$ BITCOIN $

 BITCOIN

Bitcoin is the world’s first decentralized borderless currency. It is a virtual currency, or crypto-currency, used only for online transaction. It is also called Money 3.0, the next gen currency.

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins are not printed, like Rupees or euros, they’re produced by lots of people running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as crypto-currency.

 With most transaction being effected online these days, e-payment world is finding it convenient to shift to bitcoins. It can be stored either virtually or on a user’s hard drive and it offers a largely anonymous payment system but it is still in its childhood and this brings with it both challenges and opportunities. It is based on an open source protocol, Which makes use of public transaction log. It is the world’s most expensive currency.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional Rupees or euros  which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network.

Who invented it?

It was invented in the wake of global financial in November 9, 2008 by mysterious computer guru pseudonymous developer Satoshi Nakamoto. He proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one. This currency is not physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

What is it based on?

Conventional currency has been based on gold or silver. But bitcoin is not based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it. The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

Procedure of Bitcoin transaction :

There is no exchange of notes or tokens between purchaser and seller. Bitcoin comes into existence through mining only. If you want to buy anything, you should have bitcoins in your e-wallet. 

It can be obtained through two ways:

 1) Purchase from Exchange

 2) Mining

1. Purchase from Exchange:

            It can easily be exchanged with conventional currencies. It can be bought and sold in return for traditional currency on several exchanges, and can also be directly transferred across the internet from one user to another by using appropriate software.

2. Mining:

              If you don’t want to purchase the bitcoin, you can mine it through super computers dedicated towards processing mathematically complex calculations. These are mathematically generated as the computers in this network execute difficult number-crunching tasks, a procedure known as Bitcoin “mining”. The mathematics of the Bitcoin system was set up so that it becomes progressively more difficult to “mine” bitcoins overtime.

Advantages of Bitcoins :  

        1.    Lesser Transaction Cost

        2.    New Investment Venue

        3.    World Wide Acceptance

        4.    Peer to peer transactions (no single authority)

        5.    Anonymity:

        6.    Limited number of coins will ever be produced (cap at 21 million), thus            no inflation.

        7.    completely transparent

Limitations of Bitcoins :

1.    No Authorized Agency

2.     Speculation

3.    Cyber Security Risk

4.    Illegal/Illicit use

5.    Others: Bitcoin transactions are untraceable, untaxed and ownership changes instantly.

It is an entirely new global monetary system - both a currency and a payment network for that currency. Bitcoin is thus the only currency and money system in the world, which has no counter-party risk to hold and to transfer.

Source : www.coindesk.com , icai student journal.

Post-dated Cheques

Post-dated Cheques

      

        The cheques which bear a date prior to the date on which it is drawn and the date has not fallen due till presentment, are called post dated cheques.

                         

        Such cheques become effective on the date mentioned on the body of the cheque and the holder can sue the drawer of such cheque after the mentioned date only.

      These cheques are valid cheques and are in the form of usance bill of exchange. (Usance means The allowable period of time, permitted by custom, between the date of bill and its payment.)

      

          The payment of such cheques is not payment in due course

Misconceptions (wrong conclusion)

        “A post-dated cheque is essentially a negotiable document, and as such, a company or an individual may deposit it before the due date. The bank may honor the payment if the customer has sufficient funds in his account.”

In short,

                  A post-dated cheque is a negotiable instrument that allows a customer or borrower to indicate to the supplier or lender its promise to pay at a given date.

 For example:  A department store wants to purchase 10,00,000 Rupees worth of merchandise from a major supplier. The store's accounting manager notes that cash available at the bank is 325,000 Rupees He may issue a post-dated cheque negotiable within a month because he expects customers to pay 20,00,000  within 15 days.

 

 

Significance

                 Post-dated cheque play a significant role in modern economies. It  helps an individual or a company to receive goods or services and pay for them at a later date. This business practice is important because even profitable companies often have liquidity problems resulting from customers' delayed payments

Accounting Procedures

              Generally accepted accounting principles (GAAP) and cash accounting methods treat post-dated cheque the same way :-                                                  

“no journal entry recording.”

          A post-dated cheque is essentially a promise to pay, and until the business partner pays or reimburses amounts owed, no change is made in accounting books.

To illustrate,

         an accounting clerk receives a 45,000 rupees  post-dated cheque negotiable in one week. He cannot debit bank (asset) and credit sales revenue or accounts receivable to record this transaction because no payment is made. He can, however, write a memo about the post-dated cheque in the accounting ledger.

If the cheque clears the customer's bank after one week, the clerk may then record journal entries in the sales ledger.

Financial Statement Rules

       Post-dated cheque do not affect financial statement accounts, but regulatory guidelines and industry practices require a company to reveal significant amounts that it expects from customers at future dates. These amounts may relate to post-dated cheques or promissory notes.

        

         

            

Growth of E-commerce industry in India

                               Growth of E-commerce industry in India

       As the dot com technology has taken a toll of the entire globe, internet has also provided a huge platform for many to achieve their entrepreneurial dreams.

      To start a web based business all you need is a brilliant and unique idea, your personal computer and just minimum investment. There are many internet based companies that have been started and also been huge hit. People also prefer to shop and use products of these e-commerce companies as they are easily accessible over the net and also provide door to door delivery.

  

   These e-commerce companies also provide many facilities like cash on delivery, free shipping and also return policies if the customer is not happy with the product.

 India is a lucrative (profitable) land that is being eyed by investors from across the globe. As Business India puts forth, the booming industries in the subcontinent include IT Information Technology, Telecom, Healthcare, Infrastructure and e-Retail. While the rest have been in the race for quite a while now, e-commerce has come out with flying colors despite being new. 

Key drivers in Indian e-commerce are:

• Increasing broadband Internet and 3G penetration and now 4G as well.
• Rising standards of living    
• Availability of much wider product range .
• Busy lifestyles, urban traffic congestion and lack of time for offline shopping
• Lower prices compared to brick and mortar retail driven by disintermediation and reduced inventory and real estate costs.
• Increased usage of online classified sites, with more consumer buying and selling second-hand goods. 

Revenue:                                                                                                                         As more and more Indians use the internet, revenues of e-commerce companiescould triple over the next three years to 504 billion rupees           ($8.13 billion), according to Crisil Research, a unit of Mumbai-based ratings firm Crisil Ltd.

Online retail companies earned revenues of around 139 billion rupees     ($2.24 billion) in the financial year that ended on March 31, 2013, according to the Crisil report. Though this is just 0.5% of the total revenues of brick-and-mortar retail companies, online retail sales have been growing much faster

Revenue of e-commerce firms grew by 56% annually between the financial year that ended March 31, 2008, and the year ended March 31, 2013, according to Crisil

Users:                                                                                                                               There are around 200 million internet users in India currently and the number could grow to 500 million by 2015, according to consulting firm McKinsey & Co.

E-commerce market:

           India’s e-commerce market is on a rise. Statistics reveal that by the end of this year, 44 percent of the Indian households will have access to the Internet. This clearly translates to a bigger market for e-commerce. This change is also going to affect related markets in a big way like the supply, logistics and advertising. Advertising in particular will be playing a huge role in facilitating the e-commerce growth by educating people about brands and assisting them in buying not only through e-stores but also their brick and mortar outlets. 

"Over the last few years, dozens of websites have been launched in India to sell everything from books and appliances, to baby care products and flight tickets."

"The scope for growth in this sector has already attracted a lot of interest from venture capital investors."

"India will become one of the 10 largest ad markets ascending from its current 14th position. It’s expected to grow by 39 percent year ending 2016."

"As the technology improving day by day our level of standard is also improving and in fact at a greater speed. This growth in e commerce industry will lead to a great impact on the Indian economy in near future."

CRR, SLR, BANK RATE, REPO, REVERSE REPO

What is CRR?   

CRR means Cash Reserve Ratio.  Banks in India are required to hold a certain proportion of their deposits in the form of  cash.  However, actually Banks  don’t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as  equivalent to holding cash with RBI. This minimum ratio (that is the part of the total deposits  to be held as cash) is stipulated by the RBI and is known as the CRR or  Cash Reserve Ratio.

Thus, When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 6%, the banks will have to hold additional Rs 6 with  RBI and Bank will be able to use only Rs 94 for investments and lending / credit purpose. Therefore,  higher the  ratio (i.e. CRR), the lower is the amount that banks will be able to  use for lending and investment.  This power of RBI to reduce the lend able amount by increasing the CRR,  makes it an instrument in the hands of a central bank through which it can control the amount that banks lend.  Thus, it is a tool used by RBI to control liquidity in the banking system.

How RBI uses CRR?  

RBI uses CRR either to drain excess liquidity or to release funds needed for the growth of the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation.

Thus we can say that this serves duel purposes i.e.

(a)  Ensures that a portion of bank deposits is kept with RBI and is totally risk-free, 

(b) Enables RBI to  control liquidity in the system, and thereby, inflation by tying the  hands of the banks in lending money.

CRR FOR THE PAST 4 YEARS.:

                       DATE                     RATES

24-Apr-2010	6.00	RBI circular dated 20/04/2010
28-Jan-2012	5.50	RBI circular dated 24/01/2012
10-March-2012	4.75	RBI circular dated 10/3/2012
22nd September, 2012	4.50	RBI circular dated 17/09/2012
3rd November 2012	4.25	RBI circular dated 30/10/2012
9th February 2013	4.00	RBI  circular dated 29/01/2013

                         CRR IS DECREASING.......FROM PAST 4 YEARS

What is SLR?

  

Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).

How RBI uses SLR?  

RBI is empowered to increase this ratio up to 40%.  An increase in SLR  also restrict the bank’s leverage position to pump more money into the economy.

SLR FOR THE PAST 5 YEARS.:

                          DATE                     RATES
             7-Nov-2009                         25 %
          18-Dec-2010                          24 %
          11-Aug-2012                          23 %
         14-June-2014                         22.5 %

                         SLR IS DECREASING.......FROM PAST 5 YEARS

What are Repo rate and Reverse Repo rate?

 Repo rate

 Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks against securities. 

How RBI uses REPO rate?  

When the repo rate increases borrowing from RBI becomes more expensive.  Therefore, we can say that in case,  RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

 Reverse Repo rate

Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. 

How RBI uses Reverse REPO rate?  

 The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.     An increase in the reverse repo rate  means that the RBI is ready to borrow money from the banks at a higher rate  of interest. As a result, banks would prefer to keep more and more surplus funds with RBI.

*Reverse Report rate was an independent rate till 03/05/2011.  However, in the monetary policy announced on 03/05/2011, RBI has decided that now onwards the Reverse Repo Rate will not be announced separately, but will be linked to Repo rate and it will always be 100 bps below the Repo rate (till RBI decides to delink the same)

REPO RATE FROM MAY 2013..

                        DATE                     RATES

3 - May 2013	7.25	RBI circular dated 3/5/2013
20 - September- 2013	7.50	RBI circular dated 20/9/2013
29 - October- 2013	7.75	RBI circular dated 29/10/2013
28 - january- 2014	8.00	RBI circular dated 28/01/2014

REVERSE REPO RATE FROM MAY 2013..

                                      DATE                                RATES

03-May-2013	6.25	RBI circular dated 03/05/2013
20-September-2013	6.50	RBI circular dated 20/09/2013
29-October-2013	6.75	RBI circular dated 29/10/2013
28-January-2014	7.00	RBI circular dated 28/01/2014

What is Bank rate?

   

 Bank Rate is the rate at which central bank of the country  (in India it is RBI)  allows finance to commercial banks. Bank Rate is a tool, which central bank  uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.  Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down,  and it can also indicate  an increase or decrease in your EMI.