Finance

Budgeting is the systematic method of allocating financial, physical, and human resources to achieve an organization’s strategic goals. Budgets are utilized by for-profit and non-profit organizations to monitor the progress towards the goals, assist in the control of spending, and help predict cash flow for the organization. The central challenge that budget developers encounter is predicting what the future holds for the internal business and external factors.

Reading the future is something that can never be done with perfect precision. The fast pace of technological change, the complexities of global competition and world events make developing effective budgets both more difficult and more important. Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. (Gruner & Jahr, 2003 Inc Magazine).

If good budgeting is important for every successful business or organization, can we expect to have industry standard and general practices that are followed in every type of organization? Probable not, but certain standard can be expected, which is the direction of this term paper. Are there a difference or should there be a difference in the way a for-profit and a not-for-profit conduct their budgeting procedures. In both cases, they have income and expenses, employees and goals and objectives of the organization.

The hypothesis is that there is no difference in the budgeting procedures nor is there a need to find a variance in the General Accepted Accounting Principals between the two types of organization. This paper will examine budgeting procedures for profit and non-profit businesses and compare similarities, and if they exist, differences in accounting practices. This paper will also attempt to review what is Generally Accepted Accounting Procedures (GAAP) for budgeting for any organization to be successful.

Through research, I found the following information from an article from Arthur Anderson accounting firm who has studied successful organizations, both profit and non-profit, and discovered what budgeting practices are used. Important benefits of improving the budgeting process include better companywide understanding of strategic goals, more coordinated support for those goals, and an improved ability to respond quickly to competition. A discussion of best practices used by leading companies to develop budgets follows. (Gruner & Jahr, 2003, Inc Magazine).

Link cost management efforts to budgeting. By linking cost management efforts to budgeting, companies improve the quality of information available for managers to use in developing their budgets. Accurate cost information is fundamental to budgeting. Companies that use accurate cost management techniques and provide budget developers with ready access to cost information improve both the accuracy and the speed of their budget process. Standardizing the cost management system companywide is an important step in improving the link between cost management and budgeting.

Many companies also have found activity-based costing (ABC) helpful in identifying the real cost of producing, selling, and delivering products and services. Even small- to medium-size companies are exploring the potential of ABC, as packaged software becomes more widely available and brings down the cost of engaging in this type of analysis. Another best practice in linking cost management to budgeting is the strategic use of variance analysis. Variance analysis is the study of differences between budgeted and actual costs, or the study of costs at one company compared with industry averages.

By using variance analysis to identify weaknesses, managers can identify areas where their organization needs to improve its performance. However, managers must focus on those variances that have a significant impact. Otherwise, decision making and budgeting can become bogged down in trivial detail. Link budget development to corporate strategy. Because the budget expresses how resources will be allocated and what measures will be used to evaluate progress, budget development is more effective when linked to overall corporate strategy. Linking the two gives all managers and employees a clearer understanding of strategic goals.

This understanding, in turn, leads to greater support for goals, better coordination of tactics, and, ultimately, to stronger companywide performance. Companies that apply best practices find that communication plays an important role. Top management must take the lead in developing and communicating strategic goals. However, to develop those goals, top management needs information about customers, competitors, economic and technological change information that must come from customer-contact and support units. Companies that establish effective channels for communication find it easier to set challenging yet achievable strategic goals.

Setting goals before budgeting begins makes it easier for budget developers at all levels. When this happens, budget developers create from the start budgets that support strategic goals and that, therefore, need fewer revisions. Budget development then becomes not only faster and less costly but also far less frustrating. Design procedures that allocate resources strategically. Within any company, competition for resources is inevitable. Every function and business unit needs funding for both capital and operating expenses usually in excess of the actual resources available.

This makes it critically important for companies to design procedures so that resources are allocated to support key strategies. Best practice companies find that resource allocation is part science, part art. Fortunately, following certain best practices leads to better results. One such practice is coordinating the review of operating and capital budgets. Doing this gives managers insight into the ways in which changes in one budget affect the other. Another practice is to develop sophisticated measures for evaluating proposed budgets.

The measures used tend to vary by industry, but most take into account the company’s weighted average cost of capital. Many measures also assess the degree of risk involved in competing plans of action, the costs or advantages associated with deferring action, as well as factors such as expected developments in interest rates. By using such measures, and by using cross-functional teams to examine action plans, companies can better select plans whose benefits will produce desired results. Finally, by monitoring the results of allocation efforts, companies can refine and improve their procedures.

Tie incentives to performance measures other than meeting budget targets. Many companies still evaluate managers primarily on how closely they hit budget targets. While this may seem logical, in reality this type of one-dimensional evaluation tempts managers to “win” by playing games with budget targets. Such game playing isn’t always in the company’s best interest. At best practice companies, meeting budget targets is secondary to other performance measures. Such companies use a balanced set of performance measures to chart progress toward strategic goals, and use the same measures in their incentive programs.

This reinforces the importance of key strategies and communicates what results will be rewarded. At many companies, business unit managers are involved in identifying the measures that are most relevant for their operations. Typically, some measures are financial, while others track progress in other efforts. For example, an appropriate nonfinancial measure for one business unit may be product defect rate; for another, speed to market for new products. Once the measures are identified, higher-level management clarifies what targets each manager is expected to meet.

Managers and employees receive training on the company’s incentive program so that they understand the reason behind the rewards. Link cost management efforts to budgeting By linking cost management efforts to budgeting, companies improve the quality of information available for managers to use in developing their budgets. Accurate cost information is fundamental to budgeting. Companies that use accurate cost management techniques and provide budget developers with ready access to cost information improve both the accuracy and the speed of their budget process.

Standardizing the cost management system companywide is an important step in improving the link between cost management and budgeting. Many companies also have found activity-based costing (ABC) helpful in identifying the real cost of producing, selling, and delivering products and services. Even small- to medium-size companies are exploring the potential of ABC, as packaged software becomes more widely available and brings down the cost of engaging in this type of analysis. Another best practice in linking cost management to budgeting is the strategic use of variance analysis.

Variance analysis is the study of differences between budgeted and actual costs, or the study of costs at one company compared with industry averages. By using variance analysis to identify weaknesses, managers can identify areas where their organization needs to improve its performance. But managers must focus on those variances that have a significant impact. Otherwise, decision making and budgeting can become bogged down in trivial detail. Reduce budget complexity and cycle time

Best practice companies strive to reduce budget complexity and streamline budgeting procedures. Such streamlining allows management to collect budget information, make allocation decisions, and communicate final targets in less time, at lower cost, and with less disruption to the company’s core activities. By controlling the number of budgets that are needed and by standardizing budgeting methods, companies take important steps toward streamlining budgeting. Another key step is to minimize the amount of detail included in the reports used to develop budgets.

Also, in their effort to streamline budgeting, leading companies use information technology to automate budgeting and facilitate workflow. These companies make sure that budget developers are thoroughly trained in new technologies. This training, together with ongoing monitoring of information needs companywide, helps best practice companies deliver the right information to managers, on time and at the right cost. Develop budgets that accommodate change. By developing budgets that accommodate change, companies can respond to competitive threats or opportunities more quickly and with greater precision.

They can use resources efficiently to take advantage of the most promising opportunities. Furthermore, knowing that budgets have some flexibility frees budget developers from the need to “pad” budgets to cover a wide variety of possible developments. This leads to leaner, more realistic budgets. Companies typically review budgets quarterly, monthly, or even weekly. By including in these reviews reports on changes in business conditions, companies alert managers that new tactics may be called for, if they are to meet their targets for the year.

While it is important that budgets not be revised to cover up for poor performance or poor planning, best practice companies choose to revise budgets rather than adhere to budgets that do not reflect current conditions. Some companies rely on “rolling” or “continuous” forecasts rather than on traditional annual budgets. The chief difference between such forecasts and traditional budgets is that the forecast is updated with actual results as the company moves through the year. Figures for three or more subsequent quarters are projected in decreasing degree of detail.

One way in which companies build flexibility into budgets is to prioritize according to strategic importance action plans that were rejected due to resource limitations. By doing this, they can act swiftly and decisively if additional resources become available. Another way in which best practice companies develop budgets that accommodate change is to require managers to create scenarios based on a variety of assumptions about business conditions. The affordability of powerful information technology allows for the creation of many “what if” scenarios.

This practice makes it possible for companies to respond more quickly and effectively if actual conditions follow the pattern of a particular scenario. Companies also build flexibility into budgets by setting aside funds at the business-unit level to take advantage of competitive opportunities. Some companies even establish separate subsidiaries to look into promising products or technologies. Considering all of the suggestions from Arthur Anderson pertain to any type of organization, there is a case that my hypothesis is correct that there is not budgeting differences between profit and non-profit organizations.

“Spending financed not by current tax receipts, but by borrowing or drawing upon past tax reserves. ” , Is it a good idea? Why does the U. S. run a deficit? Since 1980 the deficit has grown enormously. Some say its a bad thing, and predict impending doom, others say it is a safe and stable necessity to maintain a healthy economy. When the U. S. government came into existence and for about a 150 years thereafter the government managed to keep a balanced budget.

The only times a budget deficit existed during these first 150 years were in times of war or ther catastrophic events. The Government, for instance, generated deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, and World War I. However, as soon as the war ended the deficit would be eliminated and the economy which was much larger than the amounted debt would quickly absorb it. The last time the budget ran a surplus was in 1969 during Nixon’s presidency. Budget deficits have grown larger and more frequent in the last half-century.

In the 1980s they soared to record levels. The Government cut income tax rates, greatly increased defense spending, and didn’t cut domestic spending enough to make up the difference. Also, the deep recession of the early 1980s reduced revenues, raising the deficit and forcing the Government to spend much more on paying interest for the national debt at a time when interest rates were high. As a result, the national debt grew in size after 1980. It grew from $709 billion to $3. 6 trillion in 1990, only one decade later.

Federal spending has grown over the years, especially starting in the 1930s in actual dollars and in proportion to the economy (Gross Domestic Product, or GDP). Beginning with the “New Deal” in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt sought to use the full powers of his office to end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to nearly $7 billion in 1934 and to over $8 billion in 1936.

Then, U. S. entry into World War II sent annual Federal spending oaring to over $91 billion by 1944. Thus began the ever increasing debt of the United States. What if the debt is not increasing as fast as we think it is? The dollar amount of the debt may increase but often times so does the amount of money or GDP to pay for the debt. This brings up the idea that the deficit could be run without cost. How could a deficit increase productivity without any cost? The idea of having a balanced budget is challenged by the ideas of Keynesian Economics.

Keynesian economics is an economic model that predicts in times of low demand and high unemployment a deficit will not cost anything. Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used.

For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic ystem. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980’s when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit.

This means as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. But, what if the government spends money on programs that do not increase its assets or productivity. For instance consider small businesses. If the company invests money to higher a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on a paper clips when they have staplers they will just lose the money spent on the paper clips. This frivolous spending is what makes a deficit dangerous.

Then the governments net worth decreases putting it into serious debt. Debt should not be a problem because we can just borrow more, right? This statement would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the private sectors essentially reallocating its own countries funds to spend on its country. This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars.

Deficit dollars then translate into demand for goods that aren’t being produced. Referring back to the small business example, if a company is selling all the products it can produce they can still higher another salesman. But since there re no more goods to be sold the salesman only increases the number of consumers demanding the product. Without actually increasing sales. The problems of deficit spending out of a recession even out through two negative possibilities, inflation and crowding out.

Inflation means there is more demand or money than there are goods this causes an increase in prices and drives down the worth of the dollar. This depreciation of the dollar counters the cost of the deficit but destroys the purchasing power of the dollar. A five dollar debt is still a five dollar debt even if the five dollars are only worth hat used to be a five cent piece of bubblegum. Despite its dangers inflation is used to some extent to curb the debt. Crowding out is when the government is looking for the same capital that the business sector wants to invest.

This causes fierce competition for funds to invest. The fierce competition causes an increase in interest rates and often business will decide against further investment and growth. The government may have the money to build new highways but the truckers cannot afford trucks to use on them. The governments needs will crowd out business needs. This turns potential assets into waste. However, there is a third option which would allow the government to run a deficit and avoid the negative aspects of inflation and crowding out. Borrowing from foreign sources is a tangible and recently very common practice.

Attracted by high interest rates and stability, foreigners now buy huge amounts of U. S. national debt. Of course this cannot be the perfect solution otherwise no one would be concerned about the debt. The problem with borrowing from external sources is the lack of control the government has over foreign currency and debts. Internal debts can be paid with increased taxes, inflation, and other onetary controls the government has but external debts can extremely damaging to a country if it cannot buy enough of the foreign currency to pay the interest.

Running a deficit is apparently good for an economy that is operating inside its production possibilities curve but it can be damaging to an economy operating on the curve. A deficit managed properly has the effect of increasing demands. An economy inside its curve can increase supplies in reaction. An economy on the curve can increase demand but its supplies cannot increase causing prices to rise, or inflation. If there is no deficit and the curve hifts to the right then supplies will not increase and the country will no longer be operating on the curve.

A deficit must be maintained to insure that the economy grows with its resources. Is the U. S. ‘s current debt bad or good? The trick is finding out how large the deficit should be in order to allow for growth without waste. The U. S. ‘s deficit is bad at this point because the U. S. is close to its maximum production capabilities, and deficit money is being wasted. For example two of the largest portions of the budget: defense and social security. Defense spending produces little or nothing except in times of war.

Judging by the current status of the United States as the only existing Nuclear Super Power war is not a tangible event in the near or distant future. The way social security is managed creates a huge waste. As managed, social security is money spent to immobilize a large and fairly capable part of the work force. It encourages elderly people not to work by spending deficit money on them. Reducing productivity and increasing the debt at the same time. In its current state the U. S. should attempt to reduce its deficit but eliminating it is not necessary and could do more damage than good.

The purpose of this paper is to discuss the short- and long-term effects of current budget deficits and the nation debt. In order to do this; I first had to find out exactly what they were. I will also discuss whether I think the government should operate with a balanced budget.

Budget deficit is the amount by which total government spending is more than government income during a specified period; the amount of money which the government has to raise by borrowing or currency emission in order to make up for the shortfall in tax revenues.

National debt denotes the total sum of the outstanding debt obligations of a country’s central government. I discovered that many people use the term somewhat more broadly to refer to the total indebtedness of all levels of government, including regional and local governments and sometimes also the indebtedness of government owned business entities such as local transit and communications systems or nationalized industries as well.

The national debt represents the accumulated total of all the government budget deficits of past years, less the accumulated total of all the government budget surpluses of past years. In the United States, the national debt consists almost entirely of interest-bearing “IOU” instruments that are usually re-sellable on organized financial markets such as, for example, U.S. bonds, U.S. treasury notes, and U.S. treasury bills. These IOUs are originally purchased from the Treasury by private individuals, private corporations, insurance companies, pension funds and banks (both inside the United States and outside its borders), and the Treasury then uses the money it raised to bridge its spending gap when its budget is in deficit.

The Treasury also sells IOUs to other Federal agencies that operate so-called trust funds — primarily the Social Security Administration and other Federal retirement programs. The complication here is that since this is money that the government “owes to itself,” it is not counted as part of the national debt in any realistic system of accounting. I find this to be really strange. Money to pay the annual interest owed to the owners of the government’s debt instruments has to be provided through appropriations in every year’s Federal budget. These interest payments on the national debt constitute as one of the largest spending categories in the budget.

Gross Domestic Product (GDP) is an estimate of the total money value of the entire final goods and services produced in a given one-year period using the factors of production located within a particular country’s borders.

Running budget deficits has been a primary method for stimulating economies that have high unemployment rates. Many articles that I read indicate that the budget should return to balance or surplus during boom times. “The Reagan administration discredited this notion, cutting taxes to such a degree that the United States would face perpetually high deficits, regardless of how hot the economy was,” according to economist John Maynard Keynes.

The answer does not appear to be a balanced-budget amendment, unless you want to prevent the federal government from fighting recessions. This would just make things worse, because then the federal government would be forced to make recessions worse. When the economy slows down, income and Social Security tax revenues drop, due to falling wages and profits. Meanwhile, costs for some programs, such as unemployment compensation, rise.

These changes automatically put the federal budget into deficit, even if a balanced budget had been planned at the beginning of the fiscal year. If a constitutional amendment requires the government to balance spending and revenues at the end of the year (not just in the original plan), then the White House would be forced to cut spending or raise tax rates. This would then slow the economy down, just at the time when it is most in need of stimulus.

The Balanced Budget Constitutional Amendment, Center on Budget and Policy Priorities, January 9, 1995 states that in 1962 the federal budget was $100 billion and it doubled by 1971. It doubled again by 1977 and again by 1983. It then doubled again in 1997. It also states that this year the federal government will spend $240 billion just to pay the interest on the federal debt.

Another interesting statistic found is that a child born this year will have to pay $187,000 in taxes to pay his share of the debt. Because of the federal deficit’s effect on families, they’ll only make an average of $35,000 a year instead of the $50,500 they’d make without it.

According to the “U.S. NATIONAL DEBT CLOCK” the outstanding public debt as of 17 Aug 1999 at 09:12:14 PM PDT was $5,635,435,597,521.14. With the estimated population of the United States at 273,277,316 each citizen’s share of this debt is $20,621.67.

The National Debt has continued to increase an average of $202 million per day since August 31, 1998. It is currently $3.6 Trillion. I personally do not think that we should even entertain the notion of operating with a balanced budget. Why, you may say – because my limited knowledge of this subject indicates to me that the government has always overspent and in incapable of pulling in the purse strings.

“No matter what your social issue, if you want to solve it get the money out of politics. Only then will lawmakers vote for their people rather than their pocketbooks. ” Jack E. Lohman. Money corrupts politics, and when contributions are being made to candidates it is not in the best interest of the American people. Campaign Finance is out of control in todays political races. Candidates are taking money from wherever and whoever they can get it. Soft money is flowing through elections without care or caution. People who make these contributions do not share the views of the average citizen, so oliticians end up representing the wrong people.

Money decides races, sometimes leaving the better man but lighter spender out of a position. Candidates make decisions based on what will help them financially that what is better for the people. Contributions by industry are made not in the interest of the people, sometimes hurting them in ways they dont even know. No matter what the opposition may say campaign finance reform is needed urgently to keep our democracy as our founders intended it. People and corporations that make the largest donations to campaigns do not share views with the general population.

Politicians will listen to those who give them money so that they can depend on that money being there again when it is time for reelection. Yet individual donors making a $200 dollar or more contribution make up only . 33% of the population. This extremely small percentage of mostly wealthy individuals gain the power to influence politicians to their liking. The idea that these people should have power to affect government more than those with less money goes against the concept of equality for all, which is what made this country great.

People who make large donations do not share the same views on most issues as he general population. Robert L. Borosage and Ruy Teixeira report that while 53 percent of voters want stricter regulations on businesses and corporations, to give workers a fair salary and working conditions, 58 percent of campaign donors want to see less control over the businesses and corporations of America. Donors also want less government spending with lower taxes, while the majority of citizens want a larger, more powerful government.

A very tiny part of our population is giving money to campaigns telling candidates what they have to do to continue getting campaign contributions, yet these people do not represent he ideology and sentiment of the people as a whole. There must be a change in the way that campaigns are financed if democracy is to survive. If we do not reform campaign finance we will have politicians working only for those who can afford to contribute. Money is the major factor in any political race. It can sway a decision very strongly depending on how well it is used.

In the House, the candidate who spends the most money on his or her campaign wins 92% of the time. Things are no different in the Senate, here 88% of the time the bigger spender wins. Incumbents are usually the tip money spender, because they raise more money. Paul Starr, writer for The American Prospect , estimates that it would take $1,000,000 for a challenger to defeat the incumbent. The only way a challenger could get this kind of money would be to appeal to big business and the wealthy, who have radically different ideas about government than the general public.

A challenger, to even have a chance, would have to turn to business and wealth to win. With this great difficulty to de-seat an incumbent, turnover in congress drops, and members become stagnant, winning on name alone. All the while, they are giving breaks to the corporations and wealthy people who got them there. With campaigns finance reform, we could get challengers and incumbents on a level playing field so that the candidate with the better ideas who will honestly help the majority will end up the victor.

It would not matter much where candidates got the money from for their campaigns except that when elected, politicians act on in accordance to the wishes of those who have made donations. 71% of citizens say that a politicians choices and votes are made on the basis of money. 61% of donors agree with this. Its been explained that a small percentage of people make donations, and these people do not represent the population as a whole. If politicians make decisions based on this small group of people they are not representing the entire population ,or doing what is best for the majority, as they were hired to do.

Politicians realize where they get funding and work to please those with the money. Robert Reich estimates that half of all Americans with a million dollar a year income or greater have had their picture taken with the president. All this attention is going to a group hat consists of less than 90,000. This cannot be healthy for a government that is supposed to work for all Americans. When congress persons make decisions based on whether it will fill their campaign fund, it is not representative of the people that they should be representing.

The decisions that they make may be harmful to the people, but that does not matter to some politicians. All that matter to them is dollars. The people dont know this though because those dollars are spent trying to convince everyone that their representative did a good job and worked for their best interest. Money does matter to politicians and they remember and reward those who get them into office. Donations made by corporations often hurt individuals either financially or even medically. Corporations make up a large portion of the groups that give generous donations.

These corporations do not care what is good for the people, all they care about is their own bottom line. If this means shipping unsafe or unhealthy products, that is what will be done. Food companies have donated $41 million dollars on the promise by candidates, that once in office, will not make stricter regulations on e-coli protection. E-coli is a deadly bacteria that infects numerous people every year. But as a result of donations by food companies, government will not regulate these companies to protect Americans.

Food companies are not alone, the cotton industry is also at fault. Safety standards that some companies include on night wear voluntarily because of the great risk of burns, are not national law. The cotton industry gives generous contributions to Congress in hopes that any legislation concerning safety standards will be shut down. These are safety standards that have already saved dozens of lives and could save many more. Campaign money from industries stops laws that would help out every American. New drugs are released into the market for public use everyday.

The company that originated the drug holds a patent on that drug for an amount of time, after this time any company can make this drug and offer it at a competitive price. Competitive prices would be of great help to those who are on a fixed income, such as the elderly population, and cannot afford the high price of medications. Contributions of ! 8. 4 million going to campaigns and 8. 4 million in soft money from medicine developing companies have influenced oliticians to lengthen the amount of time that patents on drugs last, costing Americans millions.

These are just three examples of how industries hurt the people of America by donating to campaigns. There are many more hurting average citizens everyday, without them even knowing it. In the end taxpayer pay for these contributions that hurt them so much anyway. When a large business makes a donation, they must make up for the lost money. They do this by raising the prices that they charge consumers. Congress gives the contributions back to companies through corporate welfare. 67 billion dollars a year is given to companies that donated to campaigns. This money has to come from somewhere.

It comes from the taxes every year of John Q. Public. So we are not only paying higher prices as a result of campaign contributions, but we are paying the corporations again through corporate welfare. Consumer safety is commonly ignored because of special interest industries. Higher prices are put upon us a the cash register every time we buy something from a company that funds campaigns. Taxes are high because of corporate welfare. Reform is needed to save Americans from this kind of treatment from the big businesses. Opponents of Campaign finance reform have many reasons that they feel reform is bad.

But most of these arguments boil down to; contributions are an expression of freedom of speech, and reform would not help as illegal contributions take place now and would only be increased with more laws. The voices of those who fund advertisements that do not go on campaign reports are those of a small minority. These voices are being heard above all the voices of the greater majority of people who cannot afford to have their voices heard. Letting one persons opinion be louder than another goes against the ideas of equality for all, infringing upon the rights of others.

If reform is to take place we must enforce the laws that we set in place. Laws that are not enforced are worthless. We must be ready to punish a candidate and make him or her face the consequences, whether it be elimination from the race or removal from office. Reform is needed to fix our crooked and corrupt congress, and we must be willing to punish those who break the law. One option that we should consider is that of Jack E. Lohman, a usiness man from Milwaukee, WI. Under his plan special interest and corporate donations would be eliminated. Instead, taxpayers would fund political campaigns.

Special interests and corporations spend 750 million on campaigns. As it was explained, this hurts taxpayers when purchasing goods and when paying taxes for corporate welfare. By eliminating these donors politicians would not be affected by outside interests and would be free to do what is best for the people. The 750 million dollars for campaigns would come from the taxpayers and only cost $5 dollars a year. After cuts from corporate welfare and wasteful government spending this would save taxpayers 495 to 995 dollars a year, not to mention price drops as a result of reduced corporate spending on political campaigns.

This would put more money in the hands of the taxpayer to buy more products helping the economy. Most important, politicians would not be swayed by monetary interest offered to them for help in other areas. Donors not representing the public, money, not people and issues deciding races, politicians voting for campaign funds instead of the public, corporations isking the safety of people, these are all problems that could be fixed by reforming campaign finance.

Campaign finance is an urgent problem that must be remedied soon or we will be facing a situation in government where the power lies in the hand of those who have money to donate to campaigns. If something is not done we will be heading straight into a corrupt and contemptible government whose only care is that of being reelected. Action must be taken now before it is too late and scandalous congressmen will only support scandalous policy. If our government is to be saved, we must have campaign finance reform.

What We Dont Know About Campaign Finance Does Hurt Us. No matter what your social issue, if you want to solve it get the money out of politics. Only then will lawmakers vote for their people rather than their pocketbooks. Jack E. Lohman. Money corrupts politics, and when contributions are being made to candidates it is not in the best interest of the American people. Campaign Finance is out of control in todays political races. Candidates are taking money from wherever and whoever they can get it. Soft money is flowing through elections without care or caution.

People who make these contributions do not share the views of the average citizen, so politicians end up representing the wrong people. Money decides races, sometimes leaving the better man but lighter spender out of a position. Candidates make decisions based on what will help them financially that what is better for the people. Contributions by industry are made not in the interest of the people, sometimes hurting them in ways they dont even know. No matter what the opposition may say campaign finance reform is needed urgently to keep our democracy as our founders intended it.

People and corporations that make the largest donations to campaigns do not share views with the general population. Politicians will listen to those who give them money so that they can depend on that money being there again when it is time for reelection. Yet individual donors making a $200 dollar or more contribution make up only . 33% of the population. This extremely small percentage of mostly wealthy individuals gain the power to influence politicians to their liking.

The idea that these people should have power to affect government more than those with less money goes against the concept of equality for all, which is what made this country great. People who make large donations do not share the same views on most issues as the general population. Robert L. Borosage and Ruy Teixeira report that while 53 percent of voters want stricter regulations on businesses and corporations, to give workers a fair salary and working conditions, 58 percent of campaign donors want to see less control over the businesses and corporations of America.

Donors also want less government spending with lower taxes, while the majority of citizens want a larger, more powerful government. A very tiny part of our population is giving money to campaigns telling candidates what they have to do to continue getting campaign contributions, yet these people do not represent the ideology and sentiment of the people as a whole. There must be a change in the way that campaigns are financed if democracy is to survive. If we do not reform campaign finance we will have politicians working only for those who can afford to contribute. Money is the major factor in any political race.

It can sway a decision very strongly depending on how well it is used. In the House, the candidate who spends the most money on his or her campaign wins 92% of the time. Things are no different in the Senate, here 88% of the time the bigger spender wins. Incumbents are usually the tip money spender, because they raise more money. Paul Starr, writer for The American Prospect , estimates that it would take $1,000,000 for a challenger to defeat the incumbent. The only way a challenger could get this kind of money would be to appeal to big business and the wealthy, who have radically different ideas about government than the general public.

A challenger, to even have a chance, would have to turn to business and wealth to win. With this great difficulty to de-seat an incumbent, turnover in congress drops, and members become stagnant, winning on name alone. All the while, they are giving breaks to the corporations and wealthy people who got them there. With campaigns finance reform, we could get challengers and incumbents on a level playing field so that the candidate with the better ideas who will honestly help the majority will end up the victor.

It would not matter much where candidates got the money from for their campaigns except that when elected, politicians act on in accordance to the wishes of those who have made donations. 71% of citizens say that a politicians choices and votes are made on the basis of money. 61% of donors agree with this. Its been explained that a small percentage of people make donations, and these people do not represent the population as a whole. If politicians make decisions based on this small group of people they are not representing the entire population ,or doing what is best for the majority, as they were hired to do.

Politicians realize where they get funding and work to please those with the money. Robert Reich estimates that half of all Americans with a million dollar a year income or greater have had their picture taken with the president. All this attention is going to a group that consists of less than 90,000. This cannot be healthy for a government that is supposed to work for all Americans. When congress persons make decisions based on whether it will fill their campaign fund, it is not representative of the people that they should be representing.

The decisions that they make may be harmful to the people, but that does not matter to some politicians. All that matter to them is dollars. The people dont know this though because those dollars are sepnt trying to convince everyone that their representative did a good job and worked for their best interest. Money does matter to politicians and they remember and reward those who get them into office. Donations made by corporations often hurt individuals either financially or even medically. Corporations make up a large portion of the groups that give generous donations.

These corporations do not care what is good for the people, all they care about is their own bottom line. If this means shipping unsafe or unhealthy products, that is what will be done. Food companies have donated $41 million dollars on the promise by candidates, that once in office, will not make stricter regulations on e-coli protection. E-coli is a deadly bacteria that infects numerous people every year. But as a result of donatoins by food companies, goverment will not regulate these companies to protect Americans.

Food companies are not alone, the cotton industry is also at fault. Safety standards that some companies include on night wear voluntarily because of the great risk of burns, are not national law. The cotton industry gives generous contributions to Congress in hopes that any legislation concerning safety standards will be shut down. These are safety standards that have already saved dozens of lives and could save many more. Campaign money from industries stops laws that would help out every American. New drugs are released into the market for public use everyday.

The company that originated the drug holds a patent on that drug for an amount of time, after this time any company can make this drug and offer it at a competitive price. Competitive prices would be of great help to those who are on a fixed income, such as the elderly population, and cannot afford the high price of medications. Contributions of ! 8. 4 million going to campaigns and 8. 4 million in soft money from medicine developing companies have influenced politicians to lengthen the amount of time that patents on drugs last, costing Americans millions.

These are just three examples of how industries hurt the people of America by donating to campaigns. There are many more hurting average citizens everyday, without them even knowing it. In the end taxpayer pay for these contributions that hurt them so much anyway. When a large business makes a donation, they must make up for the lost money. They do this by raising the prices that they charge consumers. Congress gives the contributions back to companies through corporate welfare. 167 billion dollars a year is given to companies that donated to campaigns. This money has to come from somewhere.

It comes from the taxes every year of John Q. Public. So we are not only paying higher prices as a result of campaign contributions, but we are paying the corporations again through corporate welfare. Consumer safety is commonly ignored because of special interest industries. Higher prices are put upon us a the cash register every time we buy something from a company that funds campaigns. Taxes are high because of corporate welfare. Reform is needed to save Americans from this kind of treatment from the big businesses. Opponents of Campaign finance reform have many reasons that they feel reform is bad.

But most of these arguments boil down to; contributions are an expression of freedom of speech, and reform would not help as illegal contributions take place now and would only be increased with more laws. The voices of those who fund advertisements that do not go on campaign reports are those of a small minority. These voices are being heard above all the voices of the greater majority of people who cannot afford to have their voices heard. Letting one persons opinion be louder than another goes against the ideas of equality for all, infringing upon the rights of others.

If reform is to take place we must enforce the laws that we set in place. Laws that are not enforced are worthless. We must be ready to punish a candidate and make him or her face the consequences, whether it be elimination from the race or removal from office. Reform is needed to fix our crooked and corrupt congress, and we must be willing to punish those who break the law. One option that we should consider is that of Jack E. Lohman, a business man from Milwaukee, WI. Under his plan special interest and corporate donations would be eliminated. Instead, taxpayers would fund political campaigns.

Special interests and corporations spend 750 million on campaigns. As it was explained, this hurts taxpayers when purchasing goods and when paying taxes for corporate welfare. By eliminating these donors politicians would not be affected by outside interests and would be free to do what is best for the people. The 750 million dollars for campaigns would come from the taxpayers and only cost $5 dollars a year. After cuts from corporate welfare and wasteful government spending this would save taxpayers 495 to 995 dollars a year, not to mention price drops as a result of reduced corporate spending on political campaigns.

This would put more money in the hands of the taxpayer to buy more products helping the economy. Most important, politicians would not be swayed by monetary interest offered to them for help in other areas. Donors not representing the public, money, not people and issues deciding races, politicians voting for campaign funds instead of the public, corporations risking the safety of people, these are all problems that could be fixed by reforming campaign finance.

Campaign finance is an urgent problem that must be remedied soon or we will be facing a situation in government where the power lies in the hand of those who have money to donate to campaigns. If something is not done we will be heading straight into a corrupt and contemptible government whose only care is that of being reelected. Action must be taken now before it is too late and scandalous congressmen will only support scandalous policy. If our government is to be saved, we must have campaign finance reform.

The international financial system has been radically altered since the worldwide depression of the late 1920s and early 1930s. This change is due in large part to the inception of the International Monetary Fund (IMF) and its subsequent control over the international financial system. In this paper I will examine the extensive role of the Bretton Woods system of exchange rates and the gold standard. Additionally, I will examine the role that the IMF has taken on since the demise of the gold standard.

To begin, we must examine the circumstances that surround the creation of the IMF, who the actors are and what each of their roles are as member countries. The IMF was created as a result of the worldwide market collapse that took place initially in October of 1929. The domino effect that took place when the first market crashed was seen to be a situation so severe that world powers felt that drastic measures needed to be taken to ensure that this was the last global financial crisis that the world would face.

Its creation in 1944 was the beginning of a new era for the international financial system. The creation of the IMF occurred at Bretton Woods along with the World Bank and the system of fixed exchange rates and the gold standard for currency. Under this system, the US dollar was tied to gold by a United States government commitment to buy it at $35. 00 and ounce and sell to central banks at the same price (excluding handling and other charges).

Other participating countries maintained the exchange values of their currencies at prices which were almost fixed in terms of the dollar (the values fluctuate normally not more than one percent on either side of their parities), with the result that exchange rates were almost universally fixed. Other governments carried out their commitments by selling internationally acceptable liquid resources when there was an excess demand for foreign currencies in terms of their own currencies, and by buying liquid resources when there was an excess supply.

What constituted internationally acceptable resources for this purpose were gold, and other liquid assets denominated in key or reserve currencies, principally US dollars or UK pounds sterling. The IMF was to ensure that these standards were being followed as well as being the lender for temporary deficits, and balance of payment problems. Each member country contributed a predefined amount, or quotas, of national currencies and gold. This quota also determines the voting power on the IMF and the amount of resources that they may draw on from the Fund.

Designed to foster monetary cooperation, the IMF sought to enforce strict rules of behaviour in a world based on the gold standard and fixed currency-exchange rates. The Fund had, in theory, strict rules regarding how much to lend and when it was to be repaid. In reality, however, the Fund had discretion to waive any normal limitations. In 1961 with the advent of the General Arrangements to Borrow (GAB), the Fund increased its ability to lend through arrangements to borrow from 10 major industrial countries. At the time, these agreements had enabled the IMF to have and additional $6 billion at its disposal.

The Gold Standard, in theory, functioned to limit the ability of governments to issue currency at will, hence decreasing the purchasing power of money. It existed before the Bretton Woods agreement, but was suspended for reasons that we will see later. If, for example, the US dollar were defined as equal to 1/20 of an ounce of gold, then the number of dollars that the United States could issue would be constrained by its holdings of gold reserves. Moreover, if the UK defined its currency, the pound sterling, as 5/20 of an ounce of gold, the fixed exchange rate between the US and the UK, quite obviously would be $5 USD=1 sterling.

One specific problem with specie standards (that is a currency convertible into a standardised unit of a non-monetary commodity) is that the value of money is only as valuable as the specie backing it. When worldwide gold production was low in the 1870s and 1880s, the money supply grew slowly, leading to a general deflation. This situation changed radically in the 1890s following the discovery of gold in Alaska and in South Africa. The result was rapid money growth and inflation up until the outbreak of World War I. Furthermore, linking currencies to gold did not totally restrain governments from manipulating the value of their currencies.

First, in order to finance expenditures by printing money, governments would frequently suspend the gold standard during times of war. Second, even without officially abandoning gold, some nations periodically redefined the value of their currencies in terms of gold. Instead of allowing for gold or foreign reserves to be consistently depleted, the countries would choose instead to devalue their currencies. It might seem, by this previous line of argument that countries had no real restrictions on their behaviour when it came to currencies, since they could devalue them at will.

However, there was a serious price to pay for devaluation. Should a country threaten to devalue its currency, a speculative attack on that countrys currency would surely follow as investors attempted to rid themselves of that currency. Such countries would ultimately lose large amounts of reserves. This is exactly what occurred in the UK in 1966 and 1967. Confidence in the value of the pound sterling crashed and the subsequent loss of gold reserves amounted to 28 million ounces. In one day alone (November 17, 1967) the British government lost reserves valued at over $1 billion.

On August 15, 1971, in the midst of a major international monetary crisis, President Richard M. Nixon announced a new policy suspending indefinitely the U. S. ‘s commitment to redeem gold for dollars. This commitment was the lynchpin of the international monetary system in which the U. S. dollar served as the key currency by which the value of other currencies would be determined. Nixon’s decision to break the link between the dollar and gold effectively pulled the rug out from under the other world currencies, forcing them to re-determine their values, and thus forcing devaluation of the dollar.

This event is generally regarded as marking the demise of the system of fixed exchange rates. The fall of the Bretton Woods system represents an important transitional stage in the history of international economic relations. It represents a change from a hegemonic system dominated by the U. S. intended to lay the foundation for an open, competitive world economy to the current system of floating exchange rates and expanding global capitalism. The Fall of the Bretton Woods System President Nixon’s announcement in 1971 and then the subsequent collapse of the system in 1973 were hardly spontaneous occurrences.

The fall of Bretton Woods was simply the culmination of a chain of economic and political developments that were quite predictable. From flaws in the design of the system that made it inherently unstable, to the spin-off of international capital markets that exploited its weaknesses, the collapse of Bretton Woods was inevitable. Because of the U. S. pledge to back dollars with gold, the stability of the system was based on the ratio of foreign-held dollars to the value of gold held by the United States. If the amount of foreign dollars exceeded the amount of U. S. gold, the U. S. uld not pay all of its claimants without changing the price of gold.

So as the ratio of foreign dollars to U. S. gold increased, so did pressure to devalue the dollar. As such, the stability of the system was gauged by the U. S. balance of payments. Considering this, confidence in the dollar became an essential element of the Bretton Woods system. The decade following the signing Bretton Woods agreement would see the U. S. balance of payments shift from surplus to deficit, producing new pressures on the system. From 1948 to 1958, several new and significant features surfaced in the international system.

These features included development of new institutions for economic cooperation, dramatic economic growth in Europe, rising U. S. military spending, U. S. foreign aid to the Third World, and the emergence of U. S. -based multinational corporations (MNCs). These new additions to the international landscape helped to generate the stability and prosperity that gave nations the confidence to participate in this liberal system. But at the same time, each factor contributed to an outflow of dollars, pushing the U. S. balance of payments in the direction of larger deficits, meaning more dollars abroad and more potential claimants on U. S. gold, thereby destabilizing the system.

The balance of payments difficulties posed a unique problem for the United States. As the hegemon of the system, the U. S. had an obligation to provide economic and military security for itself, its allies, and the system. In the 1960s U. S. leaders faced the dilemma of trying to solve the balance of payments problem while still fulfilling the country’s responsibilities as hegemon. The initial deficits of the 1950s, which were created through military and economic aid, were actually seen as beneficial at the time in that they helped close the gap with the still economically weak Europeans.

By the end of the 1950s, Europe had recovered and the deficit became a problem. Before 1958 and 1959, large surpluses in goods and services and investment income had helped to offset the costs of providing foreign aid, military expenditures abroad, and private overseas investment. When the U. S. surpluses suddenly shrank, the payments deficit became even wider. Clearly the burden of hegemony was taking its toll on the United States. One of President John F. Kennedy’s economic advisers warned, [we] will not be able to sustain in the 1960s a world position without solving the balance of payments problem.

This assessment proved to be accurate as U. S. efforts to meet its global responsibilities further damaged its balance of payments, undermining its ability to act as hegemon. The increase in U. S. deficits meant money was leaving the country and as such, it had to go somewhere. This is evidenced by the surpluses experienced by Japan and Western European countries, such as West Germany, which were growing rapidly. The surpluses, combined with the U. S. deficit, meant decreasing liquidity in the world economy, as the U. S. , in its role as central banker to the world, had supplied much of the liquidity from its reserve assets, mainly gold.

To remedy this situation, a devaluation of the dollar would have been seemingly appropriate. However, the U. S. could not devalue the dollar without horribly upsetting the other currencies of the world. Another way to help correct the disequilibrium in world payments would have been to have surplus countries like Germany and Japan revalue their currencies, effectively devaluing the dollar in the process. Because these countries were persistently reluctant to change their own rates, the payments imbalances increased until a breaking point was reached in 1971.

The fact that the surplus countries did not wish to revalue their currencies emphasizes an important flaw in the design of the Bretton Woods system. Orin Kirshner writes, It was becoming uncomfortably clear that a system of fixed exchange rates, in which gold and the dollar… were the main components, was rather asymmetrical in its pressures for adjustment. The deficit countries were under pressure to adjust when they ran out of reserves and had to go to the [IMF] or to the central bankers for aid; but there were no similar pressures on the creditors to reduce their surpluses.

Another interesting development that played a large part in the breakdown of the Bretton Woods system is the Eurodollar phenomenon. The Eurodollar, or Eurocurrency (other currencies were also involved), market was a by-product of the large-scale accumulation of dollars in foreign banks following the shift from a dollar shortage (U. S. payment surplus) to a dollar surplus (U. S. payments deficit) in 1957-1958. It was then that London bankers decided to lend these dollars out, rather than return them to the U. S. (which would have helped to stabilize the situation by improving the U. S. balance of payments).

Thus, Lairson says, was born the Eurodollar… market — essentially an unregulated money supply. When the U. S. government acted in 1963 to address this problem by enacting the interest equalization tax to slow the outflow of dollars for loans, U. S. banks then opened overseas branches to continue their foreign lending. Lairson writes, because no single state could regulate it effectively and because of the unceasing U. S. payments deficits, a Euromarket system developed consisting of the dollar and other currencies, a system of bank credit, and a Eurobond market (bonds denominated in dollars floated outside the United States).

A massive volume of funds emerged that, without much restriction, could move across borders in search of the highest yields available on a global basis. The emergence of this new, unregulated concentration of capital made even more difficult than before for the U. S. to get a handle on the system. Lairson suggests that two main reasons can be identified for the decline and fall of the Bretton Woods system. First, he writes, the system was inherently unstable because the mechanisms for adjustment of exchange rates were so inflexible.

He states the economic relations that developed after 1948 were structured by these fixed values even as the shift from U. S. surplus to deficit increasingly demanded adjustment of exchange rates. He continues, the world of 1971 was significantly different from the world of 1945-1950, but the Bretton Woods system made few accommodations to that reality. Lairson’s second reason, which he regards as perhaps most reflective of those changes, was the massive growth of the market power of international capital and its impact on fixed rates.

The transnational actors who emerged over the years reflect this notion. By 1973, the Eurocurrency market had grown to nine times the size of U. S. reserves. Such an immense collection of resources, he says, was capable of overwhelming even concerted government action. The immense pressure these forces put on the dollar and the fixed-rate system itself finally led to an international monetary crisis, forcing Nixon to temporarily take the dollar off the gold standard. Then on March 19, 1973, the system collapsed entirely, even while major efforts to reform the system were in progress.

By this time, the powerful new transnational actors collectively lost confidence in the fixed-rate system and in the ability of governments to create any viable system. Finally, Kirshner states, financial officials of the main industrial countries, including the United States, found it preferable, and inevitable, to let their exchange rates float. The Bretton Woods system was at an end. In hindsight, it becomes apparent that the Bretton Woods system, by the 1970s, had served its purpose and the time had come for it to give way to a system better suited to the realities of the time.

The Bretton Woods’ agreements and institutions were designed to stabilize the world economy in the aftermath of World War II, so that countries could eventually interact, grow, and compete as equals in a world of open markets. This system, which was dependent on U. S. hegemony for its success, had progressed to the point where the distribution of economic and political power had become more widespread among other countries.

This process can be viewed as a maturation of the international system as U. S. gemony was no longer practical in the monetary system, and, as we would later see, it was becoming less necessary in other aspects of the international system. The move to floating exchange rates in Western economies forced the IMF to end its role as traffic cop of the world monetary system and to concentrate instead on providing advice and information to its members, which in 1998 numbered 182 countries. That role was key in helping nations in Latin America, Africa, Asia, and Central Europe restructure their economies following the 1982 debt crisis.

Here, we will focus on the effects of the debt crisis on Sub-Saharan Africa (SSA). Although much focus has been given to the effects of the 1982 debt crisis in Mexico and other Latin American countries, the effects on Africa have nonetheless been strongly felt, and the consequences of that period linger on today. In Mexico the crisis was solved in 1987 through the Baker plan, funded by the Japanese and private creditors. The plan was targeted towards the commercial debt of the countries to which the banks were most exposed-middle income countries.

As a result of this initiative, commercial activity was no longer at risk and the threat of the Latin American countries forming a debt cartel was assuaged. In SSA, however, the effects of the crisis have not yet been addressed as wholly as the Baker plan did for the Latin American countries. Some questions have arisen regarding the role of the IMFs lending practices in the SSA region. Whether or not the IMF has focused enough on LDCs development and growth as their main objectives. While this was not the purpose for the creation of the IMF, many have sought to make it so.

Later the IMF sought a more ambitious role as an international lender of last resort to the world economy. The lender of last resort is an institution that will lend during times of financial crisis that will allow the market to return to equilibrium through its lending practices. Allan Meltzer has established five criteria that a lender of last resort at the domestic level must adhere to. We will use the analysis of Stanley Fisher, an important figure with the IMF to determine how these characteristics apply to the international case later on.

The first is that the central bank is the only lender of last resort in a monetary system such as that of the United States. Second, to prevent illiquid organizations from closing, the central bank should lend on any collateral that is marketable in the ordinary course of business when there is no panic. It should not restrict lending to paper eligible for discount at the central bank in normal periods. Third, the lenders loans, or advances, should be made in large amounts, on demand, at a rate of interest above the market rate. This discourages borrowing by those who can obtain accommodation in the market.

Fourth, the above three principles should be stated in advance and followed in a crisis. Finally, insolvent financial institutions should be sold at the market price or liquidated if there are no bids for the firm as an integrated unit. The losses should be borne by owners equity, subordinated debentures, and debt, uninsured depositors, and the deposit insurance corporations as in any bankruptcy. The argument for the need of an international lender of last resort rests not only on the volatility of capital markets but on the inherent financial panics that ensue from them.

The importance of regulating these volatile markets was seen at Bretton Woods through the controls over capital inflows, yet it could not regulate the capital outflows. Fisher argues that not only does there need to be an international lender of last resort, but that increasingly the IMF has been playing that role since it first assumed that position in the international bailout of Mexico in 1995. Fisher proceeds to dismiss the argument that the lender of last resort need necessarily be a central bank.

He divides the category of lender into two when financial crisis occurs. On the one hand, there are crisis lenders, who could be central banks. Fisher argues that there exists no requirement for them to be central banks. The only requirement is that enough liquidity exists within a particular institution such that it is able to supply the loans necessary to return the market to equilibrium. On the other hand we have crisis managers who are responsible for directly managing to whom the loans are given, and how best to deal with the crisis at hand.

Fisher argues that in terms of international crises the IMF is perfectly suited to deal with such crises both as a crisis lender and as a crisis manager. Clearly the role of the IMF as international lender of last resort has presented itself, initially Mexico and as we will see the structure has been established for these activities to continue. In return for the imposition of an economic austerity plan in Mexico, the fund, along with the U. S. and other major industrial countries’ central banks, provided credit lines and other facilities totalling $47. illion.

Although the assistance gave rise to criticism that the IMF was bailing out international investors and not the Mexican economy, the fund in 1997 and 1998 increased the amount each member contributed and expanded its lending activities further by establishing a $47 billion line of credit–called the New Arrangements to Borrow–with two dozen countries. The increase in borrowing authority would allow troubled IMF members to draw well in excess of what would normally be allowed, a move that was well timed.

In the 1990s capital had flooded into emerging economies–such as Thailand, Indonesia, and South Korea–with little attention to borrowers’ creditworthiness. When economic problems started to occur, foreign and domestic investors alike rushed to get their money out of those countries. In the ensuing panic, currencies and stock and bond markets imploded, cutting off financing and swiftly throwing entire economies into recession. The crisis persisted, even amid billions of dollars in IMF and Western loan commitments.

With the IMF estimating that world economic growth was only 2. in 1998, half what it had forecast in late 1997, it became apparent that more forceful moves would be required. Along with the IMF’s fortified capital base and widened lending authority, it still was unclear whether widening the disclosure of emerging economies’ foreign-currency reserve levels, publicizing their growth estimates, and announcing capital inflows and outflows would help forestall the next crisis–much less put a decisive end to the one that drew headlines in 1998. This was because the entire face of international finance had changed since the IMF was created.

Financial flows were once controlled by a handful of major banks that could be easily corralled into restructuring problem loans in cooperation with relatively modest IMF assistance. In the late 1990s, however, flows were dominated by thousands of banks; securities firms; and mutual, pension, and hedge funds that could move capital in and out of countries with a click of a computer mouse. The number of countries seeking international investment, meanwhile, had proliferated, as had the diversity of debt, equity, and other financial instruments.

This array of investors and instruments made coordinating any response to financial crises extremely difficult, concluded Moody’s Investors Service Inc. , a major global credit-rating agency. The IMF, meanwhile, continued to face criticism that it was secretive in its dealings, undemocratic in its makeup, and unresponsive to the needs of poorer members. Many critics noted that the economic austerity programs that were typically attached to any IMF assistance were not always appropriate. In some cases spending cuts only deepened local recessions and made the task of necessary financial and industrial restructurings all the more difficult.

Some economists, including Jeffrey D. Sachs, the director of the Harvard Institute for International Development, believed the IMF should permit countries to essentially go bankrupt, imposing formal suspensions of loan payments while creditors and debtors negotiated the value of the loans and determined whether any loans could be exchanged for equity. During the negotiations a troubled country could continue to obtain new financing and exporters could conduct business, selling their goods and earning foreign currencies vital to a country’s economic revival.

Suggestions such as these, if they were accepted, might require years to be put into practice. If the crisis of 1998 had one lesson, it was that nothing short of a cooperative effort by the entire world community is needed to repair the major shortcomings in the global system, according to IMF chair Camdessus . The question was whether the repairs would be performed quickly enough to enable the IMF and its backers to cope with the next financial implosion.

As early as 1000 B. C. , we can see an early sign of options. According to the Fundamentals of Corporate Finance, Thales the Philosopher knew from the stars that there would be a great olive harvest. Thales did not have much money, but was able to purchase options for the use of olive presses. When the harvest arrived he was able to rent the presses at a substantial profit. Thales speculation on the harvest allowed for him to purchase rights to the presses. He could then exercise his rights if his speculations on the harvest were correct.

An option is a contract giving the buyer the right to buy or sell an asset at a specific price for a limited time. An option is a contract between the buyer and seller with defined parameters. The asset that is bought or sold is called the underlying. This underlying asset could be a commodity, a futures contract, or stock. The seller gives the buyer the rights for a sum of money called a premium. The price that the underlying right is bought or sold at is called the exercise price. The two types of Options are Calls and Puts.

When an option gives the buyer the right to purchase underlying assets from a writer is called a call option. The call option is the most straightforward strategy for capitalizing on an anticipated increase in the price of the underlying asset. The investor that buys a call option is said to be in a long call position. An investor that believes the price of an underlying asset will decline or remain the same, can if his speculations are correct, realize income by selling a call option. The seller is said to be in a short call position.

When the purchaser of an option has the right to sell the underlying asset the option is called a put option. With a put option you can insure an asset by locking in a selling price. If the price of the underlying falls you can exercise your option and sell it at the locked in price. If the price of the underlying asset increases then you would not exercise your right and the only cost incurred is the premium paid for the option. The investor that purchases a put option is said to long put position.

The investor that can earn income buy selling a put is said to be in a short put position. The people that buy options are called holders where those that sell options are called writers. The holder of a call has purchased the right to exercise a call. Put holders have purchased the right to sell the underlying asset at the locked price. However, neither the call holders nor put holders have an obligation to exercise their rights on the option. On the sellers side, call writers are required to sell the underlying asset when a holder exercises his right to buy.

Put writers are also obligated to buy the underlying asset at the locked in price. Options are traded on several different exchanges. The first of these is the Chicago Board Options Exchange founded in 1973. Other exchanges that options are traded on are the American Stock Exchange, The Philadelphia Stock Exchange, The Midwest Stock Exchange, and The Pacific Coast Stock Exchange. The key to the success of the options market is in the structure, which puts together two different types of transactions in one process.

These two types are: The creation of an option by writer and purchaser, and the secondary market where the investor has the opportunity to sell his position by canceling transactions through the exchange. The Buyer and seller are not the only entities in options trading. The Options Clearing Corporation is an intermediary between writer and purchaser as well as serves as an accounting office between them. The Options Clearing Corporation is the issuer of individual options. It takes the position of the writer for the purchaser, and takes the place of the buyer for the writer.

The OCC is responsible for making certain that the writer of a call always fulfill its obligation to the buyer if he exercises his option. This is how the OCC guarantees the financial stability of options transactions. The members of the OCC are made up of the brokerage houses and are accountable to the OCC for making sure that options transactions process smoothly. If an investor wants to exercise an option he calls his broker, who then notifies the OCC. The OCC then chooses a broker at random with which the corresponding option that has been sold.

When looking at the investor side of options trading it is important to look at how options are priced and valued. There are several aspect that have to be considered. The first is the fluctuation of the price because of the laws of supply and demand. The underlying asset in the option will fluctuate in price during the life of the option and this will cause the price of the option to fluctuate as well. Another aspect of the value/price is the time premium. A better measure of the time premium is the percent of time premium.

The time period per month of the time that is left makes up the percent of time premium. Speculation and trading amounts increase as the time period shortens and the open interest increases. This means that an options with a longer life, even though higher priced, will not have a greater percentage of time premium per month of life left than an option with a shorter life. The third aspect of price/value is the intrinsic value of an option. The intrinsic value of an option only exists when the underlying asset is worth more than the locked price on a call.

For example if an investor has the right to purchase a shares of xyz stock at seventy dollars and the price of the stock is seventy four dollars a share than the intrinsic value of the option is four dollars. So if the option is selling for seven dollars than the time premium is three dollars and the intrinsic value is four dollars. These are the three main aspects of pricing and valuation. One main reason for buying options, other than making a profit, is to reduce risk.

Portfolio Managers often buy options in order to reduce the down side risk of the portfolio. Options also could be bought to help limit potential market risk. For example, if a company made jet planes and they are concerned about the price of metals rising, they could purchase a call option and lock in a price. If the price of the metal goes above the lock in price they can exercise there right to purchase at the agreed upon price. If the price goes below the locked price they can just not exercise their right on the option.

All they lose is the premium. The same idea can be used for stocks. If an investor speculates that the price of a stock is going to rise then he could buy an option to lock in a price with the hope that the price will rise as speculated. If the price rises he could exercise his right to purchase the stock at a lower price. The investor could then sell the stock as a profit. Buying this option very much limited the amount that he could lose on the investment, and at the same time the amount of possible gain seams almost infinite.

The same idea can work on the sell side as well. If a company that sells oil speculates that the price of the oil will fall they can purchase a put option. This gives them the right to sell the oil at an agreed upon price so if the price of oil falls lower than the exercise price they will be able to sell oil at the locked price and realize a gain. Interest-Rate Agreements are another way that investors can control their risk. There are two types of these agreements a ceiling rate agreement and a ceiling/floor rate agreement.

In a ceiling rate agreement a financial institution providing the agreement will compensate the buyer for the difference of the actual rate and the agreed upon ceiling rate. So if the ceiling was 10% and the interest rate rises to 13% the financial intermediary will compensate the buyer the extra 3%. In a ceiling/floor agreement it is a little different. Usually the financial intermediary is trying to protect its earnings on lending. If the rate goes above the ceiling then the entity compensates the buyer, but if rates go below the floor then the buyer compensates the bank for rates under the agreed percentage.

Options appear to be extremely complicated so many investors dont like to use them. However, if understood they can be very useful. They are excellent tools for hedging and lowering risk as well as investments for profit. The option market allows for two types of transactions to be exercised at the same time; buying and selling the options and being able to sell the underlying asset holdings. The Option Clearing Corporation makes sure that these day to day option trading runs smoothly. These reason are why options are a good alternative to other security trading.

“Spending financed not by current tax receipts, but by borrowing or drawing upon past tax reserves. ” , Is it a good idea? Why does the U. S. run a deficit? Since 1980 the deficit has grown enormously. Some say its a bad thing, and predict impending doom, others say it is a safe and stable necessity to maintain a healthy economy. When the U. S. government came into existence and for about a 150 years thereafter the government managed to keep a balanced budget. The only times a budget deficit existed during these first 150 years were in times of war or ther catastrophic events.

The Government, for instance, generated deficits during the War of 1812, the recession of 1837, the Civil War, the depression of the 1890s, and World War I. However, as soon as the war ended the deficit would be eliminated and the economy which was much larger than the amounted debt would quickly absorb it. The last time the budget ran a surplus was in 1969 during Nixon’s presidency. Budget deficits have grown larger and more frequent in the last half-century. In the 1980s they soared to record levels.

The Government cut income tax rates, greatly increased defense spending, and didn’t cut domestic spending enough to make up the difference. Also, the deep recession of the early 1980s reduced revenues, raising the deficit and forcing the Government to spend much more on paying interest for the national debt at a time when interest rates were high. As a result, the national debt grew in size after 1980. It grew from $709 billion to $3. 6 trillion in 1990, only one decade later.

Federal spending has grown over the years, especially starting in the 1930s in actual dollars and in proportion to the economy (Gross Domestic Product, or GDP). Beginning with the “New Deal” in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt sought to use the full powers of his office to end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to nearly $7 billion in 1934 and to over $8 billion in 1936.

Then, U. S. entry into World War II sent annual Federal spending oaring to over $91 billion by 1944. Thus began the ever increasing debt of the United States. What if the debt is not increasing as fast as we think it is? The dollar amount of the debt may increase but often times so does the amount of money or GDP to pay for the debt. This brings up the idea that the deficit could be run without cost. How could a deficit increase productivity without any cost? The idea of having a balanced budget is challenged by the ideas of Keynesian Economics.

Keynesian economics is an economic model that predicts in times of low demand and high unemployment a deficit will not cost anything. Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used.

For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic ystem. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980’s when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit.

This means as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. But, what if the government spends money on programs that do not increase its assets or productivity. For instance consider small businesses. If the company invests money to higher a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on a paper clips when they have staplers they will just lose the money spent on the paper clips. This frivolous spending is what makes a deficit dangerous.

Then the governments net worth decreases putting it into serious debt. Debt should not be a problem because we can just borrow more, right? This statement would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the private sectors essentially reallocating its own countries funds to spend on its country. This works fine in a recession, but when the country is at or near its full capability for production it cannot increase supply through investment of deficit dollars.

Deficit dollars then translate into demand for goods that aren’t being produced. Referring back to the small business example, if a company is selling all the products it can produce they can still higher another salesman. But since there re no more goods to be sold the salesman only increases the number of consumers demanding the product. Without actually increasing sales. The problems of deficit spending out of a recession even out through two negative possibilities, inflation and crowding out.

Inflation means there is more demand or money than there are goods this causes an increase in prices and drives down the worth of the dollar. This depreciation of the dollar counters the cost of the deficit but destroys the purchasing power of the dollar. A five dollar debt is still a five dollar debt even if the five dollars are only worth hat used to be a five cent piece of bubblegum. Despite its dangers inflation is used to some extent to curb the debt. Crowding out is when the government is looking for the same capital that the business sector wants to invest.

This causes fierce competition for funds to invest. The fierce competition causes an increase in interest rates and often business will decide against further investment and growth. The government may have the money to build new highways but the truckers cannot afford trucks to use on them. The governments needs will crowd out business needs. This turns potential assets into waste. However, there is a third option which would allow the government to run a deficit and avoid the negative aspects of inflation and crowding out. Borrowing from foreign sources is a tangible and recently very common practice.

Attracted by high interest rates and stability, foreigners now buy huge amounts of U. S. national debt. Of course this cannot be the perfect solution otherwise no one would be concerned about the debt. The problem with borrowing from external sources is the lack of control the government has over foreign currency and debts. Internal debts can be paid with increased taxes, inflation, and other onetary controls the government has but external debts can extremely damaging to a country if it cannot buy enough of the foreign currency to pay the interest.

Running a deficit is apparently good for an economy that is operating inside its production possibilities curve but it can be damaging to an economy operating on the curve. A deficit managed properly has the effect of increasing demands. An economy inside its curve can increase supplies in reaction. An economy on the curve can increase demand but its supplies cannot increase causing prices to rise, or inflation. If there is no deficit and the curve hifts to the right then supplies will not increase and the country will no longer be operating on the curve.

A deficit must be maintained to insure that the economy grows with its resources. Is the U. S. ‘s current debt bad or good? The trick is finding out how large the deficit should be in order to allow for growth without waste. The U. S. ‘s deficit is bad at this point because the U. S. is close to its maximum production capabilities, and deficit money is being wasted. For example two of the largest portions of the budget: defense and social security. Defense spending produces little or nothing except in times of war.

Judging by the current status of the United States as the only existing Nuclear Super Power war is not a tangible event in the near or distant future. The way social security is managed creates a huge waste. As managed, social security is money spent to immobilize a large and fairly capable part of the work force. It encourages elderly people not to work by spending deficit money on them. Reducing productivity and increasing the debt at the same time. In its current state the U. S. should attempt to reduce its deficit but eliminating it is not necessary and could do more damage than good.

The soaring volume of international finance and increased interdependence in recent decades has increased concerns about volatility and threats of a financial crisis. This has led many to investigate and analyze the origins, transmission, effects and policies aimed to impede financial instability.

This paper argues that financial liberalization and speculation are the most reflective explanations for instability in financial markets and hat financial instability is likely to be transmitted globally with far reaching implications on real sector performance. I conclude the paper with the argument that a global transaction tax would be the most effective policy to curb financial instability and that other proposed policies, such as target zones and the creation of a supranational institution, are either unfeasible or unattainable.

In this section I examine four interpretations of how financial instability arises. The first interpretation deals with speculation and the subsequent “bandwagoning” in financial markets. The second is a political interpretation dealing with the declining status of a hegemonic anchor of the financial system. The question of whether regulation causes or mitigates financial instability is raised by the third interpretation; while the fourth view deals with the “trigger point” phenomena.

To fully comprehend these interpretations we must first understand and differentiate between a “currency” and “contagion” crisis. A currency crisis refers to a situation is which a loss of confidence in a country’s currency provokes capital flight. Conversely, a contagion crisis refers to a loss of confidence in the assets denominated in a particular currency and the subsequent global transmission of this shock. One of the more paramount readings of financial instability pertains to speculation.

Speculation is exhibited in a situation where a government monetary or fiscal policy (or action) leads investors to believe that the currency of that particular nation will either appreciate or depreciate in terms elative to those of other countries. Closely associated with these speculative attacks is what is coined the “bandwagon” effect. Say for example, that a country’s central bank decides to undertake an expansionary monetary policy. A neoclassical interpretation tells us that this will lower the domestic interest rates, thus lowering the rate of return in the foreign exchange market and bringing about a currency depreciation.

As investors foresee this happening they will likely pull out before the perceived depreciation. “Efforts to get out would accelerate the loss of reserves, provoking an earlier collapse, peculators would therefore try to get out still earlier, and so on” (Krugman, 1991:93). This “herding” or “bandwagon” effect naturally cause wild swings in exchange rates and volatility in markets. Another argument for the evolution of financial market instability is closely related to hegemonic stability theory. This political explanation predicts a circumstance (i. e. decline of a hegemon’s status) in which a loss of confidence in a particular countries currency may lead to capital flight away from that currency.

This flight in turn not only depreciates the currency f the former hegemon but more importantly undermines its role as the international financial anchor and is said to ultimately lead to instability. The trigger point phenomena may also be used as an instrument to explain financial instability. Similar to the speculative cycles described above, this refers to a situation where a group of investors commits to buy or sell a currency when that currency reaches a certain price level.

If that particular currency were to rise or fall to that specified level, whether by real or speculative reasons, the precommited investors buy or sell that currency or ssets. This results in a cascade effect that, like speculative cycles, increases or decreases the value of the currency to remarkably higher or lower levels. Country after country has deregulated its financial markets and institutions. The neoclassical interpretation asserts that regulation is thought to create incentives for risk taking and hence instability.

It is said to bring about what are called “moral hazards. ” Proponents of deregulation argue that when people are insured, they are more apt to take greater risks with their investments in financial markets. The riskier the investment activity, the more volatile the markets tend to be. A closer look suggests that perhaps only two of these explanations are valid when thinking about the origins of financial instability. The trigger point explanation seems to be a misreading of the origins of instability.

It is unlikely that a large number of investors would have the incentive or operational ability in order to simultaneously coordinate the buying or selling of a currency or assets denominated in that currency. If even there is such unlikely coordination, the “existence of even a very large group of investors ith trigger points need not create a crisis if other investors know they are there” (Krugman, 1991:96). The theory of hegemonic stability also overlooks a number of factors that can provide useful insights in explaining the emergence of financial instability.

Historical precedence supports this assertion. For instance, Britains role as international economic manager was very minor in the stability experienced under the gold standard. The success of the standard can be attributed to endogenous factors such as the self adjusting market mechanism and the informal discipline maintained by its rules. The destabilization of the gold standard can be attributed to the extreme domestic economic and financial pressures brought on nation states by World War I, and not solely on the industrial and economic demise of Britain.

A valid explanation for the origins of financial instability are the speculative attacks brought on by investors. Although similar in function to trigger points, these speculative cycles cannot be mitigated simply by pure recognition. Rather than acting on the value of the currency itself, speculators act on occurrences or policies that will alter the value of the currency. Instability arises from the fact that these speculative cycles induce capital flight and therefore a change in the value of that particular currency, whether or not the decisions of these investors are based on market ” fundamentals.

Futures, options, swaps and other financial instruments “have given investors and speculators an unheard of capacity to leverage financial markets. The greater the leverage, the greater the instability” (McCallum, 1995:12). If we examine the deregulatory process closely, it becomes clear that there is a perverse relationship between deregulation and financial stability. Say for example, investors suffer from a profit squeeze. This causes the investors to lobby politicians for deregulation. The resulting wave of deregulation fosters instability and wide swings in exchange rates which in turn cause loan defaults and subsequent banking crisis.

The resulting financial instability thus begs calls regulation, likely placing the investors in the original position with an unsolved problem. We can see that the dialectic of the regulatory process undermines anticipated stability and will eventually lead to financial instability and collapse. In this environment, there arises calls or new forms of financial regulation. These policies and proposals are of critical importance and will therefore be discussed later in the paper. There are three contending albeit interrelated views on how financial instability may be transmitted globally.

These include equity markets, multiplier effects and monetary reverberations. Say for example, a movement of stock prices generates a recession in one country. This is turn leads to a reduce in imports from abroad. The lower aggregate demand for foreign imports will generate a contraction in other ountry’s output markets. The resulting contraction in the foreign countries will then induce a contraction in the originating country. As seen, the multiplier effect begins to take place that in turn leads to a global recession. If an asset crash leads to a monetary crises, the money crisis could be transmitted worldwide.

The Mundell-Flemming model assumes that under a fixed exchange rate system, such as that under the gold standard, a worldwide monetary contraction will result from a contraction in any one particular country because “a monetary contraction in one country, which raises interest rates in that ountry, must be matched by an equal rise in rates elsewhere” (Krugman, 1991:103). However, under a flexible exchange rate system, such as the one in operation today, the model predicts that monetary shocks will be transmitted perversely, that is, a monetary contraction in one country will produce expansion elsewhere.

Herring and Litan (1995) advance this argument by concluding that the transmission of crisis creates a “systemic risk. ” This view states that continuous losses in financial markets has adverse effects on the real economy because “significant losses can occur if there is a significant isruption in the payments system or the mechanism through which transactions for goods, services, and assets are cleared” (Herring and Litan, 1995:51) . While it may be accepted that financial crises can be transmitted globally, there is debate on its ramifications on the real sector of the economy.

Krugman (1991:97) states that a currency depreciation “will produce an improvement in competitiveness that will increase net exports and thus have an expansionary effect on the domestic economy. ” He also asserts that policy responses may help to curb real sectors effects. When currencies depreciate, overnment officials and central bankers raise interest rates to discourage capital flight. The recessionary effects of tight monetary and fiscal policies, it is argued, dilute the inflationary repercussions of the currency crisis.

Citing historical evidence of the US stock market crash, Kapstein (1996:6) goes so far as to say that the real economy is “shockproof” from transmission of financial instability and even in the face of financial crisis “continues to function normally. ” The assumption that swings in financial markets do not influence real sector performance is inattentive to many factors. Advocates of this view use hat is percieved as relatively small repercussions felt worldwide after the US stock market crash in 1929 where “in general the slump was mild” (Krugman 1991:91).

The empirical data of the slump underscores this argument. Between December 1929 and December 1932, for example, Germany experienced a 30. % percent stock market decline, France 38. 5 percent and Canada 37. 5% (Kindleberger, 1973). If we keep in mind that the percentage swing in the US stock during that same period was 37. 3 percent, we see that the slump was only slightly “milder” but by no means “mild. ” The real sector ramifications were just as remarkable.

Germany saw a 58 percent decline in industrial production, France 74 percent and Canada 68 percent, all comparably higher declines than in the United States (Yeager, 1976). It is obvious that financial crises do have global spillover effects and consequences on real sector performance. However, recognition of these adverse effects does not solve the problem. In the next section I present contending policies and proposals designed to curb international financial instability and its repugnant ramifications.

Three main policies have been introduced to curb international inancial instability. A global transaction tax, which is a tax on short term financial investments, a target zone approach, where nations exchange rates would be allowed to fluctuate within a specific band and a supranational or regional institution aimed at coordinating global financial reform. Proposed by economists and Nobel Laureate James Tobin in 1978, a global transaction tax (STT) would act to “throw some sand in the well greased wheels of the global financial markets.

The STT is predicted to slow the short term financial excursions into other currencies, yet at the same time it would have a ighter impact on trade and long-term investments with higher percentage yields. Speculators, now carrying the burden of a tax woul therefore have less ” leverage” with which to exploit exchange volatility while long-term investment would be encouraged. Another benefit of the tax is that it would reduce wasted financial resources and increase government revenues.

While proponents of the STT say the policy will reduce wasted financial resources, others argue that there would be an adjustment problem because of the fact that “goods and the price of labor moved in response to international price ignals much more sluggishly than fluid funds, and prices in goods and labor markets moved more sluggishly than prices of financial assets. “(McCallum, 1995:16) Others attack the view that excess volatility would be eliminated because “deciding whether volatility is excessive is complicated by difficulty of determining the fundamental value of a security” (Hakkio, 1994:22).

Opponents of the tax argue that it could be avoided by product substitution and regulatory arbitrage and that the government revenue created would be overestimated because “the tax base would decline as security prices and the olume of trading decline” (Hakkio 1994: 26). Advocates of the “efficient market hypothesis” argue that if financial markets are allowed to freely operate, there will be a revaluation of asset values that will produce the most accurate price signals on which to base long- term resource allocations. They say that a STT would be detrimental to less developed countries so reliant on short term investment.

Another highly noted policy aimed at curbing international financial instability is the adoption of a targeted exchange rate system. A sort of ” hybrid” regime, target zones allows currencies to fluctuate within predetermined nd set bands, thus allowing a “float” but at the same time keeping a “fix. ” Since “the main sources of conflict have been the unpredictability of exchange rates” (Frenkel, 1990:318) a target zone approach would in theory alleviate this unpredictability, while keeping the appealing attributes of a floating system.

Seen to be the optimal answer for coordinated exchange rate stabilization, ” target zones would involve the determination of an international consensus regarding an appropriate and globally feasible range around which currency values could fluctuate” (Grabel, 1993:77). The adoption of a target zone system would not be universally beneficial. Naturally, the size, status and sector of the economy play an important role in its desirability.

Government officials and central bankers will likely oppose the adoption of a targeted exchange rate due to the fact that it would hurt their ability to change the value of their currency in the face of high capital mobility. With a targeted exchange rate, it is argued that there is limited room for fluctuation which infringes on the effectiveness of domestic policies. On the other hand, the fixity of the target zone would in theory tabilize purchasing power of wage earners in both developed and less developed.

The overriding problem of the adoption of a target zone regime is that there is no clear way in which target zones could be calculated. If they were to be calculated what would be the ramifications if a country was to fluctuate out of the specific bands? Would the target zones be global or regional? If global, how could the less developed countries be able to stay in the same bands as the developed countries? If a target zone was adopted, what is to say the maldistribution of wealth would not remain idle?

There seems to be little, if ny, evidence that a fixed, stabilized exchange rate leads to higher or lower interest rates. If the value of a currency is not able to adapt to high tendencies of capital mobility, then it is only rational to say that the developed countries would continue to sap the wealth of less developed countries. The last major policy aimed at quelling financial instability is the creation of a supranational institution aimed at coordinating financial reform and adopting a system of “regulatory supervision.

Processing along the lines of a Bretton Woods architecture, this would in a sense institutionalize the role of hegemon with “a creation of a common currency for all of the industrial democracies” and “a joint Bank of Issue to determine monetary [and financial] policies” (Cooper, 1984:166). This policy proposal endorses the adoption of an global financial institution managing the operation of coordinated supervision. Experience shows us that coordinated supervision is not possible in international financial markets.

For instance, the Basel Concordant was never able to reach organizational level to properly respond to a crisis. Additionally, “the BCCI affair demonstrated the limitations of international ank supervision when confronted by unscrupulous operators intent on exploiting the gaps in national bank supervisory systems” (Herring and Litan, 1995:105). Proponents of re-creating a Bretton Woods-type system are unaware of the lessons to be learned from that period.

The theoretical brethren of hegemonic stability advocates, proponents of this policy seek too place “the direction of world monetary policy in the hands of a single country” or institution that would have “great influence over the economic destiny of others” (Williamson, 1977:37). As seen under the Bretton Woods system the “destiny” of others was in he hands of a country that was unable to maintain stability. It is yet to be demonstrated how an institutional framework would sidestep the same faultlines and management problems experienced by the United States under the Bretton Woods regime.

The organizational barriers to creating such cooperation and coordination would be insurmountable. Secondly, whose view would most likely be presented in the supranational forum? Experience in international organizations shows us that it will probably be the powerful, industrialized nations. The voice and needs of the less developed countries is likely to be marginalized and ituations such as the Latin American debt crisis would continue to occur. When looking at the progress of the European Monetary Union we see that the completion of a single market is far too radical for today’s international financial climate.

Just as “the costs of qualifying for the EMU has become too high” it becomes “unrealistic to hope that the major industrial countries can make comparable strides toward political [much less financial] unification in our lifetime” (Eichengreen and Tobin, 1995:170). Ideally, the best policy for stemming financial instability and spillover effects would be one that extinguishes the problem at its roots. If deregulation in itself causes instability in financial markets, then regulation would be appealing.

Even when the benefits of financial deregulation are apparent, there is a role for regulatory policy” that would “leave the world economy less vulnerable to financial collapse” (Eichengreen and Portes, 1987:51). . If we also hold true the conclusion that the best explanation for financial instability is speculation, then a global securities transaction tax such as the one proposed by Tobin would be optimal. The discouragement of short term speculative excursions and the endorsement of long-term investment will liminate the problem of volatility based on speculative attacks that so often stray from market “fundamentals.

Critics are quite correct when they argue that the tax could induce financial arbitrage and substitution. However this problem would be solved as long as the tax was globally adopted. Secondly, the tax would be applied to goods, services, and financial instruments that had few or no substitutes. The view that the creation of new government revenues is overestimated and that Third World countries would carry the financial burden is nullified when we see that “a . percent tax on exchange transaction would ugment government revenues globally by as much as $300 to $400 billion per anum” and “devoting merely 10-20 percent of that revenue to a revolving fund for long-term lending to Third World countries would be a healthy substitute for the hot money on which some have become disastrously overdependent” (McCallum, 1995:16).

The recognition and ceasing of financial instability and its global transmission is becoming more and more universally endorsed. To decide on a prudent and practical policy will prove to be a major hurdle of international financial leaders around the world.

However, if we look closely, we will find the locus of instability in financial markets to be deregulation and speculative attacks. Government and central bankers can no longer adopt an attitude of ” benign neglect” toward international financial instability as it becomes increasingly apparent that there are far reaching consequences on real sectors. We can see that there is one policy that supersedes the rest. If the world financial system hopes to curb these real sector ramifications of speculative attacks and financial liberalization, then it becomes indisputable that the STT is an idea whose time has come.

In Europe, the debut of the euro is widely hailed as the most important event affecting the international monetary landscape since the breakup of the Bretton Woods System in 1971 to 1973, or since the Bretton Woods Agreement in 1944, or maybe even since the founding of the Federal Reserve System in 1913. It has become a contest for European officials and commentators to see who can push the analogy back furthest in time. Eminences elsewhere in the world have similarly greeted the euro with high hopes and great expectations.

Even Fidel Castro has praised Europe for creating a currency which finally confronts the dollar with a “prospective adversary” and promises to bring to a close the long postwar period of U. S. monetary hegemony. Only in the United States has the euro been greeted with a yawn. It is not hard to see why. So far, its advent has not weakened the international financial position of the dollar; if anything the opposite has been true.

The dollar has been strong against the euro rather than weak; for much of last autumn the fear was that the euro, which had started out being worth well more than a dollar, might plunge through the dreaded psychological barrier of one to one. There has been no sign of Asian and Latin American central banks replacing their dollars with euros en masse, as prominent commentators had predicted. The United States has not had to change the way it does business at Group of Seven summits, the OECD, or the IMF. Many Americans thus cannot help but feel that the euro is a tempest in a teapot.

A new study reveals that consumers are a lot more bullish about online banking services than previously thought, and that banks need to rethink how they go about segmenting customers and defining their value propositions. Online banking could grow by as much as 50% during the next year, according to the study, Competing on Supply, Winning on Demand. Recapturing Share of Consumer Financial Services, conducted by Bank Administration Institute (BAI) and The Cambridge Group. Twenty-four percent of survey participants conducted online financial transactions in the last 12 months.

Fifty-two percent are online but are not conducting financial transactions, and 24% are offline. However, over the next 12 months, 18% of respondents from these latter segments intend to transact financial services online. Other key findings are: 59% of consumers surveyed are interested in some form of online account aggregation. Aggregation solutions facilitated by screen scraping drew interest from 23%, while OFX (Open Financial Exchange) solutions were of interest to 34%. The most sought after aggregation deliverable was a single electronic statement (53%). % of consumers surveyed are interested in receiving financial education, advice and planning.

Thirty-eight percent are willing to pay for it on a one-time basis, while 34% are willing to pay for it on an ongoing basis. 990% of survey respondents are interested in the idea of one-stop shopping for financial services, and banks are viewed as the most capable providers of such a service. The most common online financial transactions for survey respondents are transferring money between accounts, paying bills, and buying securities. Sixty-three percent of study participants have life insurance.

Insurance companies are perceived as the most capable providers (65%), followed by large banks (14%), personal financial advisors (12%), credit unions (12%), full-service brokerage firms (11 %), and community banks (10%). “The research calls for financial services companies to look at their businesses in a new waythrough the eyes of their customers-to gain an understanding of the demand in the marketplace,” said Thomas P. Johnson, Jr. president and CEO at BAI. For example, the research shows that banks’ efforts to gain wallet share from wealthier consumers may be misdirected.

Many of these customers have a lower affinity for banks and have numerous financial companies competing for their business. However, by satisfying the needs of other customer segments who have a greater affinity for banks, are less demanding, and have fewer institutions vying for their attention, banking organizations can grow revenue from new sources. The study concludes that banks must focus more intensively on understanding the attitudes and motivations that drive customer behavior, said Navtej S. Nandra, principal at The Cambridge Group. “This approach allows you to predict behavior. ”

Alternative one offers the highest profitability. The net income after taxes for alternative two is $104,996,299 compared to $160,658,065 for alternative one. Alternative two also offers a high profitability, but not as much as the first alternative. The risk for alternative one is very high. The risk for the second alternative two is average. Purchasing Nestea is risky because the alternative beverage industry is declining. Coca-Colas dissolution of their alliance with Nestea also raises some concerns of risk and profitability.

The additional profits received from alternative one are not a large enough amount to consider taking this high of a risk. Competitors Reaction Competitors reactions were thought to be more prevalent in alternative two. The repackaging and offering the non-tea products in cans would cause an immediate reaction. The expected increase in sales would cut into the competitors share of the market. When Snapple refocuses itself in the international market, the other alternative beverage companies will also enter the market. Competitors reactions for alternative one are expected to be low.

The main competitor left after the purchase of the alternative beverage division of Nestea from Nestle would be Pepsis Lipton product. There are no clear strategic actions to counteract this movement from Pepsi Lipton. Societys Reaction Societys reactions for both alternatives would be high. Buying Nestea, alternative one, would give Snapple the profits they would receive from loyal Nestea customers. This brand loyalty might also help the image of Snapples drinks. The convenience of having Snapple in a can, included in alternative two, should have a positive reaction.

The slightly lower price of Snapple, for both alternatives, should create increased sales because consumers always appreciate being able to purchase goods at a lower price. Timing The timing of both alternatives is crucial because of Snapples declining market share and the slowing growth of the industry. It may also be a good idea to wait a while to purchase Nestea because of its declining sales, which could lower the purchase price. This is the right time for Snapple to enter the international market due to the industrys growth decline in the alternative beverage market in the United States.

Entering the international market should increase Snapples sales in a market that is not yet overcrowded. Feasibility Purchasing the Nestea division of Nestle could be difficult to accomplish. It is unknown if Nestle is willing to sell Nestea. Also, acquiring the amount of capital needed to purchase Nestea would be complex. Alternative two is more feasible. There are some promising prospects for international trade markets. It should be easy to offer Snapple in cans because the costs are lower and the company does not produce its own bottles.

However, Snapple would be forced to find companies that produce cans and will be willing to bottle the product in cans. Effectiveness Both of the alternatives address the problem that Snapple is facing. Alternative one solves the problem of Snapples declining market share by purchasing the Nestea division of Nestle. Alternative two solves this problem by entering the international market. The key success factor of maintaining and improving the image of the company is included in alternative two.

Both suggested methods of cutting costs, that would lower the price to the consumer, would also help to improve Snapples image Lowering the amount of flavors offered would make it easier to obtain shelf space for Snapples products. Choice Alternative two is the chosen solution. This decision was based on its strong numerical rating as well as its strengths. Alternative two was rated at 3. 9 compared to 3. 05 for alternative one. Entering the international market will increase the sales at less of a risk than alternative one. Alternative two also requires a considerably lessor amount to invest than the other alternative.

Alternative One Description As the sales in the alternative beverage industry have slowed, Snapple has to figure out new ways to survive. Snapple needs to look at cutting prices, varieties, and acquiring other investments. These suggestions lead to an alternative which will help Snapple survive and grow in the industry. Snapple needs to cut their prices to some extent, since they have a profit margin of 42. 11% according to 1993 standings. They can cut this to 30 percent and still make a great return without starting a big price war.

By doing this, Snapple will gain an increase in sales and possibly hurt other firms in the industry. This drastic reduction of consumer costs would threaten weaker firms to seriously consider leaving the alternative beverage industry. Since Nestle and Coke have separated, Nestea ( a division of Nestle) could be in serious financial trouble. The price cuts could hurt or eliminate Nestea and other small firms in the industry. In an industry with sales that are slowing, Snapple needs to try to acquire as much of the industrys sales as possible in order to survive.

Along with the cutting of prices, Snapple needs to acquire other investments. One way of doing this would be to buy out Nestles alternative beverage division (Nestea). Snapple has a great amount of assets and leverage for financing to buy Nestea. If Snapple can acquire Nestea, it would increase its market share substantially. At this point , Snapple would only have Pepsi Lipton as a major rival in which to contend. When acquiring Nestea, Snapple will take the name, product, and other patents and copyrights. Snapple will not buy the production or distribution buildings.

Snapple will also have Nesteas products subbed out to other distributors and bottlers in the same fashion as Snapples current plan. If Snapple and Nestea become one they could combine their products together for better sales and cheaper production. Since costs of supporting brands are on the rise and shelf space is limited, combing products packaging would be wise. Snapple will continue to not advertise its products as individual flavors but as the entire product line of Snapple. Also, they could use plastic bottles instead of glass, with the exception of ice teas.

The use of plastic could also save money and possibly increase sales because of the convenience. Alternative Two Description Despite the fact that Snapple was doing well within the alternative beverage industry in 1992-1993, sales began to fall while inventories rose in 1994. In order to combat the loss of sales and shelf space in convenience stores and supermarkets this alternative consists of three key components. The first component is to cut back on the number of flavors produced. Currently Snapple is distributed in 16 ounce bottles that tend to be bulky and more expensive than the competitors canned and bottled products.

To compete with our competitors one option is to change the packaging to cans for the non tea beverages, like Mango Madness and Kiwi Strawberry. These cans will be more convenient for the consumer in cost and the ability to recycle. The cans will also be more convenient to the supermarkets because they will be able to stock them more easily. Snapple would keep its tea beverages in bottles because of the unique technique used in the brewing process. A second aspect of the change in packaging is to sell packs of the drink to consumers. The packs would consist of four bottles or six cans.

The bottles would be advertised mainly in supermarkets as buy three get one free. These bottle four packs would consist of the consumers own assortment pack, in that the customer can choose which of the eight flavors of tea will go in their pack. The cans will be sold in six packs that are prepackaged in the same flavor. The third component of alternative two is to expand Snapples focus to include international markets. In 1994 Snapple began to introduce itself to the European market. They began selling Snapple in Britain, Ireland and Norway and then moved into Denmark, France and Spain.

However, by the end of 1994, only one percent of total Snapple sales were from international sales. This alternative proposes that Snapple increase their marketing strategies and attempt to contract more international distributors in order to increase global sales by ten percent. This component would cause the marketing department to expand their resources in order to market the product accurately in foreign lands. However, the timing is good at the current time in Europe to introduce Snapple. Snapples Research and Development staff would also have to research the flavors to see which ones are appealing to European tastes.

Hopefully, Snapple will ultimately be able to expand to other markets like Sou! th America, Asia and Central America. Current Strategy At the current time Snapples primary focus has been to pique consumer interest consistently with the introduction of new flavors regularly. Snapple is also entering the international market. Although, a lack of focus has not made sales strong in the international market. Another aspect of Snapples strategy has been to introduce varieties of their product in the soda, sport drink and diet form. Unfortunately these techniques have not been as successful for Snapple as they had hoped.

In Europe, the debut of the euro is widely hailed as the most important event affecting the international monetary landscape since the breakup of the Bretton Woods System in 1971 to 1973, or since the Bretton Woods Agreement in 1944, or maybe even since the founding of the Federal Reserve System in 1913. It has become a contest for European officials and commentators to see who can push the analogy back furthest in time. Eminences elsewhere in the world have similarly greeted the euro with high hopes and great expectations.

Only in the United States has the euro been greeted with a yawn. It is not hard to see why. So far, its advent has not weakened the international financial position of the dollar; if anything the opposite has been true. The dollar has been strong against the euro rather than weak; for much of last autumn the fear was that the euro, which had started out being worth well more than a dollar, might plunge through the dreaded psychological barrier of one to one.

There has been no sign of Asian and Latin American central banks replacing their dollars with euros en masse, as prominent commentators had predicted. The United States has not had to change the way it does business at Group of Seven summits, the OECD, or the IMF. Many Americans thus cannot help but feel that the euro is a tempest in a teapot. The Euro’s Slow Start Perhaps Asian and Latin American central banks have been waiting to dump their dollars until the euro stabilizes.

Through much of 1999 the euro was weak because the European economy was weak; governments and private investors were understandably reluctant to overweight a currency that seemed to be losing value by the day. Investors were slow to move into euros because they thought that Europe was less well prepared than the United States for Y2K. They worried about the stability of the European banking system because European banks had lent much more aggressively than their American counterparts to Indonesia, Korea, Malaysia and Thailand.

But now that European growth is finally accelerating, the euro could strengthen, and the anticipated shift into euros at last could get under way. Perhaps governments and investors have been reluctant to embrace the euro because of a series of missteps by the European Central Bank. In the early months of 1999, ECB officials issued a series of confusing and contradictory statements, and on several occasions the ECB board’s decision on whether or not to raise interest rates leaked to the press in advance of the official announcement.

In April the ECB cut interest rates faster than most market participants thought wise in response to signs of weakness in the European economy. Now that the ECB has apparently concluded that less is more (by issuing fewer public statements and moving interest rates less frequently) and has begun to demonstrate the priority it attaches to price stability, skepticism about its ability to act as the steward of a strong currency may be about to fade. Learning to Think European And perhaps it is simply taking time for Europe to learn to speak with one monetary voice.

It is understandable that an extended process of acculturation should be required in order for the national central bank governors on the ECB board to learn to think and talk as representatives of Europe and to frame policy with Europe-wide conditions in mind. Similarly, not until well into 1999 was real progress made on reorganizing European representation at G-7, G-10 and OECD meetings. Europe, unlike the United States, has not been able to effectively represent its views on how best to reform the international financial architecture because it is still creating mechanisms for conveying its views and, more importantly, forming those views.

Given time, however, this will change. With time, the euro will significantly alter the international monetary and financial landscape. Europe’s new money will develop into a serious rival to the dollar as a reserve currency for central banks, an invoicing currency for importers and exporters, and a financial asset for international investors. But this will take more time than suggested even by many euro-skeptics. Because changes in the international monetary and financial landscape tend to occur extremely slow, the exaggerated hopes of euro-enthusiasts like Fidel Castro are likely to be disappointed.

Similarly, Europe will eventually learn to speak with one monetary voice. But the political changes needed to make that level of financial solidarity possible will take many years to complete. Just as the dollar will continue to dominate the international financial arena for the foreseeable future, the United States will retain the loudest single voice in international monetary debate. A Rival to the Dollar? n A world where the euro rivaled or even surpassed the dollar would represent a major change from the status quo.

At the moment, the dollar is far and away the leading currency. Aproximily sixty-seven percent of the foreign exchange reserves of central banks around the world are in dollars, compared to less than a quarter of the total for all Euroland– of the 11 E. U. Forty percent of the minor currencies that are pegged to one of their major counterparts are pegged to the U. S. dollar, a far larger percentage than any of its rivals. In one of the articles I also read that the dollar is used to denominate more than half of all private financial transactions.

There was an interesting articles which said that Less is known about whose cash is held outside the home country, since much of it is used for purposes like drug smuggling, tax evasion and money laundering. But the best guess of the Federal Reserve and the German Bundesbank is that perhaps 80 percent of the total is dollars. Those who hope or fear that the euro will quickly rival or overtake the dollar as an international currency point to the size of the European market, which are still growing. The population of Euroland approaches 300 million.

The euro area is the single largest importer and exporter in the world, accounting for 19 per cent of world exports, followed by 15 percent for the U. S. and 9 percent for Japan. Its share of world GDP is 16 per cent, far higher than Japan’s and not very far behind the United States. And as Euroland expands its E. U. member states like Greece, Denmark, Sweden and the UK that are now outside the monetary union decide to participate and the E. U. , and also the Eastern European countries if they every decide to join, its share of global GDP will quite possibly surpass that of the United States.

Moreover, the euro has created an immense European financial market. With so much economic activity taking place in Europe and so much of it denominated in euros, the euro should become increasingly convenient for use in international transactions by governments, banks and traders in other parts of the world. Increasingly, importers and exporters in Latin America and Asia will invoice their transactions in euros rather than dollars because so many European importers and exporters will be invoicing in euros.

I also believe that multinational corporations and governments will grow even more enthusiastic about denominating their international bond issues in euros, given the large and growing volume of euro-denominated transactions on European securities markets. Latin American and Asian central banks will in the future shift the currency composition of their international reserves from dollars to euros as they see other central banks moving in that direction. Also as the liquidity of European financial markets continues to improve, will begin to shift the eyes of investors around the world towards the shinning euro.

In the past few months, there was consistent negotiation for creation of a housing & financial Utopia. Last Friday, Oct 24, 2020, Michael Smith, the chairman of Style Construction Co, and John Abraham, the Cubat island owner, had given permission and their support to create the New Generation Housing & Finance Utopia. I was very fortunate to be the manager of this construction. It would my pleasure to present you the ideal of this goal and how it function. New Generation Housing & Finance Utopia will be a heaven residential area and a secure financial market, which is closely associated with the world markets.

We will have 500 elite world companies in this Exchange, such as AT&T, Microsoft, Intel and etc. As we have witnessed in this century, many investors were eager to increase their profits, they began to invest dangerously with undocumented speculations. Rumors such as the merger of MCI WorldCom and Charon Communication had stock prices increase dramatically in few weeks, up 150% from previous month. MCI WorldCom chairman, Bob Wilson disclaimed the false allegation. “We have never in any way discussed with Charon about the possibility of a merger.

We feel very confident with our position in the future. ” Wilson said. Undocumented speculation caused the unsubstantial rising of MCI and Charon stock prices. When the truth was being told, a major correction was inevitable for MCI and Charon, they dropped 200% from it’s high. The speculators sold their shares before the announcement was made, since they knew it was untrue. They were profited handsomely from this trade. However, the investors, who believed in the rumor, were the buffer of this deal, meaning the ones who helped the speculators made money, but lost wealth of their own.

A few investors, who lost all their money, found no way out but death. Dick Peterson, in debt of Margin loan, jumped from 30-story office building for an immediate solution to his problems. Others gathered in the streets outside the Stock Exchange to learn how much they lost. Margin loan was buying number of shares with partial of your own money, and borrow the rest from brokers. As you could see, danger investment led to tragedy. Our goal of New Generation Housing & Finance Utopia is to provide our investors a safer environment to invest in.

We will eliminate undocumented speculations. Any news you hear is base on credible and legal announcements. Whoever in any way or form, try to mislead a false speculations will be fine severely and will be forbidden from the Utopia. Some features in this new Exchange will be different from other markets. Margin loans will be bended to prevent risky investment. A new loan call Accommodate loan will be take place of the Margin loan. Accommodate loan will let you borrow up to 10% of your investment. The loan must be paid back in a month.

The interest rate will be 10% of the amount you borrow, and overdue funds will increase the rate to 15%. Funds not being return in 2 months will be obligated to take the risk of losing the whole investment to the bank. Ten percents tax charge on profits from market investment less than 10,000 dollars. Fifteen percents tax on profits less than 20,000 dollars, over 100,000 dollars will be twenty percents, and exceed 500,000 dollars will be thirty-five percents. The maximum capacity for the island is 100,000 people.

Anyone is welcome to live in this Utopia. However, the minimum requirement of acceptable residents must have $100,000 of investments in the new Exchange. The individuals, who had trouble with the law, must obtain recommendations from several credible foundations. Then, a Selection committee will decide the acceptance of the individual (Noted criminals who committed major crimes will be turn down from acceptance). Occupation is various in this island, but market investment would be the priority profession.

Anyone is welcome to set up his or her own business with the approval of the island chairman (To ensure the non-polluted environment wouldn’t be interfere, no factories will be permitted). A democratic government will be in charge of the island. Selection members and the chairman are chosen by free election. The chairman of the island acts as the president. He has to solve issues, manage investment funds, and provide quality living and peace for the island residents. A Selection committee will be set up of thirty members. They act as Congress. They have the rights to veto the chairman’s decision, and make laws of this island.

Understanding the personal needs and abilities of our residents make the difference between life and living, trained staffs are on hand 24 hours per day, 7 days per week to assist and care for residents if any conflicts or problems occur. If any disagreement should become an important concern, voting will take place by the residents to concur the matter. The government will provide high-quality health care and school education. The funds of this service will be supported by the 15 percents tax of resident’s income. School will be concentrated on financial, business, and technology education.

The educated students will be the followers of this community. Housing is one of the most essential belongings in our life. Not only we want a home, but also a fancy house with luxuries that satisfied our desires. To ensure that our resident personal lifestyle is not just maintained but enhanced, we took that ambition account to the construction of the island. Our mission is to provide our residents a home the way they wanted. When the resident’s application has been accepted, we would give them freedoms of constructing their dream house. They tell us what they want, and we will build it for them.

However, because of time consuming are limited, the area and the outer structure of the house will be constructed in advance. We will follow our customer’s wishes to assemble the bedrooms, living rooms, gardens, and etc. Thanks to the arrangement of the island, which surrounded by water, our residents could see beautiful water views, and spectacular sunsets. There is always abundance of activities to occupy in this gorgeous island. Beaches are conveniently access for our residents. Amusement park could be found in the center of the island. Shopping malls are located closely to residential areas.

The Electronic Banking Association (EBA) is a non-profit organization established to do one simple thing-help more people get started with electronic banking. Here’s why. Who taught you how to write paper checks? Probably your parent’s right? Well, who’s going to teach you how to write electronic checks? Probably NOT your parents. That’s where they come in. E-banking is so much more convenient and so much quicker that everyone should know about it. The EBA was established as an independent source of helpful information about electronic banking for consumers and businesses.

Financial institutions, merchants, and other financial service firms actually provide financial e-commerce services, but the Electronic Banking Association (EBA) monitors progress in the financial e-commerce industry and provides information that will enable users of those services to become better informed and to locate providers of the services they seek. Everyone hates paying bills. It’s time-consuming, frustrating, and you have to lick that awful envelope glue. But not with e-banking. You’ll spend less time paying bills, and more time doing fun stuff.

Here are some advantages to e-banking: – No more paper checks. Your computer remembers who you write checks to. You simply enter an amount then point-and-click. You’ll never run out of checks again. – No more hassles. You can schedule your payments in advance, so they’ll get paid while you’re on vacation or away on business. Electronic payments are processed quickly, in as little as 24 hours to 5 days (unlike a paper check sent in the mail, which takes an average of 10 days to post). – No more envelopes to lick. No envelope glue. No paper cuts on your tongue.

And you an stop writing your return address again, and again, and again. – No more writer’s cramp. It takes forever to write checks and addresses every month. E-banking cuts that time to practically nothing. – No more stamps. With e-banking, there’s no postage and your bills are processed quickly – whenever you want them paid. You can pay your bills online, so it only makes sense to receive them that way, too. This is called “Electronic Bill Presentment,” and more and more businesses are going to offer it. – No more lost bills. Your dog can’t eat electronic bills.

Your kids can’t misplace them. And you can’t lose them under a stack of catalogs. – Pay bills when you want to. Not when the post office decides to deliver them. Click to see it. Click to pay it. Your bills appear right on your computer screen and look much like the printed bills you are used to getting. But the difference is you can pay them with just the click of a mouse. – Better record keeping. All your billing and payment information is kept in one convenient location, not in messy cardboard boxes or goodness only knows where else.

You can pay your bills online, so it only makes sense to receive them that way, too. This is called “Electronic Bill Presentment,” and more and more businesses are going to offer it. In addition to paying bills online, you can get current information any time you want it. So you can get up-to-date account balances, transfer funds, obtain information about check clearing; all sorts of things. You can import this information directly into today’s popular financial management programs such as Quicken without having to re-enter it. You buy things all the time with credit cards, right?

Well then, those are electronic transactions just like these. Today’s latest Web browsers have sophisticated encryption that’s very secure. What’s more, electronic checks are safer than having paper checks lying around where anyone can obtain and misuse your account information. Experts predict it would take a hacker over 2,000 years to crack 56-bit encryption. Yet many financial institutions today require a browser that supports 128-bit encryption, which would take about 12,710,204,652,610,000,000,000,000 years to crack. Now that’s secure.

When you’re ready to open an e-banking ccount, you can receive more information on security, as well as a recent browser that supports 128-bit encryption, through your financial institution or at the Netscape and Microsoft Web sites. In the time it takes you to pay your bills the old-fashioned way, you can be up and running with e-banking. Best of all, once you enter who you pay bills to, you’ll never have to re-enter that information. Your financial institution may offer e-banking via the Web or a personal financial manager or both. Web-based e-banking is generally easier and quicker to set up.