ARTICLES : Business, Economy & Technology

MBA CAT 2022
41
Making A Trade
Assuming the trader has consulted his price charts, applied his trading plan's decision-making criteria and decided to make a trade, how does this actually take place? He will have a trading account open with a broker. Believing, for example, that the price of Silver will be going up in the near future, he calls his broker's trading desk, and the following conversation might occur.
  1. "XYZ Discount Brokerage.
    "This is Bruce Babcock. For account number 22656,
    buy one December Silver at the market."
    "Buying one December Silver at the market. Please hold."
The broker may enter the order into a computer or she may call the exchange floor directly. In either case, the order goes to the exchange trading floor in New York City. Once at the broker's desk on the edge of the trading floor, a runner may take the order to the trading pit to be filled or a clerk may transmit it to the pit by hand signals. In the trading pit, a floor broker executes the order with his fellow floor traders by a combination of shouting and hand signals. The process is then reversed as the trade price is communicated back to the customer.
  1. "Hello. You bought one December Silver at 550."
    "I would like to enter my stop order. Good 'til cancelled,
    sell one December Silver at 540 stop."
    For account number 22656, selling one December Silver
    at 540 stop. Good 'til cancelled."
    "Thank you."
The second sell order was an instruction to the broker to automatically offset the trade if Silver declined in price by $500. This was a prudent step to limit the loss in case price did not go up as the trader expected. Placing the order with the broker means that the trader will not have to monitor the market constantly to be sure the loss does not get too big if price goes down instead of up. The trader is not guaranteed to limit his loss to exactly $500, but he will usually be able offset his position fairly close to the requested price.
The trader can offset his position any time before the Silver contract expires in December. To the extent Silver's price is more than $5.50 an ounce when he offsets, the trader will profit by $50 for each cent. To the extent Silver's price is less than $5.50 when he offsets, the trader will lose $50 for each cent.
To do the same trade with less dollar risk, the trader could have instructed the broker to place the orders at the Mid America Exchange, where the Silver futures contract is only one-fifth the size of the regular New York contract. That would have yielded profits and losses of $10 for each cent rather than $50.
The Truth About the Commodity Markets
In order to be a successful trader, you must understand the true realities of the markets. You must learn how the professionals make money and what is possible. Most traders come into commodity trading, lose a substantial portion of their capital and then leave trading without ever having a correct perception of what good trading is all about.
For many years college professors have argued that the markets are both random and highly efficient. If this were true, it would be impossible to gain an edge on other investors by having superior knowledge or a superior approach.
Professional traders, who make their living trading rather than studying the markets from afar, have always laughed at these ivory tower theories. A good example is George Soros, who has made billions of dollars from trading and is perhaps the greatest trader of all time. Here is how he responds to these ivory tower academics: "The theory is manifestly false--I have disproved it by consistently outperforming the averages over a period of twelve years. Institutions may be well advised to invest in index funds rather than making specific investment decisions, but the reason is to be found in their substandard performance, not in the impossibility of outperforming the averages."
Mathematicians have conclusively shown the financial markets to be what are called non-linear, dynamic systems. Chaos theory is the mathematics of analyzing such non-linear, dynamic systems. The commodity markets are chaotic systems. Such systems can produce random-looking results that are not truly random. Chaos research has proved that the markets are not efficient, and they are not forecastable. Commodity market price movement is highly random with a small trend component.
Most beginning traders assume that the way to make money is to learn how to predict where market prices are going next. As chaos theory suggests, the truth is that the markets are not predictable except in the most general way.
In his book, Methods of a Wall Street Master, famous trader Vic Sperandeo, whose nickname is "Trader Vic," warns: "Many people make the mistake of thinking that market behavior is truly predictable. Nonsense. Trading in the markets is an odds game, and the object is always keep the odds in your favor."
Luckily, as Trader Vic suggests, successful trading does not require effective prediction mechanisms. Good trading involves following trends in a time frame where you can be profitable.
The trend is your edge. If you follow trends with proper risk management methods and good market selection, you will make money in the long run. Good market selection refers to trading in good trending markets generally rather than selecting a particular situation likely to result in an immediate trend.
There are three related hurdles for traders. The first is finding a trading method that actually has a statistical edge. Second is following it with consistency. Third is consistently following the method long enough for the edge to manifest itself on the bottom line.
This statistical edge is what separates speculating from gambling. In fact, effective trading is actually like the gambling casino rather than the gambling customer. Professional trader Peter Brandt explains successful trading in just this way: "A successful commodity trading program must be based on the simple premise that no one really knows what the markets are going to do. We can guess, but we don't know. The best a commodity trader can hope for is an approach which provides a slight edge. Like a gambling casino, the trader must earn his profits by exploiting that edge over an extended series of trades. But on any given trade, like an individual casino bet, the edge is pretty meaningless."
Unsuccessful and frustrated commodity traders want to believe there is an order to the markets. They think prices move in systematic ways that are highly disguised. They hope they can somehow acquire the "secret" to the price system that will give them an advantage. They think successful trading will result from highly effective methods of predicting future price direction. These deluded souls have been falling for crackpot methods and systems since the markets started trading.
Prolific futures trading author Jake Bernstein describes how these desperate traders are victimized: "Futures trading is ultimately very simple. Any attempt to make trading complex is a smokescreen. Yet for self-serving reasons an army of greed-motivated promoters try to make things complicated. Too many market professionals consider it their mission in life to obfuscate. Why? Because in so doing they give the appearance that their efforts are scholarly and important. They create a need for more information, and then they fill it!"
The job of the person who wants to trade commodities rationally and prudently is to ignore the promises of those promoting pie-in-the-sky prediction mechanisms and concentrate on finding and implementing a proven, integrated methodology that follows market trends
Source : Reality Based Trading Company
42
United Nations oil-for-food scandal

A fair-minded report at a crucial time
The commission investigating the United Nations oil-for-food scandal has issued a report that highlights the organisations structural failures. It comes at a crucial time, a few days before a meeting of world leaders to discuss UN reform

SOME of the United Nations critics see the organisation as corrupt through and through. The Wall Street Journals editorial page has compared it with a mafia family. Others see it as manipulated by certain member states, whether by the overbearing United States or by cynical France, Russia and China. This weeks report on the scandal surrounding the UN-administered oil-for-food programme in Iraq agrees with some of this criticism, though it paints a more nuanced picture.

One perspective is that the United Nations Organisation was simply asked to do too much, writes the commission behind the report, headed by Paul Volcker, a former chairman of Americas Federal Reserve. This laconic statement goes to the heart of the matter. The oil-for-food programme was the biggest financial undertaking in the UNs history. Iraq, under comprehensive and crippling trade sanctions after its invasion of Kuwait in 1990, was allowed in 1996 to start selling oil to buy food and medicine for its people. The programme began modestly but grew exponentially, eventually encompassing $64 billion in oil sales and $37 billion in purchases for Iraq. As it grew, it simply overwhelmed the UNs auditing and managerial capacity.

It was this that allowed the headline-grabbing corruption inside and outside the UN. In a previous report, the Volcker commission found that the oil-for-food programmes head, Benon Sevanwho has since resignedtook kickbacks from the Iraqi regime. The commission has alleged that Kojo Annan, the son of UN secretary-general Kofi Annan, concealed the length and depth of his relationship with an inspection-services company that had won a UN contract. (The secretary-general himself has been accused of lax oversight, but not of personal corruption.)

The UNs detractorsand in particular American conservativeshave focused on these lurid tales. But the commission writes that the pervasive administrative difficulties were not only, or even primarily, related to personal malfeasance. Rather, it was the poorly-thought-through conception and execution of the oil-for-food scheme that made abuse possible.

First, there was no clear line of leadership. The Security Council (permanent members: America, Britain, China, France and Russia) created the programme, in what was a thoroughly political decision. The UNs Secretariat was charged with its execution, but the Security Council maintained a sanctions committee that reserved the right to block any transactions requested by Iraq. That turned out to be a recipe for the dilution of Secretariat authority and evasion of personal responsibility at all levels, says the report, which calls on future programmes to be designed by the Security Council but run by the Secretariat alone.

Once the programme began, the Secretariat fell grievously short in its managerial, personnel and auditing controls. There were simply not nearly enough competent people to oversee such a huge endeavour. A dizzying number of agencies were involved, but there were no clear mechanisms for co-ordinating or tracking their spending under the programme. As an earlier report noted, the programmes auditors were well-intentioned and hard-working, but far too few in number to do the job properly. This weeks report recommends the creation of an independent auditing board.

As well as highlighting improvements needed within the UN Secretariat, the report criticises the Security Council members who oversaw the programme. Press reports have confused different sources of Iraqs illicit income during the oil-for-food years. As the report points out, by far the largest single source of ill-gotten gains for Saddam Husseins regimesome $8.4 billionwas oil smuggling to its neighbours, primarily Jordan, Turkey and Syria. By contrast, Iraq made just $1.8 billion from the manipulation of oil and import contracts under the UNs purview. In any case, all Security Council members (not just the permanent five) had a veto on oil-for-food decisions, including contracts.

The smuggling was well known to the Security Council at the time, the report stresses. America may have looked the other way at some of Saddams takings on the side because the smuggling took place with several of the superpowers Middle Eastern allies (and America was anyway preoccupied with keeping arms out of Iraq). Meanwhile, the report notes, Iraq sought to give oil contracts to companies in countries it perceived as sympathetic to lifting sanctionsespecially Russia, China and France.

Despite the criticism the report makes of the UN structure, the member states and certain individualsof which more will be revealed in the Volcker committees final report, due in Octoberit also stresses that oil-for-food largely succeeded in its basic task of easing the suffering of ordinary Iraqis while depriving Saddam of weapons of mass destruction. Nonetheless, the report says, real change must now happen at the UN, which otherwise will invite failure, further erode public support, and dishonour the ideals upon which the United Nations is built.

The report is well timed. Next week, national leaders from around the world will meet to discuss UN reform at a key summit in New York (see our special report). Their remit includes many of the organisational changes that the Volcker committee calls for, especially the strengthening of internal oversight. But the prospects for the summit are far from sunny. Poor countries are far more interested in new initiatives for development aid, while some richer countries, especially the European ones, would like to see renewed commitment to tackling global warming. America, meanwhile, wants to focus on improving governance in poor countries, not more aid, and remains hostile to the Kyoto protocol on climate change. Compromises are slowly being hammered out in the final days before the meeting. The latest Volcker report may help to focus minds. But much still remains to be done.

SOURCE : ECONOMIST
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Google's Grand Ambitions

Its lips are sealed, but its moves rattle everyone from Microsoft to eBay

In years past, Microsoft Corp. could freeze competitors and send investors scurrying just by uttering the name of a market it fancied. Today, Google Inc. is the 800-pound octopus that is filling potential rivals with dread and envy.

In typical Google fashion, the company chose an unusual moment -- the sleepy doldrums of mid-August -- to shake up the tech world with a flurry of announcements. First, Google confirmed that it had quietly acquired mobile-phone software startup Android Inc. Then came the surprising news that it would add $4 billion to its cash war chest with a secondary stock offering. And then on Aug. 24, the search giant announced it was getting into the instant messaging and Internet telephony businesses. No wonder tech watchers from Silicon Valley to Bangalore are all wondering the same thing: What the heck is Google up to?

No point asking the Mountain View (Calif.) company. Google, as usual, is about as talkative as a telephone pole. But in dissecting the company's spate of recent hires, investments, and acquisitions you can catch tantalizing glimpses of where the search giant could be headed. Talk about ambition. Google appears to be contemplating forays into everything from Wi-Fi Internet access and mobile devices to operating systems and e-commerce.

Google faces serious challenges of course, not least because it is playing catch-up in some of these fields. But if the company's outsize ambitions come to fruition, Google would suddenly be on a collision course with some pretty heavy hitters. The company is already challenging Microsoft and Yahoo! Inc. Now it seems to be getting ready to stomp on the turf of such giants as eBay , Motorola , Nokia, SBC Communications, and Verizon . And if you're a tech startup working similar technologies as the savvy folks in the Googleplex, you have two basic choices: Plan to be acquired -- or get run over. "There is a new fear and caution about how Google will use its war chest," says Chris Shipley, producer of the DEMO Conference, where startups strut their stuff.

If the search behemoth goes ahead with its myriad initiatives, it will be Google vs. Everyone. Here's a glimpse of where Google may be headed:

GOOGLE VS. VERIZON Playing a role in how consumers connect to the Net is an important step for online giants. It helps deepen the link between Web surfers and Internet companies while providing a window for these outfits to showcase products and services. Google clearly covets such a role, but it has shown no interest in mimicking the access businesses of other tech titans -- piling up millions of subscribers like America Online or following Yahoo's lead of partnering with telecom giants.

Google may be showing its hand in this arena with a couple of little-noticed business moves. In April, Google teamed up with wireless startup Feeva Inc. to sponsor a Wi-Fi hot zone in San Francisco in which Google appears as the start page. Google says this is all part of its mission to make access to information more readily available, but it won't comment on other Wi-Fi moves. Some analysts, though, believe it would make perfect sense for Google to bankroll Wi-Fi access points, not only allowing Google to get more users but also to target ads better locally -- a huge growth area. "Google wants there to be more search moments," says Esme Vos, editor of the MuniWireless Weblog and a consultant to cities deploying Wi-Fi solutions. "This would make a lot of sense."

Meanwhile, in July, Google invested in Current Communications Group LLC, a company that offers broadband access over power lines. The company has been rolling out its service to a few markets in the U.S., including Cincinnati. Verizon and SBC take note. These moves show Google is "really interested in affording people the greatest possible access and speeds," says Scott H. Kessler, an equity analyst at Standard & Poor's .

GOOGLE VS. MOTOROLA Former insiders say Larry Page -- who, with Sergey Brin, founded the company -- has ruminated in years past about offering a Google mobile phone, allowing users to search the Net easily and get data from the device. Although a fiercely competitive space crowded with companies like Motorola and Nokia, the barriers to entry are getting lower all the time, thanks to a passel of contract manufacturers from Taiwan and elsewhere eager to make phones cheaply for anyone interested in breaking into the market.

At the least, recent acquisitions show the company is working on a software platform for mobile phones. In July, the company snatched up the secretive startup Android, founded by Andy Rubin. Rubin's previous startup was Danger Inc., which developed the popular Hiptop communications device. Although little is known about Android, one person familiar with the company says its engineers at one point had been working on an operating system for mobile phones.

Google also buttressed its mobile-software arsenal with its May acquisition of Dodgeball. The startup has developed social-networking software for mobile devices. A Dodgeball user, for instance, could contact a group of friends in a particular vicinity with a single message on a mobile phone. Google declines to comment on how it intends to utilize the Dodgeball and Android technologies.

GOOGLE VS. MICROSOFT Google has been poaching talented engineers with a wealth of expertise in two Microsoft strongholds: browsers and operating systems. One source familiar with the company says some of these hires are working on an Internet operating system that might run on top of Linux and could compete with Microsoft's Windows franchise. Although any such offering may be years out, it seems plausible based on the talent Google has lured. In recent years, it has hired several architects of Microsoft's .Net strategy -- an attempt to expand its operating system dominance to the Internet. If Google is indeed contemplating an OS, it would amount to an attack on the very foundation of Microsoft.

Google's raid on browser talent has been just as important. In the past year it has hired several top developers of the Firefox browser, a well-regarded but distant challenger to Microsoft's Internet Explorer. "If I'm Microsoft, I'm watching these guys co-opt my desktop," says Michael Gartenberg, an analyst at Jupiter Research. "I would be concerned about... the sheer power of their presence."

GOOGLE VS. eBAY Google has not wowed anybody in online commerce so far. Its shopping search site Froogle has not distinguished itself from the pack, and it garners only a fraction of the visitors that go to competing services, such as Yahoo! Shopping. But Google concedes that it is working on an online payment platform -- which could put it in direct competition with eBay's PayPal service.

Another possibility: Google could eventually allow individuals to post items for sale on Froogle. Google's recent hiring of Louis Monier, former director of eBay's advanced technology research, has only added to such speculation.

It's a good bet Google is pondering all of these possibilities and more. The real question is what projects will get the resources inside Google and see the light of day. With uncertainty like that, Google will have the rest of the tech world on edge for some time to come.
SOURCE : Economist
46
A new technique that could make therapeutic cloning less controversial
AT THIS stage, it is merely a proof of principle. But, this week, researchers demonstrated a new way of creating so-called human stem cells tailored to an individual adult patientpotentially, therapeutic cloningwithout creating or destroying human embryos.
Stem cells can transform themselves into the many different cell types that make up a body. Optimists hope they might eventually be used to generate replacement tissues and even entire organs for people who have lost theirs to disease or in an accident. At present, the technique most commonly used to create them is controversial because it involves experimenting on tiny clusters of cells that might, in other circumstances, grow into people.

The new method instead fuses an adult somatic cellsuch as a skin cell, indeed, anything other than sperm or egg cellswith an existing embryonic stem cell. The fusion causes the adult cells to undergo genetic reprogramming, giving rise to cells that have the developmental characteristics of human embryonic stem cells. The stem cells can renew themselves indefinitely and transform themselves into many different types of cell.
However, the new technique will not immediately revolutionise medicine. First, a substantial technical barrier must be removed. The stem cells, created by Kevin Eggan and his colleagues at Harvard University, are abnormal. They contain chromosomes from both the adult somatic cells and the embryonic stem cellsthat is, one set of chromosomes too many. The chromosomes from the adult somatic cells are the ones required to tailor treatment to an individual, minimising the chances of rejection by the patient's immune system. So the next stage on this route will be to figure out how to remove the embryonic stem-cell chromosomes while keeping the cell in its reprogrammed state.
The researchers stress that the most immediate benefit of their work will be an improved understanding of how to turn adult somatic cells into embryonic stem cells. Any practical application should be developed alongside existing techniques, they insist. The work is published in this week's Science.
However, if there is a way to remove the embryonic stem-cell chromosomesand a group led by Yuri Verlinsky at the Reproductive Genetics Institute in Chicago says there isthen the new method would have several advantages over the established one. First, the number of women willing to go through the painful donation process limits supplies of human eggs. These are also technically difficult to work with. Embryonic stem cellsthat is, from already fertilised eggsby contrast provide an almost inexhaustible supply of easier-to-work-with material.
Admittedly, there is some sleight of hand when it comes to what the American people find ethically acceptable. While the new method neither creates nor destroys human embryos, it does use stem cells that originally came from spare embryos created during infertility treatment. The creation of new embryonic stem cells was banned in 2001 by George Bush but work is permitted on the 60 or so stem-cell lines that existed before August of that year.
Next month, America's Senate is due to vote on a bill, already passed by the House of Representatives, that would extend federal funding to stem-cell research with newly created embryos. The scientists want more lines to gain more diversity and, in particular, to study stem-cell lines from discarded embryos which carry disease genes. There are also concerns that the constant generation of new stem cells could eventually damage any one line. Dr Eggan's workwhich demonstrates, in principle, that therapeutic cloning might be possible without creating or destroying human embryosmight first appear to assist those, such as the president, who oppose such liberalisation. However, many scientists insist it is sorely needed.

SOURCE : Economist
47
Week's BUSINESS HEADLINES in nutshell.....

Delta Air Lines and Northwest Airlines filed for bankruptcy protection. Both companies, like other large American airlines, are contending with cut-throat competition from low-cost carriers, the burgeoning costs of workers' benefit schemes and a sharp rise in the cost of jet fuel. Delta has lost $10 billion since 2001 and Northwest's mechanics are currently on strike.
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Ford agreed to sell Hertz, its car-rental subsidiary, to a consortium of three private-equity firms for $5.6 billion (including debt, the transaction is worth $15 billion). Last June, the carmaker filed papers to float Hertz on the stockmarket, but a number of buy-out specialists expressed a strong interest in buying it directly instead. The sale provides some much needed liquidity for Fordits credit rating was downgraded to "junk" status earlier this year.
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EBay confirmed that it was buying Skype, a leading provider of free phone-calls over the internet. The deal is initially worth $2.6 billion, but could rise to $4.1 billion by 2009 if performance targets are met. Luxembourg-based Skype has excited analysts, who think it will transform the telecoms industry.
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Oracle announced another large acquisition. It is buying Siebel Systems, a rival business software company, in a deal valued at $5.8 billion. Siebel is Oracle's biggest takeover since its recent contentious merger with PeopleSoft.
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A judge ruled that a former executive at Microsoft, Kai-Fu Lee, could do some, but not all, of the development work in China asked by his new employer Google. Microsoft says Mr Lee knows too much about its strategy in China, but urged Google to accept the decision. The case has highlighted the boundaries that firms can place on former employees.
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Lehman Brothers said net income for the three months ending August 31st had risen by 74%, compared with a year earlier, to $879m. Other big Wall Street investment banks are expected to follow Lehman's lead and post equally startling quarterly results.

Wachovia agreed to pay $3.9 billion for Westcorp, a financial-services holding company (the deal includes the 16% stake in WFS Financial, a car-loan company, that Westcorp does not already own). America's fourth-largest bank will double its car-financing business, and also gain a toehold in southern California's retail-banking marketanother Westcorp subsidiary is Western Financial Bank.
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Deutsche Brse asked Reto Francioni, chairman of SWX Group, which runs the Swiss stock exchange, to be its new chief executive. The German financial-exchange group has been seeking a new boss since May, when Werner Seifert was ousted by shareholders dissatisfied with a bid for the London Stock Exchange.

Banca Popolare Italiana said that it had approved the sale of its 29.5% stake in Banca Antonveneta to ABN Amro, of the Netherlands. The sale would seal the first significant foreign takeover of an Italian bank, and end a controversial battle that has lasted several months.
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Carl Icahn put more pressure on Time Warner. The investor, who last month revealed that he and three partners had built a 2.6% stake in the company, said he would mount a proxy fight to win seats on Time Warner's board. Mr Icahn's group wants the media giant to spin off its cable TV unit and buy back $20 billion-worth of shares in order to boost its share price.
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Vivendi Universal reported a 49% rise in net income, to 1.26 billion ($1.62 billion), for the first half of the year compared with a year earlier. In 2002, the media group posted France's biggest-ever annual corporate loss23.3 billion.
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Australia's government overcame strong opposition to pass legislation enabling the sale of its remaining 51.8% stake in Telstra, the country's largest telecom firm. Worth A$28 billion ($22 billion) and expected next year, it is the country's biggest privatisation.
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EnCana, a Canadian oil-and-gas producer, said it was selling its assets in Ecuador to Andes Petroleum, a consortium of Chinese energy firms that includes China National Petroleum Corporation, for $1.42 billion. The deal is further disappointment for India's Oil and Natural Gas Corporation, which was also in the running for EnCana. Last month, CNPC pipped it to buy PetroKazakhstan.
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Following Junichiro Koizumi's election win, Japan's Nikkei 225 stockmarket index reached a four-year high (though this is still a long way from its peak in late 1989). Markets were also buoyed by an upward revision to Japan's second-quarter GDP growth, which stands at an annualised rate of 3.3%.
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SOURCE : Economist
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Telecoms and the internet : The meaning of free speech

The acquisition by eBay of Skype is a helpful reminder to the world's trillion-dollar telecoms industry that all phone calls will eventually be free

NIKLAS Zennstrom and Janus Friis, the founders of Skype, which distributes software that lets people make free calls from their computers to other Skype users anywhere in the world, don't usually travel to America. Legally, they probably could. But they prefer to avoid that jurisdiction, since they also founded (and subsequently sold) KaZaA, a peer-to-peer software company whose product many people use to share copyrighted songs. So setting foot in America could invite some legal trouble. This does not mean, however, that they cannot appear at conferences in Silicon Valley, where Skypewhich uses the same basic idea of KaZaA, but applies it mainly to voice communicationis considered the next big thing.
Thus, in July, Mr Zennstrom appeared, via a Skype video call, on the screen of a packed auditorium at Stanford University, while sitting in Estonia next to Tim Draper, a venture capitalist who invested $10m in Skype. Mr Draper is the ultimate loud American, whereas Mr Zennstrom is a sombre Swede. He's already taken down one industry and he's on to the next one, hollered Mr Draperreferring to recording studios and telecoms companies. Mr Zennstrom started shifting uncomfortably. I never wanna sell my stock until it's a hundred billion, Mr Draper yelled, then started singing and dancing. The blushing Mr Zennstrom was speechless.
Of course, Mr Draper was posturing. That became clear on September 12th, when Skype announced that it had agreed to be taken over by eBay, based in Silicon Valley and the world's largest online marketplace. Mr Draper and Skype's other investors will get nothing like $100 billion, but eBay is paying a hefty sum$2.6 billion in cash and shares and perhaps more if certain criteria are metnonetheless.
This pairing took many people by surprise. There have been rumours that Yahoo!, Google, Microsoft and other technology companies were also interested in buying Skype. Any of these might have made a more obvious fit, since each also has instant-messaging software that can be used for free phone calls (or voice chats, as opposed to text chats) between computers. Google, the world's most popular internet search engine, launched its own voice-chat software in August. A week later, Microsoft bought Teleo, a San Francisco company that lets people call conventional telephones from their computers (as Skype also does, for $0.02 a minute). Yahoo! had already bought Dialpad, another Skype-like firm, in June. AOL, Apple and others have similar products.
As Meg Whitman, eBay's boss, and Mr Zennstrom explain it, a combination of eBay and Skype is not all that far-fetched. From eBay's point of view, placing cute Skype buttons on the web pages where people trade used cars, houses and other items that usually require voice bargaining reduces friction, says Ms Whitman. Buyers can simply click on the button and talk to sellers. Another idea is to make money from pay-per-call advertising, where advertisers would place voice links (ie, Skype buttons) on certain pages just as they now place text links on, say, the search-results pages of Google. Whenever a web surfer clicks on one of these links and talks to a salesperson, the advertiser would pay eBay and Skype a fee. Google got rich by doing this in the text world; there is no reason why eBay might not be able to do it in the voice world.
From Skype's point of view, the deal strengthens its existing link with PayPal, eBay's online bank, which it uses to charge for services such as calls from computers to conventional telephones (called SkypeOut) or from conventional phones into Skype (called SkypeIn). This involves prepaid accounts, which Skype users can top up via PayPal with their credit cards.
For Skype, however, the main attraction may be that eBay, unlike the other potential suitors, plans to leave it largely alone, both as a brand and as a business. When Yahoo! and Microsoft buy companies, they typically disintegrate them, says Mr Zennstrom. His vision for Skype, by contrast, is to become the world's biggest and best platform for all communicationstext, voice or videofrom any internet-connected device, whether a computer or a mobile phone.
This is every bit as audacious as it sounds. Mr Zennstrom, in general, is a modest man. But his company is only three years old, will probably make only $60m in revenues this year, and will certainly not turn a profit. So it is the fact that his ambition is not nearly as ridiculous as it sounds that should make incumbent telecoms firms everywhere break out in a cold sweat.
That is because Skype can add 150,000 users a day (its current rate) without spending anything on new equipment (users bring their own computers and internet connections) or marketing (users invite each other). With no marginal cost, Skype can thus afford to maximise the number of its users, knowing that if only some of them start buying its fee-based servicessuch as SkypeOut, SkypeIn and voicemailSkype will make money. This adds up to a very unusual business plan.
We want to make as little money as possible per user, says Mr Zennstrom, because we don't have any cost per user, but we want a lot of them. This is the exact opposite of the traditional business model in the telecoms industry, which is based on maximising the average revenue per user, or ARPU. And that has only one logical consequence. According to Rich Tehrani, the founder of Internet Telephony, a magazine devoted to the subject, Skype and services like it are leading inexorably to a future in which all voice communication, near or far, will be free.
End of the line
The technical term that encompasses all forms of voice communication using the internet is voice-over-internet-protocol, or VOIP. This includes pure computer-to-computer calling as well as the various hybrid states, such as a Skype user connecting to the traditional telephone network, or even two people talking on seemingly conventional phones that are linked, behind the scenes, via the internet. It also includes residential VOIP providers such as Vonage, based in New Jersey and the market leader in America with over 1m subscribers, that supply their customers with adapters so they can plug ordinary telephones into their broadband connections without using a computer.
Sandvine, a telecoms-equipment firm, estimates that there are 1,100 VOIP providers in America alone. But the trend is worldwide. IDC, a market-research firm, predicts that the number of residential VOIP subscribers in America will grow from 3m at the end of 2005 to 27m by the end of 2009; Japan already has over 8m subscribers today. Worldwide, according to iSuppli, a market-research firm, the number of residential VOIP subscribers will reach 197m by 2010. Even these numbers, however, do not include people using VOIP without subscribing to a service (ie, by downloading free software from Google, Skype or others). Skype alone has 54m users.
Even before VOIP makes 100% of telephone calls in the world completely free (which may take many years), it utterly ruins the pricing models of the telecoms industry. Factors such as the distance between the callers or the duration of a call, the key determinants of cost today, are simply irrelevant with VOIP. Vonage already lets its customers choose telephone numbers in San Francisco, New York or London, no matter where they live. A Londoner calling the London number is making a local call, even if the Vonage subscriber is picking up the phone in Shanghai. As when checking e-mail on, say, Hotmail, the only thing needed is a broadband-internet connection, but it can be anywhere in the world. Sooner or later, people will discard their unwieldy phone numbers altogether and use names, just as they do with their e-mail addresses, predicts Mr Zennstrom.

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continued...
Call duration is also becoming irrelevant. A lot of people open a Skype audio channel and keep it open, says Mr Zennstrom. After all, it costs nothing. Many people with Apple computers are already accustomed to this. They open an application called iChat, which is a video and voice link, and stay connected to their loved ones far away. Increasingly, members of a family or a business team can stay online throughout the day, escalating from unobtrusive instant-messaging (Can you talk?) to a conference call, a video call and back to a little icon on their screen.
It is thus altogether wrong to call this phenomenon the end, or death, of telephony. Calling it the death of telephony suggests people aren't going to make calls, but they are, says Sam Paltridge, a telecoms guru at the OECD. It's just the death of the traditional pricing models. In short, all this is great news for consumers and awful news for telecoms operators. VOIP will destroy voice revenues faster than most analysts' models predict, says Cyrus Mewawalla, an analyst at Westhall Capital.
That said, some telecoms carriers are much more vulnerable to VOIP than others, says Mr Mewawalla. Telecoms operators offer and charge for a number of services besides pure voice calls. Because VOIP will cause only the revenues from voice calls to shrink, it will hit those operators hardest that are most dependent on their revenues from voice
For pure mobile operators, such as Vodafone or Taiwan Mobileas it happens, Taiwan is the country with the highest ratio of Skype usersVOIP could be an enormous problem, says Mr Mewawalla, because voice accounts for over 80% of their revenues. By contrast, VOIP is less threatening to integrated operators (ie, those offering both fixed and mobile services) such as Deutsche Telekom or Japan's NTT. And those carrierssuch as BT, France Telecom or KPNthat are currently building next-generation networks based on internet technologies will be able to offer VOIP services themselves, bundled with other offerings, and might emerge relatively unscathed.
Some operators are taking an unenlightened view by trying to delay the advance of VOIP. China Telecom has been blocking access to Skype from Shenzen, according to local newspaper reports. Vodafone has introduced wording into new contracts for some German subscribers reserving the right to block VOIP in future, though a spokesman for the company says it is not doing so at the moment. Occasionally, operators have even blocked access to Skype's website, thus preventing people from downloading the software or topping up their calling credit.
The more enlightened approachwhich most operators in rich countries, to varying degrees, acceptis to compete with VOIP openly or even to embrace it. Operators are moving towards flat-rate pricing plans for traditional telephone service, so that the marginal price of making calls falls to zero. Many American regional operators offer unlimited local and national calling for a fixed monthly fee, and such schemes are also becoming popular in other countries.
Several incumbent operators have also launched their own VOIP services, such as Verizon's VoiceWing and BT's Broadband Voice. These offer lower prices than traditional telephone service but are generally not as cheap as a call between Skype and a regular phone. Such services are an admission that a less lucrative VOIP customer is better than no customer at all. Switching to VOIP also helps operators by lowering their own costs dramatically. BT and others are building new, internet-based networks behind the scenes, which will carry all voice traffic as VOIP even if the calls start or end in the traditional way.
The other argument for embracing VOIP is that the incumbents can then start offering the fun new services that VOIP makes possible and charging for them. This goes far beyond traditional voicemail. Video-conferencing and unified messagingwhereby all forms of communication, from voicemail and video messages to e-mails or entire electronic documents go into one virtual inboxwill become common, says Wendy McMillan-Turner, head of voice services at BT. Since all of these features are essentially software programmes, they can all be integrated with applications that people today use on their computers, such as Outlook calendars and contacts files.
The service that many telecoms operators are most excited about, however, is IPTV, which refers to television (and entertainment in general) being delivered over new and super-fast broadband-internet connections into homes. This would allow them to charge for a bundle of services, including broadband access, entertainment and voice. The voice component could then atrophy gracefully and eventually be thrown in for nothing. Ultimatelyperhaps by 2010voice may become a free internet application, with operators making money from related internet applications like IPTV, says Mr Mewawalla.
Cable operators are coming at VOIP from exactly the opposite direction. They already offer television and entertainment, as well as broadband access, so they might as well offer cheap telephony as well. This puts the cable companies in a good position. Unlike the telecoms operators, they do not depend on voice for their revenues today, so they can use cheap VOIP service as a competitive weapon to make life difficult for the telecoms operators, who are increasingly their only competition. In California, for example, most people have a choice between one cable company, Comcast, and one traditional telecoms carrier, SBC. Since voice uses very little bandwidth compared with television, the cable companies need not even add a lot in the way of bandwidth.
Mobile operators face a far greater challenge than fixed-line carriers. Voice accounts for the bulk of their business and they cannot (at least today) offer broadband access as easily as the cable and fixed-line companies. New third-generation (3G) networks were supposed to make possible whizzy new data services to compensate for flat and even declining revenues from voice calls, but consumer adoption has been slow.
Worse, those very 3G networks that are supposed to provide future growth for the industry could now undermine it, since they make possible VOIP calling over mobile networks. Already, one mobile operator, E-Plus in Germany, has announced a deal that will allow subscribers to use Skype on its 3G network. Users would thus pay only for the internet connection, while making free calls to other Skype users and to other telephones for very little. E-Plus hopes to win valuable business customers and to put pressure on much bigger but less agile rivals such as Vodafone.
Today, VOIP calling over 3G networks is still very much a minority sport, but as 3G coverage and transmission speeds improvesomething the industry is racing to achieveit will become common. This represents a mortal danger for mobile operators. VOIP on mobile is the first real threat they are going to face, and they are in a state of shock, says Mr Mewawalla. Mobile operators generally charge three to five times as much as fixed operators for each minute on the phone, so they have far more to lose from falling voice prices. International travellers will use VOIP over hotel-room broadband links or Wi-Fi hotspots in airports to save on the roaming charges by their mobile-phone company.
Vodafone counters that, like BT, it is moving towards internet-based networks that will reduce its own cost of carrying calls and make possible new value-added services. But this sounds unconvincing. Much more so than fixed-line operators, mobile operators would have to cannibalise their current business in order to generate new revenues from VOIP. Ironically, this means that BT, once regarded as a dinosaur-like incumbent, is now being held up as a shining example of an operator that is embracing the future, while Vodafone, whose pure-mobile strategy once seemed visionary, now stands accused of being on the wrong side of history.
SOURCE: Economist
51
Why believe in India

Because it has made tremendous progressand there's more to come.

India has always held great promise. Soon after independence, in 1947, its foreign reserves were among the world's largest, at $2.1 billion in 195051, and it accounted for 2.4 percent of global trade. Over the next 44 years, however, attempts to follow the Soviet model of self-sufficiency brought the country to the verge of bankruptcy. Domestic savings failed to keep pace with the investment needed to contain unemployment, especially as India's working-age population expanded. The crisis begged for drastic reform, and in 1991 the government delivered.

This reform program took its cue from China, which by 1991 had surpassed India on all major economic indicators. But in the shadow of the Chinese economic miracle, it is easy to overlook what India's reforms have accomplished during the past 14 years. A solid foundation for growth is now in place: the program of renewal, backed by successive governments, has increased the country's foreign reserves to an enviable $137 billion and raised annual economic growth from an average of around 4 percent in the four decades before reform to almost 7 percent today. Growth rates of 8 to 10 percent are within reach. The amount of foreign direct investment coming into the country, often cited as a failure of India's policy, has grown from about $100 million in the early 1990s to about $5.5 billion today. If China were not the yardstick used to measure India, this increase would be a matter for celebration, not censure.

The automotive and airline industries illustrate how far the country has come and how much further it could go with more foreign investment and competition. Since neither industry was high on anyone's political agenda, both were among the first to be deregulated. From just one state-owned airline in 1991, India now has eight competing carriers and is the world's second-largest commercial-aircraft market. On-time performance and service levels have risen dramatically and fares have dropped. As a result, passenger traffic is expected to grow by 20 percent annually over the next five years. In the automotive sector, deregulation sparked competition and led to the emergence of a local champion, Tata Motors, which has captured 15 percent of the domestic market. Total annual car sales have increased from around 150,000 in 1991 to more than 1,000,000 today, while the industry's employment has tripled. Successes like these allowed the government to liberalize many other sectors, though retailing, banking, defense, and the news media remain the notable holdouts.

Extensive reforms have also affected India's capital markets, corporate and individual tax regimes, and judiciary. Such measures as easing capital controls, liberalizing equity pricing, and creating a regulatory authority (the Securities and Exchange Board of India) have been instrumental in bringing the country's money markets on par with those in the developed world. As a result, foreign investors can easily move funds in and out of India. Individual and corporate income taxes have been reduced to levels in line with those in the rest of Asia. And judicial reform has empowered citizens, giving them an effective tool to fight, for example, corruption, voter fraud, human-rights violations, and environmental degradation.

These efforts have made India one of the world's fastest-growing economies. In the future, the government must focus on stimulating domestic demanda vital step if it hopes to attract the foreign investment needed to reach its growth targets. In addition, the country must intensify its efforts in important areas of reform in order to build a more competitive economy that benefits businesses and consumers alike.

Act to boost demand

Indians save too little to finance the economic growth needed to provide jobs for the country's expanding working-age population. Our projections show that the economy must grow by 8 to 10 percent a year or risk markedly higher unemployment, so foreign investment is essential to fill the gap.

But most foreign companies see India only as a source of low-cost skilled labor, particularly in IT, not as a major market for products and services. This crucial distinction helps explain why China attracts upward of ten times more foreign direct investment than India does. (Investment restrictions, to be addressed later, are also an important factor.) As part of the government's efforts to attract more foreign investment, the country must take three steps to stimulate domestic demand.

First, the Reserve Bank of India (the central bank) must keep interest rates regionally competitive to sustain a buoyant economy. Since 2002, the bank has reduced them to the current 6 to 8 percent, from 14 to 18 percent. Spurred by this decline, consumer lending has increased by more than 30 percent a year, and residential construction and consumer durables have also seen healthy growth.

Second, India's 28 states and union territories must all implement the value-added-tax (VAT) system1 introduced in April. Eight have yet to do so. The VAT system will allow overall consumption taxes to fall to 15 to 20 percent by 2007, from the current 30 to 60 percent, thus releasing a flood of latent demand. China, for example, experienced a sudden increase in demand in 1994, when the government introduced a standard 17 percent VAT on factory prices2 for most manufactured goods and services. India can expect a similar surge once the VAT system has been fully implemented, since for every 25-percentage-point decline in prices, consumer demand increases three- to fivefold, according to our estimates. States that have already adopted the standard VAT rate have experienced, on average, a 12 percent increase in tax collections for the second quarter of this year. These results suggest that the government has room to reduce overall consumption taxes even furtherto around 12 percentwithout affecting its revenues.

Last, state governments must work to reduce their budget deficits. The central government has pledged to cut its deficit to 3 percent of GDP by 2009, from the current 4.3 percent. But as the center tightens its belt, state governments have allowed their deficits to grow steadily, for an aggregate state deficit of 5.1 percent of GDP today. As a result, the combined deficit of the central and state governments has held steady at about 8 to 9 percent of GDP throughout the reform effort. These deficits not only put pressure on interest rates but also lead to massive government borrowing, which siphons off funds that would otherwise be available for capital investment or consumption. Servicing this debt is also a huge burden, so the government must cut the total public deficit to 4 to 6 percent of GDP.

Continued....
52
continued....
Increasing competition

To unlock India's true potential, accelerated consumption must be coupled with continued liberalization of the country's markets. The reform agenda must focus on eight areas.

Product market reform. Having picked the low-hanging fruit, India must find the resolve to deregulate politically sensitive sectorsparticularly retailing, banking, the news media, and defense. Exposing the retailing sector to world-class scale, skills, technology, and capital, for example, wouldn't lead to greater unemployment, as some claim. Rather, it would help workers to find jobs that add more value: for instance, jobs with distributors (delivering goods to retail outlets) and with intermediaries such as transport agents (delivering goods from manufacturers to wholesalers). Consumers would also benefit from better quality and lower prices. As reform spreads, other industries will experience similar outcomes.

Infrastructure. The government has invested in India's infrastructure and upgraded ports, telecommunications, and highways. But several important areas, such as power, water and sewerage, railways, and airports, remain troublesome, in part because intransigent state governments often block progress. Disputes over water-sharing rights, for instance, have slowed a $150 billion project that would link a number of India's rivers (the Brahmaputra, the Ganga, the Godavari, the Krishna, and the Yamuna) with a system of waterways. If completed, these canals would provide much-needed water to millions of Indians and boost agricultural productivity.

Meanwhile, the Electricity Act of 2003 aims to provide businesses with uninterrupted, low-cost power. The act permits the delicensing of power plants and provides for open access to generation, transmission, and distribution while phasing out cross-subsidies. So far, however, only eight state electricity boards have unbundled power generation, transmission, and distributiona necessary step for implementing the measure. For this landmark effort, state regulators must also clarify myriad other details, such as the rules and access charges for third parties that supply industrial power and a clear definition of the contractual obligations of the generating companies. While these kinds of initiatives have failed to gain traction in the past, the central government has recently shown remarkable creativity in getting the states to play along.

Land reform. One of the greatest problems plaguing India today is confusion over land titles. Because of high stamp duties, property owners have long avoided registering transactions and instead transfer land through other means, such as powers of attorney. As a result, many titles do not correspond to the people actually in possession of the properties. Stamp duties must be reduced to international levels, and the government must streamline the registration system by establishing fast-track courts and implementing electronic record-keeping systems. Andhra Pradesh's progress in this area should encourage other states to follow its lead.

Urban renewal. Since India's independence, its urban population has grown fivefold, leading to overburdened facilities and greater numbers of urban poor. The central government has budgeted an initial $1 billion to finance its National Urban Renewal Mission, but states must also do their part. Measures that state governments ought to adopt include increasing usage charges such as property taxes and water and sewerage fees, improving collection rates for fees and taxes, enhancing the efficiency of municipal corporations, and making better use of assets in and around cities. In Mumbai, for instance, where terrible flooding recently underscored the need for quick progress, we estimate that the state could immediately finance about $10 billion in infrastructure improvements through measures such as reforming the property tax regime and improving collections from their current minimal levels. Public investments of this kind could attract an additional $40 billion in private funding. All told, these investments could greatly improve the quality of life for Mumbai's population.

Asset recovery. The government must continue to expedite the recovery of assets from bankrupt companies. To address the new market realities and to sustain the economy's long-term health, it should bolster recent measures that help lenders recover dishonored checks and assets from indebted companies. In particular, the government should clarify the mandate of the Asset Reconstruction Company of India, established recently by a consortium of banks, by giving the company a more active role in debt restructuring and recovery. Foreign institutions must also be allowed to invest in such ventures. Moreover, the government should encourage the sale of nonperforming loans by allowing foreign banks to purchase them and by making these transactions exempt from stamp duty.

Enforce measures protecting intellectual property. Over the past decade, the evolution of knowledge sectors such as pharmaceuticals, biotech, and IT services has been phenomenal. The patent law passed earlier this year will augment their growth. Now the government should enforce IP protection measures effectively and expeditiously; only then can India promote creativity and innovation and sustain its cultural, scientific, and technological development. To improve the protection of IP, India should also align its patent regime with global standards in order to prevent the sharing of proprietary information in areas such as data exclusivity and to improve the overall capacity and quality of the infrastructure and resources in the country's patent offices.

Labor reform. To increase exports of manufactured goods rapidly, the government must permit the free use of contract labor for all work and repeal a law forcing companies with more than 100 workers to obtain state approval before cutting jobs. In tandem, India's labor benefits should be extended to all workers, not just those in the organized sector.3 Reform legislation should also consider establishing safety nets and policies that ease the retraining of workers. Simplifying labor laws could unleash unprecedented levels of foreign direct investment and foster brisk growth in light-manufacturing industries, such as toys, leather, shoes, textiles, and apparel, where India's cost advantage and skilled workforce should help it become a strong global presence.

Privatization. In India as in other countries, selling state assets is controversial, but the government must build on its success in privatizing Indian Petrochemicals, Hindustan Zinc, Bharat Aluminium, and the international telecommunications service provider Videsh Sanchar Nigam, among others. To manage political opposition, the government might consider creating a trust or special-purpose vehicle to act as a holding entity, much as Singapore's Temasek does. After the assets have been transferred, the holding company could be taken public, effectively diluting the state's share in the companies (without privatizing them) and releasing them from statutes applying to the public sector. As long as these companies, representing 60 percent of the country's capital stock, remain in the state's hands, their full potential will not be realized. Proceeds from the sales could also be used to bring down the public deficit.

After more than four decades as a closed economy and 14 years of reform, India has ascended the world stage and laid the groundwork for rapid growth. Low interest rates have also provided a lift for the economy. If policy makers continue on the path of economic reformwith a focus on increasing demand and competitionthe flow of foreign direct investment to India will most likely increase, helping it to harness the immense potential of its young and educated workers. The foundation is in place for the economy to grow by 10 percent a year, but further effort and unwavering commitment are needed for India to emerge as an undisputed global economic leader.

SOURCE : Mckinsey
53

Futures contracts perform two important functions: price discovery and hedging of price risk in a commodity . In international bourses traders can also use financial instruments like call and put options,not yet allowed in India.Futures contracts are useful for the producer because he can get an idea of the price likely to prevail and thereby help them quote a realistic price and hedge risk.
In which commodities is futures trading allowed ?
Presently, future trading is permitted in 41 commodities, viz pepper (domestic and international), turmeric, gur, castorseed, hessian, jute, sacking, cotton, potato, castoroil (international), soyabean (oil and cake), kapas, RBD palmalein, sugar and tea. There are 18 commodity exchanges in India. Futures trading in wheat and rice is banned .But government is examining futures trading in onion, rubber, chillies, linseed, gram and bullion.
Why are unofficial exchanges still popular?
Most unofficial exchanges have operated for decades and built up a reputation for integrity and liquidity. Some unofficial markets markets trade 20-30 times the volume of official exchanges. Usually located close to the official exchange, they offer not only futures but also option contracts. Trasaction costs are low, which attracts speculators and small hedgers
What are commodity futures?
Futures contracts perform two important functions: price discovery and hedging of price risk in a commodity . In international bourses traders can also use financial instruments like call and put options,not yet allowed in India.Futures contracts are useful for the producer because he can get an idea of the price likely to prevail and thereby help them quote a realistic price and hedge risk.
Must a commex be located in region producing its commodity?
This is a misconception. The world sugar market is located in London, which does not produce any sugar. An exchange needs to be located at the trading hub to get volumes. With modern online exchanges ,the location is anyway of little importance.
Is physical delivery nesssary when the contract matures?
In theory yes. But physical delivery requires stringent application of unanimously approve quality standards by the exchange and a large and credible warehousing system to ensure buyers are not cheated. Indian commexs have yet to accomplish this.
Is there a watchdog to oversea commodity exchanges?
Forward markets commission under food and consumer affairs ministry acts as a regulator . FMC decides on the introduction of new commodities, and allowing exchanges to increase product portfolio. However it lacks both powers and expertise to ensure that commexs are transparent and well managed. Lack of credibility of management, price manipulation and out of books deals are important reasons for industry's poor image.
Why are some like Kochi pepper exchange or Bangalore coffee exchange struggling?
Commexs are only successful when the quantities of a commodity being traded are sufficient large, and there is a genuine need for price discovery and risk management . Unfortunately .in India most commodities lack one of the two. India's share of world trade is too small (as in coffee and pepper )to generate sufficiently large volumes. Or domestic trade is driven by prices on international bourses like Chicago, London and Kuala Lumpur as in case of editable oils or sugar. Traders do not need local commexs when future prices are determined internationally.
Is a national multi-commodity exchange necessary?
Instead of a large nation-wide commodity market, India has isolated regional commodity markets. In parallel with underlying cash markets. In parallel with underlying cash markets ,Indian commodity futures too are dispersed and fragmented, with separate trading commodities in different regions and with little contact with one another. The exchanges have acknowledged they need new technologies ,and modern and transparent methods of doing business. But management often have difficulties convincing their membership. A new national ,on-line multi-commodity exchange may fill this lacunae.
54
Oil prices rise

In the face of rising oil prices, OPEC temporarily suspended its oil-output quotas for the fourth quarter. But the move, intended to reassure markets, is unlikely to affect prices very much. Meanwhile, markets were watching the next big storm, Hurricane Rita, a category 5 storm that was expected to hit America's Gulf coast at the weekend. The price of crude shot to near $68 a barrel in New York. Stocks fell as oil companies shut refineries and evacuated their workers in the Gulf.
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In its semi-annual World Economic Outlook, the IMF raised its oil-price forecast for 2006 to $61.75 per barrel from $43.75 per barrel previously. Some governments may need to adjust consumption subsidies, the IMF said.
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Seeking more speed and flexibility in the face of nimble rivals, Microsoft announced a restructuring that will realign its seven business units into three big divisions, each with its own president. The big software firm, embarrassed by the delayed release of a new version of its Windows operating system, has been stung by charges that it is too bureaucratic. Meanwhile, Microsoft and AOL both said they will offer Internet phone services.
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Sony revamp
Sony announced that it will cut 10,000 jobs or roughly 7% of its global workforce, in an effort to restore the company's profitability. The company will also close or sell 11 of its 65 manufacturing plants. Sony shares have lost two-thirds of their value over the last five years, as the company has struggled to keep pace with new developments in portable music and flat-screen televisions. The restructuring follows the appointment in March of Sir Howard Stringer, as the group's first foreign chief executive.
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In a further sign of the tough climate for white-collar criminals in America, the former chief executive and finance officer of Tyco International were sentenced to up to 25 years in prison. Dennis Kozlowski and Mark Swartz had been found guilty in June of grand larceny, securities fraud and other charges. The sentencing appears to extend a trend that has also resulted in long prison terms for officials at WorldCom and Adelphia Communications.
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The former president of Hollinger International struck a plea bargain with American prosecutors. David Radler, once a key advisor to Conrad Black, pleaded guilty to mail fraud and agreed to testify against others in the case. He agreed to a 29-month prison sentence and a $250,000 fine. Six other charges were dropped.
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An American judge approved legal settlements that will return more than $6.1 billion to investors who lost money in the WorldCom accounting scandal. About 830,000 people and institutions will benefit. The money will come from a variety of defendants. Citigroup and J.P. Morgan Chase, which underwrote or traded WorldCom securities, will each pay $2 billion or more.
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Goldman Sachs said its third-quarter earnings surged by 84% from a year earlier, to a record $1.6 billion. Returns in trading and investment banking were especially good. The firm also announced a $7.1 billion stock buyback, which Thomson Financial called the largest yet among investment banks.
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Not everyone on Wall Street did so well. Morgan Stanley posted higher quarterly earnings before a $1 billion charge for the sale of its aircraft-leasing business, but net profit for the quarter fell 83%. The investment firm was also hit by an increase in severance costs for ex-managers.
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Fee cuts
British fund managers could find themselves in a price war after Fidelity slashed annual management fees on its main index-tracking fund. The big fund-management group cut the charge on its 277m ($498m) FTSE All-Share tracker fund to 0.1% from 0.5%.
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Kate Moss, a British model, lost several advertising contracts after a photo of her allegedly sniffing cocaine appeared in a newspaper. H&M;, a Swedish retailer, was the first to drop Ms Moss, swiftly followed by Burberry and Chanel.
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Gazprom, the Russian gas monopoly, borrowed $12 billion from western banks, reportedly to take over Sibneft. If completed it would be Russia's biggest takeover. Gazprom shares rose on the news.
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America's Federal Reserve raised interest rates for the 11th consecutive time, citing risks of inflation. The short-term interest-rate target was bumped up to 3.75% from 3.5%. The Fed indicated that it expects to continue raising the rate at a "measured" pace. Inflation worries apparently overshadowed the concerns that devastation from Hurricane Katrina might have dampened growth in the country's economy.
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SOURCE : Economist
55

Nice articles....

56
badshahkhan Says
Nice articles....


They ought to be nice since they are being posted by TEESRA BANDA

Just kidding !!!

I enjoy reading these articles and posting them...so they will b coming ....

Thanx !!!
57

hey badshah

the article is really just fine !

u had a great job! i loved the content !

just keep it up

Regards
-S A U R A B H

58

An interesting piece of news about Commodity Trading. A new entrant christened Emission Trading/Carbon Trading.

Source: Citigroup

PS: Hey Mods its a 360KB file n Iam eating up on that space. Probably the attachment could be removed after sometime.

59
hey badshah

the article is really just fine !

u had a great job! i loved the content !

just keep it up

Regards
-S A U R A B H


Saurabh its teesra banda who is posting the articles 😃
60
hey badshah

the article is really just fine !

u had a great job! i loved the content !

just keep it up

Regards
-S A U R A B H


i thot i was posting the articles !!!

Yehi haal hota hai jab bina pura thread dekhe ya padhe ppl reply

hey S A U R A B H nothing against u !!! just kidding....

Enjoy the articles