Stock Market Volatility Around Market Shock 2005-09

Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility around market shocks event analysis during 2005-2009 ACKNOWLEDGEMENT The Project titled Stock Market volatility around market shock event analysis during 2005-09 is an effort to throw light on Performance Analysis. I have completed this project based on research, under the guidance of name of faculty, my faculty guide. I owe enormous intellectual debt to her as she augmented my knowledge in the field of volatility around market shocks and helped me learn about the topic and gave me valuable insight into the subject matter. My increased spectrum of knowledge in this field is the result of her constant supervision and direction that has helped me to absorb relevant and high quality information. I would like to express my profound gratitude towards COLLEGE NAME for giving me the opportunity to undertake the above research. Last but not the least, I feel indebted to all those persons and organizations which have helped me directly or indirectly in successful completion of this study. DECLARATION I Ghayasuddin a student of MBA of College Name respectively hereby declare that the Project Report on Stock Market volatility around market shock event analysis during 2005-09 is the outcome of my own work and the same has not been submitted to any other University/Institute for the award of any degree or any Professional diploma. OBJECTIVE OF THE STUDY To find out the stock market volatility. To analyze the volatility measure To understand the stock market and its importance To find out the reasons behind the downfall. EXECUTIVE SUMMARY A common problem plaguing the low and slow growth of small developing economies is the swallow financial sector. Financial markets play an important role in the process of economic growth and development by facilitating savings and channeling funds from savers to investors. While there have been numerous attempts to develop the financial sector, small island economies are also facing the problem of high volatility in numerous fronts including volatility of its financial sector. Volatility may impair the smooth functioning of the financial system and adversely affect economic performance. Similarly, stock market volatility also has a number of negative implications. One of the ways in which it affects the economy is through its effect on consumer spending (Campbell, 1996; Starr-McCluer, 1998; Ludvigson and Steindel 1999 and Poterba 2000). The impact of stock market volatility on consumer spending is related via the wealth effect. Increased wealth will drive up consumer spending. However, a fall in stock market will weaken consumer confidence and thus drive down consumer spending. Stock market volatility may also affect business investment (Zuliu, 1995) and economic growth directly (Levine and Zervos, 1996 and Arestis et al 2001). A rise in stock market Volatility can be interpreted as a rise in risk of equity investment and thus a shift of funds to less risky assets. This move could lead to a rise in cost of funds to firms and thus new firms might bear this effect as investors will turn to purchase of stock in larger, well known firms. While there is a general consensus on what constitutes stock market volatility and, to a lesser extent, on how to measure it, there is far less agreement on the causes of changes in stock market volatility. Some economists see the causes of volatility in the arrival of new, unanticipated information that alters expected returns on a stock (Engle and Ng, 1993). Thus, changes in market volatility would merely reflect changes in the local or global economic environment. Others claim that volatility is caused mainly by changes in trading volume, practices or patterns, which in turn are driven by factors such as modifications in macroeconomic policies, shifts in investor tolerance of risk and increased un certainty. The degree of stock market volatility can help forecasters predict the path of an economys growth and the structure of volatility can imply thatinvestors now need to hold more stocks in their portfolio to achieve diversification(Krainer, J, 2002:1). This case is more serious for small developing economies like Fiji who is attempting to deepen its financial sector by developing its stock market. Unlike mature stock markets of advanced economies, the stock markets of less developed economies like Fiji began to develop rapidly only in the last two decades and are sensitive to factors such as changes in the levels of economic activities, changes in the political and international economic environment and also related to the changes in the macro economic variables. Therefore, in this paper, we examine if Fijis Stock market is volatile and if so, then what is the role of interest rate being one of the most important macroeconomic variables on the volatility of stock returns. This article benefits from developments in the measurement of volatility through econometric techniques. Here, the regime-switching- ARCH model introduced by Engle (1982) and its extension, the GARCH model, (Bollerslev, 1986) is used to estimate the conditional va riance of Fijis daily stock return from January 2001 to December 2005. This method allows for an objective determination of the presence of volatility. The results of estimates of stock return volatility is then related to changes in the interest rates. The second section of the paper provides an overview of Fijis stock market. The third section of the paper provides an exposition of the methodology used in this study. The fourth section provides a summary of the results and its discussion. The last section provides a summary and conclusion. INTRODUCTION TO THE INDIAN ECONOMY India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, Indias cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, Indias economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector. Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans. Indias low average growth rate up to 1980 was derisively referred to as the Hindu rate of growth, because of the contrasting high growth rates in other Asian countries, especially the East Asian Tigers. The economic reforms that surged economic growth in India after 1980 can be attributed to two stages of reforms. The pro-business reform of 1980 initiated by Indira Gandhi and carried on by Rajiv Gandhi, eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. The economic liberalisation of 1991, initiated by then Indian prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis did away with the Licence Raj (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalisation has remained the same, irrespective of the ruli ng party at the centre, although no party has yet tried to take on powerful lobbies like the trade unions and farmers, or contentious issues like labour reforms and cutting down agricultural subsidies. Liberalization in India paved the way for lots of foreign companies to come and setup heir base in India and for investors across the globe to invest money in Indian stock Market. Buoyant Indian Economy really raised eyebrows of many and investment in India keeps on surging high year after year touching new height. Since liberalization the foreign investors are on a spree of investment in India both in the form of FDI and FII. Stock Exchange being the only route for FIIs to come into India has been has been spearheading the task of giving investors a bright picture of the economy leading to brining more and more investment into the state. Hence, the vital role of Stock Exchange and the association of Stock Exchange with Foreign Investment can not be undermined. In the later part of the study, we will look into the details of how the Stock Exchange is associated with FIIs and vice versa.   ABOUT STOCK MARKET AND STOCK EXCHANGES A stock exchange or bourse is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as other financial instruments and capital events including the payment of income and dividends. In other words, Stock Exchanges are an organised marketplace, either corporation or mutual organisation, where members of the organisation gather to trade company stocks and other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerised. The trade on an exchange is only by members and stock broker do have a seat on the exchange. The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange. A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. Increasingly all stock exchanges are part of a global market for securities. 200 years ago in front of Trinity church in East Manhattan in U.S oldest stock exchange called New York stock exchange emerged, when there were no paper money changing hands and there was not even the idea of stock, people trade silver for papers saying they owned shares in cargo .The trade flourished. During American Revolution, the colonial government needed money to fund its wartime operations. By selling bonds they did this. Bonds are pieces of paper a person buys for a set price, knowing that after a certain period of time; they can exchange their bonds for a profit. Along with bonds, the first of the nations bank started to sell parts or shares of their own company to people in order to raise money. Thus they sell the part of the company to whoever wanted to buy it. This led to the emergence of the modern day stock market. The concept of stock markets came to India in 1875, when Bombay Stock Exchange (BSE) was established as The Native Share and Stockbrokers Association, a voluntary non-profit making association. BSE is the oldest in Asia. Presently India has about 10,000 listed companies, the largest number of listed companies in the world. Stock exchanges in India can be categorized as: 1) Voluntary Associations such as Bombay, Indore and Ahmedabad, 2) Public limited companies such as Calcutta and Delhi, and 3) Guarantee companies such as Hyderabad, Madras and Bangalore. Besides BSE, Indias other major stock exchange is National Stock Exchange (NSE) that was promoted by leading financial institutions and was established in April 1993. Today, these global stock exchanges have become premier institutions and are highly efficient, computerized organizations that have fostered the growth of an open, global securities market. Today India boasts 23 regional Stock Exchanges along with BSE and NSE. RESEARCH METHODOLOGY The research has been done by selecting the companies which are the representative of a particular sector on the basis of overall market capitalization, stocks having the highest liquidity and turnover both on the NSE and BSE. A caution was thus taken and by thorough approach the best companies were selected so as to portray a genuine picture of the sector. With the help of SPSS Package and using the quantitative techniques, the statistical analysis has been done. The following analysis has been done for all the 8 companies: Fundamental analysis. Future growth and earnings analysis. Statistical analysis. Technical analysis. ROLE OF STOCK EXCHANGES IN THE ECONOMY The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Mobilising Savings for Investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to promote commerce and industry. Redistribution of Wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners of profitable enterprises, the stock market helps to reduce large income inequalities because many people get a chance to share in the profits of business that were set up by other people. Improving Corporate Governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders. It is evident that generally, public companies tend to have better management records than private companies. Creates Investment Opportunities for Small Investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides an extra source of income to small savers. Government Raises Capital for Development Projects The Government and even local authorities like municipalities may decide to borrow money in order to finance huge infrastructure projects such as sewerage and water treatment works or housing estates by selling another category of shares known as Bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them. When the Government or Municipal Council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Barometer of the Economy At the Stock Exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability. Therefore the movement of share prices can be an indicator of the general trend in the economy. With countries moving away from socialistic approach and towards globalization of their economies, the role and importance of Stock Exchanges has gone up considerably. Today Stock Exchanges   depict the financial position of the economy of a country. INVESTMENST SCENAREO In closed economies only the Govt. has the sole responsibility and discretion of investment in various projects in the country. No private parties were allowed to invest in any venture. However, countries where mixed economy exist are liberal to the extent of giving permission to some private parties for investment in some selected sectors. However, countries which adopted globalization made their policies liberal enough to give private players permission to invest and run in any sector of their wish. Globalization has made the world boundary less where free flow of labour, capital exists among member countries. Interdependence among countries has given the drive a real momentum. Seeing the robust growth that some of the Asian countries registered really stunned the other nations which had closed economy. These nations which adopted globalization being the first runners were termed as Asian Tigers. Many followed the suit. Few countries followed the path of economic reforms with an anticipation of the prospective growth while the others due to some economic compulsions. A few countries like India were in real soup with acute financial crisis and were not in a position of running the socialistic approach anymore. A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package. It went ahead with globalization and reform process in a step by step approach. Countries realizing that only domestic investments and resources can not be relied upon for rapid growth in industrialization and economy, red carpet treatment was given to foreign investors. Opening up of economies unseals the doors to the investors from other countries to invest in each others countries. These investments come in two forms, i.e, FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment. FII (Foreign Institutional Investor) is an investor or investment fundthatis from or registered in a country outside of the one in which it is currentlyinvesting. Institutional investorsinclude hedge funds, insurance companies, pension funds and mutual funds. They invest in various companies through Stock Exchange. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies. Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII. Where as FDI (Foreign Direct Investment) is a component of a countrys national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially hot money which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. Foreign Investors always prefer FII route than FDI route since, the route of investing in stocks is easy and more liquid with less risk involved. Investors can take away their money as and when they need by making short term bucks. If we see from govts perspective, FII means incoming of a lot of foreign exchange into the country which boosts the Forex reserve. Where as Govt. is inclined to get more FDI than FII as FDI helps setting up manufacturing or service industry thereby bringing foreign exchange, employing people, business by ancillary industries and tax to govt treasury. Countries across the globe are formulating policies to attract more FDI and FII. Countries like India have modified its investment policies to make it conducive for foreign investment. REGULATORY MECHANISM FOR FII INVOLVEMENT Following entities / funds are eligible to get registered as FII: Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders The parameters on which SEBI decides FII applicants eligibility. Applicants track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit proper person. As the FIIs take the route of investing in Stocks etc through stock exchange, they have to be abide by the SEBI guidelines. SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI. In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI. Which financial Instruments are available for FII investment Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers. MACROECONOMIC FACTORS Economic growth and GDP: The countrys GDP at current market prices is projected at Rs. 46, 93,602 crore in 2007-08 by the Central Statistical Organization (CSO). Thus, in the current fiscal year, the size of the Indian economy at market exchange rate will cross US$ 1 trillion. At the nominal exchange rate (average of April-December 2007) GDP is projected to be US$ 1.16 trillion in 2007-08. Per capita income at nominal exchange rate is estimated at US$ 1,021. According to the World Bank system of classification of countries as low income, middle income and high income, India is still in the category of low income countries. The (per capita) GDP at purchasing power parity is conceptually a better indicator of the relative size of the economy than the (per capita)GDP at market exchange rates. There are, however, practical difficulties in deriving GDP at PPP, and we now have two different estimates of the PPP conversion factor for 2005. Indias GDP at PPP is estimated at US$ 5.16 trillion or US$ 3.19 trillion depending on whether the old or new conversion factor is used. In the former case, India is the third largest economy in the world after the United States and China, while in the latter it is the fifth largest (behind Japan and Germany).   GDP at factor cost at constant 1999-2000 prices is projected by the CSO to grow at 8.5 per cent in 2008-09. This represents a deceleration from the unexpectedly high growth of 9.4 per cent, 9.6 per cent and 8.7 per cent respectively, in the previous three years. With the economy modernizing, globalizing and growing rapidly, some degree of cyclical fluctuation is to be expected. Per capita income and consumption: Economic growth, and in particular the growth in per capita income, is a broad quantitative indicator of the progress made in improving public welfare. Per capita consumptionis another quantitative indicator that is useful for judging welfare improvement.The pace of economic improvement has moved up considerably during the last five years (including 2007-08). Since 2003, there has been a sharp acceleration in the growth of per capita income, almost doubling to an average of 7.2 per cent per annum (2003-04 to 2007-08).This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades). The growth rate of per capita income in 2007-08 is projected to be 7.2 per cent, the same as the average of the five years to the current year. Per capita private final consumption expenditure has increased in line with per capita income. The growth rate has almost doubled to 5.1 per cent per year from 2003-04 to 2007-08, with the current years growth expected to be 5.3 per cent, marginally higher than the five year average. The average growth of consumption is slower than the average growth of income, primarily because of rising saving rates, though rising tax collection rates can also widen the gap (during some periods). Year to year changes in consumption also suggest that the rise in consumption is a more gradual and steady process, as any sharp changes in income tend to get adjusted in the saving rate. Per capita income and consumption (in 1999-2000 prices): Year Income Consumption 2007-08 Rs. Growth (%) Rs. Growth (%) 29,786 7.2 17,145 5.3 Income is taken as GDP at market prices. Consumption is PFCE. Per capita is obtained by dividing these by population. MARKET EFFICIENCY However, market efficiency -championed in the efficient market hypothesis (EMH) formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock pricebecause no one has access to information not already available to everyone else. (To read more on behavioral finance. The Effect of Efficiency: Non-Predictability The nature of information does not have to be limited to financial news and research alone; indeed, information about political, economic and social events, combined with how investors perceive such information, whether true or rumored, will be reflected in the stock price. According to EMH,as prices respond only to information available in the market, and, because all market participants are privy to the same information, no one will have the ability to out-profit anyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This random walk of prices, commonly spoken aboutin the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put his or her money into an index fund. Anomalies: The Challenge to Efficiency In the real world of investment, however, there are obvious arguments against the EMH. There are investors who have beaten the market Warren Buffett, whose investment strategy focuses onundervalued stocks, made millions and set an example for numerous followers. There are portfolio managerswho have better track records than others, and there are investment houses with more renowned research analysis than others. So how can performance be random when people are clearly profiting from and beating the market? Counter arguments to the EMH state that consistent patterns are present. Here are some examples of some of the predictable anomalies thrown in the face of the EMH:the January effectis a patternthat shows higher returns tend to be earned in the first month of the year; blue Monday on Wall Street isasaying that discourages buying on Friday afternoon and Monday morning because of the weekend effect, the tendency for prices to be higher on the day before and after the weekend than during the rest of the week. Studies in behavioral finance, which look into the effects of investor psychology on stock prices, also reveal that there are some predictable patterns in the stock market. Investors tend to buy undervalued stocks and sell overvalued stocks and, in a market of many participants, the result can be anything but efficient. Paul Krugman, MIT economics professor, suggests that because of the mass mentality of the trendy, short-term shareholder, investors pull in and out of the latest and hottest stocks. This results in stock prices being distorted and the market being inefficient. Soprices no longer reflect all available information in the market. Prices areinstead beingmanipulated by profit seekers. The EMH Response The EMH does not dismiss the possibility of anomalies in the market that result in the generation of superior profits. In fact, market efficiency does not require prices to be equal tofair value all of the time. Prices may be over- or undervalued only in random occurrences, so they eventually revert back to their mean values. As such, because the deviations from a stocks fair price are in themselves random, investment strategies that result in beating the market cannot be consistent phenomena. Furthermore, the hypothesis argues that an investor who outperforms the market does so not out of skill but out of luck. EMH followers say this is due to the laws of probability: at any given time in a market with a large number of investors, some will outperform while other will remain average. How Doesa Market Become Efficient? In order for a market to become efficient, investors must perceive that a market is inefficient and possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are actually the fuel that keeps a market efficient. A market has to be large and liquid. Information has to be widely available in terms of accessibility and cost and released to investors at more or less the same time. Transaction costs have to be cheaper than the expected profits of an investment strategy. Investorsmust also have enough funds to take adva Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility Around Market Shock 2005-09 Stock Market Volatility around market shocks event analysis during 2005-2009 ACKNOWLEDGEMENT The Project titled Stock Market volatility around market shock event analysis during 2005-09 is an effort to throw light on Performance Analysis. I have completed this project based on research, under the guidance of name of faculty, my faculty guide. I owe enormous intellectual debt to her as she augmented my knowledge in the field of volatility around market shocks and helped me learn about the topic and gave me valuable insight into the subject matter. My increased spectrum of knowledge in this field is the result of her constant supervision and direction that has helped me to absorb relevant and high quality information. I would like to express my profound gratitude towards COLLEGE NAME for giving me the opportunity to undertake the above research. Last but not the least, I feel indebted to all those persons and organizations which have helped me directly or indirectly in successful completion of this study. DECLARATION I Ghayasuddin a student of MBA of College Name respectively hereby declare that the Project Report on Stock Market volatility around market shock event analysis during 2005-09 is the outcome of my own work and the same has not been submitted to any other University/Institute for the award of any degree or any Professional diploma. OBJECTIVE OF THE STUDY To find out the stock market volatility. To analyze the volatility measure To understand the stock market and its importance To find out the reasons behind the downfall. EXECUTIVE SUMMARY A common problem plaguing the low and slow growth of small developing economies is the swallow financial sector. Financial markets play an important role in the process of economic growth and development by facilitating savings and channeling funds from savers to investors. While there have been numerous attempts to develop the financial sector, small island economies are also facing the problem of high volatility in numerous fronts including volatility of its financial sector. Volatility may impair the smooth functioning of the financial system and adversely affect economic performance. Similarly, stock market volatility also has a number of negative implications. One of the ways in which it affects the economy is through its effect on consumer spending (Campbell, 1996; Starr-McCluer, 1998; Ludvigson and Steindel 1999 and Poterba 2000). The impact of stock market volatility on consumer spending is related via the wealth effect. Increased wealth will drive up consumer spending. However, a fall in stock market will weaken consumer confidence and thus drive down consumer spending. Stock market volatility may also affect business investment (Zuliu, 1995) and economic growth directly (Levine and Zervos, 1996 and Arestis et al 2001). A rise in stock market Volatility can be interpreted as a rise in risk of equity investment and thus a shift of funds to less risky assets. This move could lead to a rise in cost of funds to firms and thus new firms might bear this effect as investors will turn to purchase of stock in larger, well known firms. While there is a general consensus on what constitutes stock market volatility and, to a lesser extent, on how to measure it, there is far less agreement on the causes of changes in stock market volatility. Some economists see the causes of volatility in the arrival of new, unanticipated information that alters expected returns on a stock (Engle and Ng, 1993). Thus, changes in market volatility would merely reflect changes in the local or global economic environment. Others claim that volatility is caused mainly by changes in trading volume, practices or patterns, which in turn are driven by factors such as modifications in macroeconomic policies, shifts in investor tolerance of risk and increased un certainty. The degree of stock market volatility can help forecasters predict the path of an economys growth and the structure of volatility can imply thatinvestors now need to hold more stocks in their portfolio to achieve diversification(Krainer, J, 2002:1). This case is more serious for small developing economies like Fiji who is attempting to deepen its financial sector by developing its stock market. Unlike mature stock markets of advanced economies, the stock markets of less developed economies like Fiji began to develop rapidly only in the last two decades and are sensitive to factors such as changes in the levels of economic activities, changes in the political and international economic environment and also related to the changes in the macro economic variables. Therefore, in this paper, we examine if Fijis Stock market is volatile and if so, then what is the role of interest rate being one of the most important macroeconomic variables on the volatility of stock returns. This article benefits from developments in the measurement of volatility through econometric techniques. Here, the regime-switching- ARCH model introduced by Engle (1982) and its extension, the GARCH model, (Bollerslev, 1986) is used to estimate the conditional va riance of Fijis daily stock return from January 2001 to December 2005. This method allows for an objective determination of the presence of volatility. The results of estimates of stock return volatility is then related to changes in the interest rates. The second section of the paper provides an overview of Fijis stock market. The third section of the paper provides an exposition of the methodology used in this study. The fourth section provides a summary of the results and its discussion. The last section provides a summary and conclusion. INTRODUCTION TO THE INDIAN ECONOMY India has struggled financially since independence, experiencing slow economic growth and economic setbacks due to climatic extremes or political disturbances. The country has been gradually transforming its economic base from agrarian to industrial and commercial. Under British rule in the 19th century, Indias cottage industries and thriving trade were virtually destroyed to make way for European manufactured goods, paid for by exports of agricultural products such as cotton, opium, and tea. Beginning in the late 19th century a modern industrial sector and an extensive infrastructure of railways and irrigation works were slowly built with British and Indian capital. Nevertheless, Indias economy stagnated during the last 30 or so years of British rule. At independence in 1947 India was desperately poor, with an aging textile industry as its only major industrial sector. Economic policy after independence emphasized central planning, with the government setting goals for and closely regulating private industry. Self-sufficiency was promoted in order to foster domestic industry and reduce dependence on foreign trade. These efforts produced steady economic growth in the 1950s, but less positive results in the two succeeding decades. By the early 1970s India had achieved its goal of self-sufficiency in food production, although this food was not equally available to all Indians due to skewed distribution and occasional shortfalls in the harvest. In the late 1970s the government began to reduce state control of the economy, making slow progress toward this goal. By 1991, however, the government still regulated or ran many industries, including mining and quarrying, banking and insurance, transportation and communications, and manufacturing and construction. Economic growth improved during this period, at least partially as a result of development projects funded by foreign loans. Indias low average growth rate up to 1980 was derisively referred to as the Hindu rate of growth, because of the contrasting high growth rates in other Asian countries, especially the East Asian Tigers. The economic reforms that surged economic growth in India after 1980 can be attributed to two stages of reforms. The pro-business reform of 1980 initiated by Indira Gandhi and carried on by Rajiv Gandhi, eased restrictions on capacity expansion for incumbents, removed price controls and reduced corporate taxes. The economic liberalisation of 1991, initiated by then Indian prime minister P. V. Narasimha Rao and his finance minister Manmohan Singh in response to a macroeconomic crisis did away with the Licence Raj (investment, industrial and import licensing) and ended public sector monopoly in many sectors, thereby allowing automatic approval of foreign direct investment in many sectors. Since then, the overall direction of liberalisation has remained the same, irrespective of the ruli ng party at the centre, although no party has yet tried to take on powerful lobbies like the trade unions and farmers, or contentious issues like labour reforms and cutting down agricultural subsidies. Liberalization in India paved the way for lots of foreign companies to come and setup heir base in India and for investors across the globe to invest money in Indian stock Market. Buoyant Indian Economy really raised eyebrows of many and investment in India keeps on surging high year after year touching new height. Since liberalization the foreign investors are on a spree of investment in India both in the form of FDI and FII. Stock Exchange being the only route for FIIs to come into India has been has been spearheading the task of giving investors a bright picture of the economy leading to brining more and more investment into the state. Hence, the vital role of Stock Exchange and the association of Stock Exchange with Foreign Investment can not be undermined. In the later part of the study, we will look into the details of how the Stock Exchange is associated with FIIs and vice versa.   ABOUT STOCK MARKET AND STOCK EXCHANGES A stock exchange or bourse is a corporation or mutual organization which provides the facilities for stock brokers to trade company stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities, as well as other financial instruments and capital events including the payment of income and dividends. In other words, Stock Exchanges are an organised marketplace, either corporation or mutual organisation, where members of the organisation gather to trade company stocks and other securities. The members may act either as agents for their customers, or as principals for their own accounts. Stock exchanges also facilitates for the issue and redemption of securities and other financial instruments including the payment of income and dividends. The record keeping is central but trade is linked to such physical place because modern markets are computerised. The trade on an exchange is only by members and stock broker do have a seat on the exchange. The securities traded on a stock exchange include shares issued by companies, unit trusts and other pooled investment products as well as bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only; a stock broker is said to have a seat on the exchange. A stock exchange is often the most important component of a stock market. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. Increasingly all stock exchanges are part of a global market for securities. 200 years ago in front of Trinity church in East Manhattan in U.S oldest stock exchange called New York stock exchange emerged, when there were no paper money changing hands and there was not even the idea of stock, people trade silver for papers saying they owned shares in cargo .The trade flourished. During American Revolution, the colonial government needed money to fund its wartime operations. By selling bonds they did this. Bonds are pieces of paper a person buys for a set price, knowing that after a certain period of time; they can exchange their bonds for a profit. Along with bonds, the first of the nations bank started to sell parts or shares of their own company to people in order to raise money. Thus they sell the part of the company to whoever wanted to buy it. This led to the emergence of the modern day stock market. The concept of stock markets came to India in 1875, when Bombay Stock Exchange (BSE) was established as The Native Share and Stockbrokers Association, a voluntary non-profit making association. BSE is the oldest in Asia. Presently India has about 10,000 listed companies, the largest number of listed companies in the world. Stock exchanges in India can be categorized as: 1) Voluntary Associations such as Bombay, Indore and Ahmedabad, 2) Public limited companies such as Calcutta and Delhi, and 3) Guarantee companies such as Hyderabad, Madras and Bangalore. Besides BSE, Indias other major stock exchange is National Stock Exchange (NSE) that was promoted by leading financial institutions and was established in April 1993. Today, these global stock exchanges have become premier institutions and are highly efficient, computerized organizations that have fostered the growth of an open, global securities market. Today India boasts 23 regional Stock Exchanges along with BSE and NSE. RESEARCH METHODOLOGY The research has been done by selecting the companies which are the representative of a particular sector on the basis of overall market capitalization, stocks having the highest liquidity and turnover both on the NSE and BSE. A caution was thus taken and by thorough approach the best companies were selected so as to portray a genuine picture of the sector. With the help of SPSS Package and using the quantitative techniques, the statistical analysis has been done. The following analysis has been done for all the 8 companies: Fundamental analysis. Future growth and earnings analysis. Statistical analysis. Technical analysis. ROLE OF STOCK EXCHANGES IN THE ECONOMY The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. Mobilising Savings for Investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilised and redirected to promote commerce and industry. Redistribution of Wealth By giving a wide spectrum of people a chance to buy shares and therefore become part-owners of profitable enterprises, the stock market helps to reduce large income inequalities because many people get a chance to share in the profits of business that were set up by other people. Improving Corporate Governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders. It is evident that generally, public companies tend to have better management records than private companies. Creates Investment Opportunities for Small Investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides an extra source of income to small savers. Government Raises Capital for Development Projects The Government and even local authorities like municipalities may decide to borrow money in order to finance huge infrastructure projects such as sewerage and water treatment works or housing estates by selling another category of shares known as Bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them. When the Government or Municipal Council gets this alternative source of funds, it no longer has the need to overtax the people in order to finance development. Barometer of the Economy At the Stock Exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability. Therefore the movement of share prices can be an indicator of the general trend in the economy. With countries moving away from socialistic approach and towards globalization of their economies, the role and importance of Stock Exchanges has gone up considerably. Today Stock Exchanges   depict the financial position of the economy of a country. INVESTMENST SCENAREO In closed economies only the Govt. has the sole responsibility and discretion of investment in various projects in the country. No private parties were allowed to invest in any venture. However, countries where mixed economy exist are liberal to the extent of giving permission to some private parties for investment in some selected sectors. However, countries which adopted globalization made their policies liberal enough to give private players permission to invest and run in any sector of their wish. Globalization has made the world boundary less where free flow of labour, capital exists among member countries. Interdependence among countries has given the drive a real momentum. Seeing the robust growth that some of the Asian countries registered really stunned the other nations which had closed economy. These nations which adopted globalization being the first runners were termed as Asian Tigers. Many followed the suit. Few countries followed the path of economic reforms with an anticipation of the prospective growth while the others due to some economic compulsions. A few countries like India were in real soup with acute financial crisis and were not in a position of running the socialistic approach anymore. A balance of payments crisis at the time opened the way for an International Monetary Fund (IMF) program that led to the adoption of a major reform package. It went ahead with globalization and reform process in a step by step approach. Countries realizing that only domestic investments and resources can not be relied upon for rapid growth in industrialization and economy, red carpet treatment was given to foreign investors. Opening up of economies unseals the doors to the investors from other countries to invest in each others countries. These investments come in two forms, i.e, FDI (Foreign Direct Investment) and FII (Foreign Institutional Investment. FII (Foreign Institutional Investor) is an investor or investment fundthatis from or registered in a country outside of the one in which it is currentlyinvesting. Institutional investorsinclude hedge funds, insurance companies, pension funds and mutual funds. They invest in various companies through Stock Exchange. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies. Sub-account includes those foreign corporates, foreign individuals, and institutions, funds or portfolios established or incorporated outside India on whose behalf investments are proposed to be made in India by a FII. Where as FDI (Foreign Direct Investment) is a component of a countrys national financial accounts. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially hot money which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly. Foreign Investors always prefer FII route than FDI route since, the route of investing in stocks is easy and more liquid with less risk involved. Investors can take away their money as and when they need by making short term bucks. If we see from govts perspective, FII means incoming of a lot of foreign exchange into the country which boosts the Forex reserve. Where as Govt. is inclined to get more FDI than FII as FDI helps setting up manufacturing or service industry thereby bringing foreign exchange, employing people, business by ancillary industries and tax to govt treasury. Countries across the globe are formulating policies to attract more FDI and FII. Countries like India have modified its investment policies to make it conducive for foreign investment. REGULATORY MECHANISM FOR FII INVOLVEMENT Following entities / funds are eligible to get registered as FII: Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies Further, following entities proposing to invest on behalf of broad based funds, are also eligible to be registered as FIIs: Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders The parameters on which SEBI decides FII applicants eligibility. Applicants track record, professional competence, financial soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit proper person. As the FIIs take the route of investing in Stocks etc through stock exchange, they have to be abide by the SEBI guidelines. SEBI generally takes seven working days in granting FII registration. However, in cases where the information furnished by the applicants is incomplete, seven days shall be counted from the days when all necessary information sought, reaches SEBI. In cases where the applicant is bank and subsidiary of a bank, SEBI seeks comments from the Reserve Bank of India (RBI). In such cases, 7 working days would be counted from the day no objection is received from RBI. Which financial Instruments are available for FII investment Securities in primary and secondary markets including shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers. MACROECONOMIC FACTORS Economic growth and GDP: The countrys GDP at current market prices is projected at Rs. 46, 93,602 crore in 2007-08 by the Central Statistical Organization (CSO). Thus, in the current fiscal year, the size of the Indian economy at market exchange rate will cross US$ 1 trillion. At the nominal exchange rate (average of April-December 2007) GDP is projected to be US$ 1.16 trillion in 2007-08. Per capita income at nominal exchange rate is estimated at US$ 1,021. According to the World Bank system of classification of countries as low income, middle income and high income, India is still in the category of low income countries. The (per capita) GDP at purchasing power parity is conceptually a better indicator of the relative size of the economy than the (per capita)GDP at market exchange rates. There are, however, practical difficulties in deriving GDP at PPP, and we now have two different estimates of the PPP conversion factor for 2005. Indias GDP at PPP is estimated at US$ 5.16 trillion or US$ 3.19 trillion depending on whether the old or new conversion factor is used. In the former case, India is the third largest economy in the world after the United States and China, while in the latter it is the fifth largest (behind Japan and Germany).   GDP at factor cost at constant 1999-2000 prices is projected by the CSO to grow at 8.5 per cent in 2008-09. This represents a deceleration from the unexpectedly high growth of 9.4 per cent, 9.6 per cent and 8.7 per cent respectively, in the previous three years. With the economy modernizing, globalizing and growing rapidly, some degree of cyclical fluctuation is to be expected. Per capita income and consumption: Economic growth, and in particular the growth in per capita income, is a broad quantitative indicator of the progress made in improving public welfare. Per capita consumptionis another quantitative indicator that is useful for judging welfare improvement.The pace of economic improvement has moved up considerably during the last five years (including 2007-08). Since 2003, there has been a sharp acceleration in the growth of per capita income, almost doubling to an average of 7.2 per cent per annum (2003-04 to 2007-08).This means that average income would now double in a decade, well within one generation, instead of after a generation (two decades). The growth rate of per capita income in 2007-08 is projected to be 7.2 per cent, the same as the average of the five years to the current year. Per capita private final consumption expenditure has increased in line with per capita income. The growth rate has almost doubled to 5.1 per cent per year from 2003-04 to 2007-08, with the current years growth expected to be 5.3 per cent, marginally higher than the five year average. The average growth of consumption is slower than the average growth of income, primarily because of rising saving rates, though rising tax collection rates can also widen the gap (during some periods). Year to year changes in consumption also suggest that the rise in consumption is a more gradual and steady process, as any sharp changes in income tend to get adjusted in the saving rate. Per capita income and consumption (in 1999-2000 prices): Year Income Consumption 2007-08 Rs. Growth (%) Rs. Growth (%) 29,786 7.2 17,145 5.3 Income is taken as GDP at market prices. Consumption is PFCE. Per capita is obtained by dividing these by population. MARKET EFFICIENCY However, market efficiency -championed in the efficient market hypothesis (EMH) formulated by Eugene Fama in 1970, suggests that at any given time, prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock pricebecause no one has access to information not already available to everyone else. (To read more on behavioral finance. The Effect of Efficiency: Non-Predictability The nature of information does not have to be limited to financial news and research alone; indeed, information about political, economic and social events, combined with how investors perceive such information, whether true or rumored, will be reflected in the stock price. According to EMH,as prices respond only to information available in the market, and, because all market participants are privy to the same information, no one will have the ability to out-profit anyone else. In efficient markets, prices become not predictable but random, so no investment pattern can be discerned. A planned approach to investment, therefore, cannot be successful. This random walk of prices, commonly spoken aboutin the EMH school of thought, results in the failure of any investment strategy that aims to beat the market consistently. In fact, the EMH suggests that given the transaction costs involved in portfolio management, it would be more profitable for an investor to put his or her money into an index fund. Anomalies: The Challenge to Efficiency In the real world of investment, however, there are obvious arguments against the EMH. There are investors who have beaten the market Warren Buffett, whose investment strategy focuses onundervalued stocks, made millions and set an example for numerous followers. There are portfolio managerswho have better track records than others, and there are investment houses with more renowned research analysis than others. So how can performance be random when people are clearly profiting from and beating the market? Counter arguments to the EMH state that consistent patterns are present. Here are some examples of some of the predictable anomalies thrown in the face of the EMH:the January effectis a patternthat shows higher returns tend to be earned in the first month of the year; blue Monday on Wall Street isasaying that discourages buying on Friday afternoon and Monday morning because of the weekend effect, the tendency for prices to be higher on the day before and after the weekend than during the rest of the week. Studies in behavioral finance, which look into the effects of investor psychology on stock prices, also reveal that there are some predictable patterns in the stock market. Investors tend to buy undervalued stocks and sell overvalued stocks and, in a market of many participants, the result can be anything but efficient. Paul Krugman, MIT economics professor, suggests that because of the mass mentality of the trendy, short-term shareholder, investors pull in and out of the latest and hottest stocks. This results in stock prices being distorted and the market being inefficient. Soprices no longer reflect all available information in the market. Prices areinstead beingmanipulated by profit seekers. The EMH Response The EMH does not dismiss the possibility of anomalies in the market that result in the generation of superior profits. In fact, market efficiency does not require prices to be equal tofair value all of the time. Prices may be over- or undervalued only in random occurrences, so they eventually revert back to their mean values. As such, because the deviations from a stocks fair price are in themselves random, investment strategies that result in beating the market cannot be consistent phenomena. Furthermore, the hypothesis argues that an investor who outperforms the market does so not out of skill but out of luck. EMH followers say this is due to the laws of probability: at any given time in a market with a large number of investors, some will outperform while other will remain average. How Doesa Market Become Efficient? In order for a market to become efficient, investors must perceive that a market is inefficient and possible to beat. Ironically, investment strategies intended to take advantage of inefficiencies are actually the fuel that keeps a market efficient. A market has to be large and liquid. Information has to be widely available in terms of accessibility and cost and released to investors at more or less the same time. Transaction costs have to be cheaper than the expected profits of an investment strategy. Investorsmust also have enough funds to take adva

Flexible Manufacturing System Analysis

Flexible Manufacturing System Analysis Historyof Flexible Manufacturing Systems Introduction AFlexible Manufacturing System(FMS) is a manufacturing system in which there is a certain degree offlexibilitythat allows the system to react in the case of changes, whether predicted or unpredicted. According toMaleki[1], flexibility is the speed at which a system can react to and accommodate change. To be considered flexible, the flexibility must exist during the entire life cycle of a product, from design to manufacturing to distribution. Flexible Manufacturing System is a computer-controlled system that can produce a variety of parts or products in any order, without the time-consuming task of changing machine setups. The flexibility being talked about is generally considered to fall into two categories, which both contain numerous subcategories[2]. The first category, Machine Flexibility, covers the systems ability to be changed to produce new product types, and ability to change the order of operations executed on a part. The second category is called Routing Flexibility, which consists of the ability to use multiple machinesto perform the same operation on a part, as well as the systems ability to absorb large-scale changes, such as in volume, capacity, or capability. The main advantage of an FMS is its high flexibility in managing manufacturing resources like time and effort in order to manufacture a new product. The best application of an FMS is found in the production of small sets of products like those from amass production. FM systems are supposed to provide the manufacturer with efficient flexible machines that increase productivity and produce quality parts. However, FM systems are not the answer to all manufacturers problems. The level of flexibility is limited to the technological abilities of the FM systems. FM systems are being used all over the manufacturing world and though out industries. A basic knowledge of this kind of technology is very important because FM systems are involved in almost everything that you come in contact with in todays world. From the coffee maker to your remote control FM systems are used all over. History of Flexible Manufacturing Systems At the turn of the twentieth century, FMS did not exist. There was no pressing need for efficiency because the markets were national and there was no foreign competition.Manufacturers could tell the consumers what to buy. During that period, Henry Ford had been quoted as saying â€Å"People can order any colour of car as long as it is black.† All the power remained in the hands of the manufacturer and the consumers hardly had any choices. However, after the Second World War a new era in manufacturing was to come. The discovery of new materials and production techniques increased quality and productivity. The war led to the emergence of open foreign markets and new competition.The focus of the market shifted from manufacturer to consumer. According to Maleki, the first FM system was patented in 1965 by Theo Williamson who made numerically controlled equipment. Examples of numerically controlled equipment are like CNC lathes or mills whichKusiaksays are varying types of FM systems. During the 1970s, with the ever-growing developments in the field of technology, manufacturers started facing difficulties and hence, FM systems became main-stream in manufacturing to accommodate new changes whenever required. During the 1980s for the first time manufacturers had to take in consideration efficiency, quality, and flexibility to stay in business. According to Hoeffer, the change in manufacturing over time was due to several factors. (Hoeffer, 1986) Increased international competition, The need to reduce manufacturing cycle time, and Pressure to cut the production cost. Everyday new technologies are being developed and even FM systems are evolving. However, overtime FM systems have worked for many manufacturers and hence will be around for the time to come. The Process of Flexible Manufacturing Systems As has been discussed above the flexible manufacturing system can be broadly classified into two types, depending on the nature of flexibility present in the process, Machine Flexibility and Routing Flexibility FMS systems essentially comprise of three main systems.[3] The processing stations: These are essentially automated CNC machines. The automated material handling and storage system: These connect the work machines to optimize the flow of parts. Central control computer: This controls the movement of materials and machine flow. The FMS as a system stands out because it does not follow a fixed set of process steps. The process sequence changes according to requirement to allow maximum efficiency. Sequence of material flow from one tool to another is not fixed nor is the sequence of operations at each tool fixed. Key Features of the Process[4] Some characteristics that differentiate FMS from conventional manufacturing systems are their technical flexibility, i.e., the ability to quickly change mix, routing, and sequence of operations within the parts envelope and also complexity resulting from the integration, mechanization, and reprogrammable control of operations i.e., parts machining, material handling, and tool change. Some key features of the process are discussed below. Cell: It consists of several groupings of two or more automated machines within a company. Each grouping is called a cell. All the machines present are controlled by a computer. They are programmed to change quickly from one production run to another. A key feature is the automated flow of materials to the cell and the automated removal of the finish item. Several cells are linked together by means of an automated materials-handling system, and the flow of goods is controlled by a computer. In this manner a computer-integrated manufacturing process is initiated. Random bypass capability: The material handling system has a random bypass capability, i.e. a part can be moved from any tool in the interconnected system to another because the transport system can bypass any tool along the path, on demand. This implies: Each part can traverse a variable route through the system. Again, this flexibility in material handling, in combination with multipurpose tools, makes it possible for a flexible manufacturing system to process a great diversity of parts. Automation: Computers are the heart of automation. They provide the framework for the information systems which direct action and monitor feedback from machine activities. As FMS involve a wide variety of components, each with their own type of computer control, many of these computer components are installed as islands of automation, each with a computer control capable of monitoring and directing the action. Each of the computer controls has its own communication protocol based on the amount of data needed to control the component. Thus, the task of computer integration is to establish interfaces and information flow between a wide range of computer types and models. Computer software provides the ability to transmit timely and accurate status information and to utilize information which has been communicated from other computers in FMS. Component redundancy: In FMS as the equipment is highly integrated, the interruptions of one component affect other components. This results in a greater time to trace the problem when compared with isolated components. In some cases, the interruption might be due to some other integration effect, and greater downtime may result before the actual cause of the problem is found. In this situation, component redundancy provides flexibility with the opportunity for choice, which exists when there are at least two available options. Flexible manufacturing contains functionally equivalent machinery. So in case of failure of one machine the process flow is directed towards a functionally equivalent machine. Multiple Paths: A path in flexible manufacturing represents a part sequence and requisite fixtures to complete its required operations. In a conventional machine environment, only one path exists for a part because a single fixture remains at a single machine. However, this is not the case within flexible manufacturing systems, where there are multiple paths. The number of paths which are present within flexible manufacturing is a measure of the degree of flexibility. Obviously, the higher the number of paths, higher is the degree of flexibility. Flexibility ranks high in Japan†²s manufacturing strategy but not in America†²s. A true flexible factory will not only build different versions of the same car, like a coupà © or a station wagon, on the same production line, but also a completely different car. This is what the Japanese factories are setting out to do. The cost of one factory can be spread across five or ten cars. Apart from lower fixed cost, it is also less painful to stop making one of those cars if it fails to sell. FMS as a system of manufacturing process can be compared to other processes in terms of the product volume it generates and its capacity for creating part variations. The above depicts the position of FMS vis-à  -vis that of stand-alone machine and transfer lines. The horizontal axis represents production volume level and the vertical axis shows the variability of parts. Transfer lines are very efficient when producing parts at a large volume at high output rate, whereas stand-alone machines are ideally suited for variation in workplace configuration and low production rate. In terms of manufacturing efficiency and productivity, a gap exists between the high production rate transfer machines and the highly flexible machines. FMS, has been regarded as a viable solution to bridge the gap and as a gateway to the automated factory of the future. The Process: With Reference to particular companies[5] Though the features of this manufacturing innovation process are similar across all types of firms, the manner in which they are adopted and implemented depends on product type, manufacturing, maintenance, process planning and quality control processes. It is also contingent upon the people carrying out these processes; the productive resources being used and the organizational arrangements used to divide and coordinate the processes distinguished. The description of the layout of a company that has adopted the flexible manufacturing system gives a clear idea of how the system works in practical life. It has all the features as mentioned before of a typical FMS. Flexible Manufacturing System at The Hattersley Newman Hender (H.N.H.) This company, located in U.K. manufactures high and low pressure bodies and caps for water, gas and oil valves. These components require a total of 2750 parts for their manufacture. That is why they decided to go for the system of F.M.S. to fulfill their machining requirements in a single system. The process described below shows how FMS is used for efficient production for this company. Their FMS consists of primary and secondary facilities. The primary facilities include 5 universal machining centres and 2 special machining centres. The secondary facilities consist of tool settings and manual workstations. System layout and facilities: Flexible Manufacturing Systems [F.M.S] Primary facilities: Machining centres: The FMS contains two 5-axis horizontal ‘out-facing machines and five 4-axis machining centres under the host control. All the machines have a rotating pallet changer each with two pallet buffer stations. These stations transfer pallets to and from the transport system which consist of 8 automated guided vehicles. The 5 universal machining centres have 2 magazines with capacity of 40 tools in each magazine. The special purpose out-facing machines (OFM) each have one magazine having a capacity of 40 tools. The tool magazines can be loaded by sending instructions to the tool setting room either from the host computer or the machines numerical controller. Processing centres: The system contains two processing centres a wash machine and two manual workstations. Ø Wash machines: It contains two conveyor belts where one is for input and one for output of pallets, each with a capacity of three pallets to transfer the pallets. The wash booth has a capacity of three pallets. The pallets are washed in the booth and turned upside-down to drain out the water. Then they are dried with blown air. Ø Manual workstations (ring fitting area): The operator fits metal sealing rings into the valve bodies at the manual workstations. He receives work instructions via computer interface with the host. Secondary facilities: Auxiliary stations: Ø Load/unload stations: The FMS has four-piece-part load and unload stations. Loading and unloading is performed at these stations with the instructions again received via computer interface with the host. Ø Fixture-setting station: At these stations the fixtures are readjusted to accommodate different piece parts. Ø Administration of tools: Tools are assembled manually. The tool-setting machine checks the dimensional offsets of the tools and generates a bar code for further identification of the tool that has been set. Auxiliary facilities: Ø Transport system: The transport system consists of a controller and 8 automated guided vehicles (AGV). The system also contains an A.G.V. battery charging area. Ø Buffer stores: The FMS has 20 buffer stores in order to store the empty and loaded pallets while they are waiting to be taken to another transfer station (i.e. a load/unload station or a machine tool etc.). Ø Maintenance Area: This facility caters to pallets that may be damaged or need servicing or for storing scrapped piece-parts. Ø Raw Material Stores: These stores are located in front of the load / unload stations and are used to store the raw materials (like forged valve bodies etc). The store is served by two fork-lift-stacker cranes and motor roller conveyors. It has a capacity of 80 containers. Ø Fixture store: The fixtures that are not stored in FMS are stored here. It has a capacity of storing 120 fixtures. The store is served by a stacker crane and motor roller conveyors. Flexible Manufacturing System at TAMCAM Computer Aided Manufacturing (TAMCAM) Lab. This is an example of flexible manufacturing system that is used to describe the TAMCAM Simulation-Based Control System (TSCS)[6]. This system is located within the TAMCAM Computer Aided Manufacturing (TAMCAM) lab. The system consists of three CNC milling machines, one CNC turning centre, two industrial robots, and an automated cart based conveyor system. In addition to the automated equipment, human operators are used to load and unload some machines and perform assembly and inspection tasks. Advantages of Flexible Manufacturing System Why would firms embrace flexible manufacturing systems? What benefits does FMS provide? Answers to these two questions are important to the success of flexible manufacturing systems. It is important to understand the impacts on product life cycle, direct labour input and market characteristics. Various advantages arise from using flexible manufacturing systems.[7] Users of these systems enlist many benefits: * Less scrap * Fewer workstations * Quicker changes of tools, dies, and stamping machinery * Reduced downtime * Improved quality through better control over it * Reduced labour costs due to increase in labour productivity * Increase in machine efficiency * Reduced work-in-process inventories * Increased capacity * Increased production flexibility * Faster production * Lower- cost/unit * Increased system reliability * Adaptability to CAD/CAM operations Since savings from these benefits are sizeable, a plethora of examples from the manufacturing industry are available to illustrate these benefits. â€Å"A major Japanese manufacturer, by installing a flexible manufacturing system, has reduced the number of machines in one facility from 68 to 18, the number of employees from 215 to 12, space requirements from 103000 square feet to 30000 and processing time from 35 days to a 1.5 days† â€Å"Ford has poured $4,400,000 into overhauling its Torrence Avenue plant in Chicago, giving it flexible manufacturing capability. This will allow the factory to add new models in as little as two weeks instead of two months or longer. The flexible manufacturing systems used in five of Ford Motor Companys plants will yield a $2.5 billion savings. By the year 2010, Ford will have converted 80 percent of its plants to flexible manufacturing.† The benefits enlisted above are the operational benefits.[8] Flexible Manufacturing Systems also give rise to benefits in terms of strategy for the firm. Operational Benefits Strategic Benefits Lower Costs per unit A source of competitive advantage in present and future. Lesser workstations Less space in plant required. Reduced Inventories Less of Storage Space. Plant Layout gets simplified. The space is freed up for other activities. Increase in labour productivity Lesser workforce required. Operational Flexibility Ability to meet varying customer demands in terms of numbers (seasonality) and choices. Improved Quality Increased customer satisfaction Less inspection costs Lesser lead time Increased Machine Efficiency Less technical workforce for handling maintenance and repair Less Scrap and Rework Consistent Production Process On a macro level, these advantages reduce the risk of investing in the flexible manufacturing system as well as in ongoing projects in such a firm. Let us look at how flexibility helps firms. To maximize production for a given amount of gross capacity, one should minimize the interruptions due to machine breakdowns and the resource should be fully utilized. FMS permits the minimization of stations†² unavailability, and shorter repair times when stations fail. Preventive maintenance is done to reduce number of breakdowns. Maintenance is done during off hours. This helps to maximize production time. Cost of maintaining spare part inventories is also reduced due to the fact that similar equipment can share components. Hence we can see that higher the degree of flexibility of the workstation, the lower the potential cost of production capacity due to station unavailability. To make a product every day, the trade off between inventory cost and setup cost becomes important. However, each time the workstation changes its function, it incurs a set-up delay. Through flexibility one can reduce this set-up cost. [9] CAD/CAM aids in computerized tracking of work flow which is helpful in positioning inspection throughout the process. This helps to minimize the number of parts which require rework or which must be scrapped. FMS changes the outlook of inspection from a post-position to an in-process position. Hence, feedback is available in real time which improves quality and helps product to be within the tolerance level.[10] Flexible manufacturing systems (FMS) are virtually always used in conjunction with just-in-time (JIT) order systems. This combination increases the throughput and reduces throughput time and the length of time required to turn materials into products. Flexible Manufacturing Systems have a made a huge impact on activity-based costing.[11] Using these systems helps firms to switch to process costing instead of job costing. This switching is made possible because of the reduced setup delays. With set-up time only a small fraction of previous levels, companies are able to move between products and jobs with about the same speed as if they were working in continuous, process type environment. To look at another aspect of strategic benefits, enterprise integration can be facilitated by FMS. An agile manufacturer is one who is the fastest to the market, operates with the lowest total cost and has the greatest ability to delight its customers. FMS is simply one way that manufacturers are able to achieve this agility.[12] This has also been reported in many studies that FMS makes the transition to agility faster and easier. Over time, FMS use creates a positive attitude towards quality. The quality management practices in organizations using FMS differs from those not using it. The adoption of flexible manufacturing confers advantages that are primarily based upon economies of scope. As a result of aiming simultaneously at flexibility, quality and efficiency, the future manufacturing industry will strive towards: producing to order, virtually no stock, very high quality levels, and high productivity. [13] Disadvantages of Flexible Manufacturing System[14] Now that we have looked at the multiple advantages flexible manufacturing systems offer, the next obvious question is, if they are so good and so useful then why are they not ubiquitous by now? It is essential to look at the other side, especially the impact these systems have on costing, product mixes decided by the company and the inevitable trade- off between production rates and flexibility. Following are the major disadvantages that have been observed Complexity These sophisticated manufacturing systems are extremely complex and involve a lot of substantial pre planning activity before the jobs are actually processed. A lot of detail has to go into the processing. Often users face technological problems of exact component positioning. Moreover, precise timing is necessary to process a component. Cost of equipment[15] Equipment for aflexiblemanufacturingsystem will usually initially be more expensive than traditional equipment and the prices normally run into millions of dollars. This cost is popularly known as the Risk of Installation. Maintenance costs are usually higher than traditional manufacturing systems because FMS employs intensive use of preventive maintenance, which by itself is very expensive to implement. Energy costs are likely to be higher despite more efficient use of energy. Increased machine utilization can result in faster deterioration of equipment, providing a shorter than average economic life. Also, personnel training costs may prove to be relatively high. Moreover there is the additional problem of selecting system size, hardware and software tailor made for the FMS. Cost of automation in the form of computer integration is the most significant cost in a flexible manufacturing system. The components require extensive computer control. Also, the costs of operation are high since a machine of this complexity requires equally skilled employees to work or run it. Adaptation Issues There is limited ability to adapt to changes in product or product mix. For example, machines are of limited capacity and the tooling necessary for products, even of the same family, is not always feasible in a given FMS. Moreover, one should keep in mind that these systems do not reduce variability, just enable more effective handling of the variability. Equipment Utilization Equipment utilization for flexible manufacturing systems is sometimes not as high as expected. Example, in USA, the average is ten types of parts per machine. Other latent problems may arise due to lack of technical literacy, management incompetence, and poor implementation of the FMS process. It is very important to differentiate between scenarios where FMS would be beneficial (ex, where fast adaptation is the key) and those where it wouldnt (ex where a firms competency is based on minimizing cost). Product/Job Costing[16] Arguably the biggest disadvantage of flexible manufacturing systems is the difficulty faced by the company in allocating overhead costs to jobs. Usually, several products share the same resources with different consumption characteristics. Ideally, the overhead allocation should be directly proportional to the resource consumption. But this becomes complicated in the case of flexible manufacturing systems since it is very difficult to estimate which product used which machine for which purpose and for how long. Often this leads to under costing of some products and consequently over costing of others. In systems that use FMS, usually the fixed costs are quite high due to the following reasons: * The machines are costly, material handling is more expensive and the computer controls are state of the art, thereby leading to a higher depreciation than seen in traditional manufacturing systems. * A lot of items which are otherwise usually treated as direct costs are counted under indirect costs in case of flexible manufacturing systems. For example, labour is normally attributed to the job directly done, but in FMS, the same workers work on machines that usually run two jobs simultaneously. Hence even labour costs are to be treated as overhead or indirect costs. * In order to ensure smooth running of the flexible manufacturing systems, a lot of support activities carried out by engineers and technicians. Keeping the above points in mind, we can infer that in order to cater to these scenarios, Activity Based Costing techniques are used with FMS to reduce distortion of product costs. FMS Adoption in Automobile Industry The Flexible manufacturing system has been adopted extensively in the manufacturing industry in this day and age. It addresses the issue of automation and process technology which is a key area for concern of manufacturing management along with inventory production planning and scheduling and quality. One industry which has extensively adopted this system is the Automobile Industry. Almost all global giants now follow the Flexible Manufacturing system and many have developed their own manufacturing system keeping FMS as an integral part of it. The Big Three of the American Automotive Industry namely General Motors, Ford Motors and Chrysler Motors enjoyed a monopolistic environment for a very long time. This in some way inhibited their innovation capabilities as there was no competition in the market which could drive them to innovate. These companies, therefore, maintained production facilities that were suitable for mass production of any single model, which ensured economies of scale and plant profitability. But gradually as Asian car makers gained prominence in the automotive market, the Big Three of the United States faced huge challenges across all product lines. The main Asian competitors that came into picture were Toyota, Honda, Nissan and Mitsubishi from Japan and Hyundai from South Korea. With these Asian countries exporting vehicles to the United States of America, competition heightened and the profitability of the Big Three decreased. To improve its profitability and maintain its market share Chrysler Corporat ion, General Motors and Ford Motor Company employed Flexible Manufacturing System in their production lines following what had been started in Japan. The essential driving force for adoption of FMS in Automobile industry is 1. The emphasis on increasing product variety and individualization has created a strong need to develop a flexible manufacturing system to respond to small batches of customer demand. 2. Cost savings were required to be more competitive. Newer varieties needed to be introduced in lesser time and at lesser cost. Given below are examples of some companies and their motive for adopting FMS as well as the benefits that they have achieved through it Japanese Companies and Latest FMS Toyota Toyota has been at the forefront of adopting flexible manufacturing system which has been in place since 1985. In 2002, Toyota unveiled its Global Body Line (GBL), a radical, company-wide overhaul of its already much-envied FMS.[17] The GBL process was developed so Toyota could implement a common vehicle-assembly â€Å"platform† at any and all of its worldwide assembly locations — regardless of volume or method of assembly. GBL helps Toyota to meet its goal â€Å"To seamlessly manufacture our products in any country, at any volume† The advantages that GBL delivers over the older FBL system of Toyota are * 30% reduction of the time a vehicle spends in the body shop. * 70% reduction in time required to complete a major model change. * 50% cut in the cost to add or switch models. * 50% reduction in initial investment. * 50% reduction in assembly line footprint. * 50% reduction in carbon dioxide emissions due to lower energy usage. * 50% cut in maintenance costs. More than 20 of Toyotas 24 worldwide body lines already have been converted, and the rest either are in the process of conversion or will be refitted for GBL in conjunction with upcoming model changes. Operations in Toyota Older Flexible Body Line (FBL) System : Each vehicle would require three pallets — each tightly gripping either a major bodyside assembly or the roof assembly and assuring its adherence to dimensional hard points — as the body panels travelled through the various stages of welding to the floorpan and to one another. Three pallets limited the number of vehicles that could be in the build sequence at any given time in some plants the number was 50. Also, the design of the pallets — which held the bodysides and roof panels from the outside — limited the access of welding robots and required a lot of floor space. Planners had to â€Å"guess† about how many pallets to build and work that guess into the plants vehicle mix (FBL-equipped plants could handle as many as five different models). Bad guesses about pallet allocation were very costly. Also, quick reaction to a change of production mix was discouraged by the 3-pallet system. Newer Global Body Line (GBL) System : GBL design solves those problems by replacing FBLs three pallets with a single pallet, one that now holds all three major body panels from the inside. This â€Å"master pallet,† layout eliminates the need for predicting initial pallet demand. Since each model or variant requires only the lone pallet, switching new models in or out of the production mix is a breeze. Thus the 70% reduction in time required to facilitate a model change[18]. GBL doubles the amount of floor space that can be occupied by robots, and, on a GBL tour here, every inch appears to be used. In the Georgetown plant of Toyota, the floor space freed by GBL allows a second GBL line — helping the plant achieve a recently announced capacity increase to 500,000 units. Highly advanced robots are central to leveraging the advantages of the GBL layout the system was designed to make the most of new-generation body shop robots that are smaller, more precise and more energy efficient. The number of robots has increased from about 250 to nearly 350. GBL system is enhanced by initial vehicle designs that ensure commonality for various hardpoints. This makes it easier to accommodate a variety of models: GBL-ready plants now can build as many as eight, rather than five with the FBL system. However even with the ability to produce eight different models, there is a limit to GBLs flexibility. Once pressed, engineers admit that not everything Toyota makes, from Vitz to Land Cruiser, can be produced on a single GBL line. There are two siz

Islamic Financing vs the Capital Asset Pricing Model (CAPM) Essay

The research article discusses two approaches, one method is Islamic financing and other is the conventional capital asset pricing model (CAPM). Using the direct Musharakah, Islamic financing method is applied against the conventional financing method by comparing each other. Comparing the two approaches has drawn several findings; it is found that the beta-risk is lower on investments, which are based on the partnership of Islamic financing as compared to the conventional market. The risk is on the share of the lenders and others but not on the risk-return. Equilibrium exists between the relative risk and the share of lender, furthermore, it is also discussed in the article that Islamic financing is not based on the fixed and predetermined rate of interest, prediction of inflation in future and the partnerships, which are based on the minimum risk with maximum return. Islamic financing is spreading with the growth rate of 23% annually and many Islamic financing banks and institutio ns are working all over the world. The primary objective of this article is to lay down the hypothetical framework, which discusses the Profit and loss sharing based on Islamic principles with the investment of interest free partnership. According to the author, Islamic financing is based on the risk that is beard by the both parties. On the time of investment, whether agents have shortage or surplus of resources, they have to share the returns and risk on the investment they are making. General concepts of Islamic financing instruments like Mudarabah, Musharakah, Murabahah, Al-Salam and Al-Ijara are based on the mechanism of profit and loss sharing (PLS). All of these above mentioned partnerships are based on the agreed upon the subsequent loss or th... ...anagement of the stock portfolios, implementing an Islamic CAPM would ultimately result in more satisfying results that can potentially produce generous income for the investor. Works Cited Hanif, M. and U. Bhatti, 2010. Validity of CAPM: Evidence from KSE. European Journal of Economics, Finance & Administrative Sciences, Issue 20, pages 148-161. Selim, T. H. (2008). An Islamic capital asset pricing model. Humanomics, 24(2), 122-129. Hanif, Muhammad and Dar, Abubakar Javaid, Comparative Testing of Capital Asset Pricing Model (CAPM) and Shari’a Compliant Asset Pricing Model (SCAPM): Evidence from Karachi Stock Exchange - Pakistan (November 18, 2011). 4th South Asian International conference (SAICON-2012), Pearl Contenental Hotel, Bhurban, Pakistan, 05-07 December, 2012. Available at SSRN: http://ssrn.com/abstract=1961660 or http://dx.doi.org/10.2139/ssrn.1961660

Human Resources Training :: Human Resources Essays

  Ã‚  Ã‚  Ã‚  Ã‚  The bottom line for any company is how efficient the workforce is at producing a quality product. Any company which desires to stay ahead of its competition will engage in training and team building efforts for their employees. However, is it really effective? What if the employees do not perceive the training in a positive manner? In their case study, Employee perceptions and their influence on training effectiveness, Amalia Santos and Mark Stuart examine these questions and more.   Ã‚  Ã‚  Ã‚  Ã‚  The basic research question at hand was: Overall, what are the employee’s attitudes and perceptions toward the training they were being asked to obtain? Secondly, are the workers able to take the training which they have received and utilize that knowledge in the workplace?   Ã‚  Ã‚  Ã‚  Ã‚  Santos and Stuart state that most of the human resource literature seems to point at the fact that training is the most significant factor in obtaining behavioral and cultural change. They cite Keep, E. (1989). 'Corporate training: the vital component?' in New Perspectives on Human Resource Management as showing that training was able to bring about a deeper commitment by workers toward a project as well as bring out certain talents or abilities that may not have been utilized or noticed before(Santos, Stuart, 2003).   Ã‚  Ã‚  Ã‚  Ã‚  The researcher’s; hypothesis was that the evaluation methods would make a difference in matching the type of training to the employee’s needs and that when this was done the employee’s attitude toward the training would be a positive one.   Ã‚  Ã‚  Ã‚  Ã‚  Most of the research participants were employees who worked in the core financial services business. Upper management were included as well as those in the branches, on the line, and the head office. Names were selected randomly from a computer’s system.   Ã‚  Ã‚  Ã‚  Ã‚  One of the larger variables in this case study was the motivation of the employee himself. One of the larger complaints that Santos and Stuart point out, is that companies are spending large amounts of money on training but have no way to determine whether a certain type of training is being effective or not. The dependent variables were those employees whose interest level was known to be high. These people wanted the training and were highly motivated to attend.   Ã‚  Ã‚  Ã‚  Ã‚  This case study took place in 1999 for the span of four months in a financial services organization called FinanceCo(Santos, Stuart, 2003). This company had a good reputation for implementing good people management processes and they had the reputation for being quite invested in the idea of ongoing and regular training for all of their employees.

Courtship Violence :: essays research papers fc

Courtship Violence The term courtship violence refers to a couple’s interaction with emotional commitment with or without sexual intimacy. Dating violence involves the perpetration or threat of an act of physical violence by at least one member of an unmarried couple on the other within the context of the dating process (Barnett, Miller-Perrin, Perrin 163). The study of dating violence is important for two reasons. First, such behavior often results in physical and emotional injury. Second, there is reason to believe that dating violence is often a precursor to spousal abuse. Many battered women report that they were first assaulted by their husbands during courtship (Simons 467). Women, more than men, appear to bear the brunt of courtship violence. Despite the fact that rates of partner abuse by males and females are similar, women report more injuries and a greater negative impact as a result of their male partners’ physical aggression (Ronfeldt 72). Studies consistently show that it is women who are disproportionately likely to sustain serious injury. Some significant negative consequences are emotional harm, feelings of victimization, and fear of further violence (Barnett, Miller-Perrin, Perrin 164). The most popular explanation for dating violence is that it is a learned behavior acquired in the family origin. Witnessing parents’ marital aggression or being the victim of harsh corporal punishment may greatly increase the chances that a child will grow up to use violence in a dating relationship (Simons 468). There is a substantial body of evidence suggesting that violence in the family is a risk factor for the perpetration of partner abuse. Men who witnessed interparental violence were three times more likely to hit their wives than men who did not (Ronfeldt 72). Men who witnessed their fathers hitting their mothers were more likely to approve of violence against women and to abuse their own partner. Those growing up in a violent home were more likely to move from verbal to physical aggression. Witnessing paternal marital violence would moderate the association between psychologically controlling behaviors and physical violence so that the association would be stronger for individuals who had witnessed paternal marital violence (Ronfeldt 73). Researchers usually specify observational learning as the process whereby parents influence the probability that their children will be violent in intimate relationships. Some describe the learning process as one of imitation; others emphasize lessons about the legitimacy of violence in intimate relationships. The imitation explanation asserts that children learn about romantic relationships by observing interactions between their parents (Simons 468).

Frostbite Chapter 8

Eight Christian was kissing her, and wow, was it a kiss. He wasn't messing around. It was the kind of kiss that small children shouldn't be allowed to see. Hell, it was the kind of kiss no one should be allowed to see- let alone experience through a psychic link. As I've noted before, strong emotion from Lissa could make this phenomenon happen- the one where I got pulled inside her head. But always, always, it was because of some negative emotion. She'd get upset or angry or depressed, and that would reach out to me. But this time? She wasn't upset. She was happy. Very, very happy. Oh man. I needed to get out of here. They were up in the attic of the school's chapel or, as I liked to call it, their love nest. The place had been a regular hangout for them, back when each of them was feeling antisocial and wanted to escape. Eventually, they'd decided to be antisocial together, and one thing had led to another. Since they started publicly dating, I hadn't known they spent much time here anymore. Maybe they were back for old time's sake. And indeed, a celebration did seem to be going on. Little scented candles were set up around the dusty old place, candles that filled the air with the scent of lilacs. I would have been a little nervous about setting all those candles in a confined space filled with flammable boxes and books, but Christian probably figured he could control any accidental infernos. They finally broke that insanely long kiss and pulled back to look at each other. They lay on their sides on the floor. Several blankets had been spread under them. Christian's face was open and tender as he regarded Lissa, his pale blue eyes aglow with some inner emotion. It was different from the way Mason regarded me. There was certainly adoration with him, but Mason's was a lot like when you walk into a church and fall to your knees in awe and fear of something you worship but don't really understand. Christian clearly worshipped Lissa in his way, but there was a knowing glint to his eyes, a sense that the two of them shared an understanding of each other so perfect and powerful that they didn't even need words to convey it. â€Å"Don't you think we're going to go to hell for this?† asked Lissa. He reached out and touched her face, trailing his fingers along her cheek and neck and down to the top of her silky shirt. She breathed heavily at that touch, at the way it could be so gentle and small, yet evoke such a strong passion within her. â€Å"For this?† He played with the shirt's edge, letting his finger just barely brush inside of it. â€Å"No,† she laughed. â€Å"For this.† She gestured around the attic. â€Å"This is a church. We shouldn't be doing this kind of, um, thing up here.† â€Å"Not true,† he argued. Gently, he pushed her onto her back and leaned over her. â€Å"The church is downstairs. This is just storage. God won't mind.† â€Å"You don't believe in God,† she chastised. Her hands made their way down his chest. Her movements were as light and deliberate as his, yet they clearly triggered the same powerful response in him. He sighed happily as her hands slid under his shirt and up his stomach. â€Å"I'm humoring you.† â€Å"You'd say anything right now,† she accused. Her fingers caught the edge of his shirt and pushed it up. He shifted so she could push it all the way off him and then leaned back over her, bare-chested. â€Å"You're right,† he agreed. He carefully undid one button on her blouse. Just one. Then he again leaned down and gave her one of those hard, deep kisses. When he came up for air, he continued on as though nothing had happened. â€Å"Tell me what you need to hear, and I'll say it.† He unfastened another button. â€Å"There's nothing I need to hear,† she laughed. Another button popped free. â€Å"You can tell me whatever you want- it'd just be nice if it were true.† â€Å"The truth, huh? No one wants to hear the truth. The truth is never sexy. But you †¦Ã¢â‚¬  The last button came undone, and he spread her shirt away. â€Å"You are too goddamned sexy to be real.† His words held his trademark snarky tone, but his eyes conveyed a different message entirely. I was witnessing this scene through Lissa's eyes, but I could imagine what he saw. Her smooth, white skin. Slender waist and hips. A lacy white bra. Through her, I could feel that the lace was itchy, but she didn't care. Feelings both fond and hungry spread over his features. From within Lissa, I could feel her heart race and breathing quicken. Emotions similar to Christian's clouded all other coherent thoughts. Shifting down, he lay on top of her, pressing their bodies together. His mouth sought hers out again, and as their lips and tongues made contact, I knew I had to get out of there. Because I understood it now. I understood why Lissa had dressed up and why the love nest had been decked out like a Yankee Candles showroom. This was it. The moment. After a month of dating, they were going to have sex. Lissa, I knew, had done it before with a past boyfriend. I didn't know Christian's past, but I sincerely doubted many girls had fallen prey to his abrasive charm. But in feeling what Lissa felt, I could tell that none of that mattered. Not in that moment. In that moment, there were only the two of them and the way they felt about each other right now. And in a life filled with more worries than someone her age should have had, Lissa felt absolutely certain about what she was doing now. It was what she wanted. What she'd wanted for a very long time with him. And I had no right to be witnessing it. Who was I kidding? I didn't want to witness it. I took no pleasure in watching other people get it on, and I sure as hell didn't want to experience sex with Christian. It'd be like losing my virginity virtually. But Jesus Christ, Lissa wasn't making it easy to get out of her head. She had no desire to detach from her feelings and emotions, and the stronger they grew, the stronger they held me. Trying to distance myself from her, I focused my energies on coming back to myself, concentrating as hard as I could. More clothes disappeared †¦ Come on, come on, I told myself sternly. The condom came out†¦ yikes. You're your own person, Rose. Get back in your head. Their limbs intertwined, their bodies moving together †¦ Son of a- I ripped out of her and back to myself. Once again, I was back in my room, but I no longer had any interest in packing my backpack. My whole world was askew. I felt strange and violated- almost unsure if I was Rose or if I was Lissa. I also felt that resentment toward Christian again. I certainly didn't want to have sex with Lissa, but there was that same pang inside of me, that frustrated feeling that I was no longer the center of her world. Leaving the backpack untouched, I went right to bed, wrapping my arms around myself and curling into a ball to try to squelch the ache within my chest. I fell asleep pretty quickly and woke up early as a result. Usually, I had to be dragged out of bed to go meet Dimitri, but today I showed up early enough that I actually beat him to the gym. As I waited, I saw Mason cutting across to one of the buildings that held classrooms. â€Å"Whoa,† I called. â€Å"Since when are you up this early?† â€Å"Since I had to retake a math test,† he said, walking over to me. He gave me his mischievous smile. â€Å"Might be worth skipping, though, to hang out with you.† I laughed, remembering my conversation with Lissa. Yes, there were definitely worse things I could do than flirt and start something with Mason. â€Å"Nah. You might get in trouble, then I'd have no real challenge on the slopes.† He rolled his eyes, still smiling. â€Å"I'm the one with no real challenge, remember?† â€Å"You ready to bet on something yet? Or are you still too afraid?† â€Å"Watch it,† he warned, â€Å"or I might take back your Christmas present.† â€Å"You got me a present?† I hadn't expected that. â€Å"Yup. But if you keep back-talking, I might give it to someone else.† â€Å"Like Meredith?† I teased. â€Å"She isn't even in your league, and you know it.† â€Å"Even with a black eye?† I asked with a grimace. â€Å"Even with two black eyes.† The look he gave me just then wasn't teasing or even really suggestive. It was just nice. Nice, friendly, and interested. Like he really cared. After all the stress lately, I decided I liked being cared about. And with the neglect I was starting to feel from Lissa, I realized I also kind of liked having someone who wanted to pay so much attention to me. â€Å"What are you doing on Christmas?† I asked. He shrugged. â€Å"Nothing. My mom almost came down but had to cancel at the last minute †¦ you know, with everything that happened.† Mason's mother wasn't a guardian. She was a dhampir who'd chosen to just be domestic and have kids. As a result, I knew he saw her quite a bit. It was ironic, I thought, that my mom actually was here, but for all intents and purposes, she might as well have been somewhere else. â€Å"Come hang with me,† I said on impulse. â€Å"I'll be with Lissa and Christian and his aunt. It'll be fun.† â€Å"Really?† â€Å"Very fun.† â€Å"That's not what I was asking about.† I grinned. â€Å"I know. Just be there, okay?† He swept me one of the gallant bows he liked to make. â€Å"Absolutely.† Mason wandered off just as Dimitri showed up for our practice. Talking to Mason had made me feel giddy and happy; I hadn't thought about my face at all with him. But with Dimitri, I suddenly became self-conscious. I didn't want to be anything less than perfect with him, and as we walked inside, I went out of my way to avert my face so he couldn't look at me full-on. Worrying about that brought my mood down, and as it plummeted, all the other things that had been upsetting me came tumbling back. We returned to the training room with the dummies, and he told me he simply wanted me to practice the maneuvers from two days ago. Happy he wasn't going to bring up the fight, I set to my task with a burning zeal, showing the dummies just what would happen if they messed with Rose Hathaway. I knew my fighting fury was fired up by more than just a simple desire to do well. My feelings were out of control this morning, raw and intense after both the fight with my mother and what I'd witnessed with Lissa and Christian last night. Dimitri sat back and watched me, occasionally critiquing my technique and offering suggestions for new tactics. â€Å"Your hair's in the way,† he said at one point. â€Å"Not only are you blocking your peripheral vision, you're running the risk of letting your enemy get a handhold.† â€Å"If I'm actually in a fight, I'll wear it up.† I grunted as I shoved the stake neatly up between the dummy's â€Å"ribs.† I didn't know what these artificial bones were made of, but they were a bitch to work around. I thought about my mom again and added a little extra force to the jab. â€Å"I'm just wearing it down today, that's all.† â€Å"Rose,† he said warningly. Ignoring him, I plunged again. His voice came more sharply the next time he spoke. â€Å"Rose. Stop.† I backed away from the dummy, surprised to find my breathing labored. I hadn't realized I was working that hard. My back hit the wall. With nowhere to go, I looked away from him, directing my eyes toward the ground. â€Å"Look at me,† he ordered. â€Å"Dimitri- â€Å" â€Å"Look at me.† No matter our close history, he was still my instructor. I couldn't refuse a direct order. Slowly, reluctantly, I turned toward him, still tilting my head slightly down so the hair hung over the sides of my face. Rising from his chair, he walked over and stood before me. I avoided his eyes but saw his hand move forward to brush back my hair. Then it stopped. As did my breathing. Our short-lived attraction had been filled with questions and reservations, but one thing I'd known for sure: Dimitri had loved my hair. Maybe he still loved it. It was great hair, I'll admit. Long and silky and dark. He used to find excuses to touch it, and he'd counseled me against cutting it as so many female guardians did. His hand hovered there, and the world stood still as I waited to see what he would do. After what seemed like an eternity, he let his hand gradually fall back to his side. Burning disappointment washed over me, yet at the same time, I'd learned something. He'd hesitated. He'd been afraid to touch me, which maybe- just maybe- meant he still wanted to. He'd had to hold himself back. I slowly tipped my head back so that we made eye contact. Most of my hair fell back from my face- but not all. His hand trembled again, and I hoped again he'd reach forward. The hand steadied. My excitement dimmed. â€Å"Does it hurt?† he asked. The scent of that aftershave, mingled with his sweat, washed over me. God, I wished he had touched me. â€Å"No,† I lied. â€Å"It doesn't look so bad,† he told me. â€Å"It'll heal.† â€Å"I hate her,† I said, astonished at just how much venom those three words held. Even while suddenly turned on and wanting Dimitri, I still couldn't drop the grudge I held against my mother. â€Å"No, you don't,† he said gently. â€Å"I do.† â€Å"You don't have time to hate anyone,† he advised, his voice still kind. â€Å"Not in our profession. You should make peace with her.† Lissa had said exactly the same thing. Outrage joined my other emotions. That darkness within me started to unfurl. â€Å"Make peace with her? After she gave me a black eye on purpose! Why am I the only one who sees how crazy that is?† â€Å"She absolutely did not do it on purpose,† he said, voice hard. â€Å"No matter how much you resent her, you have to believe that. She wouldn't do that, and anyway, I saw her later that day. She was worried about you.† â€Å"Probably more worried someone will bring her up on child abuse charges,† I grumbled. â€Å"Don't you think this is the time of year for forgiveness?† I sighed loudly. â€Å"This isn't a Christmas special! This is my life. In the real world, miracles and goodness just don't happen.† He was still eyeing my calmly. â€Å"In the real world, you can make your own miracles.† My frustration suddenly hit a breaking point, and I gave up trying to maintain my control. I was so tired of being told reasonable, practical things whenever something went wrong in my life. Somewhere in me, I knew Dimitri only wanted to help, but I just wasn't up for the well-meant words. I wanted comfort for my problems. I didn't want to think about what would make me a better person. I wished he'd just hold me and tell me not to worry. â€Å"Okay, can you just stop this for once?† I demanded, hands on my hips. â€Å"Stop what?† â€Å"The whole profound Zen crap thing. You don't talk to me like a real person. Everything you say is just some wise, life-lesson nonsense. You really do sound like a Christmas special.† I knew it wasn't entirely fair to take my anger out on him, but I found myself practically shouting. â€Å"I swear, sometimes it's just like you want to hear yourself talk! And I know you're not always this way. You were perfectly normal when you talked to Tasha. But with me? You're just going through the motions. You don't care about me. You're just stuck in your stupid mentor role.† He stared at me, uncharacteristically surprised. â€Å"I don't care about you?† â€Å"No.† I was being petty- very, very petty. And I knew the truth- that he did care and was more than just a mentor. I couldn't help myself, though. It just kept coming and coming. I jabbed his chest with my finger. â€Å"I'm another student to you. You just go on and on with your stupid life lessons so that- â€Å" The hand I'd hoped would touch my hair suddenly reached out and grabbed my pointing hand. He pinned it to the wall, and I was surprised to see a flare of emotion in his eyes. It wasn't exactly anger†¦but it was frustration of another kind. â€Å"Don't tell me what I'm feeling,† he growled. I saw then that half of what I'd said was true. He was almost always calm, always in control- even when fighting. But he'd also told me how he'd once snapped and beaten up his Moroi father. He'd actually been like me once- always on the verge of acting without thinking, doing things he knew he shouldn't. â€Å"That's it, isn't it?† I asked. â€Å"What?† â€Å"You're always fighting for control. You're the same as me.† â€Å"No,† he said, still obviously worked up. â€Å"I've learned my control.† Something about this new realization emboldened me. â€Å"No,† I informed him. â€Å"You haven't. You put on a good face, and most of the time you do stay in control. But sometimes you can't. And sometimes †¦Ã¢â‚¬  I leaned forward, lowering my voice. â€Å"Sometimes you don't want to.† â€Å"Rose†¦Ã¢â‚¬  I could see his labored breathing and knew his heart was beating as quickly as mine. And he wasn't pulling away. I knew this was wrong- knew all the logical reasons for us staying apart. But right then, I didn't care. I didn't want to control myself. I didn't want to be good. Before he realized what was happening, I kissed him. Our lips met, and when I felt him kiss me back, I knew I was right. He pressed himself closer, trapping me between him and the wall. He kept holding my hand, but his other one snaked behind my head, sliding into my hair. The kiss was filled with so much intensity; it held anger, passion, release†¦. He was the one who broke it. He jerked away from me and took several steps back, looking shaken. â€Å"Do not do that again,† he said stiffly. â€Å"Don't kiss me back then,† I retorted. He stared at me for what seemed like forever. â€Å"I don't give ‘Zen lessons' to hear myself talk. I don't give them because you're another student. I'm doing this to teach you control.† â€Å"You're doing a great job,† I said bitterly. He closed his eyes for half a second, exhaled, and muttered something in Russian. Without another glance at me, he turned and left the room.

How does the author create suspense in chapter two of the novel, in which Carl Heine’s body is discovered?

In this essay I am going to explain how the author, David Guterson creates suspense in chapter two. The author helps create suspense by using the typical technical structure of story writing and emphasises their use. David Guterson throughout the whole of the book uses a lot of descriptive imagery, especially in this chapter, which makes a significant additive in the story line. The main protagonists in this chapter are Art Moran, the town's sheriff and Abel Martinson a young officer. The beginning of chapter two starts without informing the reader about the death of Carl Heine, so the reader doesn't know Carl is dead, this is not revealed until the end of the chapter. The setting and pace of this chapter I think are the two most important elements that help create the suspense. This is because they create the atmosphere. The setting of most of chapter two is set on Carl Heine's deserted boat, deserted as in the middle of the harbour and lonely in the thick fog, ‘A fog as palpable as cotton' Is the description used by the author to describe the weather. The suspense is built up thicker and leaves the reader wondering why the boat is alone and not moving. Just before Carl Heine's body is recovered the weather starts to change slightly and the fog starts to become clearer, which is a hidden meaning that the truth is becoming clearer, they are getting closer to the truth. On the boat Abel and Art find a lot of unforeseen objects that makes them wonder what is going on and again with the reader. ‘Silent fish' Is the word to describe the salmon that has been found and has obviously been there for a while. The word silent is the keyword as it represents the atmosphere and possibly Carls death. Then the coffee cup tipped on its side, which shows struggle. The most mysterious item found was the battery dead that I think is symbolic of Carl Heine being dead. The pace of this chapter starts off very, very slow which reflects Carl Heine's death. David uses a lot of history when describing the different characters, not to mention the specific details he goes in to describe them. ‘The sheriff was a lean figure, unimposing, who habitually chewed a stick of juicy fruit gum' Is just one example of the description used. Also the author uses very long sentences, which again slows down the pace of the chapter, this changes towards the end of the chapter. The pace increases in speed, which also increases the intensity and the fact that something is going to happen. This is similar to a movie when they use music to create the atmosphere, start it off slow and then increase the speed to let the audience know something is going to happen but music cant be used in a book so they use the sentences and words to create their atmosphere. When the author increases the pace he uses words like ‘Thrust' This is onomatopoeia, which David adds to create sound to the chapter. The pace slows down once Carl Heine's body is discovered which lets the reader come to reality that the body or what Abel and Art were looking for has finally been found. This creativity also comes into use with the language. The language often stays the same throughout the chapter, but in this sense it helps the reader create a vivid image or picture of the person in your head. The language is also very repetitive which builds up the atmosphere in a sense of panic. The author then leaves Carls face as the last thing the two see and the fact that they don't want to see it and they will have to eventually, is this sense of realisation. Not just for Abel and Art but for the reader, as it is such an intimate chapter. So therefore as seen the author very cleverly creates suspense by using and changing the language, pace, setting and using the characters wisely which makes this chapter more effective as it leaves the reader asking questions like, Why is the boat there? where's Carl Heine? And most importantly what's going to happen next? All these answered are eventually found out in the end of chapter two.