Evil Effect of Deficit Financing

Deficit financing, particularly if it is of large magnitude, has certain adverse effects on the functioning of the economy. The main adverse effects on the functioning of the economy. The main adverse effect are explained below:-
1. Inflationary rise in prices:- Deficit financing may may result in inflationary rise in prices. An increase in money supply resulting from deficit financing increases the demand for goods and services. In the absence of corresponding increase in aggregate supply of goods and services. In the absence of corresponding increase in aggregate supply of goods and services increase in the long run. Rising prises leads to rising cost which leads to further rise in prices, so that cost spiral s set in.
2. Forced Saving:- The impact of forced saving may fall on fixed income earners rather than on the higher income groups.
3. Distribution of income:- Profits tend to rise, while the purchasing power of the fixed income group is reduced on account of rise in prices. Therefore, deficit financing tends to redistribute income and wealth in favor of profiteering classes, i e producers, businessmen and traders, etc. Hence the inequalities in the distribution of income and wealth widen as a result of deficit financing.
4. Change in the pattern of investment :- Deficit financing may lead to distribution of investment. It may encourage the of investment which are desirable for a developing economy, such as hoarding, speculation and construction.
Thus, deficit financing is an important device for financing development plane if underdeveloped countries and accelerating their rate of economic development. But if deficit financing is not kept within the limits, it may give rise to serious adverse effect in the form of inflationary rise to serious adverse effects in the form of inflationary rise in prices, distorted investment and unequal and unjust distribution of income.

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Factors determine real wages

Under usual situation money wages determines real wages. The workers get higher rate of money wages, their purchasing power increase and as a result real wages tends to increase. But in case of persistent increase in price level, increase in money wages may not increase real wages.

Real wages depend on the purchasing power of money. When purchasing power of money increases real wages also increase and vice versa. When workers get other benefit like free housing, medical clothing education etc. facilities so real wages also increase and vice versa.

When workers get other benefits like free housing, medical clothing education etc. facilities so real wages of these workers have become high. On the other hand, if these facilities are not available, real wages of these workers have become high. On the other hand, if these facilities are not available, real wages fall. Many workers earn their income from other sources. For example teacher earns from tuition, police, income tax and personnel of other department of the government have extra sources of earning. So real wages of their workers have extra sources of earnings. When workers enjoy number of days as vacations and holidays, real wages become high, on the other hand real wages fall when such facilities are not given. For example teacher enjoys number of days as vacations and holidays. So in this sense real wages have become high.

When there are more facilities of the promotion of workers real wages tend to increase and vice versa. Real wage depend on the nature of work, term and security of service. When nature of work is favorable and there is security of services, real wages increase and vice versa.

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Various kinds of loans interest

Interest rates differ for various kinds of loans on account of following reasons:-

1. Difference in the nature of credit market:- Rates of interest differ on account of the difference in the nature of te credit market. For example credit market is unorganized in rural areas therefore, money lenders charge higher rates of interest. But in urban areas credit market is well organized in rural under rule and regulation of the government. Therefore, rates of interest become reasonable. Banks are the main institutions for the lenders of loans. They charge that rate of interest which is determined as per rules from time to time.

2. Difference of the risk of loans:- Rates of interest differ according to the difference of the risk of loan. If more risk is involved, rates of interest become high. On the other hand they become low when risk becomes low.

3. Difference of the purpose of loan:- If loan are taken for the purpose of production, rates of interest become low. On the other hand if loans are taken for the purpose of consumption, rates of interest become high. But rates of interest become the highest when loan are taken for harmful activities like gambling, litigation etc.

4. Security of loans:- Rates of interest differ because of the difference in security of loans. When proper security of loan is given, rates of interest become low. But in absence of the proper security, rates of interest become high.

5. Period for the repayment of loan:- There is difference in rates of interest on account of the difference in the period for the repayment of loans is higher than that of short period loans.

6. Demand for the supply of loan:- Rates of interest differ according to the difference of demand for supply of loans. When demand for loans is higher than supply of loans. When demand for loans, rates of interest become high and vice-versa.

7. Economic condition of the borrower:- There is difference in rates of interest in the economic condition of borrower. If economic condition of the borrower is sound loans are advanced at low rate of interest. On the other hand rate of interest become high if economic condition of borrower is weak.

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Financial planner or advisor for you

Hiring a financial planner of advisor for your money management needs is perhaps one of te most important decision you will ever make. So when you are evaluating potential money manager to know who would work best for you, wouldn't you want to get a clear perspective of how he or she would go about the business? After all, a chunk of your life's saving would be in the hands of the planner. To ensure that the person you are entrusting your money with fits your needs completely, ask a few simple, politer questions at the very outset.

The first step would be to establish the credentials of the planner. Check whether she or he is a certified profession with a CFA or CFP tag or some other acceptable qualifications. How long has he or she and the firm been advising clients? Has the person ever been disciplined y the regulator or any other authority? How does the advisor get paid commission or fees? Get a clear picture about the compensation structure adopted by the advisor. Fess may be charged on an hourly basis, as a monthly or annual retainer, or per transition. Be sure to get an estimate of the financial plan will be implemented and check whether it matches with your own long term objectives. Also enquire about specific area of expertise. A good way would be to ask the advisor to explain a few concepts to you People tend to hesitate about asking this question do you make more if I buy these stock or mutual potential areas for conflict of interest. If your advisor receive commissions or other incentive for pursing certain product ensure discloses such information beforehand. This is where many people burn there finger politely request the planner for a written, signed agreement that outlines the service and charges, in a precise manner.

Cofinax :-Cofinax is a company established in Switzerland since 1989. Our unique expertise in management and administration of financial companies lies behind every service we offer and enable us to provide competitive and sustainable business solutions for the set-up of Equity Management, Trading, Hedge Fund, and Asset Management companies in Switzerland.

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Ways of investment

Today I am going to share my view regarding investment option and its application. So whenever you have money in your hand to invest you must think Where to invest? How to invest? Such thinks will definitely come in your mind. So, the answer may be…

The stock market I think the first option people think of when they have money to invest.It includes buying stocks or mutual fund. The intention is very clear that to buy at low price and sell it at a higher price .But it needs patience as you have to wait for the price to rise. You may have to face loss as the price can fall. So there is a chance of heavy loss due to the fall. Whenever you are going to invest it needs to be kept in your mind that can lose all your hard earned money.

There are basically three types of investments:

1. Ownership investments: This includes ownership of yours in full or part, depending upon your investment.

2. Lending investment: This means you are lending your money to a company and the company will pay you back with specified interest.

3. Cash equivalent: It can be converted into cash easily such as mutual funds savings account.

There are some basic things to be considered before investing:

• Keep aside your money each month for investments.

• Keep this thing in your mind that you have to allow your money to grow. So don’t expect positive result over night.

• Try to reduce or avoid paying sales commission as it will cut your return on investment.

• Don’t sell your stock immediately if there is a fall in the market .So, think long term and wait for the perfect time.

Keeping the above things in mind now the question arises where and how people can invest their funds in order to get optimum return out of it, which means how to invest in securities to get the maximum benefit. As I suggested you before when you are investing in stock you should have patience. There are different ways of investment and every option has its pros and cons. So the ways that you can invest in stock.

Common or preferred stock:
The simplest ways of investment is buying of share and holding it for the long time in order to allow the money to grow. As a first time buyer you should buy common stock of minimum risk. If the company can grow then your money will also grow and if the company shrinks then your money will also shrink. So you have to keep close eye over the position of the market movement.

Stock option:
The next way of investment is stock option. As an investor you will have that freedom to buy or sell the stock as this option will provide you the right to buy or sell the stock or security on or before the given date. Normally it has short duration.

Leaps:
Leaps is kind of option that does not expire within a shorter period of time as stock option. Generally it is of 1 or 2 years.

Option spread:
It is basically the combination of option, stock and leaps. If you buy a stock and sell call option on the stock then it is called a covered call, an option spread strategy.

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