Why Is Essay Writing Very Useful For Students?

Why Is Essay Writing Very Useful For Students? I bet some people become dentists just to avoid having to write essays. Essays and research papers can invoke massive amounts of stress and anxiety. But no matter what classes you take in high school or college, you’re going to have to write an essay at some point. Whether you love or hate them, following these nine steps can improve your essays, reduce your stress, and possibly save you from an expensive dentist degree. hook readers, tell about the topic and its importance, and, therefore, persuade them to continue reading. A whole range of twenty possible argument essay titles. Students can take one title and write 250+ words using a similar structure to the essays above. Vocabulary is a major challenge for every non-native writer. But while the purpose of most introductions is to introduce the thesis, a critical essay introduction is more complicated. At this stage, you’ll have arguments and evidence to evaluate in essay paragraphs. Decide on the evidence that would support your thesis statement best. 2) Sit back and look at your diagram, perhaps alongside your notes, and work out the main ‘point’ or conclusion you want to make in your essay. The best essays are characterised by a clear line of argument throughout â€" I don’t really buy the idea that essays should present both sides of a question. This helps you form opinions on various social, political as well as technological topics. The above sections covered tips on how to write an essay. I could reach the writer whenever I needed to do this. It was really essential for me to control the situation. It wasn’t a problem for the writer to understand to this fact. As a reliable essay writing website, we never take customers’ money if they are not satisfied with the provided content. You have a right to request a refund at any stage of a writing process. If we fail to deliver a high-quality paper that meets your instructions, then you can have your payment back. Even if your teacher does prescribe reading, it’s always worth seeing whether you can find something extra that will add breadth, depth or a fresh perspective to your argument. However, it’s important to think carefully about whether a source is reliable and valuable. The good news, on the other hand, is that the individual skills required to write a strong essay are things you can learn, practise and improve in. I always decide what I’m trying to say; the point I want to conclude with, before I start. Now, the job you’ve got in writing the essay is to set this conclusion up. This article is all about pinpointing what those skills might be, and giving you some suggestions as to how you might develop them. In general, the further you progress through your education, the more rote learning will be replaced by the kind of analysis usually best demonstrated by essays. One way or another, essay writing comes to us all. I’ve been in a very difficult situation with my paper. My writer pleasantly let me to look at drafts and accepted all my remarks. However, it does not cover tips on how to improve your essay writing skills. Here are some tips on how to improve your essay-writing skills. The body section could be divided into 2-3 paragraphs or sometimes, even more, depending on the need of the topic. Every paragraph contains an opening statement which describes the writer’s point of view about the area of study. A limited vocabulary affects the effectivity of essay greatly. The best way to improve your vocabulary is to note down words along with synonyms while reading. Target to learn at least 10 new words daily and use them in your essays as well as day to day communication. Reading is the best way to improve your knowledge about any topic. To prepare yourself for an essay writing task, read as much as you can on a variety of topics.

How To Write The Perfect Essay

How To Write The Perfect Essay Do not simply present evidence, but analyse it at each stage, always relating it back to your assignment question. Provide an overview of some of the main points, or direction, of the essay. Respond directly to the essay question and clearly state what your essay intends to achieve. Always check the assignment criteria and other information in your unit site for specific requirements. Poor spelling, reasonably or not, gives the impression of carelessness and laziness. Since your essay will be processed electronically, use the spell checker! But don’t rely on it exclusivelyâ€"proofread your essay carefully as well. You may feel that a diagram could help illustrate a point. This has the added effect of breaking up large chunks of text that can be subconsciously off-putting to the reader. You must be ruthless and exclude ideas that don't fit in seamlessly with your essay's focus. 'You may have to approach the lecturer who devised the essay to understand what precisely is being asked and the complexity of the response expected from you,' advises Michael. Generally speaking a reference list must accompany your essay. This must be submitted on a separate page at the back of your essay. Proper grammar is difficult for even the most fluent English speakers. Because you are learning English, you actually have an advantage. Many native speakers learned improper grammar from the start. It’s difficult to undo the damage caused by a lifetime of writing improperly. Proofread your essay and make sure it follows any formatting requirements required by the unit. Expand on each bullet point to build paragraphs based on evidence, which will also require with citations. It is important to begin writing as soon as soon as possible â€" think of writing as a process rather than a goal. Linking words clarify for the reader how one point relates to another. An essay flows cohesively when ideas and information relate to each other smoothly and logically. You may return to discuss the background/context of the topic, if relevant. Tell your reader how your essay has successfully responded to the essay question. Conclusions are primarily for summing up what you have presented in the body of your essay. No new information is presented in the conclusion. Use synonyms and paraphrasing so that you do not repeat all your main points word for word. Consider how you conclude your paragraph and how you might link it to the following paragraph. Integrate evidence and examples into your paragraph from your readings to support your point. You can also get further advice from a Writing Mentor or a Language and Learning Adviser. Areference list or bibliography â€" formatted according to your referencing style â€" on a separate page at the end of your essay is also usually required. Normally this is not included in the word count, but check with your lecturer or tutor to be sure. 2) report writing, which focuses primarily on reporting facts and making recommendations. Unless you are told otherwise by the course instructor, use the Departmental conventions. You should only use a quotation when you are unable to say something better, not just because you can’t be bothered to summarize a point of view! For example, if an author has summed up their argument in one pithy phrase, then it might be worth repeating. But beware the added complexities involved in formatting your document or the added time required to add a diagram by hand. Some versions of the software available on public machines produce graphics that cannot be printed from other machines. Give yourself time to test for potential glitches of this sort. Although there is no strict convention on layout, do consider how the essay looks on the page. Several studies have shown that presentation does have a subconscious effect on markers, even when they’re not explicitly marking on that criterion. Plans should have the flexibility to change as your work develops, but remember to ensure that any adjustments are consistent across the essay. Once you've done your research, create another mind map. Carefully note the key theories, information and quotes that will help you to answer all components of the question. Consider grouping these into three or four main themes, including only the most significant points.

Essay Writing Service From Top

Essay Writing Service From Top This is why countless students come to us time and time again, asking to write my essay. Enjoy free time until we finish doing your paper. We do Master’s and Ph.D. level dissertations just as we do essays and other research papers. Many senior year students rely on our site to help them with dissertations. We make sure drafts live up to the supervisor’s instructions, offer factual findings, and are proofread properly. We try to offer as high rates as possible to our writers to create an atmosphere of appreciation and fair reward. We also try to provide you with custom papers at affordable prices to make sure you can afford our essay writing service help. We take great care of both you, our customer, and writers. Our essay writing service and essay editing service are available to students who are looking for help with anything from term papers to academic theses. We even help with online exams and math problems. Each essay writer on our team is capable of completing assignments from high school essays to PhD dissertations. Furthermore, we will write an essay for you that is representative of the key concepts within your field. ” Rely on our company anytime you need a quality, well-written academic composition done for you at an affordable price. Save your money and time together with the industry-dealing paper writers. Enjoy positive marks for custom essays brought to you by the No.1 essay writing service - Essay Company. I have included a reference page at the end of my essay, listing full details of all my sources. I don’t introduce new arguments or evidence in the conclusion. This resistance was symptomatic of the prevalent attitude that the blind population had to adapt to the sighted world rather than develop their own tools and methods. The idea of tactile reading was not entirely new; Louis Braille adapted and simplified existing methods to create the first writing system specifically for blind people. Before writing an essay, make up your mind to keep it simple worth-reading otherwise it will not pay off academically. An essay consists of an introduction, body and conclusion so make sure that you have a precise strategy for every part of your essay. EssayService attracts and employs the best and fastest essay writers online. Every writer in our team is highly educated, experienced, attentive to detail, and dedicated to delivering only quality pieces and always on time. So if you need a professional paper writer, our academic writing service is proud to offer you a selection of the very best. We are confident that our writers will deliver the best results. In terms of thesis writing, we offer absolutely new papers on a turn-key basis, as well as proofread and edit already written projects. Whatever help you need, our writers are always there to lend a hand. There are lots of academic challenges in a student life and the prominent one is to deal with an essay writing task. Being a responsible student, you should ensure that you have a precise strategy to ace it. The foremost thing is to trust your abilities to produce a quality work and it will lead you to end up with a quality essay. Having an outstanding writing ability is also essential for you hence you should think of improving your writing skills as it also helps you to write quality essays. We believe this process will be important for you in boosting your grades and developing confidence in academic writing. You have probably spent many nights awake, worried about finishing those nagging essays. Well, your problems are solved with our essay writing service. Each writer on our team are among the Internet’s best, and they have only helped achieved top results. The essays are model essays, designed to look like the way a student would write. Feel free to use the material and revise it in a way that is yours. The essays are original and custom-made to fit your topic, specifically.

Essay Writing Service From Top

Essay Writing Service From Top This is why countless students come to us time and time again, asking to write my essay. Enjoy free time until we finish doing your paper. We do Master’s and Ph.D. level dissertations just as we do essays and other research papers. Many senior year students rely on our site to help them with dissertations. We make sure drafts live up to the supervisor’s instructions, offer factual findings, and are proofread properly. We try to offer as high rates as possible to our writers to create an atmosphere of appreciation and fair reward. We also try to provide you with custom papers at affordable prices to make sure you can afford our essay writing service help. We take great care of both you, our customer, and writers. Our essay writing service and essay editing service are available to students who are looking for help with anything from term papers to academic theses. We even help with online exams and math problems. Each essay writer on our team is capable of completing assignments from high school essays to PhD dissertations. Furthermore, we will write an essay for you that is representative of the key concepts within your field. ” Rely on our company anytime you need a quality, well-written academic composition done for you at an affordable price. Save your money and time together with the industry-dealing paper writers. Enjoy positive marks for custom essays brought to you by the No.1 essay writing service - Essay Company. I have included a reference page at the end of my essay, listing full details of all my sources. I don’t introduce new arguments or evidence in the conclusion. This resistance was symptomatic of the prevalent attitude that the blind population had to adapt to the sighted world rather than develop their own tools and methods. The idea of tactile reading was not entirely new; Louis Braille adapted and simplified existing methods to create the first writing system specifically for blind people. Before writing an essay, make up your mind to keep it simple worth-reading otherwise it will not pay off academically. An essay consists of an introduction, body and conclusion so make sure that you have a precise strategy for every part of your essay. EssayService attracts and employs the best and fastest essay writers online. Every writer in our team is highly educated, experienced, attentive to detail, and dedicated to delivering only quality pieces and always on time. So if you need a professional paper writer, our academic writing service is proud to offer you a selection of the very best. We are confident that our writers will deliver the best results. In terms of thesis writing, we offer absolutely new papers on a turn-key basis, as well as proofread and edit already written projects. Whatever help you need, our writers are always there to lend a hand. There are lots of academic challenges in a student life and the prominent one is to deal with an essay writing task. Being a responsible student, you should ensure that you have a precise strategy to ace it. The foremost thing is to trust your abilities to produce a quality work and it will lead you to end up with a quality essay. Having an outstanding writing ability is also essential for you hence you should think of improving your writing skills as it also helps you to write quality essays. We believe this process will be important for you in boosting your grades and developing confidence in academic writing. You have probably spent many nights awake, worried about finishing those nagging essays. Well, your problems are solved with our essay writing service. Each writer on our team are among the Internet’s best, and they have only helped achieved top results. The essays are model essays, designed to look like the way a student would write. Feel free to use the material and revise it in a way that is yours. The essays are original and custom-made to fit your topic, specifically.

Writing Tips « Writers Workshop

Writing Tips « Writers Workshop Learn the do's and don'ts of how to write a powerful opening line that pulls your reader in from the very first word. Freewriting is the key to an amazing college application essay - especially the first draft! This is an important activity that helps in shaping your brain to think in English. As the communication in English increases in the day to day life, the brain automatically starts thinking in English rather than our local language. The ability to think in English allows organizing your thoughts and getting new ideas faster. Popularity this ability is described as “Think English, Talk English, Write English”. In addition to summarizing your body, one could also provide suggestions or actions that could be taken in a particular situation. The actions are an indication that you have understood the topic well and understand the actions that could be taken in the presented scenario. There are occasions when the types might get mixed up. However, the structure of the essay usually helps you pen down a self-explanatory piece of content. Writing an effective essay is an art that can be mastered only by practice and feedback. There are several points which affect the affectivity of your essay. She’ll break this prompt down into its basic building blocks and offer some insider tricks and strategies for tackling prompt 4. The directions below are representative of what students will encounter on test day. Reading your essay allows your lecturer to assess the degree to which you have engaged with learning and transformed information into knowledge. It encourages you to develop a formal, disciplined approach to writing that communicates clearly and with authority. It allows you to practise and develop transferable skills that are valuable to you not only while you’re a student but also when you graduate and have to write in a professional role. Are you planning to apply to Northwestern University? Your personal statement should tell a memorable story that admissions officers just can't shake. Your closing line is your final shot to make a lasting impression before your college fate is sealed! The experts at College Essay Advisors have lined up their most essential tips for writing a killer closing line. The personal statement is a crucial part of your college application, but it won't help you if it bores admissions officers to tears! Every sentence, except the first, should contain connecting words to form a coherence in the paragraph. To display a range of vocabulary in your essay, ideally, try to use synonyms of the words wherever possible. It is also useful to use a variety of words to describe or convey our point. For instance, to convey disagreement one can use ‘I disagree’, ‘I am not in the favor of’, ‘I do not agree’, ‘I believe otherwise’. This would leave an impression of a native speaker communicating without the lack of vocabulary. A simple sentence contains lesser use of conjunctions. The idle word limit for a simple sentence is words. Submitting assignments and tasks after due date causes a wrong impression on your instructor; taking care of your grades, we are keen on delivering the tasks on time. someone who can handle their “write my essay” query for them. Our fundamental objective is to give every client a chance to coordinate with an essayist who is a specialist in a circle a client shows in the request’s subtle elements. This guarantees the essayist thoroughly comprehends what they should expound on and how to do it right. Brilliant, original, and plagiary free compositions delivered to students within the deadline provided. The support team is always there 24/7 to assist you, feel free to contact and ask your queries. Writers here are committed to delivering quality work taking into account your timeline. Fill up you blank page with these tips for getting started on your way to personal statement success. The Common Application's fourth essay prompt asks you to put your problem-solving skills on display. But how do you transform a conundrum into a compelling story? Get the lowdown from College Essay Advisors Founder and admissions expert, Stacey Brook.

Writing Tips « Writers Workshop

Writing Tips « Writers Workshop Learn the do's and don'ts of how to write a powerful opening line that pulls your reader in from the very first word. Freewriting is the key to an amazing college application essay - especially the first draft! This is an important activity that helps in shaping your brain to think in English. As the communication in English increases in the day to day life, the brain automatically starts thinking in English rather than our local language. The ability to think in English allows organizing your thoughts and getting new ideas faster. Popularity this ability is described as “Think English, Talk English, Write English”. In addition to summarizing your body, one could also provide suggestions or actions that could be taken in a particular situation. The actions are an indication that you have understood the topic well and understand the actions that could be taken in the presented scenario. There are occasions when the types might get mixed up. However, the structure of the essay usually helps you pen down a self-explanatory piece of content. Writing an effective essay is an art that can be mastered only by practice and feedback. There are several points which affect the affectivity of your essay. She’ll break this prompt down into its basic building blocks and offer some insider tricks and strategies for tackling prompt 4. The directions below are representative of what students will encounter on test day. Reading your essay allows your lecturer to assess the degree to which you have engaged with learning and transformed information into knowledge. It encourages you to develop a formal, disciplined approach to writing that communicates clearly and with authority. It allows you to practise and develop transferable skills that are valuable to you not only while you’re a student but also when you graduate and have to write in a professional role. Are you planning to apply to Northwestern University? Your personal statement should tell a memorable story that admissions officers just can't shake. Your closing line is your final shot to make a lasting impression before your college fate is sealed! The experts at College Essay Advisors have lined up their most essential tips for writing a killer closing line. The personal statement is a crucial part of your college application, but it won't help you if it bores admissions officers to tears! Every sentence, except the first, should contain connecting words to form a coherence in the paragraph. To display a range of vocabulary in your essay, ideally, try to use synonyms of the words wherever possible. It is also useful to use a variety of words to describe or convey our point. For instance, to convey disagreement one can use ‘I disagree’, ‘I am not in the favor of’, ‘I do not agree’, ‘I believe otherwise’. This would leave an impression of a native speaker communicating without the lack of vocabulary. A simple sentence contains lesser use of conjunctions. The idle word limit for a simple sentence is words. Submitting assignments and tasks after due date causes a wrong impression on your instructor; taking care of your grades, we are keen on delivering the tasks on time. someone who can handle their “write my essay” query for them. Our fundamental objective is to give every client a chance to coordinate with an essayist who is a specialist in a circle a client shows in the request’s subtle elements. This guarantees the essayist thoroughly comprehends what they should expound on and how to do it right. Brilliant, original, and plagiary free compositions delivered to students within the deadline provided. The support team is always there 24/7 to assist you, feel free to contact and ask your queries. Writers here are committed to delivering quality work taking into account your timeline. Fill up you blank page with these tips for getting started on your way to personal statement success. The Common Application's fourth essay prompt asks you to put your problem-solving skills on display. But how do you transform a conundrum into a compelling story? Get the lowdown from College Essay Advisors Founder and admissions expert, Stacey Brook.

Financial Market Essay Example Pdf - Free Essay Example

A commercial bank is a type of financial intermediary and a type of bank. After the Great Depression, the U.S. Congress required banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term commercial bank to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. Commercial bank is the term used for a normal bank to distinguish it from an investment bank. This is what people normally call a bank. The term commercial was used to distinguish it from an investment bank. Since the two types of banks no longer have to be separate companies, some have used the term commercial bank to refer to banks which focus mainly on companies. In some English-speaking countries outside North America, the term trading bank was and is used to denote a commercial bank. During the great depression and after the stock market crash of 1929, the U.S. Congress passed the Glass-Steagall Act 1930 (Khambata,1996) requiring that commercial banks only engage in banking activities (accepting deposits and making loans, as well as other fee based services), whereas investment banks were limited to capital markets activities. This separation is no longer mandatory. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time (or term) deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds. 10 Commercial banking can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). Origin: The name bank derives from the Italian word banco desk/bench, used during the Renaissance by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth (de Albuquerque, Martim, 1855). However, there are traces of banking activity even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome- that of the Imperial Mint (Matyszak and Philip, 2007). In the most basic terms, commercial banks take deposits from individual and institutional customers, which they then use to extend credit to other customers. They make money by earning more in interest from borrowers than they pay in interest to those whose deposits they accept. Theyre different from investment banks and brokerages in that those kind s of institutions focus on underwriting, selling, and trading corporate and municipal securities. The Balance Sheet: A banks balance sheet is different from that of a typical company. You wont find inventory, accounts receivable, or accounts payable. Instead, under assets, youll see mostly loans and investments, and on the liabilities side, youll see deposits and borrowings. Loans represent the majority of a banks assets (Saunders and Cornett, 2005). A bank can typically earn a higher interest rate on loans than on securities, roughly 6%-8%. Loans, however, come with risk. If the bank makes bad loans to consumers or businesses, the bank will take a hit when those loans arent repaid. Because loans are a banks bread and butter, its critical to understand a banks book of loans. Other assets, including property 11 and equipment, represent only a small fraction of assets. A bank can generate large revenues with very few hard assets. Compare this to some other companies, where plant , property, and equipment (PPE) is a major asset. Surprisingly, cash represents only about 2% of assets. Thats because the bank wants to put its money to work earning interest. If the bank simply sticks its cash in a vault and forgets about it, it will have a hard time making a profit. Thus, a bank keeps most of its money tied up in loans and investments, which are called earning assets in bank-speak because they earn interest. Banks dont like putting their assets into fixed-income securities, because the yield isnt that great. However, investment-grade securities are liquid, and they have higher yields than cash, so its always prudent for a bank to keep securities on hand in case they need to free up some liquidity. Assessing Assets: A banks assets are its meal ticket, so its critical for investors to understand how its assets are invested, how much risk they are taking, and how much liquidity the bank has in securities as a shield against unforeseen problems. In general, inv estors should pay attention to asset growth, the composition of assets between cash, securities, and loans, and the composition of the loan book. Also, investors should note a banks asset/equity (equity multiplier) ratio, which measures how many times a dollar of equity is leveraged. The liability side of a banks balance sheet is made up of various types of deposit accounts and other forms of borrowings used to fund their investments. A major difference between banks and other is their high leverage or debt-to-asset ratio. Assets and liability management (ALM) is the management of the structure of a banks balance sheet in such a way that interest related earnings are maximized within the overall risk tolerance of the banks management (J.S.G Wilson, 1988). 2.2-The Bank for International Settlement (BIS) and the Basel Accords: 2.2.1-The Bank for International Settlement (BIS): 12 The Bank for International Settlements (or BIS) is an international organization of c entral banks which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability (Wikipedia online, 2008). It carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. The BIS also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the Hague agreements of 1930. As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 55 member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Two aspects of monetary policy have proven to be particularly sensitive, and the BIS therefore has two specific goals: to regulate cap ital adequacy and make reserve requirements transparent. Capital adequacy policy applies to equity and capital assets. These can be overvalued in many circumstances. Accordingly the BIS requires bank capital/asset ratio to be above a prescribed minimum international standard, for the protection of all central banks involved. The BIS main role is in setting capital adequacy requirements. From an international point of view, ensuring capital adequacy is the most important problem between central banks, as speculative lending based on inadequate underlying capital and widely varying liability rules causes economic crises as bad money drives out good (Greshams Law). The BIS sets requirements on two categories of capital, Tier 1 capital and Total capital. Tier 1 capital is the book value of its stock plus retained earnings. Tier 2 capital is loanloss reserves plus subordinated debt. Total capital is the sum of Tier 1 and Tier 2 capital. Tier 1 capital must be at least 4% of total r isk-weighted assets. Total capital must be at least 8% of total risk-weighted assets. When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity. That causes its capital ratio to drop. Thus the capital requirement limits the total amount of credit that a bank 13 may issue. It is important to note that the capital requirement applies to assets while the bank reserve requirement applies to liabilities. 2.2.2-The Basel Accords: The Basel Accord(s) refers to the banking supervision accords (recommendations on banking laws and regulations), Basel I (first published in 1988 and enforced by law in 1992 by the G-10 countries) and Basel II (published in June 2004) issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS maintains its secretariat at the Bank of International Settlements in Basel, Switzerland and the committee normally meets there. The Basel Committee consists of repres entatives from central banks and regulatory authorities of the G10 countries, plus others (specifically Luxembourg and Spain). The committee does not have the authority to enforce recommendations, although most member countries (and others) tend to implement the Committees policies. This means that recommendations are enforced through national (or EU-wide) laws and regulations, rather than as a result of the committees recommendations thus some time may pass between recommendations and implementation as law at the national level. Tier 1 capital is the core measure of a banks financial strength from a regulators point of view. It consists of the types of financial capital considered the most reliable and liquid, primarily Shareholders equity. Examples of Tier 1 capital are common stock, preferred stock that is irredeemable and non-cumulative, and retained earnings. Capital in this sense is related to, but different from, the accounting concept of shareholders equity. Both tier 1 and tier 2 capital were first defined in the Basel I capital accord. The new accord, Basel II, has not changed the definitions in any substantial way. Each countrys banking regulator, however, has some discretion over how differing financial instruments may count in a capital calculation. This is appropriate, as the legal framework varies in different legal systems. 14 Tier 2 capital is a measure of a banks financial strength with regard to the second most reliable form of financial capital, from a regulators point of view. The forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord. Tier 1 capital is considered the core capital and more reliable form of capital 2.3- VALUE-AT-RISK 2.3.1-BANK LOANS: A loan is a debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrow er. The borrower initially receives an amount of money from the lender, which he pays back, but sometimes not always in regular installments, to the lender. This service is generally provided at a cost, known as interest on the debt. The lender may subject the borrower to certain restrictions known as loan covenants. One of the principal duties of financial institutions is to provide loans, this is typically the source of income to banks, bank loans and credit also constitute one of the ways of increasing money supply in the economy. 2.3.2-VALUE AT A RISK (VAR): This is a technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatilities. Value at risk is commonly used by banks, security firms and companies that are involved in trading energy and other commodities. VAR is able to measure risk while it happens and is an important consideration when firms make trading or he dging decision (Simon Manganelli and Robert Engle, 2001). Some people have described VAR as the new science of risk management, but you do not need to be a scientist to use VAR. Here, we look at the idea behind VAR and the three basic methods of calculating it. Basically, VAR is represented by; 15 VAR= (dollar value of position)(price sensitivity)(potential adverse move in price/yield). .(1) For financial institutions, risk is about the odds of losing money given out as loans, and VAR is based on that common-sense fact. By assuming financial institutions care about the odds of a really big loss on loans, VAR answers the question, What is my worstcase scenario? or How much could I lose in a really bad month? To be more specific, a VAR statistic has three components: a time period, a confidence level and a loss amount (or loss percentage). Keep these three lets take note of this as we give some examples of variations of the questions that VAR answers: What is the most I can with a 95% or 99% level of confidence expect to lose in default on loan repayment over the next month? What is the maximum percentage I can with 95% or 99% confidence expect to lose over the next year? We can see how the VAR question has three elements: a relatively high level of confidence (typically either 95% or 99%), a time period (a day, a month or a year) and an estimate of lose on loan default (expressed either in dollar or percentage terms) (David Harper, 2008). 2.4- PORTFOLIO THEORY AND TRADITIONAL METHOD TO CREDIT RISK MANAGEMENT 2.4.1- PORTFOLIO APPROACH: Since the 1980s, banks have successfully applied modern portfolio theory (MPT) to market risk. Many banks are now using earnings at risk (EAR) and value at risk (VAR) models to manage their interest rate and market risk exposures. Unfortunately, however, even though credit risk remains the largest risk facing most banks, the practical of MPT to credit risk has lagged (William Margrabe, 2007). 16 Banks recognize how credit concentrations can adversely impact financial performance. As a result, a number of sophisticated institutions are actively pursuing quantitative approaches to credit risk measurement, while data problems remain an obstacle. This industry is also making significant progress toward developing tools that measure credit risk in a portfolio context. They are also using credit derivatives to transfer risk efficiently while preserving customer relationships. The combination of these two developments has precipitated vastly accelerated progress in managing credit risk in a portfolio context over the past several years. 1. Asset-by-asset Approach: Traditionally, banks have taken an asset-by-asset approach to credit risk management. While each banks method varies, in general this approach involves periodically evaluating the credit quality of loans and other credit exp osures, applying a credit risk rating, and aggregating the results of this analysis to identify a portfolios expected losses. The foundation of the asst-by-asset approach is a sound loan review and internal credit risk rating system. A loan review and credit risk rating system enable management to identify changes in individual credits, or portfolio trends in a timely manner. Based on the results of its problem loan identification, loan review, and credit risk rating system management can make necessary modifications to portfolio strategies or increase the supervision of credits in a timely manner. 2. Portfolio Approach: While the asset-by-asset approach is a critical component to managing credit risk, it does not provide a complete view of portfolio credit risk, where the term risk refers to the possibility that actual losses exceed expected losses. Therefore to gain greater insight into credit risk, banks increasingly look to complement the asse t-by-asset approach with a quantitative portfolio review using a credit model. Banks increasingly attempt to address the inability of the asset-by-asset approach to measure unexpected losses sufficiently by pursuing a portfolio approach. One weakness with the asset-by-asset approach is that it has difficulty identifying and measuring 17 concentration. Concentration risk refers to additional portfolio risk resulting from increased exposure to a borrower, or to a group of correlated borrowers. Table 1 summerises strategies for reducing and coping with portfolio credit risk. Table 1: Strategies for Reducing and Coping with Portfolio Credit Risk Technique Advantages Disadvantages Implication Geographic Diversification External shocks (climate, price, natural disasters, etc.) are not likely to affect the entire portfolio if there is spatial diversification. If the country is small or the Institution is capital constrained, it ma y not be able to apply this principle. It will become vulnerable to covariate risk, which is high in agriculture. Loan Size Limits (Rationing) Prevents the institution from being vulnerable to nonperformance on a few large loans. Can be carried to the extreme where loan size does not fit the business needs of the client and results in suboptimal use and lower positive impact by client. Client could become dissatisfied Protects asset quality in the shortrun but creates client retention problems in the long run. Inimical to relationship banking. Over Collateralization Assures the institution that enough liquidation value will exist for foreclosed assets. Excludes poor, low-income clients who are the vast majority of the market. Not a recommended technique if goal is to better serve the low- and moderate income clients. Credit Insurance Bank makes clients purcha se credit insurance. In event of default, bank collects from insurer. Databases and credit bureaus may not exist to permit insurer to engage in this line of business in cost-effective manner. Portfolio Securitization Lender bundles and sells loans to a third party. Transfers default risk and improves liquidity so that it can continue to lend. Allows lender to develop expertise in analyzing creditworthiness in one sector or niche. Requires well documented loans and long time series of performance data to permit ratings and reliable construction of financial projections. Requires a well developed secondary market, standardized underwriting practices, and existence of rating companies. 18 Source: Publication of the Inter-American Development Bank, May 2007. 2.4.2-TRADITIONAL APPROACH: It is hard to differentiate between the traditional approach and the new approaches since many of the ideas of traditional models are used in the new models. The traditional approach is comprised of four classes of models 1. Expert Systems In the expert system, the credit decision is left in the hands of the branch lending officer. His expertise, judgment, and weighting of certain factors are the most important determinants in the decision to grant loans. the loan officer can examine as many points as possible but must include the five Cs these are; character, credibility, capital, collateral and cycle (economic conditions) in addition to the 5 Cs, an expert may also take into consideration the interest rate. 2. Artificial Neural Networks: Due to the time consuming nature and error- prone nature of the computerized expertise system, many systems use induction to infer the human experts decision process. The artificial neural networks have been proposed as solutions to the problems of the expert system. This system simulates the huma n learning process. It learns the nature of the relationship between inputs and outputs by repeatedly sampling input/output information. 3. Internal Rating at Banks: Over the years, banks have subdivided the pass/performing rating category, for example at each time, there is always a probability that some pass or performing loans will go into default, and that reserves should be held against such loans. 4. Credit Scoring Systems: 19 A credit score is a number that is based on a statistical analysis of a borrowers credit report, and is used to represent the creditworthiness of that person1. A credit score is primarily based on credit report information. Lenders, such as banks use credit scores to evaluate the potential risk posed by giving loans to consumers and to mitigate losses due to bad debt. Using credit scores, financial institutions determine who are the most qualified for a loan, at what rate of interest, and to what credit limits (Wiki pedia, 2008). 2.5-SUPERVISORY AUTHORITY OF BANK CREDIT RISK MANAGEMENT The Bank of International Settlement (BIS) on November 28th 2005 in a press release issued a series of ten principles on Sound Credit Risk Assessment and valuation for Loans: Principle 1: The banks board of directors and senior management are responsible for ensuring that the banks have appropriate credit risk assessment processes and effective internal controls to consistently determine provisions for loan losses in accordance with the banks stated policies and procedures, the applicable accounting framework and supervisory guidance commensurate with the size, nature and complexity of the banks lending operations. Principle 2: Banks should have a system in place to reliably classify loans on the basis of credit risk. Principle 3: A banks policies should appropriately address validation of any internal credit risk assessment models. Principle 4: A bank should adopt and document a sound loan loss methodology, which addresses risk assessment policies, procedures and controls, for assessing credit risk, identifying problem loans and determining loan provisions in a timely manner. Principle 5: A banks aggregate amount of individual and collectively assessed loan provisions should be adequate to absorb estimated credit losses in the loan portfolio. 1 That is, the likelihood that the person will pay his or her debts. 20 Principle 6: A banks use of experienced credit judgment and reasonable estimates are an essential part of the recognition and measurement of loan losses. Principle 7: A banks credit risk assessment process for loans should provide the bank with the necessary tools, procedures and observable data to use for credit risk assessment purposes, account for impairment of loans and the determination of regulatory capital requirements. Principle 8: Banking supervisors should periodically evaluate the eff ectiveness of a banks credit risk policies and practices for assessing loan quality. Principle 9: Banking supervisors should be satisfied that the methods employed by a bank to calculate loan loss provisions produce a reasonable and prudent measurement of estimated credit losses in the loan portfolio that are recognized in a timely manner. Principle 10: Banking supervisors should consider credit risk assessment and valuation practices when assessing a banks capital adequacy. I. Individual Credit Rating: A credit rating assesses the credit worthiness of an individual, corporation, or even a country. Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan. However, in recent years, credit ratings have also been used to adjust insurance premiums, determine employment eligibility, and establish the amount of a utility or leasing deposit. II. Corporate credit ratings: The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. These are assigned by credit rating agencies2 such as Standard Poors, Moodys or Fitch Ratings and have letter designations such as AAA, B, CC. The Standard Poors 2 In the United States, the main credit bureaus are Experian, Equifax, and TransUnion. A relatively new credit bureau in the US is Innovis. In the United Kingdom, the main credit reference agencies for individuals are Experian, Equifax, and Callcredit. In Canada, the main credit bureaus for individuals are Equifax, TransUnion and Northern Credit Bureaus/ Experian. The leading credit bureau in Sweden is Upplysningscentralen AB. In India, the main credit bureaus are CRISIL and ICRA. The largest credit rating agencies are Moodys, Standard and Poors and Fitch Ratings. 21 rating scale is as follows: AAA, AA, A, BBB, BB, B, CCC, CC, C, D. Anything lower than a BBB rating is considered a speculative or junk bond. The Moodys rating system is similar in concept but the verbage is a little different. It is as follows: AAA, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. III. A sovereign credit rating is the credit rating of a sovereign entity. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors looking to invest abroad. It takes political risk into account. The countries with the least sovereign risk are ranked as follows. Table 2: Country risk rankings (Least risky countries), Score out of 100 Source: Euromoney, Country risk, March 2008. Rank Previous Rank Country Score 1 1 Luxembourg 99.88 2 2 Norway 97.47 3 3 Switzerland 96.21 4 4 Denmark 93.39 5 5 Sweden 92.96 6 6 Ireland 92.36 7 10 Austria 92.25 8 9 Finland 91.95 9 8 Netherlands 91.95 10 7 United States 91.27 According to the results (see table 2), Austrias country rating has improved from 10th to 7th position while the USA has dropped to the10th position from 7th. 2.6-MANAGING CREDIT RISK USING FINANCIAL RATIOS: 22 Ratio analysis (financial and accounting ratios) is a measurement system to analyse the strength, weakness, opportunity and threats (SWOT Analysis) of an FI. The table below depicts some of the frequently used ratios in credit analysis (table 2): Table 3: Frequently Used Ratios in Credit Analysis3 Category Ratio Operating Performance Earnings before interest, taxes, depreciation and amortization(EBITDA)/Sales Net Income/ Sales Net Income/ Net Worth Sales/ Fixed Assets Debt Service Coverage EBITDA/ Interest Payment1.5 Free Cash-flow expenditure/ Interest payments Free Cash-flow expenditures-dividend/Interest Financial Leverage Long-term debt/Capitalization Long-term debt/Ta ngible net worth Total liabilities/Tangible net worth Current liabilities/Tangible net worth Liquidity Current ratio (current assets/current liabilities) Quick ratio (current assets-inventory/current liabilities) Inventory turnover(inventory/Net sales) Inventory to Net working capital Current debt to Inventory Raw materials,WIP, and finished goods as a percentage of total Inventory Receivables Aging of receivables:30,60,90,90+days 3 These ratios are commonly used in credit analysis but have to be adapted to specific environment of industries and countries. 23 Average collecting period Source: Caoutte, et al., 1998 2.7 Credit Risk Models Over the last decade, a number of the worlds largest banks have developed sophisticated systems in an attempt to model the credit risk arising from important aspects of their business lines. Such models are intended to aid banks in quantifying, aggregating and managing risk across geograp hical and product lines. The outputs of these models also play increasingly important roles in banks risk management and performance measurement processes, including performance-based compensation, customer profitability analysis, risk-based pricing and, to a lesser (but growing) degree, active portfolio management and capital structure decisions. The Task Force recognizes that credit risk modeling may indeed prove to result in better internal risk management, and may have the potential to be used in the supervisory oversight of banking organizations. However, before a portfolio modeling approach could be used in the formal process of setting regulatory capital requirements for credit risk, regulators would have to be confident not only that models are being used to actively manage risk, but also that they are conceptually sound, empirically validated, and produce capital requirements that are comparable across institutions. At this time, significant hurdles, principally concerning data availability and model validation, still need to be cleared before these objectives can be met, and the Committee sees difficulties in overcoming these hurdles in the timescale envisaged for amending the Capital Accord (BIS, credit risk modeling, 19th April 1999). Credit scoring models use data on observed borrower characteristics either to calculate the probability of default or to borrowers into different default risk classes (Saunders and Cornett, 2007). Prominent amongst the credit scoring models is the Altmans Z-Score. The Z-score formula for predicting Bankruptcy of Dr. Edward Altman (1968) is a multivariate formula for measurement of the financial health of a company and a powerful diagnostic 24 tool that forecast the probability of a company entering bankruptcy within a two year period with a proven accuracy of 75-80%. The Altmans credit scoring model takes the following form; Z=1.2X1+ 1.4X2 + 3. 3X3 + 0.6X4 +1.0X5 (2) Where, X1 = Working capital/ Total assets ratio X2 = Retained earnings/ Total assets ratio X3 = Earnings before interest and taxes/ Total assets ratio X4 = Market value of equity/ Book value of long-term debt ratio X5 = Sales/ Total assets ratio. The higher the value of Z, the lower the borrowers default risk classification. According to Altmans credit scoring model, any firm with a Z-Score less than 1.81 should be considered a high default risk, between 1.81-2.99 an indeterminate default risk, and greater than 2.99 a low default risk. Critics: Use of this model is criticized for discriminating only among three borrower behavior; high, indeterminate, and low default risk. Secondly, that there is no obvious economic reason to expect that the weights in the Z-Score model or, more generally, the weights in any credit-scoring model- will be constant over any but very short periods. Thirdly the problem is that these models ignore important, hard to quantify factors (such as macroeconomic factors) that may play a crucial role in the default or no-default decision. Outstanding also is the KMV credit Monitor Model4. In recent years, following the pioneering work on options by Merton, Black, and Scholes, we now recognize that when a firm raises funds either by issuing bonds or by increasing bank loans, it holds a very valuable default or repayment option ( Black and Scholes, 1973) and (Merton, 1974). The KMV Model is a credit monitor model that helps to solve the lending problems of banks 4 KMV is a trademark of KMV Corporation that was founded in 1989. The KMV model calculates the Expected Default Frequency (EDF) based on the firms capital structure, the volatility of the assets returns and the current asset value. This model best applies to publicly traded companies for which the value of equity is market determined. 25 and further look at the repayment incentive problem (Gilbert, 2004). To try resolving the problems, the KMV Model uses the structural relationship between the volatility of a firms asset and the volatility of the firms equity. The KMV Corporation (purchased by Moodys in 2002) has turned this relatively simple idea into a credit-monitoring model now used by most of the large US banks to determine the Expected Default Frequency (EDF) that is the probability of default of large corporations (KMV Corporation, 1994). The expected default frequency that is calculated reflects the probability that the market value of the firms assets will fall below the promised repayments on debt liabilities in one year. If the value of a firms assets falls below its debt liabilities, it can be viewed as being economically insolvent. Simulations by the KMV have shown that this model outperforms both accounting-based models and SP ratings (Saunders and Cornett, 2007). The relevant net worth of a firm is therefore the market value of the firms assets minus the firms default point. Net worth= (Market Value of Assets) (Default Point) (3) A firm will default when its market net worth reaches zero. (Market Value of Assets)(Asset Volatility) (Market Value of Assets) (Default Point) Distant to Default = (4) (Source: Moodys KMV; Modeling Default Risk, 18th December 2003.) The KMVs empirical EDF is an overall statistics that can be calculated for every possible distance to default (DD) using data either aggregated or segmented by industry or region. To find the EDF for any particular firm at any point in time, one must look at the firms EDF as implied by its calculated DD. As a firms DD fluctuates, so do its EDF. For firms that are actively traded, it would be possible in theory to update the EDF every few minutes (Gilbert, 2004). CRITICS: The KMV EDF Model has been criticized on the basis that they are not true probabilities of default. This is refl ected in the poor results obtained using KMV empirical EDFs in order to replicate risky bond prices (Kao, Eom et al, 2000). 26 An increasingly popular model used to evaluate the return on a loan to a large customer is the Risk-Adjusted Return on Capital (RAROC) Model. This model, originally pioneered by Bankers Trust (acquired by Deutsche Bank in 1998) is now adopted by virtually all the large banks in Europe and the US, although with some differences among them (Saunders and Cornett, 2007). The essential idea behind RAROC is that rather than evaluating the actual promised annual cash flow on a loan as a percentage of the amount lent or (ROA), the lenders balance the loans expected income against the loans expected risk. The RAROC Model is basically represented by, RAROC = (one year net income on loan)/ (Risk adjusted assets). (5) For denominator of RAROC, duration approach can be used to estimate worst case loss in value of the loan: DL n = -DLnx Ln x (DR/ (1+R)) .(6) Where, DR is an estimate of the worst change in credit risk premiums for the loan class over the past year. Ln= Loan DLn= Change in loan class R=Interest Rate According to James Christopher (1996), the immediate purpose of the RAROC riskmeasurement systems is to provide bank managements with a more reliable way to determine the amount of capital necessary to support each of their major activities and, thus, to determine the overall leverage for the bank as a whole. This paper also stipulates that the RAROC system provide a uniform measure of performance and that management can, in turn use this measure to evaluate performance for capital budgeting and as an input to the compensation system used for senior managers. 27