Inflation

In economics, inflation is a process of rising prices in general and continuous (continuous) associated with the market mechanism that can be caused by various factors, among others, private consumption increased, excess liquidity in the market that triggered the consumption or even speculation , to include also due to launch the lack of distribution of goods. In other words, inflation is also a process of declining currency value continuously. Inflation is the process of an event, rather than the high-low price level. That is, the higher price level which is considered not necessarily indicate inflation. Inflation is an indicator to see the level of change and is considered to occur if the price increase takes place continuously and mutually-influencing effects. The term inflation is also used to mean an increase in money supply which is sometimes seen as the cause of rising prices. There are many ways to measure the rate of inflation, the two most commonly used are the CPI and the GDP deflator.

Types of Inflation

In economics, inflation can be divided into several types in particular grouping, and grouping to be used will be very depends on the objectives to be achieved.

 Types of inflation:

1. According to the degree

• Mild inflation below 10% (single digit) 

• Inflation was 10% - 30%.

• High inflation of 30% - 100%. 

• Hyperinflasion, above 100%.

The inflation rate is not an absolute standard that can indicate the severity of the impact of inflation for the economy in a certain areas, because it depends on how many sections and Which social groups affected (who suffered) from inflation is going on.

2. According to Causes

• Demand pull inflation, inflation is caused by too strong increase in aggregate demand of the commodities community outcome production in the goods market. As a result, will attract (pull) the demand curve aggregate to the right above, resulting in excess demand, which is inflationary gap. And in case this kind of inflation, rising prices of goods usually will always be accompanied by an increase in output (real GNP) by assumption when the economy has yet to reach full-employment conditions. Understanding the increase in aggregate demand is often interpreted differently by the economic experts. Moneterist Group considers aggregate demand experienced increase as a result of the expansion of the money supply in masyarakat.Inflasi in Indonesia: Causes and Sources of control (Adwin S. Atmadja. Meanwhile, according to the class of Keynesian aggregate demand may rise caused by increased spending on consumption; investment; government expenditures, or net exports, although there is not an expansion in the money circulated.

• Cost push inflation, inflation is due to shifting of aggregate supply curve to the left top. The factors that cause the aggregate supply curve shift is increasing the price of factors of production (both originating from domestic and from abroad) in the factor markets, thereby causing the commodity price rise in commodities markets. In case of cost push inflation price increases often followed by a business downturn.

3. According Originally

• Domestic inflation, ie inflation is entirely caused by faulty management of the economy both in the real sector or in the monetary sector in the country by economic actors and the public. 
• Imported inflation, inflation is caused by an increase commodity prices abroad (in foreign countries who have a relationship trade with the country concerned). This inflation can only occur in countries that follow the open economy system (open economy system). And, inflation can be 'contagious' either through prices of imported goods and price of export goods.

Regardless of the groupings are, in fact inflation that occurred in a country are very rare (if not virtually

none) are caused by one type / kind of inflation, but often because combination of several types of inflation. This is because there are no factors economy and economic actors who actually have a relationship independent in a system of the country's economy. Example: imported inflation is often followed by a cost push inflation, domestic inflation followed

with the demand pull inflation, etc..

Sources of Inflation in Indonesia

If we analyze further, there are several key factors that become cause of inflation in Indonesia, namely:

1. The money supply

2. Government Budget Deficit

3. Factors in Aggregate Supply and Foreign Affairs

Some control inflation made in Indonesia, namely:

a. Improving the Food Supply

b. Reduce Budget Deficit

c. Foreign Exchange Reserves Increase

d. Improving and Increasing the Aggregate Supply Side Capabilities

Inflation also gives positive and negative impacts, among others:

Workers with fixed salaries are very disadvantaged in the presence of Inflation. Inflation has both positive and negative effects, depending on whether or not severe inflation. If inflation is mild, it has a positive influence in the sense that can stimulate the economy better, which is increasing the national income and make people eager to work, save and hold investment. Conversely, in times of severe inflation, which in the event of uncontrolled inflation (hyperinflation), state of the economy became chaotic and the perceived sluggish economy. People become excited about working, saving, or investments and production because prices are rising rapidly. The recipients of fixed incomes such as public servants or private employees and the workers will also be overwhelmed bore and offset the price so that their lives become increasingly degenerate and collapsed from time to time.

For communities that have a fixed income, inflation is very detrimental. We take the example of a retired civil servant in 1990. In 1990, his pension is enough to make ends meet, but in the year 2003-or thirteen years later, the purchasing power of money may be only a half. That is, retirement is no longer enough money to make ends meet. Conversely, people who rely on income based benefits, such as employers, are not harmed by inflation. So is the case with employees who work in firms with payroll following the inflation rate.

Inflation also causes people reluctant to save because of the currency goes down. Indeed, savings earn interest, but if the interest rate above inflation, the value of money is still declining. When people are reluctant to save money, business and investment to flourish. Because, to grow the business needs of banks obtained funds from private savings.

For people who borrow money from the bank (debtor), inflation is beneficial, because at the time of payment of debts to creditors, the value of money is lower than at the time of borrowing. Instead, the lender or the lenders will lose money because the value of money return is lower than at the time of borrowing.

For manufacturers, inflation can be advantageous if the income is higher than the increase in production costs. When this occurs, manufacturers will be forced to double its production (usually occurs in large employers). However, when inflation led to rising production costs and eventually harm the producers, the producers are reluctant to continue production. Manufacturers can stop production for a while. In fact, if not able to keep pace with inflation, the business may be insolvent manufacturers (usually occurs in small businesses).

In general, inflation can result in reduced investment in a country, pushing up interest rates, encouraging speculative investments, the failure of development, economic instability, balance of payments deficits, and declining living standards and welfare of the community.

Overview of Capital Market

Basically, the capital market (Capital Market) is a market for long-term financial instruments that can be bought and sold, either in the form of debt or equity capital in the form.

Understanding Capital Market under the Act No.8 of 1995, Capital Markets is an activity concerned with the public offering and trading of securities, the Public Company relating to the issuance of securities, as well as the institutions and professions related to securities.

While the Stock Exchange is the party that organizes and provides a system and a means to bring together offerings or buy and sell securities of other Parties with the purpose of securities trading between them.

The capital market has a major role for the economy of a country because the capital markets perform two functions, economic functions and financial functions. The capital market is said to have a functioning market economy because it provides a facility or vehicle that meets the interests of two parties who have excess funds (investors) and those that need funding (issur). With the capital markets are the parties who have excess funds can invest those funds in the hope of reward (return) while the issuer (in this case the company) can utilize those funds for the operation of the company. The capital market is said to have a financial function, because the capital markets provide possibilities and opportunities for reward (return) for fund owners.

 Capital Markets provides many benefits including:

• Provide a source of financing (long term) for the business while allowing optimal resource allocation.

• Provide an investment vehicle for investors while allowing diversification efforts.

• Provide a leading indicator for the country's economic trends.

• The spread of ownership of the company until the middle layers of society.

• The spread of ownership, openness and professionalism, creating a healthy business climate.

• Creating jobs / professions of interest.

• Provide an opportunity to have a healthy company and have prospects.

• Alternative investments offer potential advantages with the risks that can be calculated through the transparency, liquidity, and investment diversification.

• Fostering openness to the world business climate, providing access to social control.

• The management company with a climate of openness, encourage the use of professional management.

• Sources of funding long-term financing for the issuers.

Choose a few Market Instruments include: 

1. Equity

Instruments that will increase owner's equity capital, ie stocks. Having this type of instrument means investors become owners of the company for the capital invested. The best known instruments of this type is the stock market. There are two types of plural marketable shares, namely ordinary shares (common stock) and preferred stock (preferred stock).

• Ordinary shares (common stock).

The shareholders of this type represent ownership in the company of the capital invested. The advantage gained by this form of shareholder dividends derived from corporate profits. These shareholders have no definite guarantee of return that the company provides. If companies get the profits, then shareholders will receive dividends for the allocation set by the AGM. However, if the company is liquidated or bankrupt one day, the shareholders of this type is the most recent gain rights to the company's assets after all liabilities of the company settled and preferred shareholders are paid at par value of their securities.

Besides the advantage of the dividend, common stockholders can also benefit from the difference between the value of shares purchased by the selling value. Conversely, if stock prices decline, then you lose the so-called capital loss.

Another characteristic of common stock, other than a claim for assets the lowest compared with other components of the company, nor the maturity date or due date.

• Preferred stock (preferred stock).

Shares of this type has a hybrid nature, which means in addition to having the characteristics as a stock, also have properties such as bonds. If you own shares of this type, you will get regular payments for the stock price multiplied by the par interest rate each year (the nature of the bonds). If you type cumulative preferred stock, so if you have not received a dividend payment last year will be accumulated with the current year dividend. Other types of non-cumulative, which means you will not receive any dividends not paid the last period, while the manifold participating will receive a proportionate increase in the dividend following the increase in common stock dividends. Owners of preferred stock have the right to vote to elect directors of the company, only if the dividend is not paid for a year or more.

Preferred trait is reflected also in the treatment received when the company liquidated. These shareholders will receive payment of the price of par shares before dividends on common stockholders are paid. Because many properties of this type that resembles the stock of bonds, then classify them into several parties in fixed income.

2. Bonds

Different bonds with equity that has been described previously. Companies often take advantage of this market to seek a direct loan from investors by issuing bonds is a document stating their willingness to pay certain amount of money in the future. In addition to paying the principal loan amount of money loaned, investors, companies also must pay interest on the loan or interest coupons on a regular basis. Therefore, investors will receive interest payments in a fixed amount each period, then all debt securities issued by a company called fixed-income securities (fixed income securities).

There are several characteristics that are owned by the bonds, namely: the company issued a certificate stating the loan and the terms, having a par value that states the principal amount of such securities, the maturities, and the coupon interest rate (coupon rate) will you receive each period (3 or 6 months). The interest rates are usually given higher interest rates compared with SBI (Bank Indonesia Certificate). If the bond's interest rate equal to SBI installed, of course, investors will choose to invest in SBI which has a much smaller risk than bonds. Based on this fact, giving the bond interest rate is calculated by adding the risk premium on the interest rate basis (usually the same with SBI). Risk premium that is the attraction of bonds. The important thing to note is that the greater the interest rate bonds on offer, the greater the risk that accompanies it.

 

3. Derivatives

Derivative is a derivative form of the main securities that exist, in this stock. Derivatives are widely known in Indonesia before warrants and rights

• Warrant

Is the right to buy a stock at a predetermined price at a predetermined time anyway.

Warrants are usually issued by companies as a 'sweetener' for investors when they issue shares.

• Right

Similar to a warrant, right is also a right to buy shares at a specified price at a predetermined time. Right given to shareholders who are entitled to additional newly issued shares in the company's second offering. Differences with warrants trading rights very short period, ranging between 1-2 weeks.

Warrant price is reasonable and right that the stock market price minus exercise price. If the market price of warrants or rights greater than the fair price, meaning there is a premium paid.

  

      4.  Mutual Funds

Mutual funds are an alternative investment for the investor community, particularly the small investors and investors who do not have a lot of time and expertise to calculate the risk of their investments. Mutual Fund is designed as a means to collect funds from people who have the capital, have a desire to invest, but only have limited time and knowledge. Also Mutual Funds are also expected to enhance the role of local investors to invest in Indonesia's capital markets. Judging from its origin of the word, Mutual Funds derived from the vocabulary word 'mutual' which means' guard 'or' pet 'and the word' fund 'which means (set of) money, so mutual funds can be interpreted as' a collection of money is maintained (with to an interest) '. Generally, mutual fund is defined as container that is used to collect funds from public investors for further invested in portfolio securities by the Investment Manager.

Cash

Cash consists of bank notes, coins, checks that have not been deposited, stored in the form of deposits or bilyet, travelers checks, cashier checks, bank drafts and money orders.

Cash is not included:

- Notes receivable, if any promissory notes submitted to bannk to be billed, then the note is still recorded as notes receivable.

- Stamps, stamps can sometimes be used for payment of the amount is small, but the stamps are not accepted as a deposit by a bank, therefore, stamps instead of cash.

- Check Back (Post Date Checks)

- Securities such as stocks, bonds

- Deposits at banks or savings abroad in foreign currency.

- Money restricted cash, usually in the form of funds, not included in cash but are reported separately as a fund. Example: funds, micro-enterprise loans. If its use is still within one year of the current assets included in the group, but if it can not be used for expenditures in one year it was reported in a group of non-current assets.

In practice, sometimes cash grouped into two: Petty Cash and Cash Big. Petty Cash is used for daily operational and there are not too large. Usually used for operational costs such as administrative fees, telephone charges, electricity, etc.. Cash is usually used to accommodate large Receivables receipts, bank loans, the expenditure to pay debts, expenses for buying assets.

Petty Cash is cash available to pay for expenses which are relatively small and uneconomical if paid by check.

One of the key principles in the supervision of cash disbursements is that all cash disbursements should be made by check, except for cash disbursements made through petty cash. For small amounts of cash expenditures and routine checks if using it will spend a lot of checks, it is becoming uneconomical.

Then set up a petty cash to pay for expenses such as relatively small nominal expenditures for postage, postage, fax, purchase of stationery, photocopiers, etc.. To establish a petty cash, the company must assess the amount of cash required for a certain period, eg one week or one month.

There are two methods used to record petty cash are:

1. Imprest System

In this system the amount of petty cash account always remains in the amount of checks presented to the cashier as petty cash to establish a petty cash fund. Every time you make payments, petty cash cashier must make proof of expenditure, if the amount of petty cash is low and also at the end of the period of petty cash cashier will ask for cash back filling the small amount that was spent. On the imprest system of petty cash expenditures are recorded when a new replenishment.

2. Fluctuation Systems

In the method of small fluctuations in the cash balance is not fixed but fluctuate according to the amount of petty cash expenditures. Fluctuations occur in the method of any petty cash expenditures directly recorded, so the book has a small cash disbursements journal and function as the basis for the books to the ledger accounts