Analysis Of Chinas Foreign Exchange Reserve Finance Essay - Free Essay Example

China has accumulated substantial stock of foreign exchange reserves from different sources, for instance, foreign direct investment, export-oriented trade and maintenance of currency exchange rate. This has triggered a need to consider management of those reserves that is adequacy and optimality in order to determine the excessiveness and hence exposure to risk. Risk management frameworks would then be structured under informed bases. Error correction model following dynamic ordinary least squares will be employed in the assessment of adequacy and optimality while Value at Risk will measure risk exposure. Central banks accumulate foreign exchange reserves to facilitate international trade and as a means of financing exchange rate interventions in the foreign exchange market. Reserves can therefore be perceived as a buffer portfolio held for precautionary purposes (Borio, Ebbesen, Galati, Heath, 2008). The threshold of accumulating foreign exchange reserves is not clearly defined though (Park Estrada, 2009). Nonetheless, Disyaitat (2001) attempted to bridge this gap by formulating an optimizing model of currency crisis. Foreign exchange reserves consist of official public sector foreign assets that are readily available to and controlled by monetary authorities. Reserve asset portfolios have special characteristic that distinguish them from other foreign currency assets. Foreign exchange reserve assets do not only consist of liquid foreign currency assets, but they need to be held in the form of convertible foreign currency claims as well (Archana et al 2004). Henceforth, management of foreign exchange reserves portfolio is a crucial task given that foreign exchange reserves have potential to exert pressure unto the economy both internally and externally. The most common reserve currency globally is US dollar. Second to US dollar is euro. Euro as a reserve currency is gradually becoming an alternative reserve currency globally. There are speculations that Euro may be at par with or may even overtake US dollar as the main currency worldwide (Aristovnik Cec, (2009): Eichengreen Mathieson, (2000)). This is drawn from diversification of the currency composition of foreign exchange reserves point of view. In aggregate, due to diversification and other factors reserve assets denominated in US dollars have been slowly declining while at the same time reserve asset denominated in other curr encies are increasing  [CITATION Guj95 l 1033]  . Conversely, US dollar still claims the biggest share as a reserve currency (Pà ©tursson, 1995). 1.1.2 Chinas Economy brief review Post economic reform of 1978, China has been rapidly growing economically under export-led growth. Her openness to outside world with respect to trade has proven to be a great economic success which paved a way to rapid economic growth over almost three decades. In the process of international trade China managed to build a huge current and capital account surplus and hence accumulated enormous foreign exchange reserves. Chinese government implemented different strategies in order to attain rapid economic growth like encouraging inflow of foreign direct investment (FDI). In times of trade and current account deficit FDIs support is available to keep foreign exchange reserve rising. And hence the economy kept on growing lucratively. In 2006, China overtook Japan to the worlds largest holder of foreign exchange reserves. Chinas foreign exchange reserves are roughly three times as high as the reserves held by Japan, the country with the second largest holdings. Currently about 70% of Chinas foreign exchange reserves is held in US Dollars denominated assets, primarily US state bonds. At the end of the fourth quarter of 2009 the reported foreign exchange reserves stood at US$2, 3992 trillion. This is growth of foreign exchange reserves portrays strength of Chinas economy in aggregate. However, challenges both internally and externally that are brought by this success cannot be overlooked. Internally China is exposed to inflationary pressures while externally the pressure is on appreciation of her currency. During Chinas economic reform, foreign exchange reserves were handy in terms of facilitating foreign trade and investment. However, the recent rapid growth has tended to worsen the imbalance in Chinas balance of payments and created risks to Chinas financial system. Thus vigilant measures towards management of this foreign exchange reserves has to be taken. The critical policy decision of central bank should be how to allocate those reserves, noting that t his action have important implications for global markets. There should be clear definition of optimal foreign exchange reserve: maximizing yield and simultaneously minimizing risk. In short, foreign reserves should be sufficient to meet the future anticipated claims on these reserves. 1.1.3 Chinas Foreign exchange reserves review Beginning from 1950 to 1992, Chinas foreign exchange reserves have been steadily growing with few fluctuations. This may be explained by economic reforms which took place during that time. A call for rapid economic growth in 1992 was followed by reform initiatives which opened a door for inflow of foreign direct investment. As result of FDI inflows to China, the foreign exchange reserves have been growing rapidly. A starting point for this rapid growth in Chinas foreign exchange reserves can be traced from January 1993 until present. In January 1993 the size Chinas foreign exchange reserves was about US$ 20.138 bn, this amount gradually increased, by June 2010 the size was about US$2454.275 bn. This is a considerable accumulation and probably it will keep on growing larger and larger under the current exchange rate regime. The remaining question is how these reserves can be managed accordingly given that they have potential to impact financial system both in China and abroad. To manage the foreign exchange reserves, Chinese government under Peoples Bank of China has established State Administration Foreign Exchange (SAFE) institution. SAFE is the agency in charge of administering Chinas foreign exchange reserves. This institution has so far remained as one of the most secretive reserve managers in the world. Its investment strategy has been mainly in investing US government bonds. But recent trends show SAFE trying to reduce investment in the US treasury bonds and higher allocation to equities (Hu, 2010). In addition to SAFE, China Investment Corporation (CIC) was established solely for the purpose of reducing the size of foreign exchange reserves and increasing investment returns. Amongst its mandates CIC will pursue a variety of investments, primarily in overseas securities, including equities. SAFE and CIC operate within parameters of Peoples Bank of China (PBC). Chinas state sector as a whole including the central bank, public banks, and China Investme nt Corporation holds roughly US$3 trillion in foreign currency assets  [CITATION Guj95 l 1033]  . Meanwhile, US dollar is losing value over the long-term as measured by either exchange rates, Treasury notes or the amount of US dollars held by foreign countries (Kimberly, 2010). The rising current account deficit and external debt of the United States has created pressure on the dollar. As a result, confidence in the value of US dollar is reducing  [CITATION Guj95 l 1033]  and some countries are even shifting towards holding their reserves in Euro and other currencies. There is a concern that portfolio shifts from dollar denominated assets to those denominated in the euro and other main currencies by central banks, could result in sharp dollar depreciation (Elias et al (2006), Truman Wang, (2006)). This depreciation of US dollar translates into risk to the value of Chinas huge foreign reserves. Thus, any decline in the value of US dollar assets will amount to a decline in the value of Chinas foreign exchange reserves. Nevertheless, Chinas currency renminbi is pegged to US dollar (and basket of other foreign currencies). Consequently, China is compelled to increase her foreign exchange reserves holdings in US dollars to maintain the value of renminbi ( (Tatom, 2008): (Dooley, Folkerts-Landau, Garber, 2004)). In order to limit renminbi movement against the dollar, the PBC purchases and sells foreign exchange reserves on a daily basis. China continues to purchase large amounts of foreign exchange, adding to its reserves while resisting renminbi appreciation against US Dollar. If the domestic currency appreciates against all foreign currencies, the value of the governments foreign investments will decline. This may be one reason why the government resists currency appreciation. Generally, accumulating foreign exchange reserves is aimed at overcoming a balance of payments crisis. However, as Yongnian Jingtao, (2007) noted the huge foreign exchange r eserves can cause imbalances in the countrys economy. Sekine, (2009) noted that due to the capital inflows to China brought by its trade surplus and inward foreign direct investment and the fact that only the Peoples Bank of China is allowed to hold foreign exchange and intervenes in the foreign exchange market to sell renminbi for foreign currency to ensure that the renminbi does not appreciate, Chinas foreign exchange reserves are set to increase unless there is a sudden capital outflow. In other words, Chinas accumulation of foreign exchange reserve has been somehow closely related to the exchange rate regime as well. Intuitively, if the exchange rate regime changes the implication the foreign exchange reserves will reduce. The foreign exchange reserves of a country like China with a managed floating exchange rate regime are mainly used to pay off import bills and foreign debts, to maintain the bands within which the currency floats, and to invest in foreign assets. 1.2 Problem Statement Given the rapid accumulation of China foreign exchange reserves over past 20 years and the trend of continuing growth in the foreseeable future, the question of how to manage those reserves has become a very crucial issue for Chinese authorities. The concern is that, as much as foreign exchange reserves supports countrys financial system in times of economic shocks, they can as well invite pressure unto the countrys financial system. Sekine, (2007) pointed out that huge foreign exchange reserves of China have created excess liquidity in the country, which in turn creates the risk of inflation and investment overheating. Yongnian Jingtao, (2007) asked whether Chinese foreign exchange reserves are excessive. With consideration that accumulation of foreign exchange reserves earns credibility and maintains stability of the currency. On the other hand, excessive accumulation of foreign exchange reserves creates pressure for the currency to appreciate, and the appreciation would result in financial losses and instability of the currency. Even so, China manages its foreign exchange reserves in a stable manner and this is not going to change swiftly  [CITATION Guj95 l 1033]  . The foreign exchange reserves of China have created mix feelings concerning their magnitude. Some people feel that those reserves are excessive some feel otherwise. For instance, Li (2006) argues that Chinas foreign exchange reserves are not excessive because China needs sufficient reserves to maintain the stability of the renminbi and to maintain the confidence of international investors. He also argues that Chinas foreign exchange reserves have been rewarded by sufficient returns. Frankel (2005) emphasized the opportunity cost of huge foreign exchange reserves and argued that China was presumably paying foreign investors on their inward investment a higher return than it was earning from its investment in foreign exchange reserves. Xia (2006) estimated that approximately 22 percent of foreign exchange reserves accumulated in 2005 was induced by expectations of the Chinese currencys appreciation, mostly in terms of short-term capital inflows. He maintained that US$700bn in foreign exchange reserves should be sufficient. But the actual accumulation of reserves in 2005 was about US$819bn  [CITATION Guj95 l 1033]  . Liu (2007) maintains that Chinas holding of foreign exchange reserves exceeds the estimated adequate level. Moreover, much of Chinas foreign reserves are said to be invested in dollar-denominated assets, primarily US Treasury bonds. This investment of the worlds largest foreign reserves in mostly US dollar denominated assets also creates exposure to the risk of asset price declines resulting from dollar depreciation. Another risk to be considered is that if dollar-denominated assets were replaced with assets denominated in other currencies (e.g. Euro), the act of switching itself, depending on the scale and frequency, would also trigger a decline in the value of the US dollar. This would translate into news for China, since any decline in the value of US dollar assets will amount to a decline in the value of Chinas foreign exchange reserves. 1.3 Purpose of the Study Too much of anything in most cases turns out to be bad news. Countries accumulate foreign exchange reserves and maintain an optimal level where they are sufficient to meet countrys urgent needs in times of financial crisis. This is done to ensure stable financial environment. Likewise China as a large developing country needs to maintain a certain scale of foreign exchange reserves, in order to be in a better position to effectively fend off future crises. What happens when a country has accumulated foreign reserves beyond its needs (optimal level) is a different story. Liu (2007) and Yongnian Jingtao (2007) confirmed that China has accumulated reserve not only to its optimal level but also exceeds demand for liquidity and other economic needs. This act has a propensity to cause imbalance in the economy, though inflation and currency appreciation pressure. Much of the writings which touch foreign exchange reserve topic dwell much on the general discussions of determinants of th e demand for foreign exchange reserves or empirically analyzes countries holding compositions ( (Dooley, Lizondo, Mathieson, 1989), (Pà ©tursson, 1995), (Eichengreen Mathieson, 2000), (Aristovnik Tanja, 2010)). Little attention have been paid on the analysis of risk associate with Chinas foreign exchange reserves been held in US dollar denominated assets. Give the huge US current account deficit, the expectation is that eventually US dollar will depreciate in the long run. This suggests diversification of reserves away from US dollar denominated assets. Sudden move would likely harm both US dollar and those reserves. More besides, there is no super-sovereign reserve currency that can be used not only to eliminate the inherent risks of credit- based sovereign currency, but also to make it possible to manage global liquidity  [CITATION Guj95 l 1033]  . This paper considers Chinas Foreign exchange reserves as portfolio which is under control of Peoples Bank of China (The Cen tral Bank of China). Management of these reserves is a critical issue, which is why it is imperative to understand the risk involved in holdings. With reference to the size of Chinas foreign exchange reserves, the largest in the world, a policy decision lies with allocation. In particular, efficient allocation and management of the foreign reserves will promote the liquidity needed to fulfill policy mandates while at the same time minimizing the costs of holding reserves. Central bank foreign reserves risk management can contribute to these objectives by managing and controlling the exposure to financial and operational risks. Given that not only is a large amount of money at stake, but also significant elements of national economic policy. Generally foreign exchange reserves are accumulated to perform four major tasks; to pay for imports bill, maintain the value of currency, to pay for international debt and to be invested in foreign assets. Based on the ground that China has ex cessive foreign exchange reserves (Liu, 2007; Park Estrada, 2009), the purpose of this paper is to measure the risk exposure of those reserves using Value at Risk (VaR) technique. Being aware of extent to which foreign exchange reserves holdings are exposed to market risk play important task in the risk management. VaR is straightforward to estimate and interpret as a measure of risk exposure, and these advantages often appeal to asset managers (Culp, et al, 1998; Nocetti, 2006). VaR measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level. In other words, VaR is the lowest quantile of the potential losses that can occur within a given portfolio during a specified time period. The basic time period T and the confidence level (the quantile) q are the two major parameters that should be chosen in a way appropriate to the overall goal of risk measurement (Benninga Wiener, 1998). The two main focal points of this pape r are management and risk management of chinas foreign exchange reserves. Foreign exchange reserves can to certain extend be considered as major national asset since they account for significant percentage of GDP. From national asset preserving background, management of foreign exchange reserves is a vital task of central bank. This task trade off three objectives namely safety (capital preservation), liquidity and return. Reserves accumulation motives which are precautionary and transaction-related regard safety and liquidity. In the same manner, the investment of excess balances naturally places greater weight on return. The problem centers on allocation. Poor management of the reserves may put at risk other elements of national policy (e.g exchange rate) and this can cause severe economic damage out of all proportion to the financial loss suffered on the assets themselves. Reason for holding reserves plays a very important part in planning how those reserves should be managed and how they should be invested. Since the end objective a central bank in of its operations is usually the pursuit of a chosen policy for example, maintaining the exchange rate at a certain level, rather than merely financial gain. In this case, it may be unwilling or unable to withdraw from an operation, even if a simple financial cost-benefit analysis suggests that it is unfavorable. The very act of holding net foreign exchange reserves entails an unavoidable currency risk, as the liabilities that fund the net reserves will be denominated in domestic currency. This risk cannot be reduced without reducing the holdings of the reserves themselves. Similarly, other risks for example credit risk, liquidity risk, interest rate risk, currency risk and cross-country spread risks constitute an integral part of holding reserve assets, and cannot be wholly avoided. 2.0 Literature review The theoretical and empirical studies on the demand for international reserves have revealed that a countrys reserve demand is a function of certain variables, and such a functional relationship is relatively stable over a long-term period. Xu, (1992) shows that a countrys demand for international reserves is not only determined by economic variables but is also affected by the institutional as well as structural conditions in the economy. Ito Cheung, (2009) groups the determinants of international reserves into three categories: traditional macro variables, financial variables, and institutional variables. They notice that this classification scheme is mainly determined for the sake of convenience and should not be interpreted too strictly. These three categories are formulated from framework of analysis on reserve adequacy and optimality which could be classified by the methodologies used into two categories: ratios as tools of analysis and regression analysis. As Liu, (2007) listed them, the ratios are: reserves to imports, reserves to domestic money supply, reserves to short-term debt and opportunity cost of capital. According to Wyplosz (2001) the choice of the reserve holdings of developing countries is influenced by the exchange rate and financial and trade ties to the countries of the reserve currencies. Aristovnik Cec (2009) and Papaioannou, et al, (2006) made a list of factors which determine foreign currency reserve composition. In managing of international reserve, the objective of a central bank is to protect the value of those reserves against high-risk events and imported inflation. Hence a need to diversify foreign exchange reserves holdings into different currencies. A study by Ramaswamy, (1999) presumes that a representative central bank would only want to invest in four leading global currencies: the dollar, the euro, the yen and the pound sterling. For these currencies, a central bank can specify the acceptable share of a given cur rency that can make up the reserve holdings and base its requisites on the depth and liquidity of an individual currency in the global foreign exchange market. Truman Wang,( 2006) and Chiou, et la, ( 2008) mentions the priorities reserves managers are faced with. Firstly, protection of the value of the countrys foreign exchange reserves, including their safe investment in impeccable assets or claims on first-class institutions. The reserve manager may be concerned about the potential appreciation or depreciation of his own currency. That concern creates incentives to intervene, which adds to or reduces reserve holdings, but those concerns are not immediately relevant to the choice of the currency in which to hold the stock of the countrys foreign exchange reserves once acquired. Secondly, protection of liquidity of the countrys foreign exchange reserves. This motive dictates concentrating holdings in short-dated instruments in deep markets and thereby to minimize transaction cos ts, including costs associated with converting from the countrys intervention currency to another currency and potentially back again. And lastly the return on the countrys foreign exchange reserves. Everything else being equal in terms of value preservation and liquidity preference is that the countrys reserves generate a higher, rather than a lower, return. In a comparative study of currency composition of foreign exchange reserves, Soesmanto (2008) finds that both the mean-variance theory and the transaction theory are important in playing a combined role in the determination of currency composition of foreign exchange reserves in the country. Transaction theory asserts market transaction activities as a drive behind holding reserves assets denominated in a certain currency rather than optimal distribution of net wealth across currencies (Dooley, et al, 1989). That is governments purchases and sales of foreign exchange are closely related to accumulation of reserves asset deno minated in a particular currency. On the hand mean-variance theory dwells on the issue of trade off between risk and returns of an optimal portfolio (Markowtiz, 1952). That is the distributions of net wealth, which include the risks and returns associated with holding reserve assets denominated in different currencies, are important in determining the composition of foreign exchange reserves. Henceforth, central bank must consider optimal composition of foreign exchange reserves that minimize risk for a given level of return on the reserves, or vice versa, maximize the return on the reserves for a given level of risk. History suggests that the primary considerations for the composition of reserves have been market liquidity (which in turn depends on central banks willingness to ensure it, currency convertibility, financial stability, and the underlying development of financial markets) and a dominant position in international trade. Heller Knight, (1978) provided evidence in sup port of the view that transaction needs played a major role in determining the currency composition of reserves. This study explained variations in the proportions of a countrys foreign exchange reserves held as assets denominated in the U.S. dollar, pound sterling, deutsche mark, French franc, and other reserve currencies as a function of the countrys exchange rate arrangements, which influenced both the foreign currencies bought and sold to defend such arrangements and the share of its trade with a particular reserve-currency country. Their results indicated that countries increased the proportion of their foreign exchange reserves held as a given reserve currency if they pegged their exchange rate to that currency or if the reserve center was an important trading partner. Eichengreen Mathieson, (2000) replicates Dooley, et la, (1989) in utilizing confidential IMF data on shares of the major international currencies in reserve holdings in a large number of industrial and devel oping countries to investigate the persistence. They found stability over time not only the reserves currency composition but also of the relationship between demand for reserves denominated in different currecies and its principal determinants: currency pegs, the direction of trade, and the currency of foreign debt. These factors are highly significant and robust determinants of the currency composition of reserve holdings. Much of the relevant literature on foreign exchange reserves investigation focus on the determinant in foreign reserves management. This is the case due to the difficulty of accessing truthful data. A countrys actual reserves are usually confidential, not only retrieving truthful data becomes difficult, but also the relative literatures are rare. The above cited papers mention liquidity, currency pegs, the direction of trade, and the currency of foreign debt as the key determinants in reserves management decision. When it comes to risk management, Hallerbach, (1999) decomposes the portfolio total risks into separated Value-at-Risks in parts. The study on central bank foreign reserves risk management appears in Blejer Schumacher, (1998) who theoretically construct a central banks investment portfolio VaR evaluation model and then analyze the associates policies implications, but unfortunately no empirical examinations were made. 3.0 Methodology 3.1 Model and Data The data in this paper will be sourced from World Economic Outlooks and International Financial Statistics of IMF and Peoples Bank of China SAFE. The considered duration will be monthly data from 1993 to 2010. The rationale behind this duration is to look at chinas foreign exchange reserves starting from the time they begun to accumulate rapidly. Estimation will be broken into three different time periods namely: whole sample period from 1993-1 to 2010-6; pre crisis 1993-1 to 1997-11 and post-crisis 1998-3 to 2010-6. The variables of interest are: foreign exchange reserves (Rt); imports (IMt); gross domestic product (GDPt); variance of current account balance (ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢t) and it is proxied by ratio of reserves to imports; opportunity cost of holdings (rt) is proxied spread of domestic bond yield and US Treasury bond yield; Average propensity to import (APIt), which is ratio of import to GDP, is a proxy to adjustment cost: it indicates Chinas degree of exposure to the i nternational economy, and the potential risk involved therein. Either GDPt or IMt can be used as scaling variable  [CITATION Guj95 l 1033]  . This paper uses GDPt as a scale variable following the conventional method. All absolute values will be in U.S. million dollars, average market exchange rate will be used if necessary. If some or all of the variables follow non-stationary processes, then estimation in levels may not be meaningful because of the spurious regression problem. If the variables are cointegrated, the long-run relationship would be captured through cointegrating relationships in levels, and an appropriate dynamic model can be estimated in an error correction setting. Cointegration estimation method called dynamic ordinary least squares method will be considered to examine the cointegrating vectors. An error correction model is adopted to include the long-run equilibrium process in the short-run dynamics. The one of the objectives of this paper is to draw a con clusion on whether Chinas holding of foreign exchange reserves is larger than the desired amount. Under management of international reserves, it is important to explore both the adequate level of holding and an optimal level. Adequacy is defined as a sufficient level of holding to meet the general liquidity and security needs. On the other hand, optimality takes into account the risk/return characteristics of international reserves holding. The concept of excess reserves follows from the concept of optimal reserves, which, in turn, reflects the fact that countries not only obtain benefits from holding reserves but also incur costs. In determining the optimal level of reserves, the monetary authority will seek to balance the macroeconomic adjustment costs incurred if reserves are exhausted (crisis-prevention motive) with the opportunity cost of holding reserves. 3.1.1 Ordinary least squares regression To assess Adequacy and optimality of foreign exchange reserves the following regression will be adopted. (1) The scaling variable measures the size of international transactions and is generally represented by real GDP, real GDP per capita, or population size. It should have a positive coefficient. In empirical work, the average propensity to import was used instead of the marginal propensity and in most cases its coefficient is positive. The positive coefficient suggested that the demand for reserves increases as the economy faces greater external vulnerability. Opportunity cost of holding reserves should enter with a negative coefficient. Since opportunity cost of holding reduces a countrys national income which can be used for domestic consumption and investment. Current account balance variance should have positive coefficient. Serving as a buffer stock accommodating fluctuations in external transactions, the desired amount of reserves is expected to be positively proport ional to the variability of external net receipts. 3.1.2 Error correction model Dynamic ordinary least squares model will be utilized to examine the adjustment process of foreign exchange reserve changes. If two variables x and y, have a proportional long-run equilibrium relationship then the simplest error correction form would be given by: (2) Where. Equation (2) indicates that the change in one variable is related to the change in another variable, as well as the gap between the variables in the previous period. is the error correction. It can be argued that there is a long run, would be stationany random variable, even though or exhibits unit root  [1]  . Thus an error correction model would be an appropriate specification if the variables are cointegrated. Due to cointegration relations built into the specifications, error correction model restricts the long-run behavior of the cointegrated variables to converge on their cointegrating relationships. The error correction term captures gradual adjustment of the model to the long-run equilibrium th rough a series of partial short-run adjustments. The coefficient of the error correction term measures the speed of adjustment of the variables towards equilibrium (Hamilton, 1994). Thus the error correction model will be used to capture both the short-term dynamics and the long-term relationship among the variables (Ra, 2007). Let be a vector of exogenous variables then under cointegration, the following equation will be estimated using the dynamic ordinary least squares (DOLS) method developed by Saikkonen (1991), and generalized by Stock and Watson (1993), because of relatively small sample size. The DOLS procedure provides unbiased and asymptotically efficient estimates of the long-run relation, even in the presence of endogenous regressors. Thus, the endogeneity of any of the regressors has no effect, asymptotically, on the robustness of the estimates. Furthermore, statistical inference on the parameters of the cointegrating vector is facilitated by the fact that the t- stat istics of the estimated coefficients have an asymptotic normal distribution, even with endogenous regressors (Stock Watson, 1993). Another advantage of DOLS is that it allows for direct estimation of a mixture of I(1) and I(0) variables. Moreover, it performs well in small samples. The inclusion of lags and leads of the first differences of the I(1) variables solves potential endogeneity biases among regressors. The estimation equation is given as: (3) Where is a vector of long run coefficients and the inclusion of the lead and lag difference terms takes care of possible endogenity of. The dependent variable at time t is regressed upon the independent variables at time t plus an appropriate number of lead and lag differences of the independent variables including the contemporaneous difference. The estimate for the parameter vector, typically the main parameters of interest, is super-consistent if the system of I(1) variables are cointegrated. The equation is estimated in most cases with p=1, but then a general to specific procedure (Campos, et al, 2005) is applied to reduce the model to a more parsimonious specification where only significant variables are retained, therefore no need to worry about autocorrelation. After cointegrating relationship has been estimated, the following error correction model is constructed and estimated to investigate the short-run impact of the explanatory variables on the reserve demand. (4) Where is an error correction mechanism and it is estimated from the data. The conventionally the error correction is given by. Once the EC term has been computed, equation (4) will be estimated first and then engage in general to specific search for parsimonious equation. 3.2 Risk assessment Reserves management is one of the few areas of central bank operations where extra risk is voluntarily taken on in order to achieve a policy objective. This section considers risk management in the reserves management operation from a narrow financial risk control perspective. As Blejer Schumacher (1998) noted central bank portfolio may be too involved to be analyzed and updated with sufficeint frequency required more besides information may not even be readily available. In addition, for central bank reserves managers portfolio management returns and risk parameters are most commonly defined by reference to a benchmark (Dwyer Nugà ©e, 2004). In this case Ex post tracing error can be employed. Ex post tracking error is defined as the standard deviation of the difference in the return on a portfolio and the return on the benchmark. However, Ex post tracing error is concerned with what occurred in the past rather than what might happen in the future. As such a model that looks int o the future may be more appropriete like Value at Risk (VaR). VaR technique focuses attention on risk as pertain to monetary authority. It provides a better risk assessment of central banks specific macroeceonomic policy. Since, VaR estimates the exposure of a portfolio to market risk, that is changes in prices such as interest rate, foreign exchange rate and commodities. Given normal circumstances of the market, VaR tries to identify the possible lose of a portfolio. Therefore, knowing VaR is imparetive in risk management. However, the normal VaR is criticized firstly for its strong normality assumption, since financial variables usually violate this assumption. Financial returns distribution functions are characterized by both flat tails and Kurtosis excess. The normal VaR is also criticized for its inadaptability to nonlinear financial instruments such as derivatives. Generally, there are two procedures that can be used to compute VaR, viz historic simulation and Factor ap proach. Factor approach includes delta-normal method or variance-covariance method, and Monte Carlo Simulation. Historic Simulation procedure pretends that the change in market parameters from today to tomorrow will be the same as it was some time ago. Delta-normal method is based on the assumption that the short term changes in the market parameters and in the value of the portfolio are normal. And lastly Monte Carlo Simulation is based on the assumption that we have some information about the joint distribution of market changes. Then using this distribution we can draw randomly a large number of scenarios and price the portfolio for each scenario. The applicability of these approaches depends heavily on the availability of data and the distribution assumptions of the underlying returns of the portfolio. For historic simulation accurate data is a prerequisite to attain meaningful results. On the other hand, central to the assumptions contained in the factor approach to VaR is the use of the normal curve for the distribution of market movements. In aggregate, the understanding of assumptions underlying any risk model helps in ensuring realistic sense of control and security (Dwyer Nugà ©e, 2004). The normality assumption has the great advantage to simplify the VaR calculation since only the mean and the variance-covariance matrix are to be calculated for the different asset price fluctuations. Hence, for the purpose of this analysis delta-normal method will be employed to compute VaR, the reasons being simplicity and normal distribution assumption asset prices changes. This means portfolio return is a linear combination of normal variables and it is normally distributed as well. When a portfolio consists of financial instruments with linear behavior toward risks, portfolio volatility is directly calculated via the variance-covariance matrix of the risk factors. Following portfolio selection conception of weighted sum (linear combination), variance of a p ortfolio is given by: (5) Where: is variance of the portfoliois the proportion invested in asset ; is the variance of changes in asset prices ( return on asset ), let return on asset be ; is covariance between and , is correlation coefficient are standard deviations of and prices respectively. Square root of is standard diviation. Equation (5) can be used to construct the VaR of a portfolio positions which is given by (6) Where is the amount of the position multiplied by the worst move in the relevant price in the horizon. Let be the amount of the position and , the volatility of the position , or , then is the VaR of  [CITATION Guj95 l 1033] The worst loss to which a portfolio composed by normally distributed assets returns is exposed at 95% (respectively 99%) confidence level, is determined by calculating negative (unfavorable) fluctuations of prices corresponding to 1.65 (respectively 2.33) standard deviation away from the mean. 4.0 Conclusion The objective of this paper is not to debate the excessiveness of Chinas foreign exchange reserves rather to analyze their exposure to risk, ie financial risk perspective. Risk is the probable variability of returns which is not always possible or desirable to eliminate. But understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.

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Research on Primary Casual Factors for Criminal Behavior (Research Paper Sample) Content: NameInstructorCourseDatePrimary Casual Factors for Criminal BehaviorCriminal behaviors take place in the presence of motive, means and opportunity. These three give room for perfect execution of a criminal behavior. Risk factors comprise of such behaviors that prompt offenders to act. Understanding of criminal behavior requires comprehension of the traits associated with criminal thinking and behavior. Several factors link to criminal behaviors in individuals, however, the onset of criminal behaviors start with genetics and biology. This first section of this paper analyses the aspects of our current social structure that are likely to be considered primary casual factors for criminal behavior.Criminal behavior stems from various aspects, especially the surrounding. The first primary aspect is dysfunctional families. Negative family characteristics such us poor supervision of children contributes to their bad characters. Dysfunctional families are characterized by lac k of emotional and moral support especially to the young ones in the family. Members are not able to communicate effectively and therefore problems in the family cannot be solved effectively. The family members cannot express their emotions appropriately. Studies reveal that such families engage in criminal activities. Anti-social personality is a potential factor to criminal behavior. It manifests itself at the start of age fifteen and has signs such as truancy, fighting, lying and carrying weapons. Criminal peers contribute greatly to oneà ¢Ã¢â€š ¬s indulgence in criminal behaviors. Peer pressure is a strong influence and individuals with peers who engage in criminal; behaviors are easily convinced to engage in the act. Psychological traits such as low self-control makes individuals engage in the act. Individuals with low self-control are short sighted, they do not project the consequences of their actions, and instead they act on the spot. Anti-social values cultivate a mind of criminal thinking. This factor makes an individual think that their criminal behavior was justified. Once a person has such thinking, he/she will continue their criminal behaviors without remorse. Finally is drug and substance abuse. The use of drugd and alcohol significantly clouds oneà ¢Ã¢â€š ¬s ability to think appropriately. This makes individuals tolerate criminal behaviors.In conclusion, the environment of an individual greatly affects their link to criminal behavior. Negative environment with the wrong group of people leads to indulgence of criminal behaviors. Poor upbringing and genetic links are major factors of criminal behaviors.Courtroom 302The second section of this paper bases on the justice system. Karl Max was a revolutionary socialist and philosopher. Emile Durkheim was a sociologist known for his structure of the society. These two personalities could sit and come to a mutual conclusion because of their parallel thinking. Steve Bogira, a journalist and author of t he book Courtroom 302, confirms the theories of these two philosophers through the actions of judge Locallo.Steve Bogira exposes the system breakdown in Chicago courts in his book Courtroom 302. Judge Localloà ¢Ã¢â€š ¬s activities show the rotten nature of court systems in Chicago. Citizens no longer have trust in their courts. The judges take actions to benefit themselves (Bogira 62). The citizens in the lower class face hardships and cannot defend themselves as citizen of the upper class live in abundace. His view of the society reflects what the leaders do, at the expense of the people they lead. Maxà ¢Ã¢â€š ¬s findings crucify leaders in as much as...

Woman Must Marry in Pride and Prejudice by Jane Austen Essay

Jane Austen knowingly stated the problems in society with a particular emphasis on the harshness of the culture towards women. During her time little girls were raised being taught about the dire circumstances of a woman who did not marry well. Little girls were taught to be multi-lingual, artistic, cultured, musically inclined, and other inconsequential skills. These skills were required to make a good match for a wealthy man, which was their only goal in life. This is furthermore expressed, as Sheehan states , â€Å"Familial aspirations, coupled with women’s increased dependence on marriage for financial survival, made courtship a central focus of women’s lives† (n.pag.). Society was entirely driven by marriage. Jane Austen noticed this†¦show more content†¦Jane and Elizabeth shared the same radical idea of marrying a man because of the size of their heart instead of the size of their pocket book. The girls fought against the social normality an d married for nothing more than the deepest affection. This was clear when Elizabeth refuses to marry her cousin, Mr. Collins. Their marriage would have benefitted the entire family because it meant the younger girls would have a place to live, even if their father died. Mr. Collins was a nice enough man. His kind demeanor is shown when he works to repair the damaged family bond that was torn between his father and Mr. Bennet. His consideration of this made it evident that he had everyone’s best interest at heart. Yet because Elizabeth did not love him, she refused him breaking her mother’s heart in the process. The concept of a dowry also expresses the large extent to which marriage was consumed by thoughts of money. â€Å"A dowry is the property that a wife brings to her husband on marriage. In Europe, The dowry has a long history, frequently serving only to enhance the desirability of a woman for marriage but also to build the power and wealth of great families†¦Ã¢â‚¬  (Dowry 205). The Bennet family’s lack of fortune ensures that the girls would have a very difficult time finding a suitable husband. The only way they can survive without marrying well is if their dad had set aside some of his annual income toShow MoreRelated With particular reference to the novel opening, how does Jane Austen1247 Words   |  5 Pagesthe novel opening, how does Jane Austen present the role of women in pride and prejudice? Pride and Predujice With particular reference to the novel opening, how does Jane Austen present the role of women in pride and prejudice? Pride and prejudice was first published in 1893, this was a time when it just became acceptable for women to write and publish books. Pride and prejudice was set in the early 19th century in rural England. 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The idea behind the proverb plays a central role in constructing the plot of theRead MoreLove in Pride and Prejudice by Jane Austen1035 Words   |  5 PagesThe course of true love never did run smooth in â€Å"Pride and Prejudice† The idiom â€Å"The course of true love never did run smooth† implies that the path to love is never simple and straight forward. The path to true love is filled with difficulties and obstacles from society, religion, or culture. In â€Å"Pride and Prejudice,† none exemplify this idiom more than the couples Mr. Darcy and Elizabeth and Mr. Bingley and Jane. The idea behind the proverb plays a central role in constructing the plot of theRead MoreJane Austen and Her Feminism1158 Words   |  5 PagesJane Austen and Her Feminism ---analyzing of feminism revealed in Pride and Prejudice Introduction It is universally acknowledged that Jane Austen was a major woman novelist in English; but it is also a truth that almost as universally ignored that Jane Austen was a feminist. By intensively reading her six novels (Sense and Sensibility, Pride and Prejudice, Northanger Abbey, Mansfield Park, Emma and Persuasion) and studying feminism, I have found some significant and fresh thingsRead MorePride And Prejudice By Jane Austen981 Words   |  4 Pagesâ€Å"Pride and Prejudice† by Jane Austen is a satire novel from 1813. The story is about a couple named the Bennets who try to get their five daughters to marry kind and rich gentlemen. The main characters however are the Bennets’ second and headstrong daughter Elizabeth and Fitzwilliam Darcy, her aristocratic suitor. Throughout the entire novel, the two lovers must overcome pride and prejudice before â€Å"love can bring the novel to its magnificent conclusion†. During the novel, there are two marriage proposals Read MoreGender Roles for Women in Pride and Prejudice897 Words   |  4 PagesFerbruary 2011 Gender Roles for Women in Pride and Prejudice The novel Pride and Prejudice represents life in the middle and upper classes in the 19th century. Jane Austen, the author, does an excellent job of differentiating the status and roles that people play. Georgiana Darcy, the Bennet sisters, and Charlotte Lucas are limited in their opportunities because of their social class, gender, and birthright. Being born into a high social class leaves a woman with no pressuring obligations. GeorgianaRead MorePride And Prejudice By Jane Austen Essay1156 Words   |  5 PagesStay True Few novels go down in history, and even fewer are remembered as symbols of social change. Jane Austen’s Pride and Prejudice is a novel remembered by many, and through the decades, as such a novel. The tale of Elizabeth as she overcomes various oppressions has become a classic. Women throughout Jane Austen’s time period were constantly oppressed by social codes and expectations.These social codes included requirements from chaperoned dates to a limit of expression of emotion. Elizabeth’s

Stem Cells And Its Effects On Human Cells - 2106 Words

Stem cells are undifferentiated cells within the body that are defined by their ability to self renew and differentiate into specialized cells (1). Stem cells function in body tissues as a repair mechanism, with an unlimited ability to divide and restock cells as needed by the body. Each time a stem cell divides, the new cell formed can either remain a stem cell or differentiate into a specialized cell, such as a brain cell. Traditionally, there are two main types of stem cells: human embryonic stem cells [HESCs] and adult somatic stem cells. In 1981,embryonic stem cells were the first type of stem cell to be discovered (2). Embryonic stem cells originate from four-to-five day old embryos formed during the blastocyst phase of embryological development. The embryos used to derive stem cells are usually extras that were created using in vitro fertilization and not implanted (2). Induced pluripotent stem cells [iPS cells] are specialized adult somatic cells that have been genetically modified to function similarly to embryonic stem cells; that is, iPS cells have the ability to differentiate into all adult cell types (2). The discovery of iPS cells in 2006 was very exciting for the medical community as researchers hoped to use iPS cells in many ways, including: to gain an increased understanding of disease pathology, as aids in transplant medicine, and in pharmaceutical and cytotoxicity studies. Subsequent research on iPS cells has revealed some areas of concern including:Show MoreRelatedStem Cells And Its Effect On Human Cells1369 Words   |  6 PagesStem cells are cells that have the ability to generate other cells. If research continues going the way it is now stem cells could potentially reduce the need for insulin in diabetics and treat various conditions and diseases. The discovery of stem cells, how they differentiate and their potential use in medic ine are very important stories. Stem Cells can be obtained two different ways, one from embryos, which are called embryonic stem cells, and one from adults, called adult stem cells. Stem cellRead MoreStem Cells And Its Effect On The Human Body1407 Words   |  6 PagesIntroduction Stem cells are unspecialized cells of a multicellular organism and it has capability changing into any type cell. When stem cells divides, the new cell has the potential of choosing whether to stay a stem cell or turn into any type of specialized such as: skin cells, neurons, muscle cells and many more. Stem cells have no specific function but are special in their own way. In the early stage of the development, stem cells have the extraordinary potential to develop into any type of cell in theRead MoreStem Cells And Its Effects On Human Life2914 Words   |  12 Pagesyears, stem cell research has become more of the primary focus in the world of medicine. Scientists see the next ten years as being monumental in the growth of biology, as stem cells continue to amaze them with their potential to save and improve the quality of human life. These cells have the possibility to save millions of people with diseases thought to be incurable. However, there is controversy about the use of cer tain types of stem cells. Some stem cells are obtained from the cells of an earlyRead MoreThe Effects Of Stem Cell On The Human Body2802 Words   |  12 Pagesas incurable but embryotic stem cells may hold the cure. With that said, many researchers in the medical field have become quite involved in the study of stem cells. A stem cell is an immature cell that has the potential to become specialized into different types of cells throughout the body. There are two different types of stem cells: adult stem cells and embryonic stem cells. These cells are important because they have the ability to repair damaged tissue in the human body. Although they are bothRead MoreStem Cells And Its Effects On The Human Body998 Words   |  4 PagesStem cells are undifferentiated cells that have potential to be developed into many different specialized cell types, such as skin cells, bone cells, muscle cells, and many more. Stem cells used in research today derive from mainly two sources, embryos f rom the blastocyst phase of embryological development, known as embryonic stem cells, and adult tissue, known as adult stem cells (â€Å"Stem Cell Basics†). 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Ph.D. holder and deputy director of FDA’s office of Cellular, Tissue and Gene Therapies, Stephanie Simek, explains that stem cells are unspecializedRead MoreA Research Study On Stem Cell1680 Words   |  7 Pageslife, cells make up every organ and body part of a living organism. Among various types of cells of human bodies, a stem cell can turn into any type of specialized cell of human body. A stem cell is a cell that has the ability to develop into any conceivable different kind of specialized cell type. The existence of a stem cell was first discovered by Drs. James Till and Ernset McCulloch from Canada. A stem cell can be distinguished into two types: adult stem cell and embryonic stem cell. An embryonicRead MoreHematopoietic Stem Cells to Cure Leukemia980 Words   |  4 Pages Hematopoietic Stem Cells to Cure Leukemia Genetic Engineering consists in altering the DNA of a cell with the purpose of researching, as well as correcting genetic defects. 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The Classification Tree Is A Model That Uses Both...

Classification tree is a model that uses both categorical and numeric inputs to predict categorical or binomial outputs. The software draws a graph composed of nodes and leaves representing different groups of data with same characteristics based on the model. The output looks like a tree, which provides viewers with a direct exhibition; therefore, it is a good tool we can use to make a statistical analysis. The classification tree model allows both numeric and categorical inputs, both of which appear in the data set, that can be utilized to predict our categorical targeted output: workday alcohol consumption level. The model’s ability to handle both numeric and categorical input was the main reason why we decided that classification trees would be a good model to analyze our data. One of the most important changes to our data set, mentioned previously, was converting the workday alcohol consumption column into two levels: zeros, representing low workday alcohol consumption, a nd ones, representing high workday alcohol consumption. Moreover, since this data set contains the results of over one thousand questionnaire surveys, often times numbers recorded in the data set have more meaning than the number they represent. Take the â€Å"Health† variable as an example. If a respondent recorded a one for their health, it meant that their health was extremely poor; therefore, in this case one does not represent the actual number but rather extremely poor. 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A Brief Note On The Security Of Information - 1445 Words

Introduction Information is an aid to every single person, national/independent organization, logical investigations. Every activity depended on this stored information. There are different means of storage of information like files, documents and computer. But the digitalized storage of information in computer or computer network has become more efficient in maintenance, quick access of information, long life storages. Besides these advantages, there are also some challenging criteria in information digitalization. One of the major and major criteria is the security of that information. This Security of the information plays a major role in the business and its continuity. Not only in the areas of business, is security of information†¦show more content†¦Information Systems and its Implementing Strategies 3.1. Pre-defined Security policies and best practices A security Policy is the term referred as the strategy a company defined to analyze its critical assets and safeguarding principles of it. An organization or an individual must set up pre-defined and standard policies for security. It is purposed to determine the security assets and importance of protection to its employees. It should involve all the factors like ï‚ § Managing and maintaining of usernames, passwords. ï‚ § Response to a security instance. ï‚ § Secure way of using internet and internal e-mails. The initial step of an effective security policy lies in determining the employees and their responsibilities, use of the resources and how sensitive they must be handled, effective usage and restricted acts. These policies help in building up company’s resources, its critical assets, methodologies and way of protecting them. 3.1.1. Revising of policies: These policies have to be revised to check whether the policies are understood by the staff and can be practically implemented or not. They should be reformed as per the need and necessity. They should clearly assign the roles and responsibilities of every employee, their privileges. 3.1.2. Policy Violation acts: The violation acts also must be defined intending to realize the value of security policy in case of violating the policy acts. So that the

Pestle Analysis Construction Essay Example For Students

Pestle Analysis Construction Essay John O’Donnell Gallagher Construction and Development are based in north London. They are a property development and refurbishment company. They have been in the construction industry for about twenty five years. They have a workforce of twenty directly employed and about fifty self employed workers at the moment. The major political influences on the construction industry in London at the moment are the Mayor of London’s Sustainable Design and Construction Supplementary Planning Guidance to the London Plan, the Climate Change Action Plan, and the Governments lack of response to the effects of the recession. The recession has almost completely stopped the building of new houses and has led to the mothballing of most of the commercial developments planed for the capital. This means that the only sector in construction that has any work is the refurbishing sector. The effect of this for Gallagher’s is fierce completion for contracts and price-cutting to stay competitive which has very negative long term implications for the growth of the company. The implications of the Mayors initiative regarding the Climate Change Action Plan is that there work must comply with BREEM which sets and maintains a robust technical standard for construction work and have there work assessed so that the environmental impact of the work can be awarded an overall rating. This has impacts on time, cost and construction methods for tightly priced contracts. The economic environment for construction business in London at the moment is not good due to the recession. Even though the development for the 2012 Olympics is well under way, there are still a large number of construction workers unemployed. The Credit Crunch for Gallagher’s, who traditionally bought and refurbished buildings and then sold them on, as well as taking on contracts from a number of property development clients, has changed the nature of there business in two ways. One, most of there refurbishing work is now done in social housing, for Decent Homes contractors and the other is that because of the drop in house prices in 2008 Gallagher’s were left with a number of properties that could not be sold on at a profit therefore they have had to rent these properties out. This means dealing with tenants and being responsible for repairs and maintenance of these properties. The Decent Homes work also is different in that a lot of the properties that they have to work in are occupied and therefore the risks and responsibilities are different which means that there insurance costs have gone up and they have got to vet there employees with the Criminal Records Bureau at more cost. (2) Like most organizations Gallagher’s is organized on a hierarchical basis. Its management style is fair but firm; orders come from the top and should be carried out with only a minimum of questioning where necessary. ’’ The Considerate Constructors Scheme is the national initiative, set up by the construction industry, to improve its image. Sites and companies  that register with the Scheme sign up and are monitored against a Code of Considerate Practice, designed to encourage best practice beyond statutory requirements. The Scheme is concerned about any area of construction activity that may have a direct or indirect impact on the image of the industry as a whole. The main areas of concern fall into three main categories: the environment, the workforce and the general public. ’’ The Scheme logo which can be see on so many site hoardings shows that the company cares about the local community that they operate in, and are committed to the Scheme’s ‘‘Code of Considerate Practice’’. That sends a strong, positive message to the community as a whole, and reflects a good practice approach that is recommended to all construction businesses. .u7f300a273b4006966407324ccc7a929b , .u7f300a273b4006966407324ccc7a929b .postImageUrl , .u7f300a273b4006966407324ccc7a929b .centered-text-area { min-height: 80px; position: relative; } .u7f300a273b4006966407324ccc7a929b , .u7f300a273b4006966407324ccc7a929b:hover , .u7f300a273b4006966407324ccc7a929b:visited , .u7f300a273b4006966407324ccc7a929b:active { border:0!important; } .u7f300a273b4006966407324ccc7a929b .clearfix:after { content: ""; display: table; clear: both; } .u7f300a273b4006966407324ccc7a929b { display: block; transition: background-color 250ms; webkit-transition: background-color 250ms; width: 100%; opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #95A5A6; } .u7f300a273b4006966407324ccc7a929b:active , .u7f300a273b4006966407324ccc7a929b:hover { opacity: 1; transition: opacity 250ms; webkit-transition: opacity 250ms; background-color: #2C3E50; } .u7f300a273b4006966407324ccc7a929b .centered-text-area { width: 100%; position: relative ; } .u7f300a273b4006966407324ccc7a929b .ctaText { border-bottom: 0 solid #fff; color: #2980B9; font-size: 16px; font-weight: bold; margin: 0; padding: 0; text-decoration: underline; } .u7f300a273b4006966407324ccc7a929b .postTitle { color: #FFFFFF; font-size: 16px; font-weight: 600; margin: 0; padding: 0; width: 100%; } .u7f300a273b4006966407324ccc7a929b .ctaButton { background-color: #7F8C8D!important; color: #2980B9; border: none; border-radius: 3px; box-shadow: none; font-size: 14px; font-weight: bold; line-height: 26px; moz-border-radius: 3px; text-align: center; text-decoration: none; text-shadow: none; width: 80px; min-height: 80px; background: url(https://artscolumbia.org/wp-content/plugins/intelly-related-posts/assets/images/simple-arrow.png)no-repeat; position: absolute; right: 0; top: 0; } .u7f300a273b4006966407324ccc7a929b:hover .ctaButton { background-color: #34495E!important; } .u7f300a273b4006966407324ccc7a929b .centered-text { display: table; height: 80px; padding-left : 18px; top: 0; } .u7f300a273b4006966407324ccc7a929b .u7f300a273b4006966407324ccc7a929b-content { display: table-cell; margin: 0; padding: 0; padding-right: 108px; position: relative; vertical-align: middle; width: 100%; } .u7f300a273b4006966407324ccc7a929b:after { content: ""; display: block; clear: both; } READ: Sexual harassment EssayGallagher’s response to the technological environment created by the initiative regarding the Climate Change Action Plan was to install Carbon Accounting computer software in there head office which establishes the carbon emission baseline covering all aspects of the business. This includes carbon management and it also helps to prepare there report in keeping with there Carbon Reduction Commitment. The Company that installed this software also trained those responsible in the office how to use it. Green building encompasses everything from the choice of building materials to where a building is located. At the moment Gallagher’s are finding that converting roofs so that solar energy panels can be installed requires operatives with skill and experience levels that are above the average, they are dealing with this by advertising for people with those particular skill sets. The future for green technology will include the development of apparatus and fuels so that the means of generating energy by the individual at home will become the norm, so Gallagher’s are forward planning to set up arrangements with the companies who make these apparatus to run short training courses for there operatives. The construction industry is governed by the Building Regulations, which is a statutory instrument which gives the government or local government authority to regulate the construction of buildings. This is supported by approved documents prepared by the office of the deputy Prime Minister, approved by the Secretary of State and issued by the Stationery Office to give practical guidance to contractors when complying with the various regulations. The Construction Design and Management Regulations 2007 which regulate the Health and Safety aspect of the construction industry. All of these regulations have legal powers to back them and must be adhered to by Gallagher’s and everyone else in the construction industry. (3) All of the top management at Gallagher’s Construction are, either fellows or members of professional bodies such as The Charted Institute of Builders. They are totally committed to Business and Professional Ethics. If there are any complaints about the quality of the materials used or the workmanship or behavior of their employees or sub-contractors there is an immediate investigation and if it is proved that any wrong has been done it will be rectified immediately and the person responsible will be dealt with according to company policy. References The Business Environment. Ian Worthington and Chris Britton The Considerate Constructors Scheme. The Sustainable Development Guide. I used to work for Gallagher’s Construction. John O’Donnell.