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.

MUTUAL FUND

Mutual funds are in the form of Trust (usually called Asset Management Company) that manages the  pool of money collected from various investors for investment in various classes of assets to achieve certain financial goals.  We can say that Mutual Fund is trusts which  pool the savings of large number of investors and then reinvests those funds for earning profits and then distribute the dividend among the investors.    In return for such services,  Asset Management Companies charge small fees.    Every Mutual Fund / launches different schemes, each  with a specific objective.   Investors who share the same objectives invests in that particular Scheme.   Each Mutual Fund Scheme is  managed by a Fund Manager with the help of his team of professionals (One Fund Manage may be managing more than one scheme also). 

The Mutual Funds usually invest their funds in equities, bonds, debentures, call money etc., depending on the objectives and terms of scheme floated by MF.   Now a days there are MF which even invest in gold or other asset classes.

NAV means Net Asset Value.   The investments made by a Mutual Fund are marked to market on daily basis.   In other words, we can say that current market value of such investments is  calculated on daily basis.  NAV is arrived at after deducting all liabilities (except unit capital) of the fund from the realisable value of all assets and dividing by number of units outstanding.   Therefore,  NAV on a particular day reflects the realisable value that the investor will get for each unit if the scheme is liquidated on that date.   This NAV keeps on changing with the changes in the market rates of equity and bond markets.    Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc.

A common man is so much confused about the various kinds of Mutual Funds that he is afraid of investing in these funds as he can not differentiate between various types of Mutual Funds with fancy names.  Mutual Funds can be classified into various categories  under the following heads:-

(A) ACCORDING TO TYPE OF INVESTMENTS :- While launching a new scheme,  every Mutual Fund is supposed to declare in the prospectus the kind of instruments in which it will make investments of the funds collected under that scheme. Thus, the various kinds of Mutual Fund schemes as categorized according to the type of investments are as follows :-

             

               (a) EQUITY FUNDS / SCHEMES

               (b) DEBT FUNDS / SCHEMES (also called Income Funds)

               (c ) DIVERSIFIED FUNDS / SCHEMES (Also called Balanced Funds)

               (d) GILT FUNDS / SCHEMES

               (e) MONEY MARKET FUNDS / SCHEMES

               (f) SECTOR SPECIFIC FUNDS

               (g) INDEX FUNDS

B) ACCORDING TO THE TIME OF CLOSURE OF THE SCHEME :  While launching  new schemes, Mutual Funds also declare whether this will be an open ended scheme (i.e. there is no specific date when the scheme will be closed) or there is a closing date when finally the scheme will be wind up.  Thus, according to the time of closure schemes are classified as follows :-

          (a) OPEN ENDED SCHEMES

          (b) CLOSE ENDED SCHEMES

Open ended funds are allowed to issue and redeem units any time during the life of the scheme, but close ended funds can not issue new units except in case of bonus or rights issue.   Therefore, unit capital of open ended funds can fluctuate on daily basis (as new investors may purchase fresh units), but that is not the case for close ended schemes.   In other words we can say that new investors can join the scheme by directly applying to the mutual fund at applicable net asset value related prices in case of open ended schemes but not in case of close ended schemes.  In case of close ended schemes, new investors can buy the units  only from secondary markets.

C) ACCORDING TO TAX INCENTIVE SCHEMES :  Mutual Funds are also allowed to float some tax saving schemes.   Therefore, sometimes the schemes are classified according to this also:-

         (a) TAX SAVING FUNDS

         (b) NOT TAX SAVING FUNDS / OTHER FUNDS

(D) ACCORDING TO THE TIME OF PAYOUT :  Sometimes Mutual Fund schemes are classified according to the periodicity of the pay outs (i.e. dividend etc.).  The categories are as follows :-

         (a) Dividend Paying Schemes

         (b) Reinvestment Schemes

The mutual fund schemes come with various combinations of the above categories.  Therefore, we can have an Equity Fund which is open ended and is dividend paying plan.   Before you invest, you must find out what kind of the scheme you are being asked to invest.   You should choose a scheme as per your risk capacity and the regularity at which you wish to have the dividends from such schemes

How Does a Mutual Fund Scheme Different from a Portfolio Management Scheme ?

In case of Mutual Fund schemes, the funds of large number of investors is pooled to form a common investible corpus and the gains / losses are same for all the investors during that given peirod of time.  On the other hand, in case of Portfolio Management Scheme, the funds of a particular investor remain identifiable and gains and losses for that portfolio are attributable to him only.  Each investor's funds are invested in a separate portfolio and there is no pooling of funds.

Are MFs suitable for Small Investors or  Big investors ?  Why Should I Invest in a Mutual Fund when I can Invest Directly in the Same Instruments

We have already mentioned that like all other investments in equities and debts, the investments in Mutual funds also carry risk.  However, investments through Mutual Funds is considered better due to the following reasons :-

• (a) Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments;
• (b) In case you are a small investor, then your investment cannot be spread into equity shares of various good companies due to high price of such shares.  Mutual Funds are in a much better position to effectively spread your investments across various sectors and among several products available in the market.   This is called risk diversification and can effectively shield the steep slide in the value of your investments. 

Thus, we can say that Mutual funds are better options for investments as  they offer regular investors a chance to diversify their portfolios, which is something they may not be able to do if they decide to make direct investments in stock market or bond market.  These are particularly good for small investors who have limited funds and are not aware of the intricacies of stock markets.   For example,  if you want to build a diversified portfolio of 20 scrips, you would probably need Rs 2,00,000 to get started (assuming that you make minimum investment of Rs 10000  per scrip).  However, you can invest in some of the diversified Mutual Fund schemes for an low as Rs.10,000/-

What are risks by investing funds in Mutual Funds :

We are aware that investments in stock market are risky as the value of our investments goes up or down with the change in prices of the stocks where we have invested.  Therefore, the biggest risk for an investor in Mutual Funds is the market risk.  However, different Schemes of Mutual Funds have different risk profile, for example, the Debt Schemes are far less risk  than the equity funds.   Similarly, Balance Funds are likely to be more risky than Debt Schemes, but less risky than the equity schemes.

What is the difference between Mutual Funds and Hedge Funds :

Hedge Funds are the investment portfolios which are aggressively managed and uses advanced investment strategies, such as leveraged, long, short and derivative positions in both domestic and international markets with a goal of generating high returns .  In case of Hedged Funds, the number of investors is usually small and minimum investment required is large.   Moreover, they are more risky and generally the investor is not allowed to withdraw funds before a fixed tenure.

Some other important Terms Used in Mutual Funds

Sale Price : It is the price you pay when you invest in a scheme and is also called "Offer Price". It may include a sales load.

Repurchase Price : - It is the price at which a Mutual Funds repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price : It is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load / Front End Load : It is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes which do not charge a load at the time of entry are called ‘No Load’ schemes.

Repurchase / ‘Back-end’ Load : It is a charge collected by a Mufual Funds when it buys back / Repurchases the units from the unit holders.

DOUBLE TAXATION AVOIDANCE AGREEMENT

Any income, if subjected to taxation twice is double taxation.  This income could be salary or remuneration for the services rendered.  Or, it could be fees or charges.  Or, it could be interest on deposits/investments made.  Or, it could be profit on sale of fixed assets or movable assets like shares, gold etc. 

Following are some examples of double taxation.

1. Income earned by a citizen in one country, when remitted back to his home country is taxed there again. 
2. Capital gains made by a citizen of one country, by selling his shares of a company located in another country.
3. Profit on sale of immovable properties situated in a foreign country made by a resident citizen.
4. Corporate Profits are subjected to tax and when the same (or a part of it) distributed as dividends to the shareholders is taxed again in their hands as their personal income. (After the Dividends Distribution Tax was introduced in India in 2007, this tax is also paid by the companies themselves and the individual shareholders do not pay any tax on their dividend income).
5. Profit of a Partnership Firm is taxed and the applicable tax is paid by the firm.  Then the retained profit is credited to the individual partners of the firm, in the agreed ratio as mentioned in the ‘Partnership Deed’.  Suppose this money (share of profit) is treated as the personal income of the partners and taxed again, it amounts to double taxation.  However, as per Sec.86 of Income Tax Act, 1961, income/profit subjected to tax in the books of a Partnership Firm and the tax is paid by the firm will not be taxed again, when it is apportioned between the individual partners.

 A country enters into a treaty with another country, in order to encourage enterprise and intellectual capital of both the countries.  This is done through DTAA.  In terms of DTAA, income of a person subjected to taxation in one country (the alien country/country of residence) is not taxed again in another country (home country/country of origin).  This is the most common feature of DTAA. 

 However, in some exceptional cases, the individual is required to pay tax to the country where his income was earned.  This is called ‘Withholding Tax’.   Usually, ‘withholding tax’ is deducted at source.

 Then, the country which received the tax payment issues a ‘Tax Credit’ to the individual and it will be accepted as a valid ‘Tax Credit’ by the country of his residence, at the time of computing the total taxable income of the individual and his tax liability in his home country.

 According to the tax treaty between India and Mauritius, capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a company resident in Mauritius selling shares of an Indian company will not pay tax in India. Since there is no capital gains tax in Mauritius, the gain will escape tax in both the countries altogether.

 We are all aware that there are a lot of debates and discussions going on in the print and electronic media during the past few days about repatriation of black money stashed away in foreign banks (tax havens).  Both UPA and the present NDA government have submitted an affidavit to Supreme Court stating that if we disclose the information relating to individuals having bank accounts in countries with which we have DTAA, it will amount to breach of confidentiality of the persons concerned and will be viewed as violation of the terms of DTAA between two countries.  It will hamper further flow of information from these countries.  Then, India cannot succeed in its mission of unearthing huge black money lying abroad.  Mere accusation like “Assets disproportionate to the known sources of income” will not be accepted as a valid reason for sharing the information by the other countries with India.

1. Tainted money and Ill-gotten wealth stashed away in foreign banks are not covered by the confidentiality clause.
2. Especially when it can be proved that the money was earned through illegal means by tax evasion, corruption, arms trade, terrorism finance etc., the countries are bound to offer full co-operation to the investigating agencies and the countries to find out the true origin of such money.
3. When a person does not respect the laws of the country where he lives and amasses wealth without disclosing it to the law enforcement agencies, he automatically loses the cover of secrecy available to protect his true identity.
4. If it can be proved that the black money lying in the banks could be used for dreadful activities like financing and promoting of terrorism networks across the world, procurement of arms that may be used for overthrowing elected governments, manufacture and trade of psychotropic substances etc., every country will come forward to disclose the true identity of the individuals having deposit accounts.
5. So, once we receive the information from other countries, we must investigate and establish that the money actually belongs to our country and not the individual depositors.  This task is not an easy one and it is the most challenging part of the whole process.  As soon as the charge-sheets are filed before Indian courts, the foreign countries will be prepared to co-operate with us further, so as to reach the logical end i.e. punishing the culprits and confiscating their wealth.

Why Value Of Country's Currency Depreciating?

The value of a country's currency is linked with its economic conditions and policies. 

The value of a currency depends on factors that affect the economy such as imports and exports, inflation, employment, interest rates, growth rate, trade deficit, performance of equity markets, foreign exchange reserves, macroeconomic policies, foreign investment inflows, banking capital, commodity prices and geopolitical conditions," 

Income levels influence currencies through consumer spending. When incomes increase, people spend more. Higher demand for imported goods increases demand for foreign currencies and, thus, weakens the local currency

Balance of payments, which comprises trade balance (net inflow/outflow of money) and flow of capital, also affects the value of a country's currency.

"A country that sells more goods and services in overseas markets than it buys from them has a trade surplus. This means more foreign currency comes into the country than what is paid for imports. This strengthens the local currency," 

Another factor is the difference in interest rates between countries. Let us consider the recent RBI move to deregulate interest rates on savings deposits and fixed deposits held by non-resident Indians (NRIs). The move was part of a series of steps to stem the fall in the rupee. By allowing banks to increase rates on NRI rupee accounts and bring them on a par with domestic term deposit rates, the RBI expects fund inflows from NRIs, triggering a rise in demand for rupees and an increase in the value of the local currency.

The RBI manages the value of the rupee with several tools, which involve controlling its supply in the market and, thus, making it cheap or expensive

Some ways through which the RBI controls the movement of the rupee are changes in interest rates, relaxation or tightening of rules for fund flows, tweaking the cash reserve ratio (the proportion of money banks have to keep with the central bank) and selling or buying dollars in the open market,"

The RBI also fixes the statutory liquidity ratio, that is, the proportion of money banks have to invest in government bonds, and the repo rate, at which it lends to banks.

While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of money available, impacting its value.

INFLATIONARY PRESSURE
Every generation complains about price rise. Prices shoot up when goods and services are scarce or money is in excess supply. If prices increase, it means the value of the currency has eroded and its purchasing power has fallen.

Let us say the central bank of a country increases money flow in the economy by 4 per cent while economic growth is 3 per cent. The difference causes inflation. If the growth in money supply is 10 per cent, inflation will surge because of the mismatch between economic growth and money supply. In such a scenario, loan repayments will be a lesser burden if interest rates are fixed, as you will pay the same amount but with a lower valuation.

A fall in purchasing power due to inflation reduces consumption, hurting industries. Imports also become costlier. Exporters, of course, earn more in terms of local currency.

However, if the increase in money supply lags economic growth, the economy will face deflation, or negative inflation. The purchasing power of money will increase when the economy enters the deflationary state. If you think deflation will help you consume more and enjoy life more, you are wrong. 

Unless the fall in prices of goods is because of improved production efficiencies, you will have less money to spend. If you have a fixed-interest loan to repay, your debt will have a higher valuation. Yields from fixed-income investments made before deflation set in will, of course, increase in value.

MINTING MONEY
A fantasy world where trees have banknotes and bear coins instead of fruits might sound like a dream come true. Economists will be the devil's messenger in that world when they break the news that your money is as good as dry leaves.

If you are looking for a machine that can print money, just meet someone who actually owns one-the government. Money is printed by governments, but they cannot print all the money they need. When a government prints money to meet its needs without the economy growing at the same pace, the result can be catastrophic. Zimbabwe is a recent example.
In the modern economy, governments print money based on their assessment of future economic growth and demand. The purchasing power of the currency remains constant if the increase in money supply is equal to the rise in gross domestic product and other factors influencing the currency remain unchanged.

FOREX DEMAND

Though international trade and movement of people is increasing rapidly, there is no currency that is acceptable across the globe. Whether you go for higher studies to the US or fly to Rio for a vacation, you have to pay for services and goods in the currency that is accepted in the country. Even while shopping online on stores run by foreign companies, you have to pay in foreign exchange.

The foreign exchange rate for conversion of currencies depends on the market scenario and the exchange rate being followed by the countries. Floating exchange rates, or flexible exchange rates, are determined by market forces without active intervention of central governments. For instance, due to heavy imports, the supply of the rupee may go up and its value fall. In contrast, when exports increase and dollar inflows are high, the rupee strengthens.

Earlier, most countries had fixed exchange rates. This system has been abandoned by most countries due to risk of devaluation of currencies owing to active government intervention. Most countries now adopt a mixed system of exchange rates where central banks intervene in the market to buy or sell the different currencies to control the movement of their own currencies.

Not everyone loses in a weak currency scenario. Exporters across the 17-country euro zone, for instance, are benefiting from a weak local currency. Sometimes countries use various ways to keep their currencies undervalued to promote exports. Chinese Renminbi is one such currency that several economists say is undervalued.

BEHIND THE FALL
Now that we know the factors that determine the value of a currency, how does the rupee in your bank account and purse stand at present? Over the past few months, since August, the rupee has been weakening against the dollar.

"The recent fall in the rupee was mainly due to conditions in the euro zone, plunging stock markets, falling foreign investment inflows and strengthening of the dollar," 

"Rising fiscal deficit and untameable inflation were behind the fall in the rupee. As India runs a large current account deficit, it needs a constant inflow of dollars, which was not there. High oil prices inflated the import bill and resulted in further widening of the current account deficit, which accelerated the rupee fall," 

"The decision by the government to allow foreign investors to directly invest in Indian equity could bring some capital flows and have a positive impact on the economy and the rupee," 

The rupee has recovered somewhat in January, but the danger still looms. If you need some foreign currency in the future such as for the tuition fee of your daughter studying in the US or a summer vacation in Ireland, plan right now and hedge your risk with the help of currency futures. Consider the basics of currency movements and their likely impact before taking your next investment decision.

Consider an example: You want to import something from US. For this you would need $. And currently you have Rs. So you go to the Foreign Exchange Market to exchange Rs and $ (giving Rs in return of $). But you are not alone! There are many people who are doing this. Given India's imports >> exports, there are more people demanding $ for Rs than vice versa. Refer to the above graph! So the value of $ in terms of Rs goes up!

Similarly as people want to keep money abroad due to high inflation in India, this also creates more demand than supply.

So in the Foreign Exchange Market, Rs is devalued.

Economic Crisis
True, India did not suffer much - in the sense that the banking industry was much more stable than in the US. But the market abroad was shaken -decreasing our exports. The major imports for India is crude oil, manufactured goods and minerals - and due to local demand of the population, these did not decrease. So exports decreased but demand didn't (it probably increased due to increase in population) again increasing the trade deficit and the entire demand-supply cycle mentioned above comes into effect.

So, as others also pointed out, currency exchange rate does not show how big an economy is - India is one of the largest economy in the world. The exchange rate is depended on the demand-supply dynamics of the market.

REPORTS ISSUED BY DIFFERENT ORGANIZATIONS IN THE WORLD

Ease of doing business                        WORLD BANK

World economic outlook                      IMF

Human development report                 UNDP

Gender inequality index                      UNDP

Global Competitiveness index             WORLD ECONOMIC FORUM

Global Corruption index                     TRANSPARENCY INTERNATIONAL

Global peace index                            INST FOR ECONOMIC AND PEACE

Global hunger index                          INTERNATIONAL FOOD POLICY INST

The Ups and Downs Of The Stock Market

Everyone is talking about the stock market. The stockmarket “goes up” and people are happy. The stock market“goes down” and people are sad. Just what is the stockmarket, and why does it go up and down so much?

The stock market is a place where you can buy a tiny pieceof a big business. Many of these big businesses have namesyou know, like McDonald’s, Disney, or Wal-Mart. Theyhave divided themselves up into millions of little pieces.Anyone, including you and me, can buy some of thepieces, called shares of stock.

“Share” in the Profits

Why would a business want to divide itself up and sell the pieces?Because it needs money. Let’s say you want to start a leaf-rakingbusiness but you don’t have the money to buy a rake and some big leafbags to get started.

One way to raise the money would be to divide your leaf-raking businessinto little pieces and then sell some of those pieces to other people. Let’ssay you will need $24 to buy the rake and bags. You could divide yourbusiness into ten pieces, keep two for yourself, and sell the remainingeight pieces for $3 each. In this way, you would be able to raise themoney you needed.

In return, investors, the people who bought the pieces of your business, would be ableto sell their shares for a higher price than they paid for it if your business is a success.Of course, if your business is a failure, fewer people will want to buy the shares andthe investors might lose money, too!

When a big business does this, it divides itself up into millions of shares of stock. Itsells those shares to thousands of people and raises billions of dollars. After it dividesitself up and sells off the shares, people keep buying and selling the shares amongthemselves. Over time, people change their minds about whether they want to buythose shares of stock, so the price of the shares goes up and down

Buy Low, Sell High

If a business is successful, lots of people willwant to buy its stock and the price will go up.For instance, at the end of 1996, the price ofone share of stock in Wal-Mart was about$23. By the end of 2000, the price had goneup to more than $53. So if you bought oneshare of stock at the end of 1996 for $23 andthen sold it at the end of 2000 for $53, youwould be $30 richer.

That’s why people are happy when stockprices go up. They can make money.

Of course the opposite can happen. A company called Fruit of the Loomhad this problem. In the early 1990s, Fruit of the Loom was the leadingmaker of children’s underwear. At the beginning of 1993, its stock pricewas around $50. But the company started to have problems, and by theend of 2000, its stock price was less than $1. So if you bought a share ofFruit of the Loom stock at the beginning of 1993 for $50 and then sold itat the end of 2000 for $1, you would have lost $49, almost all of themoney you invested.

That’s why people are sad when stock prices go down. They can losemoney.

Hope for a "Bull" Market

When the prices of many stocks go up, it’s called a bull market. Whenthe prices of lots of stocks go down, it’s called a bear market. No one isreally sure where these names come from, but they have been around since the 1800s. Some people think they arebased on how real bulls and bears behave. When a bull catches you, it tosses you up with its horns. When a bearcatches you, it pulls you down with its paws.

 Hope for a "Bull" Market

When the prices of many stocks go up, it’s called a bull market. Whenthe prices of lots of stocks go down, it’s called a bear market. No one isreally sure where these names come from, but they have been around since the 1800s. Some people think they arebased on how real bulls and bears behave. When a bull catches you, it tosses you up with its horns. When a bearcatches you, it pulls you down with its paws.