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Outource Bookkeeping Sunshine Coast

As business in this volatile time continue to become more and more unpredictable, companies are finding new ways to cut costs while maintaining the quality of service that they provide to their customers. Decision making is an important and sometimes a draining task that managers and business leaders are finding it hard to deal with since many factors need to be considered first before a final decision is made. Outsourcing has long been a popular choice for companies in order to be cost effective. It enables them to reduce their industrial cost and at the same time benefit from the expertise and resources of the firm that they choose to partner with.

Outsourcing bookkeeping Sunshine Coast helps growing businesses to focus the customers, products and develop a strategy to keep up with the demand of their clients and earn more profit. It also helps them unload their work and is more economical and practical. One significant advantage of outsourcing bookkeeping is it lessens the use of internal resources while minimizing the task of internal workers. One definite plus when work is outsourced is the fact that it costs less. It also gives opportunities for both companies to tap the resources as well as the expertise of their partners.

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Outsourcing bookkeeping jobs also allows for the sharing of ideas of two companies and enables them to learn new business and marketing strategies from each other. It has a huge advantage and can be considered as a wise investment for expanding firms. Business enterprises that are planning to outsource their work needs to see to it that they choose the best partner, especially for bookkeeping and accounting tasks that involves confidential information on their financial information. They have to be careful in seeing to it that they know all important information regarding the credibility and capability of the institution where they plan to form a partnership.

Good communication between two accounting firms is a very important factor in outsourcing. It is beneficial that before any transaction is being made, all the terms and conditions of the business have been completely laid out. Having a harmonious relationship in business is a vital aspect when aiming for success and growth. Since some outsourcing work is done miles, countries and continents away, sophisticated tools and fast technology is a must. As technology continues to evolve at a rapid pace, accounting companies are keeping up to the challenge through focusing their investments on technology. The emergence of Internet and other wireless technology has given accounting companies and their outsourcing partners with wide coverage and options on how to do outsourcing.

Bookkeeping outsourcing companies provide a variety of services in accounting and financial management. The services on offer include:

  • preparing the financial statements of firms
  • providing comprehensive reports on finances
  • make spreadsheets and input data on accounts that are received and paid
  • Tax compliance

Reports are given on a day to day basis per transaction made, with accurate records and computations.

What was once impossible to achieve has become so easily available for companies not just in the accounting and bookkeeping industry. Through vast innovations in technology, there are solutions to complex accounting problems and the process of inputting data has been made much easier. But the accounting industry cannot function well without the brilliant minds of accountants and bookkeepers. No matter how powerful technology can become, it is still the powerless without these experts who design and operate them.

Image Courtesy of Global Research

Advantages of Outsourcing Overseas

When you’re in business, you can’t expect that all of the workers within your premises have all the skills and expertise that you needed. But let us just say that there is indeed someone among your workers who is able to do the needed task. That person do well in that area, but is not good enough to satisfy all of your business needs. So what do you do? Will you just accept whatever work is done?Or will you explore other options to tap on a bigger team that will meet your set criteria?

Image Courtesy of Global Research

Image Courtesy of Global Research

Well, the reality is, you always have a choice.

The choice that I’m talking about in solving problems like this is to turn to outsourcing. From the word itself, outsourcing simply means going “out” to find the “source” you need. With it, you’ll be able to scout, choose and handpick those individuals who specialize in the task that you needed to be done in a way that you’ll be assured of having satisfactory results without the need to pay for training.

Along with the trend, a lot of businesses now turn to outsourcing whenever the need arises. And as observed, most of them do their outsourcing offshore.

Now, why is it really that most of them choose to outsource overseas rather than do it locally? Well to enlighten you about the good thing with outsourcing overseas, here are its advantages.

  • Outsourcing overseas is less expensive.

In a business, price is always a major concern. And the remedy to it is to outsource overseas. This is because wages in many countries where outsourcing is common are lower compared to the wages you are paying upon your workers. In the case of manufacturing, raw materials often cost less in certain countries. And since labor and raw material is one of the primary costs in most industries, doing it can mean that you’ll be able to save a hefty amount savings.

  • Outsourcing overseas promises quality of service.

Since you’re company is the outsourcer’s customer, most of the workers will exhibit a can-do attitude improving the speed of your business needs. At the same time, you’re improving the quality of your staff compared to those within your premises that slacks off most of the time.

  • Outsourcing overseas brings a good environment for business.

Most countries where outsourcing is common offer a more business-friendly regulatory environment. So you’ll be assured that everything that is happening is purely business and there’s no such thing as attitude-driven problems. Also, being a business-friendly environment, corporate taxes and tax shelters are lower which brings financial incentives for the businesses in your country and even encourage them to invest on the country you are outsourcing.

  • Outsourcing promotes more capital funds.

As mentioned from the disadvantages above, outsourcing overseas really enables you to control and save money easily. And with this, it reduces the need to invest capital in non-core business functions, and put that capital to invest in other means to gain profit for the business.

  • Outsourcing overseas needs low regulatory cost.

Social security, health insurances, unemployment insurance and a lot more regulatory costs imposed by the government make employing overseas workers favorable since none of these fees must be paid. So there will be less hassle when you make your payrolls.

Outsourcing overseas gives you the ability to downsize at will.

One of the good things that benefits employer with outsourcing overseas is the fact that no damaging lawsuits can be filed against them. As observed, one of the dilemmas of these employers are the rising employee lawsuits since employees are becoming more educated about the employment laws in their countries. With it, downsizing the local employees will really be hard. But when we talk about those workers overseas, the law doesn’t really affect them at all. So upsizing and downsizing at will is in your hands.

Outsourcing overseas gives you contractual certainty.

Dealing with your employees won’t really be a problem at this one since contracts entered into the company are from the hands of the outsourced providers. To that, disciplining and firing ineffective employees for their negligence, poor performance or failure to finish a job is the job of the outsourced company. In addition to that, they are required to compensate for that employee.

And that’s really a handful disadvantage for outsourcing overseas. This concept is really favorable for employers rather than employees. So if you have plans to do outsourcing, better do it overseas.

Profiting From Renewable Energy

It’s no secret that non-renewable energy such as fossil fuels are a great investment and can turn your fortune into amounts greater than what you’ve expected. But despite it, it is also a fact that these energy resources are slowly depleting in terms of its resources while it dramatically grows in terms of pricing when compared to its price just a year ago.

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Image Courtesy of Forbes.com

Prime users, which refer to all of us, will be very much affected in the long run. We have noticed its changes day by day as it is frequently talked about in news programs and newspapers. Basing on it, it’s really not hard to imagine a future where there is a blunt scarcity of energy.

The scarcity is also supported by the fact that the production of these energy resources couldn’t meet the current demand of power. Most of these fuels takes thousands of years to be created while we manage to use it in just a few hours or minutes or even seconds. Since it can only be produced naturally and is non-renewable, there’s nothing we can do for it to topple up our demands.

With this, the need for an alternative source of energy arises. This is then where renewable energies plays its role. Most of these renewable energies make use of forces in earth that are naturally occurring and at the same time, totally renewable. The only challenge is on how to capture these energies and turn them into a usable power for our consumption.

To capture these energies, certain equipment facilities are used to effectively store it, such as windmills for wind energy, hydroelectric power plants for water energy, geothermal power plants for geothermal energy, solar panels for solar energy and a lot more.

Others might not be convinced that investing for it is a wise choice since these equipment are expensive and might not even produce the same amount of power compared to those coal-fired power plants. But with the current condition of the non-renewable energy resources, investing on it will never be a loss at all.

The days of renewable energy being a niche market are somewhat coming to an end. The renewable energy industry begins to establish itself as the new trend and is acting as a catalyst for one of the greatest investment opportunities of the 21st century. With this, we have gathered a few tips on how you can gain profit in this booming industry.

1. Look for incentives that will benefit your business or you as the consumer in government programs about renewable technology investing. And if these  incentives are available, use them to your advantage. . You can use deductions, exemptions, depreciation, and tax breaks as long as they are legitimate and that you’re following laws, rules and regulations. For example:

BloomEnergy intends to develop smaller units for individual homes in the near future, but right now (beginning in 2010), big companies (including Google, Walmart, eBay and California’s PG&E) have been trying out BloomEnergy electrical energy boxes – a solid oxide fuel cell – installed with huge incentives from Federal and some U.S. state government subsidies.

2. Make use of your surfing skills in the internet and look for manufacturers and dealers of these products that might suit you best. Collect brochures, and look for information on how to bid, or the specifications of the equipment.

3. Develop the renewable equivalent of oil fields by “exploring and prospecting” for your system. You might find it a little complicated but when managed in the right way, it can be very rewarding. Consider producing green savings and generating power or direct energy by various alternatives, if you find the right program and equipment.

4. Avoid the fines incurred by installing your equipment in the local community with such restrictions about it. Check for local restrictions and prohibitions of using it because some of these places might require to remove your equipment.

5. Start a company that has new concepts and can lure the consumers to boost your market shares. Starting such a company is risky, but the rewards can be significant or even lucrative. Get training manuals and videos from suppliers of equipment.

And that wraps up the ways to profit from this slowly rising tiger in the energy arena. Well, we might have not felt its impact yet but the fact about the non-renewable energy depletion is being felt right now. So start investing in these green technologies and be in the lead of this new trend.

Monopoly Money

How to Start a Business Right from the Start

All people have a natural affinity towards business. It is because humans are bound to survive and we have this mindset towards becoming entrepreneurial. The strategy to profit is solely formed in a person to tap on his potential and make use of it to improve his living.

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Correlating that to business, we have different strategies of dealing with it. But the bottom line is, you have to do business with your full passion and determination. You have to build a strong foundation for it by making the wisest decisions possible from the start. You don’t have the luxury of correcting big choices most especially when it involves big amounts of money in the form of investment. It means that when you plan to engage into business, you need to know first the kind of business that you wanted to put up.

Identifying the kind of business you wanted to engage with is elemental and it is a crucial factor if you’re going to succeed in that endeavor. If you’re an Information Technology graduate, you shouldn’t engage into restaurant business when you know you’re better off in internet cafes. If your forte is in hotels and restaurant management, maybe you can also engage with travels and tours to make travel packages complete. It’s a matter of balancing your expertise and the field of business that you wanted to pursue.

Thus, you have to identify your niche. You need to know where you’re good at and make use of that knowledge to start-up your business. If you have a knowledge of even the most basic tools in running your business of choice, you will lead the pulse of your business’s direction.

The second is to study the economic and market potential of your business. You have to layer out different factors such as ensuring that there’s a demand for it and that you have potential clients. No business succeeds without making the preliminary evaluation of the investment and whether it’s worth the risk. You have to study the location, the amount of capital needed, the proximity to possible competitions, adjacency to the market, and all other things. Make sure you have enough capital in studying the economic considerations.

The third is analyze the comparative advantage of your business over others. This is very important right now because competition alone can shut off a lot of small industries. Big shopping malls swallow the market for small retailers. So you have to be strategic in thinking about the new things that you can offer in the table.  Competitive analysis ensures that you are at par with your equivalents. From there, you can set the bar higher so that you can target your audience in a new scheme. If customers feel that they’re getting something unique from your business, they will comprise your loyal market.

The fourth is to guarantee a constant supply of quality service or products. Business is not a one-time shot. You have to cycle the profit and investment. Therefore, it’s very important that you know how to make your service continually running. You need to ensure that the quality of your products or service does not depreciate through time.

Monopoly Money

The fifth is to plan the financial business structure, with an accountant if possible. It entails management of business taxes or the running of accounting, bookkeeping or payroll system. Those things have to be efficient because business is commercial. Any mistake in a financial input could already compromise your business reputation or returns. Also make sure that you abide by the law for the rules and regulations for starting up your business. You can refer to a lawyer for this.

Lastly, I would suggest that you list the things that you wanted to avoid in your business. When you know at the very least what you don’t want to happen, your body responds to it by actively focusing on your goals. Make those mishaps a motivation to do everything for your business.

Act slowly and smartly. Be consistent with your brand. Find shareholders to your company who believes in your business. And when you’re able to balance all these things, you know you’re not going to fail.

Reference: http://www.inc.com/patricia-fletcher/doing-good-with-your-business-right-from-the-start.html

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Which banks are the world’s safest?

Global Finance has recently named the Top 10 safest banks of the world using different statistical factors. And with a sweep, European banks got all the ranks amidst the economic strife that Europe is experiencing. But what exactly are the qualities that put these banks to the top?

Except Netherlands, 9 of the 10 safest banks named are state-owned. And with the triple-A reputation of European countries when it comes to transparency of their financial obligations, these banks really set the highest standard in banking.

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Topping the list is KfW of Germany, followed by other state-owned banks from strong economies that are not affected by the downgrades of sovereign credit-rating. KfW is in a comparative advantage because the government guarantees all of the bank obligations and it gets triple star from three trusted rating companies.

In other continents, China and Chile also made a cut with 2 coming from each countries in the Top 50 list. China Development Bank and Banco de Chile represent the emerging market banks given their respective countries’ recent successes in the international market.

Based on the Top 50 list, 7 came from Canada, just above by margins from countries like Singapore, Australia and United States. This prowess of Canada is highly manifested by the high standards of living in the country which also belongs in the highest in terms of education and employment.

The Global Ranking of Safest Banks, which was introduced way back in 1992, has been the most credible reference by companies and investors all over the world. It does individual analysis of bank performance per region most especially on times of turbulence. The Top 50 banks are held under scrutiny for their performances most especially when their countries suffer from the global economic fatigue. Making it in the list would be a very big milestone most especially because investors look at the creditworthiness profile of their counterpart banks.

Sound and sustainable practices are being practiced by banks who wanted to increase their ranks in the list. By getting more satisfaction and trust ratings coming from the customers, banks are able to get more investor counterparts and more people come to deposit and save their money in such banks. With the current conditions, people are just more critical as to where they can place their hard-earned money at. Safety is an issue that encompasses different transactions all over the world.

Standard and Poor’s, Moody’s, Fitch and Dominion Bond Rating Service are some of the top international rating companies trusted by corporate and financial institutions all over the world. The size of the banking system is roughly considered by the value of assets held by each country’s banks. And all of them consider bank stability as a very crucial factor in getting the highs in the rating.

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The search for the safest banks has surged after the Cyprus bail-out, when a couple of governments already refused to give guarantees that are beyond the official limit. But whether investors go beyond the limit or not, such protection is already a comparative advantage that only semi-government institutions can provide. So it’s a question of how much of a protection can banks offer and if it’s the safest from the array of options that are available to the investors.

But more so, it’s also a question of whether investors would go to a state-owned bank or a private bank. Because of the state resource backing up guarantees, it normalizes the capability of private banks to flood benefits to its customers. After all, it’s not just the money’s growth that is at stake. It’s also about the security of the investment that greatly matters when one goes into banking.

Going back to KfW that consistently topped the list, it operates more than just a traditional bank. It has served as a government-driven lending machine that has been created to spur Post-War infrastructure spending.
But KfW’s success story is not an all-time high. With the problems that the global market is facing, it’s very difficult to put the words “safe” and “bank” altogether. Yet amidst the woes, at least we know the viable options to go.

What is the Role of Central Bank

Banking institution are available almost everywhere nowadays, but an extra caution should be made before choosing the best one to entrust savings. It is noted that central banking in Australia came later than in the other advanced industrial economies. Banks here do not naturally evolve as a central bank that has the ability of providing a role that is stabilized. Central banking here mark as a response to circumstances of war instead of the intellectual debate resolution on central banking needs. Banks in this country are closely monitored by the Central Bank aiming to lead economic growth, but have you ever wondered or fully understand their role in the economy?

Managing the currency, supervising banking institutions and issuance of money are the primary roles of the Central Bank. It may sound simple but it is a very complicated task. Setting guidelines for banking institution is a given but one may ask: why is there a need to control currency, why control the issuance of money? Overall, the establishment of a nation Central Bank or Reserve Banks came about to set guidelines in the trading of goods and services.

Centuries ago, we exchange goods with goods. Say for example, one buys a food and pays for it with a piece of cloth. With the continued growth of this barter system, people have learned to put value on items that were in demand and asking a more valuable item for the exchange. If you think about it, how does one determine which is more valuable if exchanges are done in goods? Today, money is the medium of exchange. It is the most appropriate way to put figures as to how much an item cost. Prices are set to products and services depending on supply and demand then money is used to pay for the desired item.

Banking system eventually evolved in order to safeguard money. Yet, confusion came about especially with understanding foreign currency and its value since individual banks created their own notes. This is not just pertaining to currencies outside Australia but back then Australian Banks created their own money notes. Banks also compete with each other perhaps to a degree of compromising depositor’s money. Back then banking system was unreliable.

A central banking system came about to set a recognize currency in the country and guidelines on how banking institution facilitate their transactions.

1. Managing the currency

Can you imagine if all banks created their own notes without control? How can a standard rate or value of the money be determined? Central Bank carefully determines the creation of notes before making them depending on the demand. A set guidelines or basis is made for the production of money making it fair in today’s trading system. Determining acceptable foreign currency also falls in this category. This allows an easy barter of currency when the time comes (ex. exchanging EUR to AUD).

2. Acts as a governing body of Banks

The Central Banks sets policy in interest’s rates, and monitor’s procedure on financial handling. This allows depositors to have trust in banks given that they will not be cheated. By helping with guidelines of loans and interest rates, the Central Banks helps strengthen individual banks. A structured payment system has also been made by the Central Banks allowing its system to facilitate transactions smoothly.

3. Creation of Currency

Centralizing and ensuring one kind of currency is being made in the country. The Central Bank creates a standard identity on the notes assuring the public that it is an effective payment or means of exchange at any other institutions.

As a long term goal, Central Bank’s role is to maintain financial stability in the country through Bank Institutions. It works by accommodating more financial investors whether locally or internationally, setting policies that allow a steady growth within the bank and eventually a domino effect to its depositors and to the country.

Outsource Your Marketing Overseas

To make their business more profitable, more and more companies these days expand their business operations to foreign countries where they can operate legally. All or majority of these enterprises are optimistic of the benefits brought by overseas expansion notwithstanding the inherent issues of the unknowns such as not knowing the market or country and language and cultural differences. These compelling and sometime unsettling issues may challenge companies, but they are still willing to take the risk for many reasons. Among them are search for new viable customers, reduction of domestic market dependence, and increase of brand value.

Business enterprises prefer to shift part or all of their operations and sales to their chosen foreign country to increase their market share. Overseas expansion provides the ability for businesses to step up to the next level although they already have a great deal in market share from a domestic point of view. Take into consideration that additional customers overseas will mean additional profit and revenue for the company. When proven to be a business model and have established an international reputation, the tendency is it will work not just in one country but to more countries as well. This is even great to companies that are especially set-up based on the same or similar commercial rules of your business’ headquarters. The customers who purchased their products may likely sell them to other countries too.

blog/The great value of business diversification is one that sought by businesses, as most investors know them, without putting much into one industry or stock. This means that the economic condition of one country may not be the same as to the others. This is of great benefit for enterprises with more than one location as they will likely have better ability of weathering the economic downturn. Diversification in business may also prevent companies against the risk of incurring a bad condition. So when they go overseas when one country experiences economic downfall, they have an alternative to venture to other countries and balance out the situation.

blog/As companies continue to expand, they are able to incorporate their financial capacity and their intangible terms like respect in the industry. It has been proven that those companies doing business outside their origin country are serious in delivering the products and services. This then may open to wider and greater opportunities in domestic and overseas markets.

blog/Regulations and taxes are the main reasons why firms try to invest and conduct their business in locations offering favorable commercial tax laws or tax incentives for certain industry. Tax incentive is one factor that businesses need to take into account and prioritize. There are also those that opt to put up business to countries providing better tax incentives or rates. This may give them better gains to the financial assets of the companies and lower prices for their customers while this technique may backfire.

Understanding the available options for these countries remains significant when the entrepreneur decides to expand to other countries. The choice will then be obvious when the owner is already familiar with certain country. There may also have other factors to be considered by entrepreneurs in search of a country for advantages in tax. While other countries offer these advantages to almost any country, some only provide tax incentives to those filing or starting incorporation titles there.

In terms of labor cost, business enterprises can save a lot when they manufacture their products in countries with significant lower labor cost and wage and living standards and then ship the finished product back home.

All these benefits for business outsourcing overseas are likely appealing to entrepreneurs offering products and services, which they are confident to be saleable abroad, despite some known drawbacks that should not be taken lightly as well. Bear in mind that the cost of operating business overseas may also have a number of risks as not all countries have the same laws and regulations when it comes to business.

Protectionism A New World Economic Policy

When going to the supermarket, most consumers would often consider buying a quality product which is reasonably priced regardless if the product is imported or locally made. Sadly, there are consumers that only have eyes on imported products and services due to marketing influence and some being able to provide a competitive price. Very few are the patriotic ones that only buy local products. As a result, some local manufacturers loose business. To safeguard its own products and encourage patronization, protectionism became a considerable economic policy.

By definition, protectionism is a government policy that puts restraints on international trade in order to protect its local products from foreign competition.

The policy works by imposing tax imports which naturally increases the price of these international goods. Other means of execution is by setting a quota on imported products. This will restrict the amount of imports coming in of the country. Another practice of this policy is imposing lower amount of tax to its local products which allows our manufacturers to sell or price at a more competitive rate. Overall, it aims to encourage consumers to shift preference and buy local products. Protectionism not only encourages more local business ventures but also helps manufacturers as it increases demand and ultimately, creates more jobs opportunities for domestic workers.

Despite its benefits, there are, however, questions on whether it is the best way to go especially in struggling countries and whether or not it is sustainable in the long run.

One factor to consider would be the rate of progress. Is it more advantageous to rely primarily on local production when imports can also offer an equally good or in some cases even more employment opportunities? What will the government do when there is an immediate need or demand and local production is low? Unless the government has means of subsidising local manufacturer’s needs, even with high demand, production may still be slow due to lack of immediate finances to purchase supplies and even hire for manpower. This will then slow the growth of local manufacturers and can possibly lead to scarcity.

The quality, quantity and the value for money of local products are also compromised when there is less competition.  Manufacturers may not innovate to provide better products since there is less exposure of what is better and available out there. The law of supply and demand then also follows and eventually, prices of these local goods and services will go up.

Many things to consider in the execution of Protectionism and to what degree should it be practiced. At a certain point, we, as settlers of our country, feel secure that the government is finding ways to protect our business. The country’s very own should be put into good use and be patronized especially when resources are available. It is one thing to be proud of what you have and another thing to be proud of what you’ve made. Also, the government should be able to provide adequate support especially to small businessmen in-order to sustain the demand. On another point of view, it is also healthy to have a little competition that will help keep the production of better and sufficient goods for consumers needs. It is great to be a self sufficient country but when faced with scarcity, it is wise to have help. Hence, Protectionism is helpful to any country’s economy when managed accordingly.

Why Do Countries Undervalue Their Currency

When US Dollar is stronger, for example, individuals generally assume that the economy is getting better and there is high demand of US Dollars. This means many countries buy more US Dollars in the open market for the purpose of trade. Then of course if US Dollar weakens, this means there is less demand for the currency in the market; less export and or business coming in the United States. The value of US Dollar becomes less against to that of another country. Thus, to everyone’s knowledge it is bad news for the country’s currency to be of less value. So why would a country choose to undervalue their currency? What is the advantage in that?

It is no secret that China is one of the fastest growing countries today economically and yet, they chose to undervalue their currency. So let’s take a closer look as to how this is being played.

Reputable companies have long been outsourcing to other countries. China is one most known to all. This explains why everything we buy nowadays is made from China; from toys, gadgets, to chocolates! China is relying on it’s export for economic growth and with their currency undervalued, all from labour to goods are affordable.  Businessmen from Europe or from the US can get more products with their money.

Say for example purchasing Transcend micro SD cards. If these SD cards were produced in the US, labour is expensive and naturally, the product is expensive. Let’s say, you’d pay 50USD for a good one but if produced in China, you can get two SD cards for the same price. There is a higher purchasing power if products are bought from China.

Now same is true with outsourced services. India at some point was highly known to offer affordable service which led to the growth of the BPO Industry. India’s currency is also undervalued. A Europe Based company can hire two times more the manpower to handle their customer service department.

What we’ve covered so far is just the bigger picture. There are little things like when a country’s currency is undervalued; many foreigners also consider relocating not just their business but their families. With everything so expensive in their home country, it makes them feel secure to live in another where basic necessities are more than just secured. Like the above mentioned examples, this also further increases the demand of the undervalued currency.

In theory, if the demand of Chinese Yuan, for example, is high the currency’s exchange rate should increase.  But, still countries like China choose to set a fix undervalued rate on their currency. This would mean a negative effect to other country’s demand for goods.

Of course what’s fair is a country’s currency should not be kept undervalued if the demand of the currency is high. These countries then face a great deal of pressure from those who were affected by this practice. However, they are also looking out for what is best for their economy. Greater exchange rate could risk the demand for their products and services.

EU’s bailout conditions for Cyprus – How it will affect future bailouts

The world banking sector and the global economy were struck by the biggest news so far in the industry, the bailout deal of EU in Cyprus. It notes that this programme of the EU spares deposits at €100,000, which charges 6.75% of tax on all depositors of banks in the island. This will lead to the closure of Laiki Bank as its €4.2 billion deposits over €100,000 will definitely be put into a bad bank deposit, which only means that these deposits could be lost entirely. It follows that all investments of its lenders will also be lost.

Cyprus Bailout

The so-called Cypriot rescue is regarded as a watershed reflecting how the Eurozone agreements with the failing banks, which compelled the European leaders to commit to the idea of pushing back the risk of bank bailout payments vested to taxpayers and the private investors. The final agreement with regards to the €10 billion bailout only aims to safeguard the country’s prospects although it tends to be hurtful to some, especially to depositors. In fact, the euro as well as the European bank stocks suffered from losses with the primary objective of bank deposit safety in future bailout.

Eurogroup president Jeroen Dijsselbloem believes and predicts that the skittishness of the investors may result in a healthier financial sector as it could possibly increase financing cost for the failing banks. Dijsselbloem believes this approach as a sound economic theory. He contends and encourages people in the industry to think and aim for an instance where direct recapitalization need not to be considered anymore.

The independent financial experts note the significance for both the European Central Bank (ECB) and the Eurogroup to give the bailout hoping that it could be considered an outline for the future bailouts of some countries including Italy and Spain. Mario Draghi, ECB president, warns the emergence of larger systematic risks although Cyprus may just have a small economy.

The bailout rejection of the Parliament results in the country’s approach of turning to Russia to ask for assistance so that its financial sector will not be meltdown. Russia will then be greatly affected if the bailouts were approved. Meanwhile, the European Parliament members are discontented with the proposed bailout conditions. They even criticized the bailouts as it tends to remove the protection guaranteed to the small-scale investors and damage single market as it circumvents the deposit guarantee laws of the European Union.

In line to the issue whether or not the current Cypriot bailout can be a model for future bailouts, many critics and politicians in the Eurozone hopes to see that bank investors and shareholders bear the burden of the crisis and share to its risks. Meaning to say more is at stake when compared to the identification on how to manage the insolvent financial institutions. This could be attributed to the bailout strategy that the EU has been following remembering the Lehman Brothers collapse where taxpayers were assumed to be responsible for the fallout. It only leads failing banks to keep their artificial backing while the creditors and shareholders were spared.

So far, the financial industries have calmly reacted to the bailout conditions set for Cypriot banks. With this, some analyst argue that there is nothing to worry about the implementation of the bailouts. This may not be easy for the European Union leaders to make a resolution for the crisis in euro debt. There are also predictions that this could trigger conflicts with the Eurozone and could possibly affect bailouts in the future. As a result, battle on the financial market, specifically in the banking sector can be waged.

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