Terms Beginning With 'f'

Free Rider Problem

Free Rider Problem refers to an economic concept of market failure wherein the population is benefited through the goods, service or resources in lieu of no consideration or free. As an example, the Australian Bureau of Statistics is a free website that can be accessed by anyone to be acquainted of the Australian economy.

What is an Absolute Advantage? Absolute advantage is one of the key macroeconomic terms, which is based on the principles of Capitalism and is often utilised in international trade-related decisions. Absolute advantage refers to the competence of a company, region or country to produce goods or services in an efficient manner compared to any other economic entity. The efficiency in production can be achieved by: Production of the same quantity of good or services as produced by other entity by utilising fewer amount of resources Production of a higher quantity of good or services as produced by other entity by using the same amount of resources What is the Significance of Absolute Advantage? Different countries or businesses possess a different set of ability owing to their location, soil composition, weather, infrastructure, or human resource skills. When applied in the right direction, various factors may pan out to offer more cost-effectiveness and hence build absolute advantage of the entity in comparison to others.  The absolute advantage remains one of the critical determinants for the choice of the goods or services to be produced. Absolute advantage in a particular area often translates into profitability in the area. The profit margin increases by the achievement of cost efficiency, allowing the entity to ensure higher profitability over the competitors.  For example, let us assume that the US can produce ten high-quality aircrafts utilising a specific amount of resources. China, on the other hand, can build 6 similar quality aircrafts using the same amount of resources. Thus, in the production of an aircraft, the US holds Absolute Advantage Let’s say the US has the ability to manufacture a certain amount of steel using 10 tonnes of iron ore. China, on the other hand, can produce the same quantity of steel using 8 tonnes of iron ore.Here, China here holds Absolute Advantage in the production of steel.  How Countries Build Absolute Advantage? While natural conditions, which include climatic factors, geometry, topography, cannot be altered for achieving absolute advantage, the countries use the underlying factors strategically in their favour. Furthermore, factors of production are focused at by many companies or nations for building absolute advantages.  Some of the strategies for building absolute advantage includes: Development of Technological Competencies- The implementation of innovative or latest technological innovations allows the entities to lower their production cost, facilitating absolute advantage.  Enhancing Skills of Human Resources- The improvement in the cost-efficiency, along with the quality of the products, is targeted through imparting varying skill development programs. Many countries subsidize or aid the apprentice or labour training for enhancing the absolute advantage in trade.  Improving Infrastructure- The infrastructure enhancement in the form of road, telecommunications, ports, etc. can be useful in enhancing the cost-effectiveness across different industries.  What Do We Understand by Comparative Advantage Vs Absolute Advantage? Evaluating the comparative advantage introduces the concept of opportunity cost, which is the deciding factor to determine the production of particular goods or services. Opportunity cost refers to the potential benefits associated with the next best possible alternative which is missed out when one option is chosen over another.  The Absolute advantage simply considers the capability of a business or region to deliver goods or services in the most efficient manner. The Comparative Advantage, however, also takes into account the benefits that are forgone if an entity decides for production of a particular product or services.  Comparative advantage, based on the notion of mutual benefits, is often used in international trade deals. The Comparative advantage has been the major factor driving the outsourcing of services in search of cheap labour.  Understanding through an Example For instance, country A can produce ten televisions with the same amount of resources with which it can make 7 laptops. The opportunity cost per television is 7/10 or 0.7 laptops. Meanwhile, the opportunity cost per laptop is 10/7 or 1.42 television.  It highlights that country A is forsaking the production of 0.7 laptops if it is deciding to manufacture one television. On the other hand, it is missing out the opportunity to manufacture 1.42 televisions for every single laptop manufactured.  Now, say Country B’s opportunity cost for producing a television is 0.5 laptop, and that of producing laptop is 2 televisions. Then, country B will have a comparative advantage in making televisions, and country A will have comparative advantage in producing laptops. It has to be noted that despite country A having absolute advantages in both the products, it would be mutually beneficial for both the countries if country B produces television while country A produces laptops. Do You Know About Absolute Advantage Theory by Adam Smith? The concept of Absolute Advantage was indicated by Adam Smith in his book called ‘Wealth of Nations’ which focusses on International trade theory. Adam Smith, in his book attacked on the previous mercantilism theory, which mainly stressed for economies to maintain trade surplus in order to command power.  The Absolute Advantage theory considered that the countries possess different ability with respect to the production of varying goods or services. It argued that it is not necessary that a state may hold an absolute advantage in the production of all goods, and here the relevance of trade comes into play.  It advocates that countries should produce those goods over which they hold a competitive advantage. It would allow the countries to make the same amount of goods using few resources or in less time. The theory propagates the relevance of trade for economic sustainability.  What Are the Limitations of the Absolute Advantage Theory? The assumptions used in the Absolute Advantage Theory by Adam Smith may limit the application in real bilateral trade. The limitations of the theory by Adam Smith include: Smith assumed that the productive capabilities of a country could not be transferred between the two countries. However, in practical terms, the competitive scenario aids the nations to acquire new capabilities and acquire new resources, especially in the technological and human resource skill aspects.  The two-country trade which was used as a basis for the theory does not consider the trade barriers levied. The present scenario, however, is strikingly dominated by trade wars between economies. Nations impose huge tariffs, import duties and other type of barriers to promote local manufacturers.  Absolute Advantage theory assumes that the trade between the two nations will take place only if each of the two economies holds an absolute advantage in one of the commodities traded. However, in general, countries despite not holding absolute advantage are engrossed in international trade, boosting their economic setup.

What is the Dark Web?  The dark web is one such portion of the World Wide Web which is not accessible by regular search engines. The dark web is considered a hotbed for criminal activities, and it is much more than that. Various websites exist on an encrypted network inside the dark web. Standard web browsers and programs cannot find these websites. Once inside the dark web, different sites and pages can be accessed like one does on the web. Scientists believe that the internet we see is only 4% of the entire ocean of the web, meaning the 96% consists of the "Deep and Dark Web".  The user interface used in the dark web is usually internet-based, but it utilises special software which is not part of the standard ones. There are dozens of web browsers to surf the internet, but they all work in the same way. These standard browsers use ports and protocols to request, transfer and view data on the Internet. The website you access may look familiar, but as you enter, it may be illegal or something familiar but otherwise not monitored by anyone else. Therefore, the deep web and the dark web are famous for being anonymous. Also read: Cyber Espionage Campaign: Strings that tie China, Australia and the US How to access dark web browser? In order to access a few areas which are restricted, the user may need a password and a process to follow. A special software called TOR (The Onion Router) or the Freenet has these non-standard connections. These browsers are unlike standard internet browsers and have a process to access. They allow the users to browse around the dark web and are focused on keeping the user identity anonymous. If hacked or accessed, the regular web browser can easily provide user information such as who the user is and whereabouts. Though the dark web is providing 100% anonymity, federal agencies have been successful in tracking down criminal activities on the dark web. It is often said that the person you are talking to on the dark web could either be an FBI agent or a criminal. Image: Kalkine   What happens inside the world of the dark web?  The dark web is famous for allowing sinister activities, but many users go on the dark web to access information which otherwise may not be accessible on standard internet. Such as users from extremely oppressive governments who cut access to the world for their citizens. Unfortunately, such confidential environments also provide open platforms to criminals, terrorists and other such individuals involved in illegal activities.   Hence, experts advise users to not access the dark web even out of curiosity as it is a lawless environment. There have been many incidents where innocent, curious users were trapped and forced to get involved in criminal activities or their digital devices hacked and compromised without their knowledge.  A study conducted by a University of Surrey researcher Dr Michael McGuires in 2019, Into the Web of Profit, shows that the dark web has become worse in recent times. Since 2016 of all the listings on the dark web suggested, 60% could harm companies. Everything illegal and criminal can be found on the dark web, it also has other legitimate options such as chess clubs or book clubs, but because of the anonymity, the user will not know whom he/she is interacting with. Inside the dark web, anonymity and lawless nature make the crimes which exist otherwise in our society hard to trace.  The payment procedure inside the dark web is also different from the World Wide Web. Most often, Bitcoin and Monero cryptocurrency are used for the transactions.    RELATED READ: Knock Knock! Cybercriminal at Your Doorstep   What’s the difference between the deep web and dark web? The dark web is part of the entire deep web and is hidden from regular browsing access. Most people confuse the deep web and the dark web as one entity. It is not. The deep web content includes anything hidden and restricted behind the security wall such as content which otherwise requires paywall or sign-in or blocked by the author. Content which cannot be easily accessible on regular internet such as medical records, membership websites, paid content are available on the deep web; hence it is also called Invisible Web.  No one really knows the total size of the internet, but the experts believe that the standard World Wide Web consists of only 4% internet, the deep web consists of 90% and dark web consists of 6% of the entire internet.  ALSO READ: Technology has changed the way we work amid the COVID-19 crisis: A look at in-demand technologies Image: Kalkine     Also read: It happens again, NZX being bullied by Cyber-attackers- Down for the fourth day   What kind of risk companies face due to the dark web?  The Into the Web of Profit report listed below threats various organisations around the world are facing, especially the ones who have weak or insufficient cybersecurity measures.   Malware attacks Distributed denial of service (DDoS) attacks Botnets Trojan, keyloggers, exploits  Espionage  Credentials access  Phishing  Refunds Customer data Operational data Financial data Intellectual property/ trade secrets    Also read: Cybersecurity and the Requirement of a Resilient Environment in Australia  Are there advantages and disadvantages to the dark web?  The dark web provides complete anonymity, the users get complete privacy to perform any activity, be it illegal or legal. Many countries in the world still have authoritarian regimes offering no civil rights to their people. To such oppressed lot, the dark web provides an opportunity to access news, information, data and also express their views. The dark web is also a perfect place for law agencies to map criminal activities while being undercover. It is also easy to commit gruesome crimes through the dark web as it is complicated and lawless. Criminals can easily use the dark web to compromise someone's privacy, steal data or private information or even hire someone to commit murder.  Do internet users need to be concerned about the dark web?  The simple answer is no unless the user is using the dark web. Study says that most young people visit the dark web out of curiosity. They do not want to indulge in any criminal activity but want to see how the hidden and secret world of the dark web operates. And that is where the possibility of the electronic device IP address getting hacked by other criminals to perform their criminal activities lies.  The earliest use of darknet dates back to the year 2000. Freenet was created at the University of Edinburgh based on a student research paper. Ian Clark wrote the paper in 1999 on the possibility of such an encrypted internet base. Freenet was created to oppose censorship and provide a platform for free speech. The most powerful dark web is TOR, and it was created by the United States government to have a secure encrypted communication in case of emergency and complete disaster. Even today, many law agencies are secretly active inside the world of the dark web to gain access in the criminal world and stay one step ahead.

Earnings Credit Rate (or ECR) is the interest paid by the bank on a daily basis over the deposits made by customers and is usually aligned with the risk-free rate in the market. The financial institutions such as banks utilise the deposit to offset the service charges by using the deposits as a credit for services.

What is market capitalisation?  Market capitalisation is one of the ways employed to evaluate the valuation of a company. This aggregate valuation is based on the current market price of the company’s shares and the total number of outstanding stocks. One needs to make the calculation to determine the company valuation. It is primarily outlined by the total market value based on the company’s outstanding shares. This simply means that evaluation by this method can be done only for businesses that are publicly traded.  Source: © Djbobus | Megapixl.com Why is it essential for investors? Understanding and calculating market capitalisation of a business are essential, especially for investors, as it guides them make sound investment decisions. A company’s correct value evaluation can help investors choose the right shares to invest in as per their need. However, it is imperative to keep in mind that various internal and external factors can also impact the number, as market capitalisation is based upon the value of the company’s current shares and number of outstanding stocks. The share price of a listed company can move in an upward or downward direction due to multiple factors, such as critical financial announcements made by the company, changes in the management or structure, fluctuations in market conditions, etc.  As these factors impact the price of the company’s current shares, the market capitalisation also changes, going up or down with increase or decrease in the numbers. From an investor’s standpoint, evaluating market capitalisation using this method is crucial, especially while charting a long-term investment plan.  Additionally, the returns and risks associated while investing in a particular company are also imperative for the investors. Market capitalisation plays an important role in aiding the investors while choosing stocks that meet their criteria while investing in various companies to maintain the portfolio. Meanwhile, it is vital to keep in mind that the market capitalisation demonstrates the stage of a company’s development.   Source: © Noamfein | Megapixl.com What are the types of companies based on the market cap? Knowing the formula employed to calculate the market capitalisation can provide clarity to investors.  For instance, a particular company has 10 million outstanding shares, and the current market price is $100 per share. In this case, market capitalisation of the company will be 100,00,000 x 100 = 1,000,000,000.  The stocks of listed companies fall into three categories based on this popular method of evaluation. Investors usually choose stocks from judging market capitalisation valuation. Usually, investors also decide for balanced investment in different combinations of stocks with different market capitalisation to minimise risk.  Stocks of companies with a market capitalisation of $10 million or above fall under the category of large-cap stocks.  Companies with a market capitalisation in the range of $2 billion to $10 billion are called mid-cap players or mid-cap stocks. Companies with a market cap of $300 million to $2 billion are called small-cap stocks.  Large-cap stocks: Companies with large capitalisation are usually considered stable businesses in the market. Thus, investing in large-cap companies is less risky compared to investing in other stocks. Though these are companies have a significant market cap, the returns they offer are generally on the lower side. It is believed that these companies have reached the highest point of their development by being in the market for many years and providing a stable performance for years. Thus, even with major announcements that could have a significant impact on the share price, investors are unlikely to see any significant change in their share price. Investing in large-cap companies offers minimum risk, and the growth is also less aggressive than emerging companies. Therefore, investment in a large-cap company is considered conservative.  Mid-cap stocks:  Companies with mid-range market capitalisation are poised for particular growth. These companies are also somehow stable, making them deliver a promise of future growth. Most importantly, they demonstrate that the business is set up in a particular way. Investing in mid-cap companies can be riskier compared to investing in large-cap companies. Though these companies are not fully established like the large-cap companies, these stocks have growth potential. On a positive note, investing in mid-cap companies is less risky than the small-cap ones. Notably, the returns mid-cap companies can offer are usually higher than the large-cap companies, making it attractive for the investors.  Small-cap stocks:  Investing in companies with small market capitalisation is a precarious step. However, these stocks are lucrative to many investors. Small-cap companies are new in town; they are up-and-coming and not very much established in the industry than the mid-cap and large-cap ones, making them highly risky. However, investors’ risk would be highly paid off if these players find success, as they hold strong potential to grow. Therefore, investing in small-cap stocks can be an aggressive investment option.  Source: © Lovelyday12 | Megapixl.com Important aspects of valuation to keep in mind:  While evaluating the market capitalisation of a company, investors need to study a few critical areas that could impact investment decisions. Following are the relevant ratios to take into consideration. Price-to-earnings ratio: One of the critical ratios is considered while evaluating any company’s market capitalisation is the price-to-earnings ratio. While buying shares of a particular company, this ratio will help the investors project returns for the future.  Detailed discussion at: Price to Earnings Ratio - (P/E Ratio) Price-to-free-cash-flow ratio: This ratio is also utilised to measure the expected returns.   Price-to-book value: This ratio is calculated by deducting the total value of liabilities from the total book value of the company's assets.  Enterprise-value-to-EBITDA: This ratio helps investors evaluate and measure the operational returns generated in the short term.  Free-float market cap: The number of outstanding shares that are kept for investors to trade publicly is called float. This method excludes the shares owned by the company's executives. 

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