Global Recession

The global economy is nowadays going through a phase of recession. Analysts believe that a slowdown concentrated in emerging markets will drag down demand and see economic activity fall across the world. China is growing at just 4pc, well below the country's official 7pc growth target. Other large economies - Brazil, Russia and South Africa - are already in trouble. China's downturn will affect emerging markets - their exports and commodity prices.

What can we do to sustain in global recession.

1. Produce and sell good quality products by adding value. People will buy the products if they are useful.

2. Stay away from easy money making schemes. They do more harm than good. Invest your resources sensibly as most easy money making schemes have a catch whereby one tends to lose rather than gain.

3. If you are in business, keep your customers. Don't let them go. Give discounts to loyal customers if you have to. It is difficult to find new customers during recession. So keep the old ones.

4. If one loses his job, do what it takes to find a new one: headhunting, relocating or enhancing ones skills by taking up a course. You may temporarily have to settle for a lower paying job or a job less appealing. But something is better than nothing.

5. Reduce spending and save. Avoid going to costly restaurants, resorts and expensive vacations, instead go for family picnics to nearby places. It's important to spend time and enjoy with family but that need not mean spending too much.

6. New business ideas requiring lots of investment and risk can be put on hold. Instead try something that will fetch good returns quickly. Ambitious and challenging ideas need time to be put into practice so go for simple lucrative businesses.

7. Reduce the prices of your products. Recession reduces the buying capacity of most people. So giving discounts and being competitive will keep you going.

8. Find newer ways of reaching out to customers. Go for home delivery of products. As making shopping convenient for customers will attract them.

9. Those investing in stocks should go long. Recession is a good time to buy stocks if you can lock your funds for a long time.

10. Use new ways of attracting more customers. You could do so by advertising more aggressively.

Don't panic during recession. It can actually be a boon to those who sensibly use their funds and tactfully face the competition.

Way to Reduce Risk in Global Financial Crisis

Liquidity crunch in global financial market, Long-term security food supply, disruptive supply chain and energy security are main global risks that need to be resolved. To reduce risk effectively, risk assessment, risk transfer and risk mitigation must be taken into account. The issue is how can we reduce the risk in global financial market and what action should be taken?

First, we need to assess and identify the risks so that we need to improve the understanding of national risk exposures and indentify the clusters of countries that are exposed to the same risks in similar level. Then we can create a framework which is compatible with the global approach taken in previous risks. Individual countries might have their specific set of risks, and an aggregate risks measure can be derived from the model's capability to integrate a wealth of data, account for cross-correlations among risks, analyze specific vulnerabilities, and identify country clusters that engage in similar scenario to alleviate risk. For example, United Kingdom set up the Civil Contingencies Secretariat in 2001 to improve the effectiveness of post-crisis management, and to identify and assess prospective risk to national resilience. Therefore UK has been improving their consistency across governments concerning with assessment, roles and responsibilities clarification and basis for effective risk management.

Second is risk transfer by securitization, insurance-linked securities, and insurance-linked financial instrument. Securitization is the process of pooling risk and dividing that pool into portions sold to wide range of investors on the secondary market. The consequence will be a diversification of risk for insurer to an increase in the pool of capital available to cover insurance risk. Securitization grows more cost effective, insurer will be able to increasingly share cost benefit. To illustrate, it shares one-third of the US fixed income market. Other method is Insurance-linked securities which are able to fulfill the insurer capital requirement by diversifying the increasingly broad set of risks. To cover some traditional peak risks like natural disaster, the price of catastrophe risk is considerably high so that the coverage is insufficient. Therefore, we need to link security covering catastrophe by issuing the bond or note. For example, Hurricane Katrina or earthquake in Japan is traditional peak risk, so that we can issue "cat" bond to provide additional capital to the insurance industry. In "cat" bond process, at first, the sponsor enters into a financial contract with a Special Purpose Vehicle such as bank or financial institution. Second, SPV issues notes to investor in capital market, and securities offering are invested in high quality securities and held in a collateral trust. Third, investment returns are swapped by counterparties. In some transaction, principle and interest of the notes maybe guaranteed. On the other hand, insurance-link financial instrument is also used to transfer insurance risks, yet this method is used in some severe cases, exceptional or extreme weather for instance. Risk transfer is usually done by private sector such as insurance company, bank or other financial institution.

Third is risk mitigation which is required the involvement and action by the government or public sector. Government bodies should play 4 crucial functions. First, in addition to risk identification and assessment, government also manages the risk. To demonstrate, government can subsidize the gasoline price or food price if the price of these commodities is so high. Besides, government also has to communicate to mass carefully because it can make the situation worse especially some risks assessment that need to be kept confidential. Mass media sometimes helps a lot if government can communicate in a proper way, not to make people scare and create chaos, but create the trust. Second, government must regulate the legislation to help prevent the emergence of risks and protect the effect of risks. To illustrate, government can increase the interest rate in order to decrease the bank loan in case of liquidity crunch. However, legislation sometimes also can cause bad effect to investment and economic growth so that we need to study carefully before we set up the rule and regulation. For example, Cambodia just released regulation that all constructors need to reserve 2% of their total expenditure in any banks in Cambodia. As a result, investors complained it harshly and threatened to withdraw their investment, thus this regulation must be put aside; otherwise investors will run away. Third, government should boost economic continuity by using some specific measure such as the release of financial reserves or strategic energy reserve. A good example is America released their oil reserve when the oil price reached the peak in 2008. Forth, government must play a role of insurer of last resort owing to build the trust and motivation for investor and citizens.

In brief, to reduce risk successfully both private and public sector must take the plunge. However, we need to identify and assess the risk clearly so that we can transfer and mitigate it in a proper way.