Ignou solved assignment eco 01 (2014 to 2015) demo

TUTOR MARKED ASSIGNMENT
Course Code : ECO - 01
Course Title : Business Organisation
Assignment Code : ECO – 01/TMA/2014-15
Coverage : All Blocks
Maximum Marks: 100
Attempt all the questions.
Answer of Q.N.1.
Long-term Capital and Its sources
Every company requires funds for investment in business. In a business, funds are required to purchase
variousfixedassetssuchaslandand buildings,machinery,furniture etcandformeetingthe daytoday requirements
of the business such as for purchasing raw-materials, paying salaries and wages and incurring expenses. While
estimating the needs for funds, the period for which they are required is also to be ascertained. Funds may be
required for long term, medium term and short term. It is the period of finance which determines the source of
finance i.e. agency from where the funds can be procured.
Long-termfinance is requiredforinvestmentinfixedassetsand for financing expansion programmes. Long-
term finances are raised for a period of 10 years or more. Main sources for raising long-term funds are shares,
debentures,retainedearningsandfinancial institutions providing long term funds. The amount of long term capital
depends upon the scale of business and nature of business. The main sources of long term finance are as follows:
1. Capital Market: Capital marketdenotesanarrangementwherebytransactionsinvolving the procurement
and supply of long-term funds take place among individuals and various organisations. In the capital market, the
companiesraise fundsbyissuingsharesanddebenturesof different types. When long-term capital is initially raised
by newcompaniesorbyexistingcompanies by issuing additional shares or debentures, the transactions are said to
take place in the market for new capital called, as 'New Issue Market'. But, buying and selling of shares and
debentures already issued by companies takes place in another type of market called as 'the Stock market'.
Individualsandinstitutionswhichcontributeto the share capital of the company become its shareholders. They are
also known as members of the company.
When a company decides to issue additional shares at any time after its formation or after one year of the
firstallotmentof shares,itisrequiredunderlaw thatsuchsharesmust be firstofferedtothe existingshareholdersof
the company.If the offerisdeclinedbythe existingshareholders, only then shares can be issued to the public. Such
an issue is called 'rights issue' and these shares are known as 'right shares'. The Government controls the issue of
shares and debentures under the Capital Issues (Control) Act, 1947.
2. Special Financial Institutions: A large number of financial institutions have been established in India for
providinglong-termfinancial assistance toindustrial enterprises.There are many all-India institutions like Industrial
Finance Corporation of India (IFCI); Industrial Credit and Investment Corporation of India (ICICI); Industrial
Development Bank of India(IDBI) , etc. At the State level, there are State Financial Corporation’s (SFCs) and State
Industrial DevelopmentCorporations(SIDCs).Thesenationalandstate level institutions are known as 'Development

Banks'. Besides the development banks, there are several other institutions called as 'Investment Companies' or
'InvestmentTrusts'whichsubscribe tothe sharesanddebenturesofferedtothe public by companies. These include
the Life Insurance Corporation of India (LIC); General Insurance Corporation of India (GIC); Unit Trust of India (UTI),
etc.
3. Leasing Companies: Manufacturing companies can secure long-term funds from leasing companies. For
thispurpose a lease agreementismade wherebyplant,machineryandfixedassets may be purchased by the leasing
company and allowed to be used by the manufacturing concern for a specified period on payment of an annual
rental. At the end of the period the manufacturing company may have the option of purchasing the asset at a
reducedprice.The lease rentincludesanelement of interest besides expenses and profits of the leasing company.
4. Foreign Sources: Funds can also be collected from foreign sources which usually consist of:
a) Foreign Collaborators:- If approvedbythe Governmentof India,the Indiancompanies may secure capital
from abroad through the subscription of foreign collaborator to their share capital or by way of supply of technical
knowledge, patents, drawings and designs of plants or supply of machinery.
b) International Financial Institutions:- like WorldBankandInternational Finance Corporation (IFC) provide
long-term funds for the industrial development all over the world. The World Bank grants loans only to the
Governmentsof membercountriesorprivate enterpriseswithguarantee of the concerned Government. IFC was set
up to assist the private undertakings without the guarantee of the member countries. It also provides them risk
capital.
c) Non-Resident Indians: - persons of Indian origin and nationality living abroad are also permitted to
subscribe to the shares and debentures issued by the companies in India.
5. Retained Profits or Reinvestment of Profits: An important source of long-term finance for ongoing
profitable companiesis the amountof profitwhichisaccumulatedasgeneral reservefromyeartoyear.To the extent
profitsare not distributedasdividendtothe shareholders, the retained amount can be reinvested for expansion or
diversification of business activities. Retained profit is an internal source of finance. Hence it does not involve any
cost of floatation which has to be incurred to raise finance from external sources.
Answer of Q.N.2.
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CONTACT NO. 9577097967
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Answerof Q.N.3.
(a) Difference betweenPrimaryand Secondary Market

Primary Market: Primary market is not organized stock exchanges like Wall Street or any other capital
market. A primarymarketreferstoany market where new shares of stock are sold. The primary market is the entry
marketfor companiesandinvestors,where acompanyorinstitutionthatrequiresinitial oradditional capital sells its
sharesor financial instrumenttothe investors.Forexample,Initial PublicOffering(IPO),publicoffer, rights issue and
bond issue are done on the primary market. The primary market is also unique that the initial buyer is the only
personwhocan exchange the securitiesforfunds.When companies are willing to go for publicly listed on the stock
exchange andwantsto collect funds from general investors, they first sell their financial instrument in the primary
market. Primary market is the first place for trading financial instruments including stocks and bonds.
Secondary Market: Secondarymarketplaysthe complementaryrole of openingawindow of opportunity for
investors in primary issues to trade on their primary investments while giving other investors opportunity to buy
sharesof that company.Secondarymarketsare usedfor tradingstocksbetweenpersonsand other entiti es that may
purchase them.Itis consideredasplace of liquidationof financial assets providing no transactions barriers of them.
Secondary market is also influenced by demand and supply theory and heavily affected by market forces. The
Securities and Exchange Commission (SEC) oversees primary market issues and monitors investors’ interest by
making investment friendly rules and regulations. Companies have to abide by regulatory frame work to
keepconsistentwiththe SecuritiesandExchange Commission’sregulatoryguidelines.Formthe above discussion, we
got the following differences between primary and secondary market:
Primary Market Secondary Market
It deals in new securities which are issue for the first
time.
It deals in already issued securities.
For Primary market, no organizational set up required. But for a secondary market, a proper organizational set
up is required.
Life of primary market is limited to point of issue of
securities.
But Secondary Market has perpetual life.
It provides funds to the issuers for a particular purpose. Funds from sell of shares can be utilised in any manner.
Individual issues are managed individually. Manage and controlled by a central authority.
No fixed place for market. Located at known fixed places.
(b) Difference between Wholesaler and Retailer
Answerof Q.N.4.
Meaning of Stock Exchange

Stock exchange is a specific place, where trading of the securities, is arranged in an organized method. In
simple words, it is a place where shares, debentures and bonds (securities) are purchased and sold. The term
securities include equity shares, preference shares, debentures, government bonds, etc. including mutual funds.
According to the Securities Contracts (Regulation) Act 1956, the term 'stock exchange' is defined as ''An
association,organizationorbodyof individuals, whetherincorporatedornot,establishedforthe purpose of assisting,
regulating and controlling of business in buying, selling and dealing in securities."
Husband and Dockerary have defined stock exchange as: "Stock exchanges are privately organized market
which are used to facilitate trading in securities."
In simple Words, a stock exchange provides a platform or mechanism to, the investors - individuals or
institutionstopurchase orsell the securitiesof the companies,Governmentorsemi Governmentinstitutions.Itislike
a commodity market where securities are bought and sold. It is an important constituent of capital market.
From the above discussion, we get the following important features of a stock exchange:
 Stock exchange is a place where buyers and sellers meet and decide on a price.
 Stock exchange is a place where stocks or all types of securities are traded.
 Stock exchange is at physical location, where transactions are carried out on a trading floor.
 The purpose of a stockexchange ormarketis to facilitate the exchangeof securitiesbetween buyers and
sellers, thus reducing the risk.
Functions of stock exchange:
Answerof Q.N.5.
(a) Warehousing
A warehouse may be defined as a place used for the storage or accumulation of goods. The function of
storage can be carriedoutsuccessful withthe helpof warehouses used for storing the goods. Warehousing can also
be defined as assumption of responsibility for the storage of goods. By storing the goods throughout the year and
releasing them as and when they are needed, warehousing creates time utility.
Importance of Warehousing:
Warehousing or storage refers to the holding and preservation of goods until they are dispatched to the
consumers.Generally,there isatime gapbetweenthe productionandconsumptionof products.Bybridgingthisgap,
storage creates time utility.

There is need for storing the goods so as to make them available to buyers as and when required. Some
amountof goodsisstoredat every stage in the marketing process. Proper and adequate arrangements to retail the
goods in perfect condition are essential for success in marketing. Storage enables a firm to carry on production in
anticipationof demandinfuture. A warehouse is a place used for the storage or accumulation of goods. It may also
be defined as an establishment that assumes responsibility for the safe custody of goods. Warehouses enable the
businessmen to carry on production throughout the year and to sell their products, whenever there is adequate
demand.
Need for warehouse arises also because some goods are produced only in a particular season but are
demanded throughout the year. Similarly certain products are produced throughout the year but demanded only
during a particular season. Warehousing facilitates production and distribution on a large scale.
(b) Departmental Organization
(c) Factors Affectingthe Selectionofthe Channel of Distribution
Every producer, in order to pass on the product to the consumer, is required to select a channel for
distribution.The selection of the suitable channel of distribution is one of the important factors of the distribution
decisions. The following factors affect the selection of the channel of distribution:
(a) Factors Pertainingtothe Product:Keepinginview the nature, qualities and peculiarities of the product,
could only the channel for distribution be properly made. The following factors concerning the product, affect the
selection of the channel of distributionsuchas Price of the Product,Perishability, Size and Weight, Technical Nature,
Goods Made to Order, After-Sales Service.
(b) Factors Pertainingtothe ConsumerorMarket: The followingare the main elements concerned with the
consumeror the market such as Numberof Customers,Expansionof the Consumers, Size of the Order, Objective of
Purchase, Need of the Credit Facilities.
(c) Factors Pertainingtothe Middlemen:The followingare the mainfactors concerned with the middlemen
such as ServicesProvidedbyMiddlemen, Scope or Possibilities of Quantity of Sales, Attitude of Agents towards the
Producers' Policies, Cost of Channel of Distribution.
(d) Factors pertaining to the Producer or Company: The following factors, concerning the producer, affect
the selection of the channel of distribution such as Level of Production, Financial Resources of the Company,
Managerial Competence and Experience.
(e) OtherFactors such as DistributionChannel of Competitors, Social Viewpoint, and Freedom of Altering.

(d) Advertising

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