Sunday, October 29, 2006

Who's going to take credit for gamblers' losses?

Allowing speculators to buy stocks on credit is dangerous

Andrew P K Yap

THERE was a recent report in Today to the effect that brokers will soon be tapping into the Credit Bureau's services.

This calls for some hard questions. Why, in the first place, are brokers allowed to give credit to speculators?

In contrast, the recent Casino Control Bill clearly states that casino operators cannot extend credit to their clients and even ATMs are not allowed on the casino premises. The stock and shares market is a platform for investing in companies. You buy equities and in return for placing your money, expect to be rewarded with a share of the company's profits. Over the years, you expect the companies that you have invested in to grow in size.

In theory, there should be no urgency to invest and one should buy stocks only after accumulating funds to do so. That is what investment is about.

But the stock market is also about speculation. You buy stocks and shares in the hope of profiting from the price movement. As the prices can change by the minute, buyers hope to make a killing almost immediately.

This is a bit like gambling.

When you invest, you study the fundamentals of a company and its valuation.

On the other hand, when you gamble, you simply try to discover which stocks are hot at any given moment. Sure, you may use charting techniques and technical analysis, but it is really a bit like reading tea leaves. You may occasionally get it right but there is no "scientific" reason for that.

The differences between the two types of people who frequent the stock market are clear. The investor is not in a hurry to buy or sell and works in a timeframe that is usually in the vicinity of a decade. The gambler or speculator, in contrast, is always in a hurry. He could be looking at a timeframe in terms of minutes.

If you think about it, credit facilities are more likely to be snapped up by speculators who may not even have time to transfer funds to their stock market accounts.

The question is: Who benefits if credit facilities are provided for what is essentially gambling in the guise of investing?

It is certainly in the interest of the markets as the gamblers provide liquidity. It is also in the interest of brokers, since their earnings are based on commissions generated by speculators who buy and sell numerous times in a short period. But it is most certainly not in the interest of the gamblers, who may have to put up with devastating consequences.

Pathological gambling is recognised by the American Psychiatric Association as a bona fide mental disorder and included it in its Diagnostic and Statistical Manual (DSM-lll).

No matter how strong their faith in their own lucky stars, gamblers inevitably end up losers as their luck will run out sooner or later.

The question is whether brokers should be allowed to induce their customers to gamble excessively — even offering them credit — only to sue them eventually to recover their monies.

The writer is an IT consultant who used to work as a commodity futures broker.

Tuesday, October 10, 2006

Handling Evaluation

Dear Auntie Agony,

DRQ and Case Study is still a big problem for me. Sometimes I do not know which information to use, and do not know how to select the appropriate information to evaluate. For example in the minimum wage question they ask for what is the possible impact of the change in economic status.. I feel that I can use every statistic but still have no confidence to evaluate well.. am i doomed?


Dear Confused

not to worry, u r not the only one with this u should have realised by now...each evaluation is a case-by-case basis, never a one-size fits all...and thats why it is said to be the highest order thinking skill...u can never say there is a standard format...

usually for such questions, you have to do a balanced analysis, then judging by the context, u might want to weigh the pros vs. cons...and do a final evaluation. Each situation is unique...and u will really have to evaluate the context, is there any limitations to the data, the conclusion? or are there any other possibilities?

examiners love to see students thinking out of the box ( and still stay relevant!!!) in essays especially. good application of theory into a context is the key. make good use of theory to either explain the data, or to evaluate the data, especially if it does not "fit" into the theory. some students merely regurgitate lecture notes, others merely evaluate freely witout any reference to economics. at times, with extra general knowledge to quote as examples, it does help to distinguish the normal candidates from the outstanding ones.

writing a good economics essay or evaluation is an art, it takes practice, and to a certain extent, a flair. but that does not mean u cant do well if u have no flair. what is lacking in most of the students, is not really even evaluation, but the mastery to explain and elaborate a concept well. and there are many other technical faults which i find in essays, like bad or irrelevant diagrams, incoherent argument, bad organisation, the worst, not answering the question. avoiding all these will certainly make for a far better quality answer...

in the meantime, happy revision!

Monday, October 09, 2006

Microeconomic Topics to Revise (Analysis)

1. Application of Price Theory
  • Demand & Supply factors - Change in Equilibrium Price & Quantity (in given markets, e.g. car, labour, oil, housing, hotel - See 2005 Tutorial 7 Essays 1 & 2)
  • Oil prices - See 2005 Tutorial 7 Case Study
  • Elasticity of Demand & Supply - Extent of Changes in Eqm Price & Qty - See 2005 Tutorial 6 Data Response
  • Assess burden of tax and benefits of subsidies (Producers & Consumers)
  • Assess effectiveness and impact of government intervention (taxes, subsidies, quota, minimum/maximum prices --> to affect equilibrium price & quantity)

2. Elasticity of Demand & Supply

  • Nature of goods - PED (Elastic & Inelastic), YED (Normal & Inferior) & CED (Complements & Substitutes)
  • Explain strategy/decision/impact (Pricing, Output & Marketing strategies)
  • See 2005 Tutorial 5 Essays 1, 2 & 3

3. Production & Cost

  • Explain and Distinguish SR & LR Production & Cost Behaviour - Law of Diminishing Returns, Economies of Scale
  • How do firms grow large? - Rev & Cost
  • Why do firms grow large? (Is Big Always Beautiful?) - Advantages and Disadvantages of Large vs. Small firms
  • 2005 Tutorial 9 Essays 2 & 3

4. Market Structures

  • Characteristics - No. of firms, Size of firms, No. of buyers and sellers, Nature of Product
  • Behaviour - Price & Output Policy, Revenue (TR, AR, MR) Curves, Price vs. Non-price competition, Collusion vs. Competition (for Oligopoly), Profit Maximising Behaviour & Shut Down Condition
  • Performance - SR & LR Profitability, Allocative & Productive Efficiency, R&D, Equitability
  • PC vs. Monopoly - The classic argument of Advantages & Disadvantages of Increased Competition in an industry
  • Government Regulation of Monopoly (How? - MC or AC pricing, Taxation; and Why? )
  • Privatisation vs. Nationalisation (Pros & Cons)
  • Price Discrimination

5. Wage Theory - Wage Differentials

  • Demand factors - MRP theory (MPP x MR)
  • Supply factors - Immobility, Talents & Skills etc
  • Market Imperfections - Government Intervention, Trade Unions (Bilateral Monopoly)
  • Non- Economic Arguments

June 2006 'A' Levels P1 & P3 MCQ Answers

Paper 1
  1. D
  2. C
  3. D
  4. A
  5. D
  6. C
  7. B
  8. D
  9. D
  10. B
  11. C
  12. A
  13. D
  14. C
  15. D
  16. C
  17. C
  18. B
  19. A
  20. A
  21. C
  22. D
  23. B
  24. D
  25. C
  26. A
  27. D
  28. D
  29. D
  30. B

Paper 3

  1. D
  2. D
  3. C
  4. B
  5. D
  6. C
  7. D
  8. A
  9. A
  10. C
  11. A
  12. B
  13. D
  14. A
  15. C
  16. C
  17. A
  18. C
  19. C
  20. D
  21. C
  22. C
  23. C
  24. A
  25. C
  26. B
  27. A
  28. B
  29. A
  30. C

Wednesday, October 04, 2006

2006 MCQ Papers of Other JCs

... is now available from the PrintShop.. Pls order if you want.

Tuesday, October 03, 2006

A Word of Encouragement for Examination

Grant me the right attitude towards my examination,
That even when I study, I am clear about my goals.
Give me the strength that I may press on,
Perseverance that I can endure,
Good health that I may study effectively.

Help me to be single-minded when I study,
Remove all other thoughts, distractions and anxieties,
Give me the power to concentrate,
The ability to understand and to remember.

May I have the way to study intelligently,
To know what is important and what is not.
May I spend quality time in my studies,
May all tensions and fears within me be removed.
May I be filled with confidence,
And may I have strength each day.

In the examination hall,
Grant me the clarity and sharpness of thoughts.
Let me not get distracted by things around me.
Give me concentration and calmness.
Help me to gather my thoughts of what I've learnt.
Grant me the discipline to space out time equally on all questions.

Most of all, may I complete the questions on time.