Types of Inflation
There are basically two Types of Inflation.
- Demand Pull Inflation
- Cost Push Inflation
Demand Pull Inflation:- This kind of
inflation is due to increase in demand of Good, . In simple word the
more goods are required in the economy the available Good, Therefore
this situation result in increase of price. The effective tool to control this type of inflation is to improve the supply.
Reasons for Demand Pull inflation:-
Hording of Stock:- Sometime supplier hold the stock with the purpose to increase the price in the market and to earn high profit by selling good at higher price. The Govt may intervene in the situation to improve supply and may also put some administrative measure to counter this illegal activity.
Climate Disaster :- The supply of the product may also be reduced due to the climate disaster like flood etc. The Govt has limited choice to improve the supply within the country. The import may be serve as good option .The govt may also reduce the Custom duty to encourage the imports to meet the demands.
Delay in new arrival :- Sometime agriculture product takes a bit longer to reach in the market. This creates a pressure in the market. The reason may be road blockage . This type of inflation is automatically control by the arrival of new supply.
It is important to note that some time it is not easy to bridge the Gap between demand and supply . for example it is not easy to bridge improve the supply of energy within month. The new energy production takes require long term planing and sometime electricity producing unit takes several years before start of production.
Cost Push Inflation :- This is inflation due to
increase in the price of factor of production. The factor of production
is raw material , labor, other overheads. Therefore if there is
increase in price of such factor it would be ultimately reflected in the
prices product.
It is very difficult to control this type of inflation as the organization do business to earn the profit and if the investor is not getting the desired profit they will not do the business.
In simple words if the product cost increase the
selling price of product will also be increased to earn profit.
Types of Gains
Basically there are two types of gains from the
investment in shares of public company.
- Dividend income
- Capital appreciation
Dividend is an amount paid to share holder out
of company profit. it is important to remember that profit earned and
dividend are two different things. dividend is a portion of profit to
be distributed among share holder.The normally investment in shares are made to earn profit. This is relatively save approach if you pay less attention to price fluctuation in the market.
advantages of Dividend Income
Safer than capital appreciation:-The normally investment in shares are made to for regular dividend income. This is relatively save approach if you pay less attention to price fluctuation in the market.
Peace of Mind :- This investment result in peace of mind you normally expect a regular income. The reputable companies normally pay up-to the expectation of the market. The diversification of portfolio in a reputable companies not only minimize the risk but also ensure regular dividend payment.
Receive payment without work:- The important factor that you earn money without any work and most importantly you need not to spend time in the equity market. The only thing is require to make some research of companies before investment and then you can enter in the market with the diversified portfolio.
Capital appreciation earn due to increase in the
market value of your shares.The shares of public company are traded in
stock exchange like a commodity and if the price of your commodity/share
goes up it means that you can earn some money in form of capital appreciation if you decided to sell your investment at that point.
Disadvantages of Capital appreciation approach
Not easy to forecast future :- some people enter into market with the short term investment . they want to maximize the wealth in days which is not technically possible. Therefore they make decision in haste about the market and therefor they usually inure the heavy loses because it is almost impossible to exactly predict the market behavior.
Time Consuming Job :- if you are interested in short term gain then you need a close eyes on the market index and in this case you are more interested in a share which is more volatile . because a stable share does not provide you an opportunity to make huge gain in short term.
Risk is very high:- The only short term benefit is not a good approach and it involves a great degree of risks . In this approach you are not considering the fundamental of a company but your focus is on the market fluctuation. it is like a sea with storm and you want to swim in the sea at that time.
Types of
Foreign Investment
There are Basically Two types of foreign
investment
- port polio foreign investment
- Direct Foreign investment
Port folio foreign Investment :- The Port folia
foreign investment is made in stock exchange by foreign investors.
Advantages of Portfolio investment:-
- Easy to disinvestment
- Minimum regulatory requirement
- Minimum political risk
- Risk can be managed by diversification of
portfolio
Easy Disinvestment :- The shareholder can off load his position whenever he want. There are number of buyer available in the stock exchange to purchase the share at market rate. The disinvestment decision may be for the meeting cash flow requirement or to earn capital appreciation or rational decision for safe exit.
Minimum Regulatory Requirement :- The direct investment require a lot of formalities and non objection certificate from different department. The problem is more intense in developing countries where there are lacking procedure in this regard. The red tap-ism is also a problem in developing countries and off course one other problem one can face is corruption.
Minimum Political Risk:- The other advantages that many political risk are minimized by port folio investment as the position can be off load immediately.
Direct investment :-
The direct foreign investment is other than
investment in stock exchange. There are different types of foreign
direct investment.
- Joint Ventures Arrangements
- Licensing Arrangements
- Foreign Subsidiary
- Foreign Branches
Types of Businesses
There are following types of business.
- Sole Enterprise
- Partnership
- Private Company
- Public Company
Sole enterprise is business runs by an
individual or family members and normally the business is run by the
close family member and they enjoy the decision making and profit of the
business.
Advantages of Sole enterprise
- More control over operations
- Independent decision can be made
- Less Regulator Requirement to comply with
Partnership is an extension of sole enterprise
where close family member or friends start a business and share the
profit in agreed ratios. it is important to note that profit not
necessarily proportionate to investment made. some partners may be
paid for their skills.
Advantages of Partnership
- This provided an opportunity to raise more
finance for operations.
- The decision making remains with few
individual so more effective and immediate nature of decision can be
made.
- Relatively less regulatory requirement than
companies.
Disadvantage of partnership
- The liability of partners is unlimited in
case of liquidations
- Death or insolvency may result in
dissolution of firm.
- more chance of conflict of interest.
Private Company basically an a corporate form of
partnership . The mind disadvantage of partnership that it liability is
unlimited. The private company concept is to eliminate this
disadvantage.
Advantages of private Company
- The first advantage off course the
liability is limited
- The Company will be sued for any dispute
not individual
- The company is a separate legal entity
- The company will not liquidate on death of
member
Public Company is further extension of private
company. Public companies have very large number of investors and shares
are traded in the stock exchange. The liability of public company is
limited like the private company.
Advantages of Public Company
- Can undertake huge project
- Shares can be sold any time
- Separate legal entity
- Liability of investor is limited
- Independent auditor audit the accounts for
results
- Hire the services of high professionals
-
Advantages of Public
Expenditure
The Public Expenditure is one
of the important tool of fiscal .The Expenditure has the following
advantages.
1. More Jobs in the Economy :- One of the
reason for high public expenditure is to create more jobs in the
economy. we know that high unemployment rate in the economy create a
pressure for the govt , Therefore Govt like to have enough jobs in the
country.
2. Boost for Industries ;- The
development expenditure by Govt will boost the relevant
industries. for example announcement of big projects of infrastructure
will boost the industry.
3. Raise the Demand :- The public
expenditure will also raise for the Good and this raise in demand will
attract new investment.
4. Growth Rate improve :- The raise in
demand will attract new investment and this will increase the output in
the economy.
Advantages of
privatization
1. Improve Efficiency
:- The Govt owned or run organization are normally have low efficiency
,therfore,one of the advantage is to improve the efficiency
2. Promote Open Market :- the second
advantage to create an open competition in the market, normally public
organization have some advantage over private organization. Therefore it
is difficult for private organization to compete with public
organization.
3. Focus on Governance :- The important
role of the Govt is to govern the country and not to run the business,
therefore, privatization the Govt can focus on its basic objective.
4. A Source of Revenue :- The receipt
from the privatization proceed are source of revenue which can be
utilized in development project.
5. Tax Collection :- The privatization
organization are loss making organization and no tax are paid by the
organization, some organization also have different tax exemption. By
going in the hand of private sector either they will be performing and
paying taxes or will be closed by management.
Advantages of High
Interest Rate
The following are advantages
of High interest Rate
- Saving increases:- The first advantage of
high interest rate is that saving ration in the economy increases,
The high interest rate offered by the Bank encourage people to save
and invest in risk free investment to earn profit.
- Investment increase in long run;- we know
that saving leads to investment, if you will have some saving
you will appropriate investment , therefore current saving of people
due to high rate of investment will increase future investment in
business.
- Reduced Demand for Goods :- The third
advantage is that it reduces the demand for goods in the market
because people prefer to deposit money instead expenditure. This
situation help to meet the demand and supply Gap
- Reduced Inflation:- off course one of the
main advantage of high interest rate is to reduce inflation in the
economy . it is off course due to decrease in the demand of good in
the market.
