Analysis Of Private Equity Funds Essay Example Pdf - Free Essay Example

Sample details Pages: 6 Words: 1917 Downloads: 1 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Tags: Study Essay Did you like this example? A Private Equity (PE) fund is a fund which invests its money in private equity, usually to gain control over companies in order to re-structure the company. When the fund takes control of a company, it normally takes the company off the market (that is if the company is not private already), restructures the company, and then relists it on the stock market.  [1] A PE fund is raised and managed by investment professionals of a specific PE firm. Typically, a single PE firm will manage a series of distinct PE funds and will attempt to raise a new fund every 3 to 5 years as the previous fund is fully invested.  [2] PE is an asset class of equity shares that are not publicly traded on a stock exchange. Don’t waste time! Our writers will create an original "Analysis Of Private Equity Funds Essay Example Pdf" essay for you Create order It is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. Some commentators use the term PE to refer only to the buy-out and buy-in investment sector.  [3]  Others, in Europe, but not the USA, use the term Venture Capital (VC) to cover all stages of PE. In the USA, VC refers only to investments in early stage and expanding companies.  [4]  To avoid confusion, the researcher has used the term PE throughout this project to describe the industry as a whole, encompassing both VC and management buy-outs and buy-ins. Foreign VC funds have been permitted to operate in India since 1995. Indias PE sector has shown tremendous growth rates. To look at figures, there had been a dramatic increase in fund sizes from US $10 to US $25 million just a few years ago, to between US $400 million and US $ 1 billion in 2007 (before the global economic crisis). The average deal size was around US $25 million, as opposed to US $8 millio n in 2002. These figures clearly indicate the tremendous global interest in the Indian market  [5]  . In the course of the project, the researcher would first try to analyze the sufficiency/insufficiency of the law relating to the PE investment in India. Thereafter, the managerial structural set up of a PE fund shall be discussed. The researcher will then look into the advantages and disadvantages of PE investment, especially in regard to the Indian investment scenario. Regulation of the PE Industry in India Venture Capital Regulation Until 2000, SEBI only regulated the domestic funds vide the SEBI Venture Capital Fund Regulations, 1996 and there was no mechanism to regulate the foreign investors. This put the domestic investors at a disadvantage, especially since foreign investment in most sectors was through the automatic route (i.e. direct exposure by offshore PE funds in shares of unlisted companies was treated as a foreign direct investment and had to be approved in line with the Governments general policy on foreign investments). The Government realized the need to regulate the same. In September 2000, SEBI issued a new set of regulations applicable to offshore funds, called SEBI (Foreign Venture Capital Investors) Regulations, 2000 (the 2000 Regulations). The 2000 Regulations are based on the recommendations of the Chandrashekhar Committee on Venture Capital (January 2000). These regulations were subsequently amended a number of times. As of now, with respect to investment by a foreign VC investor, it is mandatory for the investor to disclose its investment strategy. Prior to the 2004 amendment, the investor was not allowed to invest more than 25 percent of the funds committed for investments to India in one VC undertaking. However, after the amendment, an investor can now invest its total funds committed in one venture capital fund. Another significant amendment was made to sub-clause c of clause 11. Before 2004, an investor had to inv est atleast 75 percent of the investible funds in unlisted equity shares of VC undertaking and not more than 25 percent while subscribing to an initial public offering (IPO) of a VC undertaking. The investments were also subject to a lock-in period of one year. However, subsequent to the 2004 amendment, the percentages have been changed to 66.67% in the first case and 33.33% in the latter. The amendment has done away with the lock-in period requirement and has also introduced a provision for preferential allotment of equity shares of a listed company.  [6]  However, currently there are no legal or regulatory differences between venture capital and PE firms. SEBI is considering the idea of regulating PE funds. Organizational Stipulations in a PE Fund  [7] PE funds have a general partner which raises capital from institutional investors, such as high net worth individuals, pension plans, insurance companies, endowments etc. These economically sound institutional investors invest as limited partners in the fund. This partnership is normally a fixed investment vehicle that is usually ten years in addition to some extensions. Also, a yearly payment has to be made by the investors in the PE fund to the funds manager to pay for the firms investment operations. Moreover, a relatively smaller share of the profits of the investments made by the fund has to be paid (as performance incentive) to the PE funds management company. The remaining profits are paid to the funds investors. However, this payment to the fund manager is subject to the crossing of the hurdle rate (which is the minimum rate of return which must be achieved before the fund manager can receive any carried interest payments). Advantages of PE funds Low Level of Regulati on As there is no public trading involved the regulation levels are low.  [8]  For example if one were to raise funding through a public offering one would have to satisfy several requirements under the SEBI. In addition to management benefits the current regulatory requirements have increased the desirability for many companies to either go private or postpone going public.  [9]  For example, especially in the USA, many business owners cite the costly, inflexible, and invasive disclosure requirements introduced by the Sarbanes Oxley legislation as reasons for forsaking publicly traded status.  [10] Attractive valuation PE transactions are an excellent way for owners wanting to remain private and obtain significant liquidity at an attractive valuation without having to transact an outright sale. In reality, not all PE investments are structured as complete buy-outs or even majority share purchases. Some investments are simply a capital infusion in exchange for a minor ity stake.  [11]  This is often referred to as growth capital as these investments help provide the necessary capital to get companies to the next level without having to turn to the public markets. All of these investments generally result in the PE firm obtaining a seat on the board of directors of the company. Functionally, this not only serves an important monitoring role but also provides added expertise to the board. PE firms either place their own primaries on the board or assign highly qualified business colleagues who provide valuable advice and perspectives. Additionally, since many of these appointees sit or have sat on multiple boards, they can provide the traditional advantages of inter mixing of ideas between companies to bring out better results.  [12]  In a typical PE transaction, the management team will still own a large percentage of the business through a combination of retained ownership and new stock options granted by the investor. Therefore, in three to seven years when the outside investor is ready to exit their investment, the management team will receive substantial additional value for the business.  [13] Low level of interference- In a typical PE transaction, all shareholder guarantees are eliminated and day to day control remains with the management team. While most investors prefer to purchase over 50% of the equity, they have no interest in running the business on a daily basis. In addition to providing liquidity for the selling shareholders, PE firms will provide additional debt and equity capital for internal and external growth opportunities  [14]  . In most PE dealings, the management team has tremendous expansion plans but does not have the resources. These expansion plans could include opening new branch offices, entering a new line of products or services etc. PE investors are more than willing to provide the resources necessary to execute such expansion plans that are strategically sensible. Disadvant ages of PE funds Lack of Liquidity- It is very hard to reconvert shares and this usually ends up as a disadvantage to share holders who invest in PE. It cannot be bought and sold at any time. Since PE funds are not open to investment on the stock market, anybody who wants to sell stocks of a PE fund finds it difficult to locate a buyer. Since PE returns derive from an appreciation in the value of the acquired asset or company, PE investments are often followed by efforts at restructuring to revive loss-making companies or substantially improving the performance of profit-making ones. These efforts are aimed at adding worth to the investment before PE investors exit with a profit. Less appreciated forms of intervention by PE firms are those in which bought out firms are stripped of assets or are broken up so that their parts can be sold to the highest bidder for an aggregate sale price that exceeds the purchase price. PE investments are relatively illiquid, especially in the ea rly years. The usual life of a standard PE fund investment averages three to seven years. Investors in private securities by and large exit their investment and get returns through an initial public offering, a merger, or a recapitalisation. Since the companies are unlisted, investors wishing to exit their PE holding do so by selling the holding to someone else through the secondary market.  [15] Control- One of the major disadvantages of financing through private equity is that the creators must give up some control of their business, which essentially means that in situations where investors have dissimilar ideas about the companys strategy, or routine operations, they can be problematic for the business man. Furthermore, some sales of equity can be very intricate and expensive to manage and may need complicated legal work and a great deal of paperwork to ensure compliance with various regulations, which may necessitate procuring the services of attorneys and accountants.   [16] Conclusion Private equity investment in India fell by almost sixty percent in 2009 as a consequence of the global financial crisis. However, looking at the state of investment prior to the crisis, and the kind of investment that has been flowing in after the markets have revived, the same is a clear indicator of the rapid expansion of private equity in emerging markets like India which have huge growth potential. However, the question that needs to be answered at this juncture is whether India is ready to handle such investments. The researcher suggests the affirmative in this regard, as there is sufficient evidence to see that the size of such investments has grown steadily, not only from domestic but also from foreign investors, over the last decade. The most recent examples of such investments involving massive infusion of capital would be Singapore-based Temasek Holdings investment worth Rs. 880 crore in GMR. Another example would be that of Summit Partners, a 25-y ear-old US based private equity fund (that has $11 billion under management), which made its first investment in India with an infusion of $30 million in agricultural biotech firm Krishidhan Seeds Ltd. In conclusion, the researcher would like to submit that the need of the hour is to ensure a smooth and transparent functioning of such private equity investments to facilitate their robust growth in India. With such rapid expansion in private equity there is a necessity for the regulation of the same. While venture capital is regulated by the SEBI there is a need to regulate all other forms of private equity by framing laws and regulations for the same.

My Favorite Experience In My Life - 1900 Words

As I pranced around my 8-year-old wonderland full of moon-bounces, water slides, balloons, and all the other magical things around me, I fiercely sang along to whatever 80’s song was being blasted on the radio. No one, besides Prince himself, can hit the Purple Rain high-notes as passionately as I can. But as I hear my â€Å"Dada† walk into the room, I immediately quiet myself down. â€Å"Daffy-doo! How do you do!† my Dada yells to me, to which I answer with an eruption of giggles. He didn’t seem to mind that I didn’t answer verbally because all he did was smile at me and continue on with his work as I quietly observed. At this naà ¯ve stage of my life I felt like observing everything and anything equated participating, so observation was my main†¦show more content†¦I knew that I wanted to be someone to help others and I wanted to do something with my life that really meant something just like my dad was doing. I started to get back into all my favorite hobbies as a pastime to take my mind off my parental issues. Reading and music were my safe havens like never before. If I were to ever feel lonely all I needed was to pick up The Catcher in the Rye and project myself onto someone like Holden Caulfield. Music started to hold deeper meanings to me and listening to bands like The Smiths or Fleetwood Mac helped me purge my feelings unlike anything else. I don’t credit my dad for a lot, but I do think had it not been for his mistakes I wouldn’t have found my interests as I quickly as I did. I think it’s a common mistake for people to not recognize when they have something good in their lives, and I’m guilty of this. My mother has been with me through everything: when I was feeling angry and sad about my step-dad leaving or my dad never being around, she was there. While my step-dad encouraged me to be myself, my mother encouraged me to be the best possible version of myself. 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I was 16 and it was spring time. The summer was coming up and it was going to be a very big one for movies. This job would be something differ ent for me and would help shape my future. The five yearsa that I had spent working and growing through a movie theater supplied me with many memories, an opportunity to grow as a professional and has equipped me with lifelong friends. Some of my mostRead MoreThe External Conflicts Of Chaperupa And Maya From Lupita Manana715 Words   |  3 Pagesis a book about two siblings, Salvador and Lupita. Salvador and his sister Lupita cross the border in hope of supporting their family back where they live. The short story, My Favorite Chaperone is about a Russian family migrating to the United States. These writings show that Lupita from Lupita Manana and Maya from My Favorite Chaperone are very different characters. 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Relationship Paper Free Essays

A relationship between two people can have very different meanings. In some relationships such as two lovers, they can also be best of friends because they share some characteristics and qualities and have a good understanding of each other. A relationship between a parent and child has a special bond because they share love, and affection for each other no matter what the circumstances are there will always be some connection, even at its worst times. We will write a custom essay sample on Relationship Paper or any similar topic only for you Order Now However, there are times when a relationship can go bad because there is no understanding, lack of communication, and a feeling of distance in the relationship. This may occur from mistakes or misunderstood acts from one another. It is believed that the parent-child relationship is the most influential relationship that there is. As of right now I believe that this is the relationship I must analyze more in-depth to get a full understanding of it and to just improve my daily life with them, but in particular my mother. My mother, like most Hispanics in her generation, did not grow up with half of the materialistic devices and privileges that I have had when growing up. She has come from a home that was riddled of alcohol and drug abuse. Even with those distractions at home she still managed to get straight A’s, so she says, and has had a job throughout her life since the age of 16. She says if it wasn’t for marriage and having kids she would not have dropped out of college, but she was comfortable where her family was heading and had made that decision. My mother is someone to look up to in my books because of her overcoming of obstacles that had stood in front of her like it was just taking another breath of air, and for my father, I don’t even want to start on that description. I’ll just leave it at that it is a privilege that I’m even walking this planet today. I believe my mother perceives me as taking the resources I have around me for granted. That I am just going through the motion of school and life and not tackling it like she did and still does. She sees an unemployed 20 year old at a junior college that has had recent trouble with the law. I am not putting up the biggest argument against her because I know I could be doing more to be excelling further in school and being more responsible for my own actions. I don’t think she fully understands the commitment of being in ootball during school. It really is like having a job year-round that gives you a 2 month break yearly. I know she gets her perceptions on what she hears at work at the sheriff’s department, which does not help, or what she sees on the news on television. So I believe her ideas on what people my age is a little bias. To overcome these perceptions and to be tter our relationship I believe we can communicate with each other more than we are now. Telling her more information about what goes on and what I am doing in my life can more likely give her a better idea on who I am or who I am on track of becoming. Telling her more and more of what I am doing and disclosing my-self, I believe can make her feel more comfortable with me. By self-disclosing my-self it can give her assurance with what kind of person I am. With the way things are going between us right now I can only imagine who she thinks I am. When a mother does not know much about his son you can see as to why they can get carried away with ideas on who they might be but not who they are. However, there also might be some things that she sees about me that I don’t realize myself. Those mother-to-child instincts are still a wonder to us all. She might see something about me that whenever I am in a serious relationship I seem to be more stressed, or that i am calm with her in our conversations. My emotions on the way I converse with her tell her a lot about myself. Emotion management is essential to maintaining a healthy relationship. For example, if I failed a mid-term that day and she does not know, she cannot prepare for the negative responses, if any, to her questions and she most likely would not want to hold a conversation with me. She can start to build an idea that I am not consistent with who I am and lead up to fewer conversations to build on our relationship. However, emotion management does have its cons. For instance, if I am not happy with something she is doing and I never express anything about it the relationship for me might start to become one-sided meaning only she is happy with relational content. Sometimes giving feedback about some ones actions is the best way to maintain a relationship. Relationship maintenance between her and I is a must. If I want her to be appy with me then I have to put in my part. If I am just sitting around the house not contributing to anything or with the household how could I expect her to be happy with me. When she sees me applying myself she can have many reasons to be happy or proud with what I am doing. How can she not be if she knows I am taking advantage of the opportunities around me? For example, if I am maintaining a 3. 0 grade point average while holding a part time job and in a year-round sport like football, she should not have reason to be upset or concerned with me. How to cite Relationship Paper, Papers Relationship paper Free Essays My expectations from our friendship was a lot because she was very important me almost as to consider her like my sister. I expected to get proven that true friends do exist and that no matter what, she would be by my side. She has proven that to me and everyone knew we were best friends. We will write a custom essay sample on Relationship paper or any similar topic only for you Order Now Due to the way she was with me, I always had mentality that best friends last forever. I get really attached to people and sometimes scared to ever lose anyone close to me. My friendship with her relates a lot to the METHOD because that’s exactly what occurred in the same order. As our friendship progressed, every year there would be periods of time where we â€Å"thought† we were mad at each other because of lack of communication at times. If I ever felt sad I always contacted or cached out to her first, I would wait and see If she would do the same and It went vice versa. It was freshman year when our school schedule changed and effected our friendship. Our classes were so distant from each other and we no longer shared lockers. She was part of the cheer team and so that took up most of her time. Plus, she met a lot of new girls and spend more time with them. My expectations changed and I understood that it was time consuming but communication went both ways. Most of the time I felt like I was the only one that made effort. Some investments I made were going to watch her perform. I paid and attended almost every game and I knew she appreciated that. That showed a lot about my person and I knew she felt proud to have me around as well. This was continuous throughout high school and soon enough it became a habit. I accepted the change and it then became normal. In a way we were too needy for each other so the space was much needed. 2. Some ways that we have communicated nonverbally are using symbols. We would always wear matching Jewelry that signified our friendship. We did almost everything the same, always matched with clothing as well. Some nonverbal expressions included a lot of looks. If we were ever in an awkward situation, we always gave each other a look that showed we felt uncomfortable or any clue to go. We knew what looks we gave each other meant right away. A lot of friendships that are strong and last long, depend on nonverbal communication. The quality of my friendship with her always improved because we could easily read each other, and understand the emotions behind each other’s words. The way you respond to someone nonverbally can show that you understand and care about them and the relationship will grow and be fulfilling to both. Verbally wise, it’s always been very Important to pay close attention o what I and my friend say to each other. Having this friendship with her has taught me a lot on how to be an effective communicator and listener. Understanding the meaning of one’s words and the Ideas and feelings behind them Is very Important. Dual perspective is the ability to understand another’s perspectives, feelings and perceptions of what she would say or do something wasn’t so easy. At times it was quite difficult. Asking questions before Judging or commenting and explaining my own feelings and needs so the friend understood where I was coming from help us communicate a lot more. How to cite Relationship paper, Papers

Taking Economics Seriously

Question: i. Explain the economic problem of scarcity by using demand and supply factors relevant to the price of petrol in the UK. ii. Analyse potential externalities that may arise in the petrol market. How can the UK Government seek to ensure that such externalities are taken into account by the petrol market? Answer: 1: The trend component of the price of oil is rising. This has an implication that the global market oil is going to enter in a period in which there is a rising scarcity. Here is a demand and supply analysis for the effect of rising price of crude oil in UK (Baker, 2010). From the demand and supply analysis, it can be said that the sustainable increase in the demand for the crude oil all over the world and the limited supply of it causing the rising trend in the price of crude oil. For the same reason there is arising a scarcity in the crude oil market in UK. The analysis of this scarcity problem has reveals that the effect of the increase in the scarcity in the oil market can be managed relatively by the primary downshift in the supply trend of oil. It can be noted that it will result better if the decline in the supply of oil should be gradual than the absolute decline (Davis and Reilly, 2010). In addition it can be noted here that presently in 2015, the oil price is falling. Now, the falling of the oil pr5ice is a great problem. Downshift in the supply of oil A considerable downshift in the growth of the supply trend of oil of about 1 % helps to slow down the global growth by about % and the annual growth at the global level results in longer or medium term (Do policymakers need to cool the UK housing market?, 2014). A continuous decrease in the supply level of the crude oil in UK has considerable adverse effect on the output level. It can be happened if there is a higher level of substitutability between the other preliminary sources of energy and oil. On the other hand, the wealth or revenue acquired in UK from the oil will shift from the importers of oil to the exporters of oil in the medium term and that will raise the flow of capital, thereby reduction in the real rate of interest and the current amount imbalance will rise (Dransfield, 2014). This particular assignment shows that the scarcity of oil will certainly be a powerful constraint in the world economy (Drummond and Hodgson, 2011). So the risk emergence it causes is very serious matter worldwide. Reaches on the substitute of oil are in progress. But still it is uncertain. So the full dependence on the other sources of energy is still uncertain. Measures for reducing the risks It is very obvious that the policy makers in UK should adopt stronger measures for reducing the risks from the crude oil scarcity (Drydakis, 2014). The policy makers should take precautionary steps in this matter. They also should facilitate the adjustment process if it becomes larger then it was expected or it has to be materialized in a rapid manner. Policies require to be balanced with labors to make stronger societal security nets, as the higher price level of oil may lead to alter in the distribution of income and make poverty level greater than before(Gil Lafuente and MerigoÃÅ' , 2010). The allegations of oil insufficiency could be significant and extensive. Oil is a main factor of the process of manufacture, as well as in the manufacture of other produces and in shipping, and also broadly used for goods for consumption(Gillespie, 2010). Oil takes the majority part in over all traded commodity in this world. This implies that oil has a significant effect, direct as well as indirect on the global economy. This has effects on the several economic factors, such as, world inflation, poverty level, growth and external balances. From the late of the year 1990, the price level of oil has generally increased(Gurtuna, 2013). Oil scarcity Oil is considered as a scarce factor when the demand for the oil is greater than the supply of it. The supply is unable to meet the demand at the existing price level. Then the price will rise and this will encourage the supply of oil. On the other hand, the rising price of oil will reduce shortly the demand factor. This means that the scarcity of oil is related with the price of oil. So it can be said that the oil scarcity always reflects in the price of oil. The price of oil also reflects the opportunity cost (Hall, 2011). The opportunity cot is in terms of bringing one barrel of oil in addition in the market. Generally, a higher level of price comparative to the prices of other commodities points out the scarcity. On the other hand, a lower price points out large quantity, and fluctuations in the level of price over an extensive periods indicates alterations in the scarcity (Hayes, 2014). However, it is to be noted that it is very difficult to differentiate the reasons for increase in the price level. It can be the scarcity or can be other kind of reasons. The scarcity indicates the decline in the accessibility of oil in the long term. The scarcity of oil in the logic of lofty and rising oil prices also can be arose for many other causes over shorter sphere (Ibelings, 2010). Momentary shocks in the supply may direct to short lived price spear, as throughout the year of 199091, in the Gulf War. Choice and opportunity cost Choiceandthe opportunity costare mainly two basic ideas in economics. When the resource quantity is a constraint factor, then the consumers and the producers have to make selection within the alternatives of competition. All decisions regarding economy involves mainly in the choice making (Leonard, 2011). Any consumer or the producer has to choose the best way of using the effort and skills. The firms in UK must have knowledge about the usage of the machinery and workers available to them. Now, the making of choice always involves in the sacrifice of something. This happens as the alternatives should be given up. These results in the sacrifice of the benefits could be gain from the various alternatives, which were available at the same time (Leonard, 2011). The demand and supply analysis can be shown by using a diagram. Here in this following diagram it can be shown that as the demand rises, the demand curve shifts upward and the price rises, the supply remaining the same and vice versa (Mankiw, Taylor and Ashwin, 2013). Drawbacks This particular assignment mainly focuses on the problems emerging from the scarcity of oil. The price rise is indication of scarcity. But it is avoiding the other matters which may affect the price, such as the business cycle. The business cycle has a great effect on the changes in the oil prices (Newbold, Carlson and Thorne, 2013). The price of oil may also be affected by the implementation of explorations, new discovery, capital investments etc. Present problems Presently in 2015, the oil price is lowering. There are several problems for the low price of oil. Some problems are as follows: increase in the debt defaults, the interest rates are rising, unemployment rate rising, recession increases, oil supply decreases, disruption in the countries those export oil, drop in the prices in the stock market, drop in the bonds market value etc (Sloman, Hinde and Garratt, 2010). The fall in the price has also a number of problems itself. For the falling price of oil, the debt defaults increases. The debt default can increase in the oil extraction businesses, workers of laid off oil etc (Starkman, 2013). On the other hand, the interest rate will rise. The unemployment rate also increases. The increasing unemployment rate couples with the high rate of interest causes recession. The supply of oil decreases as a result of the falling price of oil. 2. Externalities Externalities are the side effects in the economy or environment of a good or service, which creates costs or benefits to people. In general, the externalities are meant by the costs or the benefits imposed by a firm or industry on the outer side of the whole marketplace or within the marketplace (Starkman et al., 2012). The petrol market has several negative as well as positive externalities. Externality is classified broadly into two types, such as positive externality and the negative externality. Positive externalities are those benefits, which are acquired by the people from the good or service by a firm or industry. On the other hand, the negative externality is subject to those externalities, which affects negatively the people or the environment (The growing UK 3D printing market, 2014). Positive externalities There are so many positive externalities emerging from the petrol market. This is very obvious that petrol is maximum used in the peoples lives. People cannot even thing without the usage of oil or petrol. In various stages of the human life the petrol is used. Some kind of positive externalities regarding the petrol market are as follows: Economic profit, increased efficiency or the productivity, Means of Globalization (UK company looks to crowd funding to bring natural water filtration product to market, 2014). These are discussed here. Economic profit employment becomes greater than before, different commercial activities introduced. There are several economic profits involved in the petrol market. The employment rate increases(Ummer, 2012). The employment rises in the oil factories. There are several production houses, in where the petrol is ides. Those are also part of employment created by the petrol market. Petrol is involved in different commercial usage. Those commercial hubs recruit many people as employee. Increased efficiency or the productivity usage of oil speeds up proficient manufacture in many industries. The productivity increases with the use of oil. There are so many machineries, which run with the help of oil. Those machines are increasing the productivity in various sectors(Vergnet expands services for UK market, 2014). Means of Globalization this increases the trade between several countries. Negative externalities The mainly public concentration paying attention on ecological damages as extraction, resource exploration, processing and lastly, distribution are the reason of environmental damages. It also includes the natural world territory disturbance, and discharge of air, sound and water pollution. Externalities are the really bad sided effect on the environment of the world. In many production processes of several goods including the oil extraction, there are so many negative externalities (Wessels, 2012). The negative externalities always affect adversely the people of the country. An important example of the negative externality is pollution. The oil extraction causes pollution. Some kind of negative externalities are as follows: the damages in the environment for the petrol market, health risks involved, economic costs, limitation of resources, security risks, financial subsidies etc. Damages in the environment The environment damages from production of oil, distribution as well as the consumption. During the process of extraction of oil, the water is negatively affected(Wessels, 2012). So there occurs water pollution. The exploration process pollutes the air. So there occurs air pollution. The processing of oil also affects the air as well as water badly. So in the stage of processing of oil, both of the pollutions, such as water pollution and the air pollution take place(White and Herrera-Soler, 2012). Health Risks Several types of risks are involved in the petrol market. This includes injuries and sickness of the people or the workers from petrol production and distribution. In the petrol market, the workers have to take severe risks in extracting of oil and the processing. The extraction process is very risky for any person or worker. So many injuries happen on the body of the workers. On the other hand, the processing of oil emerges toxic gases, which are really very harmful for the human body(Zhou, 2011). So those workers, who do job in the oil factory and stays during the processing of oil, suffers from various illnesses, so, health risk is very significant externality involved in the petrol market. Economic Costs A number of economic costs are involved in the petrol market. Mainly the economic affect of imported oil. Several economic costs are there with the oil or the petrol market. This is very true that the price of the oil ion the international market play a significant role on the economies of the countries all over the world. So, if there is any fluctuation in the oil prices, then the economies of the oil importing countries will be affected negatively(Baker, 2010). This is another negative externality of oil. As the price increases, the oil importing countries have to pay much more than before. So the other economic sectors are hampered. Security Risks Opinionated and armed costs to continue or to keep up the right of entry to oil recourses involves security risks(Davis and Reilly, 2010). Restriction of Recourses Another negative externality is to deprive the upcoming generations from non-renewable sources like oil. The oil scarcity is very important issue involved in the oil market. It is very difficult to determine the quantity of oil can be extracted. The resource like oil is limited in the world. So the extraction of oil regularly causes fall in the reserve of this particular resource. The future generation will have to be deprived from the usage of oil. So the future is very uncertain in the case of scared resource like oil(Do policymakers need to cool the UK housing market?, 2014). Petrol is variously used but the people. So, it is very difficult to think about a world without crude oil. But is it also true that a period is supposed to arrive where the people will not use crude oil. Financial Subsidies There are various financial subsidies to the producers of oil. Remedy For those negative externalities, there should be incentives for the consumers or the producers to cope up with the adverse situations. The problems emerging from the externalities can be solved by the Government intervene (Dransfield, 2014). Here in this section it is going to be discussed various way outs. Imposition of tax on the polluters If the business procedure causes pollution, then that business should be taxed accordingly. As tax is imposed on the business company, the cost of the production will automatically raise. The rise in the price level of oil depends on the elasticity. If the price is very much responsive, then the price will raise more with the tax imposition. However, it can be noted that the producers the ultimate tax payers. Now, theoretically it can be said that, the size of the external cost or the negative externality is nothing but the difference between the marginal private cost curve and the marginal social cost curve. Now, it is the responsibility of the government to assess correctly the cost for the negative externality (Drydakis, 2014). If the government is able to determine and thereby calculate the cost for the negative externality, then the government will be able to impose the correct or right quantity of tax. Now, if the government imposes the right level of tax, then the marginal private cost curve will start to shift and it will shift till it superimposes on the marginal social cost curve. This determines the equilibrium level of price and the quantity and ensures that the consumers as well as the producers are in the situation of equilibrium. Taxes cause the shift in the supply curve to upward or to the left. This upward shift of the supply curve causes the rise in the price of the crude oil and reduces the output of the oil. This happens through market mechanism (Gil Lafuente and MerigoÃÅ' , 2010). So the external cost is reflected in the rising price as well as in the reducing cost level. But there may be external benefits also. So in the case of external benefits, a firm and a government has to compensate, which are discussed bellow. The use of subsidies If there are positive externalities, then the business authority should be subsidized. There are so many external benefits of the petrol market. Those are discussed above. The petrol is variously used in daily life, transportations, machineries etc. It has also several economic externalities, such as employment generation, productivity increase etc. Those positive externalities are to be supported by the government as it is very useful for the goodness of the country as well as the society (Gillespie, 2010). Therefore, the demand can be raised by the paying subsidies from the part of the government to the suppliers or the producers. If the cost burden is partly minimized with help of the subsidy paid by the government, it will encourage the production as well as the consumption of oil. Therefore, it is the responsibility of the government to determine the exact level of the subsidy, which should be paid to the producer. The subsidy paid by government encourages the supply by reducing the cost of production and thereby reducing the price of oil partly. The reduction in the price level encourages the consumption level. Government regulation Theoretically it can be shown that the size of the externalities and thereby the amount of tax or subsidies. But in the real world, it is very difficult to determine the level of tax or subsidy. Sometimes the government has to be direct in the cases of imposition of tax or paying subsidy. Some interventions are, price ceiling, price floor, subsidy (Gurtuna, 2013). Price ceiling A price ceiling happens when a legal boundary on the price level of oil created by the government. For an effective price ceiling, the government has to set the ceiling bellow the equilibrium level in the market (Hall, 2011). When the price ceiling is set, there will be automatically a shortage as the demand factor is greater than the supply factor. Price floor The price floor is the minimum price level set by the government. No one is allowed to sale oil below the price floor. This is done for the sake of producers suffering from comparatively higher cost of production (Hayes, 2014). Subsidy The subsidy is a financial assistance given by government to lower the cost of producers as well as to encourage the demand by lowering price level. Thus the employment can be raised (Mankiw, Taylor and Ashwin, 2013). These are the assistance or policies can be taken by UK government in the petrol market for the externalities. Reference list Baker, D. (2010). Taking economics seriously. Cambridge, Mass.: MIT Press. Davis, P. and Reilly, A. (2010). Market power, market outcomes, and remedies in the UK groceries market. Agricultural Economics, 41, pp.93-108. Do policymakers need to cool the UK housing market?. (2014). Economic Outlook, 38(2), pp.5-13. Dransfield, R. (2014). Business economics. London: Routledge. Drummond, H. and Hodgson, J. (2011). Escalation in decision-making. Farnham: Gower. Drydakis, N. (2014). Sexual orientation and labour market outcomes. 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