbetween the cost of funds and the

loan interest rate. Historically, profitability from lending activities has been

cyclical and dependent on the needs and strengths of loan customers and the stage

of theeconomic cycle. Fees and financial advice constitute a more stable revenue

stream and banks have therefore placed more emphasis on these revenue lines to

smooth their financial performance.

In the past 20 years American banks have taken many measures to ensure

that they remain profitable while responding to increasingly changing market

conditions. First, this includes theGramm-Leach-Bliley Act, which allows banks

again to merge with investment and insurance houses. Merging banking,

investment, and insurance functions allows traditional banks to respond to

increasing consumer demands for "one-stop shopping" by enabling cross-selling of

products (which, the banks hope, will also increase profitability).

Second, they have expanded the use ofrisk-based pricingfrom business

lending to consumer lending, which means charging higher interest rates to those

customers that are considered to be a higher credit risk and thus increased chance
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ofdefaulton loans. This helps to offset the losses from bad loans, lowers the price

of loans to those who have better credit histories, and offers credit products to high

risk customers who would otherwise be denied credit.

Third, they have sought to increase the methods of payment processing

available to the general public and business clients. These products includedebit

cards, prepaid cards,smart cards, andcredit cards. They make it easier for

consumers to conveniently make transactions and smooth their consumption over

time (in some countries with underdeveloped financial systems, it is still common

to deal strictly in cash, including carrying suitcases filled with cash to purchase a

home).

However, with convenience of easy credit, there is also increased risk that

consumers will mismanage their financial resources and accumulate excessive

debt. Banks make money from card products through interest payments and fees

charged to consumers andtransaction feesto companies that accept the credit-

debit - cards. This helps in making profit and facilitates economic development as

a whole.[9]
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In its simplest form, an exporter requires an importer to prepay for goods

shipped. The importer naturally wants to reduce risk by asking the exporter to

document that the goods have been shipped. The importers bank assists by

providing a letter of credit to the exporter (or the exporter's bank) providing for

payment upon presentation of certain documents, such as a bill of lading. The

exporter's bank may make a loan to the exporter on the basis of the export contract.

Below I have outlined the various ways in which trade is financed by banks

beyond the basic financial transaction described abovewhich I would refer to as

traditional trade finance. I have divided this extended definition into the sectors

which Trade Finance as a channel for the latest news and analysis for this market

strives to cover.

Trade services and supply chain

Building on what I have termed traditional trade finance, there are a number

of ways in which banks can help corporate clients trade (both domestically and

cross-border) for a fee.

A typical service offering from a bank will include:

Letters of credit (LC), import bills for collection, shipping guarantees,

import financing, performance bonds, export LC advising, LC safekeeping, LC

confirmation, LC checking and negotiation, pre-shipment export finance, export

bills for collections, invoice financing, and all the relevant document preparation.

Despite this focus on the LC, over the years the term trade finance has been

shifting away from this sometimes cumbersome method of conducting business. It

is now estimated that over 80% of global trade is conducted on an open

account basis.

Led by large corporates, this form of trade saves costs and time and so has

been adopted by smaller corporates as they become more comfortable with their

buyer and supplier relationships. Open account transactions can be described as


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buy now, pay later and are more like regular payments for a continuing flow of

goods rather than specific transactions. This is much cheaper for corporates.

In response to this development, the organisation SWIFT launched

the TSU (trade services utility), a collaborative centralised data matching utility,

which allows banks to build products around its core functionality to improve the

speed and flow of open account trade. This is helping banks re-intermediate

themselves into these trade flows.

While volumes of LCs have remained flat in recent years, their value

actually increased and they remain an essential part of emerging market trade and

trade in countries where exchange controls are in force. This increase in value is

also a reflection of the commodity price boom of 2007/08.

Factoring & Forfaiting

Factoring, or invoice discounting, receivables factoring or debtor financing,

is where a company buys a debt or invoice from another company. In this

purchase, accounts receivable are discounted in order to allow the buyer to make a

profit upon the settlement of the debt. Essentially factoring transfers the ownership

of accounts to another party that then chases up the debt.

Factoring therefore relieves the first party of a debt for less than the total

amount providing them with working capital to continue trading, while the buyer,

or factor, chases up the debt for the full amount and profits when it is paid. The

factor is required to pay additional fees, typically a small percentage, once the debt

has been settled. The factor may also offer a discount to the indebted party.

Forfaiting (note the spelling) is the purchase of an exporter's receivables

the amount importers owe the exporterat a discount by paying cash. The

purchaser of the receivables, or forfaiter, must now be paid by the importer to

settle the debt.


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As the receivables are usually guaranteed by the importer's bank, the

forfaiter frees the exporterfrom the risk of non-payment by the importer. The

receivables have then become a form of debt instrument that can be sold on the

secondary market as bills of exchange or promissory notes

Structured Commodity Finance

Structured commodity finance (SCF) as covered by Trade Finance is split

into three main commodity groups: metals & mining, energy, and soft

commodities (agricultural crops). It is a financing technique utilised by commodity

producers and trading companies conducting business in the emerging markets.

SCF provides liquidity management and risk mitigation for the production,

purchase and sale of commodities and materials. This is done by isolating assets,

which have relatively predictable cash flow attached to them through pricing

prediction, from the corporate borrower and using them to mitigate risk and secure

credit from a lender. A corporate therefore borrows against a commoditys

expected worth.

If all proceeds to plan then the lender is reimbursed through the sale of the

assets. If not then the lender has recourse to some or all of the assets. Volatility in

commodity prices can make SCF a tricky business. Lenders charge interest any

funds disbursed as well as fees for arranging the transaction.

SCF funding techniques include pre-export finance countertrade, barter,

and inventory finance. These solutions can be applied across part or all of the

commodity trade value chain: from producer to distributor to processor, and the

physical traders who buy and deliver commodities.

As a financing technique based on performance risk, it is particularly well-

suited for emerging markets considered as higher risk environments.

Export & Agency Finance


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This part ofTrade Finances remit covers the roles of the export credit

agencies, thedevelopment banks, and the multilateral agencies. Their traditional

role is complement lending by commercial banks at interest by guaranteeing

payment.

These agencies have once again become of vital importance to the trade

finance market due to the role that they play in facilitating trade, insuring

transactions, promoting exports, creating jobs, and increasingly through direct

lending. All are important in the current global downturn.

ECAs are private or governmental institutions that provide export finance,

or credit insurance and guarantees, or both. ECAs can have very different

mandates which we will not delve into here (please refer to Trade Finances

annual World Official Agency Guide). As the global economic crisis continues we

are seeing a trend towards a liberalisation of these agencies remits.

The development banks, sometimes referred to as DFIs (development

finance institutions), and themultilaterals similarly have different mandates

depending on their ownership or regional remit. Most will have a form of trade

facilitation programme that promotes trade through the provision of guarantees.

ECAs and multilaterals are becoming a crucial part of the financing of large

infrastructure projects around the world as credit from commercial banks remains

scarce.

And the rest

It doesnt stop there, Trade Finance also follows: the trade

credit insurance and political risk insurance marketsan important part of doing

business in developing economies; thesyndications market as banks and agencies

lend funds to enable the trade finance activities of other institutions;Islamic trade

finance through its increasing popularity and expansion beyond its historic
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markets; and finally Trade Finance follows the changes in global regulations and

tracks the law firms and in-house legal teams that contribute to making deals

happen.

Make sure you stay abreast of the latest news and analysis across the

spectrum of global trade with Trade Financethe information source on the trade,

supply chain, commodity and export finance markets.

Financial statement

Financial statements are records that provide an indication of an

individuals, organizations, or business financial status. There are four basic

types of financial statements: balance sheets, income statements, cash-flow

statements, and statements ofretained earnings. Typically, financial statements are

used in relation to business endeavors.

Balance sheetfinancial statements are used to provide insight into a

companys assets and debts at a particular point in time. Information about the
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companys shareholder equity is included as well. Typically, a company lists its

assets on the left side of the balance sheet and its debts and liabilities on the right.

Sometimes, however, a balance sheet has assets listed at the top, debts in the

middle, and shareholders equity at the bottom.

Income financial statements present information concerning the revenue

earned by a company in a specified time period. Income statements also show the

companys expenses in attaining the income and shareholder earnings per share. At

the bottom of the income statement, a total of the amount earned or lost is

included. Often, income statements provide a record of revenue over a years time.

Cash-flow financial statements provide a look at the movement of cash in

and out of a company. These financial statements include information from

operating, investing, and financing activities. The cash-flow statement can be

important in determining whether or not a company has enough cash to pay its

bills, handle expenses, and acquire assets. At the bottom of a cash-flow statement,

thenet cashincrease or decrease can be found.

What is mergers and acquisitions ?

Mergers and acquisitions also tend to differ in one other important aspect.

While mergers are generally situations where all parties want the combination of

companies to take place, that is not necessarily the case with an acquisition. Hostile

takeovers are an example of an acquisition that is not accomplished with the

enthusiastic support of the officers and shareholders of the acquired business. At

best, there may be a sense of grudging acceptance that the takeover will occur

whether or not shareholders and officers want the acquisition.

It is not unusual for many different industries to go through periods where

mergers and acquisitions are the norm. During the 1990s, local and national

teleconferencing companies often merged in order to provide a broader suite of

services to their customers. Thetextile industryhas seen its share of both mergers
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and acquisitions, especially during the last thirty years of the 20th century. Even

industries such as food service and retail go through periods where competitors

merge in order to secure a major share of the consumer market, or where

companies are acquired in order to gain access to assets while also minimizing the

number of direct competitors within the industry.

organizational structure tt and h (1)

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