Impact of Monetary Policy on Indian Industry

Impact of Monetary Policy on Indian Industry INTRODUCTION Monetary Policy is essentially a Monetary Policy is essentially a programme of action undertaken by the programme of action undertaken by the Monetary Authorities, generally the Monetary Authorities, generally the Central Bank, to control and regulate the Central Bank, to control and regulate the supply of money with the public and the supply of money with the public and the flow of credit with a view to achieving flow of credit with a view to achieving pre-determined macro-economic goals. At the time of inflation monetary policy seeks to contract aggregate spending by seeks to contract aggregate spending by tightening the money supply or raising tightening the money supply or raising the rate of return. OBJECTIVES To achieve price stability by controlling inflation and deflation. To promote and encourage economic growth in the economy. To ensure the economic stability at full employment or potential level of output. SCOPE OF MONETARY POLICY The scope of monetary policy depends on two factors: 1. Level of Monetization of the Economy In this all economic transactions are carried out In this all economic transactions are carried out with money as a medium of exchange. This is with money as a medium of exchange. This is done by changing the supply of and demands for done by changing the supply of and demand for money and the general price level. It is capable money and the general price level. It is capable of affecting all economics activities such as of affecting all economics activities such as Production, Consumption, Savings, Investment Production, Consumption, Savings, and Investment etc. 2. Level of Development of the Capital Market Some instruments of Monetary Policy are work through capital market such as Cash Reserve Ratio (CRR) etc. When capital market is fairly developed then the Monetary Policy effects the developed economies. OPEN MARKET OPERATIONS The open market operations is sale and purchase of government securities and Treasury Bills by the central bank of the country. When the central bank decides to pump money into circulation, it buys back the government securities, bills and bonds. When it decides to reduce money in circulation it sells the government bonds and securities. The central bank carries out its open market operations through the commercial banks. DISCOUNT RATE OR BANK RATE POLICY Discount rate or bank rate is the rate at which central bank rediscounts the bills of exchange presented by the commercial bank. The central bank can change this rate increase or decrease depending on whether it wants to expand or reduce the flow of credit from the commercial bank. WORKING OF THE DISCOUNT RATE POLICY A rise in the discount rate reduces the net worth of the government bonds against which commercial banks borrow funds from the central bank. This reduces commercial banks to borrow from the central bank. When the central bank raises its discount rate, commercial banks raise their discount rate too. Rise in the discount rate raises the cost of bank credit which discourages business firms to get their bill of exchange discounted. CASH RATE RATIO The cash reserve ratio is the percentage of total deposits which commercial banks are required to maintain in the form of cash reserve with the central bank. The objective of cash reserve is to prevent shortage of cash for meeting the cash demand by the depositors. By changing the CRR, the central bank can change the money supply overnight. When economic conditions demand a contractionary monetary policy, the central bank raises the CRR. And when economic conditions demand monetary expansion, the central bank cuts down the CRR. STATUTORY LIQUIDITY REQUIREMENT In India, the RBI has imposed another reserve requirement in addition to CRR. It is called statutory liquidity requirement. The SLR is the proportion of the total deposits which commercial banks are statutorily required to maintain in the form of liquid assets in addition to cash reserve ratio. CREDIT RATIONING When there is a shortage of institutional credit available for the business sector, the large and financially strong sectors or industries tend to capture the lions share in the total institutional credit. As a result the priority sectors and essential are of necessary funds. Below two measures are generally adopted: Imposition of upper limits on the credit available to large industries and firms. Charging a higher or progressive interest rate on the bank loans beyond a certain limit. CHANGE IN LENDING MARGINS The banks provide loans only up to certain percentage of the value of the mortgaged property. The gap between the value of the mortgaged property and amount advanced is called Lending Margin. The central bank is empowered to increase the lending margin with a view to decrease the bank credit. MORAL SUASION The moral suasion is a method of persuading and convincing the commercial banks to advance credit in overall economic interest of the country. Under this method the central bank writes letter to hold meetings with the banks on money credit matters. EXPANSIONARY POLICY / CONTRACTIONARY POLICY An Expansionary Policy increases the total supply of money in the economy while a Contractionary Policy decreases the total money Supply into the market. Expansionary policy is traditionally used to combat a recession by lowering interests rates. Lowered interest rates means lower cost of credit which induces people to borrow and spend thereby providing steam to various industries and kick start a slowing economy. A Contractionary Policy results in increasing interest rates to combat inflation. An Economy growing in an uninhibited manner leads to inflation. Hence increasing interest rates increase the cost of credit thereby making people borrow less. Due to lesser borrowing the amount of money in the system reduces which in turn brings down the inflation. A Contractionary Policy is also known as TIGHT POLICY as it tightens the flow of money in order to contain Inflationary forces. INCREASE OR DECREASE THE LENDING RATES The RBI makes an adjustment in its lending rate (Repo Rates) in order to influence the cost of credit. Thereby discouraging borrowing and hence reduces brings reduction in the system. RBI BANK Flow of Money Leading to reduced liquidity By increasing interest rates Whenever the liquid in the system increases, the RBI intervenes to stabilize the system. The Central Bank does this by issuing fresh bonds and treasury bills in open market. This tool was extensively used at the time when dollar inflows into our economy were very high resulting in rupee appreciating. In order to stabilize the exchange rates, RBI first bought additional dollars thereby stabilizing the rate exchange. RBI Freshly issued Bonds/ T- Bill Open market Open market CRR By increasing the CRR, the RBI decreases the lending capacity of the bank to the extent of the increase in the ratio increase in the ratio. E.g. of the CRR is increased from 7.5% to 8.5% the banks were deprived of lending to the extent of 75 basis points of their deposit value. MONETARY POLICY OF INDIA OVERVIEW Historically, the Monetary Policy is announced twice a year April-September and (October-March). The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy. The Monetary policy determines the supply of money in the economy and the rate of interest charged by banks. The policy also contains an economic overview and provides future forecasts. The Reserve Bank of India is responsible for formulating and implementing Monetary Policy. The Monetary Policy aims to maintain price stability, full employment and economic growth. Emphasis on these objectives have been changing time to time depending on prevailing circumstances. For explanation of monetary policy, the whole period has been divided into 4 sub periods: Monetary policy of controlled expansion (1951 to 1972)1972) Monetary Policy during Pre Reform period (1972 to 1991)to 1991) Monetary Policy in the Post-Reforms (1991 to 1996)1996) Easing of Monetary policy since Nov 1996 MONETARY POLICY OF INDIA Monetary policy of controlled expansion (1951 to 1972) To regulate the expansion of money supply and bank credit to promote growth. To restrict the excessive supply of credit to the private sector so as to control inflationary pressures. Following steps were taken: Changes in Bank Rate from 3% in 1951 to 6% in 1965 and it remained the same till 1971. Changes in SLR from 20% in 1956 to 28% in 1971 Select Credit Control: In order to reduce the credit or bank loans against essential commodities, margin was increased. As a result of the above changes, the supply of money increased from 3.4% (1951 to 1956) to 9.1 (1961 to 1965). Monetary Policy during Pre Reform period (1972 to 1991) Also known as the Tight Monetary policy: Price situation worsened during 1972 to 1974. Following Monetary Policy was adopted in 70s and 80s which were mainly concerned with the task neutralizing the impact of fiscal deficit and inflationary pressure. Changes in CRR to the legally maximum limit of 25% Changes in SLR also to the maximum limit to 38.5% Monetary Policy in the Post-Reforms 1991 to 1996 The year 1991-1992 saw a fundamental change in the institutional framework in setting the objective of monetary policy. It had twin objectives which were Price stability and economic growth. Following instruments were used: Continuing the same maximum CRR and SLR of 25% and 38.5%, mopped up bank deposits to the extent of 63.5%. In order to ensure profitability of banks, Monetary Reforms Committee headed by late Prof. S Chakravarty, Reforms Committee headed by late Prof. S Chakravarty, recommended raising of interest rate on Government recommended raising of interest rate on Government Securities which activated Open Market Operations (OMO). Bank rate was raised from 10% in Apr 1991 to 12% in Oct 1991 to control the inflationary pressures. Easing of Monetary policy since Nov 1996 In 1996-97, the rate of inflation sharply declined. In the later half 1996-97, industrial recession ripped the Indian economy. To encourage the economic growth and to tackle the recessionary trend, the RBI growth and to tackle the recessionary trend, the RBI eased its monetary policy. Introduction of Repo rate- Repo rate increased from 3% in 1998 to 6.5% in 2005. This instrument was 3% in 1998 to 6.5% in 2005. This instrument was consistently used in the monitory policy as a result of rapid industrial growth during 2005-06. In the current monetary policy, the Repo rate was cut from current monetary policy, the Repo rate was cut from 5.00% to 4.75%. Reverse Repo rate Through RRR, the RBI mops up liquidity from the banking system. In the current monetary policy, the Repo rate was cut from 3.50% to 3.25%. Flow of credit to Agriculture The flow of credit to agriculture has increased from 34,013 (9.2% of overall credit) in 2009 (Rs. in crore). Reduction in Cash Reserve Ratio The CRR which was at 15% until 1995 gradually reduced to 5% in 2005. The CRR remained unchanged in the current monetary policy. Lowering Bank rate The Bank rate was gradually reduced from 12% in 1997 to 6% in 2003. Since then the Bank Rate from 12% in 1997 to 6% in 2003. Since then the Bank Rate has remained unchanged to 6%. Review of 2009/10 Monetary policy The Policy Review projects GDP growth at 6% this FY due to slackening private consumption and investment demand. The RBI set its inflation projection for March 10 at 4% (currently at -1.21%). The RBI also projects the CPI to come down into the single digit zone. Assurance of a non-disruptive borrowing in 2009-10. Recently, the Government increased the borrowing plan from Rs. 2.41 lakh crore to 2.99 Lakh crore because of ample liquidity in the market due to slow credit growth. The fiscal stimulus packages of the Government and monetary easing and regulatory action of the Reserve Bank have helped to arrest the moderation in growth and keep our financial markets functioning normally. RBIs Indicative Projections 2009-2010 (Actual Numbers) 2010-2011 (April 2010 policy targets) GDP 7.2 8 (with an upward bias) Inflation (Based on WPI for March end) 9.9 5.5 Money Supply (March end) 17.3 17 Credit (March end) 17 20 Deposit (March end) 17.1 18 GROWTH RBIs revised growth rate is 8% with an upward bias as the indian economy is on recovery path. Growth in industrial sector and service sector are expected to continue. The export and import sector has also registered a strong growth. INFLATION Inflation is projected to be at 5.5% for FY 2010-11. As per RBI inflation is no longer driven by supply side factors alone. Overall demand pressures on inflation are also beginning to show signs, pushing RBI to increase rates even before the official policy of 2010. MONETARY MEASURES The Bank rate has been retained at 6 %. The repo rate is now 5.25% which has 5% in 2009-2010. The reverse repo has increased from 3.5% to 3.75%. The cash reserve ratio of scheduled bank has increased from 5.75% to 6%. The expected outcomes of the actions are: Inflation will be contained and inflationary expectations will be anchored. The recovery process will be sustained. Government borrowing requirements and the private credit demand will be met. Policy instruments will be further aligned in a manner consistent with the evolving state of the economy. IMPACT OF THE OUTCOMES Growth with stability The average growth rate of the Indian economy over a period of 25 years since 1980-81 has been impressive at about 6.0 per cent, which is a significant improvement over the previous three decades, when the annual growth rate was only 3.5 per cent. Over the last four years during 2003-07, the Indian economy has entered a high growth phase, averaging 8.6 per cent per annum. The acceleration of growth during this period has been accompanied by a moderation in volatility, especially in industry and services sectors. An important characteristic of the high growth phase of over a quarter of century is resilience to shocks and considerable degree of stability. We did witness one serious balance of payments crisis triggered largely by the Gulf war in the early 1990s. Credible macroeconomic, structural and stabilization programme was undertaken in the wake of the crisis. The Indian economy in later years could successfully avoid any adverse contagion impact of shocks from the East Asian crisis, the Russian crisis during 1997-98, sanction like situation in post-Pokhran scenario, and border conflict during May-June 1999. Seen in this context, this robust macroeconomic performance, in the face of recent oil as well as food price shocks, demonstrates the vibrancy and resilience of the Indian economy. The Reserve Bank projects a real GDP growth at around 8.5 per cent during 2007-08, barring domestic and external shocks. Poverty and unemployment The sustained economic growth since the early 1990s has also been associated with noticeable reduction in poverty. The proportion of people living below the poverty line (based on uniform recall period) declined from 36 per cent in 1993-94 to 27.8 per cent in 2004-05. There is also some evidence of pick-up in employment growth from 1.57 per cent per annum (1993-94 to 1999-2000) to 2.48 per cent (1999-2000 to 2004-05). Consumption and investment demand Indias growth in recent years has been mainly driven by domestic consumption, contributing on an average to almost two-thirds of the overall demand, while investment and export demand are also accelerating. Almost one-half of the incremental growth in real GDP during 2006-07 was on account of final consumption demand, while around 42 per cent was on account of the rise in real gross fixed capital formation. The investment boom has come from the creation of fixed assets and this phenomenon has been most pronounced in the private corporate sector, although fixed investment in the public sector also picked up in this period. According to an estimate by the Prime Ministers Economic Advisory Council, the investment rate (provisional) crossed 35 per cent in 2006-07 from 33.8 per cent in 2005-06. A reasonable degree of price stability High growth in the last four years has been accompanied by a moderation of inflation. The headline inflation rate, in terms of the wholesale price index, has declined from an average of 11.0 per cent during 1990-95 to 5.3 per cent during 1995-2000 and to 4.9 per cent during 2003-07. The trending down of inflation has been associated with a significant reduction in inflation volatility which is indicative of well-anchored inflation expectations, despite the shocks of varied nature. Although, inflation based on the wholesale price index (WPI) initially rose to above 6.0 per cent in early April 2007 it eased to 3.79 per cent by August 25, 2007. Pre-emptive monetary measures since mid-2004, accompanied by fiscal and supply-side measures, have helped in containing inflation in India. The policy preference for the period ahead is strongly in favour of price stability and well-anchored inflation expectations with the endeavour being to contain inflation close to 5.0 per cent in 2007-08 and in the range of 4.0-4.5 per cent over the medium-term. Monetary policy in India would continue to be vigilant and pro-active in the context of any accentuation of global uncertainties that pose threats to growth and stability in the domestic economy. Improved fiscal performance Yet another positive outcome of developments in recent years is the marked improvement in the health of Government finances. The fiscal management in the country has significantly improved consistent with targeted reduction in fiscal deficit indicators after the adoption of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 by the Central Government. The finances of the State Governments have also exhibited significant improvement since 2003-04 guided by the Fiscal Responsibility Legislations (FRLs). With gross fiscal deficit of the Central Government budgeted at 3.3 per cent of GDP in 2007-08, the FRBM target of 3.0 per cent by 2008-09 appears feasible. The revenue deficit is budgeted at 1.5 per cent of GDP for 2007-08; the FRBM path envisages elimination of revenue deficit in 2008-09. External sector Indias linkages with the global economy are getting stronger, underpinned by the growing openness of the economy and the two way movement in financial flows. Merchandise exports have been growing at an average rate of around 25 per cent during the last four years, with a steady increase in global market share, reflecting the competitiveness of the Indian industry. Structural shifts in services exports, led by software and other business services, and remittances have imparted stability and strength to Indias balance of payments. The net invisible surplus has offset a significant part of the expanding trade deficit and helped to contain the current account deficit to an average of one per cent of GDP since the early 1990s. Gross current receipts (merchandise exports and invisible receipts) and gross current payments (merchandise imports and invisible payments) taken together, at present, constitute more than one half of GDP, highlighting the significant degree of integration of the In dian economy with the global economy. Greater integration into the global economy has enabled the Indian corporates to access high-quality imports from abroad and also to expand their overseas assets, dynamically. The liberalised external payments regime is facilitating the process of acquisition of foreign companies by Indian corporates, both in the manufacturing and services sectors, with the objectives of reaping economies of scale and capturing offshore markets to better face the global competition. Notwithstanding higher outflows, there has been a significant increase in capital inflows (net) to almost five per cent of GDP in 2006-07 from an average of two per cent of GDP during 2000-01 to 2002-03. Capital inflows (net) have remained substantially above the current account deficit and have implications for the conduct of monetary policy and macroeconomic and financial stability. With the significant strengthening of the current and capital accounts, the foreign exchange reserves have more than doubled from US$ 76 billion at the end of March 2003 to US $ 228.8 billion as on August 31, 2007. Financial stability The Indian record on financial stability is noteworthy as the decade of the 1990s has been otherwise turbulent for the financial sector in many EMEs. The approach towards the financial sector in India has been to consistently upgrade it by adapting the international best practices through a consultative process. The Reserve Bank has endeavoured to establish an enabling regulatory framework with prompt and effective supervision, and development of legal, technological and institutional infrastructure. The regulatory norms with respect to capital adequacy, income recognition, asset classification and provisioning have progressively moved towards convergence with the international best practices. The Basel II capital adequacy framework is being implemented in a phased manner with effect from March 2008. We have observed that the Indian banks balance sheets have strengthened considerably, financial markets have deepened and widened and, with the introduction of the real time gross settlements (RTGS) system, the payment system has also become robust. Currently, all scheduled commercial banks are compliant with the minimum capital adequacy ratio (CRAR) of 9 per cent. The overall CRAR for all scheduled commercial banks stood at 12.4 per cent at end-March 2006. The gross non-performing assets of scheduled commercial banks has declined from 8.8 per cent of advances at end March 2003 to 3.3 per cent at end March 2006, while the net non-performing assets have declined from 4.0 per cent to 1.2 per cent during the same period. Financial markets Development of financial markets received a strong impetus from financial sector reforms since the early 1990s. The Reserve Bank has been engaged in developing, widening and deepening of money, government securities and foreign exchange markets combined with a robust payments and settlement system. A wide range of regulatory and institutional reforms were introduced in a planned manner over a period to improve the efficiency of these financial markets. These included development of market micro structure, removal of structural bottlenecks, introduction/ diversification of new players/instruments, free pricing of financial assets, relaxation of quantitative restrictions, better regulatory systems, introduction of new technology, improvement in trading infrastructure, clearing and settlement practices and greater transparency. Prudential norms were introduced early in the reform phase, followed by interest rate deregulation. These policies were supplemented by strengthening of institut ions, encouraging good market practices, rationalised tax structures and enabling legislative and accounting framework. A review of monetary policy challenges The conduct of monetary policy has become more challenging in recent years for a variety of reasons. Many of the challenges the central banks are facing are almost similar which could be summarized as follows: Challenges with globalisation First, globalisation has brought in its train considerable fuzziness in reading underlying macroeconomic and financial developments, obscuring signals from financial prices and clouding the monetary authoritys gauge of the performance of the real economy. The growing importance of assets and asset prices in a globally integrated economy complicates the conduct of monetary policy when it is focused on and equipped to address price stability issues. Second, with the growing integration of financial markets domestically and internationally, there is greater activism in liquidity management with a special focus on the short-end of the market spectrum. There is also a greater sophistication in the conduct of monetary policy and central banks are consistently engaged in refining their technical and managerial skills to deal with the complexities of financial markets. As liquidity management acquires overriding importance, the evolving solvency conditions of financial intermediaries may, on occasions, get obscured in the short run. No doubt, with increasing globalization, there is greater coordination between central banks, fiscal authorities and regulatory bodies governing financial markets. Third, there is considerable difficulty faced by monetary authorities across the world in detecting and measuring inflation, especially inflation expectations. Recent experience in regard to impact of increases in oil prices, and more recently elevated food prices shows that ignoring the structural or permanent elements of what is traditionally treated as shocks may slow down appropriate monetary policy response especially if the focus is on core inflation. Accounting for house rents/prices in inflation measurement has also gained attention in some countries. The central banks are often concerned with the stability/variability of inflation rather than the level of prices. Inflation processes have become highly unclear and central banks are faced with the need to recognise the importance of inflation perceptions and inflation expectations, as distinct from inflation indicators. In this context, credible communication and creative engagement with the market and economic agents have eme rged as a critical channel of monetary transmission. Challenges for emerging market economies It is essential to recognize that the international financial markets have differing ways of judging macroeconomic developments in industrial and emerging market economies. Hence, the challenges and policy responses do differ. First, the EMEs are facing the dilemma of grappling with the inherently volatile increasing capital flows relative to domestic absorptive capacity. Consequently, often the impossible trinity of fixed or managed exchange rates, open capital accounts and discretion in monetary policy has to be managed in what could be termed as fuzzy manner rather than satisfactorily resolved a problem that gets exacerbated due to huge uncertainties in global financial markets and possible consequences in the real sector. Second, in the emerging scenario of large and uncertain capital flows, the choice of the instruments for sterilization and other policy responses have been constrained by a number of factors such as the openness of the economy, the depth of the domestic bond market, the health of the financial sector, the health of the public finances, the countrys inflationary track record and the perception about the credibility and consistency in macroeconomic policies pursued by the country. Further deepening of financial markets may help in absorption of large capital inflows in the medium term, but it may not give immediate succour at the current stage of financial sector development in many EMEs, particularly when speed and magnitude of flows are very high. Some of the EMEs are also subject to adverse current account shocks in view of elevated commodity prices. Going forward, global uncertainties in financial markets are likely to dominate the concerns of all monetary authorities, but, for the EMEs, the consequences of such macro or financial disturbances could be more serious. Third, the banking sector has been strengthened and non-banking intermediation expanded providing both stability and efficiency to the financial sector in many EMEs. Yet, sometimes, aligning the operations of large financial conglomerates and foreign institutions with local public policy priorities remains a challenge for domestic financial regulators in many EMEs. Further, reaping full benefits of competition in financial sector is somewhat limited in many EMEs. Large players in developed economies compete with each other intensely, while it is possible that a few of them dominate in each of the EMEs financial markets. A few of the financial intermediaries could thus wield dominant position in the financial markets of these countries, increasing the concentration risk. While it is extremely difficult to envision how the current disturbances in financial markets will resolve, the focus of many EMEs will be on considering various scenarios and being in readiness with appropriate policy strategies and contingency plans. Among the factors that are carefully monitored, currency markets, liquidity conditions, globally dominant financial intermediaries, impact on real sector through credit channel and asset prices are significant, but the list is certainly not exhaustive. Monetary policy framework in India Objectives The basic objectives of monetary policy, namely price stability and ensuring credit flow to support growth, have remained unchanged in India, but the underlying operating framework for monetary policy has undergone a significant transformation during the past two decades. The relative emphasis placed on price stability and economic growth is modulated according to the circumstances prevailing at a particular point in time and is clearly spelt out, from time to time, in the policy statements of the Reserve Bank. Of late, considerations of macroeconomic and financial stability have assumed an added importance in view of increasing openness of the Indian economy. Framework In India, the broad money (M3) emerged as the nominal anchor from the mid-1980s based on the premise of a stable relationship between money, output and prices. In the late 1990s, in view of ongoing financial openness and increasing evidence of changes in underlying transmission mechanism with interest rates and exchange rates gaining in importance vis-Ã  -vis quantity variables, it was felt that monetary policy exclusively based on the demand function for money could lack precision. The Reserve Bank, therefore, formally adopted a multiple indicator approach in April 1998 where

Abortion :: essays research papers

Glasgow, Scotland. It's cold outside. I'm thinking about a problem. One group of people trying to force their beliefs on others, based on religion. And it seems as though we're regressing. Above, a helicopter flies by. If it continues on its course, it will shortly be over Ireland, where as of this writing, the powers that be are deciding if a 14-year-old girl who was raped by the father of one of her friends should be allowed to leave for Britain to obtain an abortion. She's been ordered not to leave the country for nine months. Fourteen years old. Raped. The issue of an unborn fetus takes on more importance than the fact that the rapist walks free. Extreme, but this is a place where the church influences the government. And when I think of the movements concerning abortion in the United States, it definitely seems as though we're regressing. "My body's nobody's body but mine... You run your own body, let me run mine." At the University of San Diego a few years ago, pro-lifers gathered, while pro-choicers chanted the above. Sides clashed and tension ran high. A banner equating pro-choice ideology with Nazism and Hitler was displayed. "Baby Killers," a little red stop sign said -- a sign held by a well-dressed 3-year-old who sat atop the shoulders of his upper-middle class father. The kid looked confused and frightened. The ominous presence of armed police on horseback would be enough to upset anyone. And I wondered how this child got pulled into this? I wondered how any of us got pulled into this. The fact is that those people handing down decisions on the abortion issue are not the ones who will have to live or die by it. Ten years old. That's the age my child would have been. And I would not be here in Glasgow. I wouldn't be in this band or traveling. And I wouldn't have seen the liberal ways in which other countries we have visited deal with this issue. I wouldn't have been asked to write this piece. The fact that I've been through it on all levels is the only reason I accepted. Perhaps I'll have a child in the future, when I can provide properly. Who knows. But as individuals in this "free" country, we must have the right to choose when that time is right. A couple -- perhaps 15 or 16 years old, maybe 10 years older -- is faced with an unwanted pregnancy; it makes no difference if there is no means of support.

Human Nature: Self-Interest & Altruism

Human Nature: Self-Interest vs. Altruism A debate encompassing human nature has carried on for centuries, and philosophers throughout history have provided a vast inventory of explanations they deem to be sufficient in understanding the perplex idea of human nature. A question commonly debated regarding human nature is determining whether human beings are naturally self-interested or altruistic. Political philosophers Bernard Mandeville and Francis Hutcheson specifically addressed this question, but each arrived at different conclusions based on personal observation and reasoning.Mandeville, influenced by Hobbesian thought, advocated the belief that human beings were naturally self-interested. Opposing the idea of self-interest, Francis Hutcheson attacked Mandeville’s notion and reasoned that human beings were inherently altruistic. Although both sets of ideals originated in the early 18th century, both can be utilized to infer about current events and situations (Tannenbaum & Schultz, 2004). Dutch political philosopher Bernard Mandeville, author of The Fable of the Bees or Private Vice Publik Benefits, attacked a common notion for the time that human beings were naturally altruistic.Mandeville believed that humans were naturally self-interested while most thought of altruism as virtuous and self-interest as vice. He stated that empirical evidence supporting human altruism was non-existent, and it is selfish actions that benefit society. Society that runs on altruism and benevolence is a stagnant society that fails to progress. In Mandeville’s The Fable of the Bees, he emphasizes that when people seek self interests, comforts and pleasures, society inevitably progresses with occurences of new inventions and a circulation of capital.According to Mandeville, a benevolent society is an honest one, â€Å"but if they would likewise enjoy their Ease and the Comforts of the World, and be at once opulent, potent and flourishing† as well as a self-i nterested society, it is likely impossible (Kaye, 1989). Likewise, a self-interested society experiences invisible cooperation, in which greed leads to cooperation if property is sufficiently channeled. The Fable of the Bees is also considered a political satire of England during the time, and Mandeville describes a society having virtues along with ontent and honesty. The society mentioned lacks self-love, a Hobbesian idea that Mandeville emphasizes as a barrier to progress. Virtues held by such a society are hypocrisy that arise from a selfish desire to be superior. While Mandeville concludes his essay with statements expressing that the purpose of his essay was not to directly oppose Christian values, he states that modern honor â€Å"bids you bear injuries with patience†, but religion â€Å"tells you if you don’t resent them, you are not fit to live† (1989).Finally, Mandeville concludes his thoughts rejecting altruism, and emphasizes that â€Å"the seeds of every passion are innate to us, and nobody comes into the world without them† (1989, 2004). A political philosopher during the Scottish Enlightenment, Francis Hutcheson opposed Mandeville’s Hobbesian view that humans are naturally self-interested. He advocated the notion that human beings are naturally altruistic and benevolent. While declaring these attributes as factual about human nature, Hutcheson also stressed the importance and success such qualities have on society.He believed humans are endowed with a â€Å"moral sense†, or derive pleasure from witnessing someone else perform a benevolent act and in turn have a desire to do the same. This â€Å"moral sense†, as Hutcheson describes, is a human being’s natural inclination of pursuing happiness. Hutcheson, a major contributer to the advancement of utilitarianism stated that, â€Å"regarding the pleasurable and painful consequences of actions as morally significant† provided the â€Å"f ormula that that action is best which procures the greatest happiness for the greatest numbers† (Peach, 1971).He divides what he refers to as â€Å"exciting reasons† and â€Å"justifying reasons† into functionality. He considers exciting reasons as merely an appeal to self-interest, and â€Å"have nothing to do with moral justification† (1971). Differentiating, justifying reasons â€Å"establish the virtue, moral goodness, or moral obligations of actions† (1971). This reasoning explains his opposition to Mandeville’s view that moral distinctions derive from self-interest, and declares these distinctions as undoubtedly self-determining.The basis of Hutcheson’s theory expresses that the â€Å"moral sense† tends to be consistent as long as it is not interfered with. Interfering forces such as â€Å"ignorance, mistaken belief, prejudice, or the like† are corrected and addressed by reason (1971). He concludes his statements wi th an underlying theme which states â€Å"the benevolent one is reasonable and the malicious unreasonable†, based on the approval and disapproval of one’s moral sense (1971, 2004). Although both philosophers theorized about human nature more than two centuries ago, opposition and advocation for both is seen throughout current events.For example, Mandeville’s views can be advocated by the constant confrontation between the Israelis and the Arab world, more specifically the Palestinians. Neither side will relent to the interests of the other, viewing altruism with the other as being a weakener of their own state. If the Israelis recognize Palestine as a legitimate state, they lose both land and resources, while also fearing further invasion and conflict within Israel. Numerous negotiations and attempted treaties have failed, because neither side ultimately recognizes sufficient advantages to their own state if they comply.While this situation conflicts with Hutche son’s view, a current example advocates it. Disasters such as Hurricane Katrina and 9-11 have sparked a numerous amount of community benevolence. Countless organizations and people have joined together to help those affected in the disasters recover. Hutcheson would most likely state that such expressed benevolence for others is the result of their â€Å"moral sense†, while Mandeville would describe it as merely human beings seeing an advantage for themselves by joining such an organization; possibly honorable recognition or status improvement.Clearly seen, support and opposition for both Mandeville’s and Hutcheson’s theories has divided thought on this issue still today (2004). References Kaye, F. B. & Mandeville, B (1989). The Fable of the Bees. Indianapolis, IN: Liberty Classics. Peach, B (1971). Illustrations on the Moral Sense. Cambridge, MA: Belknap Press of Harvard University Press. Tannenbaum & Schultz (2004). Inventors of Ideas. Belmont, CA: Wads worth/Thomson Learning.

Financial Market Institution - 17199 Words

19843_05_c05_p141-172.qxd 12/7/05 9:43 AM Page 141 C H APTE R 5 FINANCIAL MARKETS AND INSTITUTIONS A Strong Financial System Is Necessary for a Growing and Prosperous Economy Financial managers and investors don’t operate in a vacuum—they make decisions within a large and complex financial environment. This environment includes financial markets and institutions, tax and regulatory policies, and the state of the economy. The environment both determines the available financial alternatives and affects the outcomes of various decisions. Thus, it is crucial that investors and financial managers have a good understanding of the environment in which they operate. History shows that a strong financial system is a necessary†¦show more content†¦To make good decisions, financial managers must understand the environment and markets within which businesses operate. Therefore, in this chapter we describe the markets where capital is raised, securities are traded, and stock prices are established, as well as the institutions that operate in these markets. Because the overall objective of financial managers is to maximize shareholder value, we a lso take a closer look at how the stock market operates, and we discuss the concept of market efficiency. 1 For example, some insurance companies allowed brokers to keep premiums for as much as a year before remitting them to the insurance companies. The brokers invested these premiums and earned interest on them, and this gave them an incentive to steer business to these companies rather than to insurance companies whose policies might be better for the brokers’ clients. 19843_05_c05_p141-172.qxd 12/7/05 9:43 AM Page 143 Chapter 5 Financial Markets and Institutions 143 5.1 AN OVERVIEW OF THE CAPITAL ALLOCATION PROCESS Businesses, individuals, and governments often need to raise capital. For example, suppose Carolina Power Light (CPL) forecasts an increase in the demand for electricity in North Carolina, and the company decides to build a new power plant. Because CPL almost certainlyShow MoreRelatedFinancial Markets and Institutions3558 Words   |  15 PagesFinancial Markets and Institutions Mid-Semester Exam Revision The Flow of Fund- the financial system allows the flow of funds from surplus spending units (SSU’s) to deficit spending units (DSU’s). Providers of funds (SSU) receive a financial instrument (which stipulates the terms of the deal – i.e. amount lent, stream of future income, maturity date, etc.) issued either by the receiver of the funds (DSU) or by a financial intermediary. Direct Finance- SSU’s lend money to DSU’s and SSU’s hold aRead MoreFinancial Market And Financial Institutions1801 Words   |  8 Pagesthat change in financial market and financial institution will mark the discipline of finance over the foreseeable future and will produce new kind of institutions, markets and securities. (Fabozzi, 2002) Financial market and financial institution are playing more and more important roles in modern financial system. In general, a financial market is a mechanism for trading financial assets and securities in financial system. Financial assets are exchanged in financial markets. 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Financial markets help to efficiently direct the flow of savings and investment in the economy in ways that facilitate the accumulation of capital and the production of goods and services (Federal Reserve Bank of San Francisco, January 2005). Borrowers and