Some Economics Terms

 Microeconomics
The branch of economics that analyses the market behaviour of individual consumers and firms
in an attempt to understand the decision-making process of firms and households. It is
concerned with the interaction between individual buyers and sellers and the factors that
influence the choices made by buyers and sellers. In particular, microeconomics focuses
on patterns of supply and demand and the determination of price and output in individual
markets.

 Macroeconomics
The field of economics that studies the behaviour of the aggregate economy.
Macroeconomics examines economy-wide phenomena such as changes in unemployment,
national income, rate of growth, gross domestic product, inflation and price levels.

Macroeconomics is focused on the movement and trends in the economy as a whole, while in
microeconomics the focus is placed on factors that affect the decisions made by individuals.

 Supply
A fundamental economic concept that describes the total amount of a specific good or service
that is available to consumers. Supply can relate to the amount available at a specific price or
the amount available across a range of prices if displayed on a graph. This relates closely to the
demand for a good or service at a specific price; all else being equal, the supply provided by
producers will rise if the price rises because all firms look to maximize profits.

 Demand
An economic principle that describes a consumer’s desire and willingness to pay a price for a
specific good or service. Holding all other factors constant, the price of a good or service
increases as its demand increases and vice versa. For example, market demand is the total of
what everybody in the market wants.

 Efficiency
A broad term that implies an economic state in which every resource is optimally
allocated to serve each person in the best way while minimizing waste and inefficiency.
 When an economy is economically efficient, any changes made to assist one person
would harm another. In terms of production, goods are produced at their lowest possible
cost, as are the variable inputs of production.

 Utility
An economic term referring to the total satisfaction received from consuming a good or service.
A company that generates, transmits and/or distributes electricity, water and/or gas from
facilities that it owns and/or operates.

 Opportunity cost
The cost of passing up the next best choice when making a decision. For example, if
an asset such as capital is used for one purpose, the opportunity cost is the value of the next
best purpose the asset could have been used for. Opportunity cost analysis is an important part
of a company's decision-making processes, but is not treated as an actual cost in any financial
statement. Opportunity cost is assessed in not only monetary or material terms, but also in
terms of anything which is of value. For example, a person who desires to watch each of two
television programs being broadcast simultaneously, and does not have the means to make a
recording of one, can watch only one of the desired programs.

opportunity cost ensures that an individual will buy the least expensive of two similar goods
when given the choice. For example, assume that an individual has a choice between two
telephone services. If he or she were to buy the most expensive service, that individual may
have to reduce the number of times he or she goes to the movies each month. Giving up these
opportunities to go to the movies may be a cost that is too high for this person, leading him or
her to choose the less expensive service.

Indifference curve-A curve used in economics which shows how consumers

would react to different combinations of products. On the graph, a quantity of
one product appears on the x axis and a quantity of another product appears on the y axis.
Consumers would be equally satisfied at any point along a given curve, as each
point brings the same level of utility to that consumer. The slope of the curve is referred to as
the marginal rate of substitution
if a consumer equally prefers two product bundles, then the consumer is indifferent between
the two bundles. The consumer will get the same level of satisfaction (utility) from either
bundles. Graphically speaking, this is known as the indifference curve.
Properties of Indifference Curves

1. Higher indifference curves are preferred to lower ones, since more is preferred to less
(non-satiation).
2. Indifference curves are downward sloping. If the quantity of one goods is reduced, then
you must have more of the other good to compensate for the loss.
3. Indifference curves do not cross (intersect), since this would imply a contradiction.
4. Indifference curves are bowed inward (in most cases). The slope of indifference curves
represent the MRS (rate at which consumers are willing to substitute one good for the
other). People are usually willing to trade away more of one good when they have a lot
of it, and less willingto trade away goods which are in scarce supply. This implies that
MRS must increase as we get less of a good.

 Law of diminishing marginal utility

A law of economics stating that as a person increases consumption of a product - while keeping
consumption of other products constant - there is a decline in the marginal utility that person
derives from consuming each additional unit of that product.

This is the premise on which buffet-style restaurants operate. They entice you with "all you can
eat," all the while knowing each additional plate of food provides less utility than the one
before. And despite their enticement, most people will eat only until the utility they derive
from additional food is slightly lower than the original.

For example, say you go to a buffet and the first plate of food you eat is very good. On a scale
of ten you would give it a ten. Now your hunger has been somewhat tamed, but you get
another full plate of food. Since you're not as hungry, your enjoyment rates at a seven at best.
Most people would stop before their utility drops even more, but say you go back to eat a third
full plate of food and your utility drops even more to a three. If you kept eating, you would
eventually reach a point at which your eating makes you sick, providing dissatisfaction, or 'dis-
utility'.

 Marginal costs
 In economics and finance, marginal cost is the change in total cost that arises when the
quantity produced changes by one unit. That is, it is the cost of producing one more unit
of a good.[1] If the good being produced is infinitely divisible, so the size of a marginal
 cost will change with volume, as a non-linear and non-proportional cost function
includes the following:

 variable terms dependent to volume,

 constant terms independent to volume and occurring with the respective lot size,
 jump fix cost increase or decrease dependent to steps of volume increase

Ppf
A curve depicting all maximum output possibilities for two or more goods given a set of inputs
(resources, labor, etc.). The PPF assumes that all inputs are used efficiently.

As indicated on the chart above, points A, B and C represent the points at which production of
Good A and Good B is most efficient. Point X demonstrates the point at which resources are not
being used efficiently in the production of both goods; point Y demonstrates an output that is
not attainable with the given inputs

(PPF) represents the point at which an economy is most efficiently producing its goods and
services and, therefore, allocating its resources in the best way possible. If the economy is not
producing the quantities indicated by the PPF, resources are being managed inefficiently and
the production of society will dwindle. The production possibility frontier shows there are limits
to production, so an economy, to achieve efficiency, must decide what combination of goods
and services can be produced.

 Total utility
Total utility is the total satisfaction obtained from all units of a particular commodity consumed
over a period of time".The total satisfaction of wants and needs obtained from the use or
consumption of a good or service. This is the cumulative amount of utility generated from
consuming a good over a given time period. Total utility is most often used in consumer
demand theory to indicate how much overall satisfaction someone obtains from a given
activity. The primary behavioral motivation used in consumer demand theory is the goal of
maximizing total utility. Total utility is also used to derive marginal utility.

For example, a person consumes eggs and gains 50 utils of total utility. This total utility is the
sum of utilities from the successive units (30 utils from the first egg, 15 utils from the second
and 5 utils from the third egg).

Summing up total utility is the amount of satisfaction (utility) obtained from consuming a
particular quantity of a good or service within a given time period. It is the sum of marginal
utilities of each successive unit of consumption.

 Market Failure

An economic term that encompasses a situation where, in any given market, the quantity of a
product demanded by consumers does not equate to the quantity supplied by suppliers. This is
a direct result of a lack of certain economically ideal factors, which prevents equilibrium.

Market failures have negative effects on the economy because an optimal allocation of
resources is not attained. In other words, the social costs of producing the good or service (all
of the opportunity costs of the input resources used in its creation) are not minimized, and this
results in a waste of some resources.
  Depression

In economics, a depression is a sustained, long-term downturn in economic activity in one or

more economies. It is a more severe downturn than a recession, which is seen by some
economists as part of the modern business cycle.

A depression develops when overproduction, decreased demand, or a combination of both

factors forces curtailment of production, dismissal of employees, and wage cuts.
Unemployment and lowered wages further decrease purchasing power, causing the crisis to
spread and become more acute. Recovery is generally slow, the return of business confidence
being dependent on the development of new markets, exhaustion of the existing stock of
goods, or, in some cases, remedial action by governments

 Guns and Butter

The classic economic example of the production possibility curve, which demonstrates the idea
of opportunity cost. In a theoretical economy with only two goods, a choice must be made
between how much of each good to produce. As an economy produces more guns (military
spending) it must reduce its production of butter (food), and vice versa.

 Scarcity
The basic economic problem that arises because people have unlimited wants but resources are
limited. Because of scarcity, various economic decisions must be made to allocate resources
effeciently.When we talk of scarcity within an economic context, it refers to limited resources,
not a lack of riches. These resources are the inputs of production: land, labor and capital.
People must make choices between different items because the resources necessary to fulfill
their wants are limited. These decisions are made by giving up (trading off) one want to satisfy
another.
  Externalities

Externalities are common in virtually every area of economic activity. They are defined as third
party (or spill-over) effects arising from the production and/or consumption of goods and
services for which no appropriate compensation is paid.

Externalities can cause market failure if the price mechanism does not take into account the full
social costs and social benefits of production and consumption.

Economics studies two forms of externalities. An externality is something that, while it does
not monetarily affect the producer of a good, does influence the standard of living of society as
a whole.

A positive externality is something that benefits society, but in such a way that the producer
cannot fully profit from the gains made. A negative externality is something that costs the
producer nothing, but is costly to society in general.

Examples of positive externalities are environmental clean-up and research. A cleaner

environment certainly benefits society, but does not increase profits for the company
responsible for it. Pollution is a very common negative externality. A company that pollutes
loses no money in doing so, but society must pay heavily to take care of the problem pollution
caused.

 Revenue

The amount of money that a company actually receives during a specific period, including
discounts and deductions for returned merchandise. It is the "top line" or "gross income" figure
from which costs are subtracted to determine net income.

Revenue is calculated by multiplying the price at which goods or services are sold by the
number of units or amount sold.

 Perfect competetion
The theoretical free-market situation in which the following conditions are met:
(1) buyers and sellers are too numerous and too small to have any degree of individual
control over prices, (2) all buyers and sellers seek to maximize their profit (income), (3) buyers
and seller can freely enter or leave the market, (4) all buyers and sellers
have access to information regarding availability, prices, and quality of goods being traded, and
(5) all goods of a particular nature are homogeneous, hence substitutable for one another. Also
called perfect market or pure competition.

 Many small firms, each of whom produces an insignificant percentage of total market
output and thus exercises no control over the ruling market price.
 Many individual buyers, none of whom has any control over the market price – i.e.
there is no monophony power
 Perfect freedom of entry and exit from the industry. Firms face no sunk costs - entry
and exit from the market is feasible in the long run. This assumption ensures all firms
make normal profits in the long run
 Homogeneous products are supplied to the markets that are perfect substitutes. This
leads to each firms being passive “price takers” and facing a perfectly elastic
demand curve for their product
 Perfect knowledge – consumers have readily available information about prices and
products from competing suppliers and can access this at zero cost – in other words,
there are few transactions costs involved in searching for the required information
about prices
 No externalities arising from production and/or consumption which lie outside the
market

 Monopoly
A monopoly is a market structure in which there is only one producer/seller for a product. In
other words, the single business is the industry. Entry into such a market is restricted due to
high costs or other impediments, which may be economic, social or political. For instance, a
government can create a monopoly over an industry that it wants to control, such as electricity.
Another reason for the barriers against entry into a monopolistic industry is that oftentimes,
one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the
government has sole control over the oil industry. A monopoly may also form when a company
has a copyright or patent that prevents others from entering the market.

 Monopolistic Competition
Pure monopoly and perfect competition are two extreme cases of market structure. In reality,
there are markets having large number of producers competing with each other in order to sell
their product in the market. Thus, there is monopoly on one hand and perfect competition on
other hand. Such a mixture of monopoly and perfect competition is called as monopolistic
competition. It is a case of imperfect competition.

1. Large Number of Sellers

There are large number of sellers producing differentiated products. So, competition among them is very keen. Since
number of sellers is large, each seller produces a very small part of market supply. So no seller is in a position to
control price of product. Every firm is limited in its size.

2. Product Differentiation

It is one of the most important features of monopolistic competition. In perfect competition, products are
homogeneous in nature. On the contrary, here, every producer tries to keep his product dissimilar than his rival's
product in order to maintain his separate identity. This boosts up the competition in market. So, every firm acquires
some monopoly power.

3. Freedom of Entry and Exit

This feature leads to stiff competition in market. Free entry into the market enables new firms to come with close
substitutes. Free entry or exit maintains normal profit in the market for a longer span of time.

4. Selling Cost

It is a unique feature of monopolistic competition. In such type of market, due to product differentiation, every firm has
to incur some additional expenditure in the form of selling cost. This cost includes sales promotion expenses,
advertisement expenses, salaries of marketing staff, etc.
But on account of homogeneous product in perfect competition and zero competition in monopoly, selling cost does
not exist there.

5. Absence of Interdependence
Large numbers of firms are different in their size. Each firm has its own production and marketing policy. So no firm is
influenced by other firm. All are independent.

 Oligopoly
 Market situation between, and much more common than, perfect competition (having
many suppliers) and monopoly(having only one supplier). In oligopolistic markets,
independent suppliers (few in numbers and not necessarily acting in collusion) can
effectively control the supply, and thus the price, thereby creating a seller's market.
They offer largely similar products, differentiated mainly by heavy
advertising and promotional expenditure, and can anticipate the effect of one
another's marketing strategies. Examples include airline, automotive, banking,
and petroleum markets

 Subprime mortgage-A type of mortgage that is normally made out to

borrowers with lower credit ratings. As a result of the borrower's lowered credit rating,
a conventional mortgage is not offered because the lender views the borrower as having
a larger-than-average risk of defaulting on the loan. Lending
institutions often charge interest on subprime mortgages at a rate that is higher than a
conventional mortgage in order to compensate themselves for carrying more risk.

 Market capitalization-Market Capitalization, often shortened as "Market

Cap", is the total market value of a company's outstanding shares. Market capitalization
is calculated by multiplying the number of shares outstanding (this includes the value of
all listed categories of a corporation's stocks - preferred stock, common shares, etc) by
the market price per share which is the current value of a company. For example, if a
company has 10 million shares, and the current price per share is $10, then the
company's market capitalization is (10 million shares x $10), or $100 million.

 Credit default swaps - A credit default swap (CDS) is a form of insurance

some CDSs the reduced cash value of the defaulted loan) for the face value of the loan
which protects the buyer of the CDS in the case of a loan default. If the loan defaults, the buyer
of the CDS can exchange or "swap" the defaulted loan (or in
  Takeover - To get into one's possession by force, skill, or artifice, especially:
a. To capture physically; seize: take an enemy fortress.
b. To seize with authority; confiscate.

 Downgrade - A negative change in the rating of a security. This situation occurs

when analysts feel that the future prospects for the security have weakened from the
the
orginal recommendation, usually due to a material and fundamental change in the
company's operations, future outlook or industry.
Write-down - A reduction in the value of an asset carried on a firm's financial
statements. For example, the firm's accountants, believing inventory is overvalued,
may decide to take a writedown by reducing inventory valuation. Unlike a writeoff, a
writedown does not result in elimination of the asse

 Wall Street - Refers to the financial district of New York City, named after and
centered on the eight-block-long street running from Broadway to South Street on the
East River in lower Manhattan. Over time, the term has become a metonym for the
financial markets of the United States as a whole, or signifying New York-based financial
interests. It is the home of the New York Stock Exchange, the world's largest stock
exchange by market capitalization of its listed companies.. Acquisition - A corporate action in
which a company buys most, if not all,
of the target company's ownership stakes in order to assume control of the target
firm. Acquisitions are often made as part of a c
expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock
or a combination of both.

ompany's growth strategy whereby it

is more beneficial to take over an existing firm's operations .

 The Great Depression

The Great Depression was the longest and most severe business slump in U.S. history. The
Great Depression began with the Stock Market Crash in 1929 and didn't fully end until the U.S.
entered World War II in 1941. The causes of the Great Depression are hotly debated. But
excessive stock market speculation, restrictive trade practices, Federal Reserve policies, and the
collapse of the gold standard are all offered as reasons for the Great Depression. During the
worst years of the Great Depression from 1929 to 1933, some 11,000 of America's 25,000
banks failed and stocks lost 80% of their value; the Great Depression also saw
the unemployment rate rise to 25%. The Great Depression soon spread beyond the U.S.,
abetting the rise of Nazi Germany. The Great Depression also had enormous political
consequences in the U.S., causing a vast expansion of Federal economic intervention. The Great
Depression propelled Congress into passing the Securities Exchange Act of 1934. which
established the Securities and Exchange Commission, and the Glass-Steagall Act, which
segregated commercial andinvestment banking for more than half a century.

 Long Term Capital Management

A defunct hedge fund, established in 1993, that, at its height, held positions worth more than
$1 trillion. Its investment strategy was to take advantage of arbitrage opportunities
in bonds and other fixed-income securities; profits on individual transactions were small, so
LTCM was required to borrow massive amounts of money in order to operate. It was at first
enormously successful, with a 40% annualized return after fees. However, when
Russia defaulted on its government bonds in 1998, there was a steep drop in bond prices,
endangering LTCM's positions because of its high leverage. Because LTCM controlled upwards
of 5% of the bond market at the time, defaulting on its loans would have caused
global financial panic. It was eventually bailed out by a consortium of organizations under the
supervision of the Federal Reserve.

 Alt-A Loans

An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various
reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime," the
riskiest category. Alt-A interest rates, which are determined by credit risk, therefore tend to be
between those of prime and subprime home loans. Typically Alt-A mortgages are characterized
by borrowers with less than full documentation, lower credit scores, higher loan-to-values, and
more investment properties. A-minus is related to Alt-A, with some lenders categorizing them
the same, but A-minus is traditionally defined as mortgage borrowers with a FICO score of
below 680 while Alt-A is traditionally defined as loans lacking full documentation. Alt-A
mortgages may have excellent credit but may not meet underwriting criteria for other reasons.
Alt-A loans should be not be confused with alternative documentation loans, which are typically
considered to have the same risk as full documentation loans despite the use of different
documents to verify the relevant information.

 Chief Financial Officer

The chief financial officer (CFO) or Chief financial and operating officer (CFOO) is
a corporate officer primarily responsible for managing the financial risks of the corporation. This
officer is also responsible for financial planning and record-keeping, as well as financial
reporting to higher management. In some sectors the CFO is also responsible for analysis of
data.

 Mortgage Backed Securities

When you invest in a mortgage-backed security you are essentially lending money to a home
buyer or business. An MBS is a way for a smaller regional bank to lend mortgages to its
customers without having to worry about whether the customers have the assets to cover the
loan. Instead, the bank acts as a middleman between the home buyer and the investment
markets.

 Leverage
Leverage means use of sources of funds bearing fixed financial payments like debt in capital
structure.

What Does Leverage Mean?

1. The use of various financial instruments or borrowed capital, such as margin, to increase the
potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than
equity is considered to be highly leveraged.

Types of Leverage

1. Operating Leverage
2. Financial Leverage

Operating Leverage

Operating Leverage is a measure of business risk. Operating leverage is defined as the firms
ability to define fixed cost to magnify the effect of changes in sales on its earnings before
interests and taxes(EBIT). The percentage change in EBIT occurring due to given percentage
changes in sales is known as the degree of operating leverage. The operating leverage of 1.5
means that 1% increase in sales would result in 1.5% increase in EBIT(i.e operating profit).

It is associated with capital budgeting decision

When does Operating leverage exists.?

Operating Leverage exists when there is fixed cost.

How to calculate?

The degree of operating leverage(D.O.L)can be calculated by-

1. D.O.L= Contribution/EBIT= sales-variable costs/sales-variable costs-fixed costs

Significance

It shows the impact of change in sales on operating income(EBIT).

Financial leverage
Financial leverage is a measure of financial risk. The percentage change on earnings per
share[EPS] occurring due to given percentage change in earnings before interest and tax.[EBIT]
is known as financial leverage. The financial leverage of 1.5 means that 1% change in EBIT
would result in 1.5%increase in EPS.

Financial leverage is associated with capital structure decision.

When does it exists?

It exists if there is use of funds bearing fixed financial payments like debt.

How to calculate?

D.F.L= EBIT/EBT

Significance of financial leverage

It shows the impact of changes in EBIT on EPS.

Combined Leverage
It is a measure of total risk. The percentage change in EPS occurring due to percentage change
in sales is known as the degree of combined leverage. It is a product of operating and financial
leverage.

Decision

It is associated with capital budgeting decision and capital structure decision.

Calculation

DCL= contribution/EBT

 Preferred Stock

What Does Preferred Stock Mean?

A class of ownership in a corporation that has a higher claim on the assets and earnings than
common stock. Preferred stock generally has a dividend that must be paid out before dividends
to common stockholders and the shares usually do not have voting rights.

The precise details as to the structure of preferred stock is specific to each corporation.
However, the best way to think of preferred stock is as a financial instrument that
has characteristics of both debt (fixed dividends) and equity (potential appreciation). Also
known as "preferred shares".

 Bankruptcy

Notice of closure attached to the door of a computer store the day after its parent company declared
"bankruptcy" (strictly, put into administration—see text) in the United Kingdom.

Bankruptcy or insolvency is a legal status of a person or an organisation that cannot repay the
debts it owes to its creditors. Creditors may file a bankruptcy petition against a business or
corporate debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are
owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the
debtor (a "voluntary bankruptcy" that is filed by the insolvent individual or organisation). An
involuntary bankruptcy petition may not be filed against an individual consumer debtor who is
not engaged in business.

The word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus
(broken). A "bank" originally referred to a bench, which the first bankers had in the public
places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange,
etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person
to whom the bank belonged was no longer in a condition to continue his business. As this
practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banca
rotta, broken bank (see e.g. Ponte Vecchio).
  The WorldCom collapse
The meltdown of WorldCom, one of the biggest telecom companies in the United States,
has rekindled the debate on corporate accountability and raised fears that the corporate
system in the U.S is rotting at its core.

V. SRIDHAR

IN 2001, when Enron Corporation filed for bankruptcy, the biggest in the corporate history of
the United States, amid charges of dubious accounting practices and a scandal over favours
shown to the company by the political establishment, shocked investors were assured by
President George W. Bush that Enron was just a case of one "rotten apple" in an otherwise
healthy corporate system. Since then, however, a string of sleaze-hit collapses of high-profile
companies in the U.S. has raised the fear that the corporate system is rotting at its very core.
Recent revelations that WorldCom, one of the biggest telecom companies in the U.S., fudged
accounts to show inflated profits in the two preceding years, have rekindled the debate on
corporate accountability. There is also growing anger about the culture of greed in the
boardrooms.

WorldCom was the quintessential New Economy company. It was the second biggest long-
distance telecom company in the U.S and was also the biggest carrier of Internet traffic and
electronic commerce in the world. During the 15 years of its existence, the company grew at a
scorching pace, fuelled by the almost insatiable appetite of its former chief executive officer
(CEO) Bernard J. Ebbers for acquiring companies. As long as the stock market boomed and the
dot com business expanded recklessly, not a thought was given to the fundamentals of the
company. Wall Street analysts and investment bankers looked the other way even as auditors
failed to exercise due diligence.

RICK BOWMER/AP
Former WorldCom chief executive officer Bernard
Ebbers, second from left, and others before the United
States House Financial Service Committee on July 8.

WorldCom has business interests in more than 65

countries, and a network that stretches over almost
150,000 kilometres. It gobbled up several pioneering
Internet firms such as UUNET, MCI and CompuServe,
which created the first e-mail services in the late 1970s. But, the company is now on the verge
of collapse. The fate of its more than 80,000 employees across the world hangs in the balance.

In March 2002, the U.S. Securities and Exchange Commission (SEC) sought information from
WorldCom about its accounting procedures and about loans it had extended to its officers. In
April the company announced that it was cutting 3,700 jobs. Soon after, Standard & Poor's,
Moody's and Fitch downgraded WorldCom's credit ratings. The U.S. Justice Department has
launched an independent probe into the WorldCom scandal.

In April 2002, Ebbers resigned as CEO after an SEC probe revealed that WorldCom had lent
$339.7 million to him to cover loans that he took to buy his own shares. In May, Standard &
Poor's reduced WorldCom's credit rating to junk status and WorldCom was removed from the
prestigious S&P 500 Index. On June 25, the company announced that improper accounting of
$3.8 billion in expenses had covered up a net loss for 2001 and the first quarter of 2002. The
company also announced that it planned to shed 17,000 jobs, more than 20 percent of its
workforce. The Nasdaq halted trading in WorldCom's stocks of WorldCom Group and MCI
Group. In four months, ending April, the share price fell by over 80 per cent. On June 26, the
SEC filed a suit alleging "securities fraud" against WorldCom in a district court in New York. It
alleged that WorldCom's top management "disguised its true operating performance" and
"misled investors about its reported earnings".

Even as the company was sliding, it announced on June 25 that it was "restating" its income for
2001 and the first quarter of 2002. It said that an internal audit had revealed that earlier
financial statements of the company had deviated from accounting principles, resulting in an
over-statement of its revenues and profits for 2001 and the first quarter of 2002 - to the tune of
$3.8 billion. The company had used a simple trick in its balance sheet to boost revenues and
profits while hiding expenditures. By classifying ordinary day-to-day expenses as investments
and long-term expenses associated with the acquisition of capital assets, on which companies
enjoy certain tax advantages, WorldCom was able to hide expenses to the tune of nearly $4
billion and instead show this as profits. One of WorldCom's major operating expenses relates to
its "line costs", the fees that it pays to third party telecom network providers for the right to
access their networks. In effect, WorldCom capitalised these fees, terming them as
investments, when, in fact, they were one of the most important day-to-day expenses. The SEC,
in its complaint in court, stated that WorldCom's top executives did this in order to keep Wall
Street happy. The shock turned to anger as it became known that Arthur Andersen, the now-
disgraced auditing and consulting major and a player in the Enron saga, was WorldCom's
auditor too.

Bernard Ebbers was an icon of the dot com era, a darling of Wall Street during the height of the
longest stock market boom in U.S. history, which came crashing down in 2000. Ebbers started
off by investing in Long-Distance Discount Service (LDDS), a small telecom company, in 1983.
Two years later he took over LDDS as CEO, having been in the right place at a time when the
demand for Internet and telecom services was starting to expand. LDDS basically bought
bandwidth capacity from AT&T and resold it at lower prices to customers. Just as Enron took
full advantage of the deregulatory framework in the power sector, Ebbers was quick to spot
fresh opportunities in the wake of the deregulation of the telecom industry in the U.S. A series
of acquisitions later, by 1993, LDDS had become the fourth-largest long-distance telecom
network in the U.S. The booming stockmarkets enabled the company to leverage its own shares
to raise debt to make these expensive acquisitions.
th of WorldCom's inevitabIn 1995, LDDS acquired its now-disgraced name, WorldCom. After the
renaming, the company started to acquire even bigger companies. Among them was UUNET,
one of the oldest carriers of Internet traffic and the inheritor to the publicly funded Internet
backbone, which was privatised by the National Science Foundation in the U.S. In 1998,
WorldCom merged with MCI, in a deal valued at $40 billion, the highest-priced acquisition in
history at that time. The company, which already enjoyed a stranglehold on the Internet
backbone, met its first roadblock when its attempt to take over Sprint was halted by regulators
in Europe and the U.S. in 2000.

Financial experts have pointed out that WorldCom's accounting practices, particularly those
relating to the acquired businesses, made it impossible for investors to gauge the performance
of the company. Revisions in financial statements were thus the norm in WorldCom. While
profitability was overstated, investors were misled by the opaque nature of its regular
operating performance. Even in 2001, as the dot com bubble burst, WorldCom continued to
maintain that all was fine. And analysts played ball. In October 2001, one analyst at a large
investment bank even predicted that WorldCom would be the "fastest growing megacorp" in
2002.

What is the likely impact of the WorldCom meltdown? As is the case with any corporate failure,
there are going to be a few gainers but the losers will be many. The company's share- and
bond-holders are left holding practically worthless assets. With assets well below the
company's debt of over $30 billion, creditors are unlikely to get their money back. WorldCom's
80,000 employees are likely to pay with their jobs. According to a mutual fund advisory group,
539 mutual funds own 400 million of the three billion in outstanding shares of WorldCom.
Ordinary investors in these funds are likely to suffer severe losses. Moreover, there are also the
401(k) plans of ordinary workers in these mutual funds. In contrast to the losses that are
immediate for ordinary people hooked to shares and investments in mutual and pension funds,
corporate laws provide a far better cushion to top executives. On July 8, Ebbers and former
Chief Financial Officer Scott Sullivan refused to testify before the congressional Financial
Services Committee inquiring into the WorldCom scandal. The Committee is particularly keen to
investigate links between the company and an investment analyst who is believed to have had
prior knowledge about the dubious accounting methods employed by WorldCom. The telecom
major AT&T is seen as a potential gainer in the aftermale collapse.

 Conference call
A conference call is a telephone call in which the calling party wishes to have more than one
called party listen in to the audio portion of the call. The conference calls may be designed to
allow the called party to participate during the call, or the call may be set up so that the called
party merely listens into the call and cannot speak. It is often referred to as an ATC (Audio Tele-
Conference).

Conference calls can be designed so that the calling party calls the other participants and adds
them to the call - however, participants are usually able to call into the conference call
themselves, by dialing into a special telephone number that connects to a "conference bridge"
(a specialized type of equipment that links telephone lines).

Companies commonly use a specialized service provider who maintains the conference bridge,
or who provides the phone numbers and PIN codes that participants dial to access the meeting
or conference call.

Three-way calling is available (usually at an extra charge) for many customers on their home or
office phone line. To three-way call, the first person, who is the one who someone wishes to
talk to is dialed. Then the Hook flash button (known as the recall button in the UK and
elsewhere) is pressed and the other person's phone number is dialed. While it is ringing, flash /
recall is pressed again to connect the three people together. This option allows callers to add a
second outgoing call to an already connected call.

ARTICLES
Demand for culinary herbs surges
AHMEDABAD/KOCHI: Gourmet restaurant and discerning customers are increasing the demand for
culinary herbs - both dried and fresh - like basil, french tarragon, rosemary, thyme, sage, oregano, chives
and parsley. The mild-flavoured herbs are bringing rich dividend to domestic manufacturers and farmers.
Increasing disposable income and exposure to international market are prompting more customers in
metros to go for culinary herbs and seasonings. According to industry estimate, the market for culinary
herbs is growing at a fast pace of 20% to 25% a year.

Trikaya Agriculture, which caters to five-star hotels and specialty restaurant chains, operates from its
Mumbai retail store with fresh supplies coming from its farms in Pune and Ooty. "Fives years ago, we
were selling fresh 5 kg basil and one kg oregano daily.

Now, we sell 100 kg basil and 5 kg oregano a day. Volumes are going up and I see a growth of 35% to
40% in sales and acreage with people experimenting with western and continental food," said Samar
Gupta, MD, Trikaya Agriculture.

The farmer-cum-businessman is growing 11 varieties of culinary herbs on five acre and sells 150 kg fresh
herbs a day to large hotels, vegetable vendors, air kitchens, ship chandlers, caterers, exporters and for
home delivery.
Gupta said prices of culinary herbs have fallen with new players entering the market which is a win-win
situation for consumers. Currently, basil prices in Mumbai market is ruling at Rs 80 a kg and oregano Rs
120 a kg.

Premium car buyers now queue up for CNG kits

Even the rich are now turning to the fuel of taxi drivers,as skyrocketing petrol prices threaten to rock
Household budgets.Demand for compressed natural gas(CNG) kits from premium car owners has risen
25-30% in the last few months,companies dealing with CNG kit fitment say.CNG is not only cheaper
than both petrol and diesel but also gives better running average.
The Demand is being seen across brands.While in the premium car segment,buyers are seeking the
CNG version of Honda CR-V,Honda Civic,Honda City,Toyota Camry and Corolla, sales of entry level
CNG cars,such as Maruti’s WagonR and Alto and Hyundai’s Santro have recorded a jump over the
previous years.
“Till last year ,we used to fit about 40 private cars with CNG kits in a month.This has risen to 300 to400
Cars.”said Bindra CNG’s Dharampal Singh,who has been fixing CNG kits in cars in Andheri for several
Years now.
Mumbai’s CNG kit dealers say the fuel can lead to savings of over 70%,as it is not only cheaper than
petrol-Rs 32 a kg as compared with Rs 68 a litre for petrol-but also gives better fuel average.A Honda
CR-V, which generally gives an average of 6-7 km for a litre of petrol,would give atleast 17km for a kg of
CNG.
The mathematics clearly works in favour of CNG-for the price of one litre of petrol,one would get two
Kilos of CNG and about 27 km more mileage.
CNG is highly economical, easy to get and helps save cost by more than 60%.People donot have to fear
Someone stealing CNG.CNG kits which enable vehicle engines to be powered by both natural gas and
petrol,are imported from Argentina and Italy and cost between Rs 25000 and Rs 30000.
The alternative fuel makes economic sense for middle class Indians who have seen cost of loans and fuel
Rise several times over the last year and half.
“With no price stability for LPG,customers are opting for CNG kits”,said Singh.