Financial Inclusion or Inclusive Financing

 Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. It is argued that as banking services are in the nature of a public good, the availability of banking and payment services to the entire population without discrimination is a key objective of financial inclusion.

CAMELS Rating System

 The CAMELS rating system is an international bank-rating system where bank supervisory authorities rate institutions according to six factors.

The six factors are represented by the acronym "CAMELS."

The six factors examined are as follows:

C - Capital adequacy

A - Asset quality

M - Management quality

E - Earnings

L - Liquidity

S - Sensitivity to Market Risk

Bank supervisory authorities assign each bank a score on a scale of one (best) to five (worst) for each factor. If a bank has an average score less than two it is considered to be a high-quality institution, while banks with scores greater than three are considered to be less-than-satisfactory establishments. The system helps the supervisory authority identify banks that are in need of attention.

Positive &Normative economics

 Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved. Normative economic statements are opinion based, so they cannot be proved or disproved.

For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement. There is no way to prove whether government "should" provide healthcare; this statement is based on opinions about the role of government in individuals' lives, the importance of healthcare and who should pay for it.

The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, because it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain where the government provides healthcare.

Cost push inflation

 Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. While the demand remains constant, the prices of commodities increase causing a rise in the overall price level.

 This is inflation triggered from supply side i.e. because of less supply. The opposite effect of this is called demand pull inflation where higher demand triggers inflation.

Cost push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost push inflation is determined by supply side factors (cost-push inflation is different to demand-pull inflation which occurs due to aggregate demand growing faster than aggregate supply)

Cost-push inflation can lead to lower economic growth and often causes a fall in living standards, though it often proves to be temporary. Cost-push inflation is when a shortage of supply of labor, raw materials or capital drives up prices. The demand remains the same, but since there are fewer goods or services, the supplier can charge more per unit. It is one of the three main causes of inflation, the other two being demand-pull inflation and expansion of the money supply. Cost-push inflation can only occur if demand for the end product or service is inelastic. That means there is a high demand for the product even if the price goes up.

Causes of Cost Push Inflation

1. Higher Price of Commodities. A rise in the price of oil would lead to higher petrol prices and higher transport costs. All firms would see some rise in costs. As the most important commodity, higher oil prices often lead to cost push inflation (e.g. 1970s, 2008, 2010-11)
2. Imported Inflation. A devaluation will increase the domestic price of imports. Therefore, after a devaluation we often get an increase in inflation due to rising cost of imports.
3. Higher Wages. Wages are one of the main costs facing firms. Rising wages will push up prices as firms have to pay higher costs (higher wages may also cause rising demand)
4. Higher Taxes. Higher VAT and Excise duties will increase the prices of goods. This price increase will be a temporary increase.
5. Higher Food Prices. In western economies food is a smaller % of overall spending, but in developing countries, it plays a bigger role. (food inflation)

Cost push inflation could be caused by a rise in oil prices or other raw materials. Imported inflation could occur after a depreciation in the exchange rate which increases the price of imported goods.

Income Velocity of Money

 In economics, thenumber of timesoneunit of currency is spentover a givenperiod of time. It is indicative of howmucheconomic activityoccurs or is possible at a certainlevel of money supply. Theincomevelocity of moneytends to riseandfallconcurrentlywithinterest rates. It is calculatedthus:

Incomevelocity of money = GDP / moneysupply(howeverdefined).

Money Multiplier

 The money multiplier is the amount of money that banks generate with each dollar of reserves. It represents the maximum extent to which the money supply is affected by any change in the amount of deposits. It equals ratio of increase or decrease in money supply to the corresponding increase and decrease in deposits. Thus, it can be said Money multiplier shows the mechanism by which reserve money creates money supply in the economy.

The money multiplier effect arises due to the phenomenon of credit creation. When a commercial bank receives an amount A, its total reserves are increased. The bank is required by the central bank to hold only an amount equal to r × A in hand to meet the demand for withdrawals, where r is the required reserve ratio. The bank is allowed to extend the excess reserves i.e. (A − r × A) as loans. When the borrower keeps the whole amount of loan in bank (it is assumed), it increases its total reserves by an amount equal to (A − r × A). Again, the bank is required to hold only a fraction of this second round of deposits and it can lend out the rest. This cycle continues such the ultimate increase in money supply due to an initial increase in checking deposits of amount A is equal to m × A, where m is the money multiplier. The opposite happens in case of a decrease in deposits through the same mechanism.

Money Multiplier =	1
	Required Reserve Ratio

 

Reserve Money

 Reserve money is defined as the portion of the commercial banks' reserves that are maintained in accounts with their central bank plus the total currency circulating in the public (which includes the currency, also known as vault cash, that is physically held in the banks' vault).

Green Banking

 Green banking is like a normal banking, which considers all the social and environmental/ecological factors with an aim to protect the environment and conserve natural resources.It is also called as an ethical bank or a sustainable bank. They are controlled by the same authorities but with an additional agenda toward taking care of the Earth's environment/habitats/resources. Green Banking means paper lees or paper reduce banking like Mobile banking, i-banking, Card etc

Disguised Unemployment

 Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero. It is unemployment that does not affect aggregate output. When more people are engaged in some activity than the number of person requiredfor that , this is called disguised unemployment . For example : An agricultural field require 4 labourers but people engaged in this activity is 6then this unemployment for 2 labours is called disguised unemployment

Unemployment that does not affect aggregate output. Disguised unemployment exists where part of the labor force is either left without work or is working in a redundant manner where worker productivity is essentially zero. An economy demonstrates disguised unemployment where productivity is low and where too many workers are filling too few jobs.

Disguised unemployment exists frequently in developing countries whose large populations create a surplus in the labor force. Where more people are working than is necessary, the overall productivity of each individual drops. Disguised unemployment is characterized by low productivity and frequently accompanies informal labor markets and agricultural labor markets, which can absorb substantial quantities of labor.

This is when people do not have productive full-time employment, but are not counted in the official unemployment statistics. This may include:

• People on sickness / disability benefits (but, would be able to do some jobs)
• People doing part-time work.
• People forced to take early retirement and redundancy
• Disguised unemployment could also include people doing jobs that are completely unproductive, i.e. they get paid but they don’t have a job. In a developing economy like China, many workers in agriculture may be adding little if anything to overall unemployment, therefore this type of employment is classed as disguised unemployment.

Opportunity Cost

 An opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives. Basically it is the costs of forgoing next best alternative.

CRR & SLR

 Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the central bank of a country.

Statutory liquidity ratio (SLR) is the Bangladesh Bank reserve requirement that the commercial banks in Bangladesh require to maintain in the form of gold, government approved securities before providing credit to the customers.

Repo, Reverse Repo

 A repo or repurchase agreement: is an instrument of money market. Repo is a collateralized lending i.e. the commercial banks which borrow money from central bank by selling securities to meet short term needs with an agreement to repurchase the same at a predetermined rate and date. The central bank charges some interest rate on the cash borrowed by banks, but this rate (called repo rate) will be less than the interest rate on bonds.

Reverse repo: In a reverse repo central bank borrows money from commercial banks by lending securities. The interest paid by central bank in this case is called reverse repo rate. 

Variable Costs and Fixed Costs

 Fixed costs are costs that are independent of output. These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc.

 Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc. Another example could be electricity--electricity usage may increase with production but if nothing is produced a factory still may require a certain amount of power just to maintain itself.

 For example, if a telephone company charges a per-minute rate, then that would be a variable cost. A twenty minute phone call would cost more than a ten minute phone call. A good example of a fixed cost is rent. If a company rents a warehouse, it must pay rent for the warehouse whether it is full of inventory or completely vacant.

Return to Scale

 The term return to scale refers to the changes in output as all factors change by the same proportion. If output increases by that same proportional change as all inputs change then there are constant returns to scale (CRS). If output increases by less than that proportional change in inputs, there are decreasing returns to scale (DRS). If output increases by more than that proportional change in inputs, there are increasing returns to scale (IRS).

In the long run all factors of production are variable and subject to change due to a given increase in size (scale). While economies of scale show the effect of an increased output level on unit costs, returns to scale focus only on the relation between input and output quantities.

"Returns to scale" is a term that is used to describe the type of changes that may occur to the output of a production process when some type of change takes place with the inputs involved in the process. Within the broader context of the returns to scale, the results are often qualified as increasing, decreasing, or constant, depending on what has occurred with the inputs and how those changes impacted the output of the production process.  Identifying the returns to scale aids businesses in determining if those changes are positive for the company, and may even aid in providing valuable data that can be used to reverse an emerging negative trend.

One way to understand returns to scale is to think in terms of what will happen when factors shift and have an effect on the total output of the operation.  For example, if the production line is shut down for a few days due to an equipment failure and there is no time to make up that lost time later in the accounting period, there is a good chance that the output for the period will be adversely affected in terms of finished units produced.  When considered in light of the costs of repairing and restarting the machinery are taken into consideration, this may indicate a decreased returns to scale.

At the same time, if changes in the production process make it possible to produce more finished units with the same level of resources consumed, those changes in the input factors lead to increased output that may be identified as an increased returns to scale.  When changes to the inputs make no real difference in the relationship between inputs and outputs, the production is said to be constant returns to scale.

Fixed Exchange Rates, Floating Exchange Rates

 There are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.

1. Floating Exchange Rates

Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting," as any differences in supply and demand will automatically be corrected in the market. Look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing.

In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency reflects its true value against its pegged currency, a "black market" (which is more reflective of actual supply and demand) may develop. A central bank will often then be forced to revalue or devalue the official rate so that the rate is in line with the unofficial one, thereby halting the activity of the black market.

In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation. However, it is less often that the central bank of a floating regime will interfere.

Repo Rate , Reverse Repo Rate

The repo rate also known as Repurchase Agreement is the rate at which the banks borrow from the Central Bank. It becomes typical for the banks to borrow from the central bank if there is an increase in the repo rate. Generally used to control the amount of money in the market, repo rate is usually a short-term measure which is used for short-term loans.

The Federal Open Market Committee adds reserves to the banking system and withdraws them after a specified period of time. So, reverse repo drains reserves initially and adds them back later. Hence, it can be used as a tool for stabilizing interest rates with the Federal Reserve using it in the past to adjust the Federal funds rate to match the target rate.

Cash Reserve Ratio (CRR)

 A Cash Reserve Ratio, also known as the Reserve Requirement is a regulation set by Central bank (Federal Reserve or the nation’s governing bank) which dictates the minimum amount (reserves) that a commercial bank (in some cases, any bank) must be held to customer notes and deposits. In simpler terms this is the amount the bank must surrender with/to the Central (governing) Bank.

It is a percentage of bank reserves to deposits and notes. Cash reserve ratio is also known as liquidity ratio or cash asset ratio and is utilized as a tool (sometimes) in monetary policy and as a tool to influence the country’s interest rates, borrowing and economy. The central banks in the western world refrain from altering the reserve requirements or rarely do it as it would result in the banks (that have lower excess reserves) facing immediate liquidity problems and hence to implement their monetary policy, they prefer using open market operations.

Fixed, variable costs and break-even

The break-even point of a business is the level of output or sales at which the revenue received by the business is exactly equal to the cost of making (or selling) that output. In the examples below we show you how to calculate the break-even point of a retailer. However, the process described is exactly the same for other types of firms such as manufacturers who will be concerned to find the break-even level of output when they produce goods.

The sales revenue of the business is calculated at any level of sales by multiplying the price of the item, by the number of units sold.

Costs are divided into two main types:

Fixed costs are ones that do not vary with sales. Fixed costs are costs that are independent of output. These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc.  For example, one of the fixed costs of a high street shop is the rent paid for the property. The rent is still the same whether the shop sells one item or thousands.
Variable costs are ones that vary with sales. Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc.  For example, imagine that a bookshop buys in books for an average price of £5 each. It then resells the books for a higher price. For the bookshops the variable cost is £5 per unit.
Total costs are found by adding together fixed and variable costs.
To calculate break-even we now need to find out the point at which sales revenue just covers total cost i.e. fixed and variable costs combined.
A bookshop has fixed costs of £5,000 per week. It buys books from the publishers at an average cost of £5 each and sells them for an average price of £10 each. How many books does it need to sell to break even?
For every book sold the bookshop takes in £5 more of revenue, than it pays out in variable costs:

We use the term contribution to describe the difference between sales revenue per item and variable cost per item. This is because each £5 is contributing £5 to paying off fixed costs of £5,000. You should now be able to calculate that to break-even the bookshop will need to sell exactly 1,000 books a week. Because:

See if you can do these examples yourself:
1. A bicycle shop has fixed costs of £20,000 per month. It buys in bicycles at an average cost of £100 and sells them for an average price of £200. How many bicycles will it need to sell to exactly break-even?
2. Here's an example involving a manufacturing company. A chocolate bar manufacturer has fixed costs of £500,000 per month. It sells chocolate bars and other chocolate products for an average price of 50 pence each. The variable costs of producing each product are 25p each. How many chocolate products would it need to make to exactly break-even?

1.      Break-even

An important objective of a business is to at least break-even, although making a profit is even more desirable. The break-even point is calculated by dividing the fixed costs by the contribution per unit sold.
Unless it does, it cannot afford to modernise itself, install new technologies, or take commercial risks with, say, a new product range. Nor can it fulfil its social responsibilities and neither can it justify the investment of its owners - private individuals or institutions such as pension funds and insurance companies who need to seek the best possible long-term return on their resources.
Companies like Cadbury Schweppes, Nestle, Kraft and Coca-Cola are able to take a wider responsibility for the community and provide excellent opportunities for their employees, while providing good returns to shareholders because they are profitable enterprises.
The profit of a business is determined by the relationship between turnover and costs and is set out in the Profit and Loss (P&L) account.
Turnover - is the value of sales revenue.
Cost of sales - includes all the direct costs of making those sales, e.g. the cost of raw materials, direct labor etc.
Expenses - include the overheads of running the business e.g. rent and rates, heat and lighting.
The profit and loss is set out in the following way:
Profit and Loss Account of Better Leisure at 31 December 2005

The operating profit is not the final profit. We also need to take away corporation tax paid on profits. Some money will also be distributed to shareholders in the form of dividends. So the final retained profit will be less than the operating profit.

Definition of 'Inferior Good'

 A type of good for which demand declines as the level of income or real GDP in the economy increases. This occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. An inferior good is the opposite of a normal good, which experiences an increase in demand along with increases in the income level.

Inferior goods can be viewed as anything a consumer would demand less of if they had a higher level of real income. An example of an inferior good is public transportation. When consumers have less wealth, they may forgo using their own forms of private transportation in order to cut down costs (car insurance, gas and other car upkeep costs) and instead opt to use a less expensive form of transportation (bus pass).

Good Y is a normal good since the amount purchased increases from Y1 to Y2 as the budget constraint shifts from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases.

Difference between Normal and inferior goods

 Normal and inferior goods are classification given by economists to to goods judging on their behavior.

Normal good is the most common type. It is said a good is normal when it's consumption increases when the income increases. Like clothes, when your income increases you buy more clothes.

The opposite happens with inferior goods, of which consumption decreases when the available income increases. For example, used books and instant noodles: the more income you have the less used books and noodles you buy.

A normal good is a good that a person will be more likely to buy the higher their income becomes. An inferior good is a good a person will be less likely to buy the higher their income becomes.

Economies of Scale

 Most economic production requires the producing firm or organization to make an initial investment (in real capital, in engineering and design, in marketing) before even the first unit of production occurs. As total production then grows, the cost per unit of that initial investment shrinks. For this reason, most industries demonstrate economies of scale, whereby the unit cost of production declines as the level of output grows. Because of economies of scale, larger companies have an advantage in most industries, and the economy usually operates more efficiently when it is busy and growing (than when it is shrinking or stagnant).

Neoclassical economics

 Neoclassical economics is the dominant approach to economics currently taught and practiced in most of the world (and especially dominant in Anglo-Saxon countries). It attempts to explain the behavior of the economy on the basis of competitive, utility-maximizing behavior by companies, workers, and consumers. Their actions in the markets for both factors of production and final products will ensure that all available resources are fully utilized (that is, the economy is supply-constrained) and every factor is paid according to its productivity

Productivity

 In general, productivity measures the effectiveness or efficiency of productive effort. Productivity can be measured in many different ways. Physical productivity measures the actual amount of a good or service produced (eg. tons of steel, or number of haircuts).

 Productivity can also be measured in terms of the value of output. Most commonly, productivity is measured as the amount of output produced over a certain period of work (e g. output per hour); this is considered a measure of labour productivity. But other approaches are also possible, including measurements of capital productivity (output relative to the value or physical quantity of invested capital) and “total factor productivity” (which is an abstract statistical measurement of the overall effectiveness of production).

Public-Private Partnerships (PPPs)

 A form of financing public investment, and sometimes the direct provision of public services, in which finance is provided by private investors (in return for interest), and private firms are involved in the management of the construction or operation of the publicly-owned facility. PPPs have been heavily criticized for increasing the cost of public projects and generating undue profits for private investors.

Diversification

 The term refers to the expansion of an existing firm into another product line or market. Diversification may be related or unrelated. Related diversification occurs when the firm expands into similar product lines. For example, an automobile manufacturer may engage in production of passenger vehicles and light trucks. Unrelated diversification takes place when the products are very different from each other, for example a food processing firm manufacturing leather footwear as well.

 Diversification may arise for a variety of reasons: to take advantage of complementarities in production and existing technology; to exploit; to reduce exposure to risk; to stabilize earnings and overcome economies of scope cyclical business conditions; etc. There is mounting evidence that related diversification may be more profitable than unrelated diversification.