2. Environmental Forces
• Business Environment
• Task Environment
• Competitive Forces in the Task
Environment
• Technological Forces
• Political and Legal Forces
3. The General Environment and Environmental
Forces Affecting Organizations
The General Environment
Cultural Forces
Political - Legal Forces
Technological Forces
Competitive Forces
Organization
Ecosystem
PoliticalSystem
Demographics Economic System
4. The General Environment
Sometimes called the macro-environment.
Are external factors, such as inflation and
demographics, that usually affect indirectly all or
most organizations.
5. Factors in the General
Environment
Type of economic system and economic
conditions
Type of political system
Condition of the ecosystem
Demographics
Cultural Background
6. Roles of Government in Business
The government acts as a watchdog over
business
Provides direction in areas such as:
Antitrust,
Monetary policy,
Defense,
Human rights
Environmental matters
7. The Economic System
Privately Controlled Markets
Based On Supply And Demand
Free Market Competition
Private Contracts
Profit Incentives
Technological Advancement
8. Competitive Forces in the Task Environment
Suppliers
bargaining
power
Threat
of new
competitors
Buyers
bargaining
power
Threat of
substitute
goods/services
Rivalry among
existing firms
in industry
9. New Entrants
Barriers to Entry:
Economies of scale
Decrease in per unit costs as volume of
goods/services produced increases
Product differentiation
uniqueness in quality, price, design, brand
image, or customer service that gives a product an
edge over the competition
10. New Entrants cont.
Capital requirements
Money needed to finance equipment
supplies, advertising, R&D, and the like
necessary to start
Government regulation
May bar or severely restrict potential
new entrants to an industry
14. Customers cont.
Exhibit Bargaining Power :
They purchase a large volume relative to the
supplier’s total sales
They have readily available alternatives for
the same services/products
15. Suppliers
Bargaining Power of Suppliers:
Often controls how much they can :
Raise prices above their costs
Reduce the quality of goods and services
Bargaining Power is increased by patents
and copyrights
16. Impact of Technology
Knowledge, tools, techniques, and actions
Used to transform material , information, and
other inputs into finished goods and services
Plays pivotal role in creating and changing
an organization’s task environment
18. Capitalistic Economy
Free Enterprise
Freedom to save and invest
Free and healthy competition
Run by price mechanism :
Goods are bought and sold in the market
at a price which is freely determined by
the market.
19. Distribution of goods is according to market
conditions prevalent in markets.
Entrepreneurs / Organizations have control
over production & distribution of goods by
mobilising the resources to maximise profits
Government has a role of regulator only.
20. Socialistic Economy
Private players do not contribute much.
Government takes the responsibility of the
economic development wholly to ..
Strategize the exploitation of resources
Equitable distribution of goods
Primary motive is social good.
21. Entrepreneurship exists in the form of ..
Representatives nominated by
government to plan and strategize.
Mobilise the resources
Allocating and re-allocating resources
Resources are channelized towards
industries of National importance.
22. Production and distribution of the goods
is according to the needs of the people.
Private entrepreneurs have a negligible
role
23. Mixed Economy
Government undertakes the production of
capital goods like – iron, steel, cement,
fertilizers etc.
Production of consumer goods is left to the
private enterprises.
Runs on both price mechanism as well as
equitable distribution.
24. Mixed economy tries to solve the problem of
distribution of goods and services in a better way
than capitalist economy.
Role of government is wider ..
Formulate different strategies to establish gvt.
owned enterprises.
Tries to increase production of essential goods
and encourages private entrepreneurship.
25. Deciding Whether to Go Global
Reasons to consider going global:
Foreign attacks on domestic markets
Foreign markets with higher profit opportunities
Stagnant or shrinking domestic markets
Need larger customer base to achieve economies of scale
Reduce dependency on single market
Follow customers who are expanding
26. Deciding Which Markets to Enter
Before going abroad, the company should try to define its
international marketing objectives and policies.
What Volume of Foreign Sales is Desired?
How Many Countries to Market In?
What Types of Countries to Enter?
Choose Possible Countries and Rank Based on Market
Size, Market Growth, Cost of Doing Business,
Competitive Advantage, and Risk Level
28. Strategic Orientations…
Domestic Market Extension Orientation
Extension of domestic products into foreign markets
International markets are secondary
Prime focus—market excess domestic products abroad
Firm’s orientation is domestic
Multi-Domestic Market Orientation
Realizes the difference b/w domestic & foreign markets
Different countries need different products
Separate marketing strategies for each country
Subsidiaries operate independent of one another
Products are adapted, advertising is localized
Might not standardize products
29. Strategic Orientations
Regional/Global Orientation
Truly global – single market
Emphasis on standardization—product/process
Strive for efficiencies of scale by standardizing market mix across
national borders, whenever it is cost or culture effective
Pursue a global strategy for major brands or multi-domestic strategy
for other brands
32. Market Entry Strategies
Joint Venturing:
Joining with foreign companies to produce or market products or
services.
Approaches:
Licensing
Contract manufacturing
Management contracting
Joint ownership
34. Market Entry Strategies
Direct Investment:
The development of foreign-based assembly or manufacturing
facilities.
This approach has both advantages and disadvantages.
35.
36. An Overview Of Liberalization,
Privatization
Indian economy had experienced major policy changes in early
1990s.
The new economic reform, popularly known as, Liberalization,
Privatization and Globalization (LPG model) aimed at making
the Indian economy as fastest growing economy and globally
competitive.
The series of reforms undertaken with respect to industrial
sector, trade as well as financial sector aimed at making the
economy more efficient.
It marks the advent of the real integration of the Indian
economy into the global economy.
37. The term “Liberalization” stands for “the act of making
less strict”.
Liberalization in Economy stands for “The process of
making policies less constraining of economic activity."
And also “Reduction of tariffs and/or removal of non-
tariff barriers.”
Economic liberalization is a very broad term that usually
refers to fewer government regulations and restrictions in
the economy in exchange for greater participation of
private entities.
38. In developing countries, economic liberalization refers more to
liberalization or further "opening up" of their respective
economies to foreign capital and investments.
Five of the fastest growing developing economies today; Brazil,
Russia, India, China and South Africa, have achieved rapid
economic growth in the past several years or decades after they
have "liberalized" their economies to foreign capital.
Most first world countries, in order to remain globally
competitive, have pursued the path of economic liberalization:
partial or full privatization of government institutions and assets,
greater labor-market flexibility, lower tax rates for businesses, less
restriction on both domestic and foreign capital, open markets, etc.
39. Backdrop of Indian Economy
The low annual growth rate of the economy of India before 1980,
which stagnated around 3.5% from 1950s to 1980s, while per
capital income averaged 1.3%.
Only four or five licenses would be given for steel, power and
communications. License owners built up huge powerful empires.
A huge public sector emerged. State-owned enterprises made
large losses.
Infrastructure investment was poor because of the public sector
monopoly.
License Raj established the "irresponsible, self-perpetuating
bureaucracy that still exists throughout much of the country" and
corruption flourished under this system.
40. Benefits of Liberalization
Increase in Foreign investment
Increase in Foreign Exchange Reserve
Increase in Consumption
Control over price
Reduction on External Commercial Borrowings
41. Definitions Of The Term “Privatization” and
“Economic Privatization”
The term “Privatization” refers to “The transfer of ownership of
property or businesses from a government to a privately owned
entity.”
The transition from a publicly traded and owned company to a
company which is privately owned and no longer trades publicly on
a stock exchange.
The process of converting or "selling off" government-owned assets,
properties, or production activities to private ownership.
After several decades of increasing government control over
productive activities, privatization came into vogue in the 1980s,
along with business deregulation and an overall movement toward
greater use of markets.”
42. Privatization is frequently associated with industrial or
service-oriented enterprises, such as mining,
manufacturing or power generation, but it can also apply
to any asset, such as land, roads, or even rights to water.
In recent years, government services such as health,
sanitation, and education have been particularly targeted
for privatization.
Privatization helps establish a "free market", as well as
fostering capitalist competition, which will give the
public greater choice at a competitive price.
43. Reason for Indian Privatization
1. Crippling Budget deficit
2. Spectacular growth by economies of Korea,
Taiwan, Malaysia in private sector
3. Changes in China
44. 4. Emergence of professional management
5. IMF & World Bank extended arm to capitalism
6.Gulf crisis
7.Lack of demand in economy
8.Integration of world trade
9. Developed local capital market and Financing
Institution
45. Recent Reasons
•To STENGTHEN Competition
•To improve public finance
•To fund Infrastructure Growth
•Accountability of share holders
•To reduce unnecessary interference
46. The main reason for increased efficiency gain as a result
of privatization can be attributed to
(i)Less political interference in decision making
(i)Staff remuneration is more closely linked to productivity
and profitability
(ii)Firm are exposed to open market discipline as opposed to
government support
(iii)Firm’s cost reducing effort are higher under competitive
private ownership
47. Key obstacle to privatization
(i)Lack of strong and high level political commitment to the
privatization program
(ii) Unclear and weak institutional frame work-
decentralized or centralized. (ministry and provincial
level)
iii) Lack of proper preparation of enterprise for
privatization or divestment eg. Accounting and auditing ,
treatment of losses, social and environmental safety net
48. (iv) Insufficient transparency and flexibility in
term of the method of privatization, balancing,
ownership, and control (corporate governance)
(v) Vested interest of manager, employees and
customer
(vi) Lack of appropriate legal frame work (eg.
Property right, foreign ownershipbankruptcy
law )
(vii) Underdeveloped capital markets
49. WAYS OF PRIVATIZATION
DISINVESTMENT (a process in which the public undertaking
reduces its portion in equity by disposing its shareholding)
CONTRACTING
FRANCHISING / LEASING
PREMITING PRIVATE SECTOR ENTER INTO PSU
RESERVED AREA
LIQUIDATION (Termination of a business operation by
using its assets to pay up its liabilities)
51. Methods of measuring economic activity :
Consumer spending: consumer demand or consumption is also
known as personal consumption expenditure
Exchange Rate: also known as the foreign-exchange rate,
forex rate or FX rate) between two currencies specifies how much
one currency is worth in terms of the other.
Gross domestic product: The gross domestic product
(GDP) or gross domestic income (GDI) is a measure of a country's
overall official economic output.
It is the market value of all final goods and services officially made
within the borders of a country in a year.
It is often positively correlated with the standard of living.
52. Stock Market:
Interest Rate: a fee paid on borrowed assets. or, money earned by
deposited funds. Paid on percentage of amount deposited or charged on
percentage of amount borrowed.
National Debt: A broader definition of government debt considers all
government liabilities, including future pension payments and payments for
goods and services the government has contracted but not yet paid.
can be categorized as internal debt, owed to lenders within the country,
and external debt, owed to foreign lenders.
53. Rate of Inflation: a rise in the general level of prices of goods and
services in an economy over a period of time.
When the price level rises, each unit of currency buys fewer goods and
services.
an erosion in the purchasing power of money.
uncertainty about future inflation may discourage investment and saving
may lead to reductions in investment of productive capital and increase
savings in non-producing assets. Selling Stocks and buying gold.
54. Unemployment:
Balance of Trade: difference between the monetary value of exports and
imports of output in an economy over a certain period.
trade surplus , trade deficit
56. Few More Terms
Money Supply – Total volume of money that is
circulated in the economy.
M 1 –
Currency in Circulation
Demand Deposits of public with banks
M 2 – Total of M 1 + Post Office savings + Time
Deposits of small denominations
(M1 & M2 = Narrow Money)
57. M 3 – Total of M 2 + Large time deposits +
Institutional funds.
M 4 - All deposits with post office saving(excluding
National Savings Certificates).
(M3 & M4 = Broad Money )
These gradations are in decreasing order of liquidity.
M1 is most liquid and easiest for transactions
M4 is least liquid of all. M3 is the most commonly used
measure of money supply
58.
59. More money = more liquidity = easy to get loans = inflation
central bank money (physical currency, government money)
commercial bank money (money created through loans) -
sometimes referred to as private money, or chequebook money.
Expansion of Money :
i. Money is pumped into market through issuing of Currency by
RBI.
ii. Borrowings of Government.
iii. Government meets its budgetary deficits by borrowing from
RBI
60. Contraction of Money :
Unlimited expansion of money and credit would lead to ?
INFLATION
Role of RBI
Monetary Policy: It is a statement stated bi-annually
through RBI.
Fixed by considering the prevailing prices and growth
patterns of economy and also rate of population growth
and employment.
61. The Reserve Bank estimates the demand for banknotes on the
basis of the growth rate of the economy, the replacement
demand, Inflation and public expenditure demand by using
statistical models/techniques.
All the currency issued is the monetary liability of RBI.
Backed by assets of equal value held.
Assets consist of gold, foreign securities, and the government’s
securities.
62. Devaluation of Rupee
There is a shortage of dollars.
Foreign Exchange reserves are almost static around $ 300
billion since last nearly 3 years . This means that we are not
able to increase the reserves and is a poor reflection on our
inability to increase our net earnings in dollar terms.
Our exports have gone up and in 2011-12 touched the highest
figure of $300 bn but so have the imports also risen to an ever
highest figure of nearly $450+ bn levels. Foreign Exchange
reserves are not going up.
63. High rate of inflation it erodes the value of rupee
High fiscal deficit in the central budget, presently around 5.9%
and expected to go up. requires to resort to increased
borrowings
Increasing burden of subsidies on account of fertilisers, cooking
gas, petrol and diesel prices, NAREGA etc it is a mammoth task
to reduce the overspending to reduce the fiscal deficit to
manageable levels.
The recent downgrading of India by Standard & Poor
international rating agency has resulted in flight of dollars by
FII's who quit from the share markets thus leading to a furthur
shortage of dollars.
64. Monitory Policy
Expansionary policy, increases the total supply
of money in the economy rapidly
OR
Contractionary policy, decreases the total
money supply or increases it only slowly.
65. It Regulates the supply of money and the cost of
availability of credit in the economy.
Aims at – maintaining price stability and Economic
growth through;
Changing money supply and interest rates.
Credit Control Measures :
Bank Rates: Rate at which the central bank provides
credit to commercial banks.
66. Increase in bank rates leads to ?
Increase in lending rate
Money supply could be checked.
Acts as a pace setter to all other rates of interests.
Increase in Bank rates could lead to reduction in
Borrowings
Level of inventory holding
Investment
Prices
67. CRR (Cash Reserve Ratio): Every Bank has to keep
certain amount of cash reserve with the RBI
SLR (Statutory Liquidity Ratio) : Every bank should
keep certain percentage of its total DEMAND and
TIME deposits with RBI in the form of Liquid assets.
Open Market Operations: buying or selling of
bonds by RBI in the open market.
68. • The assets purchased or sold are –
–Government Securities / Bonds
–Company Shares
–Foreign Exchange
–Repo rate: Interest rate at which the Reserve Bank of
India lends money to other banks.
–It is a repurchase agreement between RBI &
commercial bank. (Essentially short term securities).
–Purchased or sold at discounted rates.
69. When the repo rate increases borrowing
from RBI becomes more expensive.
If RBI wants to make it more expensive for
the banks to borrow money, it increases the
repo rate;
Similarly, if it wants to make it cheaper for
banks to borrow money, it reduces the repo
rate
70. Reverse Repo rate : rate at which banks
park their short-term excess liquidity with
the RBI.
The RBI uses this tool when it feels there is
too much money floating in the banking
system.
An increase in the reverse repo rate means
that the RBI will borrow money from the
banks at a higher rate of interest.
71. As a result, banks would prefer to keep
their money with the RBI.
Repo Rate signifies the rate at which
liquidity is injected in the banking system by
RBI.
Whereas Reverse repo rate signifies the rate
at which the central bank absorbs liquidity
from the banks.
72. Fiscal Policy
Is a deliberate attempt of the government
to influence the economy by changing levels
of government expenditure and / or
taxation.
Government must provide equitable
Division of revenue raised nationally
among :
Centre, state and local
73. • It should be of national interest.
• Consider economic disparity among the states.
• Budgets must contain:
–Estimates of revenue and expenditure;
differentiating between capital and current
expenditure.
–Proposal for financing and anticipated deficit
for the said period.
–Funding areas could be :
• Agriculture, Education, Health, Social Security,
Institutional,
74. Fiscal Factors Expenditure
Output and Employment
Deficit
Revenue
Fiscal deficit can be higher if …
… public investment is large.
75. Tools of Fiscal Policy
(1)Government Expenditure: Chosen area
(2)Taxes, both direct & indirect: Revenue generation
(3)Deficit financing: Government spends more money than it
receives as revenue, the difference being made up by
borrowing.
issue bonds or to print money
(4)Subsidies: they can alter relative prices and budget
constraints and thereby affect decisions concerning
production, consumption and allocation of resources.
76. Subsidies, lead to changes in demand/ supply decisions.
..
By means of creating a wedge between consumer
prices and producer costs,
Subsidies are often aimed at :
• inducing higher consumption/ production
• offsetting market imperfections
• achievement of social policy objectives including
redistribution of income, population control, etc
77. (5)Transfer payments: Transfer payments are
payments made by the government sector to the
household sector with no expectations of productive
activity in return.
The three common transfer payments are:
• Social Security benefits to the elderly and disable,
•unemployment compensation to the unemployed,
•welfare to the poor.
78. Money Market
Money Market is a wholesale market of short
term debt instrument and is synonym of liquidity..
Due to highly liquid nature of securities and their
short term maturities, money market is treated
as a safe place.
As per RBI definitions “ A market for short terms financial
assets that are close substitute for money, facilitates the
exchange of money in primary and secondary market”.
79. It doesn’t actually deal in cash or money but deals with
substitute of cash like trade bills, promissory notes &
government papers which can be converted into cash.
80. Features of Money Market?
It is a market purely for short-terms funds or
financial assets called near money.
It deals with financial assets having a maturity
period less than one year only.
In Money Market transaction take place
informally, only through oral communication,
relevant document and written communication
transaction can be done.
81. Transaction are conducted without the help of brokers.
It is not a single homogeneous market, it comprises of
several submarket like call money market & treasury bill
market.
82. Objective of Money Market?
To provide a parking place to employ short term
surplus funds.
To provide room for overcoming short term deficits.
To enable the central bank to influence and regulate
liquidity in the economy through its intervention in this
market.
To provide a reasonable access to users of short term
funds to meet their requirement quickly, adequately at
reasonable cost.
83. The Players
Reserve Bank of India
Acceptance Houses: guarantees the payment of bills used to
finance trade deals and goods in shipment. Its profit is the
difference between the discounted amount it guarantees to
pay and the full amount of the bill that it undertakes to
collect from the original creditor.
Commercial Banks, Co-operative Banks and Primary Dealers
are allowed to borrow and lend.
84. •Specified All-India Financial Institutions, Mutual Funds,
and certain specified entities are allowed to access to
Call/Notice money market only as lenders
• Companies, Corporate bodies, Trusts and institutions
can purchase the treasury bills, Commercial Papers and
Certificate of Deposits.
85. Composition of Money Market?
Money Market consists of a number of submarkets
which collectively constitute the money market. They
are ..
Call Money Market
Treasury bill market
86. Call Money Market
The day-to-day surplus funds (mostly of banks) are traded.
The loans are of short-term duration varying from 1 to 14
days.
The money that is lent for one day in this market is known as
"Call Money", and
If it exceeds one day (but less than 15 days) it is referred to as
"Notice Money".
87. Banks borrow in this market for the following purpose:
• To fill the gaps or temporary mismatches in funds
• To meet the CRR & SLR mandatory requirements as stipulated
by the Central bank
• To meet sudden demand for funds arising out of large
outflows.
88. Instrument of Money Market?
A variety of instrument are available in a developed
money market.
• Treasury bills
• Certificate of Deposits
• Commercial Papers, promissory notes in the bill
market.
• Repurchase agreement
• Money Market mutual fund
89. Treasury Bills
Treasury bills, commonly referred to as T-Bills are issued by Government
of India against their short term borrowing requirements with maturities
ranging between 14 to 364 days.
All these are issued at a discount-to-face value. For example a Treasury bill
of Rs. 100.00 face value issued for Rs. 91.50 gets redeemed at the end of
it's tenure at Rs. 100.00.
Who can invest in T-Bill
Banks, State Governments, Provident Funds, Financial Institutions,
Insurance Companies, NBFCs, FIIs (as per prescribed norms), NRIs invest
in T-Bills.
90. • At present, the Government of India issues three types of
treasury bills through auctions, namely, 91-day, 182-day
and 364-day. There are no treasury bills issued by State
Governments.
Amount
• Treasury bills are available for a minimum amount of
Rs.25,000 and in multiples of Rs. 25,000. Treasury bills
are issued at a discount and are redeemed at par.
91. Certificate of Deposit
A CD is a time deposit with a bank.
Like most time deposit, funds can not be withdrawn before
maturity without paying a penalty.
CD’s have specific maturity date, interest rate.
The main advantage of CD is their safety.
Anyone can earn more than a saving account interest.
92. CDs can be issued by all scheduled commercial banks
Minimum period 15 days ; Maximum period 1 year
Minimum Amount Rs 1 lac and in multiples of Rs. 1 lac
CDs are transferable by endorsement
CDs may be issued at discount on face value
93. Commercial Paper
Commercial Paper (CP) is issued in the form of a promissory
note.
Issued by a corporation typically financing day to day
operation.
Only company with high credit rating issues CP’s. (CRISIL, ICRA)
Denomination: min. of 5 lakhs and multiple thereof.
Maturity: min. of 7 days and a maximum of upto one year from
the date of issue
94. Eligibility for issue of CP
a) the tangible net worth of the company, as per the latest
audited balance sheet, is not less than Rs. 4 crore;
b) (b) the working capital (fund-based) limit of the
company from the banking system is not less than Rs.4
crore
c) and the borrowal account of the company is classified
as a Standard Asset by the financing bank/s.
95. All eligible participants should obtain the credit rating
for issuance of Commercial Paper
Credit Rating Information Services of India Ltd.
(CRISIL)
Investment Information and Credit Rating Agency of
India Ltd. (ICRA)
Credit Analysis and Research Ltd. (CARE)
Duff & Phelps Credit Rating India Pvt. Ltd. (DCR
India)
The minimum credit rating shall be P-2 of CRISIL or
such equivalent rating by other agencies
Rating Requirement
96. Repos
It is a transaction in which two parties agree to sell and
repurchase the same security.
Under such an agreement the seller sells specified securities with
an agreement to repurchase the same at a mutually decided
future date and a price
The Repo/Reverse Repo transaction can only be done at
Mumbai between parties approved by RBI and in securities as
approved by RBI (Treasury Bills, Central/State Govt securities).
97. Importance of Money Market
Development of trade and industry
Development of capital market
Smooth functioning of Commercial banks
Effective central bank control
Formulation of suitable monetary policy
Source of finance to government
98. Need for Development of Capital Market
Increase in Industrial Units due to ..
Technological Development
Increase in Demand
Competition
Situation ..
Capital at the disposal of one individual or a few individuals is not
sufficient.
Paucity of funds arises .
99. Industrial Securities Market
Refers to the market for shares and debentures of old and new
companies
New Issues Market- also known as the primary market- refers to
raising of new capital in the form of shares and debentures
Stock Market- also known as the secondary market. Deals with
securities already issued by companies
100. Types of Shares
• Equity shares: These shares are also known as ordinary
shares.
• They are the shares which do not enjoy any preference regarding
payment of dividend and repayment of capital.
• They are given dividend at a fluctuating rate.
• The dividend on equity shares depends on the profits made by a
company.
101. • Preference shares: These shares are those shares which are given
preference as regards to payment of dividend and repayment of capital.
• Preference shareholders have some preference over the equity
shareholders, as in the case of winding up of the company, they are paid
their capital first.
• Deferred shares: which are held by the founders or pioneer or
beginners of the company.
• They are also called as Founder shares or Management shares.
102. The right to share profits of the company is deferred, i.e.
postponed till all the other shareholders receive their normal
dividends.
IPOs : Initial Public offer , floated by new companies or for first
time to raise funds.
FPOs: Follow on Public Offer, already listed company issues
more equity shares.
103. Debentures
Is a document that either creates a debt or acknowledges it.
Used for a medium- to long-term debt instrument used by large
companies to borrow money.
Debenture holders have no voting rights.
104. Mutual Funds
• Promote savings and mobilise funds which are invested in the stock market
and bond market
• Pool funds of savers and invest in the stock market/bond market
• Their instruments at saver’s end are called units
• Offer many types of schemes: growth fund, income fund, balanced fund
• Regulated by SEBI
• Provide a service in terms of analytical knowledge of the investment
opportunities.
• Fund Management expertise
105. Stock Exchange
• Place where trading of shares is done in terms of sale and purchase.
• At present, there are twenty one recognized stock exchanges in India.
• Bombay Stock Exchange is the largest, with over 6,000 stocks listed.
• The BSE accounts for over two thirds of the total trading volume in
the country.
106. Working of Stock exchanges
• Placing an order with a broker –
– Only members are allowed to trade.
– Outsiders trade through members.
– Opening of an account with the broker
– Order placed with the broker
• Execution of the order-
– Broker or his clerk approaches the SE
– Quotations are asked or quoting his own price
– Negotiation on word of mouth and noted for, quantity, description, name of
party
– Transaction appears in SE’s daily official list – including no. of shares and price.
107. • Reporting the deal to the client –
– Contract note is prepared – security bought or sold, price, broker’s
commission, date of settlement.
• Settlement of transaction –
1. Ready delivery (Spot Delivery) – cash settlement made immediately
on transfer of securities or within 1-7 days through clearing houses.
2. Forward Delivery – settlement within a fixed duration, normally 15
days.
3. Carry forward transactions- postponing the transaction to next
settlement period by paying carry forward charge.
108. Clearing Houses: agencies given the responsibility of settling the
amounts payable between counter parties.
It is separate arm; for BSE – Bank of India
Clearing the transactions on commission.
109. Flaws in Stock Exchanges
Lack of integration – leading to variation in prices.
Settlement system varies.
No nation wide platform.
110. National Stock Exchange (NSE)
Established in 1994 in Mumbai.
There was a need for a nation wide trading
Equal access to investors across the country.
Meet international securities market standard.
111. Working of NSE
Fully automated screen based trading system.
Trader can put various conditions in terms of type, price and
quantity
Orders received are stacked in price and time priority.
Computer searches for compatibility
In case of no-match the order is kept pending
112. • When the deal is stuck a confirmation slip is printed to give details
of price and quantity.
• Identity of the trader is not revealed.
• Done through registered brokers.
• NSE to Start Mobile Trading from Early October (Read
the hand out distributed)
113. SPECULATION :
Definition : it involves the buying, holding, selling, short-term
selling of stocks, bonds, commodities, currencies, collectibles
or any valuable financial instrument to ..
Profit from fluctuations in its price as opposed to buying it for
use or for income via method like dividends or interest.
114. Kinds of speculation
• Bull Market (Tejiwala): purchasing the shares at current
prices to sell at a higher price in the near future and make a
profit.
Only if expectations come true. Also called a long buyer.
• Bear Market (Mandiwala) : Selling security in the hope that
he will be able to buy them back at lesser price. Also called
“short selling”.
115. Stag : Applying for a large number of a shares in a new issue
with the intention of selling them at a premium.
Insider trading
The trading of a corporation's stock or other securities (e.g.
bonds or stock options) by individuals with potential access to
non-public information about the company.
116. Why do we need a regulatory body ?
India is an ` informationally ' weak market.
Investors are less aware.
Boosting capital market demands; restoring the
confidence of investors who have been beaten down
by repeated scams.
117. FEW SCAMS, Which shook the
Investors’ confidence.
• During 1992 : ‘Big Bull’, Harshad Mehta’s Securities Scam. Many
Banks were involved.
• 1993 : Preferential Allotment Scam, issuing of equity allotments
to their respective controlling groups at steep discounts. To the
tune of Rs. 5000 crores lost.
• 1993 – 94 : Disappearance of companies; Stock market shot up
120%; 3,911 companies raised over Rs. 25,000 crores and
vanished / did not set up their projects.
118. 1995-97 : Plantation Companies’ Scam, NBFCs promised high
returns; collected Rs. 50,000 crores
1999 – 2000 UTI Scam Rs. 32 crores.
IT Scam; firms changed their names to include infotech; IT
sector was booming.
Satyam Fiasco : Inflated (non-existent) cash and bank balances.
Insider Trading; corporate-mis-governance.
119. Mission of SEBI
Securities & Exchange Board of India (SEBI) formed
under the SEBI Act, 1992 with the prime objective of
Protecting the interests of investors in securities,
Promoting the development of, and
Regulating, the securities market and for matters connected
therewith or incidental thereto.’
Focus being the greater investor protection, SEBI has
become a vigilant watchdog
120. FUNCTIONS OF SEBI
1. A review of the market operations, organizational structure and
administrative control of the exchange
2. Registration And Regulation Of The Working Of
Intermediaries
Portfolio ManagersPortfolio Managers
Sub- BrokersSub- BrokersUnderwritersUnderwriters
Stock brokersStock brokersMerchant BankersMerchant Bankers
Secondary MarketSecondary MarketPrimary MarketPrimary Market
121. 3. Registration And Regulation Of Mutual Funds, Venture
Capital Funds & Collective Investment Schemes
Promoting and protecting the interest of mutual funds and
their unit-holders, increasing public awareness of mutual
funds, and serving the investors' interest by defining and
maintaining high ethical and professional standards in the
mutual funds industry'.
Every mutual fund must be registered with SEBI and
registration is granted only where SEBI is satisfied with the
background of the fund.
SEBI has the authority to inspect the books of accounts,
records and documents of a mutual fund and its trustees.
122. SEBI (Mutual Funds) Regulations, 1996 lays down the provisions for the
appointment of the trustees and their obligations
Every new scheme launched by a mutual fund needs to be filed with SEBI and
SEBI reviews the document in regard to the disclosures contained in such
documents.
Regulations have been laid down regarding listing of funds, refund procedures,
transfer procedures, disclosures, guaranteeing returns etc
SEBI has also laid down advertisement code to be followed by a mutual fund in
making any publicity regarding a scheme and its performance
SEBI has prescribed norms / restrictions for investment management with a
view to minimize / reduce undue investment risks.
SEBI also has the authority to initiate penal actions against an erring MF.
In case of a change in the controlling interest of an asset management company,
investors should be given at least 30 days time to exercise their exit option.
123. 4. Prohibiting Fraudulent And Unfair Trade Practices In The
Securities Market
– SEBI is vested with powers to take action against these practices
relating to securities market manipulation and misleading statements
to induce sale/purchase of securities.
5. Prohibition Of Insider Trading
an investor who has in excess of 5 per cent of the stake in a company has to disclose any
transaction that has the effect of altering his ownership stake by more than 2 per cent.
It has to do so within four working days following the day when its trade resulted in
crossing the 2 per cent threshold.
124. 6. Investor Education And The Training Of Intermediaries
– SEBI distributed the booklet titled “A Quick Reference Guide for
Investors” to the investors
– SEBI also issues a series of advertisement /public notices in national as
well as regional newspapers to educate and caution the investors about
the risks associated with the investments in collective investment
schemes
– SEBI has also issues messages in the interest of investors on National
Channel and Regional Stations on Doordarshan.
7.Inspection And Inquiries
8.Regulating Substantial Acquisition Of Shares And Take-
overs
125. Gilt Edged
Securities of government and semi-government organisations are
marketed.
Securities are backed by RBI.
Investors are predominantly institutions, which are compelled by law
to invest a certain portion of their funds in Government securities.
Thus called a captive market for Government securities.
126. All Over Again
Capital MarketCapital Market -- The market for relatively long-term (greater than
one year original maturity) financial instruments.
Primary MarketPrimary Market -- A market where new securities are bought and
sold for the first time (a “new issues” market).
Secondary MarketSecondary Market -- A market for existing (used) securities rather
than new issues.
127. Market for long-term capital. Demand comes from the
industrial, service sector and government
Supply comes from individuals, corporates, banks, financial
institutions, etc.
Can be classified into:
Gilt-edged market
Industrial securities market (new issues and stock market)
128. Development Financial Institutions
After industrial revolution in India Existing Financial
Institutions were inadequate in number to provide funds to
large scale industries.
Government of India Established DFIs
These institutions subscribe to shares and debentures of new
and old companies and also give them loans.
129. Industrial Finance Corporation of India (IFCI)
State Finance Corporations (SFCs)
Industrial Development Finance Corporation (IDFC)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Development Bank of India (IDBI)
Small Industries Development Bank of India (SIDBI)
130. Non-Banking Finance Companies
Those who are not approaching DFIs due to not matching the
requirements.
NBFCs provide credit to them.
No minimum liquidity ratio is mandatory
Also give loans to self-employed individuals.
Subject to extreme insecurities;
Loans are not protected.
Higher rates of interest
131. Financial Intermediaries
Merchant Banks: are issue houses rendering various services to industrial
projects and new companies.
Reasons to establish :
To encourage small and medium industrialists who
require specialist services.
Complexity in rules and procedures of government
norms.
Merchant banking is brought under the regulatory framework of SEBI
132. Activities of Merchant Banker
Issue Management :
Structuring of instrument
Preparation of offer document- (prospectus, need for money,
expenditure, nature of instrument, information about management,
future plans etc. )
Obtaining statutory and other clearances
Assistance in selection of brokers, registrars, printers, ad agency and
other intermediaries.
Post Issue activities- Collecting application forms, money, dispatch of
share certificate.
133. • Corporate advisory services:
– Valuation
– Advise on mergers / Acquisitions
– Restructuring of business and finance
– Selling of assets
Underwriting: contractual obligation whereby the underwriter agrees
to subscribe to a certain number of shares if they are not subscribed by
the company.
DSP MeryLynch and J P Morgan Stanley
134. Venture Capital Financing
Development of any entrepreneurship would require combination of
three vital factors :
Innovative ideas
Competency in project preparation & implementation
Project financing
Many ideas are profitable but risky; solution ----
VENTURE CAPITALISTS
135. Venture Capital firms take up such risky projects.
ICICI, IDBI, IFCI have venture capital divisions.
Private banks too have such divisions.
137. Cultural Forces
Culture is the shared characteristics, values,
and beliefs of a group that distinguishes them
from another group
Such as religion, language, and heritage
138. Demographics
Characteristics of a population such as age, race, gender, ethnic
origin, and social class
determine the characteristics of work groups, organizations,
specific markets, or nations population.
Demographics influence marketing, advertising, and human
resources decisions.
Such as the number of individuals the ages of 18 to 25
They change all the time.
139. The social environment encompasses various
aspects like:
The religious aspects,
Language, Customs, Traditions and Beliefs;
Tastes and Preferences;
Social Satisfaction; Social Institutions;
Buying and Consumption Habits
All very important factors for business
140. Socio-cultural Factors
1. Population demographics
Ethnic composition
Aging of population (India is a young
country)
Regional changes in population growth
and decline
2. Social mobility
3. Lifestyle changes;
141. 4. Attitudes to work and leisure
5. Education – spread or erosion of educational
standards
6. Health and fitness awareness
7. Multiple income families
142. One of the important reasons for the failure of a
number of companies in foreign markets is
Their failure to understand the cultural
environment of these markets and to suitably
formulate their business.
Even when people of different cultures use the
same basic product,
The mode of consumption, conditions of use,
Purpose of use or the perceptions of the product
attributes may vary.
143. The product attributes, method of presentation,
positioning or method of promoting the product
may have to be varied to suit the characteristics
of different markets.
The differences in language sometimes pose a
serious problem, even necessitating a change in
the brand name.
The values and beliefs associated with colour
vary significantly between different cultures.
144. Social inertia (inactivity) and associated factors
come in the way of the promotion of certain
products, services or ideas.
We come across such social stigmas in the
marketing of family planning ideas, use of biogas
for cooking etc.
In such circumstances, the success of marketing
depends, to a very large extent, on the success in
changing social attitudes or value systems.
145. While dealing with the social environment, we
must also consider the social environment of the
business, which encompasses
Social responsibility and the alertness or
vigilance of the consumers and of society at
large.
146. The number and proportion of the women in the
work force have been rising in most of the
countries.
Birth control has been a contributory factor in
raising the proportion of women employees.
The rise in the number of double income
households increases the demand for a number
of products like household appliances,
electronic gadgets, packaged food products etc.
147. Demographic trends may confine to certain
countries only, the strength of other trends vary
greatly between nations.
There are a number of social behaviours that have
different meanings in other cultures.
Americans generally consider it impolite to
mound food on a plate, make noises when eating,
and belch, while….
Chinese feel it is polite to take a portion of every
food served and consider it evidence of
satisfaction to belch.
148. Saudi Arabia, it is an insult to:
question a host about the health of his spouse,
show the soles of one’s shoes,
or touch or deliver objects with the left hand.
In Korea, both hands should be used when
passing objects to another person,
It is considered impolite to discuss politics,
communism, or Japan.
149. In Indonesia, it is considered rude to point at
another person with a finger.
However, one may point with the thumb or
gesture with the chin.
In Venezuela,; close friends greet each other with
a full embrace and a hearty pat on the back;
In Indonesia, a social kiss is in vogue, and a
touching of first the right then the left cheek
as one shakes hands.
In Malaysia, close friends grasp with both
hands;
150. Although many of the social behaviors mentioned
vary from the home-country norm, negative
judgments should not be made about them.
151. In addition to knowing specific
Courtesies, Personal space, Language and
Communication, and Social Behavioral
differences,
There are numerous intercultural socialization
behaviors that an international business person
should be knowing.
152. It is not always necessary for an international
business traveler to understand the “whys” of a
culture, but it is
Important to accept them and to abide by them
while on foreign soil.
Becoming aware of the culture in which one is
visiting or working will pay dividends.
153. Impact of Social Environment in International
Marketing on Consumer Products
Consumer products are more sensitive to cultural differences
than the industrial products.
Hunger is a basic physiological need; everyone needs to eat,
but what we want to eat can be strongly influenced by
culture.
CPC International failed to win popularity for Knorr
dehydrated soups among Americans.
90 percent of the soup consumed by households was
canned.
155. Power distance: Less powerful members
accept that power is distributed unequally
High power distance countries: people
blindly obey superiors; centralized, tall
structures (e.g., Mexico, South Korea, India)
Low power distance countries: flatter,
decentralized structures, smaller ratio of
supervisor to employee (e.g., Austria,
Finland, Ireland)
156. Uncertainty avoidance: people feel threatened by
ambiguous situations; create beliefs/institutions to
avoid such situations
High uncertainty avoidance countries: high need for
security, strong belief in experts and their knowledge;
structure organizational activities, more written rules, less
managerial risk taking (e.g., Germany, Japan, Spain)
Low uncertainty avoidance countries: people more
willing to accept risks of the unknown, less structured
organizational activities, fewer written rules, more managerial
risk taking, higher employee turnover, more ambitious
employees (e.g., Denmark and Great Britain)
157. Individualism: People look after selves and
immediate family only
High individualism countries: High value on
autonomy; Individual achievement, Privacy
High collectivism countries: High value on group
(Family, clan, organization); Loyalty; Devotion;
Conformity
158. Masculinity: dominant social values are success,
money, and material
High masculine countries: stress on earnings,
recognition, advancement, challenge, wealth; (e.g.,
German countries)
High feminine countries: emphasize caring for
others and quality of life; cooperation, friendly
atmosphere., employment security, group decision
making; low job stress (e.g., Norway)
159. How Culture Affects Managerial
Approaches
Centralized vs. Decentralized Decision Making:
Safety vs. Risk:
Individual vs. Group Rewards:
Informal Procedures vs. Formal Procedures:
High Organizational Loyalty vs. Low Organizational
Loyalty:
Cooperation vs. Competition:
160. Ambiguity or unpredictability of certain factors
external to an organization
governmental regulations
competition
stability of inputs
demand characteristics
e.g. Customer bargaining power
Environmental Uncertainty
Editor's Notes
1. In marketing terms the demand for dollar is far exceeding its supply. When demand exceeds supply the price of that commodity goes up, till the supply demand position, is balanced once again.
