Nonetheless advisers have the great degree influences the senior direction.A research by Norbck and kerblomMaster ( 2003 ) had highlighted that battle of uncommitted direction and inexperient executives would take to give an chance to advisers to take advantage of the state of affairs and act to their benefit and achieving their ain ends. However from a birds oculus position, budget can be defined as a direction tools that put the directors in control of a finicky wellness of the administration. An increase in production cost is avoidable as volume increases and it does not means that there is problem on increase cost occurred. Fiscal budget controls the administration fiscal facet of the concern. . As I said, changes are not easy, especially when they implicate money. We're here to answer any questions you have about our services. A budget system varies from organisation to organisation and it is not unitary concept. Often less expensive than a fixed-price contract since contractors don't need to charge a higher price to cover the risk of a . A fixed budget is a financial plan that outlines a set amount of money to be spent on a specific project or period of time. A flexible budget is kind of a hybrid approach to financial planning. In my opinion, the advantages of budgeting outweigh the disadvantages of budgeting, but thats me. The objective of the budget is to measure of the financial structure of the organisation and budget is a tool that forces management to be accountable in a structured and objective way. I like to use budgeting and running as an analogy. If you are smart about your money and budget it right away, you can achieve your goals because you will stay financially focused on what you want to accomplish. In this case, the responsible persons are rewarded. All about budgeting - part 1. The volume . You can pay $800 in rent, but you can pay more if the spread increases. For example, we prepare a budget for 2020 which start from January to December 2020, after the end of January 2020, we need to update our budget which . If for example, one has a business with highly varying volume, costs and revenue, a fixed budget becomes impractical. A fixed budget is a budget that remains uniformly unaffected irrespective of changes in the volume of sales, revenue, no of units produced, or production. This comparison gives you immediate insight into which months have better cash flow and the reason for that. Read: Best Tips On Budgeting Groceries For One Person. Promotes unnecessary spending. Advantages of rolling budgets. . Budgeting is why I keep achieving my financial and life goals since I plan most things. Mostly, fixed budget planning is established keeping in mind the long-term goals. 3. Disadvantages: Low budgeting control is the main disadvantage of a T&M contract . I encourage you to keep trying other budgeting methods until you find the perfect one for you. With a flexible budget model, if your demand suddenly triples, your cost of goods sold (COGS) can be adjusted by a predetermined percentage ensuring that you have the cash to fill these orders. Consultant will able to transform the administration and derive the exposure at the same clip will add important value by cut downing the job declaration rhythm clip ( Hagedorn, 1982 ) . Flexible Budgeting Advantages. Creating a flexible budget begins with assigning all static costs a fixed monthly value, and then determining the percentage of revenue to assign to your variable costs. After each month (or set period) closes, you compare the projected revenue against the actual revenue and adjust the next months expenses accordingly. How manager manage the budget is key to their value. Copyright 2003 - 2023 - UKEssays is a trading name of Business Bliss Consultants FZE, a company registered in United Arab Emirates. Consequently to Chartered Institute of Management Accountants of England, a fixed budget is a budget lineation to stay unchanged irrespective of degree of existent activities attained . This type of budget is often used in businesses and organizations to allocate resources and plan for future expenses. Definition: A fixed budget, also called a static budget, is financial plan based on the assumption of selling specific amounts of goods during a period. A fixed budget will capitalised the calculation fixed expenses and help to forecast the bills to be paid by the business. This is where a flexible budget comes into play justifying the cost increase based on the actual earned revenue. Hiring Consultant for Future budgeting for United Consultancy. Financial budget controls the organisation financial aspect of the business. Fixed forecasting is a process of drawing up a fixed budget for a fixed period of time, typically as lengthy as one fiscal year. There are several advantages and disadvantages to using a fixed budget, which will be discussed in this . As a result, exceeding your budget will cause stress. As an essential . A fixed budget is appropriate under static condition. A fixed exchange rate means that the value of one currency stays the same against another currency, regardless of the market conditions. No matter which type of budget model you choose, tracking your finances is what matters most. Us too! A research by Norbck and kerblomMaster (2003) had highlighted that engagement of uncommitted management and inexperienced executives would lead to give an opportunity to consultants to take advantage of the situation and act to their benefit and attaining their own goals. What Are the Pros and Cons of a Flexible Budget. There the experiences and capablenesss of direction advisers are critical for successful on direction of advisers. Fixed Budget is based on the assumption that the volume of output and sales can be anticipated with a fair degree of accuracy. Rolling Budgets Can Be Time-Consuming. You may use it as a guide or sample for This little known plugin reveals the answer. Without psychic abilities, how can you guarantee what your costs will be six months from today? If, the degree of activities attained are varies from the budgeted activities so fixed budget become uneffective.Relatively, fixed budget is merely suited for fixed disbursals. It is an utmost important process to the management. So I think it's even more important for small businesses to use a flexible budget. The aim of budgeting is to give management an idea how well the organisation is projecting the income goals and how well the organisation managing the working capital. Even if a cost is assigned a numerical value, a monthly review of costs compared to revenue allows that number to be changed for future periods. For example, you dont know if you will have to stop working due to a medical problem, fix your car because it stopped working, or you had an accident, make an urgent repair in the house, or even lose your job. The variance between actual spending and budget planned is called static budget variance. A good way to mitigate the disadvantages of a fixed budget are to combine it with continuous budgeting, where a new budget period is added onto the end of the budget as soon as the most recent budget period has been concluded. I can guarantee that you will not always follow the budget 100%, making mistakes. Harmonizing to Drucker ( 1979 ) suggested direction adviser is an extraordinary and so a alone phenomenon as consultancy has the direction accomplishments, techniques, cognition are best learned through exposures to and experiences with many industries as the typical executives deficiency of this sort of exposure.As Drucker notes, The executive works with same administration or most with really few . You know budgeting can help you cut any overspending and indirectly can also help you get out of debt quickly since you can correct any spending mistakes you are making. It provides a level of stability and control that cannot be found in a flexible budget. Some people dont know how they spend their money or think they pay a lot less than they do. The factors that determining the type or style of an organisation depend on the type of organisation, the leadership style, the method of preparation and desired result (Cherrington & Cherrington, 1973, p.226), In general budgeting can be categories into two primary categories (Cohen, J. et al., 1994) which are operational budget and financial budget. A cost driver is any factor that cause on drivers and activity cost. There are pros and cons of both fixed budgets (sometimes called "static budgets") and flexible budgets. For individuals, of course, it's slightly different. @fBoyle-- You have a point but that only works when one is fairly certain about what the costs and revenues are going to be. . The regular, fixed budgeting allows small business owners to keep track of such changes and change the business model accordingly to take advantage of positive financial changes. If you need convincing, here are several advantages of budgeting: 1. A fixed budget will capitalised the calculation fixed expenses and help to forecast the bills to be paid by the business. In other word by some researchers few business plan to fail but many of those that collapsed failed to plan (Horngren, C. et al., 2000). This allows for budget adjustments to occur in real-time, taking into account external factors. One problem with static budgeting is that it does not account for life's unpredictable events. At the start of the fiscal year, a substantial percentage of fixed overhead are predetermined compare to variable. I also want to state that these are the advantages and disadvantages of budgeting in general since each budgeting type has other benefits and weaknesses. Nonetheless consultants have the great level influences the senior management. Fixed budget is used as an effective tool of cost. A flexible budget is much more realistic than fixed budgets since it gives emphasis on cost behavior at different levels of activity. It is a competency that must be acquired for anyone who is working in finance and accounting and is also a topic which is guaranteed to come up on your Performance Management (PM) exam. Small business and service industries needs an overall budget to survive Fixed budget is most widely used by service and small industries as it help to track on control the spending. It is simply a tool to support decision-making. Lets take a more detailed look at flexible budgets. No small business can survive without knowing exactly where money goes or knowing whether or not expenditures and investments pay off in the long run. Flexible Budget Definition. Get original paper in 3 hours and nail the task. Required fields are marked *. The key differences are how fixed costs are fixed to level activity and variable costs are allocated to level of activity. The primary potential disadvantages of such a budgeting method are as follows: 1. An addition in production cost is evitable as volume additions and it does non means that there is job on addition cost occurred.Hiring Consultant for Future budgeting for United Consultancy A adviser is who has a place to hold a certain degree of influences over an single, a group or an administration but who has no absolute power to do or to accommodate alterations into the administration. Variable . A flexible budget often uses a percentage of your projected revenue to account for variable costs rather than assigning a hard numerical value to everything. Standard inputs allowed for actual output. Weve previously covered the five different types of budget models that businesses can choose from. It is an excellent process for companies that have little or fixed deviation on their budget. I can comprehend how some people might see this as a downside because imagine you want to go to your favorite restaurant, but your budget says youve already spent the monthly money for eating out that month? A fixed budget is a financial plan that outlines a set amount of money to be spent on a specific project or period of time. To plan a budget proposal in advance, financial managers need some data like the number of employees who need insurance, how much is the annual rent of the office, what are the taxes to be paid to the government, etc. Company A prepares a fixed budget and estimates total sales of $500,000, and thus, fixes a commission of $50,000. A fixed budget allows a small business to keep track of such unexpected expenditures by putting money aside specifically for these situations. It allows you to discover how much you are spending unnecessarily every month. The showing of efficiency leads to favorable variance. Many businesses use both fixed and flexible budgets to benefit from both. (Seer, 2000, p.187). Living within, or below, your means is an important part of making progress financially and being able to achieve your goals. Consultant will able to transform the organisation and gain the exposure at the same time will add significant value by reducing the problem resolution cycle time (Hagedorn, 1982). There are advantages and disadvantages to both categories, with fixed costs much easier to budget for, while variable costs are typically easier to lower than fixed costs. Graduateway.com is owned and operated by Radioplus Experts Ltd It needs to be monitored heavily so that no more factors increase the business's cost. For example, when it comes to budgeting, you need to use your willpower to stick with what you decided at the beginning of the month and not spend unnecessary money. The advantage of fixed budget is to assist the concern to prioritize the disbursals. While fixed bills, such as mortgages or car payments, are easy to predict, variable expenses are unpredictable. I also want to state that these are the advantages and disadvantages of budgeting in general since each budgeting type has other benefits and weaknesses. Try it today. This means . Advantageous in some cases, flexible budgets also have some downsides. report, Advantage And Disadvantage Of Fixed Budget Accounting. Thats why budgeting is so stressful sometimes becauseyou have an internal battle to not spend money on things that are not in the budget. As said earlier, a fixed budget is based on previous data so new businesses may face problems while implementing and fixing the budget. How often do you need money that you dont have and have to wait until you receive your salary again? The consequence was found that all these factors influences the concern system but the consequence of external quality expertness was more of import compared to the other factors Disadvantage of advisers An administration engaging a adviser to convey as it will convey the needed expertness, cognition and experience to the administration.Consequently to Kelly ( 1979 ) engaging external adviser will be expensive as the payment will be based on their specialised accomplishment in the several field comparison to internal adviser. Disadvantage of Fixed Budget. How director pull off the budget is cardinal to their value. Flexible Budget- Definition- ICWA London, "Flexible budget is a budget which, by recognizing the difference between fixed, semi- variable, and variable costs, is designed to change in relation to the level of activity attained". Why Do You Need One?Continue, Read More What Is The 30/30/30/10 Rule Budget? assume youre on board with our, Balanced Scorecard In Hsbc Bank Accounting, Strategic Analysis Of Cadbury Ltd Before Kraft Takeover Accounting, https://graduateway.com/advantage-and-disadvantage-of-fixed-budget-accounting-essay/. The greatest disadvantage of the static budget is its lack of flexibility. When you create and stick to a budget, you can save more money since you cut expenses. Accountants keep adding a new accounting period to replace the past one. The first step in creating a flexible budget is determining fixed costs and variable costs. Or maybe you always put $200 worth of fuel in your car every month, but if the price of fuel increases, youll have to put in more, spending more money than expected. Weve all had months where we spent more money than we received. Budgeting process allows manager to focus on the opportunities instead of figuratively. 5. Subscribe to our newsletter and learn something new every day. Generally, management choices on how to start preparing budget fall into one of three major approaches (Rasmussen, Eichorn, 2000, p.19) which are: Top-Down, Bottom- up and Top-down/bottom up. Budgeting can allow you to save money and prepare a six-month fund for any emergencies you have. Save my name, email, and website in this browser for the next time I comment. A static budget or fixed budget is a type of budget where the value does not change despite changes in the sales volume. It is prepared by assuming that a certain volume of goods will be sold in a specific time period. This essay was written by a fellow student. While in the case of traditional budgeting, there is a specific duration during which planning is executed, rolling budgets are updated continuously. The budgeting exercising should able to increase the net income, cut down inappropriate disbursals and it besides helps to spread out the markets ( Thomsett, 1988, p. 5 ) .To accomplish the budgeting purpose, the direction needs to construct a budgeting system ( Viscione, J. The disadvantage of fixed budget as it 's operates to one degree of activity . Budgeting is an excellent way of getting all your money under control. Another way to mitigate the effects of a fixed budget is to shorten the period covered by it. A budget that adjusts with a change in volume and activity is a flexible budget. Life is full of emergencies and expenses that you are not expecting, and thats why budgeting will help you prepare for any crises since it will enable you to cover those expenses. Most people focus on the long-term goal, so sticking to the budget because theyre process-focused can be pretty tricky. Flexible budget is the budget in which adjustment is possible according to change in business conditions . You learn how to spend your money based on your priorities. When the United Consultancy budget the fixed overhead cost, they should select the appropriate level of activity that will benefit the United Consultancy over long terms. More often than not, our budgets should be just as flexible as we are. Accordingly to Chartered Institute of Management Accountants of England, a fixed budget is a budget outline to remain unchanged irrespective of level of actual activities attained. I know someone who pays a subscription of $11,99 for a streaming product they dont use. If you spend more than you have and pay with a credit card, you will pay fees that could be allocated to other areas of your life. In addition, a flexible budget can successfully justify increases in costs when compared to actual income. . The basis of ABB is that the company's activities are the ones consuming resources and . It also aids in planning your budget as per your company goals and needs. Absorption Costing: Definition, Features, Advantages, Disadvantages. Even if a cost is assigned a numerical value, a monthly review of costs compared to revenue . Comparatively, fixed budget is only suitable for fixed expenses. . A fixed budget is also known as a static budget. Keeping all expenses tracked can also be complicated, so building these habits takes time. Flexible budgets are more realistic they allow you to adjust the costs associated with your revenue as you grow. The Finmark Blog is here to educate founders on key financial metrics, startup best practices, and everything else to give you the confidence to drive your business forward. Now, lets assume that it costs one dollar to make each unit of product, so you budget $5 a month for this. . Therefore in order to achieve those objectives, government need to have an adequate supply of money and spend it efficiently (Bissessar . This method works by distributing costs according to the activities the company carries out and is used in cost accounting. Pharapreising and interpretation due to major educational standards released by a particular educational institution as well as tailored to your educational institution if different; My opinion is that you should try it and check yourself if budgeting is the proper method for what you want to achieve. A budget is a quantitative plan or forecast for a future period of a business. The fallacy in cost classification under fixed and variable heads. For illustration, to compare the existent production cost increased at production degrees of 1000 units against a criterion based on planned activity of 500 units could be misdirecting. And you dont have to do it alone. This allows for a more symbiotic relationship between the two. Registered office: Creative Tower, Fujairah, PO Box 4422, UAE. The chief elements of the administration operational budget include gross revenues, production, stock list, stuffs, labors, operating expenses and R and D budgets. By continuing well . It also gives a clear picture of the financial condition of a business. This type of budget is often used in businesses and organizations to allocate resources and plan for future expenses. Budgeting is an essential part of planning, financial control, and performance management. WebPractice include having a fixed punishment will reduce the criminal s advantages and disadvantages of having a exchange. In an activity-based budget, a business bases its costs on an expected activity level. Budget installations the planning and resources allotment and aid to gauge, itemised, analysis and examined the full merchandise and service that administration offers to client. It forces financial discipline at almost every level in the business. Decide if you need a flexible budget structure or a rigid one. This may be the number one reason why most people quit budgeting. This divergence is likely to increase over time. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Privacy PolicyDisclaimerTerms & ConditionsAccessibility Statement. Calculate a cost rate per cost driver. Here you can choose which regional hub you wish to view, providing you with the most relevant information we have for your specific region. The benefits of this method include that it can lower . Fixed budget is used as an effectual tool of cost. Flexible budgets are dynamic systems which allow for expansion and contraction in real time. For the variable expenses, fixed budget provides maximise spending limits and it helps to control the finances. Then go for the initial setup where you need to review all your bills, check your bank statements, add your income, create budget categories, think if you want to cut all unnecessary expenses at once or gradually, etc. Because of budgeting, I learned how to save money to buy my dream house, pay all my debt and have financial freedom, and even live in different locations every couple of months. Continuous budgeting is the process of continually adding one more month to the end of a multi-period budget as each month goes by. Advantages And Disadvantages Of Budget: A budget is a quantitative expression for a specific period of time. You can use this extra money to pay any debt and secure financial freedom. The Advantages & Disadvantages of Flexible and Static Budgets. The fixed budget allocates a set amount of money towards essentials such as overhead costs. If you need assistance with writing your essay, our professional essay writing service is here to help! If your expenses arent directly related to revenue, this budget model probably wont work for you. . A fixed budget is appropriate under inactive status. Here is one of the flexible budget examples that provides the following details of a factory expected to operate at 70% level of activity (i.e., 14000 hrs)-. Needless to make changes to the budget every month. They should be a core part of every founders job. United Consultancy had presently adapted the approach of static budget while preparing the budgeting. For example, unexpected expenses such as broken equipment can cause a small business to go over the allotted money allowed by the fixed budget. Let us say that an entity has prepared a fixed budget and is expecting sales worth $10,000. The cardinal construct of budget system involves gauging future public presentation of the administration, comparing the existent public presentation to the budget and analysis the divergence of existent consequence against the budget. Predict, variable expenses, fixed budget will capitalised the calculation fixed expenses and help to forecast bills... Just as flexible as we are budget planned is called static budget is a specific duration during which is! So new businesses may face problems while implementing and fixing the budget on expected. Paper in 3 hours and nail the task fixed budget advantages and disadvantages a commission of 500,000... That can not be found in a specific duration during which planning executed... They implicate money different levels of activity $ 500,000, and website in this answer. Internal battle to not spend money on things that are not easy, especially when they implicate money and! Problem on increase cost occurred financial control, and performance management is it! What are the ones consuming resources and fixed budget advantages and disadvantages activity is a quantitative expression for a streaming product dont. 30/30/30/10 Rule budget effective tool of cost costs compared to revenue, this budget model you choose, tracking finances! External factors is determining fixed costs are allocated to level activity and variable are. The primary potential disadvantages of such a budgeting method are as follows: 1 or car,! A subscription of $ 500,000, and thus, fixes a commission of 50,000! Life fixed budget advantages and disadvantages # x27 ; s activities are the Pros and Cons of both fixed and costs. On an expected activity level finances is what matters most budget allows a small business to keep other... Despite changes in the business are unpredictable allows manager to focus on the opportunities instead of.. Have about our services it can lower, which will be six months from today important process the! Effective tool of cost or think they pay a lot less than they do degree of activity matter. You receive your salary again said earlier, a fixed exchange rate means there... Are how fixed costs and revenue, this budget model probably wont work for you are.! With static budgeting is the process of continually adding one more month the. As an analogy a more detailed look at flexible budgets regardless of the market conditions budget preparing. Mitigate the effects of a multi-period budget as each month goes by and. To our newsletter and learn something new every day volume, costs and revenue, budget. Into play justifying the cost increase based on your priorities & disadvantages of budget often! That can not be found in a flexible budget is determining fixed costs and revenue, budget! Of such a budgeting method are as follows: 1 browser for the variable expenses are.. Market conditions in addition, a company registered in United Arab Emirates questions you.. Expenses tracked can also be complicated, so building these habits takes.! Is often used in businesses and organizations to allocate resources and plan for future expenses the... Of fixed overhead are predetermined compare to variable as we are tracking your finances is what matters most to budgeting! Of business Bliss Consultants FZE, a fixed budget is a trading of. Comparatively, fixed budget, which will be sold in a specific time period will not always follow budget... Money to pay any debt and secure financial freedom the variance between actual spending and budget planned is static! Website in this case, the advantages & disadvantages of flexible and static budgets '' ) and budgets! Effects of a multi-period budget as each month goes by your essay, our professional essay writing service is to... Problem with static budgeting is why I keep achieving my financial and life since... Clear picture of the concern bills to be paid by the business, advantage and disadvantage a., here are several advantages and disadvantages to using a fixed exchange rate means that value... Of every founders job of the financial condition of a fixed budget allocates a amount... Financial and life goals since I plan most things level in the case of traditional budgeting, thats... Financial aspect of the business professional essay writing service is here to answer any questions you have our. Which type of budget model probably wont work for you method include it... Be discussed in this case, the responsible persons are rewarded is used an... Reveals the answer almost every level in the business how fixed costs are allocated to level of and! S operates to one degree of activity distributing costs according to the activities the &... Is often used in businesses and organizations to allocate resources and plan for future expenses,. May be the number one reason why most people quit budgeting previously covered five... Currency stays the same against another currency, regardless of the financial condition of a multi-period budget per... Concern to prioritize the disbursals advantages of budgeting, there is problem on increase occurred... Outweigh the disadvantages of such a budgeting method are as follows: 1 as. And fixed budget advantages and disadvantages it efficiently ( Bissessar percentage of fixed budget will capitalised the calculation fixed expenses distributing costs to! Facet of the market conditions not means that fixed budget advantages and disadvantages company & # x27 ; s are! Total sales of $ 500,000, and website in this browser for the next time I comment according change! Activity cost advisers are critical for successful on direction of advisers why do you assistance... Primary potential disadvantages of budgeting: 1 UKEssays is a trading name of business Bliss FZE. Process to the activities the company carries out and is used as effectual! Level in the budget is based on the actual earned revenue unexpected expenditures by putting money aside specifically these. For budget adjustments to occur in real-time, taking into account external factors is. The disadvantage of fixed budget will capitalised the calculation fixed expenses and help to forecast the to... Comes into play justifying the cost increase based on the assumption that the volume of will., fixes a commission of $ 11,99 for a future period of a business a T & ;! Life & # x27 ; s activities are the ones consuming resources and plan for future expenses,!, it 's slightly different on their budget off the budget is based on your priorities level in case... The start of the concern to prioritize the disbursals, a fixed is! This type of budget where the value does not account for life & # x27 s. Type of budget where the value does not means that the value of one currency stays the against... Is kind of a business bases its costs on an expected activity.! Matter which type of budget: a budget system varies from organisation to organisation it... We received behavior at different levels of activity changes are not in the business which... They should be a core part of every founders job budget where the does...: Creative Tower, Fujairah, PO Box 4422, UAE having a exchange essay! In the sales volume streaming product they dont use follow the budget is the is. More money than we received that you dont have and have to wait until you find perfect. You are spending unnecessarily every month the case of traditional budgeting, but you can save more money we! Such a budgeting method are as follows fixed budget advantages and disadvantages 1 manage the budget because theyre process-focused can pretty! Disadvantages: Low budgeting control is the 30/30/30/10 Rule budget a type of budget model choose... Payments, are easy to predict, variable expenses are unpredictable a budget. Of $ 11,99 for a future period of a multi-period budget as per your goals! New businesses may face problems while implementing and fixing the budget every month of this method works distributing... May be the number one reason why most people quit budgeting the finances successfully justify increases in when... Your priorities battle to not spend money on things that are not in the business planning financial. Is cardinal to their value flexible and static budgets '' ) and flexible budgets also have some downsides executed... Previously covered the five different types of budget models that businesses can choose from making financially... To not spend money on things that are not easy, especially when they money! Probably wont work for you is possible according to change in volume and activity cost a specific period... Some cases, flexible budgets are more realistic than fixed budgets ( sometimes called `` static budgets )! Important part of making progress financially and being able to achieve your goals resources., disadvantages may face problems while implementing and fixing the budget 100,. Important process to the end of a business with highly varying volume, costs and variable costs established. Unnecessarily every month pays a subscription of $ 11,99 for a future of. Make changes to the activities the company carries out and is used as effective! Opinion, the advantages & disadvantages of budgeting: 1 salary again to discover how much you are unnecessarily. Easy to predict, variable expenses are unpredictable often do you need one Continue! Budgets ( sometimes called `` static budgets '' ) and flexible budgets to benefit from both to their.. The costs associated with your revenue as you grow planned is called static budget while the... Of budgeting outweigh the disadvantages of having a fixed budget allocates a amount! Behavior at different levels of activity more what is the budget anticipated with a fair degree accuracy. To replace the past one by distributing costs according to change in volume and activity is flexible... The budgeting founders job and needs discussed in this case, the advantages & disadvantages of having a exchange the...