Toledo War Research Paper Example | Topics and Well Written Essays - 1250 words

Toledo War - Research Paper Example In fact in the map, it was to be shown in its actual place that belonged to Michigan (Jones). The tug of war between the Michigan and Ohio was because Toledo was at the planned end point of Miami and Erie canals. Until the year 1830, the crises touched upon its height during the course of canal construction. The factor of the tussle was because of the awareness that the region was agriculturally fertile. To optimum use of agriculturally rich land, the availability of transportation was inevitable. Unfortunately because of transport, the agriculture produce was not available in the area. In the light of 1825 legislation, two navigational canals were built. This has further narrowed the strip of land. Despite the mentioned development, Toledo was conveniently located on the mouth of Lake Erie (Jones). We may call Toledo War of 1835, as the Battle of Phillips Crossing or the Ohio-Michigan Boundary War. The said war comes on the limelight due to historical dispute with regard to the boundary line between Michigan and Ohio. The disputed boundaries are familiarized as the Toledo Strip. The major part of Ohio falls within the ambit of cited strip (Mitchell).   The dispute was not because of only one factor. It has caused number of factors, which included poorly created maps. The example of which is placement of southern tip of Lake Michigan wrongly, the ambiguous language of  Northwest Ordinance of 1787 and the diversified interpretations by Michigan and Ohio coupled with unhealthy political activities, and egos (Mitchell). On February 6th 1835, Governor Lucas informed the lawmakers of Mason’s proposal. He had no desire to appoint any commissioner and impressed upon the lawmakers to declare Ohio’s jurisdiction up to the Harris line so as to direct the concerned officials to exercise their authority over the Toledo Strip (Rollins). In order to ensure legal authority of relevant officials and to shun the foreign interference, the Michigan State in the month of

W.M Morrisons Plc and Oracle Essay Example for Free

W.M Morrisons Plc and Oracle Essay In March 2004, WM Morrisons PLC completed the takeover of Safeways with a ? 3bn offer of cash and shares, this deal instantly made Morrisons a nationwide company and the 4th largest retail supermarket in the UK with its total store count jumping up from 199 to 403 currently, after the purchase of stores from the Somerfield/Cooperative group. With â€Å"every week 9 million customers pass through our doors and 124,000 colleagues across the business work hard each day† Morrisons (N/A), this is a far cry from its humble beginnings in 1899. In 1899 William Morrison, an egg and butter merchant, started he’s selling from he’s stall in Bradford Market. Jump forward to 1958 and William Morrison’s son Ken, company chairman from 1958-2008, took control of Morrisons, from he’s ailing father, and moved the company from market stalls and opened a small town centre shop in Bradford the first of its kind in Bradford to offer self service and have products are priced. In 1961 Morrisons opens its first ‘supermarket’ converting a cinema in 5,000sq ft of retail space. By 1967 Morrisons becomes a public company after significant growth and expansion, with the share offer being oversubscribed with more than 80,000 investors trying to purchase shares. Now building infrastructure with the completion of a distribution centre in Wakefield completed in 1988 and expanded in 1990. But further expansion outside of Bradford and Northern England does not happen until 1998 when it opens its first store in Southern England, located in Erith, Greater London. Followed by its inclusion in the FTSE 100 in 2001 it’s acquisition of Safeways in 2004. To its meteoric growth in that period of 2004-2009 where Morrisons became one of the ‘Big Four’ supermarket chains and winning various food retail awards such as Food Retailer of the Year and picking up multiple awards at The Grocer awards and its total stores jumped from 119 to 403. It was clear to many analysts and its competitors that Morrisons would suffer from growing pains in all aspects of its business with many questions being asked of Morrisons, such as; Did Morrisons have the infrastructure in place to support such rapid expansion? †¢Was its current business model suitable for such large scale revamp? Could its current operations support the strain of this expansion? Would Morrisons have to change its business image for being the ‘food specialist for everyone’ to compete effectively with the ‘big four’? This case study will focus on Morrisons infrastructure, specifically it’s IT systems and will look at the decision making process that went into and led to Morrisons deal with Oracle in 2008 to â€Å"implement a complete Oracle retail suite of merchandising, planning and stores applications, plus the Oracle E-Business Suite for financials, HR/payroll and manufacturing. IDG (2008). It will also look at the key challenges companies face when implementing such wide sweeping changes to its IT systems and review the outcomes of this system against Morrison’s original strategy. Firstly, with the increasing developments in IT systems it is becoming more common for companies of all sizes to utilize some form of IT in their business, from a sole trader compiling monthly sales figures to a big plc like Dell who gener ate and complete sales completely from an online setting. When it came to Morrisons making significant changes to its IT systems it had a wealth of information and real examples to follow or in the case of J Sainsburys with its rushed and failed ? 290million implementation of IT systems aimed at lowering costs, successful business model change in regards to Dell Inc and it’s change to operate completely online which help massively in stock control technology while dealing with custom orders.

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The curiosity of what our destiny will be and what our future holds has crossed our minds once or twice. Destiny is the conclusion to many life situations we are faced with in our everyday lives, but no one could figure out what their destiny is until the time is right. Antonio from the novel Bless Me, Ultima written by Rudolfo Anaya and Paikea from Whale Riders run through many conflicts trying to seek their destinies. Antonio, must choose to follow her mother’s footsteps of tending the land or become free and wild like his father and older brothers as well as deciding whether or not to follow and walk alongside Ultima, even if she may be evil. Unlike Antonio, Paikea must prove to herself and her grandfather that she is able to lead her tribe out of depression and laziness, even if she may not physically hold the components of becoming a leader. Both Antonio and Paikea are able to find their destinies, but they each have unique and individual experiences of family pressure, spiritual leaders and becoming a leader. While trying to seek their destinies, both Antonio and Paikea have conflicts with a family member who tries to decide their futures for them. Throughout the novel Bless Me, Ultima, Antonio’s parents, Gabriel and Maria Marez, constantly fight to predict what his future holds. Tony struggles between becoming tied to the land and becoming a priest like his mother wishes or becoming free like the Marez blood that runs in his body. Ultima teaches Tony that his destiny will spontaneously appear by itself without the help of his parents when she states, â€Å"A man’s destiny must unfold itself like a flower with only the sun and earth and water making it blossom, and no one else meddling in† (BMU 223). Compared to Antonio having... ...ip skills. Both Pai and Tony mature into wonderful leaders and role models at a very young age. When all the whales are trapped and dying on the side of the beach, Paikea uses it to her advantage and proves to everyone that she is the new leader. Just like her ancestor who founded her tribe, Pai climbs on top of the largest whale and rides off into the ocean. By using good judgement and making smart choice, she was no longer afraid to make the greatest sacrafice for her tribe: â€Å"I wasn’t scared to die† (WR) As Antonio grows in age and maturity, he becomes the gang’s role model, even though he is the youngest of all of them. When practicing how to confess their sins, Antonio’s group of friends decide to pick him because he knew more about religion and life than anyone else. The group confessed their deepest secrets to him as they chant, â€Å"Hail to our Priest!† (BMU 209).

Essay --

The Softwood Lumber Dispute â€Å"In August 1987, after fifteen months of negotiations Canada and the U.S concluded another round of talks, and finally agreed on a free trade agreement. It was then Prime Minister Brian Mulroney and President Ronald Reagan who had launched the trade initiative at their convivial 1985 and their main focus was lowering trade and tariff barriers. This was cast as a path to increased prosperity for both nations. This is also known as the Ottawa summit. However the negotiating was not easy. Substantive differences did not prove amenable to quick resolution. The Canadian Prime Minister was however in for a disappointment as he had placed a considerable amount of stakes on this deal and hated to see it finished off. The Canadian negotiators were in for a difficult deal that was how to move the bargain forward without losing their side off the deal. By September, the Canadian government was preparing a strategy for resolving the talks-one way or another. F ailing that, the Canadian cabinet would have to determine how and when to acknowledge the breakdown in the negotiations. This case is designed to encourage discussion of both the Canadian and US negotiating postures and of how each nation's assessment of the other helped to define its negotiating stance. Another case, US-Canada Free Trade Negotiations I (C16-87-785.0), involves US preparations for the negotiations, with specific focus on obtaining congressional approval for the talks† (http://www.ksgcase.harvard.edu/case.htm?PID=862) â€Å"Canadian officials had given quite a palpable response to the imposition of duty, which was around 19.3 percent, countervailing tax on imports of Canadian softwood lumber with much tub-thumping and hand wringing. Many traders a... ...an business world at odds with the free trade agreement that was drafted in 1987, with the aim of encouraging better trading through pulling back the different trade barriers that are used in international trade. The softwood lumber dispute is however straining relations between Canada and the Unites states. It has put the 1987 agreement into the background and dashed any hopes of better trading relations between the two countries. Canada is a major supplier of softwood and the united state is a major market, which it is at risk of losing. Therefore the achievement of Canadian objectives remains elusive at best. Bibliography US-Canada Free Trade Negotiations (II): The Canadian Dilemma, http://www.ksgcase.harvard.edu/case.htm?PID=862 Keith Jones, (7 September 2001) â€Å"Lumber dispute strains Canada-US relations, http://www.wsws.org/articles/2001/sep2001/lumb-s07.shtml

The company requires a short description of the proposed project

A prominent publishing company, has contacted you about the possibility of writing a new textbook for the first semester History of World Civilizations course, a potentially very lucrative undertaking.The company requires a short description of the proposed project that includes:   a possible table of contents; an overview of the purpose of the book (and what will be unique about it); a rationale for the book's organization; and an explanation of the key themes to be developed.Please take the time to organize your thoughts in a logical manner and cite evidence to support your analysis.The 21st century is filled with technological innovations and scientific discoveries that have significantly improved how the human race subsists. Since the beginning of time, man has constantly aim for development and progress.As a result, numerous changes have transpired which paved the way for the occurrence of civilizations. Without these developments, the contemporary society would not be able to enjoy and at the same time benefit from the modern conveniences that were all made possible through the ingenuity and intelligence of the ancient people.Most of the history books have almost accurately tackled the advancement of the political, social, cultural and economic aspects of the society in the six continents of the world namely: Africa, Europe, Asia, Australia and North and South America. However, this book that I am proposing would discuss the relationship between nature and civilization.There have been previous studies conducted that argued that civilization is a â€Å"by-product of these social adaptations to environmental change† (Rockets, 2006). More so, based on several archaeological expeditions, scientists and historians have theorized that the â€Å"development of civilization was simply the result of a transition from harsh, unpredictable climatic conditions during the last ice age, to more benign and stable conditions at the beginning of the Holocene per iod some 10,000 years ago† (Environment News Service, 2006).Because of this notion, I have decided to write a book that would provide historical accounts on how man and nature have evolved that contributed to the formation of civilizations which have become the core of human existence. Through this book, readers would be enlightened on how the interaction between man and nature and their development have played a role in the advancement of humanity.Moreover, this undertaking would provide answers on why climate has changed and determine the contributions of man in the present environmental phenomenon. This book offers a timely subject matter and revealing historical information that would give a new perspective on World Civilizations.

Ozzfest essays

Ozzfest essays Ozzfest was an experience that will not be easily forgotten. The hot weather and the huge crowd was exactly what I expected. The people were loud and the noise was deafening. Seeing the bands I have been listening to for years was dream come true. Ozzfest was one of the best experiences of my life and it was everything I imagined it to be. I attended Ozzfest in San Antonio, Texas on July 27, 2001. Upon arrival, an enormous crowd was already drawn. Seeing all the people lined up, ready to go, made me anticipate the next moment. There were many different cultures and races. Many people were wearing t-shirts of the bands that were performing that night. Others wore shirts with vulgar language on them. Many people had long hair, body piercing, and tattoos. I also saw many parents with their children. The different kinds of people is what made the interesting and appealing. At the show, there were many booths. The booths were placed throughout the park. At one booth, they would sell the bands merchandise. People could purchase bracelets, necklaces, and clothing. There was also a mini-tattoo parlor. Tattooed bodies was really popular among the crowd. I saw a man with a tattoo under his neck that read Insane. Dragon tattoos seemed to be a crowd favorite. At the shop, were lined up to have their bodies pierced or tattooed. There was also a censorship booth. At this particular booth, people could sign a petition against censorship. This particular booth was located at the entry. People would sign as they walked into the park. A booth was also placed on side of the stages. After the bands set, people could meet and receive autographs from the musicians. The tour had two stages. The second stage had about ten bands during that show. The second stage had no seats and people had to stand up. This was very uncomfortable for the people in the front of the stage. The weather was about 100 degrees, and s ...

Biography of Olympias, Mother of Alexander the Great

Biography of Olympias, Mother of Alexander the Great Olympias (c. 375–316 BCE) was an ambitious and violent ruler of ancient Greece. She was the daughter of Neoptolemus I, the king of Epirus; the wife of Philip II, who ruled over Macedonia; and the mother of Alexander the Great, who conquered the territory from Greece to northwest India, establishing one of the largest kingdoms of his time. Olympias was also the mother of Cleopatra, the queen of Epirus. Fast Facts: Olympias Known For: Olympias was the queen of Macedonia and the mother of Alexander the Great.Also Known As: Polyxena, Myrtale,  StratoniceBorn: c. 375 BCE in Epirus, Ancient GreeceParents: Neoptolemus I of Epirus, mother unknownDied: c. 316 BCE in Macedonia, Ancient GreeceSpouse: Philip II of Macedonia (m. 357-336 BCE)Children: Alexander the Great, Cleopatra Early Life Olympias was born around 375 BCE, the daughter of Neoptolemus I of Epirus, a Greek king, and an unknown mother. Her family was a powerful one in ancient Greece; they claimed to be descended from the Greek hero Achilles, the main character in Homers Iliad. Olympias was also known by several other names: Polyxena, Myrtale,  and Stratonice. Historians believe she chose the name Olympias to celebrate her husbands victory in the Olympic Games. A follower of mystery religions, Olympias was famed- and feared- for her ability to handle snakes during religious ceremonies. Some scholars believe she belonged to the Cult of Dionysus, a group that worshipped the god of wine, fertility, and religious ecstasy. Reign In 357 BCE, Olympias was married to Philip II, the new king of Macedonia, as a political alliance arranged by her father Neoptolemus, who ruled the Greek kingdom of Epirus. After fighting with Philip- who already had three other wives- and angrily returning to Epirus, Olympias reconciled with Philip at Macedonias capital of Pella and then bore Philip two children, Alexander and Cleopatra, about two years apart. Olympias later claimed that Alexander was actually the son of Zeus. Olympias, as the father of Philips heir presumptive, dominated at court. When the two had been married for about 20 years, Philip married again, this time to a young noblewoman of Macedonia named Cleopatra. Philip seemed to disown Alexander. Olympias and Alexander went to Molossia, where her brother had assumed the kingship. Philip and Olympias publicly reconciled and Olympias and Alexander returned to Pella. But when a marriage of note was offered to Alexanders half-brother Philip Arrhidaeus, Olympias and Alexander may have assumed that Alexanders succession was in doubt. Philip Arrhidaeus, it had been assumed, was not in the line of succession, as he had some kind of mental impairment. Olympias and Alexander tried to substitute Alexander as the groom, alienating Philip. A marriage was eventually arranged between Cleopatra, daughter of Olympias and Philip, to a brother of Olympias. At that wedding, Philip was assassinated. Olympias and Alexander were rumored to have been behind her husbands murder, though whether this is true or not is disputed. Ascension of Alexander After Philips death and the ascension of their son, Alexander, as ruler of Macedonia, Olympias exercised considerable influence and power.  Olympias is alleged to also have had Philips wife (also named Cleopatra) and her young son and daughter killed- followed by Cleopatras powerful uncle and his relatives. Alexander was away frequently  and, during his absences, Olympias assumed a powerful role to protect her sons interests. Alexander left his general Antipater as regent in Macedonia, but Antipater and Olympias frequently clashed. She left and returned to Molossia, where her daughter was now the regent. But eventually Antipaters power weakened and she returned to Macedonia. During his reign, Alexander oversaw the expansion of the Macedonian kingdom, as he conquered the territory from Greece to northwest India. His military skills were unmatched; within a matter of years he was able to conquer the Persian Empire, and he still hoped to make further incursions into Asia when he became sick and died in 323 BCE. Although records indicate that he died of fever, some historians suspect foul play. Battle With Cassander After Alexanders death, Antipaters son Cassander tried to become the new ruler of Macedonia. Olympias married her daughter Cleopatra to a general who contended for the rulership, but he was soon killed in battle. Olympias then tried to marry Cleopatra to yet another possible contender to rule Macedonia. Olympias eventually became the regent for Alexander IV, her grandson (the posthumous son of Alexander the Great by Roxane), and tried to seize control of Macedonia from Cassanders forces. The Macedonian army surrendered without a fight; Olympias had the supporters of Cassander executed, but by then Cassander had escaped. Around this time, Olympias formed an alliance with Polyperchon, Antipaters successor, and Eurydice, the wife of Philip III. The latter provided soldiers for Olympias to command in battle. Cassander maneuvered a surprise attack and Olympias fled; he then besieged Pydna, she fled again, and she finally surrendered in 316 BCE. Cassander, who had promised not to kill Olympias, arranged instead to have Olympias murdered by relatives of the people whom she had executed. Death Following Cassanders orders, relatives of Olympiass victims stoned her to death in 316 BCE. Scholars are not certain whether or not the Macedonian queen was given a proper burial. Legacy Like many powerful figures from ancient history, Olympias lives on in the public imagination. She has been depicted in a variety of books, films, and television series, including the 1956 epic Alexander the Great, Mary Renaults Alexander trilogy, the Oliver Stone film Alexander, and Steven Pressfields The Virtues of War: A Novel of Alexander the Great. Sources Bosworth, A. B.  Conquest and Empire: the Reign of Alexander the Great. Cambridge University Press, 2008.Carney, Elizabeth Donnelly, and Daniel Ogden.  Philip II and Alexander the Great: Father and Son, Lives and Afterlives. Oxford University Press, 2010.Carney, Elizabeth Donnelly.  Olympias: Mother of Alexander the Great. Routledge, 2006.Waterfield, Robin.  Dividing the Spoils: the War for Alexander the Greats Empire. Oxford University Press, 2013.

Name the Strong Acids and Worlds Strongest Acid

Name the Strong Acids and World's Strongest Acid Most of the standardized tests students take, like the SAT and GRE, are based on your ability to reason or to understand a concept. The emphasis isnt on memorization. However, in chemistry there are some things you just have to commit to memory. Youll remember the symbols for the first few elements and their atomic masses and certain constants just from using them. On the other hand, its harder to remember the names and structures of the amino acids and the strong acids. The good news, regarding the strong acids, is any other acid is a weak acid. The strong acids dissociate completely in water. Strong Acids You Should Know HCl - hydrochloric acidHNO3 - nitric acidH2SO4 - sulfuric acidHBr - hydrobromic acid HI - hydroiodic acidHClO4 - perchloric acid The Worlds Strongest Acid Although this is the strong acid list, probably found in every chemistry text, none of these acids hold the title of Worlds Strongest Acid. The record-holder used to be fluorosulfuric acid (HFSO3), but the carborane superacids are hundreds of times stronger than fluorosulfuric acid and over a million times stronger than concentrated sulfuric acid. The superacids readily release protons, which is a slightly different criterion for acid strength than the ability to dissociate to release a H ion (a proton). Strong Is Different from Corrosive The carborane acids are incredible proton donors, yet they are not highly corrosive. Corrosiveness is related to the negatively-charged part of the acid. Hydrofluoric acid (HF), for example, is so corrosve it dissolves glass. The fluoride ion attacks the silicon atom in silica glass while the proton is interacting with oxygen. Even though it is highly corrosive, hydrofluoric acid is not considered to be a strong acid because it does not completely dissociate in water.Strength of Acids Bases | Titration Basics

Geology Essay Example | Topics and Well Written Essays - 250 words - 5

Geology - Essay Example It is in these mountains that the described rock was found (‘Washington Geologic Newsletter’ 56) According to further research, there is evidence suggesting that uplifting of the Cascade Mountains that occurred in the Columbian river, which is denoted as the ancestral Columbia river exhibited a coincidence that saw the formation of a canyon through cutting. In the years that followed, fluid deposition and intracanyon flows accounted for the existence of basalt in the river channel. Such basalt is the basic material that formed the volcanic rocks similar to the type presented in the image. The latest event in the Columbia River basalt was the deposition of the saddle mountain basalt. Saddle Mountains have been described as containing high silica content, and of noticeably thin nature compared to other basalts of the Columbian river (70). The nature of appearance is the result if extensive compression as well as that of the ensuing extensional events that followed as the deposited basalt

The U.K Defence Industry Essay Example | Topics and Well Written Essays - 2500 words

The U.K Defence Industry - Essay Example Defence exports of the nation are worth almost  £5 billion on an average every year (The Telegraph, 2014). In the recent years however the share of government spending upon defence equipments have fell from 10% to 5%. The nation has had 21% share in the defence export market on a global scale from the year 2005 to 2010 (The Telegraph, 2014).The presence of a well developed export market has facilitated the creation of 65,000 jobs in the nation (Brauer and Dunne, 2004). The defence industry of the U.K successfully contributes  £12 billion value addition to the nation’s economy (The Telegraph, 2014). The major challenges faced by the industry are to work in alliance with the government, to assist reformation of the procurement processes, to encourage authorities to spend more on research and reform and to further develop the export capabilities. The Ministry Of Defence of the U.K is seen to follow an open competition policy (Neuman, 2006). The figure below shows some of the largest firms of the U.K in the defence industry in terms of revenue. Companies such as Rolls-Royce, Smiths Group Plc and BAE Systems rely on exports for their growth. Many such U.K based defence companies are looking towards selling their products in the emerging markets of the world which provide a greater opportunity for earning profits than the developed nations. The current paper analyses the general business and completion of three important defence firms of the U.K, namely Rolls-Royce, Smiths Group Plc and BAE Systems (Global Security, 2014). Rolls-Royce is the 16th largest contractor of defence equipments in the world (Neuman, 2006). The company is one of the pioneers in providing defence goods and services and caters to fulfilling the defence equipments and parts needs of many nations of the world.

GLOBALIZATION QUESTION Essay Example | Topics and Well Written Essays - 750 words

GLOBALIZATION QUESTION - Essay Example Religious practices derive meaning and force from integration with cultural beliefs and practices. Across different denominations, religion derives its truth value from its dependence and connection with the cultural fabric. Religious truth is based on the ability of the underlying tradition to provide its followers with a predefined worldview over a long period of time. Moreover, the world view should have meaning, Lead to physical and spiritual integration, moral guidance, hope and faith in both the present and the future. Religions like Christianity, zoroasticism, Buddhism, Judaism and Islam claim absolute validity but it is expressed through different structures (Mary, 17). From history, most religions were recognized nationally and thus force followers to recognize its teachings for example, Islam in Arab countries. Religious truth is contradicted by the relative interpretations adopted to define situations and preferably make them fit into the speaker’s worldview. For in stance, in the early Greek philosophy, Socrates used truth as claptrap for the public orators through the use of conventional notions (Kluckhohn 6). The opposition between nature and convection hinders man from speaking out his mind but rather to conform to what the society believes in. The confusion leads to lack of a clear cut definition of what is considered as conventional and natural truth. According to Conze (153), naturally, all shameful things are evil like injustice is shunned by men and only slaves are meant to suffer injustice. In Buddhism teachings, common sense and spiritual truth are considered to be the two distinct categories of truth that exist. According to the doctrine, both truths coexist and are the basis of the Budhi religion (Bodhi 20) . Through several assertions, Christianity professes the existence of doctrinal truth. For instance, Jesus Christ is considered to be the truth in the doctrine through his words â€Å"I am the way and the truth and the life, no one comes to the father but through me’ (Stephen 45). In Hinduism, truth is part of the ten religious attributes of Dharma. Believers are required to be truthful and to speak only of what they have seen and understood. For example, in India, â€Å"Rishi†, truth, entails existence, truth of ones being, and truth of being God (Kluckhohn 367). In Judaism, in the old testament, truth is the word of God and followers believe that spiritual leaders are truthful and have power to deliver divine intervention. Despite the difference in religious symbols from one culture to another, they serve the same purpose of helping the society deal with issues that are beyond human control. However, the system is based on simple truths as defined by different societies. For example, Christianity and Buddhism shun laziness and encourage independence, courage, endurance, and desire to live for the good of everyone. In Christianity, a man’s divinity in his feelings is more important t han concepts because the desire to live up to the concepts causes contradiction in his or her character (Goody 97). Religion creates consciousness in individuals in how he should relate with others and use the lessons to sail through life’s tribulations positively. Religions are part of culture in different societie

Sex in Advertising Research Paper Example | Topics and Well Written Essays - 1250 words - 1

Sex in Advertising - Research Paper Example The advertisement industry prefers to portray females as objects of enjoyment and appeal. It seems that females in the last two decades have become well-used to the needs of the advertising industry and have decided to explore the possibility. The advertisers have been reminding the society that female body is valuable, and something that must be revealed. All beauty products in the market are accompanied by almost fully naked female bodies. Famous brands and celebrities also contribute to this sex-oriented marketing system and get benefits in return. In order to draw consumer attention, the performers in ads dress provocatively, exhibit incongruously seductive, and behave in a flirtatious manner. A look into such ads reveals that the definition of beauty has changed from time to time. It is easy to understand this difference if one compares a beautiful woman of the present day with the portrait of a beautiful woman of the 16th century. Undoubtedly, the concept of fashion is set and redefined by the advertising media from time to time. According to Aaslestad, fashion embodies new social values and emerges as the primary area of contradiction between tradition and change (283). This is very evident in the changes that took place in the dressing of celebrities, namely women, appeared in ads. There is a visible change in the styles of both men and women today, and this change is attributed to the new philosophical and social ideals cherished by the advertising industry namely women, appeared in ads.

Analyse the organisational behaviour issues that contributed to the Assignment

Analyse the organisational behaviour issues that contributed to the leadership challenges at HP - Assignment Example HP began humbly at the back of its entrepreneur’s garage. Engineers David Packard and Bill Hewlett established an unconventional company in the 1950s. They wanted to build a business environment in which members were free to express their ideas and make contributions; they thus created a flat structure. Many individuals in Silicon Valley praised the organisation for its revolutionary ways. During the mid 1990s, employees had a profound respect for the institution. They carried on with their jobs despite the tumultuous environment that pervaded the IT industry. Several individuals felt loyal to the organisation even though the company had to subject them to pay cuts. Members trusted the company’s leaders as strong levels of communication existed in the organisation. These trends altered dramatically when the company decided to hire an external executive for the first time in the late 1990s. The move was initiated by the departing CEO who felt that HP had become complacen t. Some of its competitors in Silicon Valley were exemplars of innovation and growth. It was assumed that an external leader would inject the much-needed fresh insight into the company. However, such a move proved to be ill-conceived because it was the beginning of several tumultuous events in the organisation. At the beginning, CEO Fiorina seemed like a forward-thinker. She initiated various restructures within HP and even lobbied for the acquisition of a competitor - Compaq. The latter move would prove to be her downfall as it failed to yield the expected outcomes. Shortly after a period of disappointing results, Fiorina resigned and made room for Mark Hurd. He was a transformative leader who engaged with his employees. He also supervised a massive layoff and delayered the firm structures. However, he was involved in a personal scandal that led to his elimination. His replacement, Leo Apotheker, was a pale comparison to Hurd. He failed to improve stock performance and even discont inued winning strategies. The final straw fell when he bought a business analytics company called Autonomy. Stock prices decreased tumultuously thereby signalling his elimination. These leadership challenges were also amalgamated by disputes in the board. The paper will examine organisational behaviour issues that led to the firm’s woes. Analysis of the situation Leadership The situational leadership theory assumes that different situations require different leadership traits. Therefore advocates of the school of thought believe that no profile of leadership is perfect for all situations (Hope and Hendry, 1995). Instead, utmost attention should be given to the variables within a certain situation and the right approach selected for them. These variables include the nature of work tasks, peer expectations, other leaders’ expectations, the culture and climate of the organisation, and followers’ responses. In some instances, a leader may need to be a risk taker whi le in some scenarios; the person may have to exhibit nurturing traits (Buchanan and Boddy, 1992). Sometimes it may be preferable to be charismatic while in some situations it would be best to focus on results. Hewlett Packard may have benefited from applications of situational approaches to leadership during the three tenures under analysis. CEO Carl Fiorina appeared to apply the same leadership traits in divergent situations and this could have explained her dissatisfactory performance. She was highly transformative; as soon as she

Sex in Advertising Research Paper Example | Topics and Well Written Essays - 1250 words - 1

Sex in Advertising - Research Paper Example The advertisement industry prefers to portray females as objects of enjoyment and appeal. It seems that females in the last two decades have become well-used to the needs of the advertising industry and have decided to explore the possibility. The advertisers have been reminding the society that female body is valuable, and something that must be revealed. All beauty products in the market are accompanied by almost fully naked female bodies. Famous brands and celebrities also contribute to this sex-oriented marketing system and get benefits in return. In order to draw consumer attention, the performers in ads dress provocatively, exhibit incongruously seductive, and behave in a flirtatious manner. A look into such ads reveals that the definition of beauty has changed from time to time. It is easy to understand this difference if one compares a beautiful woman of the present day with the portrait of a beautiful woman of the 16th century. Undoubtedly, the concept of fashion is set and redefined by the advertising media from time to time. According to Aaslestad, fashion embodies new social values and emerges as the primary area of contradiction between tradition and change (283). This is very evident in the changes that took place in the dressing of celebrities, namely women, appeared in ads. There is a visible change in the styles of both men and women today, and this change is attributed to the new philosophical and social ideals cherished by the advertising industry namely women, appeared in ads.

Improving Your Writing Skills Essay Example | Topics and Well Written Essays - 750 words

Improving Your Writing Skills - Essay Example This study outlines that there are several issues that should be put into consideration. The writer should organize the information using a functional format. A functional format is an arrangement that goes through a sequence as per the material that is being presented for clarity and easy understanding. This should be followed by writing down of a draft that comprises of all the important parts of the information that is to be passed to the reader. The writing of a draft is an important process as it gives the writer the opportunity to exhaust all the information that ought to be included, make changes through by removing or adding part of the document. Thus, only the relevant information gets the chance of being in the draft. It is after this process, that the final document for the reader is prepared. In order to be a good business writer, good business writing skills are essential. Through this, professionalism is observed from either side. In this regard, a business document nee ds to be short and precise. This is because most people who require this information do not have much time to go through long documents in search of the ideas that have been put down by the writers.

The Necklace by Guy de Maupassant Essay Example for Free

The Necklace by Guy de Maupassant Essay I. iNTRODUCTION TO FRENCH LITERATURE French literature is, generally speaking, literature written in the French language, particularly by citizens of France; it may also refer to literature written by people living in France who speak traditional languages of France other than French. Literature written in French language, by citizens of other nations such as Belgium, Switzerland, Canada, Senegal, Algeria, Morocco, etc. is referred to as Francophone literature. As of 2006, French writers have been awarded more Nobel Prizes in Literature than novelists, poets and essayists of any other country. France itself ranks first in the list of Nobel Prizes in literature by country. The French language is a romance dialect derived from Vulgar Latin (non-standard Latin) and heavily influenced principally by Celtic and Frankish. Beginning in the 11th century, literature written in medieval French was one of the oldest vernacular (non-Latin) literatures in western Europe and it became a key source of literary themes in the Middle Ages across the continent. Although the European prominence of French literature was eclipsed in part by vernacular literature in Italy in the 14th century, literature in France in the 16th century underwent a major creative evolution, and through the political and artistic programs of the Ancien Rà ©gime, French literature came to dominate European letters in the 17th century. In the 18th century, French became the literary lingua franca and diplomatic language of western Europe (and, to a certain degree, in America), and French letters have had a profound impact on all European and American literary traditions while at the same time being heavily influenced by these other national traditions (for example: British and German Romanticism in the nineteenth century). French literary developments of the 19th and 20th centuries have had a particularly strong effect on modern world literature, including: symbolism, naturalism, the roman-fleuves of Balzac, Zola and Proust, surrealism, existentialism, and the Theatre of the Absurd. French imperialism and colonialism in the Americas, Africa, and the far East have brought the French language to non-European cultures that are transforming and adding to the French literary experience today. II. aUthor’s biography Guy de Maupassant Henri-Renà ©-Albert-Guy de Maupassant was born on August 5, 1850 at the chà ¢teau de Miromesnil, near Dieppe in the Seine-Infà ©rieure (now Seine-Maritime) department in France. He was the first son of Laure Le Poittevin and Gustave de Maupassant, both from prosperous bourgeois families. When Maupassant was 37 and his brother Hervà © was five, his mother, an independent-minded woman, risked social disgrace to obtain a legal separation from her husband. After the separation, Le Poittevin kept her two sons, the elder Guy and younger Hervà ©. With the father’s absence, Maupassant’s mother became the most influential figure in the young boy’s life. She was an exceptionally well read woman and was very fond of classical literature, especially Shakespeare. Until the age of thirteen, Guy happily lived with his mother, to whom he was deeply devoted, at Étretat, in the Villa des Verguies, where, between the sea and the luxuriant countryside, he grew very fond of fishing and outdoor activities. III. Elements of a Short Story III. Elements of a Short Story A. Setting of the Story * Time: 19th Century, Second Half * Place: Paris, France B. Characters: * Mathilde Loisel-a pretty young woman born into a common, middle-class family. She yearns for wealth, privileges, and fashions of highborn young ladies * Monsieur Loisel-a government clerk in the Ministry of Education whom Mathilde marries * Madame Jeanne Forestier-a friend of Mathilde’s. She allows Mathilde to borrow a necklace to wear to a gala social event. * Loisel Housemaid-a girl from Brittany who does the Loisel’s housework. Her presence reminds Mathilde of her own status as a commoner * C. Plot C. Plot Monsieur and Madame Georges Rampounneau-Minister of Education, and his wife. They invite the Loisels to the party. C1. Exposition Mathilde is a pretty and charming woman, born of simple roots and humble beginnings, relished with both the love and warmth of a family though not well-off financially yet considerably contemporary to the families in the middle of the hierarchy. She was married to Monsieur Loisel, a government clerk who works round-the-clock at the Ministry of Education. She has always dreamt of a life of luxury and leisure, with attentive maidservants, a large home decorated with coveted linens, expensive jewels and fancy silverware. Mortified of the humiliating state she’s in, she no longer visits Madame Forestier, an old friend of hers. C2. Rising Action The Loisels receive an envelope with a letter inviting them to an affair at the Ministry of Education, as honored guests of Monsieur Georges Rampouneau, Head and Minister to Education. Monsiuer Loisel gets an expression completely opposite to what he was expecting for. Mathilde grows worried and tirelessly distraught for she has not a single dress to wear for the occasion. She needs something extravagant and fancy, but a piece of clothing of such delicate formality would cost Monsieur Loisel a sum of four hundred Francs-the exact amount he’s been saving for to buy himself a rifle. The day of the fete draws nearer, and Mathilde becomes increasingly downcast and hopeless. Loisel begins to ask Mathilde the cause of her misery, and is later greeted with an answer of coveted jewelry. Monsieur Loisel suggests that she borrows jewels from her friend, Madame Jeanne Forestier. Mathilde wastes no time and visits her the following morning. Madame Forestier, agreeable and willing to coope rate, opens a box and tells her to choose one. Glittering jewels and sought-after handcrafted gems later, Mathilde cherry-picks a necklace, one encrusted with diamonds of genuine value. C3. Climax The day of the party comes and Mathilde becomes the center of everybody’s attention. Highly-acquainted men of noble stature all ask who she is and start to line-up to dance with her. The Loisels revel in joy and merriment and left no longer than four in the morning. On their way out, Monsiuer Loisel puts a wrap around Mathilde’s shoulders-a piece of clothing from her daily wardrobe. She hurries out hastily to prevent herself from being seen in it. Subject to the frigid coldness of the early morning, they look for means of transportation. They later find a cab and are took back home to the Rues de Martyrs. In her bedroom, Mathilde stands before the mirror and gazes intently at the woman who has beguiled so many men. Then out of sheer horror, she untimely realizes that the necklace is gone. Mathilde begins to search through their things while Monsiuer Loisel retraces their steps, hopeful that he might stumble across the necklace they’ve lost. With bitter hopes and foul resentment, they find nothing and return empty-handed. C4. Falling Action Mathilde decides to write to Madame Forestier, informing her that the necklace’s clasp has been broken and is being repaired. They conclude that their only recourse is to replace it all in due time. They traverse Paris and go from jeweler to jeweler, hoping to know how a necklace of such appraisal could cost them. The Loisels find one at the Palais Royal, with a staggering value of thirty-six thousand Francs. To raise enough money, Monsiuer Loisel spends all of his savings and decides to borrow the rest, writing promissory notes and placing signature after signature on numerous contracts. The Loisels manage to buy it, and Mathilde takes it to Madame Forestier, who is considerably aggravated at how late it was given. The couple, thereafter, struggles to pay their debt. Mathilde dismisses their housemaid and does the housework herself-washing dishes, taking out garbage, and fulfilling other lowly pains. Monsieur Loisel, on the other hand, shifts to a bookkeeper and copyist. C5. Denouement A decade later, they manage to free themselves from debt. By this time, Mathilde is a full-on unmistakable commoner. She staggers with rough hands, unornamented clothes, and disheveled hair. Occasionally, she reminisces back to the day when she still had the necklace and when so many men admired her. What, then, would have happened if she never lost the necklace in the first place? On one Sunday morning at the Champs Elysees, she encounters Madame Forestier. Mathilde addresses her yet Madame Forestier vaguely remembers anything at the spark of insight. After Mathilde identifies herself, she decides to tell her the truth. There would be no consequence or harm in fessing up since the necklace has already been paid full-on in Francs now-through all those painstaking nights of menial tasks and humble labors, working tirelessly to measure up to her obligation. But Mathilde never knew the other side of the story when she borrowed the necklace on that fateful day in France. It was fake, a non-discrete imitation with counterfeit diamonds and phony encrusted jewels. At most, it was worth five-hundred Francs, a sum evidently not worth wasting ten long years on staggering debt. C6. Theme * Appearances are Deceiving * Appearances are Deceiving Mathilde Loisel believed the necklace genuine the moment she saw it. Likewise, she believed that all the people at the party were real, genuine human beings because of their social standing and their possessions. The necklace, of course, was a fake. And, Maupassant implies, so were the people at the party who judged her on her outward appearance. v. creative presentation Appearances are Appearances are deceiving. not everything deceiving. not everything is always as it seems. is always as it seems. Appearances are deceiving. Things are not always as they seem. Things, even people, are not solely judged on the surface. The things you do, the words you speak, and the silence of your thoughts say a lot about who you are and where you’ve come from. A piece of fruit may prove fresh and clean on the outside, but may turn out rotten and uncannily unkempt on the inside. A piece of jewelry may seem pretty and coveted on the surface, but may soon prove fabricated and fake. To simply judge a book by its cover or to impulsively classify people by the color of their skin never does you any good. If you are too quick to judge and too hasty to comprehend, then judgment will toil and get the best of you. Resentment comes later, and we learn from our mistakes. Yet it is also better and pointedly wiser to practice prudence in thoughts, and patience in both scrutiny and human criticism. Our perspective towards ordinary people who are often subdued by irrational discrimination and stereotypical violence tells a lot about ourselves. The human mind is as subtle as a piece of paper; it is easily swerved and effortlessly influenced, either by moral thoughts or unethical standpoints and failures. Einstein once said, â€Å"Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will live its whole life believing that it is stupid.† If you constantly judge failure after failure and jump hastily into conclusions, people are bound to stagger and take fault after fault as wounds that scar and never heal. They are eventually lead to wallow in depression and self-pity; to wander aimlessly in the void of anxiety and thoughtless failure. You never know how a person does things if you never give them the chance to prove themselves. Everybody is different. We stand out in different ways-at different things. If you fail to give yourself the opportunity to grasp the beauty in their flaws, you need to change yourself. The only factor troubling the equation, the only error that blocks common thought is you and your petty way of thinking. In all honesty, there is nothing wrong with people with defects or disabilities. If negativity arrives and consumes you, then the problem is not them, it’s you-inside you. The sheer lack of comprehension devours anything that’s left. And once it does, reasons are left unnoticed and haplessly ignored. Guy de Maupassant’s â€Å"The Necklace† introduced me to a whole new chapter towards the true meaning of Acceptance. I realized that we can never fully understand what real happiness feels like if we can’t find it within ourselves to let go of our immeasurably high standards in life and accept ourselves for who we are, and what we’ve gone through. Acceptance is about reeling in optimism to forego negativity; it’s about giving up on false hopes and ending broken promises. Life is almost always unfair. We fall down and wallow at depression. We spend too much time focusing on closed doors that we fail to notice the one that’s newly been opened for us. We waste our time meddling with toilsome thoughts on depravity and failure-blinded by both our errors and resentments-that we lose track of what it is that truly matters: the truth. We overshadow the truthiness of our thoughts by allowing self-doubt and conceit to smother us mercilessly. We lose the capacity to think rationally and suffocate in total despair and agony-almost to the point of self-infliction and hate. But Hatred is vindictive. It is spiteful. It is pitiless, and hostile. We lose our chances the moment we lose ourselves. And when we lose our chances-the countless opportunities that have been shed to veer us towards acceptance-we lose at life. It is awfully bitter end, for an awfully bitter life. People are people, and we can never change that. We are subtly driven to maddening influence and suffer relentlessly under the vetoes of hindsight. The human society possesses traits of opposing sides. Half refer to people who have fallen bitterly from grace and think ill of the other half-those who relish in the context of ecstasy and juvenile jubilation; of wonders at liberty of both haste and lustful agitation. Jealousy is unwarranted. It is the birthplace of dysfunctional delusion; the root of hapless paranoia. The human mind easily surrenders to maddening oppression. Obstinate intolerance toils with the frailty of innocence and insensibility. A person is blessed with a myriad of chances and opportunities. A chance to live, a chance to love, a chance to learn, and a chance to grow. But when push comes to shove, oftentimes there’s little we can rummage through; chances are left tainted and severed, and hopes grow unwarranted and shattered. We are fragile little things. When we give up, we break. And when we lose, we fall. To grow a tiny little seedling, it needs to be nurtured and shown affection. To grow an innocent human being, it needs to be loved and shown undivided attention. When we care, it shows. It materializes as words of driven thought-as actions of wholly profound meaning. People who grow dissatisfied and tainted with hatred are people who need guidance and love; an atmosphere that reverberates the echoes of paradise and glory; an area isolated from fear, a place sequestered from sorrow. Dreams come true, and nothing is impossible. Reality might be cruel, but optimism is endless. We fall from grace and deliciate in vainglory-traits unmistakable of derivative human nature yet never inescapable. Happy endings are real, nightmares are short. Life is a bittersweet fantasy-we have our ups, and we have our downs. We fail and we succeed. We fall but strive to stand up. The important thing is to try, and to never stop trying.

Credit Risk Dissertation

Credit Risk Dissertation CREDIT RISK EXECUTIVE SUMMARY The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The major cause of serious banking problems over the years continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to deterioration in the credit standing of a banks counterparties. Credit risk is the oldest and biggest risk that bank, by virtue of its very nature of business, inherits. This has however, acquired a greater significance in the recent past for various reasons. There have been many traditional approaches to measure credit risk like logit, linear probability model but with passage of time new approaches have been developed like the Credit+, KMV Model. Basel I Accord was introduced in 1988 to have a framework for regulatory capital for banks but the â€Å"one size fit all† approach led to a shift, to a new and comprehensive approach -Basel II which adopts a three pillar approach to risk management. Banks use a number of techniques to mitigate the credit risks to which they are exposed. RBI has prescribed adoption of comprehensive approach for the purpose of CRM which allows fuller offset of security of collateral against exposures by effectively reducing the exposure amount by the value ascribed to the collateral. In this study, a leading nationalized bank is taken to study the steps taken by the bank to implement the Basel- II Accord and the entire framework developed for credit risk management. The bank under the study uses the credit scoring method to evaluate the credit risk involved in various loans/advances. The bank has set up special software to evaluate each case under various parameters and a monitoring system to continuously track each assets performance in accordance with the evaluation parameters. CHAPTER 1 INTRODUCTION 1.1 Rationale Credit Risk Management in todays deregulated market is a big challenge. Increased market volatility has brought with it the need for smart analysis and specialized applications in managing credit risk. A well defined policy framework is needed to help the operating staff identify the risk-event, assign a probability to each, quantify the likely loss, assess the acceptability of the exposure, price the risk and monitor them right to the point where they are paid off. Generally, Banks in India evaluate a proposal through the traditional tools of project financing, computing maximum permissible limits, assessing management capabilities and prescribing a ceiling for an industry exposure. As banks move in to a new high powered world of financial operations and trading, with new risks, the need is felt for more sophisticated and versatile instruments for risk assessment, monitoring and controlling risk exposures. It is, therefore, time that banks managements equip them fully to grapple with the demands of creating tools and systems capable of assessing, monitoring and controlling risk exposures in a more scientific manner. According to an estimate, Credit Risk takes about 70% and 30% remaining is shared between the other two primary risks, namely Market risk (change in the market price and operational risk i.e., failure of internal controls, etc.). Quality borrowers (Tier-I borrowers) were able to access the capital market directly without going through the debt route. Hence, the credit route is now more open to lesser mortals (Tier-II borrowers). With margin levels going down, banks are unable to absorb the level of loan losses. Even in banks which regularly fine-tune credit policies and streamline credit processes, it is a real challenge for credit risk managers to correctly identify pockets of risk concentration, quantify extent of risk carried, identify opportunities for diversification and balance the risk-return trade-off in their credit portfolio. The management of banks should strive to embrace the notion of ‘uncertainty and risk in their balance sheet and instill the need for approaching credit administration from a ‘risk-perspective across the system by placing well drafted strategies in the hands of the operating staff with due material support for its successful implementation. There is a need for Strategic approach to Credit Risk Management (CRM) in Indian Commercial Banks, particularly in view of; (1) Higher NPAs level in comparison with global benchmark (2) RBI s stipulation about dividend distribution by the banks (3) Revised NPAs level and CAR norms (4) New Basel Capital Accord (Basel -II) revolution 1.2 OBJECTIVES To understand the conceptual framework for credit risk. To understand credit risk under the Basel II Accord. To analyze the credit risk management practices in a Leading Nationalised Bank 1.3 RESEARCH METHODOLOGY Research Design: In order to have more comprehensive definition of the problem and to become familiar with the problems, an extensive literature survey was done to collect secondary data for the location of the various variables, probably contemporary issues and the clarity of concepts. Data Collection Techniques: The data collection technique used is interviewing. Data has been collected from both primary and secondary sources. Primary Data: is collected by making personal visits to the bank. Secondary Data: The details have been collected from research papers, working papers, white papers published by various agencies like ICRA, FICCI, IBA etc; articles from the internet and various journals. 1.4 LITERATURE REVIEW * Merton (1974) has applied options pricing model as a technology to evaluate the credit risk of enterprise, it has been drawn a lot of attention from western academic and business circles.Mertons Model is the theoretical foundation of structural models. Mertons model is not only based on a strict and comprehensive theory but also used market information stock price as an important variance toevaluate the credit risk.This makes credit risk to be a real-time monitored at a much higher frequency.This advantage has made it widely applied by the academic and business circle for a long time. Other Structural Models try to refine the original Merton Framework by removing one or more of unrealistic assumptions. * Black and Cox (1976) postulate that defaults occur as soon as firms asset value falls below a certain threshold. In contrast to the Merton approach, default can occur at any time. The paper by Black and Cox (1976) is the first of the so-called First Passage Models (FPM). First passage models specify default as the first time the firms asset value hits a lower barrier, allowing default to take place at any time. When the default barrier is exogenously fixed, as in Black and Cox (1976) and Longstaff and Schwartz (1995), it acts as a safety covenant to protect bondholders. Black and Cox introduce the possibility of more complex capital structures, with subordinated debt. * Geske (1977) introduces interest-paying debt to the Merton model. * Vasicek (1984) introduces the distinction between short and long term liabilities which now represents a distinctive feature of the KMV model. Under these models, all the relevant credit risk elements, including default and recovery at default, are a function of the structural characteristics of the firm: asset levels, asset volatility (business risk) and leverage (financial risk). * Kim, Ramaswamy and Sundaresan (1993) have suggested an alternative approach which still adopts the original Merton framework as far as the default process is concerned but, at the same time, removes one of the unrealistic assumptions of the Merton model; namely, that default can occur only at maturity of the debt when the firms assets are no longer sufficient to cover debt obligations. Instead, it is assumed that default may occur anytime between the issuance and maturity of the debt and that default is triggered when the value of the firms assets reaches a lower threshold level. In this model, the RR in the event of default is exogenous and independent from the firms asset value. It is generally defined as a fixed ratio of the outstanding debt value and is therefore independent from the PD. The attempt to overcome the shortcomings of structural-form models gave rise to reduced-form models. Unlike structural-form models, reduced-form models do not condition default on the value of the firm, and parameters related to the firms value need not be estimated to implement them. * Jarrow and Turnbull (1995) assumed that, at default, a bond would have a market value equal to an exogenously specified fraction of an otherwise equivalent default-free bond. * Duffie and Singleton (1999) followed with a model that, when market value at default (i.e. RR) is exogenously specified, allows for closed-form solutions for the term-structure of credit spreads. * Zhou (2001) attempt to combine the advantages of structural-form models a clear economic mechanism behind the default process, and the ones of reduced- form models unpredictability of default. This model links RRs to the firm value at default so that the variation in RRs is endogenously generated and the correlation between RRs and credit ratings reported first in Altman (1989) and Gupton, Gates and Carty (2000) is justified. Lately portfolio view on credit losses has emerged by recognising that changes in credit quality tend to comove over the business cycle and that one can diversify part of the credit risk by a clever composition of the loan portfolio across regions, industries and countries. Thus in order to assess the credit risk of a loan portfolio, a bank must not only investigate the creditworthiness of its customers, but also identify the concentration risks and possible comovements of risk factors in the portfolio. * CreditMetrics by Gupton et al (1997) was publicized in 1997 by JP Morgan. Its methodology is based on probability of moving from one credit quality to another within a given time horizon (credit migration analysis). The estimation of the portfolio Value-at-Risk due to Credit (Credit-VaR) through CreditMetrics A rating system with probabilities of migrating from one credit quality to another over a given time horizon (transition matrix) is the key component of the credit-VaR proposed by JP Morgan. The specified credit risk horizon is usually one year. A rating system with probabilities of migrating from one credit quality to another over a given time horizon (transition matrix) is the key component of the credit-VaR proposed by JP Morgan. The specified credit risk horizon is usually one year. * (Sy, 2007), states that the primary cause of credit default is loan delinquency due to insufficient liquidity or cash flow to service debt obligations. In the case of unsecured loans, we assume delinquency is a necessary and sufficient condition. In the case of collateralized loans, delinquency is a necessary, but not sufficient condition, because the borrower may be able to refinance the loan from positive equity or net assets to prevent default. In general, for secured loans, both delinquency and insolvency are assumed necessary and sufficient for credit default. CHAPTER 2 THEORECTICAL FRAMEWORK 2.1 CREDIT RISK: Credit risk is risk due to uncertainty in a counterpartys (also called an obligors or credits) ability to meet its obligations. Because there are many types of counterparties—from individuals to sovereign governments—and many different types of obligations—from auto loans to derivatives transactions—credit risk takes many forms. Institutions manage it in different ways. Although credit losses naturally fluctuate over time and with economic conditions, there is (ceteris paribus) a statistically measured, long-run average loss level. The losses can be divided into two categories i.e. expected losses (EL) and unexpected losses (UL). EL is based on three parameters:  ·Ã¢â€š ¬Ã‚   The likelihood that default will take place over a specified time horizon (probability of default or PD)  · â‚ ¬Ã‚  The amount owned by the counterparty at the moment of default (exposure at default or EAD)  ·Ã¢â€š ¬Ã‚   The fraction of the exposure, net of any recoveries, which will be lost following a default event (loss given default or LGD). EL = PD x EAD x LGD EL can be aggregated at various different levels (e.g. individual loan or entire credit portfolio), although it is typically calculated at the transaction level; it is normally mentioned either as an absolute amount or as a percentage of transaction size. It is also both customer- and facility-specific, since two different loans to the same customer can have a very different EL due to differences in EAD and/or LGD. It is important to note that EL (or, for that matter, credit quality) does not by itself constitute risk; if losses always equaled their expected levels, then there would be no uncertainty. Instead, EL should be viewed as an anticipated â€Å"cost of doing business† and should therefore be incorporated in loan pricing and ex ante provisioning. Credit risk, in fact, arises from variations in the actual loss levels, which give rise to the so-called unexpected loss (UL). Statistically speaking, UL is simply the standard deviation of EL. UL= ÏÆ' (EL) = ÏÆ' (PD*EAD*LGD) Once the bank- level credit loss distribution is constructed, credit economic capital is simply determined by the banks tolerance for credit risk, i.e. the bank needs to decide how much capital it wants to hold in order to avoid insolvency because of unexpected credit losses over the next year. A safer bank must have sufficient capital to withstand losses that are larger and rarer, i.e. they extend further out in the loss distribution tail. In practice, therefore, the choice of confidence interval in the loss distribution corresponds to the banks target credit rating (and related default probability) for its own debt. As Figure below shows, economic capital is the difference between EL and the selected confidence interval at the tail of the loss distribution; it is equal to a multiple K (often referred to as the capital multiplier) of the standard deviation of EL (i.e. UL). The shape of the loss distribution can vary considerably depending on product type and borrower credit quality. For example, high quality (low PD) borrowers tend to have proportionally less EL per unit of capital charged, meaning that K is higher and the shape of their loss distribution is more skewed (and vice versa). Credit risk may be in the following forms: * In case of the direct lending * In case of the guarantees and the letter of the credit * In case of the treasury operations * In case of the securities trading businesses * In case of the cross border exposure 2.2 The need for Credit Risk Rating: The need for Credit Risk Rating has arisen due to the following: 1. With dismantling of State control, deregulation, globalisation and allowing things to shape on the basis of market conditions, Indian Industry and Indian Banking face new risks and challenges. Competition results in the survival of the fittest. It is therefore necessary to identify these risks, measure them, monitor and control them. 2. It provides a basis for Credit Risk Pricing i.e. fixation of rate of interest on lending to different borrowers based on their credit risk rating thereby balancing Risk Reward for the Bank. 3. The Basel Accord and consequent Reserve Bank of India guidelines requires that the level of capital required to be maintained by the Bank will be in proportion to the risk of the loan in Banks Books for measurement of which proper Credit Risk Rating system is necessary. 4. The credit risk rating can be a Risk Management tool for prospecting fresh borrowers in addition to monitoring the weaker parameters and taking remedial action. The types of Risks Captured in the Banks Credit Risk Rating Model The Credit Risk Rating Model provides a framework to evaluate the risk emanating from following main risk categorizes/risk areas: * Industry risk * Business risk * Financial risk * Management risk * Facility risk * Project risk 2.3 WHY CREDIT RISK MEASUREMENT? In recent years, a revolution is brewing in risk as it is both managed and measured. There are seven reasons as to why certain surge in interest: 1. Structural increase in bankruptcies: Although the most recent recession hit at different time in different countries, most statistics show a significant increase in bankruptcies, compared to prior recession. To the extent that there has been a permanent or structural increase in bankruptcies worldwide- due to increase in the global competition- accurate credit analysis become even more important today than in past. 2. Disintermediation: As capital markets have expanded and become accessible to small and mid sized firms, the firms or borrowers â€Å"left behind† to raise funds from banks and other traditional financial institutions (FIs) are likely to be smaller and to have weaker credit ratings. Capital market growth has produced â€Å"a winners† curse effect on the portfolios of traditional FIs. 3. More Competitive Margins: Almost paradoxically, despite the decline in the average quality of loans, interest margins or spreads, especially in wholesale loan markets have become very thin. In short, the risk-return trade off from lending has gotten worse. A number of reasons can be cited, but an important factor has been the enhanced competition for low quality borrowers especially from finance companies, much of whose lending activity has been concentrated at the higher risk/lower quality end of the market. 4. Declining and Volatile Values of Collateral: Concurrent with the recent Asian and Russian debt crisis in well developed countries such as Switzerland and Japan have shown that property and real assets value are very hard to predict, and to realize through liquidation. The weaker (and more uncertain) collateral values are, the riskier the lending is likely to be. Indeed the current concerns about deflation worldwide have been accentuated the concerns about the value of real assets such as property and other physical assets. 5. The Growth Of Off- Balance Sheet Derivatives: In many of the very large U.S. banks, the notional value of the off-balance-sheet exposure to instruments such as over-the-counter (OTC) swaps and forwards is more than 10 times the size of their loan books. Indeed the growth in credit risk off the balance sheet was one of the main reasons for the introduction, by the Bank for International Settlements (BIS), of risk based capital requirements in 1993. Under the BIS system, the banks have to hold a capital requirement based on the mark- to- market current values of each OTC Derivative contract plus an add on for potential future exposure. 6. Technology Advances in computer systems and related advances in information technology have given banks and FIs the opportunity to test high powered modeling techniques. A survey conducted by International Swaps and Derivatives Association and the Institute of International Finance in 2000 found that survey participants (consisting of 25 commercial banks from 10 countries, with varying size and specialties) used commercial and internal databases to assess the credit risk on rated and unrated commercial, retail and mortgage loans. 7. The BIS Risk-Based Capital Requirements Despite the importance of above six reasons, probably the greatest incentive for banks to develop new credit risk models has been dissatisfaction with the BIS and central banks post-1992 imposition of capital requirements on loans. The current BIS approach has been described as a ‘one size fits all policy, irrespective of the size of loan, its maturity, and most importantly, the credit quality of the borrowing party. Much of the current interest in fine tuning credit risk measurement models has been fueled by the proposed BIS New Capital Accord (or so Called BIS II) which would more closely link capital charges to the credit risk exposure to retail, commercial, sovereign and interbank credits. Chapter- 3 Credit Risk Approaches and Pricing 3.1 CREDIT RISK MEASUREMENT APPROACHES: 1. CREDIT SCORING MODELS Credit Scoring Models use data on observed borrower characteristics to calculate the probability of default or to sort borrowers into different default risk classes. By selecting and combining different economic and financial borrower characteristics, a bank manager may be able to numerically establish which factors are important in explaining default risk, evaluate the relative degree or importance of these factors, improve the pricing of default risk, be better able to screen out bad loan applicants and be in a better position to calculate any reserve needed to meet expected future loan losses. To employ credit scoring model in this manner, the manager must identify objective economic and financial measures of risk for any particular class of borrower. For consumer debt, the objective characteristics in a credit -scoring model might include income, assets, age occupation and location. For corporate debt, financial ratios such as debt-equity ratio are usually key factors. After data are identified, a statistical technique quantifies or scores the default risk probability or default risk classification. Credit scoring models include three broad types: (1) linear probability models, (2) logit model and (3) linear discriminant model. LINEAR PROBABILITY MODEL: The linear probability model uses past data, such as accounting ratios, as inputs into a model to explain repayment experience on old loans. The relative importance of the factors used in explaining the past repayment performance then forecasts repayment probabilities on new loans; that is can be used for assessing the probability of repayment. Briefly we divide old loans (i) into two observational groups; those that defaulted (Zi = 1) and those that did not default (Zi = 0). Then we relate these observations by linear regression to s set of j casual variables (Xij) that reflects quantative information about the ith borrower, such as leverage or earnings. We estimate the model by linear regression of: Zi = ÃŽ £ÃŽ ²jXij + error Where ÃŽ ²j is the estimated importance of the jth variable in explaining past repayment experience. If we then take these estimated ÃŽ ²js and multiply them by the observed Xij for a prospective borrower, we can derive an expected value of Zi for the probability of repayment on the loan. LOGIT MODEL: The objective of the typical credit or loan review model is to replicate judgments made by loan officers, credit managers or bank examiners. If an accurate model could be developed, then it could be used as a tool for reviewing and classifying future credit risks. Chesser (1974) developed a model to predict noncompliance with the customers original loan arrangement, where non-compliance is defined to include not only default but any workout that may have been arranged resulting in a settlement of the loan less favorable to the tender than the original agreement. Chessers model, which was based on a technique called logit analysis, consisted of the following six variables. X1 = (Cash + Marketable Securities)/Total Assets X2 = Net Sales/(Cash + Marketable Securities) X3 = EBIT/Total Assets X4 = Total Debt/Total Assets X5 = Total Assets/ Net Worth X6 = Working Capital/Net Sales The estimated coefficients, including an intercept term, are Y = -2.0434 -5.24X1 + 0.0053X2 6.6507X3 + 4.4009X4 0.0791X5 0.1020X6 Chessers classification rule for above equation is If P> 50, assign to the non compliance group and If P≠¤50, assign to the compliance group. LINEAR DISCRIMINANT MODEL: While linear probability and logit models project a value foe the expected probability of default if a loan is made, discriminant models divide borrowers into high or default risk classes contingent on their observed characteristic (X). Altmans Z-score model is an application of multivariate Discriminant analysis in credit risk modeling. Financial ratios measuring probability, liquidity and solvency appeared to have significant discriminating power to separate the firm that fails to service its debt from the firms that do not. These ratios are weighted to produce a measure (credit risk score) that can be used as a metric to differentiate the bad firms from the set of good ones. Discriminant analysis is a multivariate statistical technique that analyzes a set of variables in order to differentiate two or more groups by minimizing the within-group variance and maximizing the between group variance simultaneously. Variables taken were: X1::Working Capital/ Total Asset X2: Retained Earning/ Total Asset X3: Earning before interest and taxes/ Total Asset X4: Market value of equity/ Book value of total Liabilities X5: Sales/Total Asset The original Z-score model was revised and modified several times in order to find the scoring model more specific to a particular class of firm. These resulted in the private firms Z-score model, non manufacturers Z-score model and Emerging Market Scoring (EMS) model. 3.2 New Approaches TERM STRUCTURE DERIVATION OF CREDIT RISK: One market based method of assessing credit risk exposure and default probabilities is to analyze the risk premium inherent in the current structure of yields on corporate debt or loans to similar risk-rated borrowers. Rating agencies categorize corporate bond issuers into at least seven major classes according to perceived credit quality. The first four ratings AAA, AA, A and BBB indicate investment quality borrowers. MORTALITY RATE APPROACH: Rather than extracting expected default rates from the current term structure of interest rates, the FI manager may analyze the historic or past default experience the mortality rates, of bonds and loans of a similar quality. Here p1is the probability of a grade B bond surviving the first year of its issue; thus 1 p1 is the marginal mortality rate, or the probability of the bond or loan dying or defaulting in the first year while p2 is the probability of the loan surviving in the second year and that it has not defaulted in the first year, 1-p2 is the marginal mortality rate for the second year. Thus, for each grade of corporate buyer quality, a marginal mortality rate (MMR) curve can show the historical default rate in any specific quality class in each year after issue. RAROC MODELS: Based on a banks risk-bearing capacity and its risk strategy, it is thus necessary — bearing in mind the banks strategic orientation — to find a method for the efficient allocation of capital to the banks individual siness areas, i.e. to define indicators that are suitable for balancing risk and return in a sensible manner. Indicators fulfilling this requirement are often referred to as risk adjusted performance measures (RAPM). RARORAC (risk adjusted return on risk adjusted capital, usually abbreviated as the most commonly found forms are RORAC (return on risk adjusted capital), Net income is taken to mean income minus refinancing cost, operating cost, and expected losses. It should now be the banks goal to maximize a RAPM indicator for the bank as a whole, e.g. RORAC, taking into account the correlation between individual transactions. Certain constraints such as volume restrictions due to a potential lack of liquidity and the maintenance of solvency based on economic and regulatory capital have to be observed in reaching this goal. From an organizational point of view, value and risk management should therefore be linked as closely as possible at all organizational levels. OPTION MODELS OF DEFAULT RISK (kmv model): KMV Corporation has developed a credit risk model that uses information on the stock prices and the capital structure of the firm to estimate its default probability. The starting point of the model is the proposition that a firm will default only if its asset value falls below a certain level, which is function of its liability. It estimates the asset value of the firm and its asset volatility from the market value of equity and the debt structure in the option theoretic framework. The resultant probability is called Expected default Frequency (EDF). In summary, EDF is calculated in the following three steps: i) Estimation of asset value and volatility from the equity value and volatility of equity return. ii) Calculation of distance from default iii) Calculation of expected default frequency Credit METRICS: It provides a method for estimating the distribution of the value of the assets n a portfolio subject to change in the credit quality of individual borrower. A portfolio consists of different stand-alone assets, defined by a stream of future cash flows. Each asset has a distribution over the possible range of future rating class. Starting from its initial rating, an asset may end up in ay one of the possible rating categories. Each rating category has a different credit spread, which will be used to discount the future cash flows. Moreover, the assets are correlated among themselves depending on the industry they belong to. It is assumed that the asset returns are normally distributed and change in the asset returns causes the change in the rating category in future. Finally, the simulation technique is used to estimate the value distribution of the assets. A number of scenario are generated from a multivariate normal distribution, which is defined by the appropriate credit spread, t he future value of asset is estimated. CREDIT Risk+: CreditRisk+, introduced by Credit Suisse Financial Products (CSFP), is a model of default risk. Each asset has only two possible end-of-period states: default and non-default. In the event of default, the lender recovers a fixed proportion of the total expense. The default rate is considered as a continuous random variable. It does not try to estimate default correlation directly. Here, the default correlation is assumed to be determined by a set of risk factors. Conditional on these risk factors, default of each obligator follows a Bernoulli distribution. To get unconditional probability generating function for the number of defaults, it assumes that the risk factors are independently gamma distributed random variables. The final step in Creditrisk+ is to obtain the probability generating function for losses. Conditional on the number of default events, the losses are entirely determined by the exposure and recovery rate. Thus, the distribution of asset can be estimated from the fol lowing input data: i) Exposure of individual asset ii) Expected default rate iii) Default ate volatilities iv) Recovery rate given default 3.3 CREDIT PRICING Pricing of the credit is essential for the survival of enterprises relying on credit assets, because the benefits derived from extending credit should surpass the cost. With the introduction of capital adequacy norms, the credit risk is linked to the capital-minimum 8% capital adequacy. Consequently, higher capital is required to be deployed if more credit risks are underwritten. The decision (a) whether to maximize the returns on possible credit assets with the existing capital or (b) raise more capital to do more business invariably depends upon p Credit Risk Dissertation Credit Risk Dissertation CREDIT RISK EXECUTIVE SUMMARY The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The major cause of serious banking problems over the years continues to be directly related to lax credit standards for borrowers and counterparties, poor portfolio risk management, or a lack of attention to deterioration in the credit standing of a banks counterparties. Credit risk is the oldest and biggest risk that bank, by virtue of its very nature of business, inherits. This has however, acquired a greater significance in the recent past for various reasons. There have been many traditional approaches to measure credit risk like logit, linear probability model but with passage of time new approaches have been developed like the Credit+, KMV Model. Basel I Accord was introduced in 1988 to have a framework for regulatory capital for banks but the â€Å"one size fit all† approach led to a shift, to a new and comprehensive approach -Basel II which adopts a three pillar approach to risk management. Banks use a number of techniques to mitigate the credit risks to which they are exposed. RBI has prescribed adoption of comprehensive approach for the purpose of CRM which allows fuller offset of security of collateral against exposures by effectively reducing the exposure amount by the value ascribed to the collateral. In this study, a leading nationalized bank is taken to study the steps taken by the bank to implement the Basel- II Accord and the entire framework developed for credit risk management. The bank under the study uses the credit scoring method to evaluate the credit risk involved in various loans/advances. The bank has set up special software to evaluate each case under various parameters and a monitoring system to continuously track each assets performance in accordance with the evaluation parameters. CHAPTER 1 INTRODUCTION 1.1 Rationale Credit Risk Management in todays deregulated market is a big challenge. Increased market volatility has brought with it the need for smart analysis and specialized applications in managing credit risk. A well defined policy framework is needed to help the operating staff identify the risk-event, assign a probability to each, quantify the likely loss, assess the acceptability of the exposure, price the risk and monitor them right to the point where they are paid off. Generally, Banks in India evaluate a proposal through the traditional tools of project financing, computing maximum permissible limits, assessing management capabilities and prescribing a ceiling for an industry exposure. As banks move in to a new high powered world of financial operations and trading, with new risks, the need is felt for more sophisticated and versatile instruments for risk assessment, monitoring and controlling risk exposures. It is, therefore, time that banks managements equip them fully to grapple with the demands of creating tools and systems capable of assessing, monitoring and controlling risk exposures in a more scientific manner. According to an estimate, Credit Risk takes about 70% and 30% remaining is shared between the other two primary risks, namely Market risk (change in the market price and operational risk i.e., failure of internal controls, etc.). Quality borrowers (Tier-I borrowers) were able to access the capital market directly without going through the debt route. Hence, the credit route is now more open to lesser mortals (Tier-II borrowers). With margin levels going down, banks are unable to absorb the level of loan losses. Even in banks which regularly fine-tune credit policies and streamline credit processes, it is a real challenge for credit risk managers to correctly identify pockets of risk concentration, quantify extent of risk carried, identify opportunities for diversification and balance the risk-return trade-off in their credit portfolio. The management of banks should strive to embrace the notion of ‘uncertainty and risk in their balance sheet and instill the need for approaching credit administration from a ‘risk-perspective across the system by placing well drafted strategies in the hands of the operating staff with due material support for its successful implementation. There is a need for Strategic approach to Credit Risk Management (CRM) in Indian Commercial Banks, particularly in view of; (1) Higher NPAs level in comparison with global benchmark (2) RBI s stipulation about dividend distribution by the banks (3) Revised NPAs level and CAR norms (4) New Basel Capital Accord (Basel -II) revolution 1.2 OBJECTIVES To understand the conceptual framework for credit risk. To understand credit risk under the Basel II Accord. To analyze the credit risk management practices in a Leading Nationalised Bank 1.3 RESEARCH METHODOLOGY Research Design: In order to have more comprehensive definition of the problem and to become familiar with the problems, an extensive literature survey was done to collect secondary data for the location of the various variables, probably contemporary issues and the clarity of concepts. Data Collection Techniques: The data collection technique used is interviewing. Data has been collected from both primary and secondary sources. Primary Data: is collected by making personal visits to the bank. Secondary Data: The details have been collected from research papers, working papers, white papers published by various agencies like ICRA, FICCI, IBA etc; articles from the internet and various journals. 1.4 LITERATURE REVIEW * Merton (1974) has applied options pricing model as a technology to evaluate the credit risk of enterprise, it has been drawn a lot of attention from western academic and business circles.Mertons Model is the theoretical foundation of structural models. Mertons model is not only based on a strict and comprehensive theory but also used market information stock price as an important variance toevaluate the credit risk.This makes credit risk to be a real-time monitored at a much higher frequency.This advantage has made it widely applied by the academic and business circle for a long time. Other Structural Models try to refine the original Merton Framework by removing one or more of unrealistic assumptions. * Black and Cox (1976) postulate that defaults occur as soon as firms asset value falls below a certain threshold. In contrast to the Merton approach, default can occur at any time. The paper by Black and Cox (1976) is the first of the so-called First Passage Models (FPM). First passage models specify default as the first time the firms asset value hits a lower barrier, allowing default to take place at any time. When the default barrier is exogenously fixed, as in Black and Cox (1976) and Longstaff and Schwartz (1995), it acts as a safety covenant to protect bondholders. Black and Cox introduce the possibility of more complex capital structures, with subordinated debt. * Geske (1977) introduces interest-paying debt to the Merton model. * Vasicek (1984) introduces the distinction between short and long term liabilities which now represents a distinctive feature of the KMV model. Under these models, all the relevant credit risk elements, including default and recovery at default, are a function of the structural characteristics of the firm: asset levels, asset volatility (business risk) and leverage (financial risk). * Kim, Ramaswamy and Sundaresan (1993) have suggested an alternative approach which still adopts the original Merton framework as far as the default process is concerned but, at the same time, removes one of the unrealistic assumptions of the Merton model; namely, that default can occur only at maturity of the debt when the firms assets are no longer sufficient to cover debt obligations. Instead, it is assumed that default may occur anytime between the issuance and maturity of the debt and that default is triggered when the value of the firms assets reaches a lower threshold level. In this model, the RR in the event of default is exogenous and independent from the firms asset value. It is generally defined as a fixed ratio of the outstanding debt value and is therefore independent from the PD. The attempt to overcome the shortcomings of structural-form models gave rise to reduced-form models. Unlike structural-form models, reduced-form models do not condition default on the value of the firm, and parameters related to the firms value need not be estimated to implement them. * Jarrow and Turnbull (1995) assumed that, at default, a bond would have a market value equal to an exogenously specified fraction of an otherwise equivalent default-free bond. * Duffie and Singleton (1999) followed with a model that, when market value at default (i.e. RR) is exogenously specified, allows for closed-form solutions for the term-structure of credit spreads. * Zhou (2001) attempt to combine the advantages of structural-form models a clear economic mechanism behind the default process, and the ones of reduced- form models unpredictability of default. This model links RRs to the firm value at default so that the variation in RRs is endogenously generated and the correlation between RRs and credit ratings reported first in Altman (1989) and Gupton, Gates and Carty (2000) is justified. Lately portfolio view on credit losses has emerged by recognising that changes in credit quality tend to comove over the business cycle and that one can diversify part of the credit risk by a clever composition of the loan portfolio across regions, industries and countries. Thus in order to assess the credit risk of a loan portfolio, a bank must not only investigate the creditworthiness of its customers, but also identify the concentration risks and possible comovements of risk factors in the portfolio. * CreditMetrics by Gupton et al (1997) was publicized in 1997 by JP Morgan. Its methodology is based on probability of moving from one credit quality to another within a given time horizon (credit migration analysis). The estimation of the portfolio Value-at-Risk due to Credit (Credit-VaR) through CreditMetrics A rating system with probabilities of migrating from one credit quality to another over a given time horizon (transition matrix) is the key component of the credit-VaR proposed by JP Morgan. The specified credit risk horizon is usually one year. A rating system with probabilities of migrating from one credit quality to another over a given time horizon (transition matrix) is the key component of the credit-VaR proposed by JP Morgan. The specified credit risk horizon is usually one year. * (Sy, 2007), states that the primary cause of credit default is loan delinquency due to insufficient liquidity or cash flow to service debt obligations. In the case of unsecured loans, we assume delinquency is a necessary and sufficient condition. In the case of collateralized loans, delinquency is a necessary, but not sufficient condition, because the borrower may be able to refinance the loan from positive equity or net assets to prevent default. In general, for secured loans, both delinquency and insolvency are assumed necessary and sufficient for credit default. CHAPTER 2 THEORECTICAL FRAMEWORK 2.1 CREDIT RISK: Credit risk is risk due to uncertainty in a counterpartys (also called an obligors or credits) ability to meet its obligations. Because there are many types of counterparties—from individuals to sovereign governments—and many different types of obligations—from auto loans to derivatives transactions—credit risk takes many forms. Institutions manage it in different ways. Although credit losses naturally fluctuate over time and with economic conditions, there is (ceteris paribus) a statistically measured, long-run average loss level. The losses can be divided into two categories i.e. expected losses (EL) and unexpected losses (UL). EL is based on three parameters:  ·Ã¢â€š ¬Ã‚   The likelihood that default will take place over a specified time horizon (probability of default or PD)  · â‚ ¬Ã‚  The amount owned by the counterparty at the moment of default (exposure at default or EAD)  ·Ã¢â€š ¬Ã‚   The fraction of the exposure, net of any recoveries, which will be lost following a default event (loss given default or LGD). EL = PD x EAD x LGD EL can be aggregated at various different levels (e.g. individual loan or entire credit portfolio), although it is typically calculated at the transaction level; it is normally mentioned either as an absolute amount or as a percentage of transaction size. It is also both customer- and facility-specific, since two different loans to the same customer can have a very different EL due to differences in EAD and/or LGD. It is important to note that EL (or, for that matter, credit quality) does not by itself constitute risk; if losses always equaled their expected levels, then there would be no uncertainty. Instead, EL should be viewed as an anticipated â€Å"cost of doing business† and should therefore be incorporated in loan pricing and ex ante provisioning. Credit risk, in fact, arises from variations in the actual loss levels, which give rise to the so-called unexpected loss (UL). Statistically speaking, UL is simply the standard deviation of EL. UL= ÏÆ' (EL) = ÏÆ' (PD*EAD*LGD) Once the bank- level credit loss distribution is constructed, credit economic capital is simply determined by the banks tolerance for credit risk, i.e. the bank needs to decide how much capital it wants to hold in order to avoid insolvency because of unexpected credit losses over the next year. A safer bank must have sufficient capital to withstand losses that are larger and rarer, i.e. they extend further out in the loss distribution tail. In practice, therefore, the choice of confidence interval in the loss distribution corresponds to the banks target credit rating (and related default probability) for its own debt. As Figure below shows, economic capital is the difference between EL and the selected confidence interval at the tail of the loss distribution; it is equal to a multiple K (often referred to as the capital multiplier) of the standard deviation of EL (i.e. UL). The shape of the loss distribution can vary considerably depending on product type and borrower credit quality. For example, high quality (low PD) borrowers tend to have proportionally less EL per unit of capital charged, meaning that K is higher and the shape of their loss distribution is more skewed (and vice versa). Credit risk may be in the following forms: * In case of the direct lending * In case of the guarantees and the letter of the credit * In case of the treasury operations * In case of the securities trading businesses * In case of the cross border exposure 2.2 The need for Credit Risk Rating: The need for Credit Risk Rating has arisen due to the following: 1. With dismantling of State control, deregulation, globalisation and allowing things to shape on the basis of market conditions, Indian Industry and Indian Banking face new risks and challenges. Competition results in the survival of the fittest. It is therefore necessary to identify these risks, measure them, monitor and control them. 2. It provides a basis for Credit Risk Pricing i.e. fixation of rate of interest on lending to different borrowers based on their credit risk rating thereby balancing Risk Reward for the Bank. 3. The Basel Accord and consequent Reserve Bank of India guidelines requires that the level of capital required to be maintained by the Bank will be in proportion to the risk of the loan in Banks Books for measurement of which proper Credit Risk Rating system is necessary. 4. The credit risk rating can be a Risk Management tool for prospecting fresh borrowers in addition to monitoring the weaker parameters and taking remedial action. The types of Risks Captured in the Banks Credit Risk Rating Model The Credit Risk Rating Model provides a framework to evaluate the risk emanating from following main risk categorizes/risk areas: * Industry risk * Business risk * Financial risk * Management risk * Facility risk * Project risk 2.3 WHY CREDIT RISK MEASUREMENT? In recent years, a revolution is brewing in risk as it is both managed and measured. There are seven reasons as to why certain surge in interest: 1. Structural increase in bankruptcies: Although the most recent recession hit at different time in different countries, most statistics show a significant increase in bankruptcies, compared to prior recession. To the extent that there has been a permanent or structural increase in bankruptcies worldwide- due to increase in the global competition- accurate credit analysis become even more important today than in past. 2. Disintermediation: As capital markets have expanded and become accessible to small and mid sized firms, the firms or borrowers â€Å"left behind† to raise funds from banks and other traditional financial institutions (FIs) are likely to be smaller and to have weaker credit ratings. Capital market growth has produced â€Å"a winners† curse effect on the portfolios of traditional FIs. 3. More Competitive Margins: Almost paradoxically, despite the decline in the average quality of loans, interest margins or spreads, especially in wholesale loan markets have become very thin. In short, the risk-return trade off from lending has gotten worse. A number of reasons can be cited, but an important factor has been the enhanced competition for low quality borrowers especially from finance companies, much of whose lending activity has been concentrated at the higher risk/lower quality end of the market. 4. Declining and Volatile Values of Collateral: Concurrent with the recent Asian and Russian debt crisis in well developed countries such as Switzerland and Japan have shown that property and real assets value are very hard to predict, and to realize through liquidation. The weaker (and more uncertain) collateral values are, the riskier the lending is likely to be. Indeed the current concerns about deflation worldwide have been accentuated the concerns about the value of real assets such as property and other physical assets. 5. The Growth Of Off- Balance Sheet Derivatives: In many of the very large U.S. banks, the notional value of the off-balance-sheet exposure to instruments such as over-the-counter (OTC) swaps and forwards is more than 10 times the size of their loan books. Indeed the growth in credit risk off the balance sheet was one of the main reasons for the introduction, by the Bank for International Settlements (BIS), of risk based capital requirements in 1993. Under the BIS system, the banks have to hold a capital requirement based on the mark- to- market current values of each OTC Derivative contract plus an add on for potential future exposure. 6. Technology Advances in computer systems and related advances in information technology have given banks and FIs the opportunity to test high powered modeling techniques. A survey conducted by International Swaps and Derivatives Association and the Institute of International Finance in 2000 found that survey participants (consisting of 25 commercial banks from 10 countries, with varying size and specialties) used commercial and internal databases to assess the credit risk on rated and unrated commercial, retail and mortgage loans. 7. The BIS Risk-Based Capital Requirements Despite the importance of above six reasons, probably the greatest incentive for banks to develop new credit risk models has been dissatisfaction with the BIS and central banks post-1992 imposition of capital requirements on loans. The current BIS approach has been described as a ‘one size fits all policy, irrespective of the size of loan, its maturity, and most importantly, the credit quality of the borrowing party. Much of the current interest in fine tuning credit risk measurement models has been fueled by the proposed BIS New Capital Accord (or so Called BIS II) which would more closely link capital charges to the credit risk exposure to retail, commercial, sovereign and interbank credits. Chapter- 3 Credit Risk Approaches and Pricing 3.1 CREDIT RISK MEASUREMENT APPROACHES: 1. CREDIT SCORING MODELS Credit Scoring Models use data on observed borrower characteristics to calculate the probability of default or to sort borrowers into different default risk classes. By selecting and combining different economic and financial borrower characteristics, a bank manager may be able to numerically establish which factors are important in explaining default risk, evaluate the relative degree or importance of these factors, improve the pricing of default risk, be better able to screen out bad loan applicants and be in a better position to calculate any reserve needed to meet expected future loan losses. To employ credit scoring model in this manner, the manager must identify objective economic and financial measures of risk for any particular class of borrower. For consumer debt, the objective characteristics in a credit -scoring model might include income, assets, age occupation and location. For corporate debt, financial ratios such as debt-equity ratio are usually key factors. After data are identified, a statistical technique quantifies or scores the default risk probability or default risk classification. Credit scoring models include three broad types: (1) linear probability models, (2) logit model and (3) linear discriminant model. LINEAR PROBABILITY MODEL: The linear probability model uses past data, such as accounting ratios, as inputs into a model to explain repayment experience on old loans. The relative importance of the factors used in explaining the past repayment performance then forecasts repayment probabilities on new loans; that is can be used for assessing the probability of repayment. Briefly we divide old loans (i) into two observational groups; those that defaulted (Zi = 1) and those that did not default (Zi = 0). Then we relate these observations by linear regression to s set of j casual variables (Xij) that reflects quantative information about the ith borrower, such as leverage or earnings. We estimate the model by linear regression of: Zi = ÃŽ £ÃŽ ²jXij + error Where ÃŽ ²j is the estimated importance of the jth variable in explaining past repayment experience. If we then take these estimated ÃŽ ²js and multiply them by the observed Xij for a prospective borrower, we can derive an expected value of Zi for the probability of repayment on the loan. LOGIT MODEL: The objective of the typical credit or loan review model is to replicate judgments made by loan officers, credit managers or bank examiners. If an accurate model could be developed, then it could be used as a tool for reviewing and classifying future credit risks. Chesser (1974) developed a model to predict noncompliance with the customers original loan arrangement, where non-compliance is defined to include not only default but any workout that may have been arranged resulting in a settlement of the loan less favorable to the tender than the original agreement. Chessers model, which was based on a technique called logit analysis, consisted of the following six variables. X1 = (Cash + Marketable Securities)/Total Assets X2 = Net Sales/(Cash + Marketable Securities) X3 = EBIT/Total Assets X4 = Total Debt/Total Assets X5 = Total Assets/ Net Worth X6 = Working Capital/Net Sales The estimated coefficients, including an intercept term, are Y = -2.0434 -5.24X1 + 0.0053X2 6.6507X3 + 4.4009X4 0.0791X5 0.1020X6 Chessers classification rule for above equation is If P> 50, assign to the non compliance group and If P≠¤50, assign to the compliance group. LINEAR DISCRIMINANT MODEL: While linear probability and logit models project a value foe the expected probability of default if a loan is made, discriminant models divide borrowers into high or default risk classes contingent on their observed characteristic (X). Altmans Z-score model is an application of multivariate Discriminant analysis in credit risk modeling. Financial ratios measuring probability, liquidity and solvency appeared to have significant discriminating power to separate the firm that fails to service its debt from the firms that do not. These ratios are weighted to produce a measure (credit risk score) that can be used as a metric to differentiate the bad firms from the set of good ones. Discriminant analysis is a multivariate statistical technique that analyzes a set of variables in order to differentiate two or more groups by minimizing the within-group variance and maximizing the between group variance simultaneously. Variables taken were: X1::Working Capital/ Total Asset X2: Retained Earning/ Total Asset X3: Earning before interest and taxes/ Total Asset X4: Market value of equity/ Book value of total Liabilities X5: Sales/Total Asset The original Z-score model was revised and modified several times in order to find the scoring model more specific to a particular class of firm. These resulted in the private firms Z-score model, non manufacturers Z-score model and Emerging Market Scoring (EMS) model. 3.2 New Approaches TERM STRUCTURE DERIVATION OF CREDIT RISK: One market based method of assessing credit risk exposure and default probabilities is to analyze the risk premium inherent in the current structure of yields on corporate debt or loans to similar risk-rated borrowers. Rating agencies categorize corporate bond issuers into at least seven major classes according to perceived credit quality. The first four ratings AAA, AA, A and BBB indicate investment quality borrowers. MORTALITY RATE APPROACH: Rather than extracting expected default rates from the current term structure of interest rates, the FI manager may analyze the historic or past default experience the mortality rates, of bonds and loans of a similar quality. Here p1is the probability of a grade B bond surviving the first year of its issue; thus 1 p1 is the marginal mortality rate, or the probability of the bond or loan dying or defaulting in the first year while p2 is the probability of the loan surviving in the second year and that it has not defaulted in the first year, 1-p2 is the marginal mortality rate for the second year. Thus, for each grade of corporate buyer quality, a marginal mortality rate (MMR) curve can show the historical default rate in any specific quality class in each year after issue. RAROC MODELS: Based on a banks risk-bearing capacity and its risk strategy, it is thus necessary — bearing in mind the banks strategic orientation — to find a method for the efficient allocation of capital to the banks individual siness areas, i.e. to define indicators that are suitable for balancing risk and return in a sensible manner. Indicators fulfilling this requirement are often referred to as risk adjusted performance measures (RAPM). RARORAC (risk adjusted return on risk adjusted capital, usually abbreviated as the most commonly found forms are RORAC (return on risk adjusted capital), Net income is taken to mean income minus refinancing cost, operating cost, and expected losses. It should now be the banks goal to maximize a RAPM indicator for the bank as a whole, e.g. RORAC, taking into account the correlation between individual transactions. Certain constraints such as volume restrictions due to a potential lack of liquidity and the maintenance of solvency based on economic and regulatory capital have to be observed in reaching this goal. From an organizational point of view, value and risk management should therefore be linked as closely as possible at all organizational levels. OPTION MODELS OF DEFAULT RISK (kmv model): KMV Corporation has developed a credit risk model that uses information on the stock prices and the capital structure of the firm to estimate its default probability. The starting point of the model is the proposition that a firm will default only if its asset value falls below a certain level, which is function of its liability. It estimates the asset value of the firm and its asset volatility from the market value of equity and the debt structure in the option theoretic framework. The resultant probability is called Expected default Frequency (EDF). In summary, EDF is calculated in the following three steps: i) Estimation of asset value and volatility from the equity value and volatility of equity return. ii) Calculation of distance from default iii) Calculation of expected default frequency Credit METRICS: It provides a method for estimating the distribution of the value of the assets n a portfolio subject to change in the credit quality of individual borrower. A portfolio consists of different stand-alone assets, defined by a stream of future cash flows. Each asset has a distribution over the possible range of future rating class. Starting from its initial rating, an asset may end up in ay one of the possible rating categories. Each rating category has a different credit spread, which will be used to discount the future cash flows. Moreover, the assets are correlated among themselves depending on the industry they belong to. It is assumed that the asset returns are normally distributed and change in the asset returns causes the change in the rating category in future. Finally, the simulation technique is used to estimate the value distribution of the assets. A number of scenario are generated from a multivariate normal distribution, which is defined by the appropriate credit spread, t he future value of asset is estimated. CREDIT Risk+: CreditRisk+, introduced by Credit Suisse Financial Products (CSFP), is a model of default risk. Each asset has only two possible end-of-period states: default and non-default. In the event of default, the lender recovers a fixed proportion of the total expense. The default rate is considered as a continuous random variable. It does not try to estimate default correlation directly. Here, the default correlation is assumed to be determined by a set of risk factors. Conditional on these risk factors, default of each obligator follows a Bernoulli distribution. To get unconditional probability generating function for the number of defaults, it assumes that the risk factors are independently gamma distributed random variables. The final step in Creditrisk+ is to obtain the probability generating function for losses. Conditional on the number of default events, the losses are entirely determined by the exposure and recovery rate. Thus, the distribution of asset can be estimated from the fol lowing input data: i) Exposure of individual asset ii) Expected default rate iii) Default ate volatilities iv) Recovery rate given default 3.3 CREDIT PRICING Pricing of the credit is essential for the survival of enterprises relying on credit assets, because the benefits derived from extending credit should surpass the cost. With the introduction of capital adequacy norms, the credit risk is linked to the capital-minimum 8% capital adequacy. Consequently, higher capital is required to be deployed if more credit risks are underwritten. The decision (a) whether to maximize the returns on possible credit assets with the existing capital or (b) raise more capital to do more business invariably depends upon p