CAT Result

Even the big names make some silly mistakes. If the same mistake had been done by a candidate in CAT, he would have lost his marks for the question and attracted penalty too!

(Click on the picture for a better resolution)

Educational Loan

I am studying a course on Financial Management as a part of our third term here at IIM Lucknow. In that, we get acquainted to concepts like present value, discount rates, cash flows etc. I just thought about applying these principles to an educational loan.

Below, I make a comparison of paying out now v taking an educational loan.

Assume that you have taken an educational of Rs 2,00,000 on 1st Jan 2009. The interest on educational loan is calculated assuming simple interest till the course gets over and after that the interest is compounded. Lets us assume that the course gets over in March 2010. So, the interest accrued at the end of March 2010 is Rs 25,000 (S.I @ 10% for 15 months). From April 2010, the principal and interest = Rs. 225000 has to be repaid in EMI. Suppose, if the tenure of repayment is 5 years, the EMI (compounded monthly) comes to be Rs 4780.59

As per the existing Income Tax rules in India, the interest on educational loan is tax exempted. Taking that into account, the present value of cash outflows from our hand is Rs 184862.6. If it has to be paid out now, one has to pay Rs 200000. This means, one saves a little over Rs 15000 as on today’s value by taking an educational loan of Rs 200000

I have made a simple model of the same in google spreadsheet.

Views, comments and criticisms are invited.

Monster - You need to read news!

This ad is featured in my homepage of orkut!

Play Safe

FBI to let India prosecute Mumbai attackers

This is a clear strategy of playing safe and escapism by U. S. It does not want to take the issue head-on with Pakistan. So, it says, "It is a major tragedy for you. So, you take charge of the situation. I will provide you support." It is to be read as "This is your problem, you do whatever you want and we do not want to get our hands dirty on this." Pakistan will interpret the statement as, "U. S. has come out of the issue. Now the deal is only between Pak and India", which is what U. S. also wants to tell to them.

Dead Cat Bounce

Thought of blogging about some interesting or new words and phrases that I encounter.

I heard of this term "dead cat bounce" from John Authers' Short View on 8th Jan 2008. The actual phrase used is "Even a dead cat will bounce if it is dropped from a great height".

Seems like this phrase is commonly used in market's parlance when some stock or index temporarily rise in the course of its fall. There are examples given by John Authers and he fears rise now could be a deadcat bounce.

One typical example in the recent period would be Satyam's stock decline.

Satyam - Troubled Story

It is so unfortunate to see a company which commanded high stature till a few weeks ago to go down. It is not a single day aberration, but a series of accounting fraud committed over years which have come to public, just because there is no more opportunities to hide them now. This is clearly evident from Raju’s letter. It is a classic case of broken-window concept.

The fact that is both surprising and shocking is that this fraud has been continued for years now without the notice of the audit firm, PwC and the independent directors. With that being said, either the (un)ethics or the incompetency of these parties would have been the accomplice. Or, Mr. Raju is very clever to keep both of them blind. How can a company survive for years with imaginary cash balance? There are two scenarios here. 1. The cash were not generated at the first place or 2. The cash which got generated suddenly disappeared. With media highly speculating on Raju’s obsession with the real estate, scenario 2 above cannot be eliminated. In fact, the authors in one of the livemint’s columns say that one should take Raju’s letter with a pinch of salt. And, we know the truth only when the results of the investigations are out. Till then, Wait and Watch.

Bad Debts

This is rather an interesting imagination, but there is a possibility. In the past, I had irritating experiences with some telecom providers and banks during closing of accounts. One of my friends has also shared a similar experience. Even after giving the request for disconnection, the connection or the account has not been closed. In the case of a mobile phone service, the monthly rental and the late charges have been charged every month for a connection which is supposed to have been closed months earlier as per the request.

There might be some customers like me who are bothered about this and keep pestering the company regarding the closing of the account. But, I believe not everyone does so. Once they give instruction they are not further bothered.

I thought this was a sheer lack in the customer service but during one of our discussions, my friend Karthikeyan and I figured out there could be a hidden agenda behind this whole story.

The situation goes like this. The company keeps charging rentals and late charges for a definite period and subsequently closes the account writing off the amount accrued on the same. As per the records, they have provided “service” to a customer who defaults on his payments forcing the company to close the account and write-off the balance on his account. In reality, there is no service provided at all and no loss made by the company.

In curiosity, I just had a look at the annual report of one of the major telecom providers. It had written off an approximate amount of about Rs 2 billion in the FY 2008-09. Well, there could be some real instances where people used up the services and defaulted creating bad debts to be written off. But one cannot eliminate the possibility of intentionally creating bad debts and writing off the same.

Assume that about 10% (some random percentage, as I do not have any basis to come with a closer guess) of the bad debts are created in this fashion which is Rs 200 million. This reduces the taxable income of the company by that amount. For ease of calculation, assume that the income tax is charged at 30%. Let us have a look into what each party gains or losses.

Company: Tax on Rs 200 million = Rs 60 million saved for the company, but has to pay the service tax (say 12%) on Rs 200 million = Rs 24 million. Therefore, a net gain of Rs 36 million.

Government: A tax of Rs 60 million lost, but gains a service tax (say 12%) on Rs 200 million = Rs24 million. Therefore, a net loss of Rs 36 million.

Customers: Lending their names unknowingly in evading the income tax.

Colors of taste

I was in Rasipuram last week. After having an opportunity to taste home food, now back to the mess where Mr. Potato is very prompt in making his attendance every session in his varied appearances. Mr. Gobi and Mr. Paneer have already strongly cemented their places in the menu.

Adade!

One specialty that I like about cartoons is the “brevity”. One need not write a lorry full of words to send the message across. Cartoons facilitate the reader to grasp the opinion that the author wants to convey much quickly. In that sense, cartoons are one of the greatest time-savers.

Adade-1 by Mathi is the first of the six volumes of cartoons compiled and published by the NHM. All the cartoons are based on the then current affairs in one of the following forms: conveying the news, mocking at them, offering opinions and reflecting public’s perceptions. The cartoons originally appeared in the first-page of “Dinamani”.

I would not say all the cartoons are excellent. There are some clichés like mocking the books-bag that children carry to school, jokes about robbery etc. Still, there are many other good cartoons which make me rate the book good in an overall level. It would have been an added value if the date on which the cartoon originally published in the newspapers is also given. The cartoons cover various topics including madras–eye, floods, midnight-arrest, coalition politics, Veerappan, drivers’ strike, elephant–camp, Kannagi issue, inflation and unemployment. In all of these, I liked the Kannagi series and the elephant series most.

I was not able to sync well with the cartoons as I had forgotten some of the news. What would have triggered a lot of laughter when read in the context would not do so if you are out of the context. That’s when, a small hint about the news and the date would help. Though the cartoons are arranged based on various categories, the system is not followed strictly as many cartoons are scattered randomly inside which belonged to no particular category. I feel those could have been put under a separate section. I am not sure how the volumes (total of 6) are categorized, but it would be great if it had been categorized based on the years, as it would offer the diversity of cartoons as well as be related to one another.

One disappointment is that out of the 150 cartoons, there are not many cricket-based ones which would be fun to read any day. If I am not wrong, there is only one which is also very old – about the book fixing controversy. More range of news could have been covered if they had gone for chronological arranging rather than the manual compilation based on different categories.

Another thing which does not go well is the “one-page-one-cartoon” concept in the book. It is definitely a huge space dedicated to a single cartoon. In fact, 4 cartoons a page would have been a very good proposition in many ways: get all the cartoons related to a theme within a few pages, less turning-around of pages and of course less pages (eco-friendly! :-)).

Final Word: Add to your library!

Book Link

Banking

New Videos added on the topic "Banking" by Khan Academy.

Previous post.

Happens everywhere

See the news from Chennai, 2005
See the news from New York, 2008

I can see a lot of similarities between these two. People started queuing up long before the scheduled opening. Once the commotion started, they showed no concern for anything else. Most importantly, the crowd did not care for the fellow human beings.

What is the motivation behind standing in those long queues?
I could think of the following 3 reasons.
1. Perceived “necessity”.
2. Limited resources and fear of being the last and to be shown the door.
3. Intention to come out of the queue quickly.

One should think about the risk in terms of the cost of time and money involved in standing in the queue and the benefits that they gain from successfully coming out of the queue. Once he is clear that the perceived benefits outweigh the cost in terms of money, unpleasantness associated with standing in the queue, time etc., only then he should proceed to stand in the queue.

The second reason is what it happens once the person is in the queue. This means he has already invested and he does not want to go empty handed and wants to get the maximum out of the investment. This is where he forgets about the ethics and everything else. This has a close association with the third reason. Since, he perceives that standing in the queue is so unpleasant he just wants to come out of it at the earliest possible time.

In this scenario, if the queue breaks up slightly for whatsoever reason, every individual will try to take advantage of it. He does not want anyone who entered the queue to go ahead of him and at the same time, if there is an opportunity he wants to make use of it. The same logic applies to every individual and this creates a chain of chaos and commotion. Remember that, the person who critically analyses point 1 will never stand in this queue, because he knows that the cost outweighs the benefits.

Two ways to overcome this problem:
1. Change the mindset of the people.
2. Better crowd management system.

Point number 1 is easy said than done. Forget it. Lots of investment required and no body will guarantee the output. Point number2 can definitely be implementable. Better queuing system with proper information about when does it start, what is the approximate time of standing in the queue etc will certainly help people make an informed decision. Also, if there are some features in the queue aimed at keeping people in the queue engaged, they may not feel that the time is wasted unproductive. Those features really depend on the context of the queue.

Khan Academy doing a great work!

Recently one of my friends (Arockia) forwarded a playlist @ youtube about the recent financial crisis, MBS, CDOs etc.  Here is the link.

The way the instructor explained the concepts behind all those in simple terms and with apt analogies is really awesome.  Not only they talk about this financial crisis, banking etc, but also about various other basic and advanced concepts ranging from algebra, trignometry to physics.  One might be interested in going through their site.  It is a non-profit initiative by the duo - Salman & Jonathan.

May We Help You

I noticed that I have not been receiving my airtel bills for about 3 months in a row. Usually, I go directly to their website and pay using my card. Today, when I did, I noticed the link saying "May We Help You?". Yes, Of course. So, I went there and it gave me a screen.



I promptly filled in the relevant fields and gave a detailed description of my problem. Then clicked on the submit button. Then came this screen.



Great!! It had deleted all my text and presented me with the blank box again. And just look at the text-area given for the description field for “150 characters”!!

But still, I went ahead and logged in my complaint only to get a message saying that they would revert back on Dec 1 (11 days from now).

I thought I should not have asked for the “help”.

Matrix Spoof

Truly hilarious!

The White Tiger

The book is written as a single long letter by a "self-made entrepreneur" in Bangalore to the Chinese President Wen Jiabao. The entrepreneur Balram Halwai, calls himself as "the white tiger". He takes through his life describing his notorious journey from the Darkness (that’s the name he gives to the Gangetic plain region) to the Light (the likes of Delhi and Bangalore).
The author, Aravind Adiga, portrays a picture of India in its true(!) colour. He touches upon many things: the pathetic condition of the poor people in the rural North, the cunningness and dominance of the rich and the land-lords, irresponsible behavior and actions of the government officials, the plight of the construction workers in big cities like Delhi, meanness of the masters and the unquestionable servility of the workers, corruption at different levels etc.
Balram starts his story from his village Laxmangarh. He then goes on about his experience in the school, how he was stopped schooling, his days at the tea shop, his experiences as a driver of Mr. Ashok in Delhi, his escape to Bangalore and his "entrepreneurship" in Bangalore. The sharp contrast in attitude of Balram from being a driver to being a master is vividly presented.
Author stands out with his sarcastic comedy throughout the book. Some of them are,
Oops! Thirty-six million and five-!
How does the enterprising driver earn a little extra cash?
Balram saying to the Toyota dealer, "I want to drive your cars".
Beating down the entire family of the unfaithful servant, asking the driver to go to prison for the accidental murder by the master, meanness to give driver some money on his marriage, doubting on the driver for a single rupee, comparison with rooster coop - These are some classic extracts from the book trying to bring view-points which may go unnoticed.

Image Courtesy: Wikipedia

CDOs and other 3 letter bad words....

There is an interesting article in Hindu some days back. This details an "experienced" person's position w.r.t the current financial crisis. You may find it interesting.

The 3 mistakes of my life - Review

Chetan Bhagat has the knack of appealing to the spirits of the audience, especially youth. That's what the trend in his first two books, the first one about the life of 3 guys @ an IIT and the second book about the nocturnal BPO employed generation. Now comes the third one which combines cricket, love and religious fanatics.

The story takes off with a good momentum, especially supported by the author's (characteristic?) prologue. The story has the background in Gujarat in early 2000s. Immediately, when the protogonist encounters the unfortune in the wake of the earthquake disaster, you know what would come next. But, the author maintains the story interesting till the end. The inhuman incidents which followed the Godhra ruthlessness are captured alongside.

There are some logical glitches, though.
1. A student of 12th standard with a middle class background would not have had a mobile phone in the year 2000.
2. How many years Vidya has been preparing for her entrance exams? She finishes her XII by 2000 and goes on preparing till 2002. Quite possible, but there is no mention to support the fact.
3. Ish praises Hayden like one of the legends. Of course he is, but at least he was not one in the year 2000.
4. Ali's unique ability is his reflex and not his arm power. This logic not fit when he hits the ball inside the bank in the climax scene.

'Grave' error

Steve Jobs obituary had been mistakenly published by Bloomberg .  Of course, it is removed now.

See the news items.

Telegraph 

CNET 

Check

Bold move by Tata!

Taste Banana in a Orange!?

Mind-boggling breakthrough:

Genetically Altered Flavor.

We have started breaking all rules of nature.  We accept that as long as it gives benefit in the short term, it is fine for us. 

Is it in the right direction? I feel this invention has a potential to turn the ecosystem upside down.

Read here