Employee Compensation A Company - 2085 Words

Briefly describe the company you researched, its compensation strategy, best practices they are applying, and compensation-related challenges they are facing. Employee compensation is very important in any organization since it helps to mark the established relationship between the employer and employee. Compensation usually encompasses many motivating factors that act as a catalyst to an employee in the cause of work. It has been discovered that organizations with good compensation practices are able to maintain their skillful and experienced workers. This then leads to a company gaining a competitive advantage in the market since customer value is greatly delivered (Milkovich et al, 2011). McDonalds is a global company which has widely use franchisers in order to expand its business globally. The company is well known for its unique techniques in preparing customers differently from other competing firms within the food industry. Geographically, McDonalds has several branches and regional centers that help ensuring that customer needs are timely attended. In addition, the company is also known to have a large workforce who manages its daily operations. It is believed that McDonalds is an equal employer since it doesn’t discriminate recruiting potential employees on race, gender, country of origin and gender. But, however, there is a variance of salaries which are brought about by the nature of work, duties and responsibilities one holds andShow MoreRelatedCompensation and Benefit System Proposal Essay example1090 Words   |  5 Pagesresource department has came up with a new compensation plan. In the propose compensation and benefits system plan , I will explain a new compensation plan for Holland Enterprises, also I will explain the components of the compensation and benefit system plan in order to attract and motivate employees to be productive . In order for the compensation and benefits system plan to be operational, the package should include a necessary level of compensations to fulfill basic needs, equity with the externalRead MoreSamsung Electronics s Current Compensation Program1646 Words   |  7 PagesSamsung Electronics’ current compensation program can be evaluated for effectiveness based on several factors. An effective compensation program must create employee motivation, value employee efforts, and be aligned with internal strategies as well as external conditions. We will evaluate Samsung’s current compensation strategy based on the internal and external alignment aspects. Internally consistent compensation programs take into account the internal factors of a firm such as resources, performanceRead MoreThe Impact Of Contingent Compensation On Employee Performance Essay1251 Words   |  6 Pagesof contingent compensation on employee performance in hospitality industry Introduction Compensation is regarded as one of the most persistently motivating ways to incentive employees (Torres Adler, 2012). So, it is important for a company to choose a reasonable compensation system which can not only increase the revenue but also can motivate the employees to do the better job (Johnson, Friend Agrawal, 2016). Many companies will consider carefully about designing the compensation system to retainRead MoreEmployee Compensation Programs Essay1416 Words   |  6 PagesBenefits have most definitely changed throughout the past years. According to Compensation, during 1880 people worked approximately 14 hours every single day except on Sundays and would only receive a raise if they stayed with the company for five years and if the company prospered during that time (Gerhart, 2011, p. 414). Over the next couple of years, employees began seeing work hours change from 60-64 hours per week to 54 hours by the year 1930. Eventually, employees were able to have holidaysRead Mo reCompensation and Benefits1475 Words   |  6 PagesCompensation and Benefits Lisa Epps BUS303 Human Resources Due Date Ashford University There are many people that would choose their life career around the benefits and compensation they may receive. Compensation is known as human resources function that deals with every type of rewards that one may receive in return for performing organizational tasks.()1 Do to these rewards such as compensations; turn-over can be affected in the workforce. If an employee did not feel they valued at theRead MoreBenefits And Benefits Of Ford Motor Company1657 Words   |  7 PagesFord Motor Company is a multinational automaker located in the United States of America. The company has employed thousands of employees across the world. Any successful company must provide its employees with a good compensation and benefits plan to remain competitive. As a result, this study focused on researching the types of compensation and benefits plans Ford Motor Company offered to its employees. The study found out that the company offers compensation and benefits plans such as base payRead MoreEmployee Compensation and Corporate Culture- What Works1736 Words   |  7 PagesAmir Hejazi Employee Compensation and Corporate Culture: What Works? When determining what method to use to compensate employees, a company must be aware of the impact that different compensation methods can have on employee performance, and on organizational culture. Unfortunately, there is no one-size-fits-all answer to the question of employee compensation. Some employees will respond very well to a program that other employees might balk at. Similarly, some companies or industries may flourishRead MoreDiscussion Pay And Benefits For Employees879 Words   |  4 PagesAssignment 1: Discussion—Pay and Benefits This assignment requires that students research compensation strategies and consider general compensation programs for employees. It is essential for the human resources departments to recruit and retain the most competent workers for positions, but it also important to consider the Does your program include stock options, profit sharing, an employee stock ownership plan (ESOP), healthcare, etc.? It is important for the HR department to be proficient inRead MorePurpose Of Workers Compensation Insurance1244 Words   |  5 Pages$3,000 in Workers Compensation Insurance premiums annually, where the premiums raise with number of covered employees. There is a minimum requirement for Employer liability coverage in Workers Compensation, required by law, of $100,000 to $500,000 per employee for body injury claims. Workers compensation insurance aims to provide coverage to employer for medical costs in the event of employee injury due to employer negligence or lawsuit from employee and to provide the employee with coverage forRead MoreCase Study - Mr Rakesh Sharma1679 Words   |  7 Pagesproblem that the Training Manage has to decide whether he should terminate Mr. Sharma or not. The five issues are communication, employees behavior, compensation and benefit, company policy, training and development. Moreover, we also discussed five options to the Training Manager other than termination of Mr. Sharma. These five options are apply employee engagement program, training and coaching system, giving short period to show improvement, reevaluate performance of Mr. Sharma and communicate and

Evaluation and Application of Thesis Free Essays

MMS DBA Student-Walden University Introduction Christopher and Towill in the article, â€Å"Developing Market Specific Chain Strategies†, developed the thesis that there are three feasible pipeline designs for supply chain (Christopher Towill, 2002). These designs resulted from the analysis of the relations between, demand, product, supply lead-times, as main factors in global supply chain, and, cost and agility, as results from the market requirements. Christopher and Towill adopted a notion of total cost that reflects more the unit cost than the traditional way of limiting cost to manufacturing cost (Christopher Towill, 2002). We will write a custom essay sample on Evaluation and Application of Thesis or any similar topic only for you Order Now Hewlett-Packard (HP) along with its early integrated process supply chain management has adopted that notion of total cost (Lee Billington, 1995; Edmondson Wheelwright, 1989). In fact total integrated inventories with retailers adopted by HP correspond to the quick response model developed by Christopher and Towill (Billington et al. , 2004). The predictable demand model may fit the decentralized incorporated system adopted by HP (Edmondson Wheelwright, 1989). Analysis and Findings Based on the assumptions that demand is either predictable or volatile, product is either standard or special, and supply lead-times are either long or short, and all are applicable in the global supply market, Christopher and Towill induced eight possibilities for the supply chain based on demand, product, and supply lead-times (Christopher Towill, 2002). The findings of eight possibilities based on the characteristics of demand, product, and lead-times specified is coherent to the mathematical combination formulae associated, the number of possibilities to combine three sets of two elements each. The analysis of these eight possibilities, in respect with agility and cost effectiveness, led Christopher and Towill to conclude on the representativeness of the three pipelines, lean pipeline, agile pipeline, and quick response model, as supply chain models (Christopher Towill, 2002). These models fit well the global supply chain for, an expected demand is either predictable or volatile corresponding to the two first pipelines and an unexpected demand requires a quick response, hence the quick response model fits that kind of demand. Christopher and Towill provided in that study examples and tables supporting the findings and developed a concise theoretical basis for the quick response model. The tables may have been supported with more mathematical concepts within the text. The research findings by Christopher and Towill in this study are intended for managers of global supply chain as a whole in order to achieve competitive advantage for their companies. The lean supply chain that applies the lean model to the entire supply may be a modern view of the quick response model developed by Christopher and Towill (Mentzer, Myers, Stank, 2007, p. 288). Applicability to HP Hewlett-Packard (HP) started to tackle the global supply cost related problems back in late 1980s, and implemented integrated processes (Lee Billington, 1995; Edmondson Wheelwright, 1989). HP company leaders continued research for competitive advantage through supply chain models adopting the concept of total cost and resulted in massive cost savings (Billington et al. 2004). The adoption of the total cost of the supply chain framework mentioned shows that the quick response model as developed by Christopher and Towill is consistent to the HP Company supply model at least for pioneering in viewing the cost of a unit not only in term of manufacturing but in term of supply, building and distribution (Christopher Towill, 2002). The electronic market is changing rapidly an d HP had since 1991 implemented a decentralized and incorporated system that allowed localized divisions to operate more independently (Lee Billington, 1995). This incorporated and decentralized system adopted by HP leaders is consistent to the predictable demand pipeline developed by Christopher and Towill. Conclusion Christopher and Towill concluded, suggesting that: Generally the preferred solution will be that predictable demand for standard items will be met via a lean pipeline probably fed from overseas manufacturers. Volatile demand for special items will then be met via an agile pipeline probably fed from home manufacturers. A third pipeline design is for quick response to top-up standard products for which there are an unexpected demand for specific colors, sizes, and volume. References Billington, C. , Callioni, G. , Crane, B. , Ruark, J. D. , Rapp, J. U. , White, T. , Willems, S. P. (2004, Jan/Feb). Accelerating the Profitability of Hewlett-Packard’s Supply Chains. Interfaces, 34(1), 59-72, from Business Source Premier, doi: 10. 1287/inte. 0103. 0054 Edmondson, Harold E. , Wheelwright, Steven C.. (1989). Outstanding Manufacturing In The Coming Decade. California Management Review, 31(4), 70-90, from ABI/INFORM Global. (Document ID: 289046). Lee, H. L. , Billington, C. (1995, Sep/Oct). The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard. Interfaces, 25(5), 42-63. Martin Christopher, Denis R Towill. (2002). Developing market specific supply chain strategies. International Journal of Logistics Management, 13(1), 1-14, from ABI/INFORM Global. (Document ID: 196608131). Mentzer, J. T. , Myers, M. B. , Stank, T. P. (Eds. ). (2007). Handbook of global supply chain management. Thousand Oaks, CA: Sage Publications. How to cite Evaluation and Application of Thesis, Papers

Research in Business

Question: Explore the topic "research in business" Answer: Introduction The Managerial Accounting is the term that is related to the language of the business. It is the process of preparing the short term reports and accounts that will accurately define the monetary and the mathematical knowledge needed by the managers in the short and long term business reports. It facilitates the financial information of the respective business to it's internal as well as external users for example, including investors, managers and others (2009). Sometimes it is also known for showing the end, with the decision made due to the presence of the accounting information.The settling on of decision, as if everyone is familiar with from his or her own experience is one of the difficult jobs (Kaplan, 2009). Classical managerial accounting organization is basically structured to identify the effectiveness of the internal business procedures.The internal business management controls the methods and procedure that is designed by the organizations to maintain and protect the asse ts and the managerial resources. This system in organized to minimize the errors in accounting information and records and to find any deception done either by an employee, customers, and suppliers. (Virgina Tech , 2016).The information of accounting can be related to different ranges of users i.e. like manager in business for managing their accounting and for taking important or relevant decision for their organization, the potential investors might decide their plans of investing by getting appropriate financial statement, and the employees who assess the profitability and their consequences of the organization.It urges the authorities like managers to move ahead before formalizing their potential endeavors and thus, lastly gives characterized objectives and targets, which are known to be the benchmarks for assessment of ensuing execution.The respective management entails the budgetary as well as non-monetary data in order to construct powerful choices, which would accomplish the objectives and goals of the association (Garrison, 2003). Furthermore accounting information is more relevant for making any decision for the betterment of any organization. Making of organizational decision is in any case, creating different strategies utilizing intellectual procedures. Implementing the wrong decision can affect the company in the very negative way and sometimes may also lead to bankruptcy. Young.J also claims that " the way towards bankruptcy is surface create with poor decisions" (Jerreling, 2006). Accounting frameworks verify the legitimacy through the procedure of reviewing and responsibility (Garrison R. H., 2010). Successful and proficient Accounting assumes a focal part in management decision making. The proposal of the research undertaken is constructed in a smooth way: the first section reflects the introduction to the research topic followed by the Problem Statement. This section depicts the intellectual research objectives to be attained and justifies th e content. Section two represents the respective Conceptual Framework incorporated with the Research Hypothesis as well as the data analysis and methods adopted. The last section put forth the study structure along with the timeline and the Budget used in the completion of this proposal. Problem Statement The problem for most of the time arises from the thing that how the decision has been made in reference to the accounting information. Either the information that has been recorded is suspicious, clear, or might be doubtful. As per the report of the Joint Auditor's First Bank Annual, Report and Account adulterated accounting information was the purpose of numerous fizzled banks in Nigeria. The significant reason for the utilization of information of accounting is to augment danger, disappointment and instabilities furthermore stay in front of contenders. Despite the colossal advantage of utilization of, it is largely recognized that most inadequate management accounting creates off base data thus bring about the disappointment of associations to accomplish wanted objective. There are instances of directors rejecting the utilization of accounting information in view of their powerlessness to translate such information, along these lines making the association stay at 'the present stat e of affairs bet'. These issues to a great extent add to the disappointment of the utilization of accounting information in business with the outcome that incorrect choices are made to the weakness of the association. It is against these settings that this study is being led (Hayes, 2004).Managerial information is responsible for the accounatblitily of the organization to lead them towards success.The business market has divided in order to create and get the revenue from an organization. The chief task for the management accounting is to reform the complete accounting system so that it can serve the operational need for the organization. The practice of the management accounting will create the new ways of managing the infrastructure of the organization.Non-revenue driven associations incorporate beneficent associations, medicinal services suppliers of non-profit, credit unions, and the intellectually private foundations regarding the advanced education.The management accounting cl assical entertain many associations. Likewise, people utilize the financial ideas that shape the establishment of management accounting in their own lives, to help with all types of decagons, like buying homes and cars, retirement plans, andpartying the expenses of vacations with companions.In such conditions, it is necessary to evaluate and comprehend what are the basic uses of accounting information and thus, the study undertaken will cover the empirical evidence regarding the decision-making strategy required by the management. Also, the inventive procedures and contemporary concepts implemented by the management to entertain the acceptance of the accounting information will be researched upon. The reason behind conducting this research is to anticipate the future of managerial accounting and be proactive towards appropriate decision making for the sake of company. Research Questions The study is undertaken to evaluate the answers for the research questions structured in order to obtain the intellectual understating the managerial accounting and how it is useful for business managers to make better decisions regarding the company and choose the best way for positive results. Te subjected research questions are1. why accounting information is necessary for an organization?2. Does management information control the system and cost of the organization?3. How areas of responsibilities are necessary to evaluate the managerial accounting goals?Research ObjectivesThe main objectives of the research undertaken are to observe the Utilization of the Accounting Information as a management tool with respect to the decision-making. However, the major objectives to be contemplated are: To describe the performance of an organisation to its internal and external users for a particular financial year. This accounting information attracts the users of an organisation to invest their money for the expanding of the business activities as well as dayto-day activities. At the end of each financial year companies published the financial statement which includes Balance sheet and cash flow statements and profit and loss account to depict the company yearly profit and losses and also describe its future activities. To find out the ways through which the cost of products and services should be minimised and affordable to everyone. Use the new technologies machinery and methods and use the good quality of raw materials. To inspect the ways through which the cost in generally outweighs the benefits of the organizations. i.e. author Sally K. Widener explains the relationship of cost, benefits and their strategic risk in 2007 To measure and operate the process of data by areas of responsibilities that is necessary to achieve the organizational goals. According to one nine year research that has been published in 2007 that determined the importance of accounting in organizational development and their responsibilities. Justification of the Project This research will be use to identify the means of by which the adequate and inadequate information on accounting can be considered and what are the role of managerial accounting in scattering companies, their cost, benefits, and responsibilities in different areas of an organization. Managerial accounting analysis has become so important in managing the business that they consider as an integral member of the management team.They also strategized the different activities in any organization for the betterment and improvement of the business. They also assess the risk and strategized through planning, calculating and predicting. As well understand the financial side of the business (Marino, 2015).Under these circumstances, the following are the benefits of conducting research proposal on how managerial accounting useful for decision making:It helps to those who wish to check and understand the business activities for investing purposes or performances purposes. It includes internal a nd external users are as follows:Internal UsersOwners: Analyzing the viability and profitability of their investments and decide future activities on the basis of pastManagement: Check the organization performance and position in the market.Employees: for assessing the company profitability and future remuneration as well as job security.External Users Creditors: For determine the credit worthiness of the organisationGovernment: Interested for the tax purposes.Investors: Check the organisation profitability for investing purposes. Expected Research Output/Outcome The discoveries highlight the significance of the pretended by the MA as an asset for control, and for giving legitimating, as to directors' obligations and activities. Further, our study uncovers that whilst the utilization of Management accounting information for decisions is constrained, it turns into a critical gadget because of major monetary challenges inside an organization. It gives the idea that supervisors see management accounting as a method for improving their energy, and affecting authoritative individuals' conduct. Because of the definitive and allocate assets offered by accounting, it is utilized as an essential hotspot for assessing the execution of people and substances.Along these lines, and complying with the exploration in "Dependence on Accounting Performance Measures," it gives the idea that directors think about accounting as a method for affecting inner conduct (Sprinkle, 2003). An instrument makes it conceivable to include a specific number of individuals, a nd to make them concur with the director's vision. This is relied upon to bring about the acknowledgment of "normal" targets. This affirms ST is especially suitable for looking at how a control framework affects behavioral tenets (Macintosh, 2003). The social relations connected with the utilization of Management accounting information by supervisors include a systemic reconciliation of self-sufficiency and reliance (Macintosh N. B., 2002).This is identified with the position of the director as a turn between his subordinates and the partners of the element under his control. It is both organizing and organized through the supervisors' activities. This can be clarified by the way that administration accounting frameworks are the modalities of activity structuration, and by the extent to which directors can be viewed as "educated on-screen characters" in regards to accounting. This is steady with the finish of Scapens (2006), who specified (1) that the administration accounting metho ds utilized as a part of practice are regularly not the "perfect" ones, as may be normal practice is never impeccable and (2) the learning and foundations of key people can influence their utilization of administration accounting practically speaking. This can be clarified by the capacity of the administrators (learned on-screen characters) to translate and utilize Management accounting information in an adaptable way. Reference Bature, u. M. (2014). Accounting information as a tool for sustainable development of enterprises. In proceedings of the multidisciplinary academic conference on sustainable development . Bolt-lee, c. (2007). Management accounting research for the c-suite. Journal of accountancy . Garrison, r. H. (2010). Managerial accounting. Issues in accounting education. Garrison, r. H. (2003). Managerial accounting. New york: mcgraw-hill/irwin. Hayes, d. C. (2004). The contingency theory of managerial accounting. Accounting review. Hilton, r. W. (2009). Managerial accounting. New york: mcgraw-hill. Jensen, e., laurie, c. (2016). Doing real research: a practical guide to social research. Sage. Jerreling, a. (2006). The impact of accounting information on management's decision-making process. Vaxjo. Kaplan, r. S. (2009). Measuring manufacturing performance: a new challenge for managerial accounting research , 284-306.

Profit Center Essay Example

Profit Center Essay The TallTree2 Hotel Casino is a 640-room resort composite having a full scope of Nevada-style gambling with slot machines and table games. Besides the hotel and casino. it besides operates four eating houses. two amusement salesrooms and three gift stores. Because of the economic environment at the clip. TallTree2 wanted to better its underside line by establishing a scope of Particular Events like golf tourneies. packaging lucifers. New Year Parties and a series of cavity. lotto and slot tourneies. Those particular events were specifically designed to counterbalance for the slow periods and generate extra gambling grosss. Terrence Wei. the new belongings president. feels that his section directors appear to be in struggle with each other. The directors of each section have expressed concerns when it comes to running their section under the net income centre attack. Overall. complementary costs and allocated operating expense included in the direct costs pose more of a job in finding the sums to apportion. More specifically. the hotel director complained about capacity restraints. It is hard for this section to recapture all of the chance costs of non selling suites at full monetary value or even above that sum in times of high demand. We will write a custom essay sample on Profit Center specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Profit Center specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Profit Center specifically for you FOR ONLY $16.38 $13.9/page Hire Writer The director is required to maintain 20 % of the suites in instance a higher roller comes in. If a participant pays for the room. it will be at the $ 45 price reduction rate and non the $ 139 that a walk in client would pay. The nutrient section is presently pricing below the community eating houses. The director argues that he should be able to put his monetary values and run his section on a profitable footing. It is presently running at 15 % loss and the complementary nutrient makes up for 20 % of all eating house gross revenues. As for the drink division. 77 % of gross revenues are complimentary. The director in this section is concerned about the really low monetary values offered. Judy Fitch. president of selling. is concerned that the worksheet provided by Bill Martino does non reflect the grosss generated by the particular events. In order to aline the company’s vision and inducements with those of the directors. the construction of each section needs to be re-evaluated based on current public presentation. The company is decentralized and each section is a duty centre. A duty centre is a division of a company for which a director has the authorization to do determinations. The chief types of duty centres are cost centres and net income centres. A cost centre is a division of a company that is responsible for the maintaining the costs every bit low as possible. Cost centres contribute to a company’s profitableness indirectly like selling. client service or research and development. A net income centre is a division of the company that is accounted for on a standalone footing for the intent of net income computation. The directors of those net income centres have the decision-making authorization related to merchandise or service pricing and operating disbursals. Therefore. the net income centre is responsible for doing its ain net incomes. The end is to reorganise the allotment of costs so that each section is profitable. The particular events target high rollers and should convey more money that they presently bring. The Casino section should still be run as a net income centre. Gambling is the largest beginning of gross for the hotel casino composite. The section director controls the grosss by offering particular publicities and complimentary nutrient. drinks and suites in times of slow periods. The director is non merely responsible for the net income generated but besides for the costs. Finally. the casino controls the bargaining power for the price-setting and complimentary services offered such as nutrient. drinks and suites. The hotel section should be evaluated as a net income centre. The division already has significant control over pricing since it is based on supply and demand and on seasonal tendencies. Besides. complimentary suites merely account for 8 % of the gross created by the section. Because of the high chance costs. room gross revenues account for about 92 % . The Hotel is besides one of the chief income beginnings for the gaming industry. The Food section should be run as a cost centre because 20 % of the gross is generated from complimentary gross revenues and besides because the eating houses are presently running at a 15 % loss. The restaurants’ chief intent is to function gamblers and should non be established as a standalone concern. The eating houses are expected to supply low-priced repasts that will pull more people or retain the current clients on the belongings. The Beverage section should besides be evaluated as a cost centre. 77 % of the beverage’s division grosss come from complimentary drinks served to the casino clients. The casino has major control over which clients receive the complimentary drinks and the director of the section has really small control over the division’s net income. The section should nevertheless be responsible for commanding costs like the staff and the cost of the inputs supplied. The synergism between the different sections makes it harder to measuring those separately. The ood and drink sections have the primary intent to maintain clients in the casino ; they have a encouraging function. The casino should hold the ultimate determination power to make up ones mind how and when the complimentary nutrient and drink are distributed. Alternatively. the nutrient and drink sections should command the costs of making concern. the efficiency and quality instead than to do net income. Particular events should be evaluated on profitableness. It will merely makes sense if each division is run as a net income centre or cost centre consequently. Besides. TallTree2 should take other elements into consideration. The full monetary value of suites should be included as gross. That manner. it will be easier to see the sum deducted for price reductions and complimentary suites. Bill’s statement to include the supplanting costs for hotel and grosss lost during particular events is rational. TallTree2 needs to cognize how much net income is lost so that they can do it up. The figure of suites reserved for high rollers should be revised because the 97 free suites during the Stars and Stripes event could hold been occupied by walk-in clients at the rate of $ 139 darks. If walk-in clients are turned down. those clients are non likely to remain at the hotel or even gamble at the casino in the hereafter. Some quantitative elements should be included like client satisfaction. The event’s success shouldn’t merely be evaluated in footings of profitableness. With the casino and hotel sections being evaluated as net income centres and the nutrient and drink sections run as cost centres. TallTree2 will be more profitable and direction of each sections will non be in struggle with each other.

Culture and Identity Essay Example

Culture and Identity Essay Example Culture and Identity Essay Culture and Identity Essay CULTURE AND IDENTITY WORD COUNT: 2,241 28/11/13 Introduction Culture, this is a way that an individual attaches themselves to a certain community from which they are from, a way in which an individual is brought up based on what that community believes in; according to theorists culture is the shared philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms that knit a community together Meek (1988, p. 57) when considering an organisation, the founder of that particular organisation is where the culture will be derived from, for example the Red Carnation Hotels culture is to make the guests feel hey are in their own home home away from home redcarnationhotels. com, (2012) this concept is embedded in all the RCH hotels. Identity is what an individual identifies themselves to be, for example depending on where they work or their state in which they find themselves in is what they will identify themselves to be. Identity can be derived from the surroundings; it defines who that person is based on where the individual was brought up; TaJfel (1978) comments on social identity and how an individual identifies themselves based on the social group they belong to; In order or this to happen the in-groups of the organisation need to reciprocate the corporate culture to the out-groups and allow assimilation to take place in order for the culture to be embedded in the individual. The essay will outline the positive and negative impacts that identity and corporate culture can cause to the hospitality industry if not incorporated correctly by the managers of the organizations, which can then cause a rejection of the culture and therefore affect an individuals performance, which in the long run will affect the organisations performance when it omes to competition. Literature Review Corporate culture and worker identity have been said to share different values, after extensive research from other theorists it has been said that culture and identity are meta-concepts Glenn (1991). Which suggest they work very closely with one another and that they are not all that different from one another; Hogg (2000) comments on how certain individuals derive their identity from the organisation, the corporate culture of the organisation is what an individual will identify themselves to be based on the values and beliefs of the corporate culture. In this essay the discussion will focus upon the complexity of corporate culture and worker identity. The way in which or discontinuous change, this is also because many theorists have sought to further identify and elaborate the theoretical constructs that underpin the concept in order to develop a more comprehensive theory of culture in organisations Ogbonna and Harris (2000, p. 33) this is to better serve the individuals who want to adapt the culture of the organisation to their own, but in order for that to happen they need to understand what the culture is. Culture cannot be defined in one particular way it has different attributes and meanings depending on what context it is used. For example Hofstead (1991, ed. 1994) defines the diversity and complexity of culture using the onion diagram which illustrates the different stages of culture and how when applied to an organisation the different practices can affect both the organisation and the individual. Managers therefore play a vital part in implementing the culture to the individuals, Cameron et al (1999) says in order for culture to be embedded in an individual managers need to reciprocate the ndividuals occupation to that of the organisational culture in this way managers need to have the ability to confer identity; for example aiding a chef to find similarities between their culture and that of the organisation. The purpose here is to identify that every organisation has a culture and this culture is what sets them apart in the competing market, in order for the culture to be used as a tool to compete with other organisations that are competing in the same sector the culture has to be embedded in every individual that is part of that particular organisation. This is because when there is a sense of unitary the organisation can function in an effect way and be able to meet or exceed its goals. Although when it comes to the hospitality industry there is always friction because of the different out-groups for example chef culture is one of the out-groups in the hospitality industry that has its own culture and deeply rooted values which in many cases will be different from the organisation. The passionate nature of the chef needs to be taken into consideration; because they perceive themselves to be artists therefore it is difficult for the rganisation to dictate the type of art that should be used that will fall in line with the culture of the organisation. Discussion There have been a number of theorists that over the years try and explain culture, for example Ogbonna (1993) in one of his papers questions whether or not culture is manageable. This however depends on the organisation that is being discussed and depending on the study it will differ from other definitions of culture; for example the culture of a motor company will differ to that of a hospitality company, he then comments on the concept of Smircichs (1983) theory of perceiving culture as is and has when viewed as something an organisation has, culture becomes a powerful organisational tool. It shapes behaviour, gives organisational members a sense of identity. Ogbonna (1993, p. 14) This suggests that culture in this concept is manageable because there is room to adapt and individuals can identify themselves with the culture and therefore can easily affiliate to the organisational culture; for example when considering a chef in the hospitality industry, its best to say a chef when given the opportunity they can identify similarities in the organisation and be he in-group and out-group processes because the out-groups will be able to identify themselves with t he culture of the in-group, this is because there is room for change and amendments, in doing so the in-group puts processes in place with which the out-groups through amalgamation can adapt to in an incremental way. When it comes to describing culture is the organisation Smircich (1983) suggest that this is not an ideal organisation in terms of implementing strategies or improvements. Ogbonna (1993) also says if culture is the organisation then there is not a lot of room o debate or give suggestions; innovation cannot be implemented in this type of phenomenon because of how deeply rooted the culture is. This suggest that the out- groups of the organisation have no choice but to adhere to the culture, in this type of organisation there is an expectancy of rejection of the culture thus implementing a discontinues change in the company, this will also affect the performance of the organisation and wont be able to compete with other organisation that are competing in the same sector. When looking at the roots of the organisation Hofstede (1991 , ed. 1994) onion diagram best describes culture is the organisation. This is because when viewing an onion it has many layers, there is no way of getting to the core of the onion without peeling off the outer layers, unless you cut it in the middle. When applying this concept to an organisation whereby culture is the organisation, it suggests how deeply rooted the culture is. The culture cannot be penetrated because of how deeply rooted it is. If for example changes had to be made to the organisation for example the out-groups of the organisation wanted to e innovative, that would be nearly impossible because if the out-groups innovation does not fall in line with the corporate culture of the organisation it will cause a disruption, and the innovation will be rejected. This is dangerous for an organisation because in order to stay in the competing market the organisation has be innovative; its also dangerous in the competitive market because the strategies can be copied by other competing markets, therefore the organisation will not have any competitive advantage in the market and in an economic downturn it will not be able to survive. In the case of culture is the organisation it is best to use a reciprocal strategy between the in-groups and the out groups. Cameron et al, (1999, p. 225) comments on the fact that a reciprocal and adversarial relationship between occupation and organisation culture is very much needed and i t is the duty of the managers to implement this strategy this is also because managers are in the best position to incorporate this strategy to unify the organisation. Before the strategy is implemented there needs to be an understanding that culture and identity are two meta-concepts; a chef is in itself an identity and a culture. The question is how a manager reciprocates a chef into the organisational culture. Turner (1982) suggests a way in which reciprocation can happen, he says in order for an individual to associate themselves with the organisation that individual needs to stop perceiving themselves from a self-perception and perceive themselves from a group- perception. Another way is Self-categorization this is a way in which a chef needs to affiliate with the organisational culture; furthermore the chef will be able to see imilarities between the organisational culture and its own which will then lead to the chef not thinking of himself as an individual but rather thinking as a group or as group of the company which has a different culture but instead they will share the same culture as the in-group in so doing the process of depersonalisation takes place. This is the way in which chefs of an organisation assimilates themselves to the in-group prototype and thus begin to share the same culture as the organisation. Not only does culture play a major role in the organisation so does identity, which rings us back to the point made earlier that culture and identity should be viewed as meta-concepts this is because culture can be viewed as an individuals identity; this is because when referring to a persons culture it is the same as referring to their identity. When it comes to an organisation many theorists comment on the fact that individuals need to assimilate to the organisations culture, part of the reason this needs to happen is because in simple terms the individual is in need of the Job because at that particular moment the Job is what is paying for that individuals eing. Another reason is that in hospitality there is a lot of competition when acquiring a Job therefore individuals need to be highly skilled and also multi-skilled which increases their probability of getting employed. In rare cases where the individual does not assimilate to the organisations culture is where the organisation is in need of that individual because of the skills that come with that individual, for example a Michelin chef would be an example of this. The reason being if the organisation wants to have a competitive advantage in the market the Michelin chef s very much needed in that organisation because of what that particular chef will contribute to the entire organisation. Conclusion In conclusion culture and identity are two concepts that are very complex and diverse, in that they need to be treated with delicacy. Both meta-concepts of the other which means are very similar to one another, there cannot be reference to culture without thinking of identity, in some cases that can happen for example when the culture is the organisation in this case it is the culture that is considered more than identity. Whereas when an organisation has a culture this is when the two oncepts work together because changes can be made to the organisation based on an identity for example having a Michelin chef changes the culture from a regular restaurant toa Michelin restaurant based on the identity of the individual. In order for the organisation to work as one unit or to become unitary, the in-groups need to reciprocate the out-groups to the corporate culture. In doing so this not only builds a strong organisation but it makes the organisation work simultaneously, thus increasing its capability in the competitive market. When it comes to the values and eliefs of the organisation that have been rooted deep within the corporate culture, this in a way can help the organisation in terms of competing in the competitive market, however it can only be effective in a case whereby it cannot be copied by another organisation. A prime example of this can be The Ritz Carlton hotel, compared to other five star hotels its one of the major hotels that does extremely well in the competitive market and has been doing so for a long time. At the end of the day theorist have tried to give a definition of the word culture and they each have not ound a meaning to it because depending on what context culture is used the meaning automatically changes, it is safe to say that culture and identity is to do with origin and from that can we apply it to different contexts to try and find its definition collected. References Journal articles Cameron, D. , Gore, J. , Desombre, T. , et al An examination of the reciprocal affects of occupation culture and organisation culture: the case of chefs in hotels. n International Journal of Hospitality Management (1999) Glenn, S. S. , 1991. Contingencies and metacontingencies: Relations among behavioural, cultural and iological evolution. In: Lamal, P. (Ed. ), Behavioural Analysis of So cieties and Cultural Practices. Hemisphere, London, pp. 39}71. Hogg, M. A. and Terry, J. D. Social identity and self categorisation processes organizational contexts in Academy Management Review (2001) Hofstede, G. , 1991. ed. 1994. Cultures and Organizations. McGraw-Hill, Maidenhead, I-JK. Meek, L. M. , 1988. Organizational culture: origins and weaknesses. Organization Studies 9 (4), 453}473. Ogbonna, E. , 1992/93. Managing organisational culture: fantasy or reality? Human resource Management 3 (2), 43}54 Ogbonna, E. , 1992/93. Managing organisational culture: fantasy or reality? Human resource Management 3 (2), 43}54 Smircich, L. , 1983. Concepts of culture and organizational analysis. Administrative Science Quarterly 28, 339}358. TaJfel, J. , 1978. Di! erentiation Between Social Groups. Academic Press, London. Turner, J. C. 1982. Towards a cognitive redefinition of the social group. In H. TaJfel (Ed. ), Social identity and inter- group relations: 15-40. Cambridge: Cambridge Univer- sity Press. Website Redcarnationhotels . (2012) . The RCH story. Retrieved from http:// www. redcarnationhotels. com/about-us/the-rch-story

10 Interesting Facts About Mercury (Element)

10 Interesting Facts About Mercury (Element) Mercury is a shiny, silvery liquid metal, sometimes called quicksilver. It is a transition metal with atomic number 80 on the periodic table, atomic weight of 200.59, and  the element symbol Hg.  Here are some fast facts plus 10 interesting element facts about mercury. You can find even more detailed information on the mercury facts page. Fast Facts: The Element Mercury Element Name: MercuryElement Symbol: HgAtomic Number: 80Atomic Weight: 200.592Classification: Transition Metal or Post-Transition MetalState of Matter: LiquidName Origin: The symbol Hg comes from the name hydrargyrum, which means water-silver. The name mercury comes from the Roman god Mercury, known for his swiftness.Discovered By: Known before 2000 BCE in China and India Mercury is the only metal that is a liquid at standard temperature and pressure.  The only other liquid element under standard conditions is bromine (a halogen), although  the metals rubidium, cesium, and gallium melt just warmer than room temperature.  Mercury has a very high surface tension, so it forms rounded  beads of liquid.Although mercury and all of its compounds are  known to be highly toxic, it was considered therapeutic throughout much of history.The modern element symbol for mercury is Hg, which is the symbol for another name for mercury: hydrargyrum. Hydrargyrum comes from Greek words for water-silver (hydr- means water, argyros means silver).Mercury is a very rare element in the Earths crust. It accounts for only about only 0.08 parts per million (ppm).  It is mainly found in the mineral cinnabar, which is mercuric sulfide. Mercuric sulfide is the source  of the red pigment called vermilion.Mercury generally is not allowed on aircraft because it combines s o readily with aluminum, a metal that is common on aircraft. When mercury forms an amalgam with aluminum, the oxide layer that protects aluminum from oxidizing is disrupted. This causes aluminum to corrode, in much the same way as iron rusts. Mercury does not react with most acids.Mercury is a relatively poor conductor of heat. Most metals are excellent thermal conductors.  It is a mild electrical conductor. The freezing point  (-38.8 degrees Celsius) and boiling point (356 degrees Celsius) of mercury are closer together than for any other metals.Although mercury usually exhibits a 1 or 2 oxidation state, sometimes it has a 4 oxidation state.  The electron configuration causes mercury to behave somewhat like a noble gas. Like noble gases, mercury forms relatively weak chemical bonds with other elements. It forms amalgams with all the other metals, except for iron. This makes iron a good choice to make containers to hold and transport mercury.The element Mercury is named for the Roman god Mercury. Mercury is the only element to retain its alchemical name as its modern common name.  The element was known to ancient civilizations, dating back to at least 2000 BCE Vials of pure mercury have been found in Egyptian tomb s from the 1500s BCE. Mercury is used in fluorescent lamps, thermometers, float valves, dental amalgams, in medicine, for the production of other chemicals, and to make liquid mirrors. Mercury(II) fulminate is an explosive used as a primer in firearms. The disinfectant mercury compound thimerosal is an organomercury compound found in vaccines, tattoo inks, contact lens solutions, and cosmetics.   Sources Lide, D.R., editor. Handbook of Chemistry and Physics. 86th edition, CRC Press, 2005, pp.  4.125–4.126.Meija, J., et al. Atomic Weights of the Elements 2013 (IUPAC Technical Report). Pure and Applied Chemistry, vol. 88, no. 3, 2016, pp. 265–91.Weast, R.C., editor.  Handbook of Chemistry and Physics. 64th edition, CRC Press, 1984, p.  E110.

IP 5 - Accounting Term Paper Example | Topics and Well Written Essays - 1250 words

IP 5 - Accounting - Term Paper Example Accounts Receivable: They are recorded at their book value less reserve for doubtful receivables. They consist mainly of real estate, marketing suppliers, customer debit and credit cards that take more than seven days to be processed. Cash and Cash Equivalent: reports investments that mature in less than three months to be cash equivalent. Also, debit and credit cards and electronic transfer transactions that take less than a week to be processed and cash from banks are included. Inventories are valued at the lower of cost since the permanent markdowns are offset from the retail value of the inventory. They use LIFO method to manage inventory in Wal-Mart USA, and FIFO method in Wal-Mart international. Valuing inventory at lower of cost leads to sometimes undervaluing of some inventory(n.a, 2015). Property, Plant and Equipment are recorded at bookvalue. The costs incurred in major improvements are recorded as capital and costs incurred from normal maintenance and repairs are charged as expenses in the income statement. Depreciation of assets is on a straight line basis. Goodwill and intangible assets are valued at fair price through valuation methods. Indefinite life assets and goodwill are not amortized but are annually evaluated for any impairments and during events that might affect the value of the assets Income tax- Deferred tax liabilities and assets are measured using tax rates applicable in the year the temporary differences are to be settled or recovered. Provision for income tax is calculated by using an annual tax rate based on income, the statutory income tax rates and the permanent differences between the tax and book income (n.a,2014). Wal-Mart Company is infamous for the 24 million dollar cover up in Mexican Bribery that occurred in 2012 (Frankel, 2012). This scandal raised questions on the integrity of Wal-Mart’s internal

Volkswagen Essay Example | Topics and Well Written Essays - 2000 words - 1

Volkswagen - Essay Example Additionally, the paper also discusses the company’s SBUs and growth strategies to assist the creation of a clearer stance on the development of Volkswagen’s strategic direction. Appraisal of strategic decisions is also conducted to provide direction for further considerations and research. Recommendations focus on the expansion of Volkswagen in developing markets by application of current strategies and the enhancement of its position in the markets of India, China and Brazil. 1. Introduction As one of the key players in its industry, German automobile manufacturer Volkswagen stands as the 14th largest company in the world according to Forbes (2013). Relying on the foundations of advancing corporate social responsibility and sustainability through its operations, Volkswagen’s mission extends to the provision of customer satisfaction, which is a practice that the company hopes would lead to its attainment of the first position in the global automotive industry by the year 2018. For the purposes of realizing its objectives, the company implements and follows what is known as a group strategy across its departments in order to fulfill its aim of recording 10 million sales of automobiles in a year and generating a pre-tax profit margin of 8% (Volkswagen 2011). This report comprehensively covers the aspects of Volkswagen’s strategic position and strategic direction in addition to a critical evaluation of Volkswagen Group’s strategy to highlight the company’s path in meeting its long term objectives effectively. 2. ANALYSIS OF STRATEGIC POSITION 2.1 External Analysis In examining the external position of Volkswagen Group, this section of the report utilizes the evaluations of tools such as the PESTEL analysis, Porter’s Five Forces analysis and the industry life cycle. 2.1.1 PESTEL ANALYSIS POLITICAL The UNECE agreement introduced in 1958 was initiated by the EU to provide an incentive to automakers operating within th e political region by diminishing compliance costs. While, the UNECE agreement is critical to enhancing Volkswagen’s cost efficiency the Cars 2020 reform proposed by the EU will allow the company to expand its geographical reach (European Commission 2013). ECONOMIC Following the global economic downturn, analysts such as Pearson (2013) are predicting a gradual and steady recovery in Europe’s demand for automobiles which had diminished to a great extent. Both the consistency in demand for cars outside of the EU and a revival in demand within the EU is a positive sign for Volkswagen Group. SOCIAL The market positioning of Volkswagen’s brands has significantly assisted its aim of catering to the unpredictably of social transitions and changes in consumer preferences. By balancing cars that offer great value and automobiles such as the Phaeton that is designed for the high-end customer, Volkswagen Group is greatly equipped with facing any amendments with regards to social factors. TECHNOLOGICAL Volkswagen has increased its investments in R&D and constant innovation owing to the competitiveness of the automobile industry. The relentless efforts of the company’s R&D and innovations department have led to the development of technologies such as BlueMotion, Assistance systems and TDI. ENVIRONMENTAL

The Constitution Theory Essay Example for Free

The Constitution Theory Essay INTRODUCTION: Main purpose of this article is to review the European Union Constitution and to find out how it will allocate power within the EU member states. The present debate about the EU’s constitution is about its balance of power. Under the new expanded market, how the common market is going to be managed. How the government social policy is to be determined? Under common constitution, how the defense and foreign affairs is going to be accomplished? Is integration is necessary and if so, by how much? As regards to EU and member States, where the institutional power is going to be housed? If and when the EU constitution is approved by its Citizens and successive ratification of the respective Member governments, the EU Constitution will simplify and speed up the matters relating to home affairs and justice as these are all going to be dealt with at European level itself but also fostering more democratic accountability and transparency into decision making. EVALUTION OF EUROPEAN UNION CONSTITUTION: The EU constitution is divided into four parts. Part 1 deals with the definition of Union, its institution’s competences. Part II deals with the fundamental rights of the Union. Part III explains EC treaty and TEU with broad details on social, economical, detail on internal market, external action, monetary policy and the activities of the EU institutions. Part IV consists of various declarations and protocols. Under the present EU constitution, how the relationships between Union and its member states are going to be maintained is the main focal point of this essay. The uniqueness of EU like its state –like characteristic and the mandate and independence of its various institutions are evaluated. Further the declared objectives and values of the Union are briefly explained with critical attention to safeguard of human rights. The substantial authority enshrined to EU based on a number of stated or implied principles underlying union action. This analysis also evaluates the five exceptional articles in EU constitution that underscore the Union’s continuing commitment to Member State sovereignty. The constitution stipulates that most of its decisions at EU level will be approved only by the unanimous vote or common accord or consensus. Thus it confers to the State the right to block the decision and veto and this symbolizes a unique reservation of power to the Member states. EU has the autonomy as a governmental entity and it resembles those of modern nation-states and EU is composed of official bodies of national government. But in reality, there exists certain limitation on the Union and its institutions. EU is a distinct authority and its existence is separated by its Member States. It is established as a constitutional authority and posse’s legal personality.   EU is enjoying certain constitutional rights and protection for the execution of its tasks. Since the EU is a juristic person, it has the privileges of owning property and to be a party to legal proceedings. The EU constitution accords EU with symbols like a national anthem, a flag, an annual holiday, a motto and Union common currency ‘Euro’. EU comprises of specific set of institutions and of ‘institutional framework’ and these institutions is authorized to constitute law for the Union and its majority of its regulative activities are to be carried out at the central, EU level. Thus the activities of these institutions are subject to oversee by independent ombudsman of the European Parliament. Thus the EU has been established on permanent basis with its own constitution. There is also room for the further expansion of the EU and is open ‘to all â€Å"European States† willing to promote the Union’s values. Constitution of the EU stipulates that EU has the duty to ‘respect the equality of Members States, to honour their national identities and to recognise their essential state functions. In the eyes of the constitution, the Union and its Member States are alike and each of them is necessitated to follow to ‘the code of sincere cooperation’. The constitution requires the Union and Member States to exhibit mutual respect, help each other in accomplishing tasks which originates from the constitution. The Article 1-60 grants exit power to the Member States and authorizes a State to unilaterally withdraw from the EU. The Member State can grant certain rights to EU under its law like ownership of property. This right underscores the EU constitution the strength of the Member State as well as the legal personality of the EU. Further the EU is subject to the contract law and tort law of individual Member States. The EU constitution will become effective only after the approval of the each Member States at its national level as per its own constitutional requirements and it should be ratified by all States. Any proposed amendment to constitution is required the unanimous consent of the Member States who are awarded with right of veto and can exercise this right even on minor change that may affect them . Further any new accession to EU is to be approved by the existing members of EU through their national procedure. Certain sensitive issues like official use of languages within the institution and location of the institutions are subject to unanimous approval of the Member States. EU constitution stipulates that ‘European framework laws’ will be binding ‘as to the results to be accomplished’ but leaving to the Member States ‘the Choice of form and methods.’ Further certain European regulations may stipulate that the States will select how to apply the desired policy.   Further under certain veiled circumstances, States may be authorised to initiate the EU legislative process. 2.1 FINANCE: EU has the financial independence. It does not depend upon the contribution from its members. EU raises its finances through taxation and also adopts its annual budget .Further EU is expected not to exceed its annual budgets. Thus the financial conduct of the EU is to be approved by the Member States and also unanimous approval by the council. In addition to this, each multi annual financial framework must be unanimously approved by the Council. It is pertinent to note that the lion’s share of EU’s finance is again diverted to as a financial support for agricultural and other programs of the Member States. 2.2 EXTERNAL RELATIONS: EU has to draft its own external relation policy. It’s relation with wider world and to contribute to security ,peace , sustainable development , mutual respect among subjects , poverty eradication, free and fair trade , human rights protection , observance of institutional law and respects for the principles of the United Nations Charter. It is worthwhile to mention that the authority of the EU to act in external affairs matters is cautiously limited. Member states are regarded as the Citizen of the EU. Thus the Member States as citizen of the EU has been granted with wide rights such as ‘right to move and reside freely in any member state ‘the right to vote and stand as a candidate in municipal and European parliament elections, the right to deal with the EU institutions in any official EU language and certain rights to diplomatic and consular assistance from any member state. Further EU has the obligation to serve to the interest of its citizens and to grant them ‘an area of security, freedom, justice without internal borders ‘along with the strong single market. EU has the obligation to treat all of its citizens impartially. The EU commitment to the principles of ‘participatory democracy ‘and ‘representative democracy ‘are of critical in nature and these articles offers citizens the right of representation in the EU parliament, the right to participate in the democratic life of the Union and the right to act through the EU-level political parties. Citizens can raise their voice through public forum, access for their representative association, can have consultation with the officials of EU and right of initiative. Further citizens have further rights like Union institutions should conduct open meetings, right of personal data protection, access to its important documents and respect for the national status of churches. EU offers dual citizenship to its members. Thus right to stand in the election is restricted to municipal and European parliament election.   No mention about the National and provincial election has been made and there is no explanation to what Municipal means. As such, the EU constitution has to be amended to include these provisions which requires the unanimous approval of its Members State This may provide derogation where warranted by problems specific to a Member State. The prerequisite of unanimity and possibilities for derogation exhibits limited power of the EU to delineate the rights of its citizens. One another outstanding aspect is that the tort claims may be initiated by the injured persons against EU ‘in accordance with the general laws of the Member States. Further Part 1 of the constitution of EU deals with the EU’s institutions like European Parliament, European Council, and Court of Justice .Significant activity of the institution is the creation of the EU’s legislation. The national parliaments of States must be informed all proposed EU legislation.   The States may object the any legislative part that violates the principles of its interest. One of the noteworthy is that EU Parliament is denied the right to introduce legislation as this power is vested with the Commission. Currently the decisions are taken by the qualified majority vote (QMV). But from 2009 onwards, QMV will to be approved by at least 55% of the members of the Council consisting of at least fifteen of them and representing member states comprising at least 65% of the population of the Union. Due to this policy, a small group of the largest state can able to prevent a successful vote although the Constitution stipulates at least four states to form a ‘blocking minority’. But under QMV, no single member is having the power to block EU legislation. Even though there exists QMV, the EU contains many provisions requiring the Council to act unanimously. 2.3 EUROPEAN COMMISSION: It acts as chief administrative body and permanent executive of the EU. EU acts as a guardian of the constitution and manager of the EU budget and programs. It has to remain as an independent body. Commission’s decision is taken by the majority of votes. The European Court of Justice (ECJ), European Central Bank (ECB) and Court of Auditors are bodies that are affiliated to EU and independent of other Union institutions. Both ECJ and ECB are vested with power over the Member States. ECJ will deal with the complaints from EU States on one another and will attempt to resolve the same. EU constitution contains the most of the values and objectives of EC Treaty and TEU. The preamble of the EU constitution includes ‘reunited Europe. The EU also wishes to remain as a continent open to learning, culture and social progress. To lead a democratic government, to strive for justice, peace and solidarity. It speaks about the protection of fundamental rights. The members are requested to help the EU to attain its objects and to refrain from any activity that would hamper the attainment of EU’s objectives. The EU constitution authorizes ‘improved cooperation’ among group of Member States an activity that undermines the cohesions of the EU. As per the provisions of the Article I-3, the Union is authorised to protect the well-being of it’s ‘peoples’ rather than its ‘People’. Further EU is authorised to exercise its conferred competences ‘in the community ways’ instead of federal basis as it was mentioned earlier. 2.4 PROTECTION OF INDIVIDUAL RIGHTS. Part II of the constitution describes the Fundamental Rights of the Union into the European Union Law. Some argue that EU must extend its objectives beyond the economic sphere and insertion of human rights charter in the constitution. The preamble concludes as follows: The Union therefore recognises the freedom, rights and principles set out hereafter. Thus the EU constitution structure has established institutions and explains its areas of activity, all are subject to the restriction on the EU and reservation in favour of the Member States. The following five provisions of the constitution deserve attention as it offers powerful statement on the status of the Member States within the Union. Article 1-5. Respect – The Union must respect the territorial integrity of the state thereby safeguarding the national security. These instructions may be intended to prohibit a hegemonic relationship. Article 1.44 – Enhanced Cooperation- Enhanced cooperation is aberrant of a true federal system in which powers are segregated vertically between the States and the central government. Article 1-59- Suspension of Rights: If any of the Member States has committed a ‘serious and persistent breach ‘of EU core values, the council has the power to suspend the membership of such states and despite of such suspension, the State is still bound by its obligations under the Constitution Article 1-60- Amending the constitution-   Any amendment of constitution   requires ratification by all the Member States and in Part III , unanimous voting can be changed to QMV . Further European Council must unanimously approve such amendments and must be referred to national parliaments and disagreement by any parliament may obstruct the amendment. CONCLUSION: The one question that arises is whether the creation of European Union is going to dominate its Creators. One has to remember that EU is a striking force not only in Europe but also in the rest of the world. As such, the Member States need not slide into stupor or inappropriateness. Thus EU Constitution will make the EU as an amalgam system. Most of the central features allocated to the Union under the Constitution will be carryover from the treaties. The EU Constitution has the following striking characteristics. EU citizenship will afford the nationals of EU the freedom to reside, vote, work anywhere in the EU.   The EU levies its own taxes and collects thereby revenues and meets its budget requirement on its own and is not depend on any contribution to from its member states. The EU has its own currency managed by its own central bank. It has its own Parliament, Council of ministers, commissions. The Union legislation is to be adopted by majority voting in the Council and European Parliament. Further EU law is having supremacy over the laws of its all Member States. EU has to act only within the restrictions of the power conferred on it by the Member States. Competences are still remaining with the Member States. Certain policy decisions have to be taken only on unanimous voting by all the Member States. Further without the consensus, the Council can not proceed in certain key decisions. Thus a single member has the ability to block any resolution and has the bargaining power and can demand concessions as the price for its voting. Another striking factor of EU is that foreign policy and defense are untouched and left with the respective Member States. EU constitution stipulates that it has to respect the integrity of the Member State as sovereign nation. EU has the right to suspension of rights of Member States and offers the Member States withdrawal rights from the EU. EU constitution can not be amended with out approval of each Member of the State. Last but not the least, as the world is facing constant shifting winds of international affairs, it is arduous to foresee whether the EU Constitution after its ratification will take the EU to success path? The balance of power as suggested by the EU Constitution is workable or not?   Whether its political concession can be sustained? Is the tremendous power among the Member States to transfer power to Brussels is going to succeed or not? Are some core group of states is going to be unwind for an enhanced co-operation between themselves? Only time has to answer all these questions. EU Constitution is aimed to maintain the Union’ current system of duality of Authority thereby facilitating the members to retain their position as sovereign nation in the EU with significant central features. Thus the EU constitution aims to bring all the Europeans under one umbrella and it provides more effective and simpler legal base for EU activities to promote security, freedom and justice and exactly explaining the responsibilities and aims already provided in successive EU treaties and thus assisting Europeans to be aware of them. REFERENCES: Dale, R. European Union, Properly Construed. Policy Review, (122), 2003 39+. European Union at Crossroads; Referendum on Constitution Set to Begin; French Vote Critical. The Washington Times, p. A08 February 6, 2005. The European Union Constitution on Border Checks, Asylum and Immigration. Population and Development Review, 30(4), 2004. 789+. Muller, K. Problems of European Union Citizenship Rights at the Periphery. The Australian Journal of Politics and History, 45(1), 1999, 35. Sieberson, S. C. How the New European Union Constitution Will Allocate Power between the EU and Its Member States a Textual Analysis. Vanderbilt Journal of Transnational Law, 37(4), 2004. 993+. Steunenberg, B. (Ed.). Widening the European Union: The Politics of Institutional Change and Reform. New York: Routledge, 2002. Van Gerven, W. The European Union: a Polity of States and Peoples. Stanford, CA: Stanford University Press. 2005. Wallace, H. Wallace, W. (Eds.). Policy-Making in the European Union (4th ed.). Oxford: Oxford University Press. 2000.

The Alcoholic Father Revealed in the Film, William Faulkner: A Life on Paper :: Faulkner Moses

The Alcoholic Father Revealed in the Film, William Faulkner: A Life on Paper While listening to William Faulkner’s daughter, Jill, attempt to describe her father’s personality, I recognized the desire to defend and protect the memory of a provider who was ultimately unknowable to her. It seemed as if each phrase was tentatively spoken as a way of avoiding being untruthful. Mostly, I recognized the inability to truly know an alcoholic parent. I repeat the word ‘recognize’ intentionally. I lived with an alcoholic until I was ten. My stepfather had two personalities: Nick and Earl. Earl was the soft-spoken, earnest hard worker. He was a log cutter for a company that supplied East Texas timber to the local Georgia-Pacific Paper Mill. Each weekday morning he would arise before everyone else, load and fire-up the small woodstove in the living room so that we would awaken to a warm house. By the time my mother aroused my brother and me at 6 a.m. for school, Earl was already gone to work. We would arrive home from school before he finished working and anticipate his return. We would listen for the sound of Earl’s work truck pulling into the yard and run to meet him on the porch. Earl would crouch to greet us and sometimes swing me into the air playfully. My brother and I would follow him into the house and compete to tell him about our school day, and when Earl found his spot on the couch, we would help him unlace his work boots. He would pay us each a quarter for our deed. We would retreat to the yard to play or to our bedroom to watch television while Earl took his evening bath and ate the dinner plate my mom had put aside for him. â€Å"Nick† usually emerged shortly after dinner. He drank pints of Canadian Whiskey from the bottle with the casual speed of a chain smoker. Nick spoke often†¦in loud slurred sentences. His tone toward my mother became very disrespectful. Nearly every sentence began with â€Å"bitch† and was invariably decorated with multiple usage forms of â€Å"mother fucker.† He was not physically violent and posed no such threat. When my mother would tire of his barrage of accusations and complaints, she would sternly tell him to â€Å"shut up.† He would then stumble into their bedroom, fall across the bed fully dressed, and sink into a stupor punctuated by his snore.

Bank6003 Notes

BANK6003 Final Exam Notes TOPIC 4A: Credit Risk – Estimating Default Probabilities Overview * Theory of credit risk less developed than VaR based models of market risk. * Much less amenable to precise measurement than market risk – default probabilities are much more difficult to measure than dispersion of market movements. * Measurement on individual loans is important to FI for pricing and setting limits on credit risk exposure. Default Risk Models 1. Qualitative Models * Assembling relevant information from private and external sources to make a judgement on the probability of default. Borrower specific factors (idiosyncratic or specific to individual borrower) include: reputation, leverage, volatility of earnings, covenants and collateral. * Market-specific factors (systematic factors that impact all borrowers include): business cycle and interest rate levels. * FI manager weighs these factors to come to an overall credit decision. * Subjective 2. Credit Scoring Mod els * Quantitative models that use data on observed borrower characteristics to calculate a score that represents borrower’s probability of default or sort borrowers into different default risk categories.Linear Probability Models (LPMs) * Econometric model to explain repayment experience on past/old loans. * Regression model with a â€Å"dummy† dependent variable Z; Z = 1 default and Z=0 no default. * Weakness: no guarantee that the estimated default probabilities will always lie between 0 and 1 (theoretical flaw) Logit and Probit Models * Developed to overcome weakness of LPM. * Explicitly restrict the estimated range of default probabilities to lie between 0 and 1. * Logit: assumes probability of default to be logistically distributed. Probit: assumes probability of default has a cumulative normal distribution function. Linear Discriminant Analysis * Derived from statistical technique called multivariate analysis. * Divides borrowers into high or low default risk cl asses. * Altman’s LDM = most famous model developed in the late 1960s. Z < 1. 8 (critical value), there is a high chance of default. * Weaknesses * Only considers two extreme cases (default/no default). * Weights need not be stationary over time. 3. New Credit Risk Evaluation Models Newer models have been developed – use financial theory and financial market data to make inferences about default probabilities. * Most relevant for evaluating loans to larger corporate borrowers. * Area of very active continuing research by FIs. Credit Ratings * Ratings change relatively infrequently – objective of ratings stability. * Only chance when there is reason to believe that a long-term change in the company’s creditworthiness has taken place. * S&P: AAA, AA, A, BBB, BB, B and CCC * Moody’s: Aaa, Aa, A, Baa, Ba, B and Caa Bonds with ratings of BBB and above are considered to be â€Å"investment grade† Estimating Default Probabilities 1. Historical Data * Provided by rating agencies e. g. cumulative average default rates * If a company starts with a: * Good credit rating, default probabilities tend to increase with time. * Poor credit rating, default probabilities tend to decrease with time. * Default Intensity vs Unconditional Default Probability * Default intensity or hazard rate is the probability of default conditional on no earlier default. * Unconditional default probability is the probability of default as seen at time zero. Default intensities and unconditional default probabilities for a Caa rated company in the third year * Unconditional default probability = Caa defaulting during the 3rd year = 39. 709 – 30. 204 = 9. 505% * Probability that Caa will survive until the end of year 2 = 100 – 30. 204 = 69. 796%. * Probability that Caa will default in 3rd year conditional on no earlier default = 0. 09505/0. 69796 = 13. 62% Recovery Rate * Usually defined as the price of the bond 30 days after default as a perce nt of its face value. * Recovery rate % = 1 – LGD% * Ranking of bonds * Senior Secured * Senior Unsecured Senior Subordinated * Subordinated * Junior Subordinated Credit Default Swaps * Instrument that is very useful for estimating default probabilities is a CDS. * Buyer of the insurance obtains the right to sell bonds issued by the company for their face value when a credit event occurs and the seller of the insurance agrees to buy the bonds for their face value when a credit event occurs. * The total value of the bonds that can be sold is known as the CDS’ notional principal. * Total amount paid per year, as a percent of the notional principal, to buy protection is known as the CDS spread. Buyer of the instrument acquires protection from the seller against a default by a particular company or country (the reference entity) * Example: buyer pays a premium of 90bps per year for $100m of 5-year protection against company X. * Premium is known as the credit default sprea d. It is paid for the life of contract or until default. * If there is a default, the buyer has the right to sell bonds with a face value of $100m issued by company X for $100m. * Payments are usually made quarterly in arrears * In the event of default, there is a final accrual payment by the buyer * Attractions of the CDS market Allows credit risks to be traded in the same way as market risks * Can be used to transfer credit risks to a third party * Can be used to diversify credit risk Credit Indices * Developed to track credit default swap spreads. * Two important standard portfolios are: * CDX NA IG, portfolio of 125 investment grade companies in North America * iTraxx Europe, portfolio of 125 investment grade companies in Europe * Updated on March 20 and September 20 each year. * Example * 5 year CDX NA IG index is bid 165bp, offer 166bp. Quotes mean that a trader can buy CDS protection on all 125 companies in the index for 166 basis points per company. * Suppose an investor wan ts $800,000 of protection on each company. * The total cost is 0. 0166 x 800,000 x 125 = $1,660,000. * When a company defaults, the investor receives the usual CDS payoff and the annual payment is reduced by 1,660,000/125 = $13,280. * Index is the average of the CDS spreads on the companies in the underlying portfolio. Use of Fixed Coupons * Increasingly CDS and CDS indices trade like bonds so that the periodic protection payments remain fixed. A coupon and a recovery rate is specified. * Quoted spread > coupon, buyer of protection makes an initial payment. * Quoted spread < coupon, seller of protection makes an initial payment. Credit Spreads * Extra rate of interest required by investors for bearing a particular credit risk. CDS Spreads and Bond Yields * CDS can be used to hedge a position in a corporate bond. * Example: investor buys a 5-year corporate bond yielding 7% per year for its face value and at the same time enters into a 5-year CDS to buy protection against the issuer o f the bond defaulting. CDS spread is 2% p. . Effect of the CDS is to convert the corporate bond to a risk-free bond. If the bond issuer does not default, the investor earns 5% per year. If the bond issuer defaults, the investor exchanges the bond for its face value and this can be invested at the risk-free rate for the remainder of the five years. The Risk-Free Rate * The risk-free rate used by bond traders when quoting credit spreads is the Treasury rate. * Traditionally used LIBOR/swap rate * Normal market conditions: risk free rate is 10bp less than the LIBOR/swap * Stressed conditions, the gap is much higher Asset Swaps Provide a direct estimate of the excess of a bond yield over the LIBOR/swap rate. * Example: asset swap spread for a particular bond is quoted as 150 basis points. 3 possible situations: 1. Bond sells for its par value of 100. Company A pays the coupon and Company B pays LIBOR plus 150bp. 2. Bond sells below par, say 95. Company A pays $5 per $100 of principal at the outset. After that, Company A pays the coupon and Company B pays LIBOR plus 150bp. 3. Bond sells above par, say 108. Company B pays $8 per $100 of principal at the outset. After that, Company A pays the coupon and Company B pays LIBOR plus 150bp. Therefore, the present value of the asset swap spread is the present value of the cost of default. CDS-Bond Basis * CDS-Bond Basis = CDS spread minus the bond yield spread * Bond yield spread is usually calculated as the asset swap spread * Should be close to zero, but there are a number of reasons why it deviates: 1. Bond may sell for a price significantly different from par (above par = positive basis, below par = negative basis) 2. There is counterparty risk in a CDS (negative direction) 3. There is a cheapest-to-deliver bond option in a CDS (positive direction) 4.Payoff in a CDS does not include accrued interest on the bond that is delivered (negative direction) 5. Restructuring clause in a CDS contract may lead to a payoff when th ere is no default (positive direction) 6. LIBOR is greater than the risk-free rate assumed (positive direction) Estimating Default Probabilities from Credit Spreads * Average hazard rate between time zero and time t * s(t) = credit spread, t = maturity, R = recovery rate * s = 240bps, R = 0. 40, hazard rate = 0. 04 = 4% Real World vs Risk-Neutral Default Probabilities * Real world = backed out of historical data Risk-neutral = backed out of bond prices or credit default swap spreads * Produce very different results. Why? * Corporate bonds are relatively illiquid * Subjective default probabilities of bond traders may be much higher than the estimates from Moody’s historical data * Bonds do not default independently of each other. This leads to systematic risk that cannot be diversified away. * Bond returns are highly skewed with limited upside. The non-systematic risk is difficult to diversify away and may be priced by the market. * Use real world for calculating credit VaR an d scenario analysis. Use risk-neutral for valuing for credit derivatives and PV of cost of default Option Models * Based on the idea that equity prices can provide more up-to-date information for estimating default probabilities. * Employ option pricing methods e. g. KMV. * Used by many of the largest banks to monitor credit risk. Merton’s Model * 1974 – company’s equity is an option on the assets of the company. * Equity value at time T as max(VT – D, 0) * VT is value of the firm * D is the debt repayment required * Option pricing model enables value of a firm’s equity today to be related to the value of its assets today and the volatility of its assets. Read also Recording General Fund Operating Budget and Operating TransactionsVolatilities * Equation together with the option pricing relationship enables value and volatility of assets to be determined from value and volatility of equity. Example * Company equity = $3m * Volatility of equity = 80% * Risk-free rate is 5% * Debt = $10m * Time to debt maturity = 1 year * Value of assets = $12. 40m * Volatility of assets = 21. 23% * Probability of default is 12. 7% * Market value of debt = $9. 40m * PV of payment is 9. 51 * Expected loss 1. 2% * Recovery rate 91% Use of Merton’s Model to estimate real-world default probability (e. g. Moody’s KMV) * Choose time horizon Calculate cumulative obligations to time horizon (D) * Use Merton’s model to calculate a theoretical probability of default * Use historical data to develop a one-to-one mapping of theoretical probability into real-world probability of default. * Distance to default TOPIC 4B: Credit Value at Risk Backgr ound * Credit risk is the risk of loss over a certain time period that will not be exceeded with a certain confidence level. * Calculate credit risk to determine both regulatory capital and economic capital. * Time horizon for credit risk VaR is often longer than that for market risk. Market risk usually one-day time horizon and then scaled up to 10 days for the calculation of regulatory capital. * Credit risk VaR, for instruments that are not held for trading, is usually calculated with a one-year time horizon/ * Historical simulation is the main tool used to calculate market risk VaR, but a more elaborate model is usually necessary to calculate credit risk VaR. * Key aspect is credit correlation. Defaults (or downgrades or credit spread changes) for different companies do not happen independently of each other. * Credit correlation increases risks for a financial institution with a portfolio of credit exposures.Introduction * Internal economic capital allocations against credit ri sk are based on bank’s estimate of their portfolio’s probability density function of credit losses. * Probability of credit losses exceeding some level, say X, is equal to the shaded area under the PDF. * A risky portfolio is one whose PDF has a relatively long, fat tail i. e. where there is a significant likelihood that actual losses will be substantially larger than expected losses. * Target insolvency rate = shaded area under PDF to right of X * Allocated economic capital = X – expected credit losses Expected vs Unexpected Credit Loss Expected = amount of credit loss expected on credit portfolio over the chosen time horizon * Unexpected = amount by which actual credit losses exceed expected credit loss. Economic Capital Allocation * Economic capital = estimated capital required to support credit risk exposure. * Process is similar to VaR methods used for allocation of capital for market risk. * Probability of unexpected credit loss exhausting economic capital is less than the bank’s target insolvency rate. * Target insolvency rate usually consistent with desired credit rating. * â€Å"AA† rating implies a 0. 3% chance of default. Need enough economic capital to be 99. 97% certain that credit losses will not cause insolvency. * Based on two inputs: 1. Bank’s target insolvency rate 2. Bank’s estimated PDF for portfolio credit losses * Two banks with identical portfolios could have very different economic capital for credit risk, owing to: 1. Differences in attitudes to risk taking (reflected in target insolvency rates) 2. Differences in methods of estimating PDFs (reflected in credit risk models) Measuring Credit Losses * Credit loss = current value –future value at the end of some time horizon. Precise definition of current/future values contingent on specific credit loss paradigm. * Current generation of credit risk models employ either of two conceptual paradigms: 1. Default-Mode (DM) Paradigm * Most common. * Credit loss arises only if default occurs within the time horizon. * â€Å"Two-state† model – only two outcomes, default and non-default. * If borrower defaults, credit loss = bank’s credit exposure – present value of future net recoveries (cash payments less workout expenses). * Current values are known but future values are uncertain. Estimate joint probability distribution with respect to 3 types of random variables: 1. Associated credit exposure 2. Indicator denoting whether facility defaults during planning horizon 3. In the event of default, the loss given default (LGD). Unexpected losses approach: * Assumption that PDF is well-approximated by mean and standard deviation. * Set capital at some multiple of estimated standard deviation of losses. * Requires estimates of expected and unexpected credit loss from default. * Expected loss (? ) depends on 3 key components: 1. LGD = loss given default, expressed as a decimal . PD = probability of default 3. EAD = expect credit exposure at default. * Standard deviation of portfolio credit losses * i = stand-alone standard deviation of credit losses from ith facility; * i = correlation between credit losses from ith facility and those on the overall portfolio; 2. Mark-to-Market (MTM) Paradigm * Credit loss can arise in response to decline in credit risk quality. * â€Å"Multi-state† model: default is only one of several possible credit ratings a loan could ‘migrate’ to over the horizon. * Credit portfolio marked to market at the beginning and end of planning horizon. Likelihood of a customer migrating from its current risk rating to any other category within the planning horizon is typically expressed in terms of a rating transition matrix. Row = current rating Column = prob of migrating to another risk grade * Complex estimation – need to estimate credit risk migrations at end of horizon as well as future credit spreads (risk-premium associated with end-of-period credit rating). * Two approaches: 1. Discounted contractual cash flow (DCCF) approach 2. Risk-neutral valuation (RNV) approach: an option valuation framework. In each methodology, a loan’s value is constructed as a discounted PV of its future cash flows. * Approaches differ mainly in how discount factors and yield spreads are estimated or calculated. TOPIC 5: OPERATIONAL RISK Overview * Definition: the risk of loss resulting from inadequate of failed internal processes, people and systems or from external events. * Harder to quantify and manage operational risk than credit or market risk. * FIs make a conscious decision to take a certain amount of credit and market risk but operational risk is a necessary part of doing business. Operational risk has become a more significant issue as a result of: * Increased use of highly automated technology and sophisticated systems * Growth of e-commerce * New wave of M&A * Increased risk mitigation techniques that may produ ce other risks * Increased prevalence of outsourcing * Over 100 operational loss events exceeding USD 100m since the end of the 1980s: * Internal fraud * External fraud * Employment practices and workplace safety * Clients, products and business practices * Damage to physical assets * Business disruption and system failures Execution, delivery and process management Regulatory Capital for Operational Risk * Three methods which represent a continuum of approaches characterised by increasing sophistication and risk sensitivity: 1. Basic Indicator Approach (15% of gross income) 2. Standardised Approach (different % for each business line) 3. Advanced Measurement Approach 1. Basic Indicator Approach * KBIA=GI ? ? GI = average annual gross income (net interest income + non-interest income) ? = 15% 2. Standardised Approach Bank activities divided into 8 business lines.Capital charge for each line is calculated by multiplying its gross income by the denoted beta. Total capital charge: KTSA = (GI1-8 ? ?1-8) To qualify for use of this approach, a bank must satisfy, at a minimum: – Its board of directors and senior management, as appropriate, are actively involved in the oversight of the operational risk management framework – It has an operational risk management system that is conceptually sound and implemented with integrity. – It has sufficient resources in the use of the approach in the major business lines as well as the control and audit areas. 3.Advanced Measurement Approach (AMA) * Regulatory capital requirement is determined using the quantitative and qualitative criteria for the AMA. * Banks can only use this approach if their local regulators/supervisory authorities have provided approval. * Qualitative Standards 1. Bank must have independent operational risk management function that is responsible for the design and implementation of banks’ operational risk management framework. 2. Bank’s internal operational risk measureme nt system must be closely integrated into the day-to-day risk management processes of the bank. 3.There must be regular reporting of operational risk exposures and loss experience to business unit management, senior management, and to the board of directors. 4. Bank’s operational risk management system must be well documented. 5. Internal and/or external auditors must perform regular reviews of the operational risk management processes & measurement systems. * Quantitative Standards 1. Banks must demonstrate that its approach captures potentially severe tail loss events. 2. Required to calculate regulatory capital requirement as the sum of expected loss (EL) and unexpected loss (UL) 3.Must be sufficiently ‘granular’ to capture the major drivers of operational risk. 4. Operational risk measurement system must include the use of internal data, relevant external data, scenario analysis and factors reflecting the business environment and internal control systems. Dis tributions important in estimating potential operational risk losses: 1. Loss frequency distribution * Distribution of number of losses observed during the time horizon (usually 1 year). * Loss frequency should be estimated from the banks own data as far as possible. One possibility is to assume a Poisson distribution: only need to estimate an average loss frequency. 2. Loss severity distribution * Distribution of the size of a loss given that a loss has occurred. * Based on both internal and external historical data. * Lognormal probability distribution is often used: only need to estimate mean and SD. AMA * The two distributions above are combined for each loss type and business line to determine the total loss distribution. * Monte Carlo simulation can be used to combine the two distributions. Four elements specified by the Basel Committee 1. Internal Data Operational risk losses have not been recorded as well as credit risk losses * Important losses are low-frequency high-severi ty losses * Loss frequency should be estimated from internal data 2. External Data * Data sharing or data vendors * Data from vendors: * Based on publicly available information biased towards large losses * Only be used to estimate the relative size of the mean losses and SD of losses for different risk categories. 3. Scenario Analysis * Aim is to generate scenarios covering all low frequency high severity losses * Can be based on both internal and external experience Aggregate scenarios to generate loss distributions 4. Business Environment and Internal Control Factors * Takes account of: * Complexity of business line * Technology used * Pace of change * Level of supervision * Staff turnover rates Power Law * Prob (v > x) = Kx-a * Power law holds well for the large losses experienced by banks. * When loss distributions are aggregated, the distribution with the heaviest tails tends to dominate. This means that the loss with the lowest alpha defines the extreme tails of the total los s distribution. Insurance * Important decision re operational risk is the extent to which it should be insured against.Moral Hazard * Risk that the existence of the insurance contract will cause the bank to behave differently than it otherwise would. * Example: a bank insures itself against robberies. As a result of the insurance policy, it may be tempted to be lax in its implementation of security measures – making a robbery more likely than it would otherwise have been. * Solution * Deductible – bank is responsible for bearing the first part of any loss * Coinsurance provision – insurance company pays a predetermined percentage of losses in excess of the deductible. * Policy limit – on total liability of the insurer.Adverse Selection * This is where an insurance company cannot distinguish between good and bad risks. * To overcome this, an insurance company must try to understand the controls that exist within banks and the losses that have been experien ced. Sarbanes-Oxley * Sarbanes-Oxley Act passed in the US in 2002. * Requires board of directors to become much more involved with day-to-day operations. They must monitor internal controls to ensure risks are being assessed and handled well. * Gives the SEC the power to censure the board or give it additional responsibilities. A company’s auditors are not allowed to carry out any significant non-auditing services. * Audit committee of the board must be made aware of alternative accounting treatments. * CEO and CFO must return bonuses in the event that financial statements are restated. TOPIC 6: LIQUIDITY RISK Overview * Liquidity refers to the ability to make cash payments as they become due. * Solvency refers to having more assets than liabilities, so that equity value is positive. Types of Liquidity Risk * Liquidity trading risk – markets can become illiquid very quickly.Cannot unwind asset position at a fair price fire sale prices. * Liquidity funding risk – risk of being unable to service cash flow obligations. Liquidity needs are uncertain. Liquidity Trading Risk * Price received for an asset depends on: * The mid market price * How much is to be sold * How quickly it is to be sold * The economic environment Bid-Offer Spread as a Function of Quantity * Dollar bid – offer spread, p = Offer price – Bid price * There is a spread which is constant up to some quantity. After a critical level (size limit of market makers), the spread widens.Proportional bid-offer spread= Offer price-bid priceMid-market price * Cost of liquidation in normal markets i=1n12si? i * N is the number of positions, alpha is the position of the instrument, s is the proportional bid-offer spread for the instrument. * Spread widens if market is in stressed conditions. * Cost of liquidation in stressed markets i=1n12(? i+ i)? i * Mean and SD, lambda is required confidence level Liquidity Adjusted VaRLiquidity-Adjusted Stressed VaR VaR+i=1n12si? i VaR+i= 1n12(? i+ i)? i Unwinding a Position Optimally (Two Options) Unwind quickly: trader will face large bid-offer spreads, but the potential loss from the mid-market price moving against the trader is small. * Unwind over several days: bid-offer spread each day will be lower, but the potential loss from the mid-market price moving against the trader is larger. Liquidity Funding Risk * Sources of liquidity * Liquid assets * Ability of liquidate trading positions (funding risk and trading risk are interrelated) * Wholesale and retail deposits * Lines of credit and the ability to borrow at short notice * Securitisation * Central bank borrowing (lender of last resort) Basel III Regulation * Liquidity Coverage Ratio: designed to make sure that the bank can survive a 30 day period of acute stress * Net Stable Funding Ratio: a longer term measure designed to ensure that stability of funding sources is consistent with the permanence of the assets that have to be funded. Liquidity Black Holes * Occurs when most market participants want to take one side of the market and liquidity dries up. Positive and Negative Feedback Trading * Exacerbates the direction of price movements * Positive feedback trader buys after a price increase and sells after a price decrease. Negative feedback trader buys after a price decrease and sells after a price increase. * Positive feedback trading can create or accentuate a black hole. Reasons for Positive Feedback Trading * Computer models incorporating stop-loss trading. Stop-loss trading = discarding position to prevent further losses. * Dynamic hedging a short option position. Example: if you have â€Å"sold an option† – cover yourself by going long i. e. buy underlying asset when price rises and sell when price decreases. * Creating a long option position synthetically * Margin calls The Leveraging CycleThe Deleveraging CycleIs Liquidity Improving? * Spreads are narrowing but arguably the risks of liquidity black holes are now greater than they used to be. * We need more diversity in financial markets where different groups of investors are acting independently of each other. Principles for Sound Liquidity Risk Management and Supervision (June 2008) * GFC regulators responded by undertaking a fundamental review of existing guidance of liquidity management and issued a revised set of principles on how banks should manage liquidity. Fundamental Principle for the Management and Supervision of Liquidity Risk 1.Sound management of liquidity risk – robust risk management framework. Governance of Liquidity Risk Management 2. Clearly articulate a liquidity risk tolerance 3. Strategy, policies and practices to manage liquidity risk 4. Incorporate liquidity costs, benefits and risks for all significant business activities. Measurement and Management of Liquidity Risk 5. Framework for comprehensively projecting cash flows arising from assets, liabilities and OBS items. 6. Actively monitor and control liquidi ty risk exposures and funding needs within and across legal entities. 7.Establish a funding strategy that provides effective diversification. 8. Effectively manage intraday liquidity positions and risks to meet payment and settlement obligations. 9. Actively manage collateral positions. 10. Conduct stress tests on a regular basis. 11. Formal contingency funding plan (CFP) in case of emergency. 12. Maintain a cushion of unencumbered, high quality liquid assets in case of stress scenarios. Public Disclosure 13. Publicly disclose information on a regular basis The Role of Supervisors 14. Regularly perform a comprehensive assessment of a bank’s overall liquidity risk management framework. 15.Supplement point 14 by monitoring a combination of internal reports, prudential reports and market information. 16. Should intervene to require effective and timely remedial action to address liquidity deficiencies. 17. Should communicate with other regulators e. g. central banks – coo peration TOPIC 7: CORE PRINCIPLES OF EFFECTIVE BANKING SUPERVISION Overview * Most important global standard for prudential regulation and supervision. * Endorsed by vast majority of countries. * Provides benchmark against which supervisory regimes can be assessed. * 1995: Mexican and Barings Crises Lyon Summit in 1996 for G7 Leaders. 1997: Document drafted and endorsed at G7 meeting. Final version presented at annual meetings of World Bank and IMF in Hong Kong. * 1998: G-22 endorsed * 2006: Revision of the Core Principles * 2011: Basel Committee mandates a major review, issues revised consultative paper. The Core Principles (2006) * 25 minimum requirements that need to be met for an effective regulatory system. * May need to be supplemented by other measures. * Seven major groups * Framework for supervisory authority – Principle 1 * Licensing and structure – Principles 2-5 * Prudential regulations and requirements – Principles 6-18 *Methods of ongoing banking s upervision – Principles 19-21 * Accounting and disclosure – Principle 22 * Corrective and remedial powers of supervisors – Principle 23 * Consolidated and cross-border banking – Principles 24-25. * Explicitly recognise: * Effective banking supervision is essential for a strong economic environment. * Supervision seeks to ensure banks operate in a safe and sound manner and hold sufficient capital and reserves. * Strong and effective supervision is a public good and critical to financial stability. * While cost of supervision is high, the cost of poor supervision is even higher. Key objective of banking supervision: * Maintain stability and confidence in the financial system * Encourage good corporate governance and enhance market transparency Revised Core Principles (2011) * Core Principles and assessment methodology merged into a single document. * Number of core principles increased to 29. * Takes account of several key trends and developments: * Need to deal with systemically important banks * Macroprudential focus (system-wide) and systemic risk * Effective crisis management, recovery and resolution measures. Sound corporate governance * Greater public disclosure and transparency enhance market discipline. * Two broad groups: 1. Supervisory powers, responsibilities and functions. Focus on effective risk-based supervision, and the need for early intervention and timely supervisory actions. Principles 1-13. 2. Prudential regulations and requirements. Cover supervisory expectations of banks, emphasising the importance of good corporate governance and risk management, as well as compliance with supervisory standards. Supervisory powers, responsibilities and functions 1.Clear responsibilities and objectives for each authority involved. Suitable legal framework. 2. Supervisor has operational independence, transparent processes, sound governance and adequate resources, and is accountable. 3. Cooperation and collaboration with domestic a uthorities and foreign supervisors. 4. Permissible activities of banks is controlled. 5. Assessment of bank ownership structure and governance. 6. Power to review, reject and impose prudential conditions on any changes in ownership or controlling interests. 7. Power to approve or reject major acquisitions. 8.Forward-looking assessment of the risk profile of banks and banking groups. 9. Uses appropriate range of techniques and tools to implement supervisory approach. 10. Collects, reviews and analyses prudential reports and statistical returns. 11. Early address of unsafe and unsound practices. 12. Supervises banking group on consolidated basis (including globally) 13. Cross-border sharing of information and cooperation. Prudential regulations and requirements 14. Robust corporate governance policies and processes. 15. Banks have a comprehensive risk management process, including recovery plans. 6. Set prudent and appropriate capital adequacy requirements. 17. Banks have an adequate credit risk management process. 18. Banks have adequate policies and processes for the early identification and management of problems assets, and maintain adequate provisions and reserves. 19. Banks have adequate policies re concentration risk. 20. Banks required to enter into any transactions with related parties on an arm’s length basis. 21. Banks have adequate policies re country and transfer risk. 22. Banks have an adequate market risk management process. 23.Banks have adequate systems re interest rate risk in the banking book. 24. Set prudent and appropriate liquidity requirements. 25. Banks have an adequate operational risk management framework. 26. Banks have adequate internal controls to establish and maintain a properly controlled operating environment for the conduct of their business. E. g. delegating authority and responsibility, separation of the functions that involve committing the bank. 27. Banks maintain adequate and reliable records, prepare financial state ments in accordance with accounting policies etc. 8. Banks regularly publish information on a consolidated and solo basis. 29. Banks have adequate policies and processes e. g. strict customer due diligence. Preconditions for Effective Banking Supervision 1. Provision of sound and sustainable macroeconomic policies. 2. A well established framework for financial stability policy formulation. 3. A well developed public infrastructure 4. A clear framework for crisis management, recovery and resolution 5. An appropriate level of systemic protection (or public safety net) 6. Effective market discipline 001: IMF and World Bank Study on Countries’ Compliance with Core Principles * 32 countries are compliant with 10 or few BCPs * Only 5 countries were assessed as fully compliant with 25 or more of the BCPs. * Developing countries less compliant than advanced economies. * Advanced economies generally possess more robust internal frameworks as defined by the ‘preconditions’ 2008: IMF Study on BCP Compliance * Based on 136 compliance assessments. * Continued work needed on strengthening banking supervision in many jurisdictions, particularly in the area of risk management. More than 40% of countries did not comply with the essential criteria of principles dealing with risk management, consolidated supervision and the abuse of financial services. * More than 30% did not possess the necessary operational independence to perform effective supervision nor have adequate ability to use their formal powers to take corrective action. * On average, countries in Western Europe demonstrated a much higher degree of compliance (above 90%) with BCP than their counterparts in other regions. * Africa and Western Hemisphere weak. Generally, high-income countries reflected a higher degree of compliance. TOPIC 8: CAPITAL ADEQUACY Overview * Adequate capital better able to withstand losses, provide credit through the business cycle and help promote public confidence in ba nking system. Importance of Capital Adequacy * Absorb unanticipated losses and preserve confidence in the FI * Protect uninsured depositors and other stakeholders * Protect FI insurance funds and taxpayers * Protect deposit insurance owners against increases in insurance premiums * To acquire real investments in order to provide financial services e. . equity financing is very important. Capital Adequacy * Capital too low banks may be unable to absorb high level of losses. * Capital too high banks may not be able to make the most efficient use of their resources. Constraint on credit availability. Pre-1988 * Banks regulated using balance sheet measures e. g. ratio of capital to assets. * Variations between countries re definitions, required ratios and enforcement of regulations. * 1980s: bank leverage increased, OBS derivatives trading increased. * LDC debt = major problem 1988 Basel Capital Accord (Basel I) * G10 agreed to Basel I Only covered credit risk * Capital / risk-adjusted assets > 8% * Tier 1 capital = shareholders equity and retained earnings * Tier 2 capital = additional internal and external resources e. g. loan loss reserves * Tier 1 capital / risk-adjusted assets > 4% * On-balance-sheet assets assigned to one of four categories * 0% – cash and government bonds * 20% – claims on OECD banks * 50% – residential mortgages * 100% – corporate loans, corporate bonds * Off-balance-sheet assets divided into contingent or guarantee contracts and FX/IR forward, futures, option and swap contracts. Two step process (i) derive credit equivalent amounts as product of FV and conversion factor then (ii) multiply amount by risk weight. * OBS market contracts or derivative instruments = potential exposure + current exposure. * Potential exposure: credit risk if counterparty defaults in the future. * Current exposure: cost of replacing a derivative securities contract at today’s prices. 1996 Amendment * Implemented in 1998 * Requi res banks to measure and hold capital for market risk. * k is a multiplicative factor chosen by regulators (at least 3) VaR is the 99% 10-day value at risk SRC is the specific risk charge Total Capital = 0. 08 x [Credit risk RWA + Market risk RWA] where market risk RWA = 12. 5 x [k x VaR + SRC] Basel II (2004) * Implemented in 2007 * Three pillars 1. New minimum capital requirements for credit and operational risk 2. Supervisory review: more thorough and uniform 3. Market discipline: more disclosure * Only applied to large international banks in US * Implemented by securities companies as well as banks in EU Pillar 1: Minimum Capital Requirements * Credit risk measurement: * Standardised approach (external credit rating based risk weights) * Internal rating based (IRB) Market risk = unchanged * Operational risk: * Basic indicator: 15% of gross income * Standardised: multiplicative factor for income arising from each business line. * Advanced measurement approaches: assess 99. 9% wor st case loss over one year. * Total capital = 0. 08 x [Credit risk RWA + market risk RWA + Operational risk RWA] Pillar 2: Supervisory Review * Importance of effective supervisory review of banks’ internal assessments of their overall risks. Pillar 3: Market discipline * Increasing transparency – public disclosure Basel 2. 5 (Implemented 2011) * Stressed VaR for market risk * Incremental risk charge Ensures products such as bonds and derivatives in the trading book have the same capital requirement that they would if they were in the banking book. * Comprehensive risk measure (re credit default correlations) Basel III (2010) * Considerably increase quality and quantity of banks capital * Macroprudential overlay – systemic risk * Allows time for smooth transition to new regime * Core capital only retained earnings and common shares * Reserves increased from 2% to 4. 5% * Capital conservation buffer – 2. 5% of RWA * Countercyclical capital buffer * Tracing/ monitoring of liquidity funding Introduction of a maximum leverage ratio Capital Definitions and Requirements * Common equity > 4. 5% of RWA * Tier 1 > 6% of RWA * Phased implementation of capital levels stretching to Jan 1, 2015 * Phased implementation of capital definition stretching to Jan 1, 2018 Microprudential Features * Greater focus on common equity * Loss-absorbing during stress/crisis period capital conservation buffer * Promoting integrated management of market and counterparty credit risk. * Liquidity standard introduced introduced Jan 1, 2015 Introduced Jan 1, 2018 Available Stable Funding FactorsRequired Stable Funding Factors Macroprudential Factors * Countercyclical buffer * Acts as a brake in good times of high credit growth and a decompressor to restrict credit during downturns. * Within a range of 0-2. 5% * Left to the discretion of national regulators * Dividends restricted when capital is below required level * Phased in between Jan 1, 2016 – Jan 1, 2019 * Leverage Ratio * Target 3% * Ratio of Tier 1 capital to total exposure > 3% * Introduced on Jan 1, 2018 after a transition period * SIFIs * Required to hold additional loss absorbency capital, ranging from 1-2. 5% in common equity