Sunday, March 22, 2020

The Metropolis Model How to Use the Sharing Economy to Create Standout Thought Leadership Content

THE METROPOLIS MODEL: HOW TO USE THE SHARING ECONOMY TO CREATE STANDOUT THOUGHT LEADERSHIP CONTENT â€Å"It’s easy to admire a thought leader; it’s much harder to become one.† —Adam Grant, Wharton professor and author of Give and Take Content creation in the sharing economy The sharing economy continues to transform nearly every sector of the global economy.   A recent McKinsey report projects that sharing economy revenues will reach $335 billion globally by 2025. Wikipedia defines the sharing economy as â€Å"peer-to-peer based sharing of access to goods and services.† Another definition describes it as â€Å"a socio-economic ecosystem built around the sharing of human, physical and intellectual resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations.† As its impact continues to grow, what does it mean for content creation? Content creation is a challenge for marketers. Statistics from Kapost show that 39% of marketers indicate coming up with ideas is difficult, and that 1 in 2 marketers say they don’t have enough ideas to fuel their content operations. The sharing economy is good news for content creation, offering rich new opportunities for engagement, dialogue, and creative insight. For marketers, the collaborative model is a content strategy resource for generating and developing genuine thought leadership. It takes a metropolis The term crowdsourcing first appeared in 2006 to reference an organization looking outside its own resources and employees for ideas and problem solving. The title of Hillary Clinton’s famous book, published ten years earlier in 1996, offers a useful metaphor for crowdsourcing: It Takes a Village. In 2016, however, it takes a metropolis. The metropolis model is a shared production model that leverages your entire peer community. In the sharing economy era, optimizing your resources and harnessing the power of your entire â€Å"metropolis† to generate thought leadership content is a key strategy for success. Applied to content creation, the metropolis model is a roadmap for utilizing the collective wisdom of your entire ecosystem—in-house resources, customer feedback, subject-matter expertise, and industry influencers—to develop standout thought leadership content. Revisiting thought leadership why it matters While thought leadership has become a marketing buzzword, it’s essential for brands whose strategy includes establishing and maintaining a thought leadership role. 43% of marketers identified thought leadership as one of the top three goals of content marketing, along with lead generation and brand awareness, in a recent LinkedIn Technology Marketing Community survey. Although it’s been said that the first rule of thought leadership is not to call it thought leadership, it’s worth revisiting the definition of the term. In their book #Thought Leadership Tweet: 140 Prompts for Designing and Executing an Effective Thought Leadership Campaign, Liz Alexander and Craig Badings offer a useful definition: â€Å"Thought leaders advance the marketplace of ideas by positing actionable, commercially relevant, research-backed, new points of view. They engage in â€Å"blue ocean strategy† thinking on behalf of themselves and their clients, as opposed to simply churning out product-focused, brand-centric white papers or curated content that shares or mimics others’ ideas.† In a conversation with Curtis Kroeker, CEO of Scripted, an online marketplace that connects businesses with writers, he defined thought leadership as â€Å"content that’s thought-provoking to people who already know a lot about that particular topic. So it’s a pretty high bar.† With the increasing importance of thought leadership as a content marketing strategy, how can you effectively meet this standard? How can you create content that offers genuinely new ideas, insight, and solutions? Using the metropolis model to develop thought leadership content The metropolis model is an effective way to tap into your entire community of talent and resources to develop thought leadership content. Using the metropolis model, you can crowdsource and collaborate with your network of in-house teams, customers, SMEs, and influencers to generate content that meets thought leadership standards. Here’s how. 1. Know the defining issues and trends Author and marketing strategy consultant Dorie Clark recommends immersing yourself in the existing industry conversation as the first step toward breaking new ground. Become conversant with the culture and current thought leadership in your industry. Be familiar with the topics, issues, research, and perspectives other experts are presenting. Armed with that knowledge, you can then start to identify what’s missing from the dialogue and where there are opportunities to contribute new thinking.   2.  Crowdsource for new ideas During the ideation phase of thought leadership content creation, your best resources are the citizens of your metropolis: your in-house teams and your customers. Kroeker says crowdsourcing is key for effective content development, and for thought leadership content in particular. â€Å"If you’re not tapping into the crowd, you’re going to miss out on perspective, expertise, and ideas,† he told us. â€Å"Even if someone is particularly well-versed in a certain area, it’s only going to be one person’s opinion. Crowdsourcing lets you tap into multiple perspectives and make for a much richer conversation and richer content creation.† Mobilize in-house teams Explain your thought leadership mission to your internal colleagues and solicit their input to develop new topics and ideas. Involve your entire team including IT, developers, analysts, designers, sales, and customer service. SMEs are another important resource for ideation. One strategy for soliciting input from SMEs is to simply ask them, â€Å"What did you do today?† Their day-to-day roles and processes involve the key issues that directly affect your customers, whether it’s technology, sales, customer service, research, or product development. Almost everything they do is content. Walk through their daily activities and the various components of their jobs to identify relevant topics. Let your team know why their participation is important. As valued in-house experts immersed in the daily workings of your business and customer interaction, their insights are essential. Set up brainstorming or gamestorming sessions that make it fun and pressure-free for everyone to contribute ideas. You can start the ideation with questions like the following: What’s missing from the industry’s current conversation? What areas are underrepresented in our current content strategy? What issues should we be covering? What are your biggest challenges, and why? What challenges and issues do you observe among our clients? What new ideas and trends are emerging in our business? You can also use tools like 15Five and Slack to help solicit relevant topics. Your role is to direct the dialogue and provide moderation and feedback. Let participants know they don’t have to write anything—just contribute ideas. Assign a point person to keep track of the dialogue and take notes. Solicit feedback from customers and users Next, reach out to your users for feedback. Your online community is one of the best sources of intelligence. Customer feedback is an essential means of surfacing new business challenges and issues for your content strategy. Polls, surveys, and incentives are ideal ways to engage with your community. Services like Polldaddy can help you create simple surveys. Begin identifying new content opportunities by generating dialogue with your users around the following types of questions: What’s your biggest business challenge? What question do you most need answered? What information do you need that is not available? What’s the most pressing issue in your business? How could we improve our product or service? Be responsive and stay actively engaged with your community to monitor the discussion. Solicit and leverage comments to create and maintain a topic- and issue-oriented dialogue. Encourage debate around contrasting viewpoints. Engaging in a dialogue with your audience will help you generate useful data that can be developed into content. By asking your users about their needs and showing you care about their challenges and their opinions, you invest in them as co-creators. 3. Engage with experts and influencers Tap SMEs for knowledge and expertise Subject-matter experts are critical allies in your thought leadership strategy. They can contribute the deep technical, practical, or instructional expertise you need in specific topic areas. Develop a set of targeted questions for them to respond to in writing or in an interview. Depending on the business area you’re focused on and the type of expertise required, you may also want to interview outside SMEs. Leverage the power of influencers Influencer marketing is one of the top marketing trends of 2016. Engaging with influencers not only gives you access to authoritative insights and opinions from people your customers trust. It dramatically scales the visibility, reach, and engagement of your content. New research from Twitter shows consumers now trust influencers nearly as much as their friends. And with a new study by Tapinfluence showing an 11X higher return from influencer marketing campaigns compared to other digital marketing channels, engaging influencers in your content marketing efforts is essential. Find out who’s driving the conversation and who your users are listening to. It could be a highly visible blogger, leader, executive, or industry expert—a recognized name with authority, influence, and a following. LinkedIn can help you identify people of influence who are already in your network. There are also web services that will help you find and engage the right influencers for your business, including InNetwork and Traackr. Reach out to the influencers you’ve identified and begin cultivating relationships. Be familiar with their work—read their book and follow their blog, for example—and ask them to participate in your thought leadership initiative. Invite them to contribute their perspective, analysis, and insight. Explain how you’ve identified this issue and why you believe they’re uniquely qualified to contribute fresh thinking. Thought leadership partnerships should be mutually beneficial. When you approach an influencer, be prepared to offer something of value in return. Maybe you can offer publicity. Or maybe your offer can be tied directly to the product or service you provide—a membership, free trial, or special access of some kind. In essence, be prepared to answer the question: what’s in it for me? If your influencer is a blogger, he or she may be willing to write something on the topic themselves. Alternatively, working with your team and/or a writer, you can craft questions, interview the influencer, and create the content yourself based on his or her input. 4. Putting it all together: creating your content When you’re ready to write and publish your content, ensure a professional, well-written presentation. While good writing alone doesn’t turn generic content into thought leadership, good writing skills are essential for clearly communicating new business insights. In a recent LinkedIn Technology Marketing Community Survey, 57% of marketers said â€Å"engaging and compelling storytelling† was among the top three criteria that make content effective. â€Å"Without good writing, you risk your insights being lost because they aren’t communicated effectively,† says Kroeker. â€Å"Good writing ensures that those powerful insights are communicated in a way that’s clear and that resonates with the target audience.† Infographic by Kirsten Kohlhauff Creating thought leadership content is a kind of alchemy. Done right, it: Addresses new issues, ideas, and challenges Provides context, analysis, and synthesis of multiple perspectives Weaves a coherent, engaging narrative that offers new information and actionable solutions Is well-written and tells a compelling story â€Å"Being able to collaborate effectively and directly is critical to the creation of great thought leadership,† says Kroeker. As a marketer, you’re at the center of your metropolis, collaborating with your community to generate meaningful thought leadership content worthy of the name.

Thursday, March 5, 2020

Aldi and Lidl Essays

Aldi and Lidl Essays Aldi and Lidl Paper Aldi and Lidl Paper In our globalized world it Is becoming more and more challenging for companies to create their own unique brand. Competition is high and companies have to decide which strategy is the best for their business evolvement. This report is focused on two different companies Lidl and Aldi operating in the food retailing industry. Lidl and Aldi mostly was entering markets through Greenfield investments. These two companies chose greenfield investment as they wanted to have a full control over their business, promote their own brand and manage their business on their own. Advantages and disadvantages of entering market through greenfield investment is included in this report. Aldi’s main objective, when entering other market like UK and Switzerland, is ‘recognising customers needs and meeting the requirements of the demand in that country’. Lidl and Aldi have completely different strategies in global expansion. Aldi was entering big markets like the USA and Australia and this was good strategy for company’s expansion as target markets of such countries are much bigger than European target market. But it takes much more effort to control such big markets. As for Lidl’s future I would recommend to expand in other European countries before entering big markets like Russia, although it would be a great opportunity for Lidl to enter Russian market. About Aldi and Lidl Both companies Aldi and Lidl were founded in Germany. Aldi was founded in 1946 by two Albrecht brothers and Lidl was founded eleven years after Aldi was founded by Dieter Schwarz. These two companies were opening and still open, grocery discount stores which means selling products at the lowest price possible reducing its costs on companies promotion, rental fees or purchasing prices of properties as well as having a basic outlet format stores. German company Aldi started to go global after Second World War, time characterised by common market in European countries, which means it was time when trade barriers were reduced and goods and production factors ( labour, capital, technology) could freely move from country to country. As this company was already big enough to invest in other country it firstly invested in Austria, country which borders on Germany. Austria was mostly influenced by Germany culture, so it was a good idea for the company’s first experience in investing abroad as the culture differences were not so big. The same as Aldi, Lidl company focuses on discount markets, larger supermarkets and cash and carry wholesale markets. At first, Lidl copied Aldi as much as possible, although in time Lidl took completely different strategy and added more articles to their assortment and new innovative approaches. 1. a Market entry strategy of Aldi and Lidl FDI (foreign direct investment)is an equity mode for companies which want to export their products or services. Aldi and Lidl decided to invest abroad to expand their business and some of the benefits of doing so are : cheaper labour costs, infrastructure quality , economic growth or market size of the host country. Aldi and Lidl are both ‘grocery discounters’ and to save money these companies build up their stores in suburban areas and remote districts where they can save money on rent or on purchase prices of properties and being a ‘grocery discounter’ Is a good strategy to expand their business abroad. Economic and political environment in the home country is influential on company’s decision to go international. Power and prestige is another influence on Aldi’s and Lidl decision going global. The companies want to become successful, popular and powerful. They want to become an example for the rest of the world and gain global market power. That is why Aldi and Lidl decided to go global. Aldi and Lidl were mostly entering other countries markets through Greenfield investment. Greenfield investment is a form of foreign direct investment which means setting up an entirely new foreign facility in the host country. These two companies wanted to keep their brand all over the world and have full control over their business. Although Greenfield investment is not always the best way to enter the foreign market. Although in Aldi’s and Lidl’s case it was the best way to enter the foreign market, as the primarily aim for these two companies was to promote their own brand and to manage their business in the way these two companies wanted. So in some cases companies should go for Greenfield type investment and in other cases acquisitions are more beneficial. Advantages and disadvantages of entering market through greenfield investment are discussed further. . b Advantages and disadvantages of greenfield investment For the host country, it is beneficial if a company invests through greenfield type of investment, although the effects of FDI (foreign direct investment) differ in different regions and countries. For example, Brazil have attracted foreign direct investment but mostly it was non Greenfield, while India attracted mostly Greenfield investments although it is possible to suggest that generally it has failed to attract any FDI. But Indian economy is growing whereas Brazil has remained without any improvements. So some examples also show that Greenfield investments are more beneficial for the host countries. Although such point of view can be argued. As, for example, in Aldi’s case entering different countries markets in 1950th (after the Second World War, when the time faced shortage of goods) was beneficial for host countries as such companies as Aldi was bringing market growth to the host country at that time. Comparing to acquisition’s type of investment Traditionally acquisitions or privatizations of stated-owned enterprises were considered as evolvement of developed countries , although in years the situation had changed. It became beneficial for developed countries invest in developing countries through cross-border acquisitions , as these countries could buy enterprises assets at cheap prices . But it was also beneficial for developing countries for their opportunity for market growth. Investing through cross-border acquisitions can be beneficial for those who want to enrich their multinational experience, international strategy , cultural differences between the home country and host country and other. That is why Aldi entered Austria (first country abroad) via acquisition. This company did not have any multinational experience and entering through acquisition helped them to learn a lot about different country, understand how other markets operate and gain experience in creating new international strategies. Andersson and Svensson (1996) came to the conclusion that a firm with strong organizational skills prefer acquiring an existing company in the host country, while firms with strong technological skills favour greenfield operations. Applying this study it is possible to consider that Aldi and Lidl have strong technological skills. Investing through greenfield investment means operating fast, being organised and meet the requirements of the demanding customers. And case study proves that: ‘with their altered product and service strategies, Lidl and Aldi are trying to meet the requirements of their demanding local customers. ’ Another interesting finding is that Greenfield FDI has a stronger positive impact on GDP compared to that of domestic investment, (as in Austria where Aldi invested. It is one of the richest countries comparing Gross domestic product per capita ), a country with strong and stable economy attracts Greenfield investment more, whereas Greenfield investment is more attractive for underdeveloped countries. Advantages of greenfield investment The economic growth of the host country is one of the most important determinants for Greenfield investment considerations. Such investment was primarily considered by Aldi and then by lidl because the companies wanted to promote their own brand, and they promoted their names in the host countries. These companies did not need to share any profit with anyone else as well as controlled and operated their business and organizational culture in their own way and in the way they wanted it to. They also created new production capacity and linkages to the global marketplace. For the host countries where Lidl and Aldi invested, greenfield investment was beneficial as such investments create new job opportunities , the companies invest in research and development and invest in additional capital programs. Disadvantages of greenfield investment  Although starting from the scratch ( investing through the Greenfield type investment) was not easy for them. Aldi and Lidl did not understand anything about the host country’s culture, market or country’s regulations in which they wanted to invest. Investing in the host country through the Greenfield investment was also risky because the companies did not know how well local companies were established in the country, they did not understand how did everything work in that country , so it took a long time for them getting to know that country. So reactive reasons ( actions for getting the information about the foreign market) were not enough to get understanding of the foreign market. Also Greenfield investment costs much more than cross-border acquisition investment, so mostly only big companies ( like Aldi and Lidl) which can invest good amount of money in another country can afford to invest through the Greenfield investment. Also such investments were dangerous for domestic companies, as competition was growing and domestic companies could lose their market share while international companies Aldi and Lidl were growing and expanding in the home country. . a Aldi’s strategy in the UK and Switzerland Entering such markets as UK or Swiss high-price market, meant creating a new strategy of enlarging Aldi’s products and offering higher level of service. As for example, Switzerland market was mostly shared by three largest companies Micros, Coop and Denner ( 80% of market) , so it was firstly, brave enough entering such market, and secondly, if entering such market that meant creating new more attractive product offers for customers with high level of services. Aldi in UK and Switzerland was trying to concentrate on 700 products for daily use in these two countries as well as adapting to new eating habits and consumption habits typical for the customers. As from the case study, director Martin Bailie explained : ‘It’s not all pan-European buying; we have to look what UK customers want’. Also it is important to note that entering Swiss market meant making prices higher so that they could adapt to Swiss market and provide necessary level of service. Having said so, the company had strategy to become the cheapest underclass-discounter in UK and Switzerland fulfilling costumers needs. Buying goods in great volume from the same supplier , not spending money on brand promotion and fancy displays approach helped Aldi to achieve their guaranteed price range and become successful in the markets. Buying goods from the same supplier gave them opportunity to investigate product quality in special test kitchens and improve products quality if it was necessary. Saving money on fancy displays and advertisements helped them reduce goods prices. As from the case study, Aldi realized that by adaptation to local needs the company can successfully develop a foreign market and become prospering in different countries, as Switzerland and UK. 2. b risks of taking such strategy It is clear that UK and Switzerland have different culture than Germany, so customers approach to shopping also differs. As from the case study : ‘In Germany, cheap equates to value. By contrast, in the UK low prices are not necessarily equated with value and are more associated with poor quality. ’ That is why grocery discounter may seem suspicious for them. People might think that low price goods means not really good quality, especially if customers realise that the company grows and prospers. So customers might not want to buy bad quality products (especially food) even knowing that it is cheaper. So the biggest risk for grocery discounter in such countries is bad reputation. 3. a Aldi and Lidl Internationalisation Although it is possible to say that Lidl copied Aldi’s business their strategy became completely different. Achieving strategic advantage was primarily influence on Aldi deciding to open stores in Europe, Australia and in the USA or on Lidl restricting their expansion in particular European countries till 2009. Strategy decision-making depended on company’s targets , planning and volume of expansion . Aldi and Lidl are competitors so it was obvious that these two companies would try to differ their strategies in different ways. It is possible to consider that Lidl was trying to build its strategy decision-making on Aldi’s experience, but Lidl’s strategic advantage achievements became more adventurous . So Aldi’s and Lidl’s strategies were focused on different goals. As from the case study, Lidl was focused on expansion in markets where ‘no competitor had been present previously’, whereas Aldi would wait till retail sector matured. Also as it was said previously, Lidl was mostly focused on expansion in European countries whereas Aldi expanded in USA, Australia and Europe. There are advantages and disadvantages of Aldi’s strategy. Advantages The USA and Australia are very big countries and these countries have huge target market. Exporting there means selling more than in Europe. Consumers in these countries are generally interested in products as in UK, and Aldi has experience in selling its products in UK. So selling in these countries for Aldi means selling more goods and better promote the brand. Disadvantages So Aldi promotes its brand worldwide, but to that the company needs a lot of resources to control it. It is much harder to control the business in the USA and Australia as these countries are very big. Whereas selling in Europe is easier to control and manage. Also controlling the company in such countries as USA and Australia means creating strategies for each region separately whereas selling in Europe Lidl can create only one strategy for all countries . So it is a huge responsibility for Aldi to manage its business all over the world. 3. b Lidl strategy until 2020 The impact of the Lidl name outside the German borders is astonishing when considering that very little information is leaked to the publicity about its future plans. ’ (M. Moesgaard Andersen Flemming Poulfelt, 2006) Although from the case study it is clear that Lidl plans are to expand its business in Brazil, Mexico, Russia and the USA. The countries where Lidl want to export are culturally completely different as well as geographically much bigger than Europe. So internationalisation to these countries needs new and well-organised strategies to each of the countries. As Lidl was mostly focusing on Europe it will be a big challenge for the company to enter these markets. So considering this, firstly, I would recommend to expand its business in countries where its main competitor Aldi hasn’t stores. Countries in which Lidl operates at the moment. This map shows in which countries Lidl operates at the moment. There is a list of countries in which ALdi operates at the moment: Australia Austria Belgium Denmark France Germany Great Britain Hungary Ireland Luxemburg Netherlands Poland Portugal Slovenia Spain Switzerland USA As from the map it is clear that Lidl was mostly focusing on Western countries, so I would recommend to enter Baltic countries markets and other Eastern European countries first. There is no Aldi in Baltic countries as well, and if talking about these countries markets they are not as competitive as other European countries. So it would be a great opportunity for Lidl. Entering the Baltic countries markets and other Eastern European countries would help Lidl to gain recognition of European countries as ‘strong brand throughout Europe’. Afterwards, I would recommend to enter Russian market. Russia is the biggest country in the world and target market is huge. Russia doesn’t have very competitive market and supermarkets, I would say , would become very popular over there. Also Aldi doesn’t have any store there. Although this country’s culture differs from other European countries and at first it would very challenging for Lidl. Conclusion To conclude with, the grocery retailing industry will always be profitable, especially knowing that worldwide annual sales volume ofâ‚ ¬ 3. trillion in 2007 and an average annual sales growth is 2. 7 percent during the past ten years. And it is obviously the most important sector in the world as people cannot survive without food , drinks and other groceries. Although companies operating in this sector and considering going global must decide which strategy would be best for their expansion, promotion and prosperity. Lidl’s and Aldi’s expansion became very successful and for the future these two companies must consider their expansion very carefully to achieve their goals and enlarge their revenues.

Tuesday, February 18, 2020

Direct Manipulation Essay Example | Topics and Well Written Essays - 1000 words

Direct Manipulation - Essay Example The direct manipulation interface is a more efficient mode of interaction where the user points at metaphors on the computer and the commands given on their behalf, unlike the line command that requires them to key in the commands by themselves. Direct manipulation, being easier and faster at executing commands, is a preference of majority computer users today, especially designers and gamers as it supports the creation of virtual environments. A virtual environment is a simulation by means of a computer that creates a false or aped environment in which a computer user can perceive themselves in, and interact with objects in it (Montfort, Nick, & Noah 485). The direct manipulation interface has three main principles that make it a preference for a larger cross-section of computer users today. The first principle is the ability to virtually represent the objects of interest continuously in graphic forms and in almost real appearances. The other principle is the support of fast, revers ible actions that are immediate and the last principle is the ability to directly manipulate a command on an object after using a pointing device to locate it. These principles are universal in that they are almost similar from system to system, therefore allowing frequent users to familiarize with, and use them anywhere. Application of direct manipulation interface in games Direct manipulation supports graphical representation of objects, an application extended and put to use in games, as they require simulation to create virtual environments that enable the user to perceive of them being in them. 3D renderings of virtual environments of action excite the user, further engaging them and letting them take roles and control avatars in games. The user interacts with virtual characters who act as drivers, players, dragons and so on in virtual environments with highways, hills, water, and fire. In order for the user to interact with the virtual characters and environments, they require game controls to direct their subjects. Direct manipulation enables the user to use buttons or other game controls and not type lengthy syntax commands. This makes the user enjoy the game without much cramming of commands. The game controls in the games give instructions or commands to the virtual objects or characters that result in rapid responses that prompt the user to correct their moves or perform moves that are more complex thus actively engaging in the virtual gaming (Montfort, Nick, & Noah 499). Types of game interfaces There are two types of game interfaces: three-dimensional and two-dimensional. 3-D game interface is the representation of geometric data in a form that has length, width, and height (has x, y and z-axes) such that it is visible from all perspectives and has the perception to hold mass. 2-D interface is a representation that displays graphics on a screen by use of pixel arrays. It has an X and Y-axis only (Cellary, Wojciech & Krzysztof 279). These two inter faces apply in gaming and computer aided design but are largely inapplicable in real life applications for several reasons. An example is in word processing or spreadsheet applications where using a 3-D interface will make it impossible or very hard to write and annotate. Another reason is that that due to the additional axis in 3-D

Monday, February 3, 2020

Synthisis Essay Example | Topics and Well Written Essays - 1000 words

Synthisis - Essay Example Facebook makes a person or a student happy and helps them go through life challenges. It also helps freshmen to adapt faster to their new stage in life, as explained in â€Å"Facebook and first year college students†. In spite of the criticisms against social websites, these sites help many people such as students in dealing with stressful situations and life challenges through constant communication between peers who pass advisory information. In Konnikova’s article, she talks about how everyone who joins Facebook sought not to be sad or depressed, but becomes inflected after a while. She quotes, â€Å"the more people used Facebook in the time between the two texts, the less happy they felt—and the more their overall satisfaction declined from the beginning of the study until its end. The data, he argues, shows that Facebook was making them unhappy.†(Ethan Kross). I do not agree with her, the problem is that it becomes an obsession or an addiction to check Facebook more and more to see what people have written on their walls and keep track on a crush or a loved one. I do not believe this form of unhappiness can be attributed to the social media website but from the individual self who gets too close to a website that has no feelings or affection. In the article about college students, Facebook helps first year college students overcome the major change in their lives. â€Å"An estimated 17 million Americans attend college each year, of whom, approximately 3.5 million are first-year students† (U.S. Census Bureau, 2008). It also helps them to overcome challenges and depression when facing the changes and moving away from home. This is mainly achieved through reading memorable messages, or seeing a picture that will keep them going forward and help them in focusing in their educational goals. Personally, I can relate to this point in that social media helped me to get in touch with peers and professors. Furthermore, it

Sunday, January 26, 2020

Demand of Derivatives Investment in Malaysia

Demand of Derivatives Investment in Malaysia ABSTRACT This research investigates the demand of derivatives investment by Malaysia. On the whole the main purpose of this dissertation is to study, analyse and discuss about the usage of derivatives by Malaysian company or individual resident. The research paper is divided into five chapters. Chapter 1 introduces derivatives and identification of the research problems. Research objectives and questions are given briefly. Chapter 2 provides an overview of the literature reviewed throughout the research. A detailed description by past researchers is presented. The further detail of each derivative contract are summarised. Chapter 3 deals with the work flow of this study. The research methodologies includes research design and procedure, data collection method, and statistical data analyses method. Data collection from secondary data is analysed to form a theoretical framework. Chapter 4 present the analysis and result of research topic. Tables, diagrams, charts are use to illustrates the findings. Finally, Chapter 5 concludes the dissertation with summary all of the chapters. CHAPTER 1 INTRODUCTION Introduction A derivative is a financial instrument that is derived from assets, indexes, events, value or condition (known as the underlying asset). Rather than trading or exchanging the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. (David, 2003) From definition taken from International Accounting Standards 39 (IAS39) Financial Instruments Recognition and Measurement, a derivative is a financial instrument whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rate, a credit rating or credit index or similar variable. (IAS, 2009) Forward contracts, futures contracts, options and swaps are the most common types of derivatives. Derivatives are often leveraged, such that a small movement in the underlying value can cause a large difference in the value of the derivative. (Khanna, 2010) Research Problem The research problem of this study is to uncover the derivative investment as a financial instrument for business and gaining capital. The usage of derivatives is getting larger nowadays. However, there is some criticism regarding the derivative in negative aspect as well. Research Objectives The following are the specific objective to achieve under this research To study the factor influence Malaysian to invest in the derivatives investment. To identify the method of reduction in risk under the usage of derivatives. Research Questions Questions that are bound to be answered throughout the research are: Why do investors select derivative investment? How can derivatives instrument be use? What is the types of derivative that are highly demanded in Malaysia? How does reduction in risk achieve by using derivatives instrument? How do traders speculate in order to make profit via derivatives? Scope of Study The scope of study for this research focuses on the derivative instruments. Significance of Study The significance of this study is to give the investors an idea as how the derivative instruments work in the business world. It also a study that helps businessman to reduce their risk and speculator to gain short-term money through derivatives. CHAPTER 2 LITERATURE REVIEW Introduction of Derivatives The first derivatives contract was listed in the year 1865 by the Chicago Board of Trade (CBOT) in USA. Those exchange traded derivatives contracts were called futures contracts. In April 1973, the Chicago Board of Options Exchange (CBOE) was set up for the purpose of options trading. The Standard Poors 500 Index in USA currently is the most popular stock index futures contract in the world. (HSBC Invest Direct, 2010) There are two distinct groups of derivative contracts, which tell apart the way they traded in the market. Over-the-counter (OTC) derivative is a type of financial derivative that negotiated directly between two parties rather than through an exchange centre. The OTC derivative market is the largest market for derivatives, and is unregulated with respect to disclosure of information between the parties. (Essaddam, et al., 2008) Exchange-traded derivative (ETD) is a type of financial derivative that has its transaction traded via specialised derivatives exchanges or other exchanges, such as Bursa, CBOE, Eurex etc. Derivatives exchange act as an intermediary to all related transactions, ETD is usually traded in standardised derivative contracts. (ISDA, 2009) There are few major derivative contracts which consist of forward, future, option and swap contract. Forward Contract A forward contract is a contract negotiated at present that gives the contract holder both the right and full legal obligation to conduct a certain asset transaction at a specific future time, amount, price and other terms. (Schweser, 2002) The party to the forward contract that agrees to buy the financial or physical asset has a long forward position and is called the long. The party to the forward contract that agrees to sell or deliver the asset has a short forward position and is called the short. (David, 2003) For instance, Lam Soon Company signed a contract under which they agree to buy a tonne of crude palm oil (CPO) from their supplier 30 days from now at a price of RM2,500. Lam Soon Company is the long and the supplier is the short. Both parties have removed uncertainty about the price they will pay or receive for the CPO in the future date. If 30 days from now CPO are trading at RM2,580 per tonne, the short (supplier) must deliver the CPO to the long (Lam Soon) in exchange for a RM2,500 payment. If CPO are trading at RM2,420 on the future date, the long must purchase the CPO from the short for RM2,500, the contract price. Forward contract is usually negotiated directly between the two parties, therefore it is an OTC market forward contract. The forward contracts have the advantage of being flexible (the parties design the contract to meet their specific needs). However, Stalla (2000) had concluded that forward contracts have three major disadvantages: They are illiquid. Because the terms of a forward contract are usually designed to meet the specific needs of the contracting parties, it is difficult for either one of them to close out its side of the contract, either by selling it to a third party or by getting the counterparty to cancel the agreement without demanding an excessive buyout price. They have credit risk. Forward contracts usually require neither party to the agreement to post collateral, make any mark-to-market transfers of funds over the life of the contract, or make any margin deposits to give assurance that it will be able fulfil its obligations under the terms of the agreement (although such clauses could be inserted into a forward contract by mutual consent of the parties). Consequently, a typical forward agreement is based on trust, each party to the agreement must trust that its counterparty will perform in the agreed-upon manner. This exposes both contracting parties to the risk that the counterparty might default on its obligation. They are unregulated. No formal body has the responsibility of setting down rules and procedures designed to protect market participants. Generally, the only protection given to parties involved in the OTC forward market is that of contract law. Future Contract A futures contract is a forward contract that has been highly standardised and closely specified. As with a forward contract, a futures contract calls for the exchange of some goods at a future date for cash, with the payment for the goods to occur at the future delivery date. The purchaser of the contract is to receive delivery of the good and pay for it, while the seller of the contract promises to deliver the goods and receive payment. The payment price is determined at the initial time of the contract. (Adhar, 2006) Futures contracts are usually traded on futures exchanges (ETD), rather than in an OTC environment. Hence, futures contracts are unique forms of forward contracts that designed to reduce the disadvantages of forward contracts. The future contracts terms have been standardised so that can be traded in a public marketplace. Due to standardisation, futures contracts are lesser flexible than forward agreements, hut it also makes them more liquid. (Copeland, et al., 2004) According to Schweser (2006) points, in order to safeguard the clearinghouse, which act as the buyer to every seller and the seller to every buyer, the exchange requires traders to post margin and settle their accounts on a daily basis. Before trading, the trader must deposit funds, called margin with their broker (who, in return, will post margin with the clearinghouse). The purpose of margin is to ensure that traders will perform their contractual obligations. There are three types of margin. The first deposit is called the initial margin which had been explained above. Any losses for the day are removed from the traders account and any gains are added to the traders account. If the margin balance in the traders account falls below a certain level (called the maintenance margin), the trader will get a margin call and have to deposit more money (called the variation margin) into the account to bring the account back up to the initial margin level. (Stalla, 2000) For instance, Lam Soon buys a 30 days future contract of CPO at RM2,500 per tonne. The initial margin was RM2,500. The next day the price of CPO plummetsRM50. Therefore Lam Soon has just lost RM50. At the end of the day, the daily settlement process marks Lam Soons margin account to market by taking RM50 out of the account leaving a balance of RM2,450. Now, assume the maintenance margin level is at 70%. If Lam Soons margin balance falls to or below RM1,750, Lam Soon gets a margin call and has to bring their account back up to the initial RM2,500 level. There are several advantages to using forward or futures contracts as a substitute for trading in the spot markets of commodities: (Sorid, n.d) Transaction costs are much lower and liquidity is better in the futures markets than in the spot markets. There is no need to store or insure physical assets if forward or futures contracts are used. Forward and futures contracts may be sold short, as well as bought long. This may not always be possible if one were trading the actual underlying assets themselves. There is a great deal of leverage in forward and futures contracts. A trader can control on a large position with only a small initial deposit. If the futures contract with a value of RM100,000 has an initial margin of RM10,000 then one percent change in the futures price which is RM1,000, would result in a 10 percent change relative to the traders initial costs. Since there is no margin is required with a forward contract, control can be obtained with no money down. There is flexibility, especially with forward contracts, that can be used to create specialized risk/return patterns. Price risk can be accepted or eliminated by using forward or futures contracts without compromising any holdings of an underlying asset. Thus, a jeweller can sell the price risk associated with holding an inventory of gold without actually disturbing the physical inventory itself. This makes it easy to adjust ones financial exposure to commodity markets, even if ones physical exposure must be maintained for business purposes. The primary disadvantage of using futures contracts for speculative trading would involve a great deal of leverage, so that large losses can occur. In effect, holding a futures position with only the margin requirement on deposit in a brokerage account is the same thing as having purchased the underlying asset on margin. Another closely related disadvantage is that futures (but not forward) contracts subject the trader to margin calls to meet daily settlement obligations. This requires participants to have a cash reserve that can be drawn upon to meet these demands for additional cash. (Sorid, n.d) Option Contract According to the Chicago Board Options Exchange (CBOE) 2008, an option is a contract gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. The owner of a call option has the right, but not the obligation to purchase the underlying good at a specific price for a specified time period. While the owner of a put option has the right, but not the obligation to sell the underlying good at a specific price for a specified time period. To qualify these rights, the options owner has to pay a premium to the seller of the option for buying the option. (CBOE, 2008) The seller of the option is called an option writer. Options have four possible positions: (CBOE, 2008) Call option buyer Call option writer or seller Put option buyer Put option writer or seller In these contracts, the rights are with the owner of the option. The buyer that pays the premium receives the right to buy or sell the underlying asset on specific time and price. The writer or seller of the option receives payment and obligates to sell or purchase the underlying asset as agreed in the contract of the option owner. (Akmeemana, n.d.) For instance, BAT share is selling at RM50 while its call option is at RM10. The call option can be exercised for RM45 with a life span of 5 months. The exercise price of RM45 is called the options strike price. The RM10 price of the option is called the option s premium. If the option is purchased for RM10, the buyer can purchase the stock from the option seller over the next 5 months for RM45. The seller, or writer of the option gets to keep the RM10 premium no matter what the stock does during this time period. If the option buyer exercises the option, the seller will receive the RM45 strike price and must deliver to the buyer a share of BAT stock. If the price of BAT stock falls to RM45 or below, the buyer are not obliged to exercise the option. Note that the option holders can only exercise their right to act if it is profitable to do so. The option writer, however, has an obligation to act at the request of the option holder. A put option is the same as a call option except the buyer of the put has the right to sell the put writer a share of BAT at any time during the next five months in return for RM45. The owner of the option is the one who decides whether to exercise the option or not. If the option has value, the buyer may either exercise the Option or sell the option to another buyer in the secondary options market. (Tatum, 2010) For short-term investment horizons, options trading can produce lower transaction costs than the outright purchase and sale of the underlying assets themselves. Besides, options can he used to execute some tax strategies. (Skousen, 2006) Swap Contract A swap is an agreement between two or more parties to exchange sets of cash flows over a period in the future. The parties that agree to the swap are known as counterparties. The cash flows that the counterparties make are generally tied to the value of debt instruments or the value of foreign currencies. Therefore, the two basic kinds of swaps are interest rate swaps and currency swaps. (Schweser, 2006) Unlike the highly structured futures and options contracts, swaps are custom tailored to fit the specific needs of the counterparties. The counterparties may select the specific currency amounts that they wish to swap, whereas exchange traded instruments have set values. Similarly, the swap counterparties choose the exact maturity that they need, rather than maturity dates set by the exchange. This flexibility is very important in the swap market, because it allows the counterparties to deal with much longer horizons than can be addressed through exchange-traded instruments. Also, since swaps are not exchange traded, it gives the participants greater privacy, and they escape a great deal of regulation. (Hodgson, 2006) According to Hodgson (2996), the advantages of swap agreements over conventional traded derivatives can be summarised as below: Swaps are highly flexible and can be custom made to fit the requirements of the parties entering into them. The swap market is virtually unregulated, in contrast to the highly regulated futures market. This could change, however, since regulators usually abhor a regulation vacuum and probably will, eventually, seek to bring the market under their protection. The cost of transacting in the swap market is low. Swaps are private transactions between two parties. Often, swaps are off-balance sheet transactions that can be used, for example, to enable a firm to reposition its balance sheet quickly without alerting competitors. The disadvantages of swaps include: Because swaps are agreements, a party who wants to enter into a particular swap must find a counterparty that is willing to take the other side of the swap. Swaps can be illiquid; once entered into, a swap cannot easily be terminated without the consent of the counterparty. Because there are no margin deposits or a clearinghouse that help ensure, or will guarantee, that the agreements will be honoured, the integrity of swaps depends solely upon the financial and moral integrity of the parties that have entered into them. In other words, the swaps have more credit risk than futures contracts. The Demand of Derivatives Based on the statistics of the Bursa Malaysia Derivatives Berhad, the total exchange of derivatives during the year 2009 was up to 6,137,827 contracts. The crude palm oil futures (ETD) is the most liquid future in Malaysia, total of 4,008,882 contracts with average of 334,074 contracts traded monthly during year 2009. (Bursa Malaysia, 2010) Figure 2.1 shows the monthly price traded and the monthly volume of crude palm oil futures (FCPO) traded in Bursa Malaysia from year 1985 until March 2010. The green colour bar represents the price close on the month end was above the open price open on the beginning of the month, while red colour bar indicates the closing price is below the open price. Figure 2.1 indicates that there was less transaction traded during the eighth decade of the 20th century until 2002. The number of FCPO contract traded keep on increasing especially start from year 2002, and is quite popular in recent year, the volume of transaction exceeded 150,000 contracts each month. FCPO is extremely high volume in 2008 because the global oil price is at its peak at USD145 per barrel. FCPO traded at its pinnacle in November 2006 which recorded 360,650 contracts in a month. This showing that the FCPO is high in demand in Malaysia as compare to previous years. Figure 2.2 shows the history chart of FTSE Bursa Malaysia Kuala Lumpur Composite Index Futures (FKLI) traded in Bursa Malaysia from December 1995 until March 2010. There was a high trading volume during the 1997 Asian Financial Crisis due to the high fluctuate of the Kuala Lumpur Composite Index (KLCI). 148,318 future contracts were traded in September 1998. There were at least 40,000 future contracts traded in the following years of 1998. The volume traded increasing rapidly in 2007 as Malaysian economy recovers. KLCI went as high as 1400 points during the last 3 years. 302,321 future contracts were trade in August 2007, which is the highest volume recorded in history. Based on Figure 2.2 trading volume trend, it can be concluded that speculators were heavily involve in trading FKLI in 1997, where the Asian Financial Crisis tragedy occurred and in its peak in 2007 . KLCI fluctuation was elevated during these two event (circled in the chart). For the global market, the market for options developed rapidly in early 80s. The number of option contract sold each day exceeded the daily volume of shares traded on the New York Stock Exchange. According to the Bank for International Settlements, the total OTC derivative outstanding notional amounted to USD605 trillion as of June 2009. Factors That Influence Derivatives Trading Mike Singh (2010) said that trading derivatives will have lesser risk than other trades because investor are not buying into the company or buying the underlying product. Instead, the risk is placed on performance. Due to its low risk factor, investment and commercial banks, end users such as floor traders, corporations, and mutual and hedge funds, are major types of firms that utilize derivatives. A much lower initial investment start up in derivatives trading, derivatives give an edge to those who decline or do not want to invest as much as is required to purchase stock. Derivatives can be a good way to balance ones total portfolio by spreading the risk throughout a variety of investments, rather than putting all eggs into a basket. Besides that, trading derivatives can be a good short term investment. Compared to some stocks and bond, derivatives is an financial instrument that can pay off in a shorter time frame such as days, weeks, or a few months. Stock and bonds are long-term investments and may over the course of many years. As the shorter turnaround time, derivatives can be a good way break into the market and mix short and long-term investments. (Siems, 1997) Numerous resources are available for learning about derivatives trading and many options are available. Hence derivatives are variety and flexibility, this point of view was supported by Mike Singh, 2010. Derivatives can derive profit from changes in equity markets, currency exchange rate, interest rates around the world. It also include the commodities changes in global supply and demand such as precious and industrial metals, agricultural products, and energy products such as petroleum and natural gas. This show that derivatives trading are available on a global scale. Getting involved in the global economy opens international options that may not be available through the traditional stock market. From the points given above, he concluded that there are three reasons for derivatives trading. First, trading derivatives are lesser risk than other trades. Second, trading derivatives are a good short term investment. Third, trading derivatives are variety and flexibility. Hence, derivatives trading may be a good trading option if someone are looking outside of trading traditional stocks and bonds. The International Swaps and Derivatives Association, Inc. (ISDA) announced the results of a survey done on the derivatives usage by the worlds 500 largest companies. According to the survey, 94% of these companies use derivative instruments to hedge and manage their financial risks in business. The foreign exchange derivatives are the most widely used instruments with total 88% of the sample, followed by interest rate derivatives which is 83% and commodity derivatives. There are two benefits which are most widely recognised attributed to derivative instruments, risk management and price discovery. Risk management could be the most vital purpose of the derivatives market. Derivatives also used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect, bearing extra risk by speculations. (Kuhlman, 2009) Price discovery is the prediction of information about future cash market prices through the futures market. There is a relationship between an assets current (spot) price, its futures contract price, and the price that people expect to prevail on the delivery date. By using the information contained in futures prices today, market observers can form estimates of what the price of a given commodity will be at a certain time in the future. Futures markets serve a social purpose by helping people make better estimates of future prices, so that they can make consumption and investment decisions more wisely. (Sorid, n.d) The derivatives market are broadly classified into three uses: Hedging Speculation Arbitrage Hedging Hedging is a way to enter into transactions that expose the entity to risk and uncertainty that fully or partially offsets one or more of the entitys other risks and uncertainties. (Elliot Elliot, 2005) One reason why companies attempt to hedge these price changes is because they are risks that are peripheral to the central business in which they operate. Hedging also refers to managing risk to an extent that makes it bearable. (Kameel, 2008) Equity Hedging Traders can use derivatives to hedge or mitigate risk in the stock market. Entering into a derivative contract can cover part or all of the losses if the value of their underlying position moves in the opposite direction. For equity forward contracts, where the underlying asset is a single stock, a portfolio of stocks, or a stock index, work in much the same manner as other forward contracts. An investor who wishes to sell 100 shares of BAT stock 90 days from now and wishes to avoid the uncertainty about the stock price on that date, could do so by caking a short position in a forward contract covering 100 BAT shares. A dealer might quote a price of RM48 per share, agreeing to pay RM4,800 for the 100 shares 90 days from now. The contract may be deliverable or settled in cash as described above. The stock seller has locked in the selling price of the shares and will get no more if the price (in 90 days) is actually higher, and will get no less it the price actually lower. (Sharma, 2009) For equity future example, an individual stock trader can minimise the stock trading risk by hedging using futures market (Exchange-traded derivatives). A stock trader is extremely aware of economy downturn. If the trader expected an economy downturn is coming which will cause the share price to drop, the trader can protect against down fall of stocks equity by opening a short position of the FTSE Bursa Malaysia KLCI Futures (FKLI) to hedge against his stock portfolio. So if the economy downturn does happen, the trader will gain profit from the FKLI. However, there will be a loss if the trader close the position of the stock during the economy downturn, but the gain from the FKLI will cover some or over the losses from the stock market. Thus, this can reduce the risk by FKLI futures hedging. (Copeland, et al., 2004) For stock option contracts, one call priced at RM6 with a strike price of RM30 gives the holder the right to purchase 100 shares of the stock at RM30 per share until the exercise date. The contract has a money value of RM600 (RM6 x 100 shares). For put options. the concepts are the same, except that the option gives the holder the right to sell 100 shares of the stated stock at RM30 per share through the exercise date. Commodity Hedging Commodity is a physical substance which there is demand, such as basic resources and agricultural. The most popular commodities in Malaysia include CPO, gold, tin, rubber and latex. (Amadeo, 2003) For instance, an airline company which the fuel is the biggest cost item for an airline taken care of, might want to get protection against the fuel price crisis. The airline company might enter into a future contract to hedge the fuel price. They will sign up a future contract with the fuel supplier (OTC derivative), promising that they will buy a certain amount of fuel at a certain price for the next certain months. The contract will definite the price that the airline company to pay for buying the fuel in future. In case the fuel price go higher than the contract price, then the fuel will have a cheaper price. If the fuel price gone down without the airline company expectation, which mean the contract price is higher than the market price, in that incident, the airline company might not want to exercise the contract price. In return, the airline company need to pay certain of fund to the fuel supplier as the contract fee. (Larry, 2005) Malaysian Airline System Berhad (MAS) announced a RM1.34 billion fuel hedge gain in the second quarter ended 30 June 2009. (Francis, 2009) Idris Jala (2009), the Managing Director and Chief Executive Officer of Malaysia Airlines said that he had decided not to unwind the fuel hedges so that the company can remain protected against the volatile fuel prices. MAS had hedged 47% of its fuel requirement at USD103/ bbl WTI for the year ended 2009 from 31 March 2009. Further highlighting the volatility of fuel prices, the fuel price increased 47% since April 2009, those airlines that did not hedge will be affected by the fuel price increasing, said Idris Jala, 2009. While MAS fuel bill increasing in tandem with the fuel price, MAS total fuel bill will be lower as the gains from the fuel hedges will partly offset the higher fuel cost. Foreign exchange (Forex) Hedging In international trading, dealings with forex play a significant role. There will be a significant impact on business decisions and outcomes if got any fluctuations in the forex rate. Many international trade and business dealings are shelved or become unworthy due to significant exchange rate risk embedded in them. Therefore, companies will use forex hedging with forwards, future, option. (Joseph Nathan, 1999) Forex hedging with forwards Forex forward rate is an agreement between two parties (OTC derivatives) to fix the exchange rate for a future transaction. In Malaysia, there are some banks do provide Forward Rate Agreements (FRA) service such as Bank Islam Malaysia, Maybank, EON Bank Group, CIMB Bank Group, HSBC Bank Malaysia, etc. A company simply transfer the risk to the bank when they entering into a FRA with a bank. Of course the bank internally will do some kind of arrangement to manage the risk. (Currencies Direct, 2010) For instance, a Malaysian construction company, Ban Lee Hin Engineering Construction Sdn Bhd just won a contract to build a bridge road in Philippines. The contract is signed for 10,000,000 Peso and would be paid for after the completion of the work. This amount is consistent with Ban Lee Hin minimum revenue of RM750,000 at the exchange rate of RM7.50 per 100 Peso. However, since the exchange rate could fluctuate and end with a possible depreciation of Peso, Ban Lee Hin enters into a forward agreement with Philtrust Bank in Philippines to fix the exchange rate at RM7.50 per 100 Peso. The forward contract is a legal agreement, and therefore constitutes an obligation on both parties. The Philtrust Bank may have to find a counter party for such transaction, either a party who wants to hedge against the appreciation of 10,000,000 Peso expiring at the same time, or a party that wishes to speculate on an increasing the value of Peso. If the Philtrust Bank itself plays the counter party, t hen the risk would be borne by the bank itself. By entering into a forward contract, Ban Lee Hin is guaranteed of an e Demand of Derivatives Investment in Malaysia Demand of Derivatives Investment in Malaysia ABSTRACT This research investigates the demand of derivatives investment by Malaysia. On the whole the main purpose of this dissertation is to study, analyse and discuss about the usage of derivatives by Malaysian company or individual resident. The research paper is divided into five chapters. Chapter 1 introduces derivatives and identification of the research problems. Research objectives and questions are given briefly. Chapter 2 provides an overview of the literature reviewed throughout the research. A detailed description by past researchers is presented. The further detail of each derivative contract are summarised. Chapter 3 deals with the work flow of this study. The research methodologies includes research design and procedure, data collection method, and statistical data analyses method. Data collection from secondary data is analysed to form a theoretical framework. Chapter 4 present the analysis and result of research topic. Tables, diagrams, charts are use to illustrates the findings. Finally, Chapter 5 concludes the dissertation with summary all of the chapters. CHAPTER 1 INTRODUCTION Introduction A derivative is a financial instrument that is derived from assets, indexes, events, value or condition (known as the underlying asset). Rather than trading or exchanging the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. (David, 2003) From definition taken from International Accounting Standards 39 (IAS39) Financial Instruments Recognition and Measurement, a derivative is a financial instrument whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rate, a credit rating or credit index or similar variable. (IAS, 2009) Forward contracts, futures contracts, options and swaps are the most common types of derivatives. Derivatives are often leveraged, such that a small movement in the underlying value can cause a large difference in the value of the derivative. (Khanna, 2010) Research Problem The research problem of this study is to uncover the derivative investment as a financial instrument for business and gaining capital. The usage of derivatives is getting larger nowadays. However, there is some criticism regarding the derivative in negative aspect as well. Research Objectives The following are the specific objective to achieve under this research To study the factor influence Malaysian to invest in the derivatives investment. To identify the method of reduction in risk under the usage of derivatives. Research Questions Questions that are bound to be answered throughout the research are: Why do investors select derivative investment? How can derivatives instrument be use? What is the types of derivative that are highly demanded in Malaysia? How does reduction in risk achieve by using derivatives instrument? How do traders speculate in order to make profit via derivatives? Scope of Study The scope of study for this research focuses on the derivative instruments. Significance of Study The significance of this study is to give the investors an idea as how the derivative instruments work in the business world. It also a study that helps businessman to reduce their risk and speculator to gain short-term money through derivatives. CHAPTER 2 LITERATURE REVIEW Introduction of Derivatives The first derivatives contract was listed in the year 1865 by the Chicago Board of Trade (CBOT) in USA. Those exchange traded derivatives contracts were called futures contracts. In April 1973, the Chicago Board of Options Exchange (CBOE) was set up for the purpose of options trading. The Standard Poors 500 Index in USA currently is the most popular stock index futures contract in the world. (HSBC Invest Direct, 2010) There are two distinct groups of derivative contracts, which tell apart the way they traded in the market. Over-the-counter (OTC) derivative is a type of financial derivative that negotiated directly between two parties rather than through an exchange centre. The OTC derivative market is the largest market for derivatives, and is unregulated with respect to disclosure of information between the parties. (Essaddam, et al., 2008) Exchange-traded derivative (ETD) is a type of financial derivative that has its transaction traded via specialised derivatives exchanges or other exchanges, such as Bursa, CBOE, Eurex etc. Derivatives exchange act as an intermediary to all related transactions, ETD is usually traded in standardised derivative contracts. (ISDA, 2009) There are few major derivative contracts which consist of forward, future, option and swap contract. Forward Contract A forward contract is a contract negotiated at present that gives the contract holder both the right and full legal obligation to conduct a certain asset transaction at a specific future time, amount, price and other terms. (Schweser, 2002) The party to the forward contract that agrees to buy the financial or physical asset has a long forward position and is called the long. The party to the forward contract that agrees to sell or deliver the asset has a short forward position and is called the short. (David, 2003) For instance, Lam Soon Company signed a contract under which they agree to buy a tonne of crude palm oil (CPO) from their supplier 30 days from now at a price of RM2,500. Lam Soon Company is the long and the supplier is the short. Both parties have removed uncertainty about the price they will pay or receive for the CPO in the future date. If 30 days from now CPO are trading at RM2,580 per tonne, the short (supplier) must deliver the CPO to the long (Lam Soon) in exchange for a RM2,500 payment. If CPO are trading at RM2,420 on the future date, the long must purchase the CPO from the short for RM2,500, the contract price. Forward contract is usually negotiated directly between the two parties, therefore it is an OTC market forward contract. The forward contracts have the advantage of being flexible (the parties design the contract to meet their specific needs). However, Stalla (2000) had concluded that forward contracts have three major disadvantages: They are illiquid. Because the terms of a forward contract are usually designed to meet the specific needs of the contracting parties, it is difficult for either one of them to close out its side of the contract, either by selling it to a third party or by getting the counterparty to cancel the agreement without demanding an excessive buyout price. They have credit risk. Forward contracts usually require neither party to the agreement to post collateral, make any mark-to-market transfers of funds over the life of the contract, or make any margin deposits to give assurance that it will be able fulfil its obligations under the terms of the agreement (although such clauses could be inserted into a forward contract by mutual consent of the parties). Consequently, a typical forward agreement is based on trust, each party to the agreement must trust that its counterparty will perform in the agreed-upon manner. This exposes both contracting parties to the risk that the counterparty might default on its obligation. They are unregulated. No formal body has the responsibility of setting down rules and procedures designed to protect market participants. Generally, the only protection given to parties involved in the OTC forward market is that of contract law. Future Contract A futures contract is a forward contract that has been highly standardised and closely specified. As with a forward contract, a futures contract calls for the exchange of some goods at a future date for cash, with the payment for the goods to occur at the future delivery date. The purchaser of the contract is to receive delivery of the good and pay for it, while the seller of the contract promises to deliver the goods and receive payment. The payment price is determined at the initial time of the contract. (Adhar, 2006) Futures contracts are usually traded on futures exchanges (ETD), rather than in an OTC environment. Hence, futures contracts are unique forms of forward contracts that designed to reduce the disadvantages of forward contracts. The future contracts terms have been standardised so that can be traded in a public marketplace. Due to standardisation, futures contracts are lesser flexible than forward agreements, hut it also makes them more liquid. (Copeland, et al., 2004) According to Schweser (2006) points, in order to safeguard the clearinghouse, which act as the buyer to every seller and the seller to every buyer, the exchange requires traders to post margin and settle their accounts on a daily basis. Before trading, the trader must deposit funds, called margin with their broker (who, in return, will post margin with the clearinghouse). The purpose of margin is to ensure that traders will perform their contractual obligations. There are three types of margin. The first deposit is called the initial margin which had been explained above. Any losses for the day are removed from the traders account and any gains are added to the traders account. If the margin balance in the traders account falls below a certain level (called the maintenance margin), the trader will get a margin call and have to deposit more money (called the variation margin) into the account to bring the account back up to the initial margin level. (Stalla, 2000) For instance, Lam Soon buys a 30 days future contract of CPO at RM2,500 per tonne. The initial margin was RM2,500. The next day the price of CPO plummetsRM50. Therefore Lam Soon has just lost RM50. At the end of the day, the daily settlement process marks Lam Soons margin account to market by taking RM50 out of the account leaving a balance of RM2,450. Now, assume the maintenance margin level is at 70%. If Lam Soons margin balance falls to or below RM1,750, Lam Soon gets a margin call and has to bring their account back up to the initial RM2,500 level. There are several advantages to using forward or futures contracts as a substitute for trading in the spot markets of commodities: (Sorid, n.d) Transaction costs are much lower and liquidity is better in the futures markets than in the spot markets. There is no need to store or insure physical assets if forward or futures contracts are used. Forward and futures contracts may be sold short, as well as bought long. This may not always be possible if one were trading the actual underlying assets themselves. There is a great deal of leverage in forward and futures contracts. A trader can control on a large position with only a small initial deposit. If the futures contract with a value of RM100,000 has an initial margin of RM10,000 then one percent change in the futures price which is RM1,000, would result in a 10 percent change relative to the traders initial costs. Since there is no margin is required with a forward contract, control can be obtained with no money down. There is flexibility, especially with forward contracts, that can be used to create specialized risk/return patterns. Price risk can be accepted or eliminated by using forward or futures contracts without compromising any holdings of an underlying asset. Thus, a jeweller can sell the price risk associated with holding an inventory of gold without actually disturbing the physical inventory itself. This makes it easy to adjust ones financial exposure to commodity markets, even if ones physical exposure must be maintained for business purposes. The primary disadvantage of using futures contracts for speculative trading would involve a great deal of leverage, so that large losses can occur. In effect, holding a futures position with only the margin requirement on deposit in a brokerage account is the same thing as having purchased the underlying asset on margin. Another closely related disadvantage is that futures (but not forward) contracts subject the trader to margin calls to meet daily settlement obligations. This requires participants to have a cash reserve that can be drawn upon to meet these demands for additional cash. (Sorid, n.d) Option Contract According to the Chicago Board Options Exchange (CBOE) 2008, an option is a contract gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. The owner of a call option has the right, but not the obligation to purchase the underlying good at a specific price for a specified time period. While the owner of a put option has the right, but not the obligation to sell the underlying good at a specific price for a specified time period. To qualify these rights, the options owner has to pay a premium to the seller of the option for buying the option. (CBOE, 2008) The seller of the option is called an option writer. Options have four possible positions: (CBOE, 2008) Call option buyer Call option writer or seller Put option buyer Put option writer or seller In these contracts, the rights are with the owner of the option. The buyer that pays the premium receives the right to buy or sell the underlying asset on specific time and price. The writer or seller of the option receives payment and obligates to sell or purchase the underlying asset as agreed in the contract of the option owner. (Akmeemana, n.d.) For instance, BAT share is selling at RM50 while its call option is at RM10. The call option can be exercised for RM45 with a life span of 5 months. The exercise price of RM45 is called the options strike price. The RM10 price of the option is called the option s premium. If the option is purchased for RM10, the buyer can purchase the stock from the option seller over the next 5 months for RM45. The seller, or writer of the option gets to keep the RM10 premium no matter what the stock does during this time period. If the option buyer exercises the option, the seller will receive the RM45 strike price and must deliver to the buyer a share of BAT stock. If the price of BAT stock falls to RM45 or below, the buyer are not obliged to exercise the option. Note that the option holders can only exercise their right to act if it is profitable to do so. The option writer, however, has an obligation to act at the request of the option holder. A put option is the same as a call option except the buyer of the put has the right to sell the put writer a share of BAT at any time during the next five months in return for RM45. The owner of the option is the one who decides whether to exercise the option or not. If the option has value, the buyer may either exercise the Option or sell the option to another buyer in the secondary options market. (Tatum, 2010) For short-term investment horizons, options trading can produce lower transaction costs than the outright purchase and sale of the underlying assets themselves. Besides, options can he used to execute some tax strategies. (Skousen, 2006) Swap Contract A swap is an agreement between two or more parties to exchange sets of cash flows over a period in the future. The parties that agree to the swap are known as counterparties. The cash flows that the counterparties make are generally tied to the value of debt instruments or the value of foreign currencies. Therefore, the two basic kinds of swaps are interest rate swaps and currency swaps. (Schweser, 2006) Unlike the highly structured futures and options contracts, swaps are custom tailored to fit the specific needs of the counterparties. The counterparties may select the specific currency amounts that they wish to swap, whereas exchange traded instruments have set values. Similarly, the swap counterparties choose the exact maturity that they need, rather than maturity dates set by the exchange. This flexibility is very important in the swap market, because it allows the counterparties to deal with much longer horizons than can be addressed through exchange-traded instruments. Also, since swaps are not exchange traded, it gives the participants greater privacy, and they escape a great deal of regulation. (Hodgson, 2006) According to Hodgson (2996), the advantages of swap agreements over conventional traded derivatives can be summarised as below: Swaps are highly flexible and can be custom made to fit the requirements of the parties entering into them. The swap market is virtually unregulated, in contrast to the highly regulated futures market. This could change, however, since regulators usually abhor a regulation vacuum and probably will, eventually, seek to bring the market under their protection. The cost of transacting in the swap market is low. Swaps are private transactions between two parties. Often, swaps are off-balance sheet transactions that can be used, for example, to enable a firm to reposition its balance sheet quickly without alerting competitors. The disadvantages of swaps include: Because swaps are agreements, a party who wants to enter into a particular swap must find a counterparty that is willing to take the other side of the swap. Swaps can be illiquid; once entered into, a swap cannot easily be terminated without the consent of the counterparty. Because there are no margin deposits or a clearinghouse that help ensure, or will guarantee, that the agreements will be honoured, the integrity of swaps depends solely upon the financial and moral integrity of the parties that have entered into them. In other words, the swaps have more credit risk than futures contracts. The Demand of Derivatives Based on the statistics of the Bursa Malaysia Derivatives Berhad, the total exchange of derivatives during the year 2009 was up to 6,137,827 contracts. The crude palm oil futures (ETD) is the most liquid future in Malaysia, total of 4,008,882 contracts with average of 334,074 contracts traded monthly during year 2009. (Bursa Malaysia, 2010) Figure 2.1 shows the monthly price traded and the monthly volume of crude palm oil futures (FCPO) traded in Bursa Malaysia from year 1985 until March 2010. The green colour bar represents the price close on the month end was above the open price open on the beginning of the month, while red colour bar indicates the closing price is below the open price. Figure 2.1 indicates that there was less transaction traded during the eighth decade of the 20th century until 2002. The number of FCPO contract traded keep on increasing especially start from year 2002, and is quite popular in recent year, the volume of transaction exceeded 150,000 contracts each month. FCPO is extremely high volume in 2008 because the global oil price is at its peak at USD145 per barrel. FCPO traded at its pinnacle in November 2006 which recorded 360,650 contracts in a month. This showing that the FCPO is high in demand in Malaysia as compare to previous years. Figure 2.2 shows the history chart of FTSE Bursa Malaysia Kuala Lumpur Composite Index Futures (FKLI) traded in Bursa Malaysia from December 1995 until March 2010. There was a high trading volume during the 1997 Asian Financial Crisis due to the high fluctuate of the Kuala Lumpur Composite Index (KLCI). 148,318 future contracts were traded in September 1998. There were at least 40,000 future contracts traded in the following years of 1998. The volume traded increasing rapidly in 2007 as Malaysian economy recovers. KLCI went as high as 1400 points during the last 3 years. 302,321 future contracts were trade in August 2007, which is the highest volume recorded in history. Based on Figure 2.2 trading volume trend, it can be concluded that speculators were heavily involve in trading FKLI in 1997, where the Asian Financial Crisis tragedy occurred and in its peak in 2007 . KLCI fluctuation was elevated during these two event (circled in the chart). For the global market, the market for options developed rapidly in early 80s. The number of option contract sold each day exceeded the daily volume of shares traded on the New York Stock Exchange. According to the Bank for International Settlements, the total OTC derivative outstanding notional amounted to USD605 trillion as of June 2009. Factors That Influence Derivatives Trading Mike Singh (2010) said that trading derivatives will have lesser risk than other trades because investor are not buying into the company or buying the underlying product. Instead, the risk is placed on performance. Due to its low risk factor, investment and commercial banks, end users such as floor traders, corporations, and mutual and hedge funds, are major types of firms that utilize derivatives. A much lower initial investment start up in derivatives trading, derivatives give an edge to those who decline or do not want to invest as much as is required to purchase stock. Derivatives can be a good way to balance ones total portfolio by spreading the risk throughout a variety of investments, rather than putting all eggs into a basket. Besides that, trading derivatives can be a good short term investment. Compared to some stocks and bond, derivatives is an financial instrument that can pay off in a shorter time frame such as days, weeks, or a few months. Stock and bonds are long-term investments and may over the course of many years. As the shorter turnaround time, derivatives can be a good way break into the market and mix short and long-term investments. (Siems, 1997) Numerous resources are available for learning about derivatives trading and many options are available. Hence derivatives are variety and flexibility, this point of view was supported by Mike Singh, 2010. Derivatives can derive profit from changes in equity markets, currency exchange rate, interest rates around the world. It also include the commodities changes in global supply and demand such as precious and industrial metals, agricultural products, and energy products such as petroleum and natural gas. This show that derivatives trading are available on a global scale. Getting involved in the global economy opens international options that may not be available through the traditional stock market. From the points given above, he concluded that there are three reasons for derivatives trading. First, trading derivatives are lesser risk than other trades. Second, trading derivatives are a good short term investment. Third, trading derivatives are variety and flexibility. Hence, derivatives trading may be a good trading option if someone are looking outside of trading traditional stocks and bonds. The International Swaps and Derivatives Association, Inc. (ISDA) announced the results of a survey done on the derivatives usage by the worlds 500 largest companies. According to the survey, 94% of these companies use derivative instruments to hedge and manage their financial risks in business. The foreign exchange derivatives are the most widely used instruments with total 88% of the sample, followed by interest rate derivatives which is 83% and commodity derivatives. There are two benefits which are most widely recognised attributed to derivative instruments, risk management and price discovery. Risk management could be the most vital purpose of the derivatives market. Derivatives also used to mitigate the risk of economic loss arising from changes in the value of the underlying. This activity is known as hedging. Alternatively, derivatives can be used by investors to increase the profit arising if the value of the underlying moves in the direction they expect, bearing extra risk by speculations. (Kuhlman, 2009) Price discovery is the prediction of information about future cash market prices through the futures market. There is a relationship between an assets current (spot) price, its futures contract price, and the price that people expect to prevail on the delivery date. By using the information contained in futures prices today, market observers can form estimates of what the price of a given commodity will be at a certain time in the future. Futures markets serve a social purpose by helping people make better estimates of future prices, so that they can make consumption and investment decisions more wisely. (Sorid, n.d) The derivatives market are broadly classified into three uses: Hedging Speculation Arbitrage Hedging Hedging is a way to enter into transactions that expose the entity to risk and uncertainty that fully or partially offsets one or more of the entitys other risks and uncertainties. (Elliot Elliot, 2005) One reason why companies attempt to hedge these price changes is because they are risks that are peripheral to the central business in which they operate. Hedging also refers to managing risk to an extent that makes it bearable. (Kameel, 2008) Equity Hedging Traders can use derivatives to hedge or mitigate risk in the stock market. Entering into a derivative contract can cover part or all of the losses if the value of their underlying position moves in the opposite direction. For equity forward contracts, where the underlying asset is a single stock, a portfolio of stocks, or a stock index, work in much the same manner as other forward contracts. An investor who wishes to sell 100 shares of BAT stock 90 days from now and wishes to avoid the uncertainty about the stock price on that date, could do so by caking a short position in a forward contract covering 100 BAT shares. A dealer might quote a price of RM48 per share, agreeing to pay RM4,800 for the 100 shares 90 days from now. The contract may be deliverable or settled in cash as described above. The stock seller has locked in the selling price of the shares and will get no more if the price (in 90 days) is actually higher, and will get no less it the price actually lower. (Sharma, 2009) For equity future example, an individual stock trader can minimise the stock trading risk by hedging using futures market (Exchange-traded derivatives). A stock trader is extremely aware of economy downturn. If the trader expected an economy downturn is coming which will cause the share price to drop, the trader can protect against down fall of stocks equity by opening a short position of the FTSE Bursa Malaysia KLCI Futures (FKLI) to hedge against his stock portfolio. So if the economy downturn does happen, the trader will gain profit from the FKLI. However, there will be a loss if the trader close the position of the stock during the economy downturn, but the gain from the FKLI will cover some or over the losses from the stock market. Thus, this can reduce the risk by FKLI futures hedging. (Copeland, et al., 2004) For stock option contracts, one call priced at RM6 with a strike price of RM30 gives the holder the right to purchase 100 shares of the stock at RM30 per share until the exercise date. The contract has a money value of RM600 (RM6 x 100 shares). For put options. the concepts are the same, except that the option gives the holder the right to sell 100 shares of the stated stock at RM30 per share through the exercise date. Commodity Hedging Commodity is a physical substance which there is demand, such as basic resources and agricultural. The most popular commodities in Malaysia include CPO, gold, tin, rubber and latex. (Amadeo, 2003) For instance, an airline company which the fuel is the biggest cost item for an airline taken care of, might want to get protection against the fuel price crisis. The airline company might enter into a future contract to hedge the fuel price. They will sign up a future contract with the fuel supplier (OTC derivative), promising that they will buy a certain amount of fuel at a certain price for the next certain months. The contract will definite the price that the airline company to pay for buying the fuel in future. In case the fuel price go higher than the contract price, then the fuel will have a cheaper price. If the fuel price gone down without the airline company expectation, which mean the contract price is higher than the market price, in that incident, the airline company might not want to exercise the contract price. In return, the airline company need to pay certain of fund to the fuel supplier as the contract fee. (Larry, 2005) Malaysian Airline System Berhad (MAS) announced a RM1.34 billion fuel hedge gain in the second quarter ended 30 June 2009. (Francis, 2009) Idris Jala (2009), the Managing Director and Chief Executive Officer of Malaysia Airlines said that he had decided not to unwind the fuel hedges so that the company can remain protected against the volatile fuel prices. MAS had hedged 47% of its fuel requirement at USD103/ bbl WTI for the year ended 2009 from 31 March 2009. Further highlighting the volatility of fuel prices, the fuel price increased 47% since April 2009, those airlines that did not hedge will be affected by the fuel price increasing, said Idris Jala, 2009. While MAS fuel bill increasing in tandem with the fuel price, MAS total fuel bill will be lower as the gains from the fuel hedges will partly offset the higher fuel cost. Foreign exchange (Forex) Hedging In international trading, dealings with forex play a significant role. There will be a significant impact on business decisions and outcomes if got any fluctuations in the forex rate. Many international trade and business dealings are shelved or become unworthy due to significant exchange rate risk embedded in them. Therefore, companies will use forex hedging with forwards, future, option. (Joseph Nathan, 1999) Forex hedging with forwards Forex forward rate is an agreement between two parties (OTC derivatives) to fix the exchange rate for a future transaction. In Malaysia, there are some banks do provide Forward Rate Agreements (FRA) service such as Bank Islam Malaysia, Maybank, EON Bank Group, CIMB Bank Group, HSBC Bank Malaysia, etc. A company simply transfer the risk to the bank when they entering into a FRA with a bank. Of course the bank internally will do some kind of arrangement to manage the risk. (Currencies Direct, 2010) For instance, a Malaysian construction company, Ban Lee Hin Engineering Construction Sdn Bhd just won a contract to build a bridge road in Philippines. The contract is signed for 10,000,000 Peso and would be paid for after the completion of the work. This amount is consistent with Ban Lee Hin minimum revenue of RM750,000 at the exchange rate of RM7.50 per 100 Peso. However, since the exchange rate could fluctuate and end with a possible depreciation of Peso, Ban Lee Hin enters into a forward agreement with Philtrust Bank in Philippines to fix the exchange rate at RM7.50 per 100 Peso. The forward contract is a legal agreement, and therefore constitutes an obligation on both parties. The Philtrust Bank may have to find a counter party for such transaction, either a party who wants to hedge against the appreciation of 10,000,000 Peso expiring at the same time, or a party that wishes to speculate on an increasing the value of Peso. If the Philtrust Bank itself plays the counter party, t hen the risk would be borne by the bank itself. By entering into a forward contract, Ban Lee Hin is guaranteed of an e

Saturday, January 18, 2020

Analysis of Adarsh Society Scam Essay

Chavan was the revenue minister between 2001-2003 and had dealt with files pertaining to the ownership of the land. He is alleged to have recommended 40 per cent allotment of flats to civilians in the society, which was meant for war widows and heroes of Kargil war. The exposure of the scam forced the Congress party to seek the resignation of then Maharashtra Chief Minister Ashok Chavan . Maharashtra environment department had denied giving clearance to the society. The reports make it clear that neither MCZMA nor the state’s department of environment gave any clearance for the high-rise building, The state environment department has denied giving clearance to Adarsh housing society. The state environment department has denied giving clearance to Adarsh housing society. Adarsh Co-operative Housing Society building violated provisions of the Coastal Regulation Zone Notification, 1991. No CRZ clearance or permission had been sought to construct the building. It concluded that th e no CRZ clearance had been sought for incorporating 2269 sqm of BEST land. This was a condition imposed on the housing society by the state’s department of revenue when additional land was allotted in August 2005. The Adarsh Society has also violated the floor space index permissible in the CRZ-II area of Mumbai. This is prescribed in the Development and Control Regulations of 1967. There are reports that there are other buildings too that have come up,† he accepted, adding that he will go after them after 2010 amendment to the CRZ regulations are passed by Parliament. The high-rise is built on 6,450 sq metres within the Colaba naval area and was cleared on the condition of housing war veterans but now has 104 members, including former service chiefs, senior serving Army officials, a former Environment Minister, legislators and state bureaucrats. Govt. is waiting for the official report from the various ministry, only then they take action against the gulty. MMRDA to revoke occupancy certificate till Ministry of Environment and Forest gives clearance. The prime piece of land in upmarket Colaba given to the Adarsh Cooperative Housing Society belonged to the state government and not the Services, he said. The land belongs to the state government, based on the collector’s records. Revenue department granted land to the Society as per GR of 9. 7. 1999,† he said. Certain files were missing from the adarsh community housing society that bearing signatures of important officials, pertain to the decisions taken in the stages before the project was cleared by the government. Tiwari was urban development secretary for over eight years (2000 to 2009). During his tenure, the Adarsh society was given various clearances, including additional floor space index. Raj Bhavan sources confirmed on Tuesday evening that governor K Shankarnarayan received a formal request from the state government recommending him to make reference to the Supreme Court for removal of Tiwari. This will mean that Tiwari will not be able to challenge his removal in any court. Both Defence Minister AK Antony and Army Chief General VK Singh have promised strict action against any serving officer who is found to be guilty in the scam. MoD has also said that it will give prompt permission to CBI to question any serving officer and will have no objection if they are prosecuted. The controversial Adarsh Cooperative Housing Society (ACHS) had plans to undertake another residential project. It had even approached the Maharashtra government for allotment of a 7,500 sq m plot situated near the Spastic Society of India in Colaba   ACHS had proposed to develop the plot to build cheap houses for the ‘‘ weaker sections , defence personnel and other deserving classes’’ . Society was promoted by a few IAS officers; subsequently IPS officers, government servants, MLAs and MLCs joined in and the list went up to 130 members. The society applied for land at Wadala , and the government in principle showed willingness to allot 13,000 sq metres (over 3 acres) in September 2009. This plot was located close to the high tide line, where no construction activity is usually permissible. Arguing that there were at least two other buildings which had previously been permitted to be set up right next to the HTL, Adarsh promoters requested processing of their proposal and even urged the state government to modify the HTL to override CRZ concerns. he society requested the state government to redraw the high tide line (HTL) to clear the project from the ‘‘ CRZ point of view’’ . HTL is the line of intersection of the land with the water surface at the time of high tide. Restrictions are imposed on development activity within 500m of the HTL. Minimal construction activity is permitted in these parts. But since the Adarsh scam was unearthed, the names added to the file will be deleted or the allo tment of land to Indus may be delayed,’’ said sources. All of them got flats in the society in an expensive part of Mumbai at throwaway prices. While ownership of the land was still with the state, it was in the custody of Army for several years. Army had taken custody of the land ever since it was reclaimed because the state government was to give it to the Army in return for Army’s land in Santa Cruz firing range which was taken over by for expanding the Western Expressway. Now, as the auditors go through records, it is clear that the Army neither got the land, nor financial compensation from the state. The society was asked to change the bye-laws by the then Revenue Minister Ashok Chavan. That is on record. He called a meeting and called members of the society and asked them to change the bye-laws and 40 per cent of civilians should be allowed to be members of the society. There it created a lot of problems,† Deshmukh said. the defence ministry has asked to look into issues concerning the issue of a no objection certificate, relinquishment of the land in possession of the army and the extent to which commitments for the welfare of defence ersonnel were complied with, the official added. Among other things, the bureaucrats have been asked about the circumstances under which they became members of Adarsh Cooperative Housing Society and the source of funds for the luxurious flats in the 31-storeyed building, the official said. the authorities cancelled the building’s occupation certificate and snapped off its water and power supplies. Brihanmumbai Municipal Corporation (B MC) has decided to provide all necessary information regarding residential buildings and societies on its website. People can ascertain whether a particular shop or nursing home is licensed or not. RC THAKUR   chief promoter of Adarsh Society, was the military estate officer in Colaba division when he came to know about the prime plot and started getting files moved. His colleagues say that whenever Thakur came up against a hurdle, he would make the person a member of the society. What I think is to demolish that building because it is not following any norms passed by the government. Or we can hand over that building to the navy and army and let them decide what to do. Or we can give the flats to the kargil widows, because that land is for them only. Rest is depend on the government. If any such scams occur in mere future than public must raise their voice in order to protest them, it somehow effect our economy and spoil our society. Mostly the scams are done by the government personnel’s. and nowadays many people are trying to somehow get the government job. If we are not raising our voice now then in future we cant save our country. In India there are so many terriost who are spoiling our country and we are not bothered about them we just focus on the terriosm.