Study On Currency Risks Handled By Indian Firm Finance Essay - Free Essay Example

Sample details Pages: 10 Words: 3000 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Cause and effect essay Did you like this example? The objective of this project is to examine how the impacts of currency exchange risks are dealt by the Indian Firms. Currency Exchange Risk in Global Market is a burning issue for any firm or corporate involved in business overseas. In this scenario, India is of course the one country where we have a lot of scope to focus on as far as the study of currency risk in business is concerned. Don’t waste time! Our writers will create an original "Study On Currency Risks Handled By Indian Firm Finance Essay" essay for you Create order If we see the world wide scenario, the financial sector is facing a lot of adjustment problems in the rapid changes in the economic financial environment. Now Indian financial system cannot be indifferent to this universal phenomenon. I would like to take the example of the Indian IT giants with special emphasis on TCS, in this exploratory paper to see how the currency swings affected the business of TCS in last couple of years and would try to provide some supportive data to show the same. It is very interesting to see how the companies like TCS uses different derivative instruments to keep the sustainability of its performance in the financial market by hedging the financial risks, specially related to the volatility of the money market and foreign currency exchange rates. How Companies use Derivatives for Hedging Risk Management Hedging Hedging, in simple words, says controlling or reducing risk. This controlling or reducing risk is done by taking a position in th e futures market that is opposite to the one in the physical market with an objective to reduce or limit risks associated with price changes. A simple example will help us understand it better. A wheat farmer can sell wheat futures to protect the value of his crop prior to harvest. If there is a fall in price, the loss in the cash market position will be countered by a gain in futures position. 2.2. Derivatives Derivatives are those financial instruments whose values depend on the value of not only the underlying financial instruments but on any underlying asset. We can take the same example of the wheat farmer. Here, the wheat farmer can protect itself of any fall in price by entering into a contract with the merchant. Some of the derivative instruments are: Futures, Swap, Options, and Forwards. To summarize, Hedging can be defined as a method where one can reduce the financial exposure faced in an underlying asset due to volatility in prices by taking an opposite position in the derivatives market in order to off-set the losses in the cash market by a corresponding gain in the derivatives market. This above definition captures the basic essence of derivatives hedging. Now having understood the basic meaning of hedging and derivatives, we would now see how corporate use these derivative instruments for hedging. 2.3. Foreign Exchange Risks The most common corporate uses of derivatives is for hedging foreign-currency risk, or foreign exchange risk, which is the risk that a change in currency exchange rates adversely impacts business results. Lets consider an example with Infosys Technologies, a multi-national IT company which even exports soft wares to other countries, and mainly to US. Lets make an assumption that Infosys Technologies exports software worth 1000 Crores to US in 2006-07 when the price of per US Dollar was at Rs. 40 (assumption). When the rupee per dollar exchange rate increases from Rs. 40, Rs. 42, Rs. 44, it takes more rupees to buy one dollar, meaning the rupee is depreciating or weakening. As the rupee depreciates, the softwares which Infosys exports would translate into greater sales in rupee terms. This demonstrates how a weakening rupee is not all that bad: it can boost export sales of Indian companies. Now lets illustrate a simple hedge that a company like Infosys Technologies might us e to minimize the effects of any Rupee / USD exchange rates, Infosys purchases 2000 foreign-exchange futures contracts against the Rupee / USD exchange rate. The value of the futures contracts will not, in practice, correspond exactly on a 1:1 basis with a change in the current exchange rate (that is, the futures rate wont change exactly with the spot rate), but we will assume that it does anyway. Each futures contract has a value equal to the gain above the Rs. 40 Rupee/USD rate. (Only because Infosys took this side of the futures position, somebody the counter-party will take the opposite position.) Of course, its not a free lunch: If the strategy of Infosys goes against it, that is, if the dollar were to weaken instead, then the increased export sales are mitigated (partially offset) by losses on the futures contract. 2.4. Hedging Interest Rate Risks Companies can hedge interest-rate risks in various ways. Consider a company that expects to sell a division in one year and at that time to receive a cash wind-fall that it wants to park in a good risk-free investment or a company had an unexpected profit, if the company strongly believes that interest rates will drop between now and then, it could purchase (or take a long position on) a treasury futures contract. The company is effectively locking in the future interest rate. Fair Value Hedges The Company [XYZ] had two interest rate swaps outstanding at January 1, 2008 designated as a hedge of the fair value of a portion of fixed-rate bonds. The change in fair value of the swaps exactly offsets the change in fair value of the hedged debt, with no net impact on earnings. XYZ Company uses an interest rate swap. Before it entered into the swap, it was paying a variable interest rate on some of its bonds. (For example, a common arrangement would be to pay LIBOR plus something a nd to reset the rate every six months.) Now lets look at the impact of the swap, the swap requires XYZ to pay a fixed rate of interest while receiving floating-rate payments. The received floating-rate payments are used to pay the pre-existing floating-rate debt. XYZ is then left only with the floating-rate debt, and has. Therefore, managed to convert a variable-rate obligation into a fixed-rate obligation with the addition of a derivative. Here we can call this as a perfect hedge: The variable-rate coupons that XYZ received compensates for the companys variable-rate obligation. 2.5. Commodity or Product Input Hedge Companies that depend heavily on raw-material inputs or commodities are sensitive, sometimes significantly, to the price change of the inputs. Airlines, for example, consume lots of jet fuel. Historically, most airlines have given a great deal of consideration to hedging against crude-oil price increases although they need to be very careful and a great forecasting before going for such a strategy because the strategy itself would cost them a lot. As we reviewed here three of the most popular types of corporate hedging with derivatives. There are many other derivative uses, and new types are being invented. The derivatives that are reviewed are not generally speculative for the company. They help protect the company from unanticipated events: adverse foreign-exchange or interest-rate movements, and unexpected increases in input costs. The investor on the other side of the derivative transaction is the speculator. However, in no case are these derivatives free. Even if, for exam ple, the company is surprised with a good-news event like a favorable interest-rate move, the company (because it had to pay for the derivatives) receives less on a net basis than it would have without the hedge. Warren Buffetts stand is famous: he has attacked all derivatives, saying he and his company view them as time bombs, both for the parties that deal in them and the economic system. Foreign Exchange Risk Management Firms dealing with multiple currencies face risk in terms of unanticipated gain/loss on account of sudden/unanticipated changes in exchange rates, quantified in terms of exposures. Exposure is defined as a contracted, projected or contingent cash flow whose magnitude is not certain at the moment and depends on the value of the foreign exchange rates. The process of identifying risks faced by the firm and implementing the process of protection from these risks by financial or operational hedging is defined as foreign exchange risk management. My paper limi ts its scope to hedging only the foreign exchange risks faced by firms like TCS. 3.1. Kinds of Foreign Exchange Exposure Risk management techniques vary with the type of exposure (accounting or economic) and term of exposure. Accounting exposure, also called translation exposure, results from the need to restate foreign subsidiaries financial statements into the parents reporting currency and is the sensitivity of net income to the variation in the exchange rate between a foreign subsidiary and its parent. Economic exposure is the extent to which a firms market value, in any particular currency, is sensitive to unexpected changes in foreign currency. Currency fluctuations affect the value of the firms operating cash flows, income statement, and competitive position, hence market share and stock price. Currency fluctuations also affect a firms balance sheet by changing the value of the firms assets and liabilities, accounts payable, accounts receivables, inventory, loans in foreign currency, investments (CDs) in foreign banks; this type of economic exposure is called balance sheet exposure. Transactio n Exposure is a form of short term economic exposure due to fixed price contracting in an atmosphere of exchange-rate volatility. The most common definition of the measure of exchange-rate exposure is the sensitivity of the value of the firm, proxied by the firms stock return, to an unanticipated change in an exchange rate. This is calculated by using the partial derivative function where the dependant variable is the firms value and the independent variable is the exchange rate (Adler and Dumas, 1984). 3.2. Necessity of managing foreign exchange risk A key assumption in the concept of foreign exchange risk is that exchange rate changes are not predictable and that this is determined by how efficient the markets for foreign exchange are. Research in the area of efficiency of foreign exchange markets has thus far been able to establish only a weak form of the efficient market hypothesis conclusively which implies that successive changes in exchange rates cannot be predicted by analyzing the historical sequence of exchange rates.(Soenen,1979). However, when the efficient market theory is applied to the foreign exchange market under floating exchange rates there is some evidence to suggest that the present prices properly reflect all available information (Giddy and Dufey, 1992). This implies that exchange rates react to new information in an immediate and unbiased fashion, so that no one party can make a profit by this information and in any case, information on direction of the rates arrives randomly so exchange rates also fluctu ate randomly. It implies that foreign exchange risk management cannot be done away with by employing resources to predict exchange rate changes. 3.3. Foreign Exchange Risk Management Framework Once a firm recognizes its exposure, it then has to deploy resources in managing it. A heuristic for firms to manage this risk effectively is presented below which can be modified to suit firm-specific needs i.e. some or all the following tools could be used. Forecasts: After determining its exposure, the first step for a firm is to develop a forecast on the market trends and what the main direction/trend is going to be on the foreign exchange rates. The period for forecasts is typically 6 months. It is important to base the forecasts on valid assumptions. Along with identifying trends, a probability should be estimated for the forecast coming true as well as how much the change would be. Risk Estimation: Based on the forecast, a measure of the Value at Risk (the actual profit or loss for a move in rates according to the forecast) and the probability of this risk should be ascertained. The risk that a transaction would fail due to market-specific problems4 should be taken int o account. Finally, the Systems Risk that can arise due to inadequacies such as reporting gaps and implementation gaps in the firms exposure management system should be estimated. Benchmarking: Given the exposures and the risk estimates, the firm has to set its limits for handling foreign exchange exposure. The firm also has to decide whether to manage its exposures on a cost centre or profit centre basis. A cost centre approach is a defensive one and the main aim is ensure that cash flows of a firm are not adversely affected beyond a point. A profit centre approach on the other hand is a more aggressive approach where the firm decides to generate a net profit on its exposure over time. Hedging: Based on the limits a firm set for itself to manage exposure, the firms then decides an appropriate hedging strategy. There are various financial instruments available for the firm to choose from: futures, forwards, options and swaps and issue of foreign debt. Hedging strategies and in struments are explored in a section. Stop Loss: The firms risk management decisions are based on forecasts which are but estimates of reasonably unpredictable trends. It is imperative to have stop loss arrangements in order to rescue the firm if the forecasts turn out wrong. For this, there should be certain monitoring systems in place to detect critical levels in the foreign exchange rates for appropriate measure to be taken. Reporting and Review: Risk management policies are typically subjected to review based on periodic reporting. The reports mainly include profit/ loss status on open contracts after marking to market, the actual exchange/ interest rate achieved on each exposure, and profitability vis-Ã  -vis the benchmark and the expected changes in overall exposure due to forecasted exchange/ interest rate movements. The review analyses whether the benchmarks set are valid and effective in controlling the exposures, what the market trends are and finally whether the ove rall strategy is working or needs change. Figure 1: Framework for Risk Management Effect of Currency swings in Indian market Cross-currency volatility is gnawing at the profit margins of almost every tech company. The movement of non-dollar currencies has undone the gains from rupees downward movement against the US dollar. When Indian IT companies were first exposed to the rupee-dollar volatility in 2007 (that time the Indian currency was strengthening against the greenback), they had hedged themselves against the dollar. However, while the rupee movement reversed again, IT companies and their CFOs were caught off guard as other currencies showed unexpected volatility for which they had very little hedges in place. As per the research and news: Indias total trade now accounts for over 40% of its GDP, and this highlights the increasing openness of the Indian economy and its reliance on foreign trade. However, as companies revenues increasingly come from cross-border trad e, they also become more vulnerable to fluctuations and swings in currency rates. There are many such examples amongst the Indian business. A midsize iron ore manufacturer and exporter suffered losses to the tune of $9.5 million due to adverse currency movements and losses of derivative transactions, which caused its profitability to slump to 4.5% as compared with 15% in the previous year. In another example, a mid-size auto component manufacturer suffered exchange losses of $1.2 million in the fiscal year ended March 31, 2009. This was because the company did not have a foreign exchange (forex) strategy in place to proactively counter this risk. It has now started hedging on selective basis by way of plain vanilla forwards as a corrective step. Looking at the cases like these, companies are now stepping up their cross-currency hedges. Example of TCS As per the annual report of TCS in the year 2007-2008, we get the following details, which reflect the derivative instr uments used by TCS to hedge the forex risk. Derivative financial instruments The Company, in accordance with its risk management policies and procedures, enters into foreign currency forward contracts and currency option contracts to manage its exposure in foreign exchange rates. The counter party is generally a bank. These contracts are for a period between one day and eight years. The Company has following outstanding derivative instruments as on March 31, 2008: The following are outstanding Foreign Exchange Forward contracts, which have been designated as Cash Flow Hedges, as on: Â Â March 31,2008 Â Â Â March 31,2007 Â Foreign Currency No. of Contracts Notional amount of forward contracts (million) Fair Value (Rs. In crores) Â No. of Contract Notional amount of forward contracts (million) Fair Value (Rs. In crores) Â Gain/(Loss) Â Gain/(Loss) U.S.Dollar 14 290 25.21 Â Sterling Pound 3 15 3.91 Â 5 21 0.32 Euro 3 19 11.78 Â Â Â 0.35 The following are outstanding Currency Option contracts, which have been designated as Cash Flow Hedges, as on: Â Â March 31,2008 Â Â Â March 31,2007 Â Foreign Currency No. of Contracts Notional amount of forward contracts (million) Fair Value (Rs. In crores) Â No. of Contract Notional amount of forward contracts (million) Fair Value (Rs. In crores) Â Gain/(Loss) Â Gain/(Loss) U.S.Dollar 67 3871.50 (88.70) Â 27 830.00 32.71 Sterling Pound 7 55.65 (2.23) Â 5 47.50 (1.93) Euro 12 99.25 (38.75) Â 11 76.50 (0.60) Net loss on derivative instruments of Rs.21.83 crores recognized in Hedging Reserve as of March 31, 2008, is expected to be reclassified to the profit and loss account by March 31, 2009 The movement in Hedging Reserve during year ended March 2008, for derivatives designated as Cash Flow Hedges is as follows: Particulars Year ended March 31, 2008 Year ended March 31, 2007 Â (Rs. In crores) (Rs. In crores) Balance at the beginning of the year 73.71 4.42 Gains / (losses) transferred to income statement on occurrence of forecasted hedge transaction 64.91 4.42 Changes in the fair value of effective portion of outstanding cash flow derivatives 174.78 29.64 Net derivative gain/(losses) related to a discontinued cash flow hedge 150.83 44.07 Balance at the end of the year 15.15 73.71 In addition to the above cash flow hedges, the Company has outstanding foreign exchange forward contracts and currency option contracts aggregating Rs. 2167.95 crores (previous year : Rs.2062.61 crores), whose fair value showed a loss of Rs.4.46 crores as on March 31, 2008 (previous year : gain of Rs 6.76 crores), to hedge the future cash flows. Although these contracts are effective as hedges from an economic perspective, they do not qualify for hedge accounting and accordingly these are accounted as derivatives instruments at fair value with changes in fair value recorded in the profit and loss account. Exchange gain of Rs.283.96 crores (previous year gain of Rs.45.13 crores) on foreign exchange forward contracts and currency option contracts have been recognized in the year ended March 31, 2008.

The Social Problem That I Chose For My Final Paper Is Poverty

Daniel DeGroat Social Issue Paper Intro to Sociology 9 December 2015 Poverty in America The social problem that I chose for my final paper is Poverty in America. Poverty is the general scarcity, dearth, or the state of one who lacks a certain amount of material possessions or money. Since the early 1800s, industrialization and immigration has brought poverty of a new kind and on a new scale to American cities. I have chosen the topic of poverty because it is apart of my everyday life and world. Being a city kid from New York, I see homeless and poverty filled streets to the extreme. It has now become a normal lifestyle for millions of people to withstand. Seeing how millions of people are constantly on the streets with a lack luster of money has connected me with these people on a strong level. Poverty in the United States is widespread through out all 50 states. The poverty rate of the United States as of 2014 has risen to 15%. 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A Pinter puzzle still unsolved Essay Example For Students

A Pinter puzzle still unsolved Essay The Roundabout Theatre Companys new mounting of Harold Pinters The Homecoming opened in New York last October just a few days after the tragicomic, hothouse confrontation between Clarence Thomas and Anita Hill. Suddenly, this once enigmatic play (routinely referred to in the late 60s as Pinters puzzle) seemed all too clear, almost didactically so. Ruth, the lone woman in the Homecoming, is involuntarily dragged into an all-male household, where three predatory members of the clan proceed to project upon her various male fantasies of womanhood: madonna and whore, earth mother and bitch goddess. In Anita Hills version of this story, only the fantasies were changed: spurned-woman-out-for-revenge, innocent dupe of Thomass political opponents, nut-case whose delusions were so powerful she could successfully negotiate a polygraph test. But the most compelling parallel between life and art was the role played in both by a nerdish character named Teddy: Pinters (as well as the Senate Judicia ry Committees) embodiment of detachment, ineffectuality and moral cowardice. It was as if The Homecoming had transformed before our eyes into one of those disease-of-the-week docudramas culled from the pages of People magazine. Of course, at the same time, it also felt as if Thomass confirmation hearings had been secretly scripted by Harold Pinter. As in: Who put the pubic hair on my Coke can? Is there a more Pinteresque moment anywhere in Pinter? All of the playwrights classic stategies were in evidence: the defamiliarizing of the commonplace, the sexualizing of objects, the verbal power plays, the territorial imperatives. Pinter, weve all been taught, is supposed to be about the weasel under the cocktail cabinet. But here, on the Senate committee, the weasels were very much out in the open: a Hatchetman named Orrin, the smarmy Specter of Arlen, and a Simpson considerably less benign than Bart. The Homecoming had never seemed timelier. And that was precisely the problem. Timeliness and relevance are ultimately impovershing to all great plays (and I believe that The Homecoming will prove to be the most enduringif not endearingof Pinters works). Such plays (we used to call them classics) always by definition transcend the period in which they were created. But thats because they simultaneously speak to and transcend every period, including the one in which theyre revived. Without an aura of strangeness and distance, great plays shrink in stature. They deliver only a quick fix that fades as fast as the headlines they momentarily, if powerfully, evoke. (Literature, as Ezra Pound once reminded us, is news that stays news.) So in approaching Pinters play we might bear in mind Andre Gides famous admonition to his eager admirers: Please, do not understand me too quickly. Where then does the problem lie? With the Roundabouts production? The Zeitgeist? The headlines? The play itself? Arguably, all of the above. But rather than assigning blame, Id prefer to raise a few questions that may help to clarify the nature of my complaint. Is the only problem that the Roundabouts production makes the play seem paaraphrasable, that it enables us all too easily to say what Pinters Puzzle is about (e.g., the objectification of women or something that sounds similarly fashionable)? Put differently: Should an ideal production of The Homecoming be infinitely more ambigous than this one? Not necessarily. For despite all the talk about puzzles and puzzlement, the most distinctive quality of the legendary Peter Hall/Royal Shakespeare Company production of The Homecoming that came to Broadway in 1967 was not its opaqueness or ambiguity, but rather its clarity, its concreteness and specificity. Not specificity of meaning, mind you but of sound and gesture, a palpable physicality which strongly suggested that any search for meaning would ultimately lead one back to the clean, sensuous surface of the production. For me, this was the theatre experience that best illustrated the wisdom of Susan Sontags then immensely influential essay, Against Interpretation. Transparence, wrote Sontag, is the highest, most liberating value in art. . . .Transparence means experiencing the luminousness of the thing in itself, of things being what they are. And in her oft-quoted, aphoristic conclusion to the essay, she maintained, In place of a hermeneutics we need an erotics of art. But Sontags essay and Pinters play were written in the mid-1960s. Clearly, times have changed. Is it possible to ever again view this play the way we did then? The answer to that question is yesyou can go Homecoming again. That at least, was what I concluded after seeing Peter Halls 25th anniversay staging of Pinters play in London last spring. Perhaps the earth didnt move beneath my feet as it seemed to in 1967 when I saw the RSC production of the play in New York. But it convinced me that I hadnt been merely imagining, misremembering or embellishing things all these years. What I remembered deserved to be remebered as one of the three or four most formative experiences of a theatregoing life. In 1967, I was a precocious (maybe precious is the more accurate word) 18-year-old, determined to appear More Sophisticated Than Thou. My principal enthusiasms of the period included Alain Robbe-Grillets and Alain Resnaiss Last Year at Marienbad, Bergmans Persona, Antonionis Blownup, Andy Warhols silkscreens of Marilyn Monroe, the music of the Velvet Underground, the dances of Merce Cunningham and, of course, the essays of Sontag. Was there a place for the theatre in this celestial pantheon? Halls production of The Homecoming went a long way toward persuading me that the theatre might, on occasion, be able to hold its own alongside this cool, brainy, elegant company. The heart of Halls and Pinters strategy seemed to me to lie in Ruths response to the pseudo-philosophical bantering of Lenny and Teddy (e.g., Take a table. Philosophically speaking, what is it?). Lenny prattles on about this business of being and non-being, but Ruth emphasizes the palpability of the here and now. She may or may not speak for Pinter at this moment; but it seems to me that she affirmed (by physically embodying through speech and gesture) the very same values that distinguished this glacially elegant production as a whole: The Renaissance condition EssayLenny: Excuse me, shall I take the  ashtray out of your way? Ruth: Its not in my way. Lenny: It seems to be in the way of  your glass. The glass was about to fall.  Or the ashtray. Im rather worried  about the carpet. Its not me, its my  father. Hes obsessed with order and  clarity. He doesnt like mess. So, as I  dont believe youre smoking at the  moment, Im sure you wont object if I  move the ashtray. (He does so.) Lenny gets a laugh when he suggests that his father is obsessed with order and clarity: but the obsession he describes is evident nonetheless throughout the production. Given the fact that John Burys setting for the Hall production was so uncluttered to begin with, the ashtray and glass assumed an eerie prominence and intensityrather like the remaining pieces in the final moments of a championships chess match. Lenny continues the match as follows: Lenny: And now perhaps Ill relieve  you of your glass. Ruth: I havent quite finished. Lenny: Youve consumed quite  enough, in my opinion. Ruth: No, I havent. Lenny: quite sufficient, in my own  opinion. And then a few lines later: Lenny: Just give me the glass. Ruth: No. (Pause) Lenny: Ill take it, then. Ruth: If you take the glass. . .Ill take  you. Whether it was the moment when Lenny first invades Ruths private space by searching across her body for the ashtray, or the moment when Ruth decides to retaliate by pressing her hand firmly down on top of the glass, the blocking was wo cleanly chiseled that the results were positively sculptural. This was equally true of many other moments in Halls production: the stunning physical tableau at the end (Ruth sitting in the displaced patriarchs chair as he pathetically grovels on the floor, begging her for a kiss) or the scene in which Teddy, Ruths husband, is left holding her empty coat while she slow-dances with one of his brothers and then rolls on and off of the couch with another brother, or the precisely choreographed way in which the elderly uncle Sam collapses, presumably of a heart attack, toward the end of the play. These sequences were always realistic and yet strangely ritualized, as physically palpable as that glass of water, yet mysteriously reverberent, evoking distant ec hos of Lear, Oedipus and Greek tragedy. Ironically, Halls original production arrived at the very moment the American experimental theatre was becoming increasingly committed to a theatre of the body. (And as coincidence will have it, playing concurrently with Roundabouts revival of The Homecoming was a reconstruction at nearby La Mama ETC of Tom OHorgans production of Rochelle Owenss Futz, which also originally played in New York in 1967.) But the physical concreteness of The Homecoming was very different from the sort of physicality that informed the work of OHorgan, the Living Theater, the Open Theater or the Performance Group. The overtly choreographic stylization in a production like Futz was bodily with a vengeance, but it often bordered on group mine. And as a result, ones attention was ultimately deflected away from the body itself and onto what the body represented. In addition, much of this work was so determined to advertise the new freedom presumably offered by the liberated life of the body that it lacked the exacting physical discipline of Halls production. That sort of discipline was presumably at odds with the orgiastic and egalitarian ethos at the heart of so much of the company-created work of the period. So, paradoxically, at least for me, the most palpable and sensual theatre of the body was not to be found in the perpetual motion machines of Tom OHorgan (or for that matter, even in the work of Jerzy Crotowski) but in the unmistakably British collaboration of Harold Pinter, Peter Hall and the Royal Shakespeare Company. Critic Roger Copeland teaches at Oberlin College.

Evolution of Microfinance and Poverty Reduction in Ghana free essay sample

In more than thirty years it has gained a reputation for being one of the most effective instruments in fighting poverty globally. Ghana’s financial sector in the past two decades has undergone a significant transformation especially with the promulgation of PNDC Law 328 of 1993, that allowed the establishment of different types of non-bank financial institutions, including savings and loans companies, finance houses, credit unions, as well as rural and community banks (RCBs). This policy transformation has given rise to a number of microfinance programmes and activities ranging from Government, Donors and NGOs. The microfinance industry in the early 1980s, was dominated by non-governmental organizations (NGOs) and experimented with innovative programmes in an attempt to address what they perceived as the failure of markets and governments to provide financial services to the poor. These organizations were heavily dependent on external grant funding. Generally, global perspective on microfinance is changing with even the meaning of the term â€Å"microfinance† altered. We will write a custom essay sample on Evolution of Microfinance and Poverty Reduction in Ghana or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page According to Consultative Group to Assist the Poor (CGAP) as recently as a few years ago, it meant, â€Å"†¦ a credit methodology that employs effective collateral substitutes to deliver and recover short-term, working capital loans to micro-entrepreneurs†. Today, the term encompasses a broad spectrum of financial services that includes not only microcredit but also savings, insurance, and money transfers. Perspectives on the target group for microfinance have also expanded in recent years to include low-income men, women and poorest of the poor. Another significant change is that microfinance services are no longer considered a niche market activity that should be confined largely to the development community and carried out solely by specialized microfinance institutions. Today, it is believed that if microfinance is to achieve its full potential, it must be fully integrated into a developing country’s financial system with access to vast amounts of human, physical, and financial resources and management know-how. A paradigm shift toward market-based approaches to poverty reduction is also taking place. In the larger business world, a growing number of established companies including some multinational corporations have achieved impressive results in reaching the poor in innovative ways with their products and services. This reaffirms the feasibility of large-scale commercial microfinance and strengthens private sector interest. Hence the acceleration in the creation of commercial microfinance institutions which is demonstration effect of the profitability of the sector, combined with market forces in the newly-liberalized financial markets. . 1? STATEMENT OF THE PROBLEM The main objective of Ghana’s Growth and Poverty Reduction Strategy (GPRS II) is to ensure â€Å"†¦sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment†. The main objective is to eliminate widespread poverty and growing income inequality, especially among the productive poor who constitute the m ajority of the working population. This group is however characterized by lack of access to credit. Littlefield and Rosenberg (2004) argue that the poor are generally excluded from the financial services sector of the economy. The liberalization of Ghana’s financial sector in the past two decades has led to the emergence of a number of Micro – finance institutions (MFIs) with the mission of extending micro-credit and other financial related services to the productive poor. The microfinance industry has now been in existence for over two decades serving the poor through the provision of financial and related services. The industry which has been predominantly run by NGO, microfinance institutions is going through an increasingly growing wave of commercialization. In addition, the transformation of many non-governmental organisations (NGOs) into microfinance banks has led to a strong increase in client deposits and refinancing lines extended under market conditions. Moreover, low default rates and an increasing number of sustainable MFIs, showing a positive return to equity; demonstrate that banking with the poor can be a successful business. While in the past MFIs had to rely almost exclusively on socially oriented non-profit donors and international financial institutions, they have recently been able to tap broader sources of fund considering the social and economic benefits and the large unmet demand for microfinance. This has attracted new investors and encouraged substantial commercial involvement in the industry. Microfinance is becoming more commercial as traditional non governmental organizations (NGOs) dedicated to microfinance are transforming into licensed banks and non-bank financial intermediaries in order to access public funds or small savings deposits. While there has been some research on the general impact of Microfinance on poverty, little has been written about the current trends in the Microfinance industry. There is the need to determine the effects of the current trends in the industry on microenterprises. This study examines the nature of the current trends in the industry commercialization of the microfinance industry and it’s impact on their clients who are mostly the poor in the Awutu Senya West District. 1. 2? OBJECTIVES OF THE STUDY The study which is conducted in the Awutu Senya West District in the Central Region has as its main objective to highlight the nature of the current trends as in the commercialization of the industry and examine its effects on the profitability of microenterprises in the district. The study also intends to give a brief history of microfinance and then attempt to forecast the future direction of the industry. 1. 4? SIGNIFICANCE OF THE STUDY Micro and Small enterprises contribute significantly to national economic development hence the need for their sustainability and growth. Microfinance is an effective development tool for poverty reduction for the simple reason that financial services enable poor to take advantage of economic opportunities, to build assets, and to reduce their vulnerability to external shocks that adversely affect their living standards. Financial services cannot function in isolation as a magic bullet to lift people out of poverty, but the close relationship between financial services and poverty reduction provides strong justification for putting financial systems for the poor at the center of development agenda (ADB report 2004). The transformation of the concept of Microfinance has been an ongoing process making it therefore imperative for both the industry players and their clients to be fully aware of the consequence thereof. There is the need to point out what exactly the changes are and the implications to the poor and low-income clients of Microfinance Institutions. Realizing these effects the industry players may streamline their operations in order to remain in balance. 1. 6? METHODOLOGY The research shall employ survey methodology. It shall combine relevant aspects of quantitative, qualitative, and participatory methods within the framework of impact assessment techniques. Microfinance institutions who are the providers of financial services to the poor and the client form the population of the research. Simple random sampling will be used to select two (2) microfinance institutions, while stratified sampling technique shall be employed to select sixty 60 clients of three microfinance institutions namely Express Savings and Loans, EB ACCION and Last Stop Microfinance in the Awutu Senya West District. 1. 7? SCOPE AND LIMITATIONS The scope of the study is on the state of the Microfinance industry as of today, its effects on poverty alleviation through microenterprise activities and the future prospects of the industry. Quiet a number of constraints are envisaged in undertaking this research, prominent among which is time constraints. This does not make it possible to make use the vast amount of materials available. However, it is hoped that a considerable amount of information would be gathered to enable an in-depth study to be undertaken. 1. 8? ORGANISATION OF THE STUDY The study will be presented in four main chapters. Chapter will include and introduction to the study, the objectives of the study, scope of the study, limitation of the study and methodology. Chapter two will entail the literature review which will give a brief historical background of the Microfinance industry in Ghana, Current trends in the Microfinance industry, Factors which accounted for the commercialization of Microfinance. Chapter three will cover the effects of commercialization of Microfinance on microenterprises in the Awutu Senya West District in the Central Region. The chapter four will essentially center on the conclusion and recommendations.

Advantages of Business Transaction Online Essays

Advantages of Business Transaction Online Essays Advantages of Business Transaction Online Essay Advantages of Business Transaction Online Essay Conducting business transaction online is gaining popularity among the generation, what are the advantages and disadvantages made of transaction? OR. List two advantages of online transaction. Business transaction online is an interaction in the technology world, usually between an enterprise and a person where something is exchanged. It is gaining popularity among the young generation nowdays. I believe there are many advantages of business transaction online such as get a better customer service and curtail of transaction cost. Most of the people today have using business transaction online because it easy and get a better customer service than doing real business transaction. When we are on visiting website, we can greet with customer by a pop-up chat window. Customer service also always ready and will help in encouraging the customer to know more about the product or service. Moreover, payments can be made online and product can be shipped to the customer without the customer having to leave the house. Furthermore, E-Business also has resulted in improved customer service, so if we have any problems, we can leave our comment for the seller. In general, we could see that young generation today had chosen to use this method. This is because they can choose their favourite’s things as long as they want and it also curtail of transaction cost. It is different when we buy the thing in a real life, maybe we will be cheated by the sellers or they will up the price of the things. Websites are sufficiently loaded with direction to facilitate stress-free transaction. Simple and succinct instructional tabs, generally, save the potential buyer from predicaments of any surf. In addition, buy online is easy for us to know that the product or service original or not because internet has a lot of connection with other peoples, so we can use media social to get recommendation from others about the thing that we need to buy. In conclusion, there are two reasons why I had preferred business transaction online, because it is easy way for us save our time and items purchased.

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Contingency Theory and Global Leadership Essay Example | Topics and Well Written Essays - 1000 words

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