eco-01 solved assignment 2016

8/18/2019 ECO-01 solved assignment 2016

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PIXELES CLASSES BCA &MCA (IGNOU)

ECO-01: Business Organisation

Q:-1 what are the essential requisites of an ideal form of business organization? Exlain the

!riteria for the sele!tion of the form of organisation"

#ns:

1. Eas$ formation: An important factor for preferring a particular form of organisation to another is

the ease with which a business can be brought into existence. The comparative ease of difficulty in

forming a particular form of organisation mainly depends on three factors:

• formation expenses by way of registration fee, stamp duty, fees of legal experts, charges

involved in the drafting of documents, obtaining licence, etc.,

• legal formalities, and

• Procedural delays, etc. Unless it is very essential, it is better to go for an organisation which is

easy to form.

2. cope of raising capital: The choice of organisation mainly depends on the amount of capital

re!uired which is determined by the nature of business and the scale of operations. "or example,

if you want to open a retail shop in groceries, the amount of capital needed will not be much. #ut

if you want to set up a sugar factory, you may re!uire a large amount of capital. $deal form of

organisation is one which provides scope for raising the amount of capital as and when re!uired.

3. Extent of liabilit$: %ou &now that the element of ris& and uncertainty is prevalent in each

business. $n view of this, normally, the businessmen prefer limited liability. 'bviously, limited

liability is considered as an important feature of a good form of organisation. however, a certain

amount of ris& is also found to be important to provide the needed spur for initiative, drive, and

involvement in business. (any times, the absence of such spur leads to wea&ness, inefficiency

and even dishonesty on the part of management personnel.

4. %lexibilit$ of oerations: The form of organisation should be very flexible and adaptable to

changing business conditions without much difficulty or complication. "or example, if you want

to expand your business, diversify or modernise the plant and e!uipment, the organisation should

be able to meet all re!uirements.

5. &tabilit$ and !ontinuit$: tability and long life of business is desirable from the point of view of

owners, employees, and customers. )mployees always prefer a stable and continuous

employment. $f the business is stable, the owner should be able to formulate plans for the future

and to ma&e investments paying for a considerable length of time. "rom the customers* point of

view also, regular supply of goods and services is expected to meet their needs. An ideal form of

organisation is one which provides reasonable amount of stability to the business.

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PIXELES CLASSES BCA &MCA (IGNOU)6. Effe!ti'eness of management: As you &now that the success of any business enterprise depends

on the efficiency of management. (anagerial efficiency depends on s&ills, motivation, flexibility,

adaptability, etc. $t is difficult for an individual to possess all these !ualities.

7. Extent of go'ernment !ontrol and regulations: $f the governmental control and regulations are

too many, the enterprise may have to divert a lot of time, money and energy for complying with

legal formalities and instructions. $n some cases there may be too much interference by the

government officials in the day+to+day business of the firm. o doubt, the investors, creditors, and

customers trust the business enterprises whose Activities are properly regulated by the

government. #ut too much governmental $nterference is not favoured by the entrepreneurs

because it mars their initiative and disrupts the wor&ing of their business.

8. Business se!re!$: (n business, it is important to maintain business secrets without lea&ing them

out to competitors. Therefore, a form of organisation which enables , retention of business secretsis preferred to the one wherein business secrets are difficult to preserve.

9. )ax:- #usiness taxes li&e sales tax, excise duty, and customs duty are charged products and

services. -ence, such taxes affect all forms ali&e and they will not affect the choice. #ut the

income tax liability is different from one form of organisation $ to the other. aturally, the form of

organisation which attract the minimum amount of $ this tax liability is considered as an ideal

form.

10. Ownershi rerogati'es: ome persons have a very strong desire to control the entire business

activities themselves and place a great value upon their right of personal leadership. ome persons

are desirous of sharing the responsibilities and ris&s of a business. ome people may want to own

a part of the capital without a strong desire to control the affairs of the business. %ou can also find

some persons who are not ready to bear the business ris&. An ideal form of organisation ta&es care

of such prerogatives of the owners.

*" +ifferentiate between the following:

,a Commer!e and (ndustr$

,b .holesalers and /etailers

.holesalers /etailers

They are connecting lin&s between the

manufacturers and the retailers.

They are connecting lin&s between the

wholesalers and the customers.

They purchase goods in large !uantities from the

manufacturers.

They purchase goods in small !uantities from the

wholesalers.

They deal in limited number of products. They deal in variety of products for meeting the

varied needs of consumers.

They need more capital to start their business. They can start business with limited capital.

The display of goods and decoration of premises

is not necessary for them.

They lay more emphasis on window display and

proper decoration of business premises in order

to attract the customers.Their business operations extend to different They usually localise at a particular place, area or

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PIXELES CLASSES BCA &MCA (IGNOU)cities and places. city.

They do not directly deal with the customers. They have a direct lin& with the customers.

They do not extend free home delivery and after

sales services

They provide free home delivery and after sales

services to the consumers.

c/ Public limited 0ompany and 0o+operative 'rganisation

Public imited 0ompany 0o+operative 'rganisation

"ormation 2uite difficult due to

many legal formalities

"ew legal formalities

are $nvolved

pecific

3egulation

0ompanies act 1456 0ooperative society act 1417

(embership. (inimum 8 and

no maximum no limit

(aximum and no

maximum limit

0apital Any amount

capital can be

raised

o subse!antial

3esources

(anagement

and ownership

0omplete separation

of management

from ownership

ot managed by

all members

(anagerial

expertise

9ery wide scope .

for expertise

cope for

)xpertise

#asic profit of sharing hared by owners

in the proportion of

shares held

9olume of business

by each member

'wnership transfer At will and

very easy

3estricted

#usiness

stability

Perpetual existence

eath, insolvency of

the members docs not

effect the life

eath. $nsolvency

of its members

does not effect

the life

#usinesssecrets

)xposed to public )xposed to members

,d rimar$ ar2et and &e!ondar$ ar2et

Primary (ar&et econdary (ar&et

As the name suggests, public

issue means selling securities to

public at large, such as $P'. $t

is the most vital method to sell

financial securities.

The auction mar&et is a place

where buyers and sellers

convene at a place and

announce the rate at which they

are willing to sell or buy

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securities. They offer either the

;bid< or ;as&< prices, publicly.

ince all buyers and sellers are

convening at the same place,

there is no need for investors to

see& out profitable options.

=henever a company needs to

raise supplementary e!uity

capital, the shares have to be

offered to present shareholders

on a pro+rata basis, which is

&nown as the 3ights $ssue.

$n a dealer mar&et, none of the

parties convene at a common

location. $nstead, buying and

selling of securities happen

through electronic networ&s

which are usually fax machines,

telephones or custom order+

matching machines.

This is about selling securities

to restricted number of classy

investors li&e fre!uent

investors, venture capital funds,

mutual funds and ban&s comes

under Private Placement.

$nterested sellers deliver their

offer through these mediums,

which are then relayed over to

the buyers through the medium

of dealers. The dealers possess

an inventory of securities and

earn their profit through the

selling.

=hen a listed company issues

e!uity shares to a selected

number of investors at a price

that may or may not be

pertaining to the mar&et price is

&nown as PreferentialAllotment.

The secondary mar&ets are

important for price discovery.

The mar&et operations are

carried out on stoc& exchanges.

Q:-3,1" 4isting of a se!urit$ on a sto!2 ex!hange

all securities issued by companies and other bodies are not traded in stoc& exchanges but only the

listed securities are traded. isting means addition of new securities to the existing list of securities

being traded on a stoc& exchange. $f a >oint stoc& company or any other body who has issued new

securities want them to be traded on the floor of stoc& exchange and their prices duly published, it has

to get the securities included in the list of the stoc& exchange. "or listing, the company has to ma&e an

application and furnish the prescribed information to the stoc& exchange. ection 14 of the

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PIXELES CLASSES BCA &MCA (IGNOU)ecurities 0ontracts 3egulation/ 3ules 1458 lays down the minimum re!uirements with respect to

the listing of securities on a stoc& exchange. 4isting imlies that the se!urities ha'e met the

satisfa!tion of sto!2 ex!hange authorities5 in rese!t of !ertain res!ribed standards of legalit$5

se!urit$" =hen a security is admitted to dealings on a stoc& exchange, it does not guarantee the

soundness or profitability of the company, in any manner. $t is also not a certificate of the stoc&

exchange for consideration by the investors.

*" $nsurable business ris&

$nsurance is not effective for ris&s that are not insurable ris&s. "or example, ris&s that are too large

cannot be insured, or the premiums would be so high as to ma&e purchasing the insurance infeasible.

Also, ris&s that are not measurable, if insured, will be difficult if not impossible for the insurer to

!uantify, and thus they cannot charge the correct premium. They will need to charge a conservatively

high premium in order to mitigate the ris& of paying too large a claim. The premium will thus be

higher than ideal, and inefficient. Passing of ris& involves both party to the contract. The general rule

is that unless otherwise agreed, ris& passes with title. An agreement to the contrary may be either

expressed or implied. An insurable ris& is a ris& that meets the ideal criteria for efficient insurance.

The concept of insurable ris& underlies nearly all insurance decisions

3" .arehousing+

=arehouse is a storage structure constructed for the protection of the !uality and !uantity of the

stored produce. The need for a warehouse arises due to the time gap between production and

consumption of products. =arehousing or storage refers to the holding and preservation of goods until

they are despatched to the consumers. #y bridging this gap, storage creates time utility. There is a

need for storing the goods so as to ma&e them available to buyers as and when re!uired. torage

enables a firm to carry on production in anticipation of demand in future. =arehouses enables the

businessmen to carry on production throughout the year and sell their products, whenever there is

ade!uate demand. eed for warehouses arise also because some goods are produced only in a

particular season but are demanded throughout the year. imilarly, certain products are producedthroughout the year but demanded only during a particular season.

6" +e'eloment Ban2

evelopment ban&s are speciali?es financial institutions. They provide medium and long+term finance

to the industrial and agricultural sector. They provide finance to both private and public sector.

evelopment ban&s are multipurpose financial institutions. They do term lending, investment in

securities and other activities. They even promote saving and investment habit in public. evelopment

ban&s are those financial institutions whose prime goal is finance the primary needs of society.

Q:-6 what is !hannel of distribution? +is!uss 'arious fa!tors whi!h influen!e the !hoi!e of

!hannel of distribution"

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PIXELES CLASSES BCA &MCA (IGNOU)Ans:

The path through which goods and services travel from the vendor to the consumer or payments for

those products travel from the consumer to the vendor. A distribution channel can be as short as a

direct transaction from the vendor to the consumer, or may include several interconnected

intermediaries along the way such as wholesalers, distributors, agents and retailers. )ach intermediary

receives the item at one pricing point and movies it to the next higher pricing point until it reaches the

final buyer .

,1 )he 7ature of the rodu!t:

These factors include physical characteristics of a product and their impact on the selection of a

particular channel of distribution.

8arious fa!tors under this !ategor$ are:

,a erishabilit$:

Products which are perishable in nature are distributed by employing a shorter channel of distribution

so that goods could be delivered to the consumers without delay. elay in distribution of these

products will deteriorate their !uality.

,b &ize and weight of rodu!t:

#ul&y and heavy products li&e coal and food grains etc. are directly distributed to the users involve

heavy transportation costs. $n order to minimise these costs a short and direct distribution channel is

suitable.

,! 9nit 'alue of a rodu!t:

Products with lesser unit value and high turnover are distributed by employing longer channels of

distribution. -ousehold products li&e utensils, cloth, cosmetics etc. ta&e longer time in reaching the

consumers.. 'n the other hand, products li&e >ewellery having high product value are directly sold to

the consumers by the >ewellers.

,! &tandardization:

Products of standard si?e and !uality usually ta&e longer time by adopting longer channel of

distribution. "or example, machine tools and automobile products which are of standard si?e reach theconsumer through the wholesalers and retailers. Un+standardised articles ta&e lesser time and pass

through shorter channels of distribution.

,e )e!hni!al 7ature of rodu!ts:

$ndustrial products which are highly technical in nature are usually distributed directly to the

industrial users and ta&e lesser time and adopt shorter channel of distribution. $n this case after sales

service and technical advice is provided by the manufacturer to the consumers.

'n the other hand, consumer products of technical nature are usually sold through wholesalers and

retailers. $n this manner longer channel of distribution is employed for their sales. After sales services

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PIXELES CLASSES BCA &MCA (IGNOU)are provided by the wholesalers and retailers. )xamples of such products are televisions, scooters,

refrigerators, etc.

,f rodu!t 4ines:

A manufacturer producing different products in the same lines sells directly or through retailers and

lesser time is consumed in their distribution. "or example, in case automobile rubber products this

practice is followed. 'n the other hand, a manufacturer dealing only in one item appoints sole selling

agents, wholesalers and retailers for selling the product. "or example, in case of ;9anaspati @hee<

longer distribution channel in underta&en.

,* )he 7ature of the mar2et:

This is another factor influencing the choice of a proper channel of distribution. The number of buyers

of the product affects the choice of a f channel of distribution.

%ollowing fa!tors are !onsidered in this regard:

,aConsumer of industrial mar2et:

$n case of industrial mar&ets, number of buyers is less a shorter channel of distribution can be

adopted. These buyers usually directly purchase from the manufacturers. (ar&eting intermediaries are

not needed in this case.

#ut in case of consumer mar&ets, where there are a large number of buyers, a longer channel of

distribution is employed. istribution process cannot be effectively carried out without the services of

wholesalers and retailers.

,b 7umber of rose!ti'e bu$ers:

$f the number of buyers is li&ely to be more, the distribution channel will be long. 'n the other hand,

if the number of consumers is expected to be less, the manufacturer can effectively sell directly to the

consumers by appointing salesmen.

,!&ize of the order:

$f the si?e of the order placed by the customers is big, direct selling can be underta&en by the

manufacturer as in case of industrial goods. #ut where the si?e of the order is small, middlemen are

appointed to distribute the products.,d eograhi! !on!entration of mar2et:

=here the customers are concentrated at one particular place or mar&et, distribution channel will be

short and the manufacturer can directly supply the goods in that area by opening his own shops or

sales depot. $n case where buyers are widely scattered, it is very difficult for the manufacturer to

establish a direct lin& with the consumers, services of wholesalers and retailers will be used.

,e Bu$ing habits of !ustomers:

This includes tastes, preferences, li&es and disli&es of customers. 0ustomers also expect certain

services li&e credit and personal attention and after sales services etc. All these factors greatly

influence the choice of distribution channel.

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,3 )he 7ature of iddlemen:

(ar&eting intermediaries are vital components in the distribution of goods. They greatly influence the

mar&eting of goods.

(mortant fa!tors relating to the sele!tion of a arti!ular middleman are exlained as under:

,a Cost of distribution of goods:

0ost of distribution through middlemen is one of the main considerations to be ta&en into account by

the manufacturer. -igher cost of distribution will result in the increased cost of product. The

manufacturer should select the most economical distribution channel.

$n finali?ing the channel of distribution, services provided by the intermediaries must be &ept in mind.

$t may be pointed out that the manufacturer can select an expensive mar&eting intermediary because

that may ensure various mar&eting services which cannot be offered by others.

,b #'ailabilit$ of desired middlemen:

ometimes desired middlemen may not be available for the distribution of goods. They may be busy

in dealing with the competitive products. Under such circumstances the manufacturer has to ma&e his

own arrangements by opening his branches or sales depots to distribute the goods to the consumers.

,! 9nsuitable mar2eting oli!ies for middlemen:

The mar&eting policies of the manufacturer may not be welcomed by the middlemen the terms and

conditions may not favours the middlemen. "or example, some wholesalers or retailers would li&e to

act as sole selling agents for the product in a particular area or region.

,d &er'i!es ro'ided b$ middlemen:

The manufacturer should select those middlemen who provide various mar&eting services vi?,

storage, credit and pac&ing etc. At the same time the middlemen should ensure various services to

customers.

,e Ensuring greater 'olume of sales:

A manufacturer would li&e to appoint that middlemen who assure greater sales volume over the long

run.,f /eutation and finan!ial soundness:

$n appointing middleman, the manufacturer must ta&e into consideration the financial stability and

reputation of the middleman. A financially sound middleman can provide credit facilities to customers

and ma&e prompt payment to the manufacturer.

,6 )he nature and size of the manufa!turing unit:

The nature and si?e of manufacturing unit has a great impact on the selection of a distribution

channel.

)he 'arious !onsiderations in this regard are as follows:

,# anufa!turer /eutation and %inan!ial &tabilit$:

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PIXELES CLASSES BCA &MCA (IGNOU)3eputed and financially sound manufacturing concerns can easily engage middlemen as compared to

lesser reputed and newly established units. Usually a manufacturing unit having a sound financial

base can easily distribute the goods without appointing middlemen by opening their own sales depots

and branches. A financially wea&er unit cannot operate without the help of middlemen.

,B #bilit$ and Exerien!e of the 9nderta2ing:

$ndustrial underta&ings having ample mar&eting ability and experience can effectively manage their

distribution activities themselves. They have lesser dependence on underta&ing intermediaries. 'n the

other hand, mar&eting units possessing lesser mar&eting ability and experience depend more on

middlemen for the distribution of goods.

,C +esire for Control of Channel:

A manufacturer may resort to a shorter distribution channel in order to exercise effective control over

distribution. This is suitable in case of perishable goods and is helpful in establishing direct lin&

between the manufacturer and the consumer. The cost of distribution may be more by adopting such a

channel of distribution.

,+ (ndustrial Con'entions:

$ndustrial conventions followed influence the selection of distribution channel. $f a particular mode of

distribution is adopted in an industry, the same will be followed by every manufacturing unit in that

industry in distribution their products.

,E &er'i!es ro'ided B$ the anufa!turers:

The selection of mar&eting intermediaries is also influenced by various services provided by the

manufacturer. These services include extensive advertisement for the product, after sales services and

facilities of credit. The manufacturers providing these services can easily avail the services of reputed

retailers and wholesalers.

,; o'ernment /egulations and oli!ies:

@overnment policies and regulations also influence the choice of distribution channels. The

@overnment may impose certain restrictions on the wholesale trade of a particular product arid

ta&eover the distribution of certain products. All these restrictions have a direct impact in selecting thechannel of distribution.

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,a rimar$ fun!tions5 and ,b se!ondar$ fun!tions5

rimar$ fun!tions:

1 ar2etabilit$ and ri!e !ontinuit$: The stoc& exchange provides for easy mar&etability of

securities as securities can be bought and sold conveniently on the floor of the stoc& exchange. ince

transactions ta&e place regularly, there is continuity in the dealings. Prices !uoted are duly recorded

and reported in the

ewspapers for the benefit of investing public

.

* obilising surlus sa'ings: toc& exchange is an integral part of the capital mar&et of a country. $t

is because through stoc& exchanges the savings from all parts of the country are made available to the

industrial and commercial underta&ings for meeting their financial re!uirements.

3 Barometer of e!onomi! and business !onditions: The intensity of buying and selling of securities

and the corresponding rise or fall in the prices of securities reflect the investors* assessment of the

economic. Thus, during periods of economic and business prosperity prices of securities tend to rise.

6 obilit$ of !aital: toc& exchanges furnish an open and continuous mar&et for securities. avings

invested in securities are converted into cash for reinvestment in other securities. Thus, stoc&

exchanges provide mobility to capital and facilitate sound investment.

; Contribution to !aital formation: avings are encouraged when people come to &now about the

avenues of investment. toc& mar&ets educate investors as regards where and how to invest their

savings for a fair return.

6 &ho!2 absorbers: toc& exchanges bring about e!uilibrium in the prices of securities which are

bought and sold by speculators. peculators generally buy securities in anticipation of rise in the

prices econdary "unctions

• &afet$ of in'estment and equit$ in dealings: The stoc& exchanges do not allow trading in

each and every company*s securities. 0ompanies which want their securities to be traded on

the floor of a stoc& exchange have to fulfil certain conditions. The stoc& exchange satisfies

itself about the genuineness and soundness of the company to protect the investors from beingcheated. There are a wide variety of securities.

• Eas$ liquidit$: The investors usually prefer li!uidity of their investment i.e.. easy conversion

into cash, besides ade!uate return on their investment. The stoc& mar&ets provide that

assurance to investors. These are mar&ets which facilitate buying and selling of securities. As

such the investors readily come forward to

ubscribe to new issues. Thus, stoc& exchange assures li!uidity of investments which goes to

serve the investor*s need.

•

#!!urate and !ontinuous reort regarding sales: All stoc& exchanges maintain regular record of the securities traded each day and the prices at which deals are finalised. This

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information is supplied to newspapers and other information media along with the prices of

important securities which ruled at closing time. The statistics relating to prices at which

securities were traded are published in wee&ly bulletins for the information of the investors.

This information helps in ascertaining the trend of price fluctuations and promotes healthy

speculation.

• %ull information regarding listed !omanies: The organised stoc& exchanges collect

information about the companies listed with them and publish the information in the form of

B'fficial %ear #oo&B. This proves very useful to the investors in ma&ing investment

decisions.

Q:-; ,b =)here is no differen!e between mone$ mar2et and !aital mar2et>" Comment uon

the statement"

#ns:

one$ ar2et:-

The money mar&et is often accessed alongside the capital mar&ets. =hile investors are willing to ta&e

on more ris& and have patience to invest in capital mar&ets, money mar&ets are a good place to Bpar&B

funds that are needed in a shorter time period + usually one year or less. The financial instruments

used in capital mar&ets include stoc&s and bonds, but the instruments used in the money mar&ets

include deposits, collateral loans, acceptances and bills of exchange. $nstitutions operating in money

mar&ets are central ban&s, commercial ban&s and acceptance houses, among others.

Caital mar2ets are perhaps the most widely followed mar&ets. #oth the stoc& and bond

mar&ets are closely followed and their daily movements are analy?ed as proxies for the

general economic condition of the world mar&ets. As a result, the institutions operating in

capital mar&ets + stoc& exchanges, commercial ban&s and all types of corporations, including

nonban& institutions such as insurance companies and mortgage ban&s + are carefully

scrutini?ed.

The institutions operating in the capital mar&ets access them to raise capital for long+term

purposes, such as for a merger or ac!uisition, to expand a line of business or enter into a new

business, or for other capital pro>ects. )ntities that are raising money for these long+term

purposes come to one or more capital mar&ets. $n the bond mar&et, companies may issue debt

in the form of corporate bonds, while both local and federal governments may issue debt in

the form of government bonds. imilarly, companies may decide to raise money by issuing

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PIXELES CLASSES BCA &MCA (IGNOU)e!uity on the stoc& mar&et. @overnment entities are typically not publicly held and, therefore,

do not usually issue e!uity. 0ompanies and government entities that issue e!uity or debt are

considered the sellers in these mar&ets.

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