NOMINATION RULES

Nomination Facility is an ideal tool to mitigate hardships of common persons in settlement of claims in the event of death of the account holder.   Nomination is optional for bank customers and the facility is available on a voluntary basis. Nomination facility, if availed, would ensure smooth settlement of claim to the nominee.   Nomination is solely for the purpose of simplifying the procedure for settlement of claims of deceased depositors and does not take away the rights of legal heirs on the estate of the deceased.   The nominee would be receiving the claimed amount from the bank as a trustee of the legal heirs.   Nomination facility is intended only for individuals including a sole proprietary concern.   Nomination can be made in favour of minor also.   There cannot be more than one nominee in respect of single/ joint deposit account. However, nomination in favour of more than one person is permissible in jointly operated locker account with common consent.   Bank allows variation/ cancellation of a subsisting nomination by all the surviving depositor(s) acting together.   In a joint account the nominee's right arises only after the death of all the depositors.

Pledge vs Hypothecation vs Mortgage

These terms are used for creating a charge on the assets which is given by the borrower to the lender as a security for any loan.  Thus, one of these terms will be normally used whenever an individual or a business firm avails any loan and the bank keeps some assets as a security, so that it will be able to sell the same in case that individual or the firm defaults in repayments.

(1) Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods ).  Such securities or goods  are movable securities.  In this case the pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the entire debt amount.   In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds towards the amount due (i.e. principal and interest amount).  Some examples of pledge are Gold /Jewellery Loans, Advance against goods,/stock,  Advances against National Saving Certificates etc.

(2) Hypothecation is used for creating charge against the security of movable assets, but here the possession of the security remains with the borrower itself.   Thus, in case of default by the borrower, the lender (i.e. to whom the goods / security has been hypothecated) will have to first take possession of the security and then sell the same.   The best example of this type of arrangement are Car Loans.   In this case Car / Vehicle remains with the borrower but the same is hypothecated to the bank / financer.   In case the borrower, defaults, banks take possession of the vehicle after giving notice and then sell the same and credit the proceeds to the loan account.  Other examples of these hypothecation are loans against stock and debtors.  [Sometimes, borrowers cheat the banker by partly selling goods hypothecated to bank and not keeping the desired amount of stock of goods.   In such cases, if bank feels that borrower is trying to cheat, then it can convert hypothecation to pledge i.e. it takes over possession of the goods and keeps the same under lock and key of the bank].

(3) Mortgage :  is used for creating charge against immovable property which includes land, buildings or anything that is attached to the earth or permanently fastened to anything attached to the earth (However, it does not include growing crops or grass as they can be easily detached from the earth).  The best example when mortage is created is when someone takes a Housing Loan / Home Loan.  In this case house is mortgaged in favour of the bank / financer but remains in possession of the borrower, which he uses for himself or even may give on rent. 

Difference Between Pledge, Hypothecation and Mortgage at a Glance:

	Pledge	Hypothecation	Mortgage
Type of Security	Movable	Movable	Immovable
Possession of the security	Remains with lender (pledgee)	Remains with Borrower	Usually Remains with Borrower
Examples of Loan where used	Gold Loan, Advance against NSCs, Adv against goods (also given under hypothecation)	Car / Vehilce Loans, Adv against stock and debtors	Housing Loans

What is an Assignment ?  

There is another term  (i.e. Assignment) which is sometimes confused with above terms.  An assignment constitutes an action taken with a contract.  Assignment occurs when the owner of a contract, known as the assignor, gives a contract to another party, known as the assignee.   The assignee assumes all responsibilities and benefits of the contract.  When it comes to loans, assignment can relate to life insurance policies and mortgage contract from one party to another.    Mortgages and other contracts sometimes contain provisions limiting or stipulating conditions for assignment.

One example of assignment is 'transfer by the holder of a life insurance policy (the assignor) of the benefits or proceeds of the policy to a lender (the assignee), as a collateral for a loan'.    In such case in the event of the death of the assignor, the assignee is paid first and the balance (if any) is paid to the policy's beneficiary.      However,  insurance policies other than life insurance,  may not be used for this purpose.

The Right To Set-Off

In order to cover a loan in default, a bank has a legal right to seize funds of a guarantor or the debtor. A settlement of mutual debt between a creditor and a debtor through offsetting transaction claims is also known as setoff. Through this settlement, a creditor can collect a greater amount than they usually could under bankruptcy proceedings. When a setoff clause is entered into, the bank can seize the customer's current deposit. A bank exercising a right of setoff must fulfill the following conditions :

1. the account from which the firm transfers funds must be held by the customer owing the firm money;

2. the account from which the firm transfers the money and the account from which the money would otherwise have come, must be held with the same firm;

3. both account must both be held in the same capacity by the customer; and

4. the debt must be due and payable.

Most banks have the right to transfer cash from your bank or savings accounts to pay off other debts held with them, such as credit cards or loans. It's known as the right to "'set-off", or to combine accounts.

CAPITAL ACCOUNT VS CURRENT ACCOUNT

Capital account can be regarded as one of the primary components of the balance of payments of a nation.

Definition: Capital account can be regarded as one of the primary components of the balance of payments of a nation. It gives a summary of the capital expenditure and income for a country.

Description: The capital expenditure and income is tracked by way of funds in the form of investments and loans flowing in and out of an economy. This account comprises foreign direct investments, portfolio investments, etc. It gives a summary of the net flow of both private and public investment into an economy.

A capital account deficit shows that more money is flowing out of the economy along with increase in its ownership of foreign assets and vice-versa in case of a surplus. The balance of payments contains the current account (which provides a summary of the trade of goods and services) in addition to the capital account which records all capital transactions.

Current account is one of the two component accounts of the balance of payments of a nation.

Definition: Current account is one of the two component accounts of the balance of payments of a nation. It records the trade of goods and services of an economy with other countries of the world.

Description: Current account includes three components - net exchange i.e. exports minus imports of goods, net exchange of services and net transfers to and from the country. The balance in this account before accounting for the transfer component is generally referred to as the balance of trade. In India, current account is reported by the Reserve Bank of India.

The exchange of goods and services is recorded for the current period and hence is called current account. The current account figure reveals the pattern of foreign trade. If the balance of trade is negative, then the country is importing more goods and services than its exports of these. The other component of the BOP is the capital account.

Capital account: Part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments.

Current account: Part of a nation's balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments.

Special Economic Zone(SEZ)

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country's typical economic laws. Usually the goal is to increase foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North Korea has also attempted this to a degree. 

At present there are eight functional SEZs located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West Bengal) and Noida (Uttar Pradesh) in India. Further an SEZ in Indore (Madhya Pradesh) is now ready for operation.

In addition 18 approvals have been given for setting up of SEZs at Positra (Gujarat), Navi Mumbai and Kopata (Maharashtra), Nanguneri (Tamil Nadu), Kulpi and Salt Lake (West Bengal), Paradeep and Gopalpur (Orissa), Bhadohi, Kanpur, Moradabad and Greater Noida (UP), Vishakhapatnam and Kakinada (Andhra Pradesh), Vallarpadam/Puthuvypeen (Kerala), Hassan (Karnataka), Jaipur and Jodhpur ( Rajasthan) on the basis of proposals received from the state governments.

Any private/public/joint sector or state government or its agencies can set up an SEZ.

Yes, a foreign agency can set up SEZs in India. 

State governments will have a very important role to play in the establishment of SEZs. Representative of the state government, who is a member of the inter-ministerial committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the ministry of commerce and industry (department of commerce), the states must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.

The objective of the SEZ Act was to create a hassle-free regime and the rules would be formulated keeping this in mind. The ministry is also holding talks with state governments as they have to play an important role in the development of SEZs.

Facts About INDIA

Name	Origin From	Fall into	Length (km)
Ganges	Combined Sources	Bay of Bengal	2525
Satluj	Mansarovar Rakas Lakes	Chenab	1050
Indus	Near Mansarovar Lake	Arabian Sea	2880
Ravi	Kullu Hills near Rohtang Pass	Chenab	720
Beas	Near Rohtang Pass	Satluj	470
Jhelum	Verinag in Kashmir	Chenab	725
Yamuna	Yamunotri	Ganga	1375
Chambal	M.P.	Yamuna	1050
Ghagra	Matsatung Glacier	Ganga	1080
Kosi	Near Gosain Dham Park	Ganga	730
Betwa	Vindhyanchal	Yamuna	480
Son	Amarkantak	Ganga	780
Brahmaputra	Near Mansarovar Lake	Bay of Bengal	2900
Narmada	Amarkantak	Gulf of Khambat	1057
Tapti	Betul Distt. Of MP	Gulf of Khambat	724
Mahanadi	Raipur Distt. In Chattisgarh	Bay of Bengal	858
Luni	Aravallis	Rann of kuchchh	450
Ghaggar	Himalayas	Near Fatehabad	494
Sabarmati	Aravallis	Gulf of Khambat	416
Krishna	Western ghats	Bay of Bengal	1327
Godavari	Nasik distt. In Maharashtra	Bay of Bengal	1465
Cauvery	Brahmagir Range of Western Ghats	Bay of Bengal	805
Tungabhadra	Western Ghats	Krishna River	640

Highest Award	Bharat Ratna
Highest Gallantry Award	Param Vir Chakra
Longest River in India	The Ganges
Longest Tributary river of India	Yamuna
Largest Lake	Wular Lake, Kashmir
Largest Lake (Saline Water)	Chilka Lake, Orrisa
Largest Man-Made Lake	Govind Vallabh Pant Sagar (Rihand Dam)
Largest Fresh Water Lake	Kolleru Lake (Andhra Pradesh)
Highest Lake	Devtal Lake, Gadhwal (Uttarakhand)
Highest Lake	Devatal (Gharhwal)
Highest Peak	Karkoram-2 of K-2(8,611 meters) Highest Peak in the world is Mount Everest which is in Nepal
Largest Populated City	Mumbai
Largest State(Area)	Rajasthan
Largest State(Population)	Uttar Pradesh
Highest rainfall	Cherrapunhi (426 inches per annum)
Highest Watefall	Nohkalikai Falls (335 meters, 1100 ft high) in Shora
State wise largest area under forest	Madhya Pradesh
Largest Delta	Sunderbans Delta
Largest River without Delta	Narmada and Tapti
Longest Cantilever Span bridge	Howrah Bridge
Longest River Bridge	Mahatma Gandhi Setu, Patna
Biggest Cave temple	Ellora
Longest Road	Grand Trunk Road
Highest Road	Road at Khardungla,(in Leh-Manali Sector)
Biggest Mosque	Jama Masjid at Delhi
Highest Gateway	Buland Darwaza at Fatehpur Sikri (53.6 meters high)
Tallest Statue	Statue of Gomateshwar (17 meters high In Karnataka
Largest Public Sector Bank	State Bank of India
Longest Canal	Indira Gandhi Canal or Rajasthan Canal (Rajasthan)
Largest Dome	Gol Gumbaz at Bijapur
Largest Zoo	Zoological Garden at Alipur (Kolkata)
Largest Museum	India Museum at Kolkata
Longest Dam	Hirakud Dam (Orrisa)
Highest Dam	Tehri Dam ( 260 meters , 850 ft )
Highest Tower	Kutab Minar at Delhi (88.4 meters high)
Largest Desert	Thar (Rajasthan)
Largest District	Kutch district
Fastest Train	Shatabadi Express running between New Delhi and Bhopal
State with longest coastline	Gujarat
State with longest coastline of South India	Andhra Pradesh
Longest Electric Railway Line	From Delhi to Kolkata via Patna
Longest Railway Route	From Assam to Kanyakumari
Longest Railway Platform	Kharagpur (W. Bengal)
Highest Railway Station	Ghum (W. Bengal)
Longest Platform	Kharagpur (West Bengal) 833 meters in Length. It is also the longest railway station in world
Longest Tunnel	Jawahar tunnel (Jammu & Kashmir)
Longest Highway	NH-44 (NH-7) which turns from Varanasi to Kanyakumari
Smallest State (Population)	Sikkim
Smallest State (Area)	Goa
Largest State (Area)	Rajasthan
Largest State (Population)	Uttar Pradesh
Densest Populated State	West Bengal
Largest Cave	Amarnath (J&K)
Largest Cave Temple	Kailash Temple, Ellora (Maharastra)
Largest Animal Fair	Sonepur (Bihar)
Largest Auditorium	Sri Shanmukhanand Hall (Mumbai)
Biggest Hotel	Oberai-Sheraton (Mumbai)
Largest Port	Mumbai
Largest Gurudwara	Golden Temple, Amritsar
Deepest River Valley	Bhagirathi & Alaknanda
Largest Church	Saint Cathedral (Goa)
Oldest Church	St. Thomas Church at Palayar, Trichur (Kerala)
Longest River	Ganga (2640 km long)
Longest Beach	Marina Beach, Chennai
Highest Battle Field	Siachin Glacier
Highest Airport	Leh (Laddakh)
Biggest Stadium	Yuva Bharti (Salt Lake) Stadium, Kolkata
Largest River Island	Majuli (Brahmaputra River, Asom)
Largest Planetarium	Birla Planetarium (Kolkata)
Sambhar lake	Largest inland salt lake

Bordering Pakistan(2912 km)	Jammu and Kashmir, Punjab, Rajasthan and Gujrat
Bordering China (3380 km)	Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Sikkim and Arunachal Pradesh
Bordering Nepal(1690)	Bihar, Uttarakhand, Uttar Pradesh, Sikkim and West Bengal
Bordering Bangladesh(4053)	West Bengal, Mizoram, Meghalaya, Tripura and Asom
Bordering Bhutan(605 km)	West Bengal, Sikkim, Arunachal Pradesh and Asom
Bordering Myanmar(burma) 1463 km	Arunachal Pradesh, Nagaland, Manipur and Mizoram
Bordering Afghanistan	Jammu and Kashmir (Pakistan-Occupied Area)

Liquidity

Liquidity means how quickly you can get your hands on your cash.

Definition: Liquidity means how quickly you can get your hands on your cash. In simpler terms, liquidity is to get your money whenever you need it.

Description: Liquidity might be your emergency savings account or the cash lying with you that you can access in case of any unforeseen happening or any financial setback. Liquidity also plays an important role as it allows you to seize opportunities.

If you have cash and easy access to fund and a great deal comes along, then it's easier for you to cease that opportunity. Cash, savings account, checkable account are liquid assets because they can be easily converted into cash as and when required.

HOT MONEY

n financial markets, 'hot money' is the flow of funds (or capital) from one country to another in order to earn a short-term profit on interest rate differences and/or anticipatedexchange rate shifts. These speculative capital flows are called 'hot money' because they can move very quickly in and out of markets, potentially leading to market instability

The following simple example illustrates the phenomenon of hot money: In the beginning of 2011, the national average rate of one year certificate of deposit in the United States is 0.95%. In contrast, China's benchmark one year deposit rate is 3%. The Chinese currency (renminbi) is seriously undervalued against the world's major trading currencies and therefore is likely to appreciate against the US dollar in the coming years.

Given this situation, if an investor in the US deposits his or her money in a Chinese bank, the investor would get a higher return than that in the situation in which he or she deposits money in a US bank. This makes China a prime target for hot money inflows. This is just an example for illustration. In reality, hot money takes many different forms of investment.

The following description may help further illustrate this phenomenon: "one country or sector in the world economy experiences a financial crisis; capital flows out in a panic; investors seek a more attractive destination for their money. In the next destination, capital inflows create a boom that is accompanied by rising indebtedness, rising asset prices and booming consumption - for a time. But all too often, these capital inflows are followed by another crisis. Some commentators describe these patterns of capital flow as “hot money” that flows from one sector or country to the next and leaves behind a trail of destruction.

PPF

The full form of PPF is Public Provident Fund Scheme.  It is a scheme of the Central Government, framed under the PPF Act of 1968.   Thus we can say PPF  is a government backed, long term small savings scheme, which was initially started by the Government to provide retirement security to self employed individuals and workers in the unorganized sector.   However, at present it is considered as the best tax saving scheme across all sections of the people who needs to invest to save some tax.  

• Individuals who are residents of India can open an account under the scheme.
• Only one PPF account can be maintained by an Individual, except an account that is opened on behalf of a minor.   Thus, PPF account can also be opened by either parent under the name of a minor.  However, each person is eligible for only one account under his/her name.  Mother and Father both cannot open Public Provident Fund (PPF) accounts on behalf of the same minor. Thus, in case a couple has two children, they can maximum open four accounts i.e. two in their own accounts and two in the name of their children under guardianship of either of the parent.
• Non-resident Indians (NRIs) are NOT  eligible to open an account.  However a resident who becomes an NRI during the tenure prescribed under Public Provident Fund Scheme, may continue to subscribe to the fund until its maturity on a non-repatriation basis. (Funds can be transferred via CASH or NRO Account. Funds can be transferred via Internet banking).  However, such an account will not be eligible for extension of five years at the time of maturity.
• Since 13th May, 2005, Hindu Undivided Family can NOT open an account under the scheme.   However, accounts opened prior to that date may continue subscription to their account till maturity.   They also can not extend the account any further.

The PPF account can be opened at either of the following :

(a) Branches of State Bank of India and it subsidiaries;

(b) Select branches of designated nationalised banks;

(c) Select Post Offices across India;

. What is PPF and PF?

EPF/ PF

The Employee Provident Fund, or provident fund as it is normally referred to, is a retirement benefit scheme that is available to salaried employees.

Under this scheme, a stipulated amount (currently 12%) is deducted from the employee's salary and contributed towards the fund. This amount is decided by the government.

The employer also contributes an equal amount to the fund.

However, an employee can contribute more than the stipulated amount if the scheme allows for it. So, let's say the employee decides 15% must be deducted towards the EPF. In this case, the employer is not obligated to pay any contribution over and above the amount as stipulated, which is 12%.

PPF

The Public Provident Fund has been established by the central government. You can voluntarily decide to open one. You need not be a salaried individual, you could be a consultant, a freelancer or even working on a contract basis. You can also open this account if you are not earning. 

Any individual can open a PPF account in any nationalised bank or its branches that handle PPF accounts. You can also open it at the head post office or certain select post offices.

The minimum amount to be deposited in this account is Rs 500 per year. The maximum amount you can deposit every year is Rs 70,000.

2. What is the return on this investment?

EPF: 8.5% per annum

PPF: 8% per annum

3. How long is the money blocked?

EPF

The amount accumulated in the PF is paid at the time of retirement or resignation. Or, it can be transferred from one company to the other if one changes jobs.

In case of the death of the employee, the accumulated balance is paid to the legal heir.

PPF

The accumulated sum is repayable after 15 years.

The entire balance can be withdrawn on maturity, that is, after 15 years of the close of the financial year in which you opened the account.

It can be extended for a period of five years after that. During these five years, you earn the rate of interest and can also make fresh deposits.

• Save tax and get rich

4. What is the tax impact?

EPF

The amount you invest is eligible for deduction under the Rs 1,00,000 limit of Section 80C.

If you have worked continuously for a period of five years, the withdrawal of PF is not taxed.

If you have not worked for at least five years, but the PF has been transferred to the new employer, then too it is not taxed.

The tenure of employment with the new employer is included in computing the total of five years.

If you withdraw it before completion of five years, it is taxed.

But if your employment is terminated due to ill-health, the PF withdrawal is not taxed.

PPF

The amount you invest is eligible for deduction under the Rs 1,00,000 limit of Section 80C.

On maturity, you pay absolutely no tax.

5. What if you need the money?

EPF

If you urgently need the money, you can take a loan on your PF.

You can also make a premature withdrawal on the condition that you are withdrawing the money for your daughter's wedding (not son or not even yours) or you are buying a home.

To find out the details, you will have to talk to your employer and then get in touch with the EPF office (your employer will help you out with this).

PPF

You can take a loan on the PPF from the third year of opening your account to the sixth year. So, if the account is opened during the financial year 1997-98, the first loan can be taken during financial year 1999-2000 (the financial year is from April 1 to March 31).

The loan amount will be up to a maximum of 25% of the balance in your account at the end of the first financial year. In this case, it will be March 31, 1998.

You can make withdrawals during any one year from the sixth year. You are allowed to withdraw  50% of the balance at the end of the fourth year, preceding the year in which the amount is withdrawn or the end of the preceding year whichever is lower. 

For example, if the account was opened in 1993-94 and the first withdrawal was made during 1999-2000, the amount you can withdraw is limited to 50% of the balance as on March 31, 1996, or March 31, 1999, whichever is lower.

If the account extended beyond 15 years, partial withdrawal -- up to 60% of the balance you have at the end of the 15 year period -- is allowed.

• The best tax-saving funds 

The better option?

In both cases, contributions get a deduction under Section 80C and the interest earned is tax free. 

Having said that, PF scores over PPF in two aspects.

In the case of PF, the employer also contributes to the fund. There is no such contribution in case of PPF.

The Difference Between Inc. & Ltd. & Co.

If you're starting a small business you must decide its legal structure. Legal structure is usually determined by the business type, the number of owners or investors it has, and how tax and liability issues are best managed. After forming the business, you'll likely use an abbreviation, such as "Inc.," after your business's name. Some business terms are commonly abbreviated to save space in business correspondence.

Inc.

"Inc." is the abbreviation for incorporated. A corporation is a separate legal entity from the person or people forming it. Directors and officers purchase shares in the business and have responsibility for its operation. Incorporation limits an individual's liability in case of a lawsuit. The corporation, as a legal entity, is liable for its own debts and pays taxes on its earnings, and can also sell stock to raise money. A corporation is also able to continue as an entity after the death of a director or stock sale. A corporation is formed according to state law, through application to the secretary of state and filing articles of incorporation. Because corporations cost more to administer and are legally complex, the U.S. Small Business Administration recommends that small businesses not incorporate unless they become established as a large company. In most states, corporations must add a corporate designation, such as "Inc." after their business name.

Ltd.

"Ltd." is short for limited, or a limited company. This structure is used mostly in European countries and Canada. In a limited company, directors and shareholders have limited liability for the company's debt, as long as the business operates within the law. Its directors pay income tax and the company pays corporation tax on profits. Responsibility for company debt is usually limited to the amount a person has invested in the company. A limited company can be set up in four different ways. In some companies, a shareholder's liability is limited to specific predetermined amounts, drawn up in a memorandum. These businesses are known as "private company limited by guarantee," and shareholders are called guarantors. Charities and social enterprise groups frequently use this structure. In England, limited companies must also have a pay-as-you-earn system established for collecting income tax payments and National Insurance contributions from all employees.

Co.

"Co." is an abbreviation for company, a catchall phrase for an association of people working together in a commercial or industrial enterprise, such as in a sole proprietorship, limited liability company or corporation. For example, while the Microsoft Corporation is located in Washington state, it is one of many companies located there. Co., or company, does not carry meaning as a specific legal structure on its own.

LLC

"LLC" means "limited liability company." An LLC brings together some features of both business partnerships and corporations, although it is more like a partnership. Owners, also called "members," are protected from liability, but the business's earnings and losses pass through to owners, who report them on their personal income taxes. This makes its structure less complex than that of a corporation, but like a corporation, LLCs must offer stock. Members share profits as they like. Members are considered self-employed and must pay self-employment tax. When a member of the LLC leaves, the business is dissolved and the remaining members decide if they want to start a new business. An LLC is also formed according to state law, through application to to the secretary of state and filing articles of incorporation. LLCs must also indicate in their names that they are an LLC or limited company.

Participatory Notes(P-Notes)

 

OUTSOURCING

When businesses need expertise or skills that they don't have within their organization, they often turn to outsourcing to solve their problems.

Outsourcing means just what it says -- going "out" to find the "source" of what you need. These days many business outsource for what they need to serve their customers, both internal and external. An external customer is the entity that ultimately purchases a company's product or services, while an internal customer is the company's own employees or shareholders. Business can obtain both products like machine parts, and services like payroll, through outsourcing.

 Outsourcing probably can trace its roots to large manufacturing companies, which hired outside companies to produce specialized components that they needed for their products. Automakers, for instance, hired companies to make components for air conditioning units, sound systems and sunroofs. In some cases, they moved entire factories to foreign countries.

The big shift in recent years, however, is service outsourcing, which refers to

companies hiring outside businesses to provide specialized work and expertise.

Outsourcing offers many advantages. For instance, outsourcing allows companies to seek out and hire the best experts for specialized work. Using outsourcing also helps companies keep more cash on hand, freeing resources for other purposes, such as capital improvements. It's also often cheaper in terms of salaries and benefits and reduces risks and costs.

Outsourcing can also help a business focus on its core components without distractions from ancillary and support functions. Another advantage -- such as the one involving the fictitious Smith & Co -- involves speed and nimbleness. It's sometimes quicker and more efficient to hire a specialist to do something than it is to bring your company up to speed.

Many large companies use outsourcing to fill roles in their organization that would be too expensive or inefficient to create themselves. Smaller companies also turn to outsourcing, though the cost savings is sometimes diminished.

Outsourced manufactured components can include building components for aircraft, computer networks or automobiles.

Outsourced service functions can include:

• Call centers
• Payroll and bookkeeping
• Advertising and public relations
• Building maintenance
• Consulting and engineering
• Records
• Supply and inventory
• Field service dispatch
• Purchasing
• Food and cafeteria services
• Security
• Fleet services

This list makes it easy to see why outsourcing has impacted practically all sectors of the business world. Nearly every business has at least one or more of these functions.

However, outsourcing has some inherent disadvantages. The company often has less direct oversight and control of the product or service it's purchasing, which can threaten the relationship between the company and its customers.

Communication can cause problems. Outsourcing overseas can lead to language barrier issues. Outsourcing, especially offshore, is sometimes criticized, which can mean bad public relations for a company. Security issues, such as keeping proprietary information private, also can arise. Hiring an outside company presents challenges to the hiring company.

Outsourcing's impact is, therefore, far reaching. Check out the next page to learn more about the economics of outsourcing.

Cheque Vs Demand Draft

• A cheque is issued by an individual , where as demand draft is issued by a bank
• A Cheque is drawn by an account holder of a bank, where as a draft is drawn by one branch of a bank on another branch of the same bank
• In cheque drawer and drawee are different persons but in demand draft both are the same bank
• A cheque can be dishonored but demand draft never dishonored
• Payment of a cheque can be stopped by the drawer of the cheque where as the payment of a draft cannot be stopped
• A cheque can be made payable either to bearer or order but a demand draft is always payable to order of certain persons.

FOREX RESERVES

Foreign exchange reserves
Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, such as the dollar, euro and yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions.

History

Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, all major currencies have not been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can [and do] function as official international reserves.

Purpose [key point]

In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank. This action can stabilize the value of the domestic currency. [foreign reserves main purpose is to defend the value of the domestic currency]
Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates.

Changes in reserves

The quantity of foreign exchange reserves can change as a central bank implements monetary policy. A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a fixed exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized) to maintain the targeted exchange rate within the prescribed limits.

Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements.

To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency [this is what China is doing], which will increase the sum of foreign reserves [this explains China's massive foreign reserves]. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services).
Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand [ie: Chinese yuan], foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls) [in other words, currency pegs. In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves.

In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data.

Costs, benefits, and criticisms

Large reserves of foreign currency allow a government to manipulate exchange rates - usually to stabilize the foreign exchange rates to provide a more favorable economic environment. In theory the manipulation of foreign currency exchange rates can provide the stability that a gold standard provides, but in practice this has not been the case.

There are costs in maintaining large currency reserves.Fluctuations in exchange markets result in gains and losses in the purchasing power of reserves [every nation with dollar reserves is soon going to experience such a loss]. Even in the absence of a currency crisis, fluctuations can result in huge losses. For example, China holds huge U.S. dollar-denominated assets, but the U.S. dollar has been weakening on the exchange markets, resulting in a relative loss of wealth. In addition to fluctuations in exchange rates, the purchasing power of fiat money decreases constantly due to devaluation through inflation. Therefore, a central bank must continually increase the amount of its reserves to maintain the same power to manipulate exchange rates.Reserves of foreign currency provide a small return in interest. However, this may be less than the reduction in purchasing power of that currency over the same period of time due to inflation, effectively resulting in a negative return known as the "quasi-fiscal cost". In addition, large currency reserves could have been invested in higher yielding assets.

The RBI should consider alternative uses of the excess reserves, such as investment in infrastructure.

In the last two decades, the Indian economy has witnessed a dramatic transformation from a regulated environment to the one which is more market-oriented. Over this period, a crisis-hit economy with limited resources to finance even three months of imports in 1991, accumulated a huge stock ($ 321 billion on September 2, 2011) of international reserves that is enough to fund almost a year of import.

Interestingly over the last decade, the pace of accretion in the stock of international reserve has been so striking that it has registered more than 1000 per cent growth, despite the fact that India has entered into flexible exchange rate system since March 1993. Now it seems reasonable to argue that India has surpassed many standard measures of reserve adequacy to rest in a somewhat protected zone.

REASONS FOR RESERVES

Theoretically, it was believed that under flexible exchange rate system countries will need to keep less stock of international reserves, since central banks were not obligated to defend their parities through frequent interventions.

While a regime shift from fixed exchange rate to floating system theoretically reduces the need for holding international reserves, on empirical and practical grounds this may not hold good as precautionary motives play a predominant role in reserve accumulation. Nations hold international reserves for several reasons: to smooth out temporary fluctuations in external payment imbalances, to neutralise speculative attacks on currencies, for boosting international confidence on domestic economy, for prestige and as collateral for international borrowing. Alternatively, reserve accumulation can also be used to keep the exchange rate favourable for export growth which maylead to higher economic growth and more employment in the domestic economy.

But, on the other hand, massive outward movement of capital may expose the country to a greater risk of liquidity squeeze, which occasionally leads to a full-fledged financial crisis. Therefore, holding international reserves may be a quick-fix solution for this possible threat. The precautionary benefits of keeping huge stockpiles of international reserves are numerous. However, reserve accumulation also involves incurring some opportunity costs beyond a certain limit. In the words of Prof. Dani Rodrik, “central banks hold their foreign exchange reserves mostly in the form of low-yielding short-term US treasury (and other) securities. Each dollar of reserves that a country invests in these assets comes at an opportunity cost that equals the cost of external borrowing for that economy.”

In the case of a developing country like India, where the demand for financial resources to support developmental projects is always greater than the available supply, it is not completely justified to keep these precious funds unemployed for a longer period.

The broad conclusion (reflected even in RBI's reports) suggests that India has accumulated more excess reserves than necessary to avoid any unforeseen financial calamity in the near future. The opportunity cost of reserves holding is high for the Indian central bank, as returns from the foreign currency asset (FCA) deposits are too low, whereas the domestic interest rate is comparatively very high. This poses a couple of relevant questions: what is the adequate level of international reserves for India, and what is the opportunity cost of excess reserves?

RIGHT LEVEL OF RESERVES

In our recent research we have attempted to answer these questions. First, the level of adequacy and excess reserves holding is measured. This is performed using the rule of thumb of holding international reserves equal to three months' import coverage plus short term external debt in addition to 30 per cent of foreign stock market holding. Furthermore, the issue of ‘internal drain' is also included; this is mainly because of the fact that the quality of the financial system is an important consideration in capital flight from the country.

Money supply is used as proxy for this purpose. Another important factor that can be included in the analysis is the country's risk. This factor is considered on the argument that any increase in the country's risk increases the risk of capital flight. This measurement has broadened the adequacy measure of reserves. This analysis suggests that in 2001-02, reserves adequacy was $24,062 million and excess reserves was $26,987 million. Over the analysis period, reserves adequacy has been increasing; however, excess holding of reserves too has been growing. This suggests the opportunity cost of reserves holding and excess reserves were US$ 3502 million and US$ 1851 million, respectively in 2001–02, which is 0.41 per cent of India's GDP. The trend of growth in adequacy, excess reserves and cost has been increasing over the period till 2007-08. The excess reserves holding rose to 1.13 per cent of GDP in 2007–08, while it observed a marginal decrease of 0.87 per cent in 2008–09. Therefore, it is evident that excess holding of reserves and its cost of holding is too high to bear on the argument of safety.

USE IN INFRASTRUCTURE

Therefore, RBI needs to act and consider alternative uses of the excess reserves such as investment in infrastructure, re-capitalisation of public sector banks, investment in overseas financial markets or repayment of costly external debt. To start with it would be reasonable to argue for a safe option of employing a smaller portion of reserves, excess or otherwise, towards productive investments such as infrastructure. This way, one would be clear about the pros and cons of such usage of excess reserves.