Columbia Coffee Study Juan Valdez

1. Procafecol S. A. Basic information 1. 1. Development and History CH2. Participants in international business – Say if Procafecol is Multinational enterprise (MNE), Small and medium-sized enterprise, or the born global firm CH1. Why Colombia trade coffee? Theories advantages, etc. Coffee was introduced in Colombia in the late 1700s and the first commercial production began in the early 1800s. Despite these early developments, the consolidation of coffee as a Colombian export did not come about until the second half of the 19th century.The great expansion that the world economy underwent at that time allowed Colombian landowners to find attractive opportunities in international markets. Little by little, the United States became the most important consumer of coffee in the world, while Germany and France became the most important markets in Europe. In 1927 the National Federation of Coffee Growers of Colombia (FNC) was created to help the Colombian coffee growers on structuri ng a very traditional and atomized sector.In 1959, during a crisis that came about due to instability of the coffee trading price, the FNC decided to work with Doyle Bernback, an advertising agency (ex DDB) with the goal of building a strong symbol, highly identi? able, that would allow them to promote the speci? cities of the Colombian Coffee and sell the production at a higher price than the current market price. Presently, Colombia is the second largest coffee producer in the world (after Brazil). It accounts for almost 12% of the world’s total production. Coffee accounts for 8% of Colombia’s GDP.A personi? ed brand since its creation Following the advice of the advertising agency, Juan Valdez was personified since its creation. He would be the symbol of a Colombian coffee grower worldwide. A mere six months after the launch of the campaign, 87% of the American people associated Juan Valdez with Colombian coffee. In 1961, Juan Valdez was launched on the European mar ket with similar success. Since then, a limited number of actors have personi? ed the emblematic coffee grower focused on protecting the traditions that make his coffee the â€Å"best in the world†.Between 1959 and 2000 more than 750 million dollars were allocated to develop the image of Juan Valdez and to promote the Colombian coffee. Transformation into a commercial icon After a particularly dif? cult political and social period it was really important for the FNC to help the Colombian coffee growers in both economic and social aspects. Procafecol SA was created in 2002 by Fedecafe Federacion Nacional de Cafeteros de Colombia, being the major shareholder along with Colombian coffee growers which own 13,000 shares.Since 2004, the company has been fully responsible for the operation of Juan Valdez ® stores in the country and in 2006 began the distribution of packaged coffee in retail and horeca (hotels, restaurants, catering) channels. Juan Valdez is also offered to passeng ers of Avianca, the most important airline in Colombia. In a coffee market where prices and margins are really low, a diversi? cation strategy is indeed really pertinent considering the gross margins of gourmet coffee houses (Starbucks, Colombus Cafe†¦ and even more if we consider its direct relation with coffee growers as a strong competitive advantage. Positioned as Gourmet Since the beginning of the project it was made clear that the Tiendas Juan Valdez ® are a chain of coffee houses focused on selling coffee products to the consumers. These coffee houses were created to be a part of the coffee supply-chain and to strengthen the awareness of the Colombian coffee. This would gradually increase the incomes of Colombian coffee growers, historical mission of the FNC.Since their launch, the Tiendas Juan Valdez ® was designed to reach the up-market, with an ambiance mixing the Starbucks standards and the touch of a Lounge coffee shop of Barcelona. The warm colors symbolize Sou th American tradition, however they also exhibit luxury and a calm atmosphere. The ? rst Tiendas outlets were opened near business centers, high-end malls and trendy sectors of the cities. Since its creation, this ambitious project based its expansion on a 3 step strategy: 1. Colombian Pilot (2003-2006) 2. International Pilot (2004-2007) 3.International Development (2006 -†¦) In 2003, year that the project was launched, 10 coffee houses were opened in Colombia. Since 2004, this international expansion made possible the creation of 10 coffee houses in the USA (Washington, New York, Seattle, Philadelphia) and 2 in Spain (Madrid) 3/ Strengthening the brand image and the commercial development Renewal of the icon In order to sustain the international development of the project it was considered as important to renew the image of the Juan Valdez person, taking care of preserving its historical values.Since 1994, according to the recommendations of the DDB agency, a new advertising c ampaign was created to conquer the youth segment. Juan Valdez was acting in different TV commercials and Out Of Home formats where his codes (hat, poncho, moustache) were shown in extreme situations (sur? ng, snowboarding, hang-gliding†¦), with the strong presence of the historical logo, seal of authenticity and quality for the consumer.This innovative mix had enormous success in the USA and was awarded in 2005, during the New York AdWeek, it was named as top icon of the year in the USA, even before Ronald McDonald or the Nike Swoosh. Diversifying to fashion Propelled by the commercial success of the Tiendas Juan Valdez ®, Procafecol decided to develop a line of alternative products around the authentic image of Juan Valdez. From coffee mugs to umbrellas, more than 50 products were created and sold to consumers. In 2006, the ? rst clothing collection based on the historical icon was launched.In trendy neighborhoods of Bogota you may ? nd executives with a Juan Valdez jacket o r women with the latest model of a leather handbag. Gaining the European market When considering the conquest of the European market, the FNC did a thorough analysis of the consumption trends. Two ? gures impacted the directors of the Federation: European consumers are willing to pay 10% more for a product with a European Label and 73. 9% of them consider it as a quality seal. In September 2007, after 33 months of legal procedure, Colombian coffee became the ? st non-European product to obtain the PGI European Label (Protected Geographical Indication). Juan Valdez could now develop its commercial strategy and think of opening new coffee houses. Two were just created in Madrid while Paris and Moscow are now on the list of the international expansion plan of the Colombian Federation. By the end of 2007, the FNC and Procafecol were running more than 100 coffee houses in Colombia, 10 in the USA and 2 in Europe. They are now launching a new coffee house per month and want to make 2008 th e year of their European expansion. 1. 2. Juan Valdez BrandDescribe who Juan Valdez, what the brand represents, is and general details about it. Principal characteristic of the brand, why it is known, importance and recognition of Colombian coffee 1. 3. Strength of identity: Colombian Coffee To understand the influence of GI among Colombia the following four elements represent its national advantage in coffee industry. Factor conditions Due to the uniqueness of topographical factors and two rainfall seasons creates strongly national advantages. 6. 4% of total area of Colombia is cultivation zones, and 12% of coffee production area producing â€Å"GI coffee†.It provides 11 to 12 million production possibility per year. In addition, in 2010, there were 990 airports with 196 thousand air transport carriers, 6 ports and terminals with 2 million port container traffic, 874 km railway routes, 141,374 km roadways (CIA 2010 and The World Bank 2010). 18% of total 22. 5 million labour force involving agriculture, there have been an increasing number of producers after joining GI (Figure1) (Gomez, 2007) as well as foreign direct investment with 6. 7 billion in 2010 (The World Bank 2010). Demand conditionsThe demand of domestic market is one of important forces for development of industry. Compared to other countries, Colombia had lower needs of domestic market, which has low per capita consumption with 2. 8 kg only 5% of total national coffee production ( Benni, N. E. and Reviron, S. 2009). The domestic consumption did not increase even joining GI system, maintained at 1,400 thousands bags from 2007 to 2010 (Figure 2). Related and supporting industries In this factor, Colombian coffee industry has lower related and supporting industries.These industries and processes are mostly run by family or small businesses, due to the relatively simple methods and low investments needed. Firm strategy, structure and rivalry As one of well know coffee producer, Colombia has su ccessfully increased its competitiveness via sophisticated marketing strategies of the FNC. It applies trademark and certification mark to protect Colombian coffee. Since registered GI it has increased consumer’s awareness and creates better advantage against other competitors

Female Bounding Colour Purple Essay

Do you agree with the view that the British actions at Amritsar were justified in the aftermath of world war one The British actions at Amritsar were justified in the aftermath of world war one to an extent. The war seemed to boost the self esteem on Indians and unite them, suggesting threat against the raj, however the view in source 10 shows that there was no proof of a conspiracy, source 11 agrees with this but also shows why dyer might have acted in this way. Source 12 agrees with the fact that the actions were justified in the aftermath of world war one. The aftermath of world war one increased the self esteem if Indian as they were fighting alongside British soldiers, it also strengthened the arguments of the Indian politicians that India should be given a greater say in Indian affairs, this suggests that Indian nationalism was starting to progress. Muslims and Hindus had also joined together, forming the Lucknow pact, which shows that the Indians were becoming more powerful as they were joining together but the day of the massacre in Amritsar only included mostly Sikh people who were gathered to celebrate their religious festival showing that the attacks weren’t necessary. local officials also went on strike as a result of the aftermath of the war, suggesting that support for the raj was crumbling, showing that maybe the action of the British at Amritsar were due to the fear of Indian nationalism and the falling support for the raj. However source 10 clearly says that â€Å"it is not proven that any conspiracy had been formed† and that Dyer had acted â€Å"beyond the necessity of the case† showing that his action was not necessary and fair as there was no proof and evidence at the scene at jailaiwad bagh to justify that the actions of the British. Source 11 is a letter by Dyer saying that if he had hesitated it would have â€Å"induce attack† showing that the British might of felt that the Indians had gained power after world war one so they might attack . The source also suggests that there was no proof that there was going to be an attack, but dyer assumed it and therefore has fired without warning, this supports source 10 which says that it wasn’t proven that there was a â€Å"conspiracy†, showing that dyers actions were not necessary. However after world war one hartal were being organised to protest against the Rowlett acts, the two men who had started these hartals were arrested by the authorities, this lead to riots in Amritsar. The riots soon turned into an anti European attack, European women and children were beaten. Therefore source 11 could suggest that the reason Dyer fired without warning at the â€Å"dense crowd† was due to his fear of an attack as there were meetings being held in jalilawad bagh discussing the Rowlett acts, therefore dyer had presumed that a similar result to the Amritsar riots was bound to happen. The result of the riots at Amritsar support source 12, which is a letter by the European women thanking dyer for his actions which â€Å"saved the Punjab and thereby preserved the honour and lives of hundreds of women and children† this show that the women has felt threatened by what had happened at the riots which they also presumed would of happened at jailiawa bagh. However there was no proof on the day of the massacre that there was a conspiracy or any form of rebellion. To conclude, the British actions at Amritsar were justified in the aftermath of world war one to an extent , the Indian confidence had risen and they started to unite which shows that they were heading towards nationalism which was a threat to the raj, the Amritsar riots had also made an influence of the actions of dyer on the day of the massacre as many European women and children were killed , this might of showed that the same was bound to happen in jalianwala bagh as many people were gathered together and some were also discussing and protesting against the Rowlett acts. However as it says in source 10, â€Å"it is not proven that any conspiracy had been formed to overthrow British power† suggesting that dyers actions were necessary as there was no proof on the day.

Coffee Bean – Malaysia

Our research is conducted with the purpose of investigating and studying the current retail mix. We chose The Coffee Bean & Tea Leaf  ® as the retail company which operates in Malaysia. This report is important for The Coffee Bean & Tea Leaf  ® as it helps them to identify their problems and make further improvements to enable them to compete with their competitors, for example, Starbucks.As we know, The Coffee Bean has a lot of franchises, there were about 750 stores in 22 countries, for example in California, Arizona, Nevada, Singapore, Malaysia, Sabah, Taiwan, UAE, Korea, Brunei, Indonesia, Australia, Shanghai, Israel and Brunei and continues to expand both domestically and internationally. As it is hard for us to conduct a research on this topic in so many countries, therefore we only focus on The Coffee Bean operating in Malaysia. We conducted our research by using searching for detail information through the internet.Besides that, we went to one of the franchises lo cated in Penang to see how the business operates, how the staffs serve their customer and to know more information on the store layout and design. The result of our research shows us that The Coffee Bean & Tea Leaf  ® has encountered many problems. As conclusion, we did include several recommendations to The Coffee Bean and to help them to improve in order to earn more profit and their sales can increase. RETAIL ENVIRONMENTRetailing is the final activities and steps needed to place merchandise made elsewhere into the hand of the consumer or to provide services to the consumer. Nowadays, retail sector is increasingly being viewed as an important in the economy and to the society. According to Malaysia Retail Report 2010, it predicts that total retail sales will grow from an estimated US$35bn in 2009 to almost US$58bn by 2014. A low unemployment rate, which rise the disposable incomes and a strong tourism industry are key factors behind the forecast growth. In 2009, Malaysia's n ominal GDP was US$201. 6bn. Over the forecast period through to 2014, it predicted that average annual GDP will growth 4. 3%. With the population expected to increase by 9. 8%, GDP per capita is predicted to rise from US$7,103 in 2009 to US$9,654 in 2014. Furthermore, it also forecast that consumer spending per capita will increase from US$1,961 in 2009 to US$3,197 in 2014. Moreover, Malaysia is classified as an upper-middle income country. According to the Department of Statistics Malaysia (DSM), the average consumer spending was MYR2,285 per month in urban areas and MYR1,301 per month in rural areas.With the urban population predicted to account for almost 76% of the total by 2015, according to UN data, this is likely to have a positive effect on retail sales. Thirteen years ago, The Coffee Bean and Tea Leaf brought the art of coffee drinking and the world of gourmet grinds to the land of kopitiams and has since successfully integrated it into the fabric of the urban Malaysianâ₠¬â„¢s lifestyle. Thirteen years later, there are over 54 stores in the east and west Malaysia. We can see that between this time period, Coffee Bean had rapidly growth.Besides, Malaysian today is also familiar with Coffee Bean compare to a few years ago. In the future, it is expected that Coffee Bean will continue to growth in Malaysia due to the changing lifestyle of Malaysian and other factors. INTRODUCTION In year 1963, Herbert B. Hyman started The Coffee Bean ;amp; Tea Leaf  ®. With a dedication to excellence and the quality of coffees and teas in the world, Herbert’s efforts made him the founding father of gourmet coffee in California. Now The Coffee Bean ;amp; Tea Leaf  ® has grown into one of the largest privately-owned, family-run coffee and tea companies in the world.Besides, the endurance and popularity of The Bean attributed to the high standards that were established from the beginning. The Coffee Bean ;amp; Tea Leaf  ® has discovered the formula for a succe ssful coffee and tea company, which is start from trend-setting drinks such as the World Famous Ice Blended ®, to the employees who become a part of the communities they work in. Today, they offer over 22 varieties of coffees and 20 kinds of teas. Moreover, Coffee Bean is also a Clicks and Mortar retailer. They sell their product at both online and via physical stores.The Coffee Bean ;amp; Tea Leaf  ® mission is to create a spirit within the company that inspires their team members to provide their customers with a total quality experience that is: Quality of Product, Service and Environment Furthermore, they also believe in the fundamental truths that guide them through their daily lives at The Coffee Bean ;amp; Tea Leaf  ®, which is: 1. Friendly with each other and their customers. 2. Respect for each other’s values, opinion and individual diversity. 3. Ownership, it is because they are proudly entrusted with the responsibility. . Teamwork, it is because they achieve success by working together. 5. Honesty, it is because they are truthful to each other and to themselves. In short, they realize that their customers deserve ‘simply the best’. THREATS AND OPPORTUNITITIES Opportunities 1) Changing lifestyle Although there is an economic downturn in year 2009, however, the specialty of coffee industry has grown every year. According to one of the economy observer, when times are good the coffeehouse industry is great, and when times are bad the coffeehouse industry is still great.This means that the coffee industry is strong at all times. What makes the coffee industry become a strong industry at all time? One of the main factors is changing in the Malaysian’s lifestyle. Nowadays, many of them are hard-working, fast-paced Malaysian considers a stop at their local coffeehouse as their necessary part of the day. This is because coffeehouses provide calm, inviting environment for people to socialize, relax or catch up on work. Coffee house for such The Coffee Bean ;amp; Tea Leaf is one of the places where they can meet with their friends.Besides, with the relaxing atmosphere and environment it makes the coffeehouse become a suitable place for the college student to do their assignment or discussing their homework. During weekend nights, coffeehouse is the place where full with the young customers. Furthermore, instead of going to a bar and paying for an alcoholic drink or a restaurant where a meal usually comes with a hefty price tag, the older adults now choose to spent their time in the coffeehouse. With a cup of coffee and snack, they can meet with their friends and relax. 2) Market potentialAs what we had discussed just now, Malaysian’s lifestyle is changing and therefore, coffee industry for such The Coffee Bean has the potential to growth in Malaysia. According to the research, there are only 54 outlets of The Coffee Bean ;amp; Tea Leaf in the whole Malaysia included East Malaysia. In the future, it is expected that the number of outlet will continue to increase. In short it means there is a market potential for The Coffee Bean. Threats 1) Competition Global coffee market is one of the very competitive sectors. The main competitor of The Coffee Bean ;amp; Tea Leaf in Malaysia is Starbuck.This is because both Starbuck and The Coffee Bean ;amp; Tea Leaf are addressing the same target group. Both The Coffee bean and Starbucks have developed a strong and successful business by adhering to their core values that is to offer customers the best coffees and teas, to hire friendly staff from local community and to provide comfortable places to them to relax. Therefore, The Coffee Bean ;amp; Tea Leaf has to develop the best strategies to compete with Starbuck. In here, the most important thing to compete with Starbucks is to improve its services.For example, The Coffee Bean ;amp; Tea Leaf had offering â€Å"Party Pack† which customer can order when throwing a house or office part y. They provide services of giving their customer the possibility to bring The Coffee Bean ;amp; Tea Leaf lifestyle back to their homes. Moreover, the company also provides online services. They have their home page with virtual stores which is being defined as collection of all pages of information. The customers can buy their product through online and knowing the latest promotion through the homepage.Besides, coffee manufacturer, such as, Nestle USA, Inc, distribute premium coffee products nationally in supermarkets and convenience stores. Most of these products may be substitutes for this company’s coffees and their coffee drinks. Therefore, if the company wants to retain its status as the world’s leading specialty coffee retailer, it must be aware of their competitors. 2) Host country risk management Risk management issues such as government policies, regulation, macroeconomic variations and monetary uncertainties are important to The Coffee Bean ;amp; Tea Leaf on its international franchising.Therefore, it is a necessary for The Coffee Bean ;amp; Tea Leaf to understand the host county government policies concerning to the transfer and repatriation of dividends, fees and royalties. However, this company conducts a very little host government policy evaluation due to attributed to a lack of resources and reactive approach to market expansion. 3) Enthusiasm of health consciousness Nowadays, people attitude are changing and they care more to health. More and more people are taking responsibility for their health rather than passively accepting medical decisions.With this, the consumers are cutting down on caffeine. It is because they believe that drinking coffee will harm their health. This is because that they feel that the pros of consuming coffee are less than the cons. As a result, this may decline the demand for coffee from The Coffee Bean ;amp; Tea Leaf. COMPANY’S RETAIL MIX Retail mix is the combination of merchandise, assortment, price, promotion, customer service and store layout that best serves the segments targeted by the retailer. Price The price is what the customer willing to pay in exchange for the benefits of the product and services.From the research that we had conducted on several Coffee Bean franchises, it is clearly shown that the price of most of the products offered is around RM10 and above. For example, an egg club sandwich and a plate of Chinese chicken salad cost Rm15. 50 each. It may be expensive for certain group of people such as the youths who are the zero income earners. With this we can see that the price charged by The Coffee Bean is slightly higher than those coffee shops such as Old Town Coffee but if we use Coffee Bean pricing and compare it to their biggest competitor in the coffee industry, for such, Starbuck.Starbucks will have a little advantage on the pricing as with high price, they will earn higher profits in just a short period. Based on the research, we can see that Cof fee Bean focused on non price decisions, but on other factors such as qualities and facilities. Thus in here it is clear that Coffee Bean is using the above – market pricing policy as they do provide the wifi facilities and also the good environment for people to do their business or assignments. It also had show that they target the market most on the youths. The muffins and cookies which cost only less than Rm5 are affordable for the youths but the cakes nd also the pasta set are not affordable for them as they are not working and thus no income for them. They only depend on the pocket money given by their parents. Thus The Coffee Bean should offer their products with lower prices so that it is affordable for the youths to purchase it. Coffee Bean can earn back their profits in the long term. The adults with middle and high income can afford to spend on the products offer by Coffee Bean. For example, although the price for those cups and gifts available in The Coffee Bean a re quite expensive, but there were actually people who purchase them especially those with high income.Merchandise Merchandise is being defined as goods, ware, stocks, articles or item to be sold. In another way of defining merchandise is the availability of assortment of products available in the retail shop. For The Coffee Bean ;amp; Tea Leaf or also known as The Coffee Bean in short, offer many types of products such as coffees, teas, cakes, party-packs, pies, cookies, muffins, sandwiches, salads and even hot pasta. They even offer different types of drink menus for their customers. The Coffee Bean does customise to meet the wants and demands of their customers.This is because different consumers have different types of preferences. It can be shown clearly when The Coffee Bean customises their coffees into light and subtle, rich and smooth, dark and distinctive and flavoured. For example the light and subtle coffee is especially for the customers who prefer mild and delicate flav our. Whereas for teas, it is being categorise into black and oolong tea, green tea and flavoured green and herbal and fruit infusion. For such, green, black and oolong teas all have their own signature flavours and aromas, and each will have its own unique set of blends that complements and expands their essence.A mellow Ceylon tea, for example, blended with a delicate peach flavour works the magic sparks of fruitiness with a light floral finish. And to those who dream of having spectrum of aromas and flavours, a cup of oolong tea will be their choice. Furthermore, the cakes being offered can be customised into cheesecake special, signature classic, for kids and special occasions. They also offer the drink menus to suit the taste and preferences of their valuable customers. For such, they offer coffee, espresso, brewed tea, tea latte, non-coffee, coffee ice blended drinks, coffee-free ice blended drinks and many more.Thus with the way of customising their products to suit the tastes and preferences of different customers, it will then help to attract more customers to The Coffee Bean and with customers, retail trade can be done. They also do provide merchandise line depth whereby they allow their customers to choose the size for their drinks whether they want small, regular or large size. In conclusion, customer satisfaction can be met when the retail organisation, The Coffee Bean is being influenced by the customers’ needs and wants.Besides from all these, The Coffee Bean also do offer some gift packs, for example The Holiday Tea Trio which includes three mini square tins each containing five tea bags of whole leaf teas. They are nicely wrapped with ribbon on top of it which makes it attractive for people to purchase them. Although Coffee Bean offer a variety of products for their customer but it may bring some disadvantage such as the taste and aroma of coffees and teas may not be that fragrant anymore as they do not focus on only a particular type of coffee and tea.This may make the good quality of the products offer by them to be turned into bad quality. Therefore, to prevent this from happening, Coffee Bean should only picked up some of their famous products to specialise in and to continually improve on it. Advertising and promotions The Coffee Bean become famous and as a media darling, their brand have been place and promote in hits shows like Entourage and The Hills, to coverage leading publications like Forbes Magazine and the Times. Coffee Bean had advertised its brand not only through the media or magazine but some other ways such as donations, promotions and others.The Coffee Bean have come out with a numbers of examples they been using to reflect the concept of social responsibility and also to promote their brand through donations. It can be shown by the following example; The Coffee Bean made a donation, 50% from their sales item to be donated to serves children with autism, learning disabilities, hyperactivity or a ttention deficit disorder, mental retardation, and emotional challenges. Through an ongoing commitment, The Coffee Bean ;amp; Tea Leaf ® holds The Help Group's annual Deck the Walls holiday fundraising program and proudly features the children's artwork.Their most recent activity is the project of Caring Cup initiatives which planted and nurtured domestically in communities served by the company, as well as internationally in communities which the product originate. The framework of caring cup initiatives is rooted in need; where need from preventing the environment to improving education. Through these, The Coffee Bean will definitely well known in public and as we can see nowadays more and more people will come to purchase from the shops whereby there do a lot of charity work and these charity programs will be part of The Coffee Bean social responsibilities.Beside donation there are a few promotions being used to promote their brand. At times, The Coffee Bean ;amp; Teas also giv e free drinks today to celebrate the launch of the cafe’s holiday drink line. For example, from 4p. m. to 8 p. m. (11/12) customers can get a free 12 oz holiday drink. Choices include: Peppermint Latte or Ice Blended drink; Pumpkin latte or Ice Blended drink. Besides that, they also promote their famous drinks by posting pictures on the wall and putting up banners outside of their franchises.People who own The Coffee Bean Card may have some benefits too and it acts as a way of promoting and thus can attract their customers to purchase more. By having the card the consumers may enjoy the convenience of debit purchase, the more the people top up the card the more benefit they will get, such as 10% more value and redeemable of other item by having at least 5 point. They do have the holiday promotion. When it is near by the holiday season, they had been preparing some merchandise to go, such holiday cocoas gift set and others.This had helping in promote the brand by his consumer to others. They also have their online advertisement. They are not only having their own web site but they already create their pages in Facebook, Twitter and also Youtube which are the famous connection web on current time. They also post some short video on the web to promote and attract to the customer. With all the relevant aspect, connection and advertisement use by the company, Coffee Bean has successfully passed their information to their customer.Through the promotions of the products by hanging up banners and pictures on the wall sometimes may not contain full information such as the pricing and the nutrition of the particular product. They may only contain attractive pictures on it. In order to solve it, the management of Coffee Bean should publish their nutrition label and the pricing on the banners. With these, customers can get the information of the products they choose and can decide whether to purchase it or not. Besides that, we also noticed that Coffee Bean do not give out brochures as a mean of promotion. This may be a disadvantage for them.If brochures are provided to the passer-by, they may tend to go in to the Coffee Bean to enjoy the products offered by them. As a conclusion, the Coffee Bean should also provides brochures and distribute it to the people so that they can have more information on the offers and promotions offered. Customer service and Selling Customer service is the provision of service to customers before, during and after a purchase. For The Coffee Bean and Tea Leaf, they provide a series of customer service to their customers. Such as, their entire customer can apply for a member card or so called The Coffee Bean Card.Basically, The Coffee Bean Card is a loyalty card introduced to reward regular customers with loyalty points called â€Å"BEANS† which can be subsequently redeemed against purchases at The Coffee Bean ;amp; Tea Leaf outlets (CBTL). With perception, Coffee Bean is a big believer in teamwork (just lik e Starbucks) as they feel that success is achieved by working together. After our research on several franchises of The Coffee Bean, we noticed that their staffs are efficient, friendly and helpful enough. They maintain amicable relationships between customers and each other.This can be shown when customers ordered their drinks and food at the counter, they served their customers with smiles and when we asked them certain questions for our assignment purpose, they will try their best to answer us. The employees have respect for each other's values, opinions and individual personalities and are honest and truthful to themselves and each other. Due to this strategy, they can serve their customers in a better way. In addition, Coffee Bean also provided online service which customer can view their website that having the latest news and more information towards their company.In order to let their customer to contact them or get more information towards them, Coffee Bean also provide the ir headquarter address, email, telephone and even fax number on their website. They even have their website for their customers to comment on their services and products provided. Selling is being defined as trying to make sales by persuading someone to buy one's product or service. Coffee Bean also did selling. They try to sell out their product as much as their competitors do. Therefore, promotion will exist. Besides that, Coffee Bean tends to sell their product through their good and friendly customer service.Due to the customer service provided by them are good, customers tend to come back to them when they think of having a cup of coffee and enjoying the peaceful environment there. Although most of the Coffee Bean franchises are well organised with their efficient workers, there is a possibility that they do made mistakes to especially in delivering the drinks to the customers or when they prepare the drinks. This can be shown when our group when to one of The Coffee Bean to do our research while having our drinks there; we noticed that they made the drinks for us not according to the size we ordered.For such, we ordered a regular size black forest ice blended and a large size of the caramel ice blended, but during the preparations of the drinks, the staffs made mistakes, everything goes the other way round. These mistakes can be avoided by sending those staffs to more training programs so that they can improve and be more efficient and the operations in The Coffee Bean will be more effective and productive. Location Location is an area that retailing may undergo significant changes in the decade to come.Besides that, retailers have been classified according to their location within a metropolitan area, be it the central business district, a regional shopping centre or neighbourhood shopping centre, or freestanding unit. In order to have the businesses caring out well or to improve the businesses, location and target market can be considered as important factors. For example, if the location that retailers choose is too far away from the town or is it hardly or impossible to find a parking lot to park their vehicles, most of the consumers will choose not to go there.Locations that retailers mostly choose to run their businesses and to earn a profit from there are such as metropolitan area (e. g. : town area), central business district (e. g. : heart of the state) and so on. In Malaysia, most of the retailers would like to operate their businesses at metropolitan and central business district. The reason they choose these places is because the locations tend to attract more consumers to their shops as there were also many hypermarkets and supercenters around.As for this assignment, we carried out a research on The Coffee Bean ;amp; Tea Leaf, The locations that Coffee Bean may choose to run their franchise businesses are basically the two popular locations. Besides that, The Coffee Bean ;amp; Tea Leaf currently has over 750 stores in 22 countries. In addition, in Malaysia currently have over 54 stores. 31 franchises in Klang Valley, 6 in Penang, 1 at Ipoh, 2 in Pahang, 3 in Johor Bharu, 2 in Malacca, 6 in Sabah and 3 in Sarawak. Every Coffee Bean in Malaysia tends to gives people a relaxing and enjoyable environment.The location that Coffee Bean’s retailer pick mostly at those places which can attract more people. The Coffee Bean ;amp; Tea Leaf tends to attract those tourists and people who used to hang out with friends or to those who were carrying out their direct selling with others. For such, after a tired shopping day, most of those shoppers will tend to find a relaxing place for a rest. They can enjoy the coffee and the sweet aroma of teas that are provided by the Coffee Bean. Next is the customers may also enjoy the beautiful scenery around these franchises, for such the beaches.Through these, more of the tourists will pay a visit and spend their time there. Besides that, location such as shopping complexes is also a hot spot for shoppers and tourists to spend their time there either the day or night. Customers can sit and relax themselves; they can also view the shoppers shopping around and can feel the friendliness of the people. Locations that Coffee Bean chooses are also convenient to the entire consumer. Most of the franchises operate at the shopping complex; this is because there are a lot parking places provided for their customers.This will let those consumers to pay more visits to their shops which can provide them with the drinks provided and the good customer service provided. Target Market is the specific group of customers that a company aims to capture. They have been identified as people with needs or wants that can be met with the products or services from the company. The Coffee Bean ;amp; Tea Leaf is targeting the youth, who are teens and working adults in their twenties. This has become a weakness for the firm. The Coffee Bean and Tea Leaf aligns itself wit h other major brands targeting the youth market.This may lead it to lose some potential market. For example, DOME’s positioning is â€Å"expensive and exclusive† as its target market is basically the professionals, managers, executives and businessmen. But The Coffee Bean ;amp; Tea Leaf’s target market is the youth and who didn’t have strong consumption power. The target market for The Coffee Bean ;amp; Tea Leaf is sensitive to the price issue. The Coffee Bean positioned them well in the target market by a competitive pricing strategy. This pricing strategy likes a threat for The Coffee Bean ;amp; Tea Leaf.Thus the market share and profit for The Coffee Bean ;amp; Tea Leaf are limited. They also target the adults with stable income. The problem on the location is that there were only 54 outlets in Malaysia. For example, Pahang there is only 1 branch but we found out that it may not be enough for the Pahang residents. The people who want to go to The Coffe e Bean may need to travel a long distance to reach Coffee Bean. As a recommendation, we recommend that the management of The Coffee Bean should increase the number of outlet in Pahang.Next we also found out that The Coffee Bean target the youth as their main target. Our group feel that the youths who are the zero income earners might not have enough income to spend on the products offer which will be slightly expensive for them. Thus Coffee Bean has made a mistake, they should target adults with medium and high incomes as their main target group as they can purchase the products without worrying that they would not have enough cash to pay. Store layout and design Layout and design is defined as an arrangement, plan, design of a building, book, picture and etc.As we know, Coffee Bean is one of the franchise companies. Most of their layouts and designs are almost the same in every outlet. For example, the theme colour of the outlet. You can see that their outlet mostly is painted in b rown colour. Brown colour is a natural, down-to earth neutral colour. It represents warmth, wholesomeness, friendliness and simplicity. With this, it gave their customers a warmth feeling when they are inside their outlet. As the customers enter into the Coffee Bean, they can also notice the pictures of the famous drinks at Coffee Bean are being hang up on the wall.Besides that, the playing of the sentimental music makes the environment calm and relaxing. This makes their customers willing to pay for a higher price for a cup of coffee and enjoy it in such calm and relaxing atmosphere. Furthermore, there are also a counter is used to display their products such as packets of teas and coffees, cakes, cookies, muffins and etc in every outlet. It is well organised, people can easily find the products they want as the products are being arranged in order. Each of the products display is being priced.Customers can choose whatever products they want from there and they can see the price fo r it. Moreover, in every outlet, there is a menu board at the counter. It shows the menu of coffee drinks and beverages that sell and their price. Customers can refer to the board and make their orders. There is also a small blackboard hanging on the wall which states that what the special offer is for the day. The outlets for most of the Coffee Bean franchises were big enough, there were spacious space for the customers to walk around without asking the others to shift their chairs to allow them to walk pass.The management of The Coffee Bean also placed some plants in their outlets as part of the decorations on the franchise. They do provide magazines for their customers to read. Next is the lighting system in The Coffee Bean franchises. They usually will use the bulbs with orange colour to give people the romantic and warmth feeling. The lights being used by them are those with nice designs on it and are in various shapes. There is also wifi provided for their customers who wants to serve on the internet for the assignments and business purposes.After stating the store layout and design of The Coffee Bean ;amp; Tea Leaf, our group also do noticed some problem on it. For such, the writings on the small blackboard which is used to write what the special offer of the day are too colourful and it is too small as it can make the customers difficulty in reading it. Thus to improve it, they should provide each Coffee Bean franchises with a bigger blackboard and the writings should be change to a bigger size and the fonts which can be easily readable by the customers. CONCLUSIONFrom the report above, we can see that The Coffee Bean ;amp; Tea Leaf has been growing from time to time, but on the way of growing there are several issues that need retailer’s attention and take certain actions to correct and to improve it.. From the research, we found out that most of their customers are youngster and are of the middle income earner, but the price of most of the pro ducts offered is around RM10 and above, with this, it may not be affordable for the zero income earners in here the youngsters. As from these, Coffee Bean may need to lower the price of their products.As for the location and the number of outlets of the Coffee Bean, it is shown that there are only 54 outlets of Coffee Bean which operate in Malaysia, 31 franchises in Klang Valley, 6 in Penang, 1 at Ipoh, 2 in Pahang, 3 in Johor Bharu, 2 in Malacca, 6 in Sabah and 3 in Sarawak. As we can see there are unequal balances of outlets located, with this they may need to add more branches on those states which are under stored. Beside this, The Coffee Bean also conducts a small part of host government policy evaluation due to attributed to a lack of resources and reactive approach to market expansion.With this take should pay more attention on it. As on the side of health, a medical report had state on caffeine which conduct in the coffee may cause harm on our health; this had cause the cons umers to cut down on the consumption of coffee which contains caffeine. With this, The Coffee Bean may concentrate on tea left beside the coffee. Next, they offer a variety of products and thus they need to choose certain products which are popular among the tastes and preferences of the consumers.For their advertisement and promotions, they should provide more information on it, such as nutrition labels and the pricing on the banners, this not only can attract the customer, and it may also help those consumer make decision on their choice. Although The Coffee Bean franchises are well organized with their efficient workers, but there still have some problems occur, such as mistake in making order, to avoid this problem occur again, they should provide more training to their worker to improve their service system.

Historical and Theoretical Perspective on Teaching Reading Essay

Historical and Theoretical Perspective on Teaching Reading - Essay Example Teachers can teach reading through several methods, one of these methods is the testing and measuring approach, in this method the teacher uses tests and assessments to measure how well the student has read and learned from the assigned tests (Lapp, 2007, p.423). The objects that are measured through these tests are informed to the students before hand during the sessions of instructions and then the teachers check whether these objectives have been accomplished. The tests should be consistent with the learning objectives and then it is checked whether the objectives have been met. This method pays emphasis to focused activity based teaching as the teacher teaches those parts that will be assessed. Curriculums that are designed on these methods are highly structured as this curriculum focus on the objectives that need to be attained by students. Students can learn through this teaching method if they are motivated with the assistance of reward for attaining set goals. The downside of using this method is that restricted amount of learning and teaching takes place as students only learn and obtain information which is going to be tested and other information is ignored. One of the most appropriate methods of teaching how to read is the subject method approach which pays emphasis on the significance of subject matter derived by students while they are involved in the process of reading (Richards, 2001, p.19). The basis of this form of reading is that a message should be transferred to the reader of a particular text.

The Industrial Revolution in Late 19th Century Essay

The Industrial Revolution in Late 19th Century - Essay Example National Labour Unions were formed to respond to the manner in which people were being evacuated from their farms and an increase in industries led to a misunderstanding between labor and capital.Conversely, there was a rise of numerous challenges that led the state to implement some policies. Social Darwinism took center stage and it was survival of the fittest. The authority of wealthy business firms such as Rockefellers had a great influence on how the government made its policies. The rich had influence in the running of the government because their argument was that they contributed a lot to state revenue as compared to the poor. At first, markets were free, but soon it got complicated because well-established companies stamped authority on markets to the extent that small ones were being phased out. After an extensive investigation on the â€Å"robber barons,† the Sherman antitrust act was passed which focused on implementation of free trade. Though the act was poorly do cumented, it regulated the activities of worker's unions instead of countering monopolies practiced by the well-established firms. The act faced serious criticism and civil unrest until it was later amended to serve its intended purpose (Barney, 2007).The current economic prosperity and agricultural stability are as a result of a long journey the country has undergone to reach such heights. Much credit has been given to Abraham Lincoln who created the basis of the current democratic stability of the nation.

Formulaic Language In Academic Writing Essay Example | Topics and Well Written Essays - 500 words - 2

Formulaic Language In Academic Writing - Essay Example Development of creativity for me was something extremely difficult, but when I had known how to read, I started improving in creativity. My language teacher encouraged me and made smart remarks whenever I did well in composition writing. When I was in high school, the intensity of writing was more than when it was at the elementary level. I began writing essays, poems, formal letters, research papers and journals. These demanded much from me, as it needed a careful approach and some research using the internet and library books. Although it was difficult learning this, it has helped me in gaining crucial skills such as writing of formal letters and writing academic papers. When writing an academic paper, there are crucial steps to follow. The paper should have a title, introduction and the main body (Philip and Mathews, 3). The main body carries research questions, method used in the research, discussion and conclusions. A paper divided in this manner allows the writer to address the topic without deviating to unnecessary information in the paper. I have had to struggle so much with referencing and formatting styles such as APA, MLA, Harvard and Chicago amongst others. Referencing and formatting is mandatory in research. What has proved difficult and even still sometimes challenging in my writing, is how to reference online materials such as newspapers and journals in the various referencing styles. However, I have worked hard to overcome this by ensuring that I have samples of papers referenced according to each style that I often use in my research. I have saved them in my PC for reference in case I forget. In my righting experience, I have come to respect psychology. This is a field in which researchers give the human thought and the rare diseases that affect the affect the brain and thus impaired way of thinking.

Cell Phones, Do They Really Cause Brain Tumors Research Paper

Cell Phones, Do They Really Cause Brain Tumors - Research Paper Example This research is intended to ascertain the fact that cell phones are not associated with brain tumor. The use of cell phones began in 1980s and its wide spread use began in 1990s (National Cancer Institute, 2010). Since then, the technology has been constantly evolving and there has a soar in the use of cell phones all over the world. In 2009, in United States alone, there were more than 285 million cell phone users (National Cancer Institute, 2010). Thus, any health implications of cell phone usage target a large number of people. Cell phones use non-ionizing radiation, a type of electromagnetic radiation for their functioning. This radiation is actually different from the radiation used in X-rays which is ionizing and associated with risk of development of cancer. The radiation of cell phones falls into the same band of radiofrequency waves which are used in microwave to cook food. However, the radiowaves from cellphones do not cause damage to the genetic material DNA and thus does not cause cancer. The main source of radiofrequency energy for a cell phone comes from the antenna, which, in the newer cell phones is in the hand set and while taking, the portion of antenna lies along the side of the head (Wenner, 2008). Thus, closer the antenna towards the head, greater is the exposure to radiofrequency energy. The absorption of radiofrquency energy is directly proportion to the distance between the users head and the antenna and the intensity of the signal which is again, dependent on the level of the signal (National Cancer Institute, 2010). Thus, the levels of exposure to radiofrequency energy depends on various factors like the number and duration of the phone calls, the amount of traffic of cell phone at the time of talking over phone, the distance of the antenna of the cell phone from the nearest based station, the quality of radiofrequency transmission, the size of the hand set, extension of the

Curriculum Development Paper Essay Example | Topics and Well Written Essays - 1500 words

Curriculum Development Paper - Essay Example To wash hands is the best strategy to prevent the spread of germs in the healthcare environment. The hospitals are full of germs (disease causing micro organisms) and nurses have some power of ensuring that their spread is prevented. In order to impact this knowledge to the nurses, a lesson plan will be designed to guide the process of refreshing the knowledge on why washing hands is extremely significant in the healthcare environment, Hand washing Liaison Group (1999) About 20 nurses washing their hands will spend only five minutes when this is done at fifteen seconds each and if this is done throughout the day, a lot of time will be spent but it would be worth it as germs will be reduced considerably and the spread will also be limited. The nurses will have to wash their hands in warm water by using the hospital soap dispenser and leally lather it up. The nurses will wash the front as well as the back of their hands and they will pretend that they are going to handle a very delicate situation like surgery. The soap should be massaged between the fingers ensuring that the nails are properly washed and this should take about fifteen seconds per individual. The nurses can be timed (Bergquist & Pogosian 2000). The scrubbing action is very important as it helps to break up germs and remove them altogether. After this, hands should be properly rinsed with clean water and dried with a clean piece of cloth preferably clean white towel or the fresh paper towels currently in use. Nurses should note that when cleaning hands in the washrooms used by many people, the paper towel is the one to be used to open the door knobs and handles as they are in most cases contaminated. Since nurses are professionals in the medical field, they are in a better position to explain how the germs spread disease and due to this; the hand washing habit should be habitual and needing less prompting (Hoffman & Wilson 1994). Nurses have a responsibility of their own health and that of the patients as well because they are the ones offering professional assistance in this case. Learning the Importance of Hand Washing In order to ensure that nurses are updated on the correct procedure of washing hands, they will have to discuss why hand washing is important citing possible consequences of not doing so. On the other hand a list of benefits of washing hands will be established. There are lots of micro-organisms that cause diseases yet many of these cannot be seen by a necked eye. Precaution is therefore very important since the hospital also present an environment that could host even more germs than a normal home or house (Rosenau et al 2009). Objectives Nurses will have to concrete reasons as to why they have to wash their hands Nurses will also be required to explain and comprehend that

OPAC Evaluation Between University of Arizona & University of BALAMAN Research Paper

OPAC Evaluation Between University of Arizona & University of BALAMAN - Research Paper Example These features include the general representation of these libraries their database characteristics, how operations occur and managed. Moreover, it also looks at the means that these libraries provide to search for information. Other vital features include operations on Boolean, aids for searching under the subjects, options for displaying on the screen and means to display output. In addition, functionalities that will offer end user support are notably inevitable. The University of Arizona has an unusual layout of the home page clearly showing the menus just below the header page. The integration of sky blue, brown, white and deep blue colors brings out an excellent look ( Lebanese American University, 1997-2015). The selection of the font schemes has differentiated the headings, subheadings, and the body thus making the information easier to read. The spacing is ok. Further, the images in place are informative and not just thrown anyhow. On the other hand, the page on Lebanese American University is simple with links to services easily accessible from the home page. The color contrast of green for the heading and a variation of brown for the body is excellent. The slight color red strip in use under the title LAU Libraries is lovely. The change of the menu coloring clearly distinguishes what is in the selection and what is not. Arizona did not have that, however, it uses color shading to identify what has been highlighted and what is not. The photos in use are standard in the way they convey meaning, for example, the one on how to locate the books. The spacing is alright with the distinction of sections. However, despite the difference between the headings and bodies subheadings, it should have been more distinct. The preceding has been brought out more clearly on the Arizona website. What is common to the two sites is the simplicity in their pages with outright links to

Summary of marketing article Essay Example | Topics and Well Written Essays - 500 words

Summary of marketing article - Essay Example Of these experts, Converse was one of the only to emphasize on customers which has now become the core of the concept of marketing mix. The author has provided a clear timeline which outlines the various authors and their contributions to the concept since 1911 until 1960. The author has provided a clear and concise explanation of the various inputs from several authors in a clear manner. The author further moves on to discuss the ‘blossoming of the marketing mix’, where he has pointed out how Culliton (1948) suggested the name for the concept. He moves on to provide an explanation of how the name developed and how the 1950s saw a growth in terms of the concept and the related theories. Again the author has provided in a very effective and efficient manner the contribution of several authors over the years and how the marketing mix concept grew and formed shape. The author also highlights how the 4Ps of marketing had been introduced and developed in 1960. Furthermore, the author has moved on to discuss an essential aspect of the concept where the future considerations for the marketing mix have been made. Here the author considers and discusses the contributions of Park, MacInnis and Silverman and their suggestions of the 4Ps configuration. The concept came into being based on the several economic theories that were present in the earlier years. However there have been questions about the purpose of the 4Ps and the overall usefulness in terms of stimulating demand. The author has touched upon some important aspects of the current day thought of the field of marketing and has brought out some relevantly new thoughts where the marketing has been recognized to be the organizational culture and philosophy. The author has also brought out essential points which highlight the need for a fresher view on the concept which can be seen in the light of some practical decision making processes of the current

Interdependence of subject matter and method in social studies Essay

Interdependence of subject matter and method in social studies - Essay Example The link between the content and the method in Social Studies is vital in ensuring that the goals of teaching are achieved (Thornton, 2005). Through the method, the educators can manipulate the curriculum which is the content. This, therefore, involves planning that confines the educators to the selected content not outside what had been planned (Thornton, 2005). A good example in a Social Studies class is the educator focusing on the role of technology in the society using the role play method. This confines the educator to the selected content as well as the method selected. Social Studies, as indicated by Thornton (2005), involves connection between the content and the personal experience. In this case, methodology of teaching and the content have to be interrelated if the learners have to attain personal fulfilment. Zevin (2013) says that this will also ensure that the learners engage in the activities in the learning process. For instance a study of the culture of the Asians will need content on the Asians lifestyle and method of teaching that will create interest in the

Educational psychology Essay Example for Free

Educational psychology Essay Assessment is the process of collecting, interpreting, and synthesising information in order to make decisions about students; provide learners feedback about their progress and their strengths and weaknesses; judge instructional effectiveness and inform educational policy (American Federation of Teachers, et al. , 1990 as cited in Gage and Berliner, 1998). On the other hand, motivation is simply what moves learners from boredom to interest so that they continue learning. It arouses and directs learner’s activities towards learning over time. Assessments can motivate learners if teachers and students roles are effectively performed. For instance, the role of a teacher can be designing tasks in a way that learners can complete with reasonable amount of effort. Difficult tests should be divided into subgroups that are achievable without excessive effort. The role of the teacher even includes ability to inform learners in advance about the nature of the assessments. In this way, assessments are able to motivate student’s effort to learn. Furthermore, Nicholls (1999) as cited in Stepleton (2001) states assessments will motivate learners if they are not seen as a form of torture to the students. The teacher should ensure that students understand that assessments are only meant to assist learners towards achievement of effective learning and attainment of educational goals. If students understand this, they will value assessments and form a positive attitude towards assessments there by getting motivated to learn. Assessments, if used judicially as in grading t tests and scoring of marks, can motivate learners to learn (Gage and Berliner, 1998). Similarly, it is pointed out that given that learners are labelled on the basis of assessments and that these labels create expectations about learner’s ability, characteristics and educational competence. Teachers have to be careful in labelling students. Stepleton (2001) states that according to self-fulfilment prophecy theory, students learn to behave in line with the label or characteristic that has been applied to them. Hence, if assessments are to motivate students, teachers must avoid labelling learners as poor, dull, incompetent or failures on the basis of quantitative results of assessments in the class. If a student feels the teacher knows him or her as an underperformer, the learner may cling to that mentality. On the other hand, good labels such as excellent, good and wonderful should be encouraged and used appropriately to increase motivation on the students learning efforts.

The four levels of measurements

The four levels of measurements The four levels of measurements 1. Explain briefly how you would use number properties to describe the four levels of measurements. Answer: Measurements can be classified into four different types of scales. These are: Nominal Ordinal Interval Ratio Nominal scale: Nominal measurement consists of assigning items to groups or categories. No quantitative information is conveyed and no ordering of the items is implied. Religious preference, race, and sex are all examples of nominal scales. Frequency distributions are usually used to analyze data measured on a nominal scale. Categorical data and numbers that are simply used as identifiers or names represent a nominal scale of measurement. Numbers on the back of a baseball jersey and social security number are examples of nominal data. At the nominal scale, i.e., for a nominal category, one uses labels; for example, rocks can be generally categorized as igneous, sedimentary and metamorphic. For this scale some valid operations are equivalence and set membership. Nominal measures offer names or labels for certain characteristics. The central tendency of a nominal attribute is given by its mode; neither the mean nor the median can be defined. Ordinal scale: An ordinal scale is a measurement scale that assigns values to objects based on their ranking with respect to one another. For example, a doctor might use a scale of 0-10 to indicate degree of improvement in some condition, from 0 (no improvement) to 10 (disappearance of the condition). An ordinal scale of measurement represents an ordered series of relationships or rank order. Individuals competing in a contest may be fortunate to achieve first, second, or third place. First, second, and third place represent ordinal data. In this scale type, the numbers assigned to objects or events represent the rank order (1st, 2nd, 3rd etc.) of the entities assessed. An example of ordinal measurement is the results of a horse race, which say only which horses arrived first, second, third, etc. but include no information about times.: The central tendency of an ordinal attribute can be represented by its mode or its median, but the mean cannot be defined. Interval scale: Quantitative attributes are all measurable on interval scales, as any difference between the levels of an attribute can be multiplied by any real number to exceed or equal another difference. A highly familiar example of interval scale measurement is temperature with the Celsius scale. In this particular scale, the unit of measurement is 1/100 of the difference between the melting temperature and the boiling temperature of water at atmospheric pressure. The zero point on an interval scale is arbitrary; and negative values can be used. The formal mathematical term is an affine space (in this case an affine line). Variables measured at the interval level are called interval variables or sometimes scaled variables as they have units of measurement. Ratios between numbers on the scale are not meaningful, so operations such as multiplication and division cannot be carried out directly. But ratios of differences can be expressed; for example, one difference can be twice another. The central tendency of a variable measured at the interval level can be represented by its mode, its median, or its arithmetic mean. Statistical dispersion can be measured in most of the usual ways, which just involved differences or averaging, such as range, inter quartile range, and standard deviation. Since one cannot divide, one cannot define measures that require a ratio, such as studentized range or coefficient of variation. More subtly, while one can define moments about the origin, only central moments are useful, since the choice of origin is arbitrary and not meaningful. One can define standardized moments, since ratios of differences are meaningful, but one cannot define coefficient of variation, since the mean is a moment about the origin, unlike the standard deviation, which is (the square root of) a central moment Ratio scale: The ratio scale of measurement is the most informative scale. It is an interval scale with the additional property that its zero position indicates the absence of the quantity being measured. You can think of a ratio scale as the three earlier scales rolled up in one. The ratio scale of measurement is similar to the interval scale in that it also represents quantity and has equality of units. However, this scale also has an absolute zero (no numbers exist below the zero). A ratio scale is a measurement scale in which a certain distance along the scale means the same thing no matter where on the scale you are, and where 0 on the scale represents the absence of the thing being measured. Most measurement in the physical sciences and engineering is done on ratio scales. Mass, length, time, plane angle, energy and electric charge are examples of physical measures that are ratio scales. The scale type takes its name from the fact that measurement is the estimation of the ratio between a magnitude of a continuous quantity and a unit magnitude of the same kind. Informally, the distinguishing feature of a ratio scale is the possession of a non-arbitrary zero value. For example, the Kelvin temperature scale has a non-arbitrary zero point of absolute zero, which is denoted 0K and is equal to -273.15 degrees Celsius. This zero point is non arbitrary as the particles that compose matter at this temperature have zero kinetic energy. All statistical measures can be used for a variable measured at the ratio level, as all necessary mathematical operations are defined. The central tendency of a variable measured at the ratio level can be represented by, in addition to its mode, its median, or its arithmetic mean, also its geometric mean or harmonic mean. In addition to the measures of statistical dispersion defined for interval variables, such as range and standard deviation, for ratio variables one can also define measures that require a ratio, such as studentized range or coefficient of variation. 2. Define the terms direct measurement and indirect measurement. Describe briefly how you would make profit of indirect measurement in psychological traits. Answer: There are 2 types of measurement techniques are developed in order to measure quality or characteristics of attributes. First one is quantitative and second is qualitative. Quantitative can be measured directly and qualitative can not be measured directly. The height and weight of a person can be measured directly with scales in feet/meter, kilogram. But qualitative variable cannot be measured with scales such as feet, meter, kilogram etc. For example, Kindness, love and intelligence of a person can not be measured directly. Indirect measurement can be used for these cases. To measure this type of cases different indirect measures like answer to questions, IQ tests can be used. Indirect measurements are mostly used in social science. Richness, happiness, good life, poverty etc can be measured with the support of different indirect indicators. In order to measure psychological traits we use behaviors as a basis for measurement. Qualities of an individual can be measured indirectly through psychological testing by developing indicators. In standard psychological test we develop the set of standard as questionnaire or guidance fro scoring the attributes or traits. We largely use objective types of question and interpret according to the guidance of answering. Human behavior can not measure as physical measurement like height, weight. The qualitative aspects like perception, emotion, retention etc can be measured through indirect measurement, which is based on some pre-defined set of standards. 3. What will happen if you use ordinary measurement as though they were interval or ratio measurement? Ordinary data is non parametric data and interval and ratio are parametric data. Therefore we dont use ordinary measurement if the data are in interval or ratio measurement. They differ from each other. To ensure measurement more reliable, selection of appropriate statistical tools according to the nature of data is important. If we use interval/ratio measurement when the data are ordinal scales it may leads false decision. 4. Which method census or sampling do you prefer the most for describing the reality of Nepali classroom teaching learning? Explain in brief. Answer: Sampling method is more applicable than the census method for describing the reality of Nepali classroom teaching learning. To study about promotion, failure and drop out rate, census method can be used. However for the reality presentation, census method can not be convenient. Through the census method each and every unit of the population can be taken into consideration. But it will be highly time and money consuming. Sampling method will make all process faster with less cost. While taking the sample size there is more important of inclusion and representation in the sampling i.e. ethnic group, caste, religion, , geographic zone, and gender, etc. Through educational perspective different grades, private and public school/college suppose to be included. The sample size should more representatives. 5. in a group of 50 children, the 8 children who took longer than 3 hours to complete a performance test in sent-up test were marked as DNC (did not complete). In computing a measure of central tendency for this distribution of scores, what measure we should use and why? Median can be used in computing a measure of central tendency for the distribution of score as mentioned in the question. Median is not affected by extreme values. Arithmetic mean is affected by extreme values. As Median is the positional average, we can get the correct value of central tendency. 6. Give some examples where you need geometric and harmonic mean. Give geometrical interpretation of A.M., G.M. and H.M. Answer: Geometric Mean (G.M): Geometric Mean (G.M) is widely used in averaging ratios and percentages and is computing average rates of increase or decrease. It is also advantageously used in the construction of index numbers. G.M. gives equal weights to equal ratios of change. It is also used to compute the average rate of growth or reduction of population or average increase or decrease of production, profit, sales etc. When we require to give more weight to smaller items and smaller weight to larger (e.g. Social and economic problems) G.M can be used. Harmonic Mean (H.M.): Harmonic Mean (H.M.) is used in computing the averages relating to the rates and ratios such as velocity speed etc., where time factor is the variable. It also can be used for making Human Development Indicator (HDI). Geometrical interpretation of A.M., G.M., and H.M. Let AD = a, DB = b Then represents the radius of the semi circle. Hence radius OP = , which gives the value of A.M. Similarly radius OQ = , Now OD = b = Now DQ2 = OQ2 OD2 = { }2 { }2 = ab Hence, DQ = , which represents G.M. Now, in the right angled triangle ODM, DM2 = OD2 OM2 And in right angled triangle DMQ, DM2 = DQ2 MQ2 Hence, OD2 OM2 = DQ2 MQ2 Here, OQ = . Let OM = x, then MQ = x {}2 x2 = ab { x}2 For solving, x = Hence, MQ = = , which represents H.M. From above it is clear that OP = A.M., DQ = G.M. MQ = H.M. From the figure, it is clear that OP > DQ > MQ. Hence, we can say that A.M. > G.M. > H.M.H 7. Give geometrical meaning of the formula used for Median and Mode for grouped data. Answer.: Geometrical meaning of the formula used for Median: Let consider the following continuous frequency distribution, (x1 < x2 < xn+1). Class interval: x1 x2 , x2 x3, . xk xk+1, . xn xn+1 Frequency: f1 f2 fk fn The cumulative frequency distribution is given by: Class interval: x1 x2 , x2 x3, . xk xk+1, . xn xn+1 frequency : F1 F2 Fk Fn Where, Fi = f1 + f2 + ..+ fi-1. The class xk xk+1 is the median class if and only if Fk-1 < N/2 < Fk. Now, if we assume that the variate values are uniformly distributed over the median class which implies that the ogive is a straight line in the median class, then we get from the fig.1, tan = i.e. or or, = Where is the frequency and h the magnitude of the median class. Hence, BS = Hence, Median = OT = OP + PT = OP + BS = l + This is the required formula. Geometrical meaning of the formula used for Median: Let us consider the continuous frequency distribution: Class interval : x1 x2 , x2 x3, . xk xk+1, . xn xn+1 frequency : f1 f2 fk fn If fk is the maximum of all the frequencies, then the modal class is (xk xk-1). Let us further consider a portion of the histogram, namely, the rectangle erected on the modal class and the two adjacent classes. The modal is the value of x for which the frequency curve has a maxima. Let the modal point be Q (fig. 2) From the figure, we have tanß = and tana = or, or, , where h is the magnitude of the model class. Thus solving for LM, we get LM = Hence, Mode = OQ = OP + PQ = OP + LM = l + 8. Squaring deviations and then taking squares seems to be useless. Why do we use square? Answer: Squaring deviation and then taking squares seems to be useless however actually it has certain meaning like the squaring of the deviations (x-x) removes the drawbacks of ignoring signs of the deviations in computation of mean deviation. Taking the sign into consideration we obtain positive values always when squared. But squaring gives aunit that isthe square of theunit the quantity is measured in. This step provides it suitable for further mathematical treatment. 9. Study the following summary statistics of the scores of two graders VI and VII. Now give your answer to the following questions and give figures to support your answers. a. Which class had the larger number of pupils? Answer: Grade VI had larger number of pupils. b. Which class on the average had the higher scores? Answer: Grade VII on the average had the higher scores. c. In which class were the scores more scattered? (Given four different statistics to show the difference in scatter.) Answer: For Grade VI, the scores are more scattered. The four different measures to show the difference in scatter ness are as follows: Interquartile range Coefficient of S.D. Coefficient of M.D. from mean Coefficient of variation 9. Are the distributions of scores about the mean symmetrical? What is your evidence? If not, which class has high scores not balanced by similar low scores? The distribution of scores about the mean in both classes are not symmetrical as we can find Mean = Median = Mode is not satisfied for both the grades. In grade VI, since Mean < Median Median > Mode, it is positively skewed. That is there is greater variation towards the higher values of the variables. 10. Take one distributed data grouped into different frequencies and calculate different measure of central tendencies (Arithmetic mean, Median, and mode) and measures of dispersion (Q.D., MD, and SD). Give your judgments about your data concerning to symmetry. Answer: Suppose, the weights of 50 students of a class are classified below. For Mean; Mean = A + = 65- = 64.87 Hence, Mean =64.87 For Median; Hence, Median lies in the class 60-70 Median = = 60+=66.2 Hence, Median=66.2 For Mode; Since maximum frequency occurs at two classes, so the given distribution is a bimodal distribution. So, Mode =3 median-2 mean =3*66.87-2*64.87 =198.6-129.74=68.86 Hence, Mode=68.86 For Quartile Deviation; Position of Q1= Hence First Quartile (Q1) lies in the interval 50-60 Now, Q1 = 50+ Hence, First Quartile (Q1)= 57.28 Position of Q3= Hence Third Quartile (Q3) lies in the interval 70-80 Again, Q3 = =70+ =73.62 Now, QD= ==8.17 Hence, Quartile Deviation (QD) = 8.17 For Mean Deviations; Mean deviation from mean Calculation of Standard Deviations Now, N = 75, ÃŽ £fd = -1 ÃŽ £fd2 = 89 = = =1.08*10 =10.81 To identify Symmetry Here, Mean = 64.87 Median = 66.2 Mode = 68.86 Hence, the curve is not symmetrical. Calculation of Skewness Sk = is negative skewed.

Basel II Accord Effects on Qatar Banking

Basel II Accord Effects on Qatar Banking International banking is increasingly vital for every country in order to create an image for itself in the international finance market Chapter 1: Introduction International banking is increasingly vital for every country in order to create an image for itself in the international finance market. Alongside, the increase in globalisation and the upsurge in outsourcing by multinational companies in the west have created a lot of opportunities for growth in the Middle East and Far Eastern countries. This apparently requires a strong internationally stable financial organization to conduct transactions across the globe without any errors (i.e.) 100% accuracy.   This includes reliability and stability of the bank under extreme situations (like emergency for example), which is highly important to conduct international transactions. Also the potential to meet financial demands during crisis situations is a vital criterion that is considered while presenting themselves in the international market. In addition to the globalisation, outsourcing and export/import growth, there is also a tremendous growth in cross-border finance among the countries in the Middle East and Far East. Along with all these factors the developing nations in the Middle East face a mandatory requirement of a sable international banking system in order to attract foreign investment. The increase in cross border finance activity among the middle eastern countries is also a critical element to be considered for establishing a stable international bank within the nation in order to represent the country in the international finance market. The countries in the Middle East are actively participating in cross-border finance since the dawn of the 21st century. Being a producer of Oil which is a vital ingredient at all levels of life right from day-to-day driving up to power generation for the nation in order to run industries and serve domestic purposes, makes it critical for the nations in the Middle East to have a strong international banking system to conduct transactions across the globe accurately and effectively. Qatar is a growing nation in the Middle East with primary operations in oil and gas export as well increasing its potential in areas of development in technology focusing on IT and communication. The nation has efficient international operations and con ducts financial transactions between western nations as well as with eastern nations. Since the take over of the government by H.H. Sheikh Hamad Bin Khalifa in 1995, the country is making tremendous progress in deploying its hydrocarbon resources in order to penetrate in the international market and present itself as a financially stable nation in the international market. Further to the increase in the international operations by the countries in the Middle East and the Far East, the Bank for International Settlements developed a framework to co-ordinate the international financial operations as well as create a portfolio for the capital measurement and capital standards which every nation involving in international banking operations is expected to adopt in order to stabilise and put in order the international transactions between countries. The Basel II accord produced by Basel Committee on Banking Supervision aims at achieving International Convergence of Capital Measurement and Capital Standards. The arrangement aims to set a minimum standard to be met by its participating nations in order to achieve capital adequacy by the participating nations in the international market. This report aims at analysing the effects of Basel II accord on Qatar’s banking sector. The objectives of this report are stated below: To analyse the Basel II accord and it’s framework for measuring capital adequacy in the nations participating in the international banking transaction. To investigate the banking sector of Qatar and the effect of Basel II accord on its international operations and capital adequacy. To analyse the effect of Basel II accord on the nation’s two major banks having international operations in Qatar namely, Qatar Industrial Development Bank (QIDB) and Commercial Bank of Qatar (CBQ) and to analyse the impact of Basel II Accord on the Banking Sector of Qatar. Report Outline: The report comprises of the following chapters. Chapter 1: Introduction This chapter introduces the reader to the objectives of the report and presents a broad picture of the report to the reader. Chapter 2: Overview of Basel II Accord This chapter presents with an overview of the Basel II accord. The three pillars of Basel II accord namely Minimum Capital Requirements, Supervisory Review Process and Market Discipline are analysed in detail to provide the reader with a detailed understanding of the consent of Basel Committee on Banking Supervision. Chapter 3: Implications and Critical Analysis of Basel II Accord The literature review on the Basel II Accord in chapter 2 is followed by the critical analysis and its implications on nations (business and political) are presented to the reader before proceeding to present the overview of the Qatar Banking sector.    Chapter 4: Overview of Qatar and its Banking Sector This chapter presents the reader with an overview of Qatar as a nation and its business operations in the International market. Alongside, the chapter analyses the country’s growth in the banking sector and its internationally active banks. Chapter 5: Case Study This chapter conducts a case study analysis on Qatar’s two internationally active banks namely Qatar Industrial Development Bank (QIDB) and Commercial Bank of Qatar (CBQ). The effect of Basel II accord on the banks along with an overview of the bank is presented to the reader. The data used to present the case study is primarily obtained from secondary sources like journals, reports and white papers. This is apparently due the fact that the analysis is conducted on a foreign nation as well as the data available from the secondary sources are also reliable as they are published by legitimate organizations and popular journals.   Chapter 6: Results and Discussions The results of the case study analysis and discussions are carried out in this chapter. This chapter aims to present a clearer picture to the reader on the effects of the Basel II accord on the banks analysed. Chapter 7:   Conclusion and Recommendations The conclusions derived from the case results and discussions on the case study and the overall conclusion on the effect of Basel I accord on the Qatar Banking Sector is presented in this chapter. Alongside, this chapter presents a few constructive recommendations based on the results and discussion on the case study. Chapter 2: Overview of Basel II Accord This chapter begins with an overview of the Bank for International Settlements followed by a detailed analysis of the Basel II accord. The Basel II committee is also analysed alongside in order to provide a deeper insight to the readers. 2.1 Bank for International Settlements Overview and it’s Operations The Bank for International Settlements (Bank for International Settlements) is an international organization looking after international monetary and financial co-operation across the globe. This organization acts as the bank for all the central banks of countries participating in the international finance and banking. The Bank for International Settlements profile states that the bank achieves the aforementioned statement through acting as A forum to promote discussion and facilitate decision-making processes among central banks and within the international financial and supervisory community. A centre for economic and monetary research A prime counter party for central banks in their financial transactions and Agent or trustee in connection with international financial operations. Established in 17th Many 1930, it is the oldest financial organization at the international level. The Bank for International Settlements has three major decision making bodies within the bank to achieve its mission. They are The general meeting of member central banks This meeting is held before the end of four months of the end of the banks annual financial year. The meeting addresses all the issues related to business and the member central banks gather to approve the annual financial statement released by the bank. The Board of Directors The board of directors comprise the central bank governors elected from various participating countries. They monitor the overall operation of the bank and take responsibility for actions to be taken and address issues related to disputes and other major international financial cross border problems. The Management Committee The management committee is the first line representative of the Bank for International Settlements and addresses the day-to-day activities of the bank. This committee primarily manages the monetary and financial co-operation services. The services include Meetings: Apart from the Annual general meeting the Bank for International Settlements organizes meetings on a bimonthly basis. This meeting brings the member central banks together with the aim of monitoring the global economic and financial development and discusses issues on its policies in relation to the monetary and financial stability. Committees and Secretariats Bank for International Settlements has several committees to monitor specific problems and issues in the international finance and cross border loans. Alongside, several other committees and organizations focusing on international financial systems have their secretariats in the Bank for International Settlements and work closely with the bank in order to enhance the overall international banking and cross border finance. Basel committee of the Bank for International Settlements is the committee that laid the specifications for capital measurement and capital standard of the central banks participating in the international banking. Research and Statistics: In order to support its meetings and the activities of the organization’s Basel based committees the Bank for International Settlements carries out regular research on economic, monetary, financial and legal areas of the international banking and cross border finance. Investment services for central banks: Bank for International Settlements also provides security, liquidity and return for its central bank members. The three primary points with respect to this identified by the organization are: To provide security, the Bank has built up a sizeable equity capital and ample reserves. It pursues an investment strategy focused on combining diversification benefits with intensive credit and market risk analysis. To ensure liquidity, the Bank stands ready to repurchase its tradable instruments at little cost to its customers and thus respond quickly and flexibly to their needs. The BIS offers an attractive and competitive return on the funds deposited by central banks and international organisations The Bank for International Settlements focuses on serving the financial needs of central banks of the member countries. Alongside, it also acts as a banker managing the funds for numerous international financial institutions. 2.2: Basel committee Overview The Basel committee was established the member central banks of the Bank for International Settlements in order to create a standard for the international banking and capital framework for crass border finance and lending. The committee was initially set up in 1970 and meets regularly four times a year to discuss the progress in international banking and address issues related to business in this context. The member nations of the committee include Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom and United States. The country’s central bank and financial institutions that are not active in banking commercially but monitor the financial operations of the nation both at national and international levels represent the nations. The committee does no possess any authority over its member nations banking systems and the decisions of the committee are never intended to have a legal force on its member nations. The Central bank governors of the Group ten countries endorse the committee’s major initiatives. Also the committee reports to the group ten countries central bank governors. The committee first proposed he capital measurement system in 1988 commonly referred to as ‘Basel Capital Accord’. The committee aims in supervising the international banking operations of the nations across the globe. The decisions of the committee endorsed by the group ten countries address various financial issues in the international market outside the groups as well. The major aim of the committee is the ‘close the gaps in international supervisory coverage’ and to ensure that no foreign banking systems escapes the supervision in order to establish a harmony among the member nations of the Bank for International Settlements as well as in the international market. The committee has promoted supervisory standards in the past few years. Some of its major milestones include the following 1997: Cover Principles for effective banking supervision 1999: Core Principles methodology The committee also presented the Basel II accord with revision on international capital framework. This aims to standardise the capital framework of every bank participating in the international banking as well as sets slabs for minimum capital holdings to be met by the banks in order to qualify for international operations. The committee has numerous subgroups to perform specific tasks of the committee in order to achieve the overall motto of the committee. They are listed below Accord Implementation Group Accounting Task Force Capital Group Capital Task Force Core Principles Liaison Group (with 16 non-G10 countries) Cross-Border Banking Group Electronic Banking Group Joint Forum (with IAIS and IOSCO) Joint IOSCO BCBS Working Group on Trading Book Research Task Force Risk Management Group Securitisation Group Transparency Group The next section provides a detailed analysis of the Basel II accord and its various implications on international banking is discussed in chapter 3. 2.3 The Basel II Accord The Basel II accord was released in June 2004 further to the release of the Basel Accord in 2003. The Basel II is a revised edition of the initial Basel capital accord. It is a framework designed to derive the capital holdings of internationally active banks to meet the international standards and sets a minimum level of capital holding which is a primary criteria for the banks. The Basel II framework is aimed to be applied on a consolidated basis over internationally active banks in order to preserve the integrity of capital in the banks with subsidiaries. Also the framework eliminates the double gearing through this approach. The Basel II accord’s framework is also applied on a fully consolidated basis on any parent holding company which acts as a parent entity within a banking group in order to capture the risk on a consolidated basis without missing any element that contributes considerably to the risk of the overall banking system. Alongside, the framework is also applicable to all internationally active banks at every tier of the banking group. Apart from the aforementioned statements one of the principal objectives of the Basel II Accord is to protect the interest of the depositors essentially to ensure that capital recognised capital adequacy measures is readily available for the depositors. Apparently, these measures are aimed to establish a common platform for international banking and cross border finance across the globe. The scope of application extends to the following segments of the international banking and finance entities. Banking, securities and other financial subsidiaries Significant minority investments in banking securities Insurance entities Significant investment in commercial entities. Deduction of investment pursuant to this part The aforementioned entities are obtained from the Basel Committee report on International Convergence of Capital Measurement and Capital Standards, published in June 2004. The Basel II accord overview is based on this report. The illustration in the fig 1 gives a clear picture of the overall scope of application of the Basel II accord. The Basel II accord is split into three pillars. The first Pillar: Minimum Capital Requirements The following subsections provide a detailed analysis on the elements shown in fig 2. 2.4: The First Pillar The First pillar lays down the minimum capital requirements that every internationally active bank should incorporate.   It is split into the following subsection. 2.4.1:   Calculation of Minimum capital requirements The minimum capital requirement is calculated as a measure of the capital ration. The capital ratio in turn is calculated using the regulatory capital and risk-weighted assets. The requirement of this criterion is that the capital ration must be a minimum of 8% or more in order to be eligible for the international activities. Also, in case of a two tier system the capital in tier 2 must not be greater than the tier 1 capital (i.e.) the tier 2 capital can be a maximum of 100% of the tier 1 capital. The capital is accounted from the following sources    Regulatory capital: The minimum accounting capital requirements for the financial institution encompasses the regulatory capital. The Basel II accord has withdrawn the provision to include general provisions in tire 2 capital, which was in effect in the 1988 Accord under the Internal Ratings-Based (IRB) approach.   Furthermore the accord has lain down that the banks using the Internal Ratings Based approach to their other assets mus t compare the amount of total eligible provision with the total expected losses amount to the bank. This eventually increases the capital holding of the bank in order to meet the criteria. Risk Weighted Assets: The Basel II Accord calculates the total risk-weighted assets by multiplying the capital requirement for market risk and operational risk by the reciprocal of the minimum capital ratio of 8% and adding the resulting value to the sum of risk weighted assets for credit risk. Even though this is subject to review the approach lays enormous burden on the bank to increase its minimum capital holdings. Apparently the Basel II Accord is aiming to establish that the internationally active banks must have enough capital to meet its short comings without depending on loans and cross border finance to address its immediate requirements and short comings. The idea though being novel is very intense for the banks to maintain the required minimum capital. 2.4.2: Credit Risk-The Standardised Approach Under this method the Basel committee provides the internationally active banks a choice for calculating their capital requirements for credit risk. The first approach is the standardised method of measuring the credit risk through support from external credit assessments. This method is approved by the Basel committee while the other method is yet to explicitly approved by the committee. Under the alternate method of calculating the credit risk, the bank supervisor can allow banks to use their internal rating systems for calculating the credit risk. Under both the methodologies one should not oversee the fact that the Basel committee is very keen in assessing the credit risk on the capital holdings of the internationally active banks. Even though this is appreciated, the rules are very stringent making it very difficult for the banks for adopt easily. 2.4.3 Credit Risk- Internal Ratings Based Approach The Basel II committee has given supervisory approval for banks to use the Internal Ratings-Based approach to determine their capital requirement for a given exposure subject to certain minimum conditions and disclosure requirements. The risk components considered include Measures of the probability of default (PD), Loss given default (LGD), The exposure at default (EAD), Effective maturity (M) The Basel II accord states that â€Å"The Internal Ratings Based Approach is based on the measure of unexpected loses (UL) and Expected Loses (EL). Under the Internal Ratings Based Approach, the committee expects the bank to categories their exposures in order to identify the different underlying risk characteristics. The categories include corporate, sovereign, bank, retail and equity. These are identified as the corporate asset classes and the approach further expects the bank to identify the subclasses associated with the asset classes in order to measure the credit risk associated with the exposure. The detailed analysis of every corporate class and its associated subclasses is beyond the scope of this report. In essence the Internal Ratings Based Approach gives the bank more liberty to calculate its credit-risk on the minimum capital requirement for a given exposure. But the producers laid by the Basel II Accord is very tedious to adopt and implement for every corporate class exposure and identifying the subclasses associated. 2.4.4: Credit Risk- Securitisation Framework The Basel Committee in its revised accord, has made it mandatory for the banks to apply the Securitisation Framework for determining regulatory capital requirements on exposure arising from traditional and synthetic Securitisation or similar structures that contain features common to both.   The Basel II accord also states that the capital treatment of the Securitisation exposure must be determined on the basis of the economic substance rather than the legal form of the structure. It is apparent that the securities can be structured in many different ways and the committee has approved the use of either the traditional Securitisation or the synthetic Securitisation framework. Also the Basel II accord expects the supervisor to look at the economic substance of transaction in order to determine whether it should be subject to Securitisation framework or not. This gives the discretionary power to the supervisor to decide on a specific transaction whether to include it in the framework or to eliminate it from the framework towards determining the regulatory capital framework. The traditional Securitisation and the synthetic Securitisation framework are discussed below. Traditional Securitisation: The Basel II Accord defines the traditional framework as â€Å"a structure where the cash flow from an underlying pool of exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk†. The advantage with this approach is that the payment to the investors is based on the performance of the specified underlying exposures rather than a derivation from an obligation of the entity originating those exposures. Synthetic Securitisation â€Å"A synthetic Securitisation is a structure with at least two different stratified risk positions or tranches that reflect different degrees of credit risk where credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of funded (e.g. credit-linked notes) or un-funded (e.g. credit default swaps) credit derivatives or guarantees that serve to hedge the credit risk of the portfolio†. This approach leaves the return to the investors in the hands of the performance of the underlying pool. Apparently, the risk associated is higher since the performance can be affected by numerous causes. From the above-mentioned approaches the Basel II accord’s stand for evaluating the capital and minimum capital requirements are evident. 2.4.5: Operational Risk The operational risk is defined by the Basel Committee as the risk associated with the loss resulting from inadequate or failed internal processes, people, systems or external events. This includes the legal risk with the exclusion of strategic and reputational risk. The Basel II Accord has approved three methods for calculating the operational risk and risk sensitivity with the implications on minimum capital requirements. They are: (i) The Basic indicator approach, (ii) the Standardised Approach and (iii) Advanced Measurement Approach. Basic Indicator Approach: In this case the banks should hold capital for the operational risk equal to the average over the past three years of a fixed percentage. This is expressed as a formula below KBIA = [ÃŽ £ (GI1†¦n x ÃŽ ±)] Where KBIA = the capital charge under the Basic Indicator Approach GI = annual gross income, where positive, over the previous three years n = number of the previous three years for which gross income is positive ÃŽ ± = 15%, which is set by the Committee, relating the industry wide level of required capital to the industry wide level of the indicator. This formula is obtained from the Basel II accord for the purpose of reader understanding. Standardised Approach: The standardised approach divides the bank’s activities into eight-business lines namely corporate finance, trading sales, retail banking, commercial banking, payment settlement, agency services, asset management, and retail brokerage. The likelihood of operational risk exposure is calculated from the gross income associated with each business line that serves as an indicator for the scale of business operations by the bank in that specific area of business or business line. This approach is very clumsy since the gross income associated with the business line varies due to numerous reasons both internal and external. Advanced Measurement Approach: The Advanced Measurement Approach equates the regulatory capital requirement with the risk measure generated by the bank’s internal operational risk measurement system using quantitative and qualitative criteria. The banks can use this method only after the approval by the Committee. The Basel II Accord sets the approach for the banks based on their international activity and significant operational risk exposures. Also, when a bank agrees to use a more sophisticated method, it cannot revert back to the easier method without approval from the supervisor. This eventually increases the burden on the banks to choose a sophisticated method. 2.4.6: Trading Book Issues The final segment of the first pillar is the trading book. Basel Committee defines the trading book as a container of both the financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book. The trading book forms a vital element for the bank since it is the record of the bank’s financial instruments as well as commodities. The Basel II Accord identifies four key principles for the supervisory process. They are listed below. The basic requirements for the eligibility to trading book capital treatment put forth by the Basel II Accord are as follows Clearly documented trading strategy for the position/instrument or portfolios, approved by senior management (which would include expected holding horizon). Clearly defined policies and procedures for the active management of the position Clearly defined policy and procedures to monitor the positions against the bank’s trading strategy including the monitoring of turnover and stale positions in the bank’s trading book 2.3: The Second Pillar- Supervisory Review Process Basel committee was initially set up for the supervising the internationally active banks and produce a common platform for the smooth transactions and cross border finance. The Basel II Accord has established Supervisory Process as one of the three pillars in order to emphasise its stand on supervisory process. The importance of supervisory process is described below. 2.3.1: Importance of Supervisory Process The supervisory review process of the Basel II Accord aims not only to ensure that banks have adequate capital to support all the risks in their business but also intends to encourage the banks to develop and use better risk management techniques in monitoring and managing risks. Alongside, the supervisory process by developing internal capital assessment process and setting capital targets that are commensurate with the bank’s risk profile recognises the importance for bank management in order to improve the atmosphere in the international banking and cross border finance. The Supervisory process evaluates the relationship between the amount of capital held by the bank against the risk, strength and effectiveness of the bank’s risk management eventually guiding the bank and supervising its activities in order to improve the performance of the banks in the international business market and cross border finance. 2.3.2 Four Key Principles of the supervisory review The four key principles identified by the Basel II Accord on the supervisory process is listed below. These principles emphasise on the committee’s focus on supervision and its aim to maintain harmony in the international banking and cross border finance. Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels. Principle 2:Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process. Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored. 2.3.3: Issues to be addressed There are two specific issues to be addressed by the Supervisory-Review Process. They are Interest Rate Risk in the Banking book: Since it is clear that the Basel Committee’s Basel II Accord Effects on Qatar Banking Basel II Accord Effects on Qatar Banking International banking is increasingly vital for every country in order to create an image for itself in the international finance market Chapter 1: Introduction International banking is increasingly vital for every country in order to create an image for itself in the international finance market. Alongside, the increase in globalisation and the upsurge in outsourcing by multinational companies in the west have created a lot of opportunities for growth in the Middle East and Far Eastern countries. This apparently requires a strong internationally stable financial organization to conduct transactions across the globe without any errors (i.e.) 100% accuracy.   This includes reliability and stability of the bank under extreme situations (like emergency for example), which is highly important to conduct international transactions. Also the potential to meet financial demands during crisis situations is a vital criterion that is considered while presenting themselves in the international market. In addition to the globalisation, outsourcing and export/import growth, there is also a tremendous growth in cross-border finance among the countries in the Middle East and Far East. Along with all these factors the developing nations in the Middle East face a mandatory requirement of a sable international banking system in order to attract foreign investment. The increase in cross border finance activity among the middle eastern countries is also a critical element to be considered for establishing a stable international bank within the nation in order to represent the country in the international finance market. The countries in the Middle East are actively participating in cross-border finance since the dawn of the 21st century. Being a producer of Oil which is a vital ingredient at all levels of life right from day-to-day driving up to power generation for the nation in order to run industries and serve domestic purposes, makes it critical for the nations in the Middle East to have a strong international banking system to conduct transactions across the globe accurately and effectively. Qatar is a growing nation in the Middle East with primary operations in oil and gas export as well increasing its potential in areas of development in technology focusing on IT and communication. The nation has efficient international operations and con ducts financial transactions between western nations as well as with eastern nations. Since the take over of the government by H.H. Sheikh Hamad Bin Khalifa in 1995, the country is making tremendous progress in deploying its hydrocarbon resources in order to penetrate in the international market and present itself as a financially stable nation in the international market. Further to the increase in the international operations by the countries in the Middle East and the Far East, the Bank for International Settlements developed a framework to co-ordinate the international financial operations as well as create a portfolio for the capital measurement and capital standards which every nation involving in international banking operations is expected to adopt in order to stabilise and put in order the international transactions between countries. The Basel II accord produced by Basel Committee on Banking Supervision aims at achieving International Convergence of Capital Measurement and Capital Standards. The arrangement aims to set a minimum standard to be met by its participating nations in order to achieve capital adequacy by the participating nations in the international market. This report aims at analysing the effects of Basel II accord on Qatar’s banking sector. The objectives of this report are stated below: To analyse the Basel II accord and it’s framework for measuring capital adequacy in the nations participating in the international banking transaction. To investigate the banking sector of Qatar and the effect of Basel II accord on its international operations and capital adequacy. To analyse the effect of Basel II accord on the nation’s two major banks having international operations in Qatar namely, Qatar Industrial Development Bank (QIDB) and Commercial Bank of Qatar (CBQ) and to analyse the impact of Basel II Accord on the Banking Sector of Qatar. Report Outline: The report comprises of the following chapters. Chapter 1: Introduction This chapter introduces the reader to the objectives of the report and presents a broad picture of the report to the reader. Chapter 2: Overview of Basel II Accord This chapter presents with an overview of the Basel II accord. The three pillars of Basel II accord namely Minimum Capital Requirements, Supervisory Review Process and Market Discipline are analysed in detail to provide the reader with a detailed understanding of the consent of Basel Committee on Banking Supervision. Chapter 3: Implications and Critical Analysis of Basel II Accord The literature review on the Basel II Accord in chapter 2 is followed by the critical analysis and its implications on nations (business and political) are presented to the reader before proceeding to present the overview of the Qatar Banking sector.    Chapter 4: Overview of Qatar and its Banking Sector This chapter presents the reader with an overview of Qatar as a nation and its business operations in the International market. Alongside, the chapter analyses the country’s growth in the banking sector and its internationally active banks. Chapter 5: Case Study This chapter conducts a case study analysis on Qatar’s two internationally active banks namely Qatar Industrial Development Bank (QIDB) and Commercial Bank of Qatar (CBQ). The effect of Basel II accord on the banks along with an overview of the bank is presented to the reader. The data used to present the case study is primarily obtained from secondary sources like journals, reports and white papers. This is apparently due the fact that the analysis is conducted on a foreign nation as well as the data available from the secondary sources are also reliable as they are published by legitimate organizations and popular journals.   Chapter 6: Results and Discussions The results of the case study analysis and discussions are carried out in this chapter. This chapter aims to present a clearer picture to the reader on the effects of the Basel II accord on the banks analysed. Chapter 7:   Conclusion and Recommendations The conclusions derived from the case results and discussions on the case study and the overall conclusion on the effect of Basel I accord on the Qatar Banking Sector is presented in this chapter. Alongside, this chapter presents a few constructive recommendations based on the results and discussion on the case study. Chapter 2: Overview of Basel II Accord This chapter begins with an overview of the Bank for International Settlements followed by a detailed analysis of the Basel II accord. The Basel II committee is also analysed alongside in order to provide a deeper insight to the readers. 2.1 Bank for International Settlements Overview and it’s Operations The Bank for International Settlements (Bank for International Settlements) is an international organization looking after international monetary and financial co-operation across the globe. This organization acts as the bank for all the central banks of countries participating in the international finance and banking. The Bank for International Settlements profile states that the bank achieves the aforementioned statement through acting as A forum to promote discussion and facilitate decision-making processes among central banks and within the international financial and supervisory community. A centre for economic and monetary research A prime counter party for central banks in their financial transactions and Agent or trustee in connection with international financial operations. Established in 17th Many 1930, it is the oldest financial organization at the international level. The Bank for International Settlements has three major decision making bodies within the bank to achieve its mission. They are The general meeting of member central banks This meeting is held before the end of four months of the end of the banks annual financial year. The meeting addresses all the issues related to business and the member central banks gather to approve the annual financial statement released by the bank. The Board of Directors The board of directors comprise the central bank governors elected from various participating countries. They monitor the overall operation of the bank and take responsibility for actions to be taken and address issues related to disputes and other major international financial cross border problems. The Management Committee The management committee is the first line representative of the Bank for International Settlements and addresses the day-to-day activities of the bank. This committee primarily manages the monetary and financial co-operation services. The services include Meetings: Apart from the Annual general meeting the Bank for International Settlements organizes meetings on a bimonthly basis. This meeting brings the member central banks together with the aim of monitoring the global economic and financial development and discusses issues on its policies in relation to the monetary and financial stability. Committees and Secretariats Bank for International Settlements has several committees to monitor specific problems and issues in the international finance and cross border loans. Alongside, several other committees and organizations focusing on international financial systems have their secretariats in the Bank for International Settlements and work closely with the bank in order to enhance the overall international banking and cross border finance. Basel committee of the Bank for International Settlements is the committee that laid the specifications for capital measurement and capital standard of the central banks participating in the international banking. Research and Statistics: In order to support its meetings and the activities of the organization’s Basel based committees the Bank for International Settlements carries out regular research on economic, monetary, financial and legal areas of the international banking and cross border finance. Investment services for central banks: Bank for International Settlements also provides security, liquidity and return for its central bank members. The three primary points with respect to this identified by the organization are: To provide security, the Bank has built up a sizeable equity capital and ample reserves. It pursues an investment strategy focused on combining diversification benefits with intensive credit and market risk analysis. To ensure liquidity, the Bank stands ready to repurchase its tradable instruments at little cost to its customers and thus respond quickly and flexibly to their needs. The BIS offers an attractive and competitive return on the funds deposited by central banks and international organisations The Bank for International Settlements focuses on serving the financial needs of central banks of the member countries. Alongside, it also acts as a banker managing the funds for numerous international financial institutions. 2.2: Basel committee Overview The Basel committee was established the member central banks of the Bank for International Settlements in order to create a standard for the international banking and capital framework for crass border finance and lending. The committee was initially set up in 1970 and meets regularly four times a year to discuss the progress in international banking and address issues related to business in this context. The member nations of the committee include Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom and United States. The country’s central bank and financial institutions that are not active in banking commercially but monitor the financial operations of the nation both at national and international levels represent the nations. The committee does no possess any authority over its member nations banking systems and the decisions of the committee are never intended to have a legal force on its member nations. The Central bank governors of the Group ten countries endorse the committee’s major initiatives. Also the committee reports to the group ten countries central bank governors. The committee first proposed he capital measurement system in 1988 commonly referred to as ‘Basel Capital Accord’. The committee aims in supervising the international banking operations of the nations across the globe. The decisions of the committee endorsed by the group ten countries address various financial issues in the international market outside the groups as well. The major aim of the committee is the ‘close the gaps in international supervisory coverage’ and to ensure that no foreign banking systems escapes the supervision in order to establish a harmony among the member nations of the Bank for International Settlements as well as in the international market. The committee has promoted supervisory standards in the past few years. Some of its major milestones include the following 1997: Cover Principles for effective banking supervision 1999: Core Principles methodology The committee also presented the Basel II accord with revision on international capital framework. This aims to standardise the capital framework of every bank participating in the international banking as well as sets slabs for minimum capital holdings to be met by the banks in order to qualify for international operations. The committee has numerous subgroups to perform specific tasks of the committee in order to achieve the overall motto of the committee. They are listed below Accord Implementation Group Accounting Task Force Capital Group Capital Task Force Core Principles Liaison Group (with 16 non-G10 countries) Cross-Border Banking Group Electronic Banking Group Joint Forum (with IAIS and IOSCO) Joint IOSCO BCBS Working Group on Trading Book Research Task Force Risk Management Group Securitisation Group Transparency Group The next section provides a detailed analysis of the Basel II accord and its various implications on international banking is discussed in chapter 3. 2.3 The Basel II Accord The Basel II accord was released in June 2004 further to the release of the Basel Accord in 2003. The Basel II is a revised edition of the initial Basel capital accord. It is a framework designed to derive the capital holdings of internationally active banks to meet the international standards and sets a minimum level of capital holding which is a primary criteria for the banks. The Basel II framework is aimed to be applied on a consolidated basis over internationally active banks in order to preserve the integrity of capital in the banks with subsidiaries. Also the framework eliminates the double gearing through this approach. The Basel II accord’s framework is also applied on a fully consolidated basis on any parent holding company which acts as a parent entity within a banking group in order to capture the risk on a consolidated basis without missing any element that contributes considerably to the risk of the overall banking system. Alongside, the framework is also applicable to all internationally active banks at every tier of the banking group. Apart from the aforementioned statements one of the principal objectives of the Basel II Accord is to protect the interest of the depositors essentially to ensure that capital recognised capital adequacy measures is readily available for the depositors. Apparently, these measures are aimed to establish a common platform for international banking and cross border finance across the globe. The scope of application extends to the following segments of the international banking and finance entities. Banking, securities and other financial subsidiaries Significant minority investments in banking securities Insurance entities Significant investment in commercial entities. Deduction of investment pursuant to this part The aforementioned entities are obtained from the Basel Committee report on International Convergence of Capital Measurement and Capital Standards, published in June 2004. The Basel II accord overview is based on this report. The illustration in the fig 1 gives a clear picture of the overall scope of application of the Basel II accord. The Basel II accord is split into three pillars. The first Pillar: Minimum Capital Requirements The following subsections provide a detailed analysis on the elements shown in fig 2. 2.4: The First Pillar The First pillar lays down the minimum capital requirements that every internationally active bank should incorporate.   It is split into the following subsection. 2.4.1:   Calculation of Minimum capital requirements The minimum capital requirement is calculated as a measure of the capital ration. The capital ratio in turn is calculated using the regulatory capital and risk-weighted assets. The requirement of this criterion is that the capital ration must be a minimum of 8% or more in order to be eligible for the international activities. Also, in case of a two tier system the capital in tier 2 must not be greater than the tier 1 capital (i.e.) the tier 2 capital can be a maximum of 100% of the tier 1 capital. The capital is accounted from the following sources    Regulatory capital: The minimum accounting capital requirements for the financial institution encompasses the regulatory capital. The Basel II accord has withdrawn the provision to include general provisions in tire 2 capital, which was in effect in the 1988 Accord under the Internal Ratings-Based (IRB) approach.   Furthermore the accord has lain down that the banks using the Internal Ratings Based approach to their other assets mus t compare the amount of total eligible provision with the total expected losses amount to the bank. This eventually increases the capital holding of the bank in order to meet the criteria. Risk Weighted Assets: The Basel II Accord calculates the total risk-weighted assets by multiplying the capital requirement for market risk and operational risk by the reciprocal of the minimum capital ratio of 8% and adding the resulting value to the sum of risk weighted assets for credit risk. Even though this is subject to review the approach lays enormous burden on the bank to increase its minimum capital holdings. Apparently the Basel II Accord is aiming to establish that the internationally active banks must have enough capital to meet its short comings without depending on loans and cross border finance to address its immediate requirements and short comings. The idea though being novel is very intense for the banks to maintain the required minimum capital. 2.4.2: Credit Risk-The Standardised Approach Under this method the Basel committee provides the internationally active banks a choice for calculating their capital requirements for credit risk. The first approach is the standardised method of measuring the credit risk through support from external credit assessments. This method is approved by the Basel committee while the other method is yet to explicitly approved by the committee. Under the alternate method of calculating the credit risk, the bank supervisor can allow banks to use their internal rating systems for calculating the credit risk. Under both the methodologies one should not oversee the fact that the Basel committee is very keen in assessing the credit risk on the capital holdings of the internationally active banks. Even though this is appreciated, the rules are very stringent making it very difficult for the banks for adopt easily. 2.4.3 Credit Risk- Internal Ratings Based Approach The Basel II committee has given supervisory approval for banks to use the Internal Ratings-Based approach to determine their capital requirement for a given exposure subject to certain minimum conditions and disclosure requirements. The risk components considered include Measures of the probability of default (PD), Loss given default (LGD), The exposure at default (EAD), Effective maturity (M) The Basel II accord states that â€Å"The Internal Ratings Based Approach is based on the measure of unexpected loses (UL) and Expected Loses (EL). Under the Internal Ratings Based Approach, the committee expects the bank to categories their exposures in order to identify the different underlying risk characteristics. The categories include corporate, sovereign, bank, retail and equity. These are identified as the corporate asset classes and the approach further expects the bank to identify the subclasses associated with the asset classes in order to measure the credit risk associated with the exposure. The detailed analysis of every corporate class and its associated subclasses is beyond the scope of this report. In essence the Internal Ratings Based Approach gives the bank more liberty to calculate its credit-risk on the minimum capital requirement for a given exposure. But the producers laid by the Basel II Accord is very tedious to adopt and implement for every corporate class exposure and identifying the subclasses associated. 2.4.4: Credit Risk- Securitisation Framework The Basel Committee in its revised accord, has made it mandatory for the banks to apply the Securitisation Framework for determining regulatory capital requirements on exposure arising from traditional and synthetic Securitisation or similar structures that contain features common to both.   The Basel II accord also states that the capital treatment of the Securitisation exposure must be determined on the basis of the economic substance rather than the legal form of the structure. It is apparent that the securities can be structured in many different ways and the committee has approved the use of either the traditional Securitisation or the synthetic Securitisation framework. Also the Basel II accord expects the supervisor to look at the economic substance of transaction in order to determine whether it should be subject to Securitisation framework or not. This gives the discretionary power to the supervisor to decide on a specific transaction whether to include it in the framework or to eliminate it from the framework towards determining the regulatory capital framework. The traditional Securitisation and the synthetic Securitisation framework are discussed below. Traditional Securitisation: The Basel II Accord defines the traditional framework as â€Å"a structure where the cash flow from an underlying pool of exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk†. The advantage with this approach is that the payment to the investors is based on the performance of the specified underlying exposures rather than a derivation from an obligation of the entity originating those exposures. Synthetic Securitisation â€Å"A synthetic Securitisation is a structure with at least two different stratified risk positions or tranches that reflect different degrees of credit risk where credit risk of an underlying pool of exposures is transferred, in whole or in part, through the use of funded (e.g. credit-linked notes) or un-funded (e.g. credit default swaps) credit derivatives or guarantees that serve to hedge the credit risk of the portfolio†. This approach leaves the return to the investors in the hands of the performance of the underlying pool. Apparently, the risk associated is higher since the performance can be affected by numerous causes. From the above-mentioned approaches the Basel II accord’s stand for evaluating the capital and minimum capital requirements are evident. 2.4.5: Operational Risk The operational risk is defined by the Basel Committee as the risk associated with the loss resulting from inadequate or failed internal processes, people, systems or external events. This includes the legal risk with the exclusion of strategic and reputational risk. The Basel II Accord has approved three methods for calculating the operational risk and risk sensitivity with the implications on minimum capital requirements. They are: (i) The Basic indicator approach, (ii) the Standardised Approach and (iii) Advanced Measurement Approach. Basic Indicator Approach: In this case the banks should hold capital for the operational risk equal to the average over the past three years of a fixed percentage. This is expressed as a formula below KBIA = [ÃŽ £ (GI1†¦n x ÃŽ ±)] Where KBIA = the capital charge under the Basic Indicator Approach GI = annual gross income, where positive, over the previous three years n = number of the previous three years for which gross income is positive ÃŽ ± = 15%, which is set by the Committee, relating the industry wide level of required capital to the industry wide level of the indicator. This formula is obtained from the Basel II accord for the purpose of reader understanding. Standardised Approach: The standardised approach divides the bank’s activities into eight-business lines namely corporate finance, trading sales, retail banking, commercial banking, payment settlement, agency services, asset management, and retail brokerage. The likelihood of operational risk exposure is calculated from the gross income associated with each business line that serves as an indicator for the scale of business operations by the bank in that specific area of business or business line. This approach is very clumsy since the gross income associated with the business line varies due to numerous reasons both internal and external. Advanced Measurement Approach: The Advanced Measurement Approach equates the regulatory capital requirement with the risk measure generated by the bank’s internal operational risk measurement system using quantitative and qualitative criteria. The banks can use this method only after the approval by the Committee. The Basel II Accord sets the approach for the banks based on their international activity and significant operational risk exposures. Also, when a bank agrees to use a more sophisticated method, it cannot revert back to the easier method without approval from the supervisor. This eventually increases the burden on the banks to choose a sophisticated method. 2.4.6: Trading Book Issues The final segment of the first pillar is the trading book. Basel Committee defines the trading book as a container of both the financial instruments and commodities held either with trading intent or in order to hedge other elements of the trading book. The trading book forms a vital element for the bank since it is the record of the bank’s financial instruments as well as commodities. The Basel II Accord identifies four key principles for the supervisory process. They are listed below. The basic requirements for the eligibility to trading book capital treatment put forth by the Basel II Accord are as follows Clearly documented trading strategy for the position/instrument or portfolios, approved by senior management (which would include expected holding horizon). Clearly defined policies and procedures for the active management of the position Clearly defined policy and procedures to monitor the positions against the bank’s trading strategy including the monitoring of turnover and stale positions in the bank’s trading book 2.3: The Second Pillar- Supervisory Review Process Basel committee was initially set up for the supervising the internationally active banks and produce a common platform for the smooth transactions and cross border finance. The Basel II Accord has established Supervisory Process as one of the three pillars in order to emphasise its stand on supervisory process. The importance of supervisory process is described below. 2.3.1: Importance of Supervisory Process The supervisory review process of the Basel II Accord aims not only to ensure that banks have adequate capital to support all the risks in their business but also intends to encourage the banks to develop and use better risk management techniques in monitoring and managing risks. Alongside, the supervisory process by developing internal capital assessment process and setting capital targets that are commensurate with the bank’s risk profile recognises the importance for bank management in order to improve the atmosphere in the international banking and cross border finance. The Supervisory process evaluates the relationship between the amount of capital held by the bank against the risk, strength and effectiveness of the bank’s risk management eventually guiding the bank and supervising its activities in order to improve the performance of the banks in the international business market and cross border finance. 2.3.2 Four Key Principles of the supervisory review The four key principles identified by the Basel II Accord on the supervisory process is listed below. These principles emphasise on the committee’s focus on supervision and its aim to maintain harmony in the international banking and cross border finance. Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels. Principle 2:Supervisors should review and evaluate banks’ internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process. Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored. 2.3.3: Issues to be addressed There are two specific issues to be addressed by the Supervisory-Review Process. They are Interest Rate Risk in the Banking book: Since it is clear that the Basel Committee’s