What is “Commodity” and “Commodity Exchange”? Any product that can be used for commerce or an article of commerce which is traded on an authorized commodity exchange is known as commodity. The article should be movable of value, something which is bought or sold and which is produced or used as the subject or barter or sale. In short commodity includes all kinds of goods. Indian Forward Contracts (Regulation) Act (FCRA), 1952 defines “goods” as “every kind of movable property other than actionable claims, money and securities”. A commodity exchange is an association or a company or any other body corporate organizing futures trading in commodities for which license has been granted by regulating authority. In current situation, all goods and products of agricultural (including plantation), mineral and fossil origin are allowed for commodity trading recognized under the FCRA. The national commodity exchanges, recognized by the Central Government, permits commodities Continue reading
Financial Concepts
Demand and Supply of Capital for Investments
Demand for Capital The demand schedule for capital refers to the arrangement of the various proposed projects in a descending order according to their estimated rates of return together with required amounts of capital needed by the respective projects. Before analyzing the investments, the management must understand the nature of opportunities. Some investments are complimentary i.e. making one investment implies that another investment will be necessary. Some investments are mutually exclusive i.e. acceptance of one, implies rejection of others and some investments are independent. It is therefore necessary to identify the various opportunities of investments. Alternative investments can be ranked according to their relative profitability. It is also important to distinguish between cost reducing investment and revenue increasing investment. According to W.W. Haynes “any investment decision is profitable if it adds more to revenue than to cost or if it reduces cost more than the revenue.” An important element in Continue reading
Assessment of Agency Theory
Agency theory refers to a contract whereby principals engage with agents to perform some act on their behalf. The act involved giving power to an agent for some decision-making. Everyone work on the feet of benefit that can be gained for oneself. That’s why it is strongly agreed that the agent, as a utility maximizer will not act in the best interest of the principal. Therefore, agents may cheat if they were not monitored by the principal, and the principal, on the other hand, must bear agency costs to avoid suffering loss. These agency costs include monitoring costs of an agent, bonding costs whereby the agent will try to show that they are not self-serving, and residual losses that are too costly to monitor. In general, agency cost is one of a type of internal cost incurred from or must be paid to, an agent acting on behalf of a Continue reading
Types of Securitization Structures
Through securitization process, debts are factored and discounted in a structured and sophisticated manner which allows for the availability of funds and the repayment of the debt obligations through the creation of an insolvency remote vehicle which is separate, distinct and independent of the Originator. Securitization structures are most appropriate for a company that seeks financing but is unable to tap funding sources for the desired tenor and funding cost because of its perceived credit risk. In general, any asset class with relatively predictable cash flows can be securitized. The Special Purpose Vehicle (SPV) re-designs the type of bonds to be issued depending on the deal structure. The broad types of securitization structures include: Cash vs. Synthetic Structures: Most transactions world over follow the cash structure in which the originator sells assets and receives cash instead. In a synthetic transaction, the seller keeps his title and investment on the assets Continue reading
Conceptual Framework of Accounting
An accounting framework is a coherent system of inter-related objectives and fundamentals that should lead to consistent standards that prescribe the nature, function and limits of financial accounting and financial statements. The main reason for developing a conceptual framework are that gives a framework for setting accounting standards, a basis for resolving accounting disputes and fundamental principles which then do not have to be repeated in accounting standards. Furthermore, Conceptual Framework can be categorized in terms of the distinctive function of management accounting within the management process in organizations. Moreover, the way in which the utility of the outcomes of the management accounting process can be tested. Conceptual Framework is a criteria which can be used to assess the value of the processes and work technologies used in management accounting and capabilities necessarily associated with the effectiveness of the management accounting function overall. Conceptual Framework plays an important role in Continue reading
The Concept of Cash Management
Concept of Cash “Cash, like the blood stream in the human body, gives vitality and strength to business enterprises.” Though cash hold the smallest portion of total current assets. However, cash is both the beginning and end of working capital cycle – cash, inventories, receivables and cash. It is the cash, which keeps the business going. Hence, every enterprises has to hold necessary cash for its existence. Moreover, steady and healthy circulation of cash throughout the entire business operations is the basis of business solvency. In the words of R.R. Bari, “Maintenance of surplus cash by a company unless there are special reasons for doing so, is regarded as a bad sigh of cash management.” Cash may be interpreted under two concepts. In narrow sense, cash is very important business asset, but although coin and paper currency can be inspected and handled, the major part of the cash of most Continue reading