19th-25th September 2011

Issue 31

Citigroup CEO Vikram Pandit suggests new way to gauge risk

To protect the international financial system, regulators should rely more on a benchmark portfolio as a tool to guard against excessive risk-taking, rather than the capital standards now in use, Citigroup Chief Executive Vikram Pandit said on Friday. Pandit said that capital rules, such as the international Basel, are not transparent and do not give investors a good idea of how much risk a bank is facing. "Knowing how a company's risk measurements perform against this benchmark portfolio will tell the world how its management thinks about risk, and therefore just how conservative or risky its own portfolio probably is," Pandit said. "As importantly the benchmark portfolio allows for the kind of 'apples to apples' comparison that the current approach does not provide." Click Here

BRICS nations offer support to ailing economies via IMF

The Finance Ministers of BRIC countries said in Washington they are open to the idea of providing support through the International Monetary Fund (IMF) or other financial institutions to address global economic challenges. "The BRICs are open to consider, if necessary, providing support through the IMF or other international financial institutions in order to address the present challenges to global financial stability, depending on individual country circumstances," said a joint communiqu issued by the BRIC finance ministers after their meeting here. Click Here

UBS chief executive Oswald Gruebel quits

UBS chief executive Oswald Gruebel has resigned over a $2.3 billion rogue trading loss, the bank said on Saturday. The move ends days of speculation about whether Gruebel could retain his position following the latest scandal to hit Switzerland's biggest bank. UBS Europe chief Sergio P. Ermotti will take over immediately as interim chief executive until Gruebel's replacement is appointed, the bank said in a statement.

Barack Obama links education reform to economic recovery

Young people in the United States are falling behind their overseas peers in reading, math and science, President Barack Obama said on Saturday, calling education reform an essential part of economic recovery. In his weekly radio and video address, Obama said as many as a quarter of American students are not finishing high school and far too few young people are getting college degrees. His $447 billion job creation plan includes money for hiring teachers and school repairs, and on Friday he announced a loosening of "No Child Left Behind," a decade-old education measure introduced by former President George W. Bush that seeks to hold schools accountable for students' performance. Click Here GLOBAL MANAGEMENT PROGRAM

19th-25th September 2011

Issue 31

World economy faces 'lost decade', says Russian finance minister Alexei Kudrin
The world economy faces a lost decade of low growth even though it is still possible to stave off another global recession; Russia's finance minister was quoted as saying on Saturday. "We are probably faced with a lost decade. It is already obvious that growth rates are going to be low," Alexei Kudrin told Russian reporters on the sidelines of the G20 finance ministers meeting in Washington. "The fight with a fading of growth is going to take many years, most likely 5-10 years," Kudrin, one of the world's longest serving finance ministers who has been in his post since May 2000, said it was not inevitable that there would be a new global recession as in 2008 but the risks had increased. "The last days have shown that the risks we have talked about are very real and some market indicators have already reached the level of the last crisis in 2008." According to Kudrin, one of the differences with the crisis in 2008 is that participants now understood the magnitude of the risks. "Today we are looking at all the risk zones more seriously and thus the anxiety is probably greater but the crisis itself could turn out to be milder than in 2008," he added. Click Here

Greece on edge of biggest sovereign default 24 centuries after first insolvency

History's first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo's mythical

birthplace. Twenty-four centuries later, Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of a insolvency by a government with 353 billion ($483 billion) of debt -- five times the size of Argentina's $95 billion default in 2001. Click Here

Global crisis: Why China can't and won't save the world
The most China can realistically do for the struggling global economy is to ensure its own growth holds up, and that won't be nearly enough to lift the world. Visions of China putting its $3.2 trillion in reserves to work by launching another government spending spree or buying up European bonds ignore the political and economic reality that China, like any other country, puts its own needs first. Right now, China's economy doesn't need more stimulus and its leaders are wary of making bad bets on European debt, which means if conditions worsen in the United States or Europe, China would respond only if and when trouble shows up at home. To offset the impact of a 3 per cent drop in US and European growth, China would need to increase its own growth by 18 per cent, he said. Click Here GLOBAL MANAGEMENT PROGRAM

19th-25th September 2011

Issue 31

Global crisis: Is China's economy in trouble too?

Is China's economy in trouble, too? As the U.S. economy appears to teeter on the edge of another recession, Europe struggles with a financial crisis and emerging markets like Brazil and India show new weaknesses, China might appear to be in better shape than most countries, economists say. But "better" is relative. On the surface, economists at the International Monetary Fund and most banks are still estimating China's growth rate to be more than 9 percent this year. China continues to run very large trade surpluses. New construction starts have soared with a government campaign to provide more affordable housing. And yet, the country's huge manufacturing sector is starting to slow and orders are weakening, especially for exports. The real estate bubble is starting to spring leaks, even as inflation remains stubbornly high for consumers - despite a series of interest rate increases and ever-tighter limits on bank lending. Click Here

Danger of currency war if economic crisis deepens: Pranab Mukherjee

Currency war can be avoided through dialogue and not through competitive devaluations, Mukherjee stressed at a crowded press conference of finance ministers of BRICs nations at the headquarters of the International Monetary Fund. "Yes, if the crisis deepens further and there is greater volatility in financial flows, there is an increased risk of this (currency war) happening," Mukherjee said in response to a question. "But our view is that if such tensions arise, it should be eased through the dialogue and not through competitive devaluations," he said. Mukherjee pointed out the currencies used in BRICS countries should be widely appreciated and should be taken into account while determining the ingredients of special drawing rights (SDR) maintained by the IMF, as these nations' contributions to global output and the economy is increasingly substantially. "But we are not suggesting right now, because there are many other factors which ought to be taken into account, including free convertibility and other things which are not uniform, but the importance of these currencies has increased," Mukherjee said. Click Here

Eurozone should allow Greece to default: Jim Rogers

Jim Rogers, Chairman, Rogers Holdings is of the opinion that a viable solution to the Europe sovereign debt crisis would be if Eurozone allows Greece to default. According to him the default, would be a magnificent signal to buy euros. "I would buy all the Euros I could at that point. We would know we are going to have a sound currency, strong Euro," he said in an interview. He believes that euro would then be a very serious competitor to the US dollar. But it was unclear whether their strong words would be backed up by equally strong actions. The president of the Dutch central bank says in a newspaper interview that he no longer rules out the possibility that Greece may not be able to pay back its crippling government debt. A Greek default "is one of the scenarios," Klaas Knot says in an interview. Greece could default on its debt next month unless it receives a (euro) 8 billion ($10.9 billion) installment from a bailout fund managed by the European Central Bank, the European Commission and the IMF. A default could destabilize other financially troubled European countries, such as Portugal, Ireland, Spain and Italy. It would also deal a blow to many European banks, which are large holders of Greek government bonds. Click Here GLOBAL MANAGEMENT PROGRAM

19th-25th September 2011

Issue 31

Jargon Mania
Derivatives: A derivative instrument is a contract between two parties that specifies conditionsin particular, dates and the resulting values of the underlying variablesunder which payments, or payoffs, are to be made between the parties. Derivatives are broadly categorized by the relationship between the underlying asset and the derivative (e.g., forward, option, swap); the type of underlying asset (e.g., equity derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives, or credit derivatives); the market in which they trade (e.g., exchange-traded or overthe-counter); and their pay-off profile. Derivatives can be used for speculating purposes ("bets") or to hedge ("insurance"). Economic Value Added: A measure of a company's financial performance based on the residual wealth calculated by deducting cost of capital from its operating profit (adjusted for taxes on a cash basis). (Also referred to as "Economic Profit".) The formula for calculating EVA is as follows: = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital) This measure was devised by Stern Stewart & Co. Economic value added attempts to capture the true economic profit of a company. Portfolio: The term portfolio refers to any collection of financial assets such as stocks, bonds and cash. Portfolios may be held by individual investors and/or managed by financial professionals, hedge funds, banks and other financial institutions. It is a generally accepted principle that a portfolio is designed according to the investor's risk tolerance, time frame and investment objectives. The dollar amount of each asset may influence the risk/reward ratio of the portfolio and is referred to as the asset allocation of the portfolio. There are many types of portfolios including the Market Portfolio and the Zero-Investment Portfolio. A portfolio's asset allocation may be managed utilizing any of the following investment approaches and principles: equally-weighting, capitalization-weighting, price-weighting, Risk parity, Capital asset pricing model, Arbitrage pricing theory, Jensen Index, Treynor Index, Sharpe Diagonal (or Index) model, Value at risk model, Modern Portfolio Theory and others.

GLOBAL MANAGEMENT PROGRAM

19th-25th September 2011

Issue 31

Jargon Mania
Channel Distribution: Distribution is a very important component of Logistics & Supply chain management. Distribution in supply chain management refers to the distribution of a good from one business to another. It can be factory to supplier, supplier to retailer, or retailer to end customer. It is defined as a chain of intermediaries, each passing the product down the chain to the next organization, before it finally reaches the consumer or end-user. This process is known as the 'distribution chain' or the 'channel.' Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. A number of alternative 'channels' of distribution may be available:

Distributor, who sells to retailers via direct marketing, or brokers can also be used, Retailer (also called dealer or reseller), who sells to end customers Direct Distribution (Direct Marketing), where an organization sells its products directly to the end customer. For example in case of online purchases (Internet Marketing and E-commerce) there will be the seller and customer. For this the seller and the customer may depend on various shipping providers. Advertisement typically used for the consumption goods

Generic brand: Generic brands of consumer products (often supermarket goods) are distinguished by the absence of a brand name. It is often inaccurate to describe these products as "lacking a brand name", as they usually are branded, albeit with either the brand of the store in which they are sold or a lesser-known brand name which may not be aggressively advertised to the public. They are identified more by product characteristics. Generic brands are usually priced below those products sold by supermarkets under their own brand (frequently referred to as "store brands" or "own brands"). Generally they imitate these more expensive brands, competing on price. Generic brand products are often of equal quality as a branded product; however, the quality may change suddenly in either direction with no change in the packaging if the supplier for the product changes.

Strategic Market Planning: The planning process that yields decisions in how a business unit can best compete in the markets it elects to serve. The strategic plan is based upon the totality of the marketing process.

GLOBAL MANAGEMENT PROGRAM

19th-25th September 2011

Issue 31

Great depression and 2011: The crucial difference between then and now
In the face of nothing but bad economic news, Americans often take heart in remembering that we have been here before - during the Great Depression, when conditions were far worse than they are today - and we survived. But there is a crucial difference between then and now: The words that our political leaders use to talk about our problems have changed. Where politicians once drew on a morally resonant language of people, family and shared social concern, they now deploy the cold technical idiom of budgetary accounting. This is more than a superficial difference in rhetoric. It threatens to deprive us of the intellectual resources needed to address today's problems. Turn back the clock to June 1934. Millions of Americans are out of work, losing their homes and facing more of the same. President Franklin D. Roosevelt responds by creating the Committee on Economic Security. To Congress, he stresses that he places "the security of the men, women and children of the nation first." All Americans, he emphasizes, "want decent homes to live in; they want to locate them where they can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this man-made world of ours." Roosevelt asks the committee to propose "sound means" to secure against "several of the great disturbing factors in life - especially those which relate to unemployment and old age." Those "sound means" eventually emerge as the programs of Social Security pensions, old-age assistance and unemployment insurance. Fast forward to February 2010. With millions of Americans out of work, home foreclosures at historic highs and little prospect of relief for those in need, President Obama acts, establishing a National Commission on Fiscal Responsibility and Reform. The commission's task is to "improve the fiscal situation," to "achieve fiscal sustainability over the long run" and to address "the growth of entitlement spending." The commission recommends, true to its charge, cuts in entitlement spending - that is, the programs established in 1935 and later years to aid the unemployed, aged, disabled and sick. In August 2011, Congress acts, not to aid those in distress but to cut federal spending. The stated goal of its new "super committee" is to create fiscal balance by recommending measures "to reduce the deficit" by at least $1.5 trillion over the next decade. Thus is the desperate situation of many Americans reduced to the clinical language of budgetary accounting. Social insurance programs that protect Americans against the common hazards of a market economy are "entitlements" that need to be revamped in the name of fiscal balance and deficit reduction. As an economic policy matter, we view cutting entitlement programs as a very bad idea. But we wish to make a more fundamental observation about language and the collective imagination that language reflects. In 1934, the focus was on people, family security and the risks to family economic well-being that we all share. Today, the people have disappeared. The conversation is now about the federal budget, not about the real economy in which real people live. If a moral concept plays a role in today's debates, it is only the stern proselytizing of forcing the government to live within its means. If the effect of government policy on average people is discussed, it is only as providing incentives for the sick to economize on medical costs and for the already strapped worker to save for retirement.

Source: Click Here

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