What is Balance Sheet/Statement of Financial Position

January 9th, 2011 | Adam | Posted in Accounting | 459 views | No Comment

Balance sheet is the statement of financial position of a company. It depicts the financial position (sound or weak) of
a company on a specific date. The basic concept involved in balance sheet is that the assets are equal to outside
liabilities and owners’ equity. The resources or asset of an organization are always generated through financing. This
financing is provided by two sources which internal or external. Internal sources are owners or shareholders who
provide capital through investment and reinvesting the profits earned over the periods. External sources on the other
hand provide financing through extended credit usually called creditors and granting loans to the firm. It makes sense
that the whole financing must be utilized some where in generating resources or assets for the firm, therefore, the
value of the firm’s resources must equate the value of whole financing whether internal or external.
The balance sheet forms an integral part of financial statements and extensively used by many stakeholders to judge
the financial strength of the company. It demonstrates that how the financial resources are being utilized to generate
resources for the firm and what type of resources the firm actually generated over the period. It further guides in
inventing whether the financing has generally been employed in high return assets or it may have been wasted in
assets with lower potential.
The items in the balance sheet are segregated into the following:

Assets-Resource Section
Assets are resources in which the funds are invested. The main categories of assets are:
Fixed assets
The assets with useful life of more than one year and are depreciated over their useful life. Fixed assets are
represented on historical costs with accumulated depreciation on the fixed assets on the other side of the balance
sheet. Annual depreciation is charged to the income statement as expense against revenue generation for that
period. Some times revaluation gains and impairment losses on the fixed assets are also entertained in the books
of accounts. The examples of fixed assets include land and buildings, equipment, plant and machinery, and furniture
and fixture etc.
Current Assets
The assets with useful life lesser than one year are called current assets. Such assets form part of working capital
and result in lower return as compare to fixed assets. Some investment in the current assets is compulsory for a firm
such as accounts receivables, inventories, short term securities, and cash and bankbalances. However, companies
can adopt aggressive or conservative policies with respect to investment in current assets. In aggressive policies little
investment is made to strengthen the profitability and with conservative policies usually handsome investment is
made in current assets to strengthen the liquidity position of the company.
Intangible Assets
Intangible assets are unseen assets such as reputation of the company named as goodwill. Goodwill is calculated
through recommended valuation methods.
Long Term Investments
There may be some long term investments made by a company. Such investments are shown separately in the
assets section of the balance sheet.

Liabilities-Financing Section
Shareholders’ Funds – Owners’ Equity
This is called equity section of the balance sheet where capital funds invested by the owners or shareholders are
presented. Along with capital funds the reinvestment of the profits over the periods is also cumulated and shown in
this section as addition to the equity. The movement in shareholders’ funds over the years is also required to disclose
as per international financial reporting standards.
Long Term Liabilities
External funds provided by banks or other financial institutions as debt for a longer time horizon usually more than
one year. Some times companies issue bonds or debentures to arrange finance from the general public. Such bonds
or debentures are also presented in this section of the balance sheet.
Current Liabilities
Claims on the current assets of the company are called current liabilities. Such liabilities have to be settled within
a financial year. Main part of current liabilities is creditors extending credit of raw materials to the firm. In addition
there may be some accrued expenses such as outstanding salaries or rents etc are also treated as short term claim
on business and are presented in current liabilities.
Example of Balance Sheet

Hypothetical Company
Balance Sheet
As at Jun 30 20XX

Liabilities and Owners’ Equity Amount $ Asset Amount $

Shareholders’ Equity: Fixed Assets: XXXX

Equity Capital XXXX Land and Building XXXX
Reserves XXXX Machinery and Equipment XXXX
Furniture and Fixture XXXX
Long-term Liabilities:
Bonds XXXX Current Assets:
Bank Loan XXXX Accounts Receivable XXXX
Inventories XXXX
Current Liabilities: Prepaid Expenses XXXX
Accounts Payable XXXX Cash and Bank Balances XXXX
Investment in short term
Accrued Expenses XXXX securities XXXX
Short term loan XXXX
Other Assets:
Goodwill XXXX
Investment in long term securities XXXX

XXXX XXXX
The total of the two sides of balance sheet must equal.
Benefits of Balance Sheet
The benefits associated with the balance sheet are as follows:.
• Through balance shareholders can judge that how their capital is being used by the management. In what type of
assets their funds are invested to maximize the return. Shareholders through balance sheet review the financial
position of the company and can decide to for further investments or divestments.
• Lenders and creditors can judge the liquidity position of the company and make decisions regarding extension of
credits and debts.
• Management can decisively evaluate the financial position and take remedial measures if required. Balance sheet
helps management in determining the future financial needs.
• Employees can compare the remunerations with financial position and are in a better position to bargain with
management for enhancement in remunerations.
Limitations of Balance Sheet
Balance sheet may not depict actual financial strength or weakness of a company because the figures related to the
fixed assets are reported in the balance sheet at historical costs. The real value of those assets may be more or less
according to their current conditions. Moreover, there may be some liabilities created through off-balance sheet
financing such as operating leases et
 •

What is Income Statement?

January 30th, 2011 | Adam | Posted in Accounting | 674 views | No Comment
Simply a statement showing income, expenses, and profit or loss of firm is called income statement. In technical
terms it is a financial statementpresenting income earned during a period and expenses incurred to generate that
income along with profit or excess of income over expenses called surplus. Income statement is also referred to as
profit and loss account or a statement of financial performance. An income statement demonstrates how income is
transformed into net income through accounting for the expenses for the same period and indicates operating
performance of the company during that period. Along with expenses income statement also provides for some
portion of the income as doubtful expenses or expenses than can not be determined exactly but have to pay in future.
Non cash expenses such as depreciation and amortization also form part of the expense pool. Unlikebalance sheet it
contains a time period usually six months or twelve months related to which time horizon revenues and expenses are
accounted for.
Income statement is required to be prepared and disclosed under the international financial reportingstandards by
listed companies and large organizations. It is labeled as income and expenditure account or receipt and payment
account in not for profit organizations. Through this statement such organizations need to show the receipts of
donations, subscriptions, and other income during a period along with representing the related administrative or
operating expenses resulting in surplus or deficit.
Income statements can be too short or detailed. Short income statementjust show revenues, cost of goods sold,
Gross Profit, Operating expense, Financing Cost, and Profitability (Loss). However detailed income statements
usually divide the incomes and expenditures into single items and their associated amounts. Operating expenses are
enlisted accordingly and profits before and after taxes are determined. Profits after taxes are actually the net income
for the period and are available to distribute among shareholders or to retain in the business.
The contents of income statement can be divided into following categories:
Operating Segment
The revenues or expenses related to normal or major business operations of the firm are called operating revenues
or expenses. Incomes related to operating activities are inflows resulting from sale of goods, rendering services, or
such activities constituting the main operations of the firm. Similarly operating expenses consists of costs or outflows
incurred to generate revenues from the major operations of the firm. Such costs are further divided into costs incurred
up to making the goods saleable referred to as cost of goods sold and costs incurred to sale the goods and assist in
producing and selling.
Cost of goods sold is the cost incurred directly in producing the goods such as raw material, direct labor, and
overheads. Other operating costs include administrative, selling, and marketing expenses. Such costs actually assist
in production and sale of goods and services and are also referred to as supporting costs. An important ingredient of
the other operating costs and overheads is depreciation on fixed assets. Depreciation means the portion of the total
cost of asset used in revenue creation of the current period. This is basically an approximation and called non cash
expense.
Non Operating Segment
There may be incomes earned by a firm from the sources other than of normal business operations. Such revenues
are called non operating revenues because they are unusual in nature. Examples of such revenues are interest
income on deposits, rental income from some property, and gains on sale of assets or securities.
Similarly there may be some expenses other than of normal operating expenditures such as losses on sale of assets
and securities. Such expenses also form part of income statement are referred to non operating expenses.
Financial Cost
Companies usually get debts from financial institutions to finance the ventures. Such loans require part of income to
be paid as interest for the period which is called finance cost. This financing cost is presented in theincome
statement as deduction from income and part of overall expenditures.
Income Tax
After dealing with operating, non-operating, and financing items some percentage of profit is to be paid as tax under
the prevailing income tax regulations. Income tax expense for the period is shown as deduction from the profit before
tax in the income statement.
Example of income statement:
Hypothetical Company
Income Statement
For the period ended June 30, 20XX

Sale of goods XXXX

Other income XXXX
Total Revenue XXXX
Less: Cost of Goods Sold XXXX
Gross Profit XXXX
Less: Other Operating Expenses:
Salaries & Wages XXXX
Repair & Maintenance XXXX
Conveyance charges XXXX
Utility expenses XXXX
Depreciation XXXX
Misc. expenses XXXX
Total operating expenses XXXX
Earning before interest and taxes XXXX
Less: Financing Costs XXXX
Earning before tax XXXX
Income Tax XXXX
Earning after tax XXXX

Benefits of Income Statement

Following are the main benefits associated with the income statement which the stakeholders can avail.
• Through income statement shareholders can know the profitability they earned on the capital invested. Income
statements enable the shareholders to judge the efficiency of the management for converting their capital into
profitability. They can make the managers accountable.
• Lenders and creditors can judge the past performance of the company and make decisions regarding extension of
credits and debts.
• Management can critically evaluate the performance and take corrective measures. Income statement helps
management in determining the dividends to be distributed and investments from internal sources.
• Employees can compare the remunerations with profitability and can talk to the management for their benefits.
• Government agencies such as tax regulators can be able to determine the tax and other liabilities of the companies.
Limitations of Income Statement
Though quite comprehensive but income statement also depends upon some approximations or judgmentssuch as
depreciation etc and further it also may vary according to the accounting policies adopted by the
company. Accounting policies may be regarding inventory valuation methods and depreciation methods et

Statement of Cash Flow

June 24th, 2010 | Adam | Posted in Accounting | 1,297 views | No Comment
Conventional financial statementsi.e. income statement and balance sheet do not give true picture of thecash flows of
the firm. Because income statement incorporates many non-cash expenditures and revenues for the sake of
ascertaining profitability. Similarly balance sheet tells us the overall financial position with respect to firms’ assets and
liabilities and includes monetary and non-monetary items. In reality the business is a matter of earning cash therefore
firms receive and spend cash on daily basis. The shareholder must be in loop regarding the cash receipts and
disbursements of the firm.Cash flow statement summarizes the firms’cash flows over a given period of time under a
universally accepted and understood format.
The preparation of cash flow statement is a matter of ascertaining cash inflows and outflows with in a given period
mainly one year. It summarizes the cash inflows and outflows. Cash inflows means the sources of cash or cash
receipts and cash outflow means the uses of cash or cash payments. For example, if a
firm’s accountspayable increased by $1000 during a period, the change would be an inflow of cash. Few points need
to be understood for the good insight of cash flow statement.
• The cash invested in assets is treated as funds tied up in those assets therefore any decrease in assets is referred
to as cash inflow. On the contrary enhancement in assets or cash balances indicates cash outflows because
additional cash has been strapped in assets and cash balances. Likewise decrease in cash balance reflects cash
inflow.
• Just like amortization and depletion, depreciation is also a non-cash charge that is deducted from revenue to
ascertain the profitability for a period. Depreciation is required to be added to the profit after tax to assess the cash
flows from operations in cash flow statement.
• To prevent from double counting of depreciation in cash flow statement it is imperative to include gross rather than
net changes in fixed assets while preparing cash flow statement.
• Direct changes in retained earnings are not incorporated in cash flow statement.
The statement of cash flows is categorized in three parts namely:
Cash Flow From Operating Activities
Cash flows resulting from those activities relating to purchase and sale of the firm’s products and services. In other
words cash flows from operating activities primarily accrue from the major revenue producing activities of the firm.
Cash Flows From Investing Activities
Investing activities relate to the acquisition and disposal of long-term assets. The cash flow from such activities is
necessary to disclose because they show the cash invested in assets intended to generate future revenues for the
firm.
Cash Flows From Financing Activities
Financing cash flows are cash flows that result from debt or equityfinancing transactions and include incurrence and
repayment of debt cash inflows from the sale of shares and cash outflows to repurchase shares or pay cash
dividends. The cash flows from financing activities is necessary to disclose because they represent future claims on
the firm from the providers of the funds.
The formation of cash flow statement can be more broadly understood by the following example.
Example
Solution
$ In
Cash Flow Statement thousand $ In thousand
July 1, 2008 to June 30, 2009

Cash flow from operating activities:

Net earnings 200,000
Adjustments:
Add Depreciation 111,000
311,000
Changes in assets and liabilities:
Add Accounts receivables 62,000
Add Accounts payables 12,000
Add Accruals 27,000 101,000

Less Inventories 94,000

Less Prepaid expenses 3,500
Less Deferred income taxes 6,000
Less Income Tax payable 89,900 (193,400)
218,600

Cash flows from investing activities:

Add Other assets 500
Less fixed assets 104,000
Less long term investments 65,000 (169,000)
(168,500)

Cash flows from financing activities:

Add Bank Loan 91,000
Add Long term debt 4,300
Add Common stock 100 95,400
Less Dividends (143,000)
(47,600)

Increase in cash and short term investments (Net cash flows) 2,500
Cash at the beginning of the period 175,000
Cash at the end of the period 177,500
Importance of Cash Flow Statement
The statement of cash flows allows the financial manager and other stakeholders to analyze the firm’s cash flows.
The manager should pay special attention both to the major categories of cash flow and to the individual items of
cash flow and outflow to assess whether any developments have occurred that are contrary to the company’s
financial policies. In addition the statement can be used to analyze the progress towards the financial goals and
deficiencies. From the investors’ point of view cash flow statement provide information about the liquidity position of
the firm. They can analyze the future cash streams of the firm and future expected dividends

Inflation – Types and Causes

October 16th, 2010 | Adam | Posted in Economics | 1,240 views | No Comment
Inflation is an economic condition in which general price level rise, and currency is devalued over a period of
time. The value of currencydecreases and resulted in erosion ofpurchasing power. One unit of currency can purchase
fewer goods and services. Currentlyinflation rate in developed countries is below 5% and in developing countries
upto25%. In some countries there is hyper inflation, and rate is above 100%. Inflation rate between 5% to 7% is
considered a healthy and good for growth of economy.
Types of Inflation
Below are the four major types of inflation caused by different economic forces.
Monetary Inflation: Monetary inflation is directly related to control of money. It is a direct result of supply of currency,
excessive money creation cause monetary inflation. The printing of more currency by the government increases the
inflation rate.
Wage Inflation/Demand-pull Inflation
When demand of product and services exceeds the supply of the product in the economy it is known as wage or
demand-pull inflation. This scarcity of good and services pushes the general price level upward. This trend follow the
common law of demand as demand increases so the prices level and situation prevail until supply adjust accordingly.
In the time of emergencies like during or after wartime the affect is more Sevier.
Cost-push Inflation
When the cost of production increase it has a direct affect of price incremental shift to end user, this increase
inprice level is called cost-push inflation. For example if the there is a rise in labor wages it will increase the unit cost
and price of that product will increase. Once this price upward movement trend set forth it affects whole economy
and inflation level rise. Cost-push inflation may or may not be occur with Wage inflation.
Oligopolistic inflation/Pricing Power Inflation
Commonly known as administered price inflation, this type of inflation occurs when the industries and professionals
decide to increase prices for increasing their profit margins. Oligopolistic appeared when some oligopoly oriented
industries have control over demand and supply and they manipulate this to set the price level for increase their
profits. A significant point for oligopolistic inflation is it doesn’t exist in financial crises and economic depression.
Sectoral Inflation
Another major type of inflation is sectoral inflation, it is an Increase in theprice of such commodity which have its
affect on other sectors of economy for instance if price of the crud oil goes up it will directly affect other sectors; its
impact on aviation industry can be seen where the fares go up. In recession time it effect adversely and could cause
layoffs. When increase of prices in one sector of economy has its effect on other sectors it is known as sectoral
Inflation.
Other Types of Inflation
Hyperinflation/Runaway Inflation
Hyper inflation is the type of inflation in which inflation level wet abnormally high. The economies in disaster like war
mostly face hyper inflation. This is the time when there is shortage of supplies of all necessities of life andprices go
extraordinarily high. Hyper or runaway inflation doesn’t sustain for a long time. In recent years hyper inflation can be
seen in Zimbabwe.
Fiscal Inflation
Fiscal inflation is a result of excessive government expenditures. When there is fiscal inflation there will be deficit
budget.
Causes of Inflation
Average Earnings
Increase in average earning results in increase in demand of product and services, which leads to increase
inprice level

Reasons of Inflation
September 4th, 2010 | Adam | Posted in Economics | 752 views | No Comment
Inflation is a condition where the general price level is rising continuously indicating the imbalance between supply
and demand of goods at current prices. The causes of inflation vary from one country to another, what different types
of inflation existing in different places depending on the reasons that generateinflation. However, there are some
common causes of inflation between the different countries listed below.
Funding Gap
The situation in which government spendingexceeds its revenue is called deficit financing. Additional expenses in the
budget deficit is met through deficit financing. Due to funding shortfalls in the money supply in the country increases,
but the production does not increase at the same rate so the price starts to rise and triggering inflation.
Increasing the money supply
Huge increase in money supply is also a main reason of inflation. The money supply increases due to several
reasons, such as bank rates low, financing the deficit, declining reserve ratio, etc. Because of the money supply
increased the amount of cash with the people and banks increases. Thus commercial banks offer more loans
to people of lower interest rates and on the other hand, the people will demand more goods and services due to the
availability of cash. Due to increased demand for goods and services, prices start to rise and thus causeinflation.
Increased Development Costs and Development
Development expenditure and development of government also lead to inflation. For example, no development costs
such as defense spending, official foreign visits of government, increased the salaries of publicemployees, and so
drives the economy an inflationary situation. Moreover in most of the production of development projects started
many years after the money has been spent. This type of development projects is also a source of inflation.
Population Explosion
Rapid population growth is also a major cause of inflation. With the increasing public demand for goods and services
also increases but supply does not increase at the same pace. Due to the imbalance between supply and demand of
goods and services, prices start to rise and triggering inflation.
The Currency Devaluation
The devaluation of the currency relates to the reduction of the external value of the currency of the monetary
authorities through an official order. When the local currency depreciates against foreign currency, then theprices of
imported goods will increase. These imported products are used in various factors of production and ultimately
increase the cost of production. Due to increased production costs begin to increase prices and cause inflation. This
type of inflation is called cost inflation push.
Political Instability
Political stability is very important for the economic development of a country. Political stability discourage speculation
and hoarding and encourages investment. If there is an unexpected twist in the political situation of a country become
entrepreneurs reluctant to invest. Just as foreign investors do not invest, while industrialists and businessmen feel
uncertain and can not make good plans. Due to the scarcity of goods and services are produced and cause inflation.
Undesirable Activities
Various illegal activities such as smuggling, black market, hoarding etc impeding economic growth and the causes of
shortage of supply for domestic use. In cases of hoarding often artificial scarcity of essential items is created and
charged huge profits. Here it should be noted that income from these sources not used in productive activities and
not inadvertently spent on luxury items, jewelry, speculation, consumer goods, etc. Because of the increased
spending, the demand for goods and services increases and thus causes inflation.

Inflation and Types of Inflation

September 3rd, 2010 | Adam | Posted in Economics | 1,148 views | No Comment
The most simple and easy definition of inflation is reduction or drop in the value of money. Inflation is a
comprehensive topics and it also have different types.
Several economists have described inflation in different ways. For example Coulborn define inflation as “Too
much money chasing too few goods.” According to Crowther “Inflation is a state of economy in which the value
of moneydecreases, i.e, prices are rising.” In simple words we can say that inflation is the steady increase in overall
prices over long period of time. This increase in the price usually indicates an imbalance between demand and
supply of goods at current prices.
What are the rates of inflation
Cost Push Inflation
Cost push inflation is an inflation rate that occurred due to increased costs of products and services. The basic
phenomenon is that manufacturing companies buy goods and services at higher prices because they get fewer
benefits. So to win the necessary amount of the profits of these companies pass their higher costs to consumers and
therefore inflation arises. In general, costs of production increases due to factors such asincreased demand for
wages, increase the tax burden from the government, high raw material prices, etc.
Demand Pull Inflation
Another type of inflation is a demand pull inflation that occurred due to increased aggregate demand for goods and
services. Due to increased aggregate demand, the profit margins of producers also increase so they try to produce
more, using all resources. But resources are scarce so the imbalance between supply and demand arises. This
means that people demand more than the available supply so prices soar.
Mild Inflation
Mild inflation indicates a slow (say 3% to 4%) in the general price level over a long period of time. This inflation
rate shows a positive growth in the economy and therefore must be maintained to the country’s progress. When
prices gradually increase the earnings of entrepreneurs and industrialists are also raised and try to produce more. As
a result, employ more workers to increase production. This increases the demand for labor which translates
into increased employment.
Suppressed Inflation
Suppressed inflation is the inflation rate that the temporary measures taken to prevent inflation but eventually leads to
inflation. In such cases the provision of basic necessities such as agricultural products is set by the government by
introducing price controls on commodities. It’s called repressed inflation because prices are suppressed through price
controls. In the repressed inflation, price control is below the equilibrium price, but over time the inflationary pressures
exerted all his force and thus keep track of prices at the balance.
Hidden inflation
Hidden inflation is that in some cases, the government imposes strict controls to curb price inflation. In such
situations, employers are forced to sell the products at the prices required. Now because employers can not sell the
commodity at higher prices to get the profit, therefore, lower on the quality of products. This means that employers
are selling lower quality products at higher prices and inflation that is hidden.
Stagflation
The situation in which unemployment and inflation rates are high is known as stagflation. It is the combination of two
words i.e the stagnant economy and inflation in the economy. Basically stagflation of the economy refers to a
situation in which investment in the country is growing, but real income is constant or grows more slowly. Such a
situation is caused by population growth. With increasing population, demand for goods and services increases along
with the money supply leading to inflation
Measures to Control Inflation
September 3rd, 2010 | Adam | Posted in Economics | 3,317 views | One Comment
There are several steps to effectively control inflation before it gets out of hand. Given that inflation shows the
imbalance between supply and demand of goods at current prices so that measures be taken to reduce demand or
increase supply of goods and services. The following are some important steps you should take into demand and
supply.

The supply side

Increased Production
The supply of goods and services can be increased by increasing agricultural and industrial production. Agricultural
production can be increased by providing an adequate supply of agricultural inputs at low prices, the modernization of
agriculture and scientific farm management, adequate water supply for irrigation, industrial production etc similarly
can be increased by increased foreign directinvestment, industrial credit growth, fiscal concessions, etc.
Control of illegal Activities
There are some illegal activities that cause significant inflation in a country. It is hoarding, smuggling, profiteering,
black markets, etc. In the case of smuggling of large quantities of staples like sugar, butter, wheat, rice, etc are
exported abroad illegally in order to obtain higher prices. Similarly, the shortage in most cases artificial staples to
create higher profits. All activities of this evil must be controlled through advertising, as well as punishment.
Peace and Security
Production and distribution of goods and services can be effected due to the existence of unease and insecurity in
society. In such circumstances, investors hesitant to invest for fear of potential loss. Similarly, the production of
industrial products is affected due to several unpleasant events such as strikes public etcpor therefore peace and
security must be ensured to maintain the supply of goods and avoid the danger of famine.
Main Energy Sources
The supply of agricultural and industrial products is highly dependent on energy availability. If the energy source is
expensive, the cost of production of goods and services will be expensive too. Increased production costs raise
prices and cause inflation. Therefore all necessary measures be taken to provide major sources of energy in
industrial and agricultural sectors of the economy.

The demand side

Control of Money Supply
The money supply has a great influence on the rising inflation that is, inflation with increasing the money supply and
vice versa. Therefore, to control inflation, measures must be taken to control the money supply. The moneysupply
can be controlled with the help of monetary policy in which the central bank uses various methods, such as bank rate
policy, open market operations, changes in reserve requirements, credit rationing , direct action etc. All these
methods are useful to control the rate of inflation in a country.
There is no Deficit Financing
Deficit financing shows that public spending beyond their income. The purpose of deficit financing is to meet the
additional costs that the budget deficit. Because the money supply increases in the country and causes inflation.
Therefore the deficit financing should be discouraged and all development costs must be met through taxes and debt.
Population Control
In most developing countries, the population is increasing very quickly that the production of goods and services does
not increase at the same pace. Because the imbalance between supply and demand of goods and services are
produced and cause inflation. Therefore, to control inflation, appropriate measures should be taken to control the
population.
Fiscal Policy
Fiscal policy refers to government policy of public spending and taxes. The main fiscal policy objective is to maintain
only the slight change in the general price level. During inflation, the government tries to reduce its expenditure on
unproductive activities and the direct tax rate increases so that the purchasing power of the population is reduced.
Due to the reduction in the purchase of the population, demand for goods and services will be reduced and controlled
inflation.
Direct Measures
There are several other options available to the government to control inflation and wage and price freeze, the
rationing of goods, establishment of public service shops, the price review committees, boards of price stabilization,
etc. This direct measures are often used by the government to control inflation

Functions of Central Bank

October 16th, 2010 | Adam | Posted in Economics | 2,177 views | 2 Comments
Central bank is an importantorganization for any country. It performs traditional and developmental role to accomplish
macro-economic objectives. This includes currency issuance, regulation of liquidity, supervision of banks and
secondary markets, exchange rate management, balance of payment, establishment and development of financial
institutions.
Central bank is the center of banking system of any country and has sole authority to control and regulate the supply
of money. Central bankcontrols the supply of money by keeping the welfare of people in mind as primary object.
Functions of central bank are discussed in detail below.
Monopoly over Issuing Currency
The primary function of central banks is to issue money in the country. Central bank issue currency notes by
following certain regulations enforced by the state. There are different requirements which centralbank need to fulfill
for this purpose, one important prerequisite is keeping reserve against issued money. Some important advantages
for this sole authority are:
- Credit creation by commercial banks can be checked and controlled by central bank.
- Central Bank has the confidence of people as it has the government backing and recognition.
- As the sole authority of issuing currency there is uniformity in the country’s currency.
- Government can use this sole authority for the best interest of people.

Government Agent and Advisor

It acts as the government bank and agent, to collect and pay transactions on behalf of the government.
Centralbank has a detail record of all monetary issues and present in good position to advise government for
monetary, banking and financial issues.
Bankers Bank
It is the bank for all commercial banks and monitor and control all commercial banks by its regulations. Commercial
banks keep reserves with central bank as a requirement. Central bank also helps commercial banks in their daily
business life by providing loans, security to cash reserves and gives them advice on financial and economic issues.
Clearing House
Another important function central bank does for commercial banks is acting as a clearing house for settle all the bill
and checks drawn one another.
Lender of the Last Resort
Central bank helps commercial banks when they face any crisis, central bank come to rescue by advancingloans and
bailout packages.
Credit Control
Credit Control becomes an emerging vital function of Central Banks. Although monitoring and controlling credit been
always a function of central banks but as the technology grew and use of plastic and e-transaction is becoming more
common there are many sensitive monetary issues arises. Central Banks take quantitative and qualitative methods
for credit control such as bank rate, open market operation and moral situations etc.
Financial Agent
Central bank works as government agent for foreign exchange and gold transactions.
Collection of Data
Data collection is a silent function of Central Bank, there are professional appointed arrange the statistics for different
reports related to money, credit, foreign exchange etc

Difficulties in the Measurement National Income

October 16th, 2010 | Adam | Posted in Economics | 1,144 views | One Comment
National Income is a top line figure for the any country’s economy; However, Arranging statistics in areliable data
source need considerable attention and there are some hurdles in measurement of national income.
Duplication
A major threat to national income computing is replication of value of the product. While measuring the NI of a
country for a specific period the value of products and services should be included at final stage (finish good). The
value of intermediate or those goods which are used for preparation of final goods will not be included; as including
the value of product at different stages can cause the duplication error and in this situation NI will be over-estimated.
Therefore, either the price of final good be included or the value-added method be adopted.
In the measurement of NI, the non productive transactions make the task difficult. Most economists are of the view
that the productive transactions consist of final purchase of newly produced goods. In our economic life most of the
transactions are of non productive natures which are briefly discussed below.
Securities Transactions of Secondary market:
The sale and purchase of stocks in the secondary market doesn’t generate any economic activity, these transactions
are just transfer of ownership. National Income goes over-estimated by including these transactions in national
income computation. The result cannot depict true results; therefore to measure NI such transactions should be
excluded.
Government Transfer Payments
Government is an important player of three sector economy and its payments to public without rendering services
are considered as non productive payments, theses are known as transfer payments e.g., payment of social security,
unemployment allowances, pensions or scholarships to the students. All Such transactions make the
NI calculation complicated.
Private Transfer Payments
In addition to government transfer payments, there are private transfer payments e.g., dowry, charity and
pocketmoney. As these payments are rewarded without any productive service so including such type of
nonproductive expenditure in the national income will not give the true picture of NI.
Sale of Used Goods
The trading of second hand commodities like car, TV, or refrigerator cannot be counted for the current year NI as
these products were included in the NI when sold first time as new finish goods, there will be duplication if counted
again.
Reliable Statistics Availability
National Income measurement is a complicated and delicate process. The availability and processing of data is a
sensitive issue, especially in developing countries availability of exact figures are difficult which makes
thecalculation of accurate NI very complex. In National Income measurement the value of all finish goods from all
factors of production is calculated carefully by keeping all the constraints in mind

Types of Goods
July 27th, 2010 | Adam | Posted in Economics | 1,323 views | No Comment
Goods are the products that are made to fulfill the market needs and can be sold by a seller to a buyer for some
monetary value. There are two types of goods free good and economic goods. Free goods are those which are not
scarce and therefore such good are of non-monetary value such as air, water and sunlight. Although air, water
and sunlight are natural and are not scarce but these things are sometimes not available at some places like water in
deserted areas are imported from different places therefore people have to pay for it. Similarly if fans are used to get
the air then such air will not be free people have to pay for the fan and the electricity. All those goods that have a
monetary value are economic goods. Normally goods tend to have a diminishing marginal utility; this means that
consumers ultimately decline to consume a product after a certain period of time even if the price of the product is
lowered near to zero. This is because of the consumers satisfaction as if too much of good is consumed it will start
reducing the satisfaction of consumer as there won’t be a desire for that good anymore. (Beatty, Pg 1100, 2007)
Goods can be classified as follows:
Consumer Goods
Consumer goods are those goods which are bought for personal use. Goods such as food, clothing etc areconsumer
goods. These goods are mostly for immediate use.
Shopping Goods
Shopping goods includes relatively high risk products therefore; the buyers do a thorough research about the product
quality and availability and visit different places where such products are being sold to compare prices before actually
buying the product. These may be homogenous goods i.e. the same product having same packaging, color, company
etc which cannot be distinguished are sold by different sellers. Or heterogeneous goods which are close substitutes
i.e. they differ in size, shape, quality, company etc.
Capital Goods
Capital goods are those goods that are required by others industries for the production their goods. Capital goods
require a huge investment. Machineries and plants are the examples of capital goods.
Intermediate Goods
Intermediate goods are those goods which are manufactured by industries to be used in the manufacturing or
production of another good that has a need in the market. Aluminum, rubber, plastic etc are the examples
ofintermediate goods.
Specialty Goods
Specialty goods are those goods which are not bough very frequently as they require a large amount of investment
therefore; the buyers do an extensive research on all the similar products that are available in the market before
actually making a decision to buy the product.
Normal Goods
Normal goods are those goods which have a direct relationship with the consumer’s income. The consumer’s tends
to demand more of the normal goods when they get an increase in their income and their demand decreases with a
decrease in their income.
Inferior Goods
Inferior goods are those goods that have an inverse relationship with the consumer’s income. The demand for inferior
goods increases with the decrease in consumer’s income and the demand decreases with the increase in consumer’s
income.
Necessity Goods
These are those goods which are not very expensive and are necessary for life. Demand for such goods remains
constant throughout.
Luxury Goods
Luxury goods are those goods the demand for which increases at a greater percentage with an increase in
consumer’s income

Economics
August 7th, 2009 | Adam | Posted in Economics | 1,153 views | No Comment
Even though we might not have any idea of what actually economics is, but we do know that the resources in our
world are limited and so, we are forced to use these resources smartly. Now lets head towards our topic of
discussion;Economics, basically, is the study of how a society uses these limited resources to makecommodities that
are useful for the people and that are distributed among them. So, regarding the above claim, there are two valid
propositions i-e 1- resources are limited or scarce; 2- We must use these resources efficiently. Now there’s a different
between being efficient and being effective. To be effective is to have the same amount of output as that of the input,
but when we regard being efficient, it is to have a greater amount of output as compared to the input given.
Let us imagine, a society with unlimited resources, a place where everything is available, sounds tempting, must be
Paradise. If that was the case with the world, then managers wouldn’t have worries about hiring man-power to bid
them to work. Now, when we say that the resources are scare we are actually comparing these resources with our
desires. We always desire more, but these resources are so limited that we are forced to only choose a few. So we
can conclude that we Humans have unlimited wants and desires, but the resources are limited, so in order to get the
most out of these limited resources we are forced to use them efficiently and make out most for ourselves.
One question always comes into people mind that unlimited amount of natural resources are available such as petrol,
gas, water, coal and etc but still economics definition claims scarcity of resources, if we consider world is full of
natural resources still the economics definition remains true because digging out natural resources also need man
power or human resource which are limited not in number but in skills required to perform the tasks.
Economics has two main branches:
1- Micro Economics
2- Macro Economics.
Adam Smith is known to be the founder of micro-economics that regards the behavior of organizations, households,
firms etc. Macro-Economics regards the overall performance of the economy of the country, as to the GDP (Gross
Domestic Product), GNP and the lot. We will discuss such terms further on.
Earlier I wrote something regarding inputs and outputs; Inputs are basically the commodities that are used to produce
or make goods or services. Outputs are the result of the production of those inputs. For example: to make an egg we
need a teaspoon full oil, an egg and a frying pan and some salt to give it the finishing touch, now these are the inputs
that are used to produce an output e.g. An omelet or, a half or full fried egg (since we are discussing a basic concept
so I intended to give out an easy-to-understand example, please don’t get me wrong)

CPI – Consumer Price Index

August 30th, 2009 | Adam | Posted in Economics | 1,293 views | No Comment

Consumer Price index(CPI) is the average price of product and services purchase by the
consumers. Where The GDP price index measure the rate inflation of all products and services on
the other hand CPI indicates the change in consumer prices for the defined time period, increase in
index shows the level of inflation at consumer end. There are many different CPI is calculated by
region,types of products, types of consumer etc. The most common CPI is CPI-U, which is CPI for urban area
because maximum percentage of products are purchased in urban areas. CPI is calculated for the given basket of
goods to determine the change in index on monthly or annually.
Formula to Calculate CPI
CPI = Basket in any given year/ Price of the same Market * 100
CPI = $300/$200 * 100 = 150
CPI Uses
Consumer Inflation
Consumer price index show the change in consume products in a given period of time.
Deflator of other economic series
The CPI and its components are used to adjust other economic series for price change and to translate these series
into inflation-free dollars.
Adjusting income payments and Taxes
Over 2 million workers are covered by collective bargaining agreements which tie wages to the CPI. The index affects
the income of almost 80 million people as a result of statutory action: 47.8 million Social Securitybeneficiaries, about
4.1 million military and Federal Civil Service retirees and survivors, and about 22.4 million food stamp recipients.
Changes in the CPI also affect the cost of lunches for the 26.7 million children who eat lunch at school. Some private
firms and individuals use the CPI to keep rents, royalties, alimony payments andchild support payments in line with
changing prices. Since 1985, the CPI has been used to adjust the Federal income tax structure to prevent inflation-
induced increases in taxes.
CPI biases
Substitution bias
When there in increase in prices of consumer good people consumer less and move towards buying other low price
alternatives is called substitution bias.
Quality Change Bias
Quality of products is improved with the advancements of production methods, life of the product is more then the
past. For example, If person bought an expensive dress and use it for 3 years cost per day is very low as compared
to the dress he bought at lower prices( low quality) and used it for one year. There is no parameter in CPI to indicate
the improvement in quality with the passage of time.
Outlet substitution bias
People used to buy product from normal shops, shopkeepers have to pay less rent for the shop but today people are
shopping at wholesale shops, convenience shops,super markets etc. The shopkeepers have to pay high fixed and
variable cost for the shops which also impact the prices of products. Consumers can easilypurchase products in less
time without any problem, CPI not includes the following benefits result in outlet substitution bias.
New product bias
Thousands of products are introduced in the consumer market each year but are not included in the CPI is called new
product bias. For example, The price of cell phone decline and quality is improved as compared to 1990s and bring
improvement to people lives but still the prices of cell phones are not included in the consumer price Index

GDP – Gross Domestic Product

October 16th, 2009 | Adam | Posted in Economics | 1,790 views | One Comment

The widespread measure of the total output in a country’s economy is called GDP (Gross Domestic Product). GDP is
basically a measure of the market value of all services and final goods produced in a country during a year. It as well
is equal to the sum of the value added to the product at every phase of production by all the industries within a
country, plus the taxesand subtraction of the subsidies on products, in the period of a year. It is also equal to the total
amount of the income generated by production in a country in a year. We will find that there are two ways to measure
GDP
• Nominal GDP : Measured in actual market prices means the inflation factor is not involved in nominal GDP.
• Real GDP : Calculated on constant or unvaried prices.
Real GDP is the most widely used measure of output of an economy; it provides a carefully monitored pulse of any
nation’s economy. Even though, short term fluctuations may occur at different occasions regarding the business
cycles, but advanced economies generally show a steady hand at long-term growth in the real GDP which also
results in an improvement in the living standards, the process is termed as “Economic Growth”. There is a term
in economics “Potential GDP”: which signifies the maximum sustainable level of production that the economy can
produce. Inflation tends to rise when the total output surpasses potential output, and if the opposite happens and the
total output is less than the potential output, then it leads to unemployment.
Potential output is usually determined by the economy’s productive capacity, which depends upon the inputs
available i-e capital, labor, land, entrepreneurs etc. and also the economy’s technological efficiency. Due to the fact
that inputs such as labor, capital and the technological level change quite slowly, the affect of these factors on the
potential GDP is steady growth.
The formulae for calculating a country’s GDP:
GDP = C + I + G + (X − M)
Components of GDP
Following are the components to measure the Gross domestic product.
Consumption (C)
It usually denotes the private consumption, such as the household expenditures (food, rent etc)
Investment (I)
This is the amount that firms and some households invest as capital. Such as spending of households in making new
houses, business firm doing a construction on a certain field for its business operations.
Government Spending (G)
It is the sum of government expenses regarding the services and the final goods, which mainly includes purchase of
military arms and weapons, public servant salaries and investment of the government in any field.
Exports (X)
GDP calculates the amount a country produces, that include goods and services produced for any other nations’
consumption, due to the surplus amount that has been produced after which therefore exports are added.
Imports (M)
Since imported goods will be included in terms like G, I, or C, it is of vital importance that export must be deducted in
order to avoid counting foreign supply as domestic.
GDP VS GNP
GDP is the total value of good and services produce in the country whereas GNP is total value of good and services
produce in the country and also add the value of commodities produce by the people of the country in foreign.
Methods of Measuring GDP
Gross domestic product is measured using three methods as mentioned below.
The Expenditure Approach – The sum of total spending on producing good and services, GDP using this method
can be calculated by sum up consumption, Government spending,Invest and exports deductingimports.
The Income Methods – Measuring GDP by Calculating the income of people who are responsible for producing the
good and services.
Product Approach – Total value of product and services product in the country

Shortcomings of GDP
October 18th, 2009 | Adam | Posted in Economics | 2,689 views | No Comment
GDP is the accurate measure of economy it shows how well or how bad the economy is doing. True said, nothing is
perfect in the world there are some shortcomings of GDP which are important to consider in the country economy.
Non-market Transactions
GDP calculate the transactions occurs in the market place other than that its out of its scope, non-market transaction
are not occur in the market and no proof is available to make it part of GDP. Suppose, a motor mechanic repair his
own car by working whole day, people do the job of gardening by themselves. These type of transaction never
counted in the GDP, only the transactions occurs in the market are considered in GDP.
Leisure
In recent years, the working hours are reduced to great extent like in USA in few years weekly working hours reduced
from 56 to 36 in addition to this increase in sick leaves, casual leaves, annual leaves, maternity and paternity leaves
bring relief in people life. This leisure surely improve the employees performance but unfortunately the leisure is not
part of GDP although its quite clear that people are working less and producing more output which shows
improvement in productivity and well being of peoples.
Improved Product Quality
GDP is the quantitative measure of product and services rather than qualitative measure, it fails to gauge the quality
improvement in the product and services such as computer are available on cheap prices than past but with more
processing and storage. This improvement make people happy and satisfied than before because they are getting
more on very nominal prices. The quality measure have a great impact on economic well being but again GDP
ignores quality attribute entirely.
The Underground Economy
The other aspect of economy which exist in every country with higher percentage in a hidden market. The
underground economy is generated from illegal activities such as gambling, smuggling, robbery, prostitutionand
other. The people involve these type of business have a valid reason to not show their income to the government.
Most people in the underground economy are doing legal activities but choose not to report their income to
Government. The person receiving unemployment compensation benefits may take an “off- the-books” or “cash-only
job”. A person give tuition to neighbor kids on behalf of free car repairing services for kids father.
GDP and the Environment
The improvement and increase in production of product and services improve the GDP of the country but without
considering the environmental aspect. The dirty water, chemicals and noise coming out from factories have a
negative impact on the society. The polluted environment cause health issue and reduce the average age limit of
human beings. GDP ignores negative impact on environment and human life. When the money spent to clean the
pollution, those expense are added in the GDP.
Composition and Distribution of Output
The composition of products are important for well-being. it show whether the products have a positive or negative
impact on society.GDP lacks to address the composition of output it only measures the monetary value of output. If
the price of weapon and encyclopedias are equal it is considered same in the GDP without admitting the importance
of encyclopedias on well-being.
The distribution on income can make a lot of difference in people living standards. The total never tells the distribution
of output among the people, it may be possible 90 percent of total output goes into 10% households. The higher
value of GDP indicates the economy is doing well and people living standards are improving but if the major part of
the output holds by the less percentage households then it results in higher poverty levels.
Per Capita Output
For most reason per capita output is the accurate measure of economics performance. The per capita output gain
importance in the measurement of economy because GDP only measure the magnitude of total output, it ignores
change in the standard of living of individual and households. If GDP of country increase 3% in a year and its
population rate grows at 5% percent per year, GDP consider it as improvement in economic performance of the
country but actually the per capita output is decreased then before which shows downgrade in households and
individual standards of living.
Non-economic Sources of Well-being
The income of households never indicates the happiness, same for higher GDP never guarantee that individual and
households are happy and satisfied. Some other factors can make the society better off without necessarily raising
GDP. A reduction in crime and violence, peaceful relationship,better understanding of parents and children and a
reduction in drug and alcohol abuse

Fiscal Policy
October 25th, 2009 | Adam | Posted in Economics | 2,372 views | No Comment

Fiscal Policy, a very vital part of economics, is referred to as thegovernment spending as well as revenue collection of
a country.
Fiscal Policy has two main instruments that are;
• Government spending
• Taxation.
There are certain changes in the composition and level of government spending and taxation that impact the
following variables in the economy of a country:
• Aggregate demand and the level ofeconomic activity.
• Resource allocation pattern.
• Distribution of income.
The overall effect of the budget outcome on an economic activity is termed as Fiscal policy of a country. There are
three particular stances regarding the fiscal policy of a country that are; neutral, expansionary and contractionary:
• A neutral stance regards a balanced budget where “Government spending = Tax revenue” (G = T).
The government spending is funded by tax revenue and the overall effect of the budget outcomeis neutral on
the economic activity.
• Expansionary stance of the fiscal policy denotes a net increase in Government spending (G > T) through rises
in government spending or a fall in taxation revenue or a combination of the two. The effect usually leads to a larger
budget deficit or a smaller budget surplus than the Government previously had, or a deficit if the Government
previously had a balanced budget. Expansionary fiscal policy is mostly associated with budget deficit for an economy.
• Contractionary fiscal policy (G < T) involves the reduction of the Government spending through higher taxation
revenue or reduced Government spending or the combination of the two in such a way. This leads to a lower budget
deficit or a larger surplus than the Government previously had, or a surplus if the government previously had a
balanced budget. Contractionary fiscal policy is usually associated with a surplus.
Funding Methods
The government spends money on a wide variety of things, from the military and police to services like healthcare
and education, as well as transfer payments that stand as welfare benefits. This expenditure can be funded in a
number of ways:
• Taxation
• Benefit from printing money
• Borrowing money from the population that results in a fiscal deficit.
• Consumption of reserves.
• Sale of assets i-e land etc.
There are two ways for the budgeting to go, one is that the Government will face deficit, and the other, it will face
a surplus, these are the basic form of effects the Government spending have of course.
Deficit
A fiscal deficit is often funded by issuing secure bonds such as treasury bills. These pay interest, either for a fixed
period or indefinitely. The nation may default on its debt if the interest and capital repayments are too large. This is
how a Government funds the deficit.
Surplus
A fiscal surplus is usually saved for future use, and may be invested in local instruments, till needed. When income
from taxation or other sources falls, usually during an economic crash, reserves allow Government spending to
continue at the same rate, without gaining additional liabilities.
Economic Effects of Fiscal Policy
Fiscal policy is used by governments to influence the level of aggregate demand in the economy, in an effort to
achieve economic objectives of stability in the price of goods, employment and the economic growth of the country.
Keynesian (John Maynard Keynes) economics suggests that increasing or decreasing the Government spending and
the tax rates to stimulate aggregate demand as a favorable outcome. This is usually used in times of recession or
low economic activity as an essential tool in providing the framework for strong economic growth and working toward
full employment. The Government usually implements such deficit-spendingpolicies due to its size and reputation and
stimulates trade. In theory, these deficits would be paid for by an expanded economy during the boom that would
follow.
During high economic growth periods, budget surplus is usually used to decrease activity in the economy. A
budget surplus will be implemented in the economy if inflation is high, in order to achieve the objective of price
stability. According to Keynesian theory, the removal of funds from the economy will reduce levels of aggregate
demand in the economy and contract it that will bring stability in the price level.
Life cycle analysis and assessment

The concept of conducting a detailed examination of the life

cycle of a product or a process is a relatively recent one which
emerged in response to increased environmental awareness on
the part of the general public, industry and governments.
The immediate precursors of life cycle analysis and assessment (LCAs)
were the global modelling studies and energy audits of the late 1960s and
early 1970s. These attempted to assess the resource cost and
environmental implications of different patterns of human behaviour.
LCAs were an obvious extension, and became vital to support the
development of eco-labelling schemes which are operating or planned in a
number of countries around the world. In order for eco-labels to be
granted to chosen products, the awarding authority needs to be able to
evaluate the manufacturing processes involved, the energy consumption in
manufacture and use, and the amount and type of waste generated.
To accurately assess the burdens placed on the environment by the
manufacture of an item, the following of a procedure or the use of a
certain process, two main stages are involved. The first stage is the
collection of data, and the second is the interpretation of that data.
A number of different terms have been coined to describe the processes.
One of the first terms used was Life Cycle Analysis, but more recently two
terms have come to largely replace that one: Life Cycle Inventory
(LCI) and Life Cycle Assessment (LCA). These better reflect the different
stages of the process. Other terms such as Cradle to Grave Analysis, Eco-
balancing, and Material Flow Analysis are also used.
Whichever name is used to describe it, LCA is a potentially powerful tool
which can assist regulators to formulate environmental legislation, help
manufacturers analyse their processes and improve their products, and
perhaps enable consumers to make more informed choices. Like most
tools, it must be correctly used, however. A tendency for LCAs to be used
to 'prove' the superiority of one product over another has brought the
concept into disrepute in some areas.
What is a Life Cycle Analysis?
Taking as an example the case of a manufactured product, an LCA
involves making detailed measurements during the manufacture of the
product, from the mining of the raw materials used in its production and
distribution, through to its use, possible re-use or recycling, and its
eventual disposal.
LCAs enable a manufacturer to quantify how much energy and raw
materials are used, and how much solid, liquid and gaseous waste is
generated, at each stage of the product's life.
Such a study would normally ignore second generation impacts, such as
the energy required to fire the bricks used to build the kilns used to
manufacture the raw material.
However, deciding which is the 'cradle' and which the 'grave' for such
studies has been one of the points of contention in the relatively new
science of LCAs, and in order for LCAs to have value there must be
standardisation of methodologies, and consensus as to where to set the
limits. Much of the focus worldwide to date has been on agreeing the
methods and boundaries to be used when making such analyses, and it
seems that agreement may have now been reached.
While carrying out an LCA is a lengthy and very detailed exercise, the
data collection stage is - in theory at least - relatively uncomplicated,
provided the boundary of the study has been clearly defined, the
methodology is rigorously applied, and reliable, high-quality data is
available. Those of course are fairly large provisos.
Interpretation
While such a record is helpful and informative, on its own it is not
sufficient. Having first compiled the detailed inventory, the next stage
should be to evaluate the findings.
This second stage - life cycle assessment - is more difficult, since it
requires interpretation of the data, and value judgements to be made.
A Life Cycle Inventory will reveal - for example - how many kilos of
pulp, how much electricity, and how many gallons of water, are involved
in producing a quantity of paper. Only by then assessing those statistics
can a conclusion be reached about the product's environmental impact
overall. This includes the necessity to make judgements based on the
assembled figures, in order to assess the likely significance of the various
impacts.
Problems
It is here that many of the problems begin. Decisions, without scientific
basis, such as whether three tonnes of emitted sulphur is more or less
harmful than the emission of just a few pounds of a more toxic pollutant,
are necessarily subjective.
• How can one compare heavy energy demand with heavy
water use: which imposes greater environmental burden?
• How should the use of non-renewable mineral resources
like oil or gas (the ingredients of plastics) be compared
 with the production of softwoods for paper?
• How should the combined impacts of the landfilling of
wastes (air and groundwater pollution, transport impacts
etc) be compared with those produced by the burning of
wastes for energy production (predominantly emissions to
air)?
Some studies attempt to aggregate the various impacts into clearly defined
categories, for example, the possible impact on the ozone layer, or the
contribution to acid rain.
Others go still further and try to add the aggregated figures to arrive at a
single 'score' for the product or process being evaluated. It is doubtful
whether such simplification will be of general benefit.
Reliable methods for aggregating figures generated by LCA, and using
them to compare the life cycle impacts of different products, do not yet
exist. However, a great deal of work is currently being conducted on this
aspect of LCAs to arrive at a standardised method of interpreting the
collected data.
Contradictions
Many LCAs have reached different and sometimes contradictory
conclusions about similar products.
Comparisons are rarely easy because of the different assumptions that are
used, for example in the case of food packaging, about the size and form
of container, the production and distribution system used, and the forms
and type of energy assumed.
To compare two items which are identically sized, identically distributed,
and recycled at the same rate is relatively simple, but even that requires
assumptions to be made. For example, whether deliveries were made in a
9-tonne truck, or a larger one, whether it used diesel or petrol, and ran on
congested city centre roads where fuel efficiencies are lower, or on
country roads or motorways where fuel efficiencies might be better.
Comparisons of products which are dissimilar in most respects can only
be made by making even more judgements and assumptions.
Preserving the confidentiality of commercially-sensitive raw data without
reducing the credibility of LCAs is also a major problem. Another is the
understandable reluctance of companies to publish information which may
indicate that their own product is somehow inferior to that of a competitor.
It is not surprising that many of the studies which are published, and not
simply used internally, endorse the views of their sponsors.
Recycling
Recycling introduces a further real difficulty into the calculations. In the
case of materials like steel and aluminium which can technically be
recycled an indefinite number of times (with some melt losses), there is no
longer a 'grave'. And in the case of pa-per, which can theoretically be
reprocessed four or five times before fibres are too short to have viable
strength, should calculations assume that it will be recycled four times, or
not? What return rates, for example, should be assumed for factory-
refillable containers?
For both refillable containers and materials sent for recycling, the
transport distance in each specific case is a major influence in the
environmental impacts associated with the process.
An LCA which concludes that recycling of low-value renewable materials
in one city is environmentally preferable may not hold good for a
different, more remote city where reprocessing facilities incur large
transport impacts.
LCA in waste management
LCA has begun to be used to evaluate a city or region's future waste
management options. The LCA, or environmental assessment, covers the
environmental and resource impacts of alternative disposal processes, as
well as those other processes which are affected by disposal strategies
such as different types of collection schemes for recyclables, changed
transport patterns and so on.

The complexity of the task, and the number of assumptions which must be
made, is shown by the simplified diagram (above) showing some of the
different routes which waste might take, and some of the environmental
impacts incurred along the way. Those shown are far from exhaustive.
Why perform LCAs?
LCAs might be conducted by an industry sector to enable it to identify
areas where improvements can be made, in environmental terms.
Alternatively the LCA may be inten-ded to provide environmental data for
the public or for government. In recent years, a number of major
companies have cited LCAs in their marketing and advertising, to support
claims that their products are 'environmentally friendly' or
even 'environmentally superior' to those of their rivals. Many of these
claims have been successfully challenged by environmental groups.
All products have some impact on the environment. Since some products
use more resources, cause more pollution or generate more waste than
others, the aim is to identify those which are most harmful.
Even for those products whose environmental burdens are relatively low,
the LCA should help to identify those stages in production processes and
in use which cause or have the potential to cause pollution, and those
which have a heavy material or energy demand.
Breaking down the manufacturing process into such fine detail can also be
an aid to identifying the use of scarce resources, showing where a more
sustainable product could be substituted.
Inconclusive
In most situations it is impossible to prove conclusively using LCAs that
any one product or any one process is better in general terms than any
other, since many parameters cannot be simplified to the degree necessary
to reach such a conclusion.
It seems likely that, in the case of manufactured goods, the most important
time for LCA information to be taken into consideration is at the design
stage of new products. Where LCA is used to evaluate procedures rather
than products, the information can help ensure appropriate choices are
made.
Tool
Life Cycle Analysis must be used cautiously, and in the interpretation of
the inventory, care must be taken with subjective judgements.
When first conceived, it was predicted that LCA would enable definitive
judgements to be made. That misplaced belief has now been discredited.
In combination with the trend towards more open disclosure of
environmental information by companies, and the desire by consumers to
be guided towards the least harmful purchases, the LCA is a vital tool.
 Source
World Resource Foundation

Return to the LCA for Cities page

Contact: Hari Srinivas - hsrinivas@gdrc.org

Life cycle assessment

A life cycle assessment (LCA, also known as life cycle analysis, ecobalance, and cradle-to-
grave analysis)[1] is a technique to assess environmental impacts associated with all the stages of a
product's life from-cradle-to-grave (i.e., from raw material extraction through materials processing,
manufacture, distribution, use, repair and maintenance, and disposal or recycling). LCA’s can help avoid
a narrow outlook on environmental concerns by:

 Compiling an inventory of relevant energy and material inputs and environmental releases;

 Evaluating the potential impacts associated with identified inputs and releases;

 Interpreting the results to help you make a more informed decision.[2

Goals and purpose of LCA

The goal of LCA is to compare the full range of environmental effects
assignable to products and services in order to improive processes,
support policy and provide a sound basis for informed decisions.
The term 'life cycle' refers to the notion that a fair, holistic assessment
requires the assessment of raw material production, manufacture,
distribution, use and disposal including all intervening transportation
steps necessary or caused by the product's existence.
There are two main types of LCA. Attributional LCAs seek to establish
the burdens associated with the production and use of a product, or with
a specific service or process, at a point in time (typically the recent past).
Consequential LCAs seek to identify the environmental consequences of
a decision or a proposed change in a system under study (oriented to
the future), which means that market and economic implications of a
decision may have to be taken into account. Social LCA is under
development as a different approach to life cycle thinking intended to
assess social implications or potential impacts. Social LCA should be
considered as an approach that is complementary to environmental
LCA.
The procedures of life cycle assessment (LCA) are part of the ISO
14000 environmental management standards: in ISO 14040:2006 and
14044:2006. (ISO 14044 replaced earlier versions of ISO 14041 to ISO
14043.)
[edit]Four main phases

Illustration of LCA phases.

According to the ISO 14040[3] and 14044[4] standards, a Life Cycle

Assessment is carried out in four distinct phases sad illustrated
above.The phases are often interdependent in that the results of one
phase will inform how other phases are completed.
[edit]Goal and scope
An LCA starts with an explicit statement of the goal and scope of the
study, which sets out the context of the study and explains how and to
whom the results are to be communicated. This is a key step and the
ISO standards require that the goal and scope of an LCA be clearly
defined and consistent with the intended application. The goal and scope
document therefore includes technical details that guide subsequent
work:
 the functional unit, which defines what precisely is being studied and
quantifies the service delivered by the product system, providing a
reference to which the inputs and outputs can be related;
 the system boundaries;
 any assumptions and limitations;
 the allocation methods used to partition the environmental load of a
process when several products or functions share the same process;
and
 the impact categories chosen.
[edit]Life cycle inventory
Life Cycle Inventory (LCI) analysis involves creating an inventory of
flows from and to nature for a product system. Inventory flows include
inputs of water, energy, and raw materials, and releases to air, land, and
water. To develop the inventory, a flow model of the technical system is
constructed using data on inputs and outputs. The flow model is typically
illustrated with a flow chart that includes the activities that are going to
be assessed in the relevant supply chain and gives a clear picture of the
technical system boundaries. The input and output data needed for the
construction of the model are collected for all activities within the system
boundary, including from the supply chain (referred to as inputs from the
technosphere).
The data must be related to the functional unit defined in the goal and
scope definition. Data can be presented in tables and some
interpretations can be made already at this stage. The results of the
inventory is an LCI which provides information about all inputs and
outputs in the form of elementary flow to and from the environment from
all the unit processes involved in the study.
Inventory flows can number in the hundreds depending on the system
boundary. For product LCAs at either the generic (i.e., representative
industry averages) or brand-specific level, that data is typically collected
through survey questionnaires. At an industry level, care has to be taken
to ensure that questionnaires are completed by a representative sample
of producers, leaning toward neither the best nor the worst, and fully
representing any regional differences due to energy use, material
sourcing or other factors. The questionnaires cover the full range of
inputs and outputs, typically aiming to account for 99% of the mass of a
product, 99% of the energy used in its production and any
environmentally sensitive flows, even if they fall within the 1% level of
inputs.
One area where data access is likely to be difficult is flows from the
technosphere. Those completing a questionnaire will be able to specify
how much of a given input they use from supply chain sources, but they
will not usually have access to data concerning inputs and outputs for
those production processes. The entity undertaking the LCA must then
turn to secondary sources if it does not already have that data from its
own previous studies. National databases or data sets that come with
LCA-practitioner tools, or that can be readily accessed, are the usual
sources for that information. Care must then be taken to ensure that the
secondary data source properly reflects regional or national conditions.
[edit]Life cycle impact assessment
Inventory analysis is followed by impact assessment. This phase of LCA
is aimed at evaluating the significance of potential environmental
impacts based on the LCI flow results. Classical Life Cycle Impact
Assessment (LCIA) consists of the following mandatory elements:
 selection of impact categories, category indicators, and
characterization models;
 the classification stage, where the inventory parameters are sorted
and assigned to specific impact categories; and
 impact measurement, where the categorized LCI flows are
characterized, using one of many possible LCIA methodologies, into
 common equivalence units that are then summed to provide an
overall impact category total.
In many LCAs, characterization concludes the LCIA analysis; this is also
the last compulsory stage according to ISO 14044:2006. However, in
addition to the above mandatory LCIA steps, other optional LCIA
elements – normalization, grouping, and weighting – may be conducted
depending on the goal and scope of the LCA study. In normalization, the
results of the impact categories from the study are usually compared
with the total impacts in the region of interest, the U.S. for example.
Grouping consists of sorting and possibly ranking the impact categories.
During weighting, the different environmental impacts are weighted
relative to each other so that they can then be summed to get a single
number for the total environmental impact. ISO 14044:2006 generally
advises against weighting, stating that “weighting, shall not be used in
LCA studies intended to be used in comparative assertions intended to
be disclosed to the public”. This advice is often ignored, resulting in
comparisons that can reflect a high degree of subjectivity as a result of
weighting.
[edit]Interpretation

Life Cycle Interpretation is a systematic technique to identify, quantify,

check, and evaluate information from the results of the life cycle
inventory and/or the life cycle impact assessment. The results from the
inventory analysis and impact assessment are summarized during the
interpretation phase. The outcome of the interpretation phase is a set of
conclusions and recommendations for the study. According to ISO
14040:2006, the interpretation should include:
 identification of significant issues based on the results of the LCI and
LCIA phases of an LCA;
 evaluation of the study considering completeness, sensitivity and
consistency checks; and
 conclusions, limitations and recommendations.
A key purpose of performing life cycle interpretation is to determine the
level of confidence in the final results and communicate them in a fair,
complete, and accurate manner. Interpreting the results of an LCA is not
as simple as 3 is better than 2, therefore Alternative A is the best choice!
Interpreting the results of an LCA starts with understanding the accuracy
of the results, and ensuring they meet the goal of the study. This is
accomplished by identifying the data elements that contribute
significantly to each impact category, evaluating the sensitivity of these
significant data elements, assessing the completeness and consistency
of the study, and drawing conclusions and recommendations based on a
clear understanding of how the LCA was conducted and the results were
developed. [43]
[edit]LCA tools and uses
There are two basic types of LCA tools:
 dedicated software packages intended for practitioners; and
 tools with the LCA in the background intended for people who want
LCA-based results without have to actually develop the LCA data and
impact measures.
In the former category, the two principal tools are GaBi Software,
developed by PE International, and SimaPro, developed by PRé
Consultants, In the sencond category, different tools operate at different
levels. At the product level, the U.S. National Institute of Standards and
Technology (NIST) makes its BEES (Building for Environmental and
Economic Sustainability) tool freely available. At the whole building
design level, different tools are available in different parts of the world.
For example, the ATHENA® Impact Estimator for Buildings is capable of
modeling 95% of the building stock in North America, Envest has been
developed by the Building Research Establishment to meet UK needs,
and EcoQuantum is available in the Netherlands. At a building assembly
level (e.g., exterior walls) the free ATHENA® EcoCalculator for
Assemblies is an example of a tool that serves North America and the
Whole Building Design Guide is an example of a tool applicable to the
UK.
Based on a survey of LCA practitioners carried out in 2006 [5] LCA is
mostly used to support business strategy (18%) and R&D (18%), as
input to product or process design (15%), in education (13%) and for
labeling or product declarations (11%).
Major corporations all over the world are either undertaking LCA in
house or commissioning studies, while governments support the
development of national databases to support LCA. Of particular note is
the growing use of LCA for ISO Type III labels called Environmental
Product Declarations, defined as "quantified environmental data for a
product with pre-set categories of parameters based on the ISO 14040
series of standards, but not excluding additional environmental
information".[19]. These third-party certified LCA-based labels provide an
increasingly important basis for assessing the relative environmental
merits of competing products.
[edit]Data analysis
A life cycle analysis is only as valid as its data; therefore, it is crucial that
data used for the completion of a life cycle analysis is accurate and
current. When comparing different life cycle analyses with one another, it
is crucial that equivalent data is available for both products or processes
in question. If one product has a much higher availability of data, it
cannot be justly compared to another product which has less detailed
data.[6]
There are two basic types of LCA data – unit process data and
environmental input-output data (EIO), where the latter is based on
national economic input-out[put data.[17] Unit process data is derived
from direct surveys of companies or plants producing the product of
interest, carried out at a unit process level defined by the system
boundaries for the study.
The validity of data should always be a concern with life cycle analyses.
Since we are living in a global world and economy, new processes,
manufacturing methods, and materials are introduced to various
processes and products. Therefore, it is important to have current data
when performing a LCA. If data from 5 to 10 years in the past is used,
the LCA will not be accurate, because the quantitative analysis will not
reflect the current methods utilized in the process or product. Therefore,
drawing conclusions from a report using such data will be ineffective,
since the data is unavailable. Some products, whose processes have not
changed in 5 to 10 years (if there are any) will be exempt from this.
When analyzing electronics, such as cell phones or computers, for
example, the most current data is necessary. Since new computer and
cell phone models are created every few months, the results of a life
cycle analysis of a 3-year-old computer system will often not be
applicable to current systems.
The life cycle considered usually consists of a number of stages
including: materials extraction, processing and manufacturing, product
use, and product disposal. If the most environmentally harmful of these
stages can be determined, then impact on the environment can be
efficiently reduced by focusing on making changes for that particular
phase. For example, the most energy-intensive life phase of an airplane
or car is during use due to fuel consumption. One of the most effective
ways to increase fuel efficiency is to decrease vehicle weight, and thus,
car and airplane manufacturers can decrease environmental impact in a
significant way by replacing aluminum with lighter materials such as
carbon fiber reinforced fibers. The reduction during the use phase should
be more than enough to balance additional raw material
or manufacturing cost.
[edit]Variants

[edit]Cradle-to-grave

Cradle-to-grave is the full Life Cycle Assessment from resource

extraction ('cradle') to use phase and disposal phase ('grave'). For
example, trees produce paper, which can be recycled into low-energy
production cellulose (fiberised paper) insulation, then used as an energy-
saving device in the ceiling of a home for 40 years, saving 2,000 times
the fossil-fuel energy used in its production. After 40 years
the cellulose fibers are replaced and the old fibers are disposed of,
possibly incinerated. All inputs and outputs are considered for all the
phases of the life cycle.
[edit]Cradle-to-gate

Cradle-to-gate is an assessment of a partial product life cycle from

resource extraction('cradle') to the factory gate (i.e., before it is
transported to the consumer). The use phase and disposal phase of the
product are omitted in this case. Cradle-to-gate assessments are
sometimes the basis for environmental product declarations (EPD)
termed business-to-business EDPs.[7]
[edit]Cradle-to-Cradle
See also: Cradle to Cradle Design
Cradle-to-cradle is a specific kind of cradle-to-grave assessment, where
the end-of-life disposal step for the product is a recycling process. It is a
method used to minimize the environmental impact of products by
employing sustainable production, operation, and disposal practices and
aims to incorporate social responsibility into product development.
[8]
From the recycling process originate new, identical products (e.g.,
asphalt pavement from discarded asphalt pavement, glass bottles from
collected glass bottles), or different products (e.g., glass wool insulation
from collected glass bottles).
[edit]Gate-to-gate

Gate-to-gate is a partial LCA looking at only one value-added process in

the entire production chain. Gate-to-gate modules may also later be
linked in their appropriate production chain to form a complete cradle-to-
gate evaluation.[9]
[edit]Well-to-wheel

Well-to-wheel is the specific LCA used for transport fuels and vehicles.
The analysis is often broken down into stages entitled "well-to-station",
or "well-to-tank", and "station-to-wheel" or "tank-to-wheel", or "plug-to-
wheel". The first stage, which incorporates the feedstock or fuel
production and processing and fuel delivery or energy transmission, and
is called the "upstream" stage, while the stage that deals with vehicle
operation itself is sometimes called the "downstream" stage. The well-to-
wheel analysis is commonly used to assess total energy consumption,
or energy conversion efficiency andemissions impact of marine
vessels, aircrafts and motor vehicle emissions, including their carbon
footprint, and the fuels used in each of these transport modes.[10][11][12]
The well-to-wheel variant has a significant input on a model developed
by the Argonne National Laboratory. The Greenhouse gases, Regulated
Emissions, and Energy use in Transportation (GREET) model was
developed to evaluate the impacts of new fuels and vehicle
technologies. The model evaluates the impacts of fuel use using a well-
to-wheel evaluation while a traditional cradle-to-grave approach is used
to determine the impacts from the vehicle itself. The model reports
energy use, greenhouse gas emissions, and six additional
pollutants: volatile organic compounds (VOCs), carbon
monoxide (CO), nitrogen oxide (NOx), particulate matter with size
smaller than 10 micron (PM10), particulate matter with size smaller than
2.5 micron (PM2.5), and sulfur oxides (SOx).[13]
[edit]Economic input–output life cycle assessment
Economic input–output LCA (EIO-LCA) involves use of aggregate
sector-level data on how much environmental impact can be attributed to
each sector of the economy and how much each sector purchases from
other sectors.[14] Such analysis can account for long chains (for example,
building an automobile requires energy, but producing energy requires
vehicles, and building those vehicles requires energy, etc.), which
somewhat alleviates the scoping problem of process LCA; however,
EIO-LCA relies on sector-level averages that may or may not be
representative of the specific subset of the sector relevant to a particular
product and therefore is not suitable for evaluating the environmental
impacts of products. Additionally the translation of economic quantities
into environmental impacts is not validated.[citation needed]
[edit]Ecologically-based LCA
While a conventional LCA uses many of the same approaches and
strategies as an Eco-LCA, the latter considers a much broader range of
ecological impacts. It was designed to provide a guide to wise
management of human activities by understanding the direct and indirect
impacts on ecological resources and surrounding ecosystems.
Developed by Ohio State University Center for resilience, Eco-LCA is a
methodology that quantitatively takes into account regulating and
supporting services during the life cycle of economic goods and
products. In this approach services are categorized in four main groups:
supporting, regulating provisioning and cultural services. [15]
[edit]Life cycle energy analysis
Life cycle energy analysis (LCEA) is an approach in which
all energy inputs to a product are accounted for, not only direct energy
inputs during manufacture, but also all energy inputs needed to produce
components, materials and services needed for the manufacturing
process. An earlier term for the approach was energy analysis.
With LCEA, the total life cycle energy input is established.
[edit]Energy production
It is recognized that much energy is lost in the production of energy
commodities themselves, such as nuclear
energy, photovoltaic electricity or high-quality petroleum products. Net
energy content is the energy content of the product minus energy input
used during extraction and conversion, directly or indirectly. A
controversial early result of LCEA claimed that manufacturing solar
cells requires more energy than can be recovered in using the solar
cell[citation needed]. The result was refuted.[16] Another new concept that flows
from life cycle assessments is Energy Cannibalism. Energy Cannibalism
refers to an effect where rapid growth of an entire energy-intensive
industry creates a need for energy that uses (or cannibalizes) the energy
of existing power plants. Thus during rapid growth the industry as a
whole produces no energy because new energy is used to fuel
the embodied energy of future power plants. Work has been undertaken
in the UK to determine the life cycle energy (alongside full LCA) impacts
of a number of renewable technologies.[17][18]
[edit]Energy recovery
If materials are incinerated during the disposal process, the energy
released during burning can be harnessed and used for electricity
production. This provides a low-impact energy source, especially when
compared with coal and natural gas[19] While incineration produces more
greenhouse gas emissions than landfilling, the waste plants are well-
fitted with filters to minimize this negative impact. A recent study
comparing energy consumption and greenhouse gas emissions from
landfilling (without energy recovery) against incineration (with energy
recovery) found incineration to be superior in all cases except for when
landfill gas is recovered for electricity production.[20]
[edit]LCEA criticism
A criticism of LCEA is that it attempts to eliminate monetary cost
analysis, that is replace the currency by which economic decisions are
made with an energy currency.[citation needed] It has also been argued that
energy efficiency is only one consideration in deciding which alternative
process to employ, and that it should not be elevated to the only criterion
for determining environmental acceptability; for example, simple energy
analysis does not take into account the renewability of energy flows or
the toxicity of waste products; however the life cycle assessment does
help companies become more familiar with environmental properties and
improve their environmental system.[21] Incorporating Dynamic LCAs of
renewable energy technologies (using sensitivity analyses to project
future improvements in renewable systems and their share of the power
grid) may help mitigate this criticism.[22]
A problem the energy analysis method cannot resolve is that different
energy forms (heat, electricity, chemical energy etc.) have different
quality and value even in natural sciences, as a consequence of the two
main laws of thermodynamics. A thermodynamic measure of the quality
of energy is exergy. According to the first law of thermodynamics, all
energy inputs should be accounted with equal weight, whereas by
the second law diverse energy forms should be accounted by different
values.
The conflict is resolved in one of these ways:
 value difference between energy inputs is ignored,
 a value ratio is arbitrarily assigned (e.g., a joule of electricity is 2.6
times more valuable than a joule of heat or fuel input),
 the analysis is supplemented by economic (monetary) cost analysis,
 exergy instead of energy can be the metric used for the life cycle
analysis.[23]
[edit]Critiques

Life cycle assessment is a powerful tool for

analyzing commensurable aspects of quantifiable systems. Not every
factor, however, can be reduced to a number and inserted into a model.
Rigid system boundaries make accounting for changes in the system
difficult. This is sometimes referred to as the boundary
critique to systems thinking. The accuracy and availability of data can
also contribute to inaccuracy. For instance, data from generic processes
may be based on averages, unrepresentative sampling, or outdated
results.[24] Additionally, social implications of products are generally
lacking in LCAs. Comparative life-cycle analysis is often used to
determine a better process or product to use. However, because of
aspects like differing system boundaries, different statistical information,
different product uses, etc., these studies can easily be swayed in favor
of one product or process over another in one study and the opposite in
another study based on varying parameters and different available data.
[25]
There are guidelines to help reduce such conflicts in results but the
method still provides a lot of room for the researcher to decide what is
important, how the product is typically manufactured, and how it is
typically used.
An in-depth review of 13 LCA studies of wood and paper
products [26] found[27]a lack of consistency in the methods and
assumptions used to track carbon during the product life cycle. A wide
variety of methods and assumptions were used, leading to different and
potentially contrary conclusions – particularly with regard to carbon
sequestration and methane generation in landfills and with carbon
accounting during forest growth and product use.
The Agroecology tool "agroecosystem analysis" offers a framework to
incorporate incommensurable aspects of the life cycle of a product (such
as social impacts, and soil and water implications).[28]This tool is
specifically useful in the analysis of a product made from agricultural
materials such as corn ethanol or soybean biodiesel because it can
account for an ecology of contexts interacting and changing through
time. This analysis tool should not be used instead of life-cycle analysis,
but rather, in conjunction with life-cycle analysis to produce a well-
rounded assessment.
[edit]Dynamic life cycle assessment
In recent years, the literature on life cycle assessment of energy
technology has begun to reflect the interactions between the
current electrical grid and future energy technology. Some papers have
focused on energy life cycle,[29][30][31] while others have focused on carbon
dioxide and other greenhouse gases.[32] The essential critique given by
these sources is that when considering energy technology, the growing
nature of the power grid must be taken into consideration. If this is not
done, a given class of energy technology may emit more carbon
dioxide over its lifetime than it mitigates.
[edit]s

World's 8 biggest stock exchanges

July 15, 2008

You either make or break your fortune in stock markets, it is said. And rightly so. While we often get to hear of men
turning paupers overnight when the stock markets crash, tales of people like Warren Buffett and Rakesh
Jhunjhunwala inspire us to dream big.
Here we present information about the world's eight biggest stock markets. They have not been ranked. Read on...
1. New York Stock Exchange: $21.79 trillion share trades
The New York Stock Exchange (NYSE) is nicknamed the 'Big Board'. This is the largest stock exchange in the world
by dollar volume with 2,764 listed securities. It has the second most securities of all stock exchanges.
The NYSE originated on May 17, 1792. On that day, the Buttonwood Agreement was signed by 24 stock brokers
outside New York's 68 Wall Street under a buttonwood tree.
The first office of NYSE was a room at 40 Wall Street rented for $200 a month. NYSE was gutted in the Great Fire of
New York in 1835 and reconstructed soon after. In 1865, it moved to 10-12 Broad Street.
Source: World Federation of Exchanges Industry Association

World's 8 biggest stock exchanges

July 15 2008

2. NASDAQ: $11.81 trillion share trades

The NASDAQ is the acronym for National Association of Securities Dealers Automated Quotation System. An
American stock exchange, NASDAQ is the largest electronic screen-based equity securities trading market in the US.
It is owned and operated by the NASDAQ OMX Group.
With about 3,200 companies in its ambit, NASDAQ has more trading volume per day than any other stock exchange.
NASDAQ came into being in 1971 by the National Association of Securities Dealers. The latter divested themselves
of it in a series of sales in 2000 and 2001.
NASDAQ was the successor to the over-the-counter (OTC) and the 'Curb Exchange' systems of trading. As late as
1987, the NASDAQ exchange was commonly referred to as the OTC.
3. The London Stock Exchange: $7.57 trillion share trades
London Stock Exchange, or LSE, is located in London, England. It is part of the London Stock Exchange Group plc.
At present, it is situated in Paternoster Square close to St Paul's Cathedral in the City of London. One of the largest
stock exchanges in the world, LSE was founded in 1801.
The trade in shares in London began with the need to finance two voyages: The Muscovy Company's attempt to
reach China via the White Sea north of Russia, and the East India Company voyage to India and the east.
Unable to finance these costly journeys, the companies raised the money by selling shares to merchants, giving them
a right to a portion of any profits eventually made.

4. Tokyo Stock Exchange: $5.82 trillion share trades

The Tokyo Stock Exchange, or TSE, located in Tokyo, Japan, is the second largest stock exchange in the world by
market value, second to the New York Stock Exchange, but 4th in terms of worth of shares traded.
It currently lists 2,271 domestic companies and 31 foreign companies.
The Tokyo Stock Exchange was established on May 15, 1878, as the Tokyo Kabushiki Torihikijo under the direction
of then Finance Minister Okuma Shigenobu and capitalist advocate Shibusawa Eiichi. Trading began on June 1,
1878.
In 1943, the exchange was combined with 10 other stock exchanges in major Japanese cities to form a single
Japanese Stock Exchange. The combined exchange was shut down and reorganised shortly after the bombing of
Nagasaki.

World's 8 biggest stock exchanges

July 15, 2008

5. Euronext: $3.85 trillion share trades

Euronext N.V. is a pan-European stock exchange based in Paris with subsidiaries in Belgium, France, Netherlands,
Luxembourg, Portugal and the United Kingdom.
In addition to equities and derivatives markets, the Euronext group provides clearing and information services.
Not too long ago, Euronext merged with NYSE Group to form NYSE Euronext, the 'first global stock exchange'.
Euronext was formed on September 22, 2000 in a merger of the Amsterdam Stock Exchange, Brussels Stock
Exchange, and Paris Bourse.
In December 2001, Euronext acquired the shares of the London International Financial Futures and Options
Exchange, which continues to operate under its own governance.

World's 8 biggest stock exchanges

July 15, 2008

6. Deutsche Borse: $2.74 trillion share trades

Deutsche Borse AG is a marketplace organiser for the trading of shares and other securities. It also is a transaction
services provider. It gives companies and investors access to global capital markets.
Deutsche Borse was founded in 1992. The headquarters are in Frankfurt, Germany.
More than 3,200 employees of the exchange serve customers in Europe, the US and Asia. Deutsche Borse has
locations in Germany, Luxembourg, Switzerland, Czech Republic and Spain, as well as representative offices in
London, Paris, Chicago, New York, Hong Kong, and Dubai.
FWB Frankfurter Wertpapierborse (Frankfurt Stock Exchange), is one of the world's largest trading centers for
securities. With a share in turnover of around 90 per cent, it is the largest of the German stock exchanges.
Deutsche Borse AG operates the Frankfurt Stock Exchange.
In 2001, Deutsche B�rse tried to merge with the London Stock Exchange, followed in 2006 by a takeover bid, both
rejected by LSE.
7. Borsa Italiana: $1.59 trillion share trades
The Borsa Italiana S.p. A., based in Milan, is Italy's main stock exchange. It was privatised in 1997, and was acquired
by the London Stock Exchange in October 2007.
Borsa Italiana has managing responsibility for Italy's derivatives markets and its fixed income market.
Milan's Borsa di Commercio (Commodities Exchange) opened under a vice-royal decree on 16 January 1808 and it
operated under public ownership until 1998.
It was sold to a consortium of banks, and operated under a S.p. A. holding company between January 2, 1998 and an
all-share takeover by the London Stock Exchange on October 1, 2007.
8. SWX Swiss Exchange: $1.40 trillion share trades
SWX Swiss Exchange is Switzerland's stock exchange, based in Zurich.
The main stock market index for the SWX Swiss Exchange is the SMI. The index consists of the 20 most significant
equity-securities based on the free float market capitalisation.
The exchange also trades other securities such as Swiss government bonds and derivatives such as stock options.
The SWX is the first stock exchange in the world to incorporate a fully automated tradingsystem in 1995..
The SWX is the joint owners of the Eurex, world's largest futures and derivatives exchange along with their German
partners Deutsche Borse. In July 2004, the Swiss Stock Exchange rejected a proposal of merger from the German
company.
In September 2006, the Swiss Market Index crossed its previous all time high set nearly eight years ago.

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World's 10 best
hotels
Two hotels share the
fourth spot
July 23, 2008

4. Oberoi Udaivilas,
Udaipur

Oberoi Udaivilas is ranked

as the fourth best hotel in the world.

Situated on the banks of the Lake Pichola in Udaipur, it is the ultimate in luxury in a majestic setting.
In the city of palaces and beautiful lakes, the Oberoi Udaivilas reflects the splendour of a royal era.
All the rooms have amenities like an LCD TV, satellite television connection, wired and wireless broadband Internet access, electroni
personal mini-bar and Rajput-inspired decoration and marble bathrooms to offer a luxurious stay to guests.
2008 score: 95.00
4. Triple Creek Ranch, Darby, Montana
The Triple Creek Ranch shares the fourth rank with Oberoi Udaivilas. Triple Creek Ranch offers rustic charm in a mountain retreat wi
private log cabins and a comfortable lodge.

Romantic atmosphere, wildlife, outdoor activities make the hotel a hotspot. The hotel boasts of world-class accommodation, contemp
cuisine and the world's finest wines.
Spread across 600 acres, this hotel offers an unforgettable experience to its guests. It's the attention to the smallest details makes th
 Triple Creek Ranch so memorable.
2008 score: 95.00
Image: Oberoi Udaivilas Jaipur, (inset) Triple Creek Ranch. | Photograph: Oberoi & Triple Creek Ranch Website
Also read: World's 8 most expensive mobiles

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Top Banks in the World by Bankersalmanac.com

Listed below is a selection of the top banks worldwide ranked on total assets in US$. Our World and
Country Bank Rankings are based on the total assets of a bank calculated from year end figures gained from
submitted balance sheets. Bankers' Almanac World and Country Bank Rankings are updated each quarter.
These World and Country Rankings offer an excellent indicator of how financial institutions are performing in
the industry. Below you can see the top 10 banks, top 50 banks and best banks ranked on total assets in
US Dollars. If you are not already a subscriber to Bankersalmanac.com, you can access a full listing of the
world's top banks (over 3000 banks) if you register for a trial.
Once you have subscribed you can gain access to detailed bank information such as; vital settlement data,
bank credit ratings, bank ownership, group structure and subsidiaries, a bank's liabilities and assets. We
also provide addresses and key personnel contact information.
Curr Previ + or - Balan
Assets Capital
ent ous BANK (local ce
US$m US$m
Rank Rank curr) Sheet

1 (1) BNP Paribas *2,952, - 35,955 31.12.

SA , Paris , France 221 0.86% .52 09

2 (2) The Royal Bank of *2,739, - 23,623 31.12.

Scotland Group 361 29.36 .45 09
plc , Edinburgh ,UK %

3 (3) Crédit Agricole *2,234, - 40,648 31.12.

SA , Paris , France 350 5.80% .49 09

4 (4) Barclays *2,226, - 4,606. 31.12.

PLC , London , UK 593 32.83 81 09
%

5 (5) Deutsche Bank *2,153, - 2,279. 31.12.

AG , Frankfurt am 033 31.86 77 09
Main , Germany %

6 (6) Industrial & Commercial *1,726, - 48,926 31.12.

Bank of China 242 .18 09
Limited ,Beijing , China

7 (7) Lloyds Banking Group *1,658, - 16,909 31.12.

plc , London , UK 736 .41 09

8 (10) The Bank of Tokyo- 1,638,0 +3.32 18,218 31.03.

Mitsubishi UFJ 21 % .13 10
Ltd , Tokyo ,Japan

9 (8) JPMorgan Chase Bank *1,627, - 1,785. 31.12.

National 684 6.79% 00 09
Association , New
York , USA

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* Figures are consolidated
Curr Previ + or - Balan
Assets Capital
ent ous BANK (local ce
US$m US$m
Rank Rank curr) Sheet

10 (9) Banco Santander *1,593, +5.80 5,902. 31.12.

SA , Boadilla del 298 % 44 09
Monte , Spain

11 (11) Société Générale , Paris *1,468, - 1,327. 31.12.

La Défense , France 725 9.41% 12 09

12 (12) Bank of America *1,465, - 3,020. 31.12.

NA , Charlotte , USA 221 0.44% 04 09

13 (13) China Construction Bank *1,409, +27.3 34,230 31.12.

Corporation , Beijing ,Ch 602 7% .12 09
ina

14 (14) UniCredit *1,332, - 12,037 31.12.

SpA , Milan , Italy 510 11.18 .12 09
%

15 (15) Agricultural Bank of *1,301, +26.6 38,084 31.12.

China 097 3% .08 09
Limited , Beijing , China

16 (16) UBS *1,296, - 344.36 31.12.

AG , Zürich , Switzerland 709 33.47 09
%

17 (17) Bank of China *1,281, +25.8 37,181 31.12.

Limited , Beijing , China 409 4% .63 09

18 (21) Sumitomo Mitsui *1,277, +3.62 18,846 31.03.

Banking 444 % .40 10
Corporation , Tokyo ,Jap
an

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* Figures are consolidated

Curr Previ + or - Balan
Assets Capital
ent ous BANK (local ce
US$m US$m
Rank Rank curr) Sheet

19 (18) ING Bank *1,265, - 753.23 31.12.

NV , Amsterdam , Nether 594 14.75 09
lands %

20 (19) HSBC Bank *1,214, - 1,286. 31.12.

plc , London , UK 158 18.64 94 09
%

21 (20) Commerzbank *1,211, +35.0 4,406. 31.12.

AG , Frankfurt am 052 1% 03 09
Main , Germany

22 (22) Citibank NA , New *1,161, - 751.00 31.12.

York , USA 361 5.67% 09

23 (23) Bank of Scotland *1,067, +0.33 9,441. 31.12.

plc , Edinburgh , UK 890 % 30 09

24 (24) Crédit Agricole *1,022, - 9,407. 31.12.

Corporate and 141 16.91 46 09
Investment Bank ,Paris %
La Défense , France

25 (25) Credit Suisse *997,70 - 45.46 31.12.

Group , Zürich , Switzerl 5 11.87 09
and %

26 (26) Intesa Sanpaolo *896,47 - 9,525. 31.12.

SpA , Milan , Italy 6 1.77% 11 09

27 (27) Rabobank *871,87 - - 31.12.

Nederland , Utrecht , Ne 7 0.72% 09
therlands

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* Figures are consolidated

Curr Previ BANK Assets + or - Capital Balan
ent ous (local ce
US$m US$m
Rank Rank curr) Sheet

28 (28) Mizuho Corporate Bank 783,21 - 14,941 31.03.

Ltd , Tokyo , Japan 5 1.11% .63 10

29 (29) Banco Bilbao Vizcaya *767,66 - 2,635. 31.12.

Argentaria 9 1.40% 58 09
SA , Madrid , Spain

30 (30) Mizuho Bank 761,28 +2.17 7,449. 31.03.

Ltd , Tokyo , Japan 1 % 19 10

31 (31) The Norinchukin 728,64 +9.55 36,457 31.03.

Bank , Tokyo , Japan 1 % .48 10

32 (32) Nordea *728,18 +7.06 7,319. 31.12.

Group , Stockholm , Swe 4 % 94 09
den

33 (33) ABN AMRO Holding *673,37 - 2,657. 31.12.

NV , Amsterdam , Nether 9 29.61 10 09
lands %

34 (43) National Australia Bank *665,45 +4.87 22,847 30.09.

Ltd , Melbourne , Austral 6 % .30 10
ia

35 (34) Natixis , Paris , France *644,50 - 17,332 31.12.

2 19.17 .86 09
%

36 (35) Fortis Bank *624,15 - - 31.12.

SA/NV , Brussels , Belgiu 8 25.86 09
m %

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* Figures are consolidated

Curr Previ + or - Balan
Assets Capital
ent ous BANK (local ce
US$m US$m
Rank Rank curr) Sheet
37 (36) Wells Fargo Bank *608,77 +12.9 520.00 31.12.
NA , San Francisco , USA 8 5% 09

38 (37) Royal Bank of *608,04 - 16,606 31.10.

Canada , Toronto , Cana 8 9.51% .02 09
da

39 (38) Banque Fédérative du *603,32 - 2,697. 31.12.

Crédit 3 1.11% 27 09
Mutuel , Strasbourg ,Fra
nce

40 (49) Westpac Banking *599,80 +4.87 23,764 30.09.

Corporation , Sydney , A 3 % .07 10
ustralia

41 (39) Landesbank Baden- *590,66 - 3,707. 31.12.

Württemberg , Stuttgart 6 8.09% 32 09
,Germany

42 (40) Credit Suisse *578,94 - 9,125. 31.12.

International , London , 5 40.66 00 09
UK %

43 (41) KfW *574,00 +1.33 4,734. 31.12.

Bankengruppe , Frankfu 9 % 58 09
rt am Main , Germany

44 (42) Danske Bank *572,75 - 1,291. 31.12.

A/S , Copenhagen , Den 3 12.57 73 09
mark %

45 (44) National Westminster *566,33 +9.19 2,709. 31.12.

Bank Plc , London , UK 0 % 51 09

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* Figures are consolidated

Curr Previ + or - Balan
Assets Capital
ent ous BANK (local ce
US$m US$m
Rank Rank curr) Sheet
 46 (45) The Hongkong and *559,92 +1.91 2,900. 31.12.
Shanghai Banking 4 % 92 09
Corporation
Limited , Hong
Kong , Hong Kong

47 (46) Commonwealth Bank of *558,67 +4.18 20,762 30.06.

Australia , Sydney ,Austr 4 % .38 10
alia

48 (47) DZ BANK AG Deutsche *557,42 - 4,533. 31.12.

Zentral- 5 9.04% 72 09
Genossenschaftsbank, F
rankfurt am
Main , Germany

49 (48) The Toronto-Dominion *517,28 - 17,408 31.10.

Bank , Toronto , Canada 5 1.06% .10 09

50 (57) Australia and New *515,85 +11.4 20,136 30.09.

Zealand Banking Group 1 8% .79 10
Limited ,Melbourne , Au
stralia

* Figures are consolidated

* These bank rankings are compiled from balance sheet information included on Bankersalmanac.com
available at 16th February 2011.
The information available at this date is used to compile the full world and country rankings.
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