Cloud computing and its essential features

Cloud Computing is a general term used for computing that involves delivering
hosted services over the Internet. The name cloud derived from cloud symbol that
we use in flowcharts to represent Internet. Cloud Computing provides three types of
services are

1. SaaS (Software as a Service) - Here the service providers host applications like
spreadsheets, Documents etc. over a network i.e. Internet and are available to their
customers at any time.

2. PaaS (Platform as a Service) - The service provider rents the platform/software

such as operating system , virtualized servers , Hardware to their customers and
Paas allows customers to upgrade their platforms according to their wish.

3. IaaS (Infrastructure as a Service or Hardware as a service) - An organization or

service provider outsources Hardware, networking devices, servers, storage etc. to
their client or customer and charged as pay per minute or hour for using their
services. ex. Amazon web services.

Advantages of cloud computing

* Reduces overall cost and increase efficiencies, especially when replacing an

organization’s locally operated on-premise servers.

* cloud computing has the potential to reduce a company's energy use and
carbon emissions by at least 30% per user compared to an average on-premise
installation of those applications.

* Dynamic Provisioning: over-provisioning of servers at the cloud's operational

scale can be very expensive. Cloud operators can quickly matching server capacity
to demand shifts.

* Multi-Tenancy: service providers are able to serve millions of users at thousands

of companies simultaneously on one massive shared infrastructure.
 * Server Utilization: Cloud computing can drive energy savings by improving
server utilization, which is the measurement of the portion of a server's capacity
that an application actively uses.

* Data center Efficiency: the way facilities are physically constructed, equipped
with IT and supporting infrastructure, and managed has a major impact on the
energy use for a given amount of computing power.

* Ease of operations: A marketing manager or sales manager can update their

database from anywhere, immediately keep their database up to date.

Disadvantages of cloud computing

* The biggest challenge for cloud computing is security as every operations are
carried out online there may be high risk of malicious programs, hackers, phishing
attacks etc..

* It requires high speed internet/network connection as all the operations and

transactions carried out over internet/internet.

* Confidentiality of data is not assured as it is maintained by third party service

provider.
[Economy 4 Newbie] Securities, Derivatives & Financial Market

[Economy 4 Newbie] Securities, Derivatives, Financial Market

As usual nothing 100% politically / technically correct.

This article is about some very basic concepts. But I’m writing this because you’ll
need these concepts to understand the more complex topics like SEBI, Stock
Exchange etc.

Contents

Issues & Securities,1

Technical definition1

Shares, debentures.1

Derivatives / Stock Market Derivatives1

Mortgage, Asset bubble & derivatives2

Financial Market2

Players in Capital Market (diagram)3

Subparts of capital market3

Why does Government issue securities?4

How does this thing work?4

Separate debt Management office.5

Issues & Securities,

1. If I write on a piece of paper saying “anyone who gives me 100 Rs., I’ll give
him 120 rupees after 6 months” = this is public issue

2. If you give me 100 Rs. And take that paper- then that paper becomes the
‘security’
 Keep in mind that The 100 Rs you give to me or the 120 Rs. I’ll give to you after 6
months- that is NOT Security. That Piece of paper is the security.

Technical definition

· Security means a formal declaration that documents a fact of relevance to

finance and investment gives the holder a right to receive interest or dividends.

· Security means A guarantee that an obligation will be met

Shares, debentures.

They’re also securities of one type. You must be knowing about them already so
just in brief--

1. If for your 100 rs, I give you a limited ownership in my company and promise
to give you the share from my profit = this is share

2. But if I say that, I’ll give you 15 Rs. Every year no matter I get any profit / not =
this is debenture.

Derivatives / Stock Market Derivatives

· you gave me 100 Rs and I gave you a paper saying I’ll payback 120 Rs.
(=Mrunal’s security paper)

· there is another guy named Mitul who, same way borrowed 100 Rs. And gave
you another paper saying he’ll pay you 120 Rs after 6 months. (Mitul’s security
paper.)

· Now you need money before 6 months, so you write on a new paper, “anyone
who gives me 220 Rs, I’ll give him 240 Rs. Worth Security papers of Mrunal and
Mitul.”

· that new paper you crated is again a ‘security ’ but it doesn’t have ‘direct-
money attached with it’ –instead, it derives its value from the security papers for
Mrunal and Mitul. So your new paper is called ‘Derivatives’
 lets now deviate from our article’s topic for a while to learn a few things related
to recession from above talk.

Mortgage, Asset bubble & derivatives

· You give me 100 Rs. And I give you paper saying “if I don’t pay back, you can
take away my house”

· this is mortgage. But again this is also one kind of ‘security paper’

· Now you’re a big bank, so you’ve plenty of such mortgage papers because you
give loans to lot of people. (even to those who can’t afford to pay back the loan)

· Then you repack those mortgage papers (security ) and make a new security
paper “anyone who gives me 500 Rs. I’ll give him mortgage papers of 5 houses” =
this is derivative product.

· Suppose 3rd guy bought such derivative papers and after few months, he
repacks them- makes another derivative product and sell it to 4th guy.

· Such papers are one sort of ‘asset’ (because you can get money from someone
using it.)

· but as you can see, you did not create any ‘new asset’ you’re just keep reselling
same stuff over and over to different people. So you’re blowing a ‘bubble’

· After few months, I refuse to pay money, and tell the 4th guy to take away my
home. But the prices in reality sector are low so even if you sell my home you can’t
recover your 100 Rs. = this is ‘toxic asset’ / NPA = non-performing asset and your
asset bubble is ‘burst’

Financial Market (diagram)

http://docs.google.com/File?id=dhmdmfpt_80ghdp9gnh_b

· You gave me money I gave you a piece of paper (security)

· The place where we did this business is called financial market.

 · If I had promised to pay back money in less than 1 year (=short term loan) , this
will be called Money Market

· If I had promised to pay back money after long time like 10-20 years (=long
term loan) , this will be called a CAPITAL MARKET.

Players in Capital Market (diagram)

http://docs.google.com/File?id=dhmdmfpt_81gzckcmff_b

Subparts of capital market.

· As said above, when I take long term loan = its capital market.

· When initially I took money from you and give you piece of paper = this is
‘PRIMARY market.’ *

· But after sometime, you need the money while I’m going to pay back after 10
years.

· So you borrow 100 Rs from another guy and give that piece of paper (=security)
to that guy. And tell him to recover the money from Mrunal = you traded my
security. This is ‘SECONDARY MARKET’(Sharemarket / BSE/NSE etc)

(*this primary market will be discussed in another article) our current article
deals only with capital market.)

It’s the job of SEBI to control both Primary & Secondary Capital market in India.
(detailed article about SEBI,BSE,&NSE is coming soon.)

As you saw on above diagram that Govt. is also a ‘player’ in capital market. So,

Why does Government issue securities?

· Suppose I’m the Govt.

· My expenses are more than my income

· = I’m in deficit (gap)

I’ve following options to cover that deficit

 1. Increase tax rates (income tax, VAT, import duties)

But this will make people unhappy and they’ll not vote for me in next election

2. Print more money

But this will create inflation= again unhappy people= less votes.

3. Borrow from international institution (world bank / IMF)

But if I borrow too much, I’ll have to play by their tunes regarding Kashmir,
Copenhagen, WTO-Doha.

4. Borrow from people within India

This sounds safer!

· So I’ll issue securities. (When you issue for the first time = you’re in primary
market.)

· keep in mind that Govt. does this for short term deficits. (its like I need money
in October 2010 but you’re going to pay income tax in March 2011 so I’ll use this
trick to cover my money needs.)

· Govt. generally plays only in the primary market.

· When you give me your money and receive that piece of paper (security) = you
can be certain that I’m going to pay back and won’t run away like Ashok Jadeja.
After all I’m the Government. And I pay good profits.

· that’s why Govt. securities are called ‘Gilt-Edged securities’

How does this thing work?

· As I decided to issue security in primary market, but that doesn’t mean I’ll send
my peon/clerk/Secretary to the primary market with bag full of papers (security)
and sell it like vegetables.
 · I give my piece of papers (security / treasury bills) to RBI- they’ll give me the
money and then RBI’s men will sell it in the primary market. = RBI is Govt.’s debt
manager.*

· *Security Paper -means I’m going to pay money after some time. -means-I’m in
your debt. And RBI manager’s my security papers so they’re my ‘debt manager.’

Separate debt Management office.

· Ok so now you know that RBI is Govt.’s debt manager. But consider this

· RBI’s main job = maintain liquidity (=money supply) in market via monetary
policy (=CRR, Bank Rate,Repo rate etc crap- if you want to see its diagram then
click me )

· But, When RBI sells Govt. securities in primary market, and give the money to
Govt. = money supply flow is interrupted = liquidity is drying = harder to get loans

· = conflict of interest.

· That’s why many people are calling for separate Public debt Management office
and relieve RBI from this duty.

Ok now ,final part in this article-As we saw, there are 2 types of capital market :
Primary and secondary. but

Why do we need Secondary market?

Gives Exit Route

· I’m going to return money to you after 10 years. So your hands are ‘tied’ – you
can’t recover it from me until next 10 years, so what if you needed money in
emergency? You’ve secondary market so you’ll sell my security to someone else
and recover the money. Otherwise,
 · In the absence of a secondary market, many of the investors would probably not
agree to supply capital (money) in the primary market because they would not have
an exit route for their investment.

Gives Price information

By active trading by millions of investor, you get price information regarding the
securities.

This price information is used to judge

1. the corporate performance (share prices)

2. performance of the Government

3. economy (through interest rates on Government debt).

4. facilitating value-enhancing control activities (mergers & acquisitions) and

5. enabling implementation of incentive-based management contracts (employee

stock options).