Short Notes on Pricing misconceptions

Pricing is an accounting practice of a once in a lifetime experience for most practice owner. Because it is such a common event, sellers/buyers need to be aware of the key misconceptions about the process. 

These are as: 

1. The seller/buyer needs to stay around for months or years to assist the product in the transaction.

2.The best offer of an accounting practice is another accounting firm.

3.The average pricing for practices determines the value of a specific practice.

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Short Notes of Commercial banks/ Deposit banks

Commercial banks/ Deposit banks Banks accept deposits from public and lend them mainly for commercial purposes for comparatively shorter periods are called Commercial Banks. They provide services to the overall public, organisations and to the corporate community.

They are oldest banking establishment within the unionised sector. Commercial banks create their profits by taking little, short-term, relatively liquid deposits and transforming these into larger, longer maturity loans. This method of quality transformation generates net profit for the banking concern. Many business banks do investment banking business though the latter isn't thought-about the most business space. The business industry consists of regular banks (registered within the second schedule of RBI) and non regular banks.

Features of Commercial banks

1. Lend funds to organisations, trade, commerce, industry, small business, agriculture etc.

2. They accepts deposits on various accounts.

3. They perform many innovative services to the customers.

4. The perform many subsidiary services to the customer.

5. They are the manufacturers of money.

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Cash Reserve Ratio

CRR means Cash Reserve Ratio. Bangladesh Bank are needed to carry a precise proportion of their deposits within the sort of money. However, really Banks don`t hold these as money with themselves, however deposit such case with Bangladesh Bank (BB) / currency chests, that is taken into account as akin to holding money with themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the BB and is known as the CRR or Cash Reserve Ratio. Thus, When a bank`s deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with BB and Bank will be ready to use solely Rs ninety one for investments and disposal / credit purpose.

Therefore, higher the ratio (i.e.CRR), the lower is that the quantity that banks are ready to use for disposal and investment. This power of run to cut back the available quantity by increasing the CRR, makes it associate instrument within the hands of a financial organization through that it will management the amount that banks lend. Thus, it is a tool used by BB to control liquidity in the banking system.

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Short Notes on Statutory liquidity ratio (SLR)

Statutory liquidity ratio (SLR) refers amount that the commercial banks require to maintain in the form of gold or govt. approved securities before providing credit to the customers. Here by approved securities we mean, bond and shares of different companies. Statutory Liquidity Ratio is determined and maintained by the Reserve Bank of India in order to control the expansion of bank credit.

It is determined as percentage of total demand and time liabilities. Time Liabilities refer to the liabilities, which the commercial banks are liable to pay to the customers after a certain period mutually agreed upon and demand liabilities are such deposits of the customers which are payable on demand. Example of time liability is a fixed deposits for 6 months, which is not payable on demand but after six months. example of demand liability is deposit maintained in saving account or current account, which are payable on demand through a withdrawal form of a cheque.

SLR is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved liabilities (deposits). It regulates the credit growth in India.

The liabilities that the banks are liable to pay within one month's time, due to completion of maturity period, are also considered as time liabilities. 

The main objectives for maintaining the SLR ratio are the following:

• To control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
• To ensure the solvency of commercial banks.
• To compel the commercial banks to invest in government securities like government bonds.

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Short Notes on Giffen good

In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises—violating the law of demand. Normally, as the price of goods rises, the substitution effect makes consumers purchase less of it, and more of substitute goods. In the Giffen goods situation, the income effect dominates, leading people to buy more of the goods, even as its price rises.

A Giffen good is typically an inferior product that does not have easily available substitutes, as a result of which the income effect dominates the substitution effect. Giffen goods are quite rare, to the extent that there is some debate about their actual existence. The term is named after the economist Robert Giffen.

For a Giffen good to exist, theoretically three extraordinary economic characteristics must exist at the same time:

·        The good must be an inferior good, such that the demand for the good decreases with an increase in consumer income

·        The good must have an extraordinary income effect, such that a decline in price of the good causes a significance rise in real income or wealth by consumers due to the savings

·        There must be no substitutes available for the good.

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Short Notes on Terms of trade (TOT)

Terms of trade (TOT) refers to the relative price of exports in terms of importsand is defined as the ratio of export prices to import prices.It can be interpreted as the amount of import goods an economy can purchase per unit of export goods.

An improvement of a nation's terms of trade benefits that country in the sense that it can buy more imports for any given level of exports. The terms of trade may be influenced by the exchange rate because a rise in the value of a country's currency lowers the domestic prices of its imports but may not directly affect the prices of the commodities it exports.

The term (barter) terms of trade was first coined by the US American economist Frank William Taussig in his 1927 book International Trade. However, an earlier version of the concept can be traced back to the English economist Robert Torrens and his book The Budget: On Commercial and Colonial Policy, published in 1844, as well as to John Stuart Mill's essay Of the Laws of Interchange between Nations; and the Distribution of Gains of Commerce among the Countries of the Commercial World, published in the same year, though allegedly already written in 1829/30.

Terms of trade (TOT) is a measure of how much imports an economy can get for a unit of export goods. For example, if an economy is only exporting apples and only importing oranges, then the terms of trade are simply the price of apples over the price of oranges. In other words, how many oranges can you get for a unit of apples. Since economies typically export and import many goods, measuring the TOT requires defining price indices for exported and imported goods and comparing the two.

A rise in the prices of exported goods in international markets would increase the TOT, while a rise in the prices of imported goods would decrease it. For example, countries that export oil will see an increase in their TOT when oil prices go up, while the TOT of countries that import oil would decrease.

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