One Billion = 100 crore

One Trillion = 1000 billion

This is a Market that deals in long-term company securities (stocks and shares) and government securities (bonds). The stock exchange performs two principal functions. It provides (a) a primary or new-issue market where new capital for investment and other purposes can be raised by the issue of financial securities; (b) a secondary market for dealing in existing securities, which facilitates the easy transferability of securities from seller to buyer. The stock exchange thus occupies an important position in the bourgeois financial system by providing a mechanism for converting individual’s savings into investments for use by companies. In India the two major stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange at Delhi. Of late, most cities in the country also have stock exchanges.

Joint-stock Companies:

This is a form of company where a number of people contribute funds to finance a FIRM in return for SHARES in the company. Joint-stock companies are able to raise funds by issuing shares to large number of SHAREHOLDERS and thus able to raise more capital to finance their operations than could a sole proprietor or even a partnership. Once a joint-stock company is formed it becomes a separate legal entity from its shareholders, able to enter into contracts with suppliers and customers. This is a convenient ruse of the bourgeois system where the owner of the company can absolve himself of all fraudulent activities, acting through the ‘company’. Joint-stock companies are managed by the board of directors, supposedly appointed by the shareholders, but in fact appointed either by the promoter (i.e. the person who starts the company) or those who control bulk shares of the company. The directors report the progress of the company to the shareholders at an ANNUAL GENERAL MEETING.

There are two types of joint-stock companies:

a) Private Company. Where the maximum number of shareholders is limited to 50 and the shares the company issues cannot be bought and sold at the stock exchange. Such companies carry the term Limited (Ltd) after their name.

b) Public company. Where there are a minimum of 7 shareholders; but otherwise such a company can have an unlimited number of shareholders. Shares in a public company can be bought and sold on the stock exchange and so can be bought by the public. Most big firms are public companies, as in this way they are able to corner vast amounts of money (savings) from thousands of people. Though the shareholders are the official owners of the company, it is the management that effectively controls the company.

Shares:

Financial Securities issued by a joint-stock company as a means of raising long-term capital are called shares. The Shareholders of a company are its legal owners and are entitled to a share in the profits. Shares are traded on the Stock Exchange. The share price is determined by supply and demand. The face value of the share certificate is the price at which company sells it, at the time of a new issue. If the company does well (or due to speculation) the market value of the share certificate on the stock exchange rises well above its face value. If it does badly the price drops.

The Share Capital is the money employed in a joint-stock company that has been subscribed by the shareholders of the company in the form of Ordinary Shares (equity) and Preference Shares and which will remain as a permanent source of finance as long as the company remains in existence.

Market Capitalisation is the market value (not the face value) of the share capital as quoted on the stock exchange. Of late this has become the basis for the valuation of companies and not its asset value. This is an irrational method of valuation, as the value fluctuates enormously, depending on many factors, like speculative trading on the stock exchange. An example was the market capitalization of dot com companies, which reached dizzying heights, unconnected with the real value of the companies or the profits earned. These crashed, when the speculative bubble burst.

The Stock Index is the number quoted on a stock exchange at a given time, indicating the fluctuations in the value of the shares. Index numberings are normally set by using a cut-off date, giving the value of 100 on that date. At a future date, an increase in value of the share prices by, say, 20%, would mean that the index will rise to 120. If a week later it drops by, say, 10% the index would fall to 108. So, for example, the BSE index hovers around 3000 to 6000 depending on the value of the shares on a particular day. A bear condition is said to exist when the index is low or falling; while a bull condition is said to exist when the index is high or rising. If there is heavy selling, demand drops and the index falls. If there is heavy buying, by say FIIs, there is heavy demand and the index can be artificially boosted. With Foreign Institutional Investors (FIIs) dominating the Bombay Stock Exchange, through the huge funds at their disposal, they are able to manipulate the stock exchange index through large-scale buying and selling on the stock market. They thereby make windfall profits through speculative activity on the Indian stock markets.

GDP (Gross Domestic Product):

The GDP is the total money value of all final goods and services produced in an economy over a one-year period. GDP can be measured by calculating the sum of the value added (i.e. by new value created through production and services) by each industry in producing the year’s output. There are also other methods of calculating the figure. The growth rate in the GDP is an important measure for estimating the health of an economy. So, for example, if the GDP increases from one year to the next by 5%, the growth rate for that year is 5%. That means that the value added in the given year through economic activity (industrial, agricultural and through service) is 5% more than what it was in the previous year. If there is a contraction of the economy, the GDP is minus. That means the value added during the current year is less than that in the previous year.

Gross domestic fixed capital formation is the total spending on Fixed Investment (plant, equipment, etc.) in an economy over a one-year period. This chiefly comprises of government investments, and private investments (both local and foreign). However, because of Capital Consumption (fixed capital lost due to wear and tear) the net domestic-fixed-capital formation may be considerably less than the gross investment.

Per-capita income is the national income of a country divided by the population. This gives the average income for every man, woman and child in a country if it were all shared out equally. But the distribution of income is not equal, so the per-capita income is not a good indicator of the living standards of the people.

Financial Sector:

It is that part of the economy concerned with the transaction of financial bodies. Financial bodies provide money, transmission services and loan facilities, and influence the workings in the ‘real’ economy by acting as intermediaries in channeling savings and other funds into investment uses.

The Financial System is the network of Financial bodies (banks, commercial banks, building societies, etc.) and markets (money market, stock exchange) dealing in a variety of financial instruments (bank deposits, treasury Bills, stocks and shares, etc.) that are engaged in money transmission and the lending and borrowing of funds.

Commercial Banks are banks that accept deposits of money from customers and provides them with a payments transmission service (cheques) together with saving and loan facilities. A commercial bank has the dual purpose of being able to meet currency withdrawals on demand and of putting its funds to profitable use.

Merchant Banks are specialist institutions which advises client companies on new shares and underwrites such issues (i.e. guarantees to buy up any shares which are not sold on the open market). They also advise companies in mergers and acquisitions. In America these banks have grown into monoliths dominating the financial world. Companies like Morgan Stanley, Merill Lynch, Goldman Sachs and Lehman Bros, are giants whose octopus-like claws stretch out in all directions of the financial markets.

Venture Capital is any share capital or loans subscribed to a firm by financial specialists (for example, the venture-capital arms of the commercial banks and insurance companies), thus enabling the firm to undertake investments in processes and products which because of their novelty are rated as especially high-risk projects, and as such would not attract conventional finance.

A Treasury Bill is a financial security issued through the discount market by the government as a means of borrowing money for short-term periods of time (3 months). Most Treasury Bills are purchased by commercial banks and held as part of their reserve-asset ratio.

Public Debt:

The public Debt is the national debt and other miscellaneous debt for which the government is ultimately accountable. Such miscellaneous debt would include, for example, the accumulated debts of nationalized industries.

Debt Servicing is the cost of meeting interest payments and regular contractual repayments of principal on a loan along with any administrative charges borne by the borrower.

Foreign Exchange:

These are foreign currencies that are exchanged for a country’s domestic currency in the financing of international trade and foreign investment.

International reserves or foreign exchange reserves are monetary assets that are used to settle Balance-of-payments deficits between countries. International reserves comprise chiefly gold and foreign exchange (particularly in US dollars).

Balance-of-payments (BoP) is a statement of a country’s trade and financial transactions with the rest of the world over a particular period of time, usually one year. The account is divided up into two main parts: (a) current account, and (b) investment and other capital transactions.

The current balance, and the investment and other capital flows, together with the balancing item, result in the BoP. This figure shows whether the country has incurred an overall surplus or deficit. India has huge current account deficits, which is balanced by the big inflow of foreign investments (FDIs & FIIs) and NRI deposits, giving a surplus. But this ‘surplus is illusory as the bulk of it comprises hot money by foreign investors, which can be removed overnight.

Financial Bubble

‘Money’ is for making more ‘Money’ in Capitalism. It has to, for otherwise, it steadily loses it’s value. Idle money buys lesser and lesser goods as loses it’s value due to inflation. Thus, ‘Capital’ is for amassing more ‘Capital’ in Capitalism.

Traditionally, Capital was invested in productive resources, human resources etc. to generate surplus value/profits, to accumulate more capital. When accumulated ‘Capital’ is lent for such purposes it becomes ‘Finance Capital’.

As Capitalism developed increasing inequalities all around, this uneven development affected demand for various products, as the purchasing power did not keep pace with the ability to produce. Recurrent overproduction rendered ‘Finance Capital’ idle.

Such slackening of industrial production at the global level and the consequent falling rate of return in the ‘productive’ economy of the world compelled global finance capital to seek other avenues to maintain their profit levels.

The enormous amounts of idle cash the Middle East gathered selling oil is one such classic example. These ‘petro-dollars’, as they were called, were parked in International Banks and needed to be invested or lent somewhere to pay interest to the owners of the money and earn commissions for the bankers. It was this money that became the source for the notorious third world debt from the late 1970’s.

From the 1980’s huge amounts of finance capital began to be lent/invested in speculations on real estate, stock market, debt, third world country’s tin-pot dictators etc. all over the world.

There is always a risk even when you invest in land for cultivation, buy seed for sowing, invest in a factory or start a business. These risks were at least based on reality, real demand, real purchasing power, real products, real quality etc.

The investments/loans of finance capital, on the other hand, were based on speculative risks. Risks and turbulence of this ‘finance market’ itself became the only source of whatever returns.

With deregulation sweeping the major financial markets during the 1970’s, risk-prone business soon became the chief source of financial involvement. Of the different strategies in the international financial market, non-bank financial involvement emerged as a major form of activity, pushing aside traditional operations of banks at the banking and industry level.

As the booming financial flows were increasingly dissociated from the ‘real’ sector with low growth rates of GDP in the OECD countries, tendencies arose of banks to finance myriads of activities including corporate mergers and acquisitions and real estate transactions. As returns on money capital could only be maintained by creation of debt, finance sought outlets beyond industry in particular because the latter was unable to absorb the growth in finances. The result was a proliferations of financial transactions, which continued on its own, without relation to the ‘real’ sector. Speculation, involving a high degree of risk, generated the demand for a substantial part of financial flows.

This has resulted in the stock markets being excessively volatile resulting in, what has come to be called, ‘Casino Capitalism’. Money trading also in interest rates, equity shares, commodity prices, foreign exchange rates and in derivatives (futures, options etc.) has reached gigantic proportions absorbing vast amounts of capital accumulation. In addition vast sums have also moved into the debt and bond markets. Not only that, with falling returns in Industry, ‘finance capital’ has sought outlet through an unprecedented wave of Mergers & Acquisitions (M & A), where big TNCs (Transnational Corporations) have swallowed up not only other smaller companies but also other TNCs of equal size.

Internet Bubble

In the last half of 1998 and the first half of 1999, Investors caught up in ‘Internet mania’ drove Internet stocks up to 400 percent, while the S & P 500 Index and the Dow Jones Industrial Average increased 18.9 percent.

While the Internet boom is real, it’s valuation was insane. In 1999, Anthony B. Perkins calculated that the 133 Internet companies that went public since Netscape in 1995 could be overvalued by as much as $ 230 billion.

Thus the market valuation of Internet companies & Dot.com Companies began to be referred to as the ‘Internet Bubble’ about to burst. A 50 percent-plus meltdown was predicted. It was worse when the bubble actually burst.

First the facts. According to International Data Corp. (IDC) , Some 160 million people around the world are logged on to the internet; by 2003, IDC expects that figure to mushroom to 500 million.

At least 30 percent of U.S. companies are represented on the World Wide Web. Advertisement on the internet more than doubled in 1998 to $ 1.92 billion, for the first time surpassing the amount spent on outdoor advertising such ass billboards. This was expected to grow to $ 8 billion by the year 2002.

Such Expectations of Usage & Income coupled with the notion that the value of any network increases by the square of the number of people using it- Fueled an unprecedented spiral of market valuation and rush of investments to the Internet companies

By 1999, the market wealth creation (notional value) by the internet ($ 236 billion) on an equivalent basis, exceeded that created by the PC ($ 221 billion) Industry

Yahoo’s share price jumped 584 percent, Amazon jumped 966 percent, AOL jumped 586 percent. Then, 95% of the dot com companies failed. The bubble burst. In the year since April 2000, The technology heavy NASDAQ stock exchange alone lost $ 2 trillion in value

According to NASSCOM, There are over eighty-thousand India-related websites that have sucked in investments of over $ 5 billion and ICRA predicts that only around 20 major Indian internet companies will survive in the next four to five years.

Social Security System

In the developed countries those who are unemployed get a minimum unemployment pay, which allows the individual to survive. Though these facilities are also being drastically cut, the social security system in these countries are incomparable with what exists in third world countries like India. Besides, with greater general wealth in these imperialist countries, built from the loot of the backward countries, the ability of the individual to cushion loss of income through job cuts is much more.

OECD

Economic Co-operation and Development Organization (OECD), is an international organization founded in 1961 to stimulate economic progress and world trade. Members in the late 1990s included Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

The convention establishing the OECD was signed on Dec. 14, 1960, by 18 European countries, the United States, and Canada and went into effect on Sept. 30, 1961. It represented an extension of the Organisation for European Economic Co-operation (OEEC), set up in 1948 to coordinate efforts in restoring Europe’s economy under the Marshall Plan.

Marshall Plan

Marshall, George C., (1880-1959), general of the army and U.S. Army chief of staff during World War II (1939-45) and later U.S. secretary of state (1947-49) and of defense (1950-51). The European Recovery Program he proposed in 1947 became known as the Marshall Plan. He received the Nobel Prize for Peace in 1953. He was sworn in as chief of staff of the U.S. Army on Sept. 1, 1939, the day World War II began with Germany’s invasion of Poland. For the next six years, Marshall directed the raising of new divisions, the training of troops, the development of new weapons and equipment, and the selection of top commanders. When he entered office, the United States forces consisted of fewer than 200,000 officers and men. Under his direction it expanded in less than four years to a well-trained and well-equipped force of 8,300,000.

Also significant during his secretaryship were the provision of aid to Greece and Turkey, the recognition of Israel, and the initial discussions that led to the establishment of the North Atlantic Treaty Organization (NATO). In 1945, Truman, the then President of U.S.A., reaffirmed America’s commitment to a "strong, united, and democratic China" and dispatched Marshall to seek a truce and a coalition government between Chiang Kai-shek’s Nationalists at Chungking and Mao Zedong’s Communists in Yenan. Then, in 1950, when he was nearly 70, Truman called him to the post of secretary of defense, in which he helped prepare the armed forces for the Korean War by increasing troop strength and matériel production and by raising morale.

In other words this military general, responsible for the butchery of millions, was the father of the Marshall Plan.

Marshall Plan, formally EUROPEAN RECOVERY PROGRAM (April 1948-December 1951), was the U.S.-sponsored program designed to rehabilitate the economies of 17 western and southern European nations in order to create stable conditions in which democratic institutions could survive. The United States feared that the poverty, unemployment, and dislocation of the postwar period were reinforcing the appeal of communist parties to voters in western Europe. On June 5, 1947, in an address at Harvard University, Secretary of State George C. Marshall advanced the idea of a European self-help program, to be financed by the United States in order to counter the communist threat.. On the basis of a unified plan for western European economic reconstruction presented by a committee representing 16 countries, the U.S. Congress authorized the establishment of the European Recovery Program. Aid was originally offered to almost all the European countries, including those under military occupation by the U.S.S.R. The U.S.S.R. early on withdrew from participation in the plan, however, and was soon followed by the other eastern European nations under its influence. This left the following countries to participate in the plan: Austria, Belgium, Denmark, France, Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Sweden, Switzerland, Turkey, the United Kingdom, and western Germany.

CIS Countries:

LDC’s

The 49 countries with an average per capita income of about $1 a day, known as the least developed countries, continued to suffer from low prices for their commodity exports, rising protectionism in Western markets, high prices for imported food and for oil imports, declining foreign aid, and, in sub-Saharan Africa, lower per-capita food production because of unwise economic policies and devastating drought.

The 49 LDCs: