1

ENGLISH FOR
BUSINESS COMMUNICATION

BBA III (ENG 203)

Tribhuvan University, Nepal

COLLECTION OF STUDENTS'
PROJECT WORK REPORTS

THE FIRST BATCH

MMC, Dharan
2017

UNIT 1
THE THREE SECTORS OF THE ECONOMY
Definition of some key terms
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Economics: Economics is a social science concerned with the factors that determine the
production, distribution and consumption of goods and services.
Three sectors of economy: Three sector of economy is an economic theory which divides
economics into three sectors of activity i.e. primary sector, secondary sector and tertiary
sector.
Primary sector: Primary sector is the sector, which makes the direct use of natural resources
and also produces input to the secondary sector.
Natural resources: Natural resources are the resources that exist without the actions of
humankind.
Agriculture: Agriculture refers to the cultivation of animals, plants and fungi for food, fiber,
bio fuel etc used to sustain and enhance human life.
Forestry: Forestry is the science and craft of creating, managing, using, conserving and
repairing forests to meet desired goals, needs for humans.
Fishing: Fishing is the activity or techniques for catching fish which include hand gathering,
spearing and netting, angling and trapping.
Animal husbandry: Animal husbandry is the management and care of farm animals by
humans which are considered to be advantageous to humans or further development.
Secondary sector: Secondary sector is the sector, which use the output of primary sector and
produce final goods for the customer.
Technology: Technology refers to the combination of knowledge and equipment, which
transfers input into meaningful output.
Factory: Factory is an industrial site where workers manufacture goods or operate machines
for processing one product into another.
Finished goods: Finished goods are the goods which are ready to be used or consumed by
the consumer.
Distribution: Distribution is the process of making a product or service available for the
consumer or buyer who needs it.
Energy source: Energy sources are the materials such as coal, gas, oil and wood which are
consumed in the generation of power.
Tertiary sector: Tertiary sector is the sector which involves the provision of services to other
businesses as well as financial consumers.
Service: Service refer for providing of accommodations and activities required by the public,
as maintenance, repair, etc.
Tangible goods: Tangible goods are the goods that can be expressed in the physical terms or
have proper size, shape and order.
Intangible goods: Intangible goods are the goods that does not have physical nature or
simply the goods which doesn’t have shape, size and order.
Whole seller: Whole sellers are the institution or buyers who buy the goods and services in
large quantities for the purpose of selling to the retailer
Government: Governments are the creator, regulator and protector of business firm.
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Theoretical Aspects of the Three Sectors of the Economy

Three sectors is an economic theory, which divides economics into three sectors of
activity i.e. extraction of raw materials, manufacturing and services. It was developed by
Allan fisher, Colin Clark and Jean Foursatie. According to this theory, the main focus of an
economics shifts from primary, through the secondary and finally to tertiary sector. Foursatie
saw the process as essentially positive, and in the GREAT HOPE of the twentieth century, he
writes of the increase in the quality of work life, social security, blossoming of education and
culture, higher level of qualifications, humanization of work etc. Three sectors of economy
start with collecting raw materials and providing finished goods and services to the ultimate
consumers.
Primary sector is the first sector of the ‘THREE SECTORS OF ECONOMY’. It is
concerned with the extraction of raw materials. It includes fishing, mining, agriculture,
farming etc. These can be renewable resources like fish, wool, wind power etc and non-
renewable resources like oil extraction, mining for coal etc. In less developed economics, the
primary sector will comprise the biggest part of the economy. Typically as an economy
develops, increased labor productivity will enable workers to leave the agricultural sector and
move to other sectors, such as manufacturing and service sector. Moreover, this sector makes
direct use of natural resources and sends it to secondary sector for further production.
Primary sector makes the use of natural resources to produce input for the secondary sector;
which are the gifts of nature and can exists without the effort of humankind. It includes the
things naturally obtained such as magnetic, gravitational and electrical properties and forces.
Secondary sector includes the industry that produces finished products. This sector
generally takes output of the primary sector as its input and manufactures finished goods or
final products for the business house for their export or sell to domestic consumers. This
sector is divided into light and heavy industry. Secondary sector requires large source of
energy and machineries to convert raw goods into finished goods and services. This sector is
term as the mid sector or supporting sector for both the primary sector and tertiary sector. It
also produce large amount of waste material and heat that may cause environmental problems
or cause pollution. Secondary sector is an important activity to promote economic growth and
development. This sector mainly focus for fulfilling the customer’s demand or desire by
distributing them the finished products of their need. Finished products simply mean the
product that is ready to be used by consumers. Industry’s finished goods become the buyer’s
sale or useable goods.
After the finished products are ready for sale, it is distributed to the needed customer
according to their demand. Distribution refers to one of the four elements of marketing mix.
Moreover, it is the process of making a products or services available into the hand of
customer or business user. This can be done directly by the producer or service provider, or
by using indirect channels with intermediaries distribution can make or break the company as
well. A good distribution means the company has greater chance of selling its products more
than its competitors. The best price and quality doesn’t matter or satisfies the customer, if
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their product doesn’t reach in the desirable time. The company that distributes its product in
faster and cheapest way, will last longer in this competitive world.
Then the goods are distributed, customers are provided after sales facilities or
services, which are termed as tertiary sector. This sector is the third of the ‘THREE SECTOR
OF ECONOMY’, where people are offering their knowledge and time to improve
productivity, performance, potential and sustainability, which is termed as effective labor. The
basic characteristics of this sector are the production of services instead of end products. Its
services include intangible goods such as advice, attention, access, experience and discussion.
Here, intangible goods mean the goods that don’t have physical nature such as downloadable
music, mobile apps or virtual goods. Moreover, tertiary sector of industry involves the
provision of services to other businesses, as well as final customers.

This figure illustrates that the percentages of a country's economy is made up by different
sector. It shows the countries with higher levels of socio-economic development tend to have
proportionally less of their economies operating in the primary and secondary sectors and
more emphasis on the tertiary sector. The less developed countries exhibit the inverse pattern.
MAJOR TRENDS OF THREE SECTORS OF ECONOMY
Globalization means the nationalization of organization’s activities. It establishes
connectivity in the world politically, culturally, ecologically; means it also connects the world
economically. Different countries of the world are able to enjoy the economic features of
other countries in their respective country. Due to this, the economic activities of our country
are not limited in our domestic tertiary but it is practiced and extended around the countries
of the world. Our Nepalese organization is compelled to use expertise manager of our country
to meet the competitive demand of the people. Only our Nepalese products are not able to
meet the demand of people because globalization has increased the competition of goods and
services in a fast pace. It has become the major challenges for the Nepalese managers ‘to
think globally and to act nationally’.
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Nepalese raw materials and skill workers are not adequate to meet the desired need or
demand of the people. So, it has become very much important to outsource skilled labors
force and needed raw materials to meet global competition. Nowadays, our Nepalese industry
and company are outsourcing a huge amount of raw materials and more skilled workers to
produce the more desirable and competitive goods and services. Alone Nepalese properties
are not being able to sustain in this era of development. Nepalese Company and industries are
facing very many difficulties to adopt this change; if they resist changing the existence of the
company will be collapsed. So, it has became the major challenges for the Nepalese manager
about when, where, and how much HRs should be outsourced.
Similarly, it is very common in every organization that people or workers from among
various cultures, races, gender, castes and background are employing in the organization. All
of these workers have demand, working capacity, interest, desire, needs, hopes etc according
to their differences. This diversity in every field of worker’s is also creating a serious problem
in our Nepalese organizational hierarchy. Company is liable to focus in their needs and desire
too to enhance the effectiveness of the company. If the manager fails to manage diversity, it
will create conflict, turnover and absenteeism. The major issue or challenges for manager is
to maintain unity among diversity.
Management process frequently changes, which directly affects the sectors of an
economy to function properly. Difference in management system in all three sectors results
low production of goods and services. In the same way, company’s legal trend is also one of
the challenging factors for any company. Legal trends simply mean the sum total of laws,
rules, polices regulation and precedents that determines or regulates the behavior of an
organization or individual. It determines what an individual can do or can’t do. Any
organization must be able to know the working ability of an individual so that their efficiency
can be measured and tasks are accounted in different sectors of an economy according to their
respective choice and ability.
NEPALESE PROSPECTIVE OF THREE SECTORS OF ECONOMY
Nepal is a developing country and Nepalese economy is in the creeping stage. Most of the
labor force of Nepal depends upon agriculture I.e. around 80 •/•. But we can found easily that
the tertiary sector like; Entertainment, Government, Telecommunication, Hospitality,
industry/tourism, Mass media, Healthcare/hospitals, Public health, Information technology
etc. has grown faster than the agriculture and other manufacturing industries. Nepal has
several natural resources which are unutilized and underutilized. Observing or viewing the
world economic scenario countries like Japan, America, Australia, china are well developed
in all of the three sectors of economy. For the primary sector, these countries dig out or find
all the available natural resources from the earth’s womb and makes direct use of them to
produce final products. Means they are well developed and use modern technologies to
produce any types of qualitative products. But our country Nepal is not able to find the
available resources, and we are very much depended on foreign countries for outsourcing the
raw materials. We also highly use modern technologies outsourced from foreign nations, to
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produce final goods for the needed customers, which ultimately increases the purchasing
price of people. Moreover, by observing the Nepalese scenario of ‘Three Sectors of
Economy’, our country is not much developed or able to use current available resources
itself, which somehow decreases the economic status of Nepal.
Developing countries like Japan, America, china, Australia etc are very much
developed in their different sectors of economy. They are facing or tackling all the obstacles
and changes to meet the desired competitive wants and needs of their Customers. Similarly,
they are using advanced technologies and merchandise to overcome the change and
competition. But our Nepal is not able to accept the change in proper way. Our organizations
are still using the outdated machines to produce the products, they are not able or do not
wants to invest more in technologies and equipment because of fear of risk. Economic
development in Nepal has been complicated an affected by the constant change in political
scenarios which has ranged from being a monarchy to being ruled by the Communist party in
the present context. Nepal’s principal economic activity, employing about 65% of the
population and providing 31.7% of GDP. Only about 20% of the total area is cultivable;
another 40.7% is forested. GDP is heavily dependent on remittances (29.1%) of foreign
workers. Subsequently, economic development in social services and infrastructure in Nepal
has not made dramatic progress.
UNIT 2
MANAGEMENT
Definition of Related Terms
The following are the major terms related to the theory and practice of management.
1. Planning: Planning is today’s projection for tomorrow’s action. It is concerned with
deciding in advance what to do, how to do, when to do and who is to do it.
2. Organizing: Organizing is the process of arranging physical, financial and human
resource together. It is defined as the determination of relationship between materials as
well as human resources.
3. Directing: Directing is guiding the subordinates in doing work. It is related to inspiring,
instructing and guiding human factor in the organization to achieve organizational
objective.
4. Controlling: Controlling is the measurement of actual work completed with that of
planned work and to take necessary step if any deviation is there between actual and
planned work.
5. Staffing: The process of managing the right person at right time at right place and at right
job is known as staffing. It involves acquisition, development, utilization, and maintenance
of human resources in an organization.
6. Motivation: Motivation is the act of inspiring and encouraging employees to devote
maximum effort to achieve objectives. It deals with psychological aspect of human beings
which includes the process of creating willingness in the employee to do the work
efficiently and effectively.
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7. Decision Making: Decision making means to select a course of action from two or more
alternatives, to achieve a specific objective or to solve the specific problem.
8. Human Resource Management: HRM is a process of managing human skill,
knowledge, creative ability, attitude and aptitude to achieve the goal of organization. It can
also be defined as the process of managing and mobilizing human resource towards the
achievement of organizational goals.
9. Human Resource Planning: HRP is the process by which an organization ensures that it
has right number and kind of people at right time, at right place so that it is capable of
effectively and efficiently performing those task that will help organization achieve their
goals.
10. Top Level management: Top level Management is the supreme body of an organization
which constitutes chair person, General Manager, Board of Director etc and who devotes
most of their time on planning and coordinating function.
11. Middle Level Management: Middle Level Management acts as a bridge between top
level management and lower level management. It consists of departmental head,
operational head, plant manager etc who devotes most of their time on organizational and
directional function.
12. Lower Level Management: Lower Level Management is also known as first line
management of the organization that sets up all the works, rule and procedure into
practice framed by top and middle level managements. It includes supervisor,
coordinators and office manager.
13. Recruitment: Recruitment refers to the process of identifying potential candidate and
stimulating them to apply for vacant position. In other words, it is a process of identifying
prospective or potential and qualified candidate in the organization.
14. Selection: Selection is the process of accepting some applicants and rejecting all others.
Therefore, it can be defined as the process of choosing most appropriate person from
among various applicants or potential candidates.
15. Training and Management Development: Training can be defined as the systematic
process of increasing skill, ability and knowledge of the human resource so that they can
accomplish the task effectively and efficiently, whereas the act of imparting the
knowledge and changing the attitude of human resource is called management
development.
16. Career Development: Career development is a life time and ongoing process which
involves the individual career within or between the organizations. It is a formal approach
used by the firm to ensure that employees with right qualification and experience will be
available whenever required.
17. Supervision: The word supervision comes from two words ‘super’ and ‘vision’. The
word super means ‘above’ and vision means ‘to see the work of others’. So, supervision
means watching the work of subordinate and guiding them.
18. Communication: Communication is a process of exchanging news, views, ideas, and
experiences among or between the persons. It involves a systematic and continuous
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process of telling, listening and understanding. It is a way that one organization member
shares meaning and understanding with another.
19. Leadership: Leadership is the art of influencing and inspiring the behaviour of other in
accordance with requirement. In other words, leadership is the ability to influence the
behaviour and performance of individual or group of an individual towards the most
enthusiastic achievement of common objective.
20. Employee Discipline: Employee discipline can be defined as the acceptance or
adherence of organization rules, policies, system and code of conduct by the employees.
It refers to that force which compels employee to show conformity to the organization
rules.
Theoretical Aspects of Management
Management is the art of getting things done through people to achieve the
determined goals and objectives. Management is also known as what manager do but the
simple definition does not give the wide meaning of management .We can define
management as an set of activities directed at an organization’s resources with the aim of
achieving organizational goals in an effective and efficient manner. It is the management that
manages every type of organization. In other words, the set of all the things or activities done
by manager for getting things done through other is known as management. Management is
the process of managing human resources tactfully for the mobilization of other physical
resources to meet the goal. Different scholars have provided different definition in this field.
According to F.W.Taylor, “Management is knowing exactly what you want people to do and
seeing that they do it in the best and cheapest way”. Similarly, in the words of Mary Parker
Follet, “Management is the art of getting things done through people”. In the same way
Koontz O’ Donnel puts: “Management is the art of getting things done through and with the
people informally organized groups. Thus, management is such a technique that helps to
manage everything in an appropriate manner. Good management system consists appropriate
features that help the organization to achieve its objectives.

Fig1: Characteristic of Management

Management is applicable in all types of organization irrespective to their size, nature
and structure. It is used by all the organizations. The principle of management is applicable in
every area or sector. Therefore, management is universal. Similarly, according to size and
nature of business organization many departments may be established. Department, customer,
government, investor etc must be integrated for the smooth operation of organization. That’s
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why management is regarded as an integrative process. In the same way, management helps
to present everything in an easy and attractive way and its principle are developed through
observation and experiment; it is also recognized as Art and Science. Moreover, the person
who had studied the full syllabus of management in a stated period of time can handle the
organization being the manager. This shows management is also a profession. Finally,
whatever done in management is done in group and the result can be judge by its
effectiveness on the basis of objectives. Therefore, management is a group effort and
intangible activity.
Management helps in coordinating the task of all levels of management. Different
levels of management use the techniques of management to do their task at their level.
2.3 Levels of Management

Fig 2: Levels of Management

Top level management is the supreme body of an organization. It is also the ultimate
source of authority. It includes directors, chairperson, General Manager, Chief Executive
Officer. It devotes more time on planning and coordinating function. Middle level
Management acts as a bridge between top level management and lower level management.
Division Head, Departmental Manager, Plant Manager, Operation Manager works under this
level. They are responsible for top management for the functioning of their department. They
devote more time on organizational and directional function. In the same way, lower level
management is the first line management. They are connected with direction and controlling
function of management. Supervisor, Coordinator, and Office Manager work at this level of
management. This level staff takes the responsibility of the implementation and control of the
operational plans developed by the middle managers. This shows that management is used by
all levels of managers. Management had proved that it is all three i.e. science, art and
profession in the world today.
A science is an organized and systematic knowledge. It is empirically derived,
critically tested and generalized into theories, law and principle. It is based on facts. By
finding out cause and effect relationship, and correlation, the scientist is able to say, even if
with a certain degree of probability, how a particular phenomenon will behave under certain
specific condition. The theories, laws and principle of management are universally accepted
and applicable. Thus, management is a science. In the same way, art is a skill, talent and
intellectual work for practical implementation of theoretical knowledge. Management
includes the activities of planning, organizing, directing, decision making, regulation and
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integration of all resources which require special; skill and art. Moreover it presents
everything in an easy and attractive way. Therefore, it is an art. Finally, management is a
distinct profession backed up by the professionalism. As a professional activity all
management efficient people should have academic qualification and personal qualification
from anybody. The above explanation clearly shows that management is all three science, art
and profession.
The given below function of management are essential to create better working environment
in the organization.

Fig 3: Basic Function of Management

Planning is today’s projection for tomorrow's action; and it is one of the important
functions of management. It is concerned in deciding in advance what to do, how to do, when
to do and who is to do it. In the same way, decision making means to select a course of action
from two or more alternatives to achieve a specific objective or to solve the specific problem.
Similarly, organizing is the process of arranging physical, financial and human resource
together, whereas staffing is the function that ensures the right person at a right place and at
right job. Furthermore, controlling is another important function of management. It is the
measurement of actual work completed with that of planned work and to take necessary
action if any deviation is there between actual and planned work. Finally directing function of
management is related to inspiring, instructing and guiding human factors in the organization
to achieve organizational activities and objectives. The above function of management is
equally used in both management and administration to achieve the result.
Although management and administration are used as synonymous words, they are
not so. So they cannot be used for the same meaning. They have their own meaning and field.
Their roles are also different. So, it would be totally wrong to think them as words with the
same meaning or synonyms. The process of making plans according to the policy and
objectives formed by administration is called management. It implements the policies and
programmes. It makes arrangement to means and resources and utilizes them effectively to
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achieve certain goals. It coordinates different activities. Management is a doing function not a
thinking function. On the other hand, the process of forming policy and programme of a
business organization is called administration. The formation of chain of command and
control according to policy is also included in administration. The administration gives
direction, guidance and leadership. Administration also works as an ideologue.
Leadership is another important topic related to management. It is defined as the art of
influencing and inspiring the behaviour of other in accordance with requirement. A person is
said to be leader when his group members are willing to accept his instruction, guidance and
suggestions. S/he has to lead his subordinate in such a manner that organizational and
individual objectives can be achieved. Thus, the manager must have complete vision about
how to operate resources and achieve organizational objectives .He must have capability to
stimulate and inspire his subordinates to do their work willingly according to his instruction.
Stephen P. Robbins defines leadership as an ability to influence a group towards achievement
of goals. From the above definition it is clear that leadership is an ability to influence the
behaviour and performance of an individual or group of an individual towards the most
enthusiastic achievement of common objectives.
Motivation is regarded as the pervasive function of management. It is the act of
inspiring and encouraging employees to devote maximum effort to achieve objectives.
Motivated people are essential for effective performance of work and productivity. It helps to
use the employee knowledge and skill for the growth and development of the organization. It
is defined as the psychological process that helps to increase work performance. Without
motivation employees ability and skill cannot be used properly. Every employee has the
capability to do work. It is the process that helps the employee to explore their talent. In the
words of William Scott, “Motivation means a process of stimulating people to accomplish
desired goals”. Motivation deals with the psychological aspect of human beings which
include the process of creating willingness in the employees to do the work effectively and
efficiently.
Major Trends in the Current Business World Related to Management
Globalization is internationalization of organizations’ activities. It establishes connectivity in
the world economically, politically, culturally, ecologically; and converts the world into a
global village. Due to globalization, the activities of organization are not confined in a
particular country rather extended around the countries of the world. Organizations are
getting employees from different countries and using expert managers to manage the
organization. The major issue is that to “think globally; act locally”. A recent 335 page study
by the AACSB, the leading accreditation agency for business school around the world,
highlights the implication of this and asserts that arising expectations from business and
society for graduates with the increasing complexity and global connectedness of higher
education, command the attention of business school around the world.
Technological advancement is another major trend of management. In simple term
technology refers to the combination of equipment and knowledge which transforms input
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into output. Technology is changing dramatically. Technology is important because it reduces

the cost, saves time and increases the quality of products or services. Every organization
should adopt the changing technology. Otherwise, their existence will be zero paradise. It has
been significant progress in technology from past few years and made leap and bound
(dramatic change).The technology has always been the synonym of advancement; and it has
immense, constant and lasting impact from the ground breaking discoveries to the brilliant
innovation of the organization. So, it has affected every aspect of human existence.
Therefore, organization cannot remain unaffected from the technological advancement .They
require use of advance technology and technology friendly environment to get sustainable
advantage.
Workforce diversity is the next major issue in management. Diversity means
heterogeneity. Workforce diversity refers to the heterogeneous workers are employing in the
organization in terms of race, gender, religion, and background. The work force diversity is
increasing in every organization due to globalization and change in population dimension.
Workforce diversity creates problem in the organization because people have different needs
and expectation based on their background. Traditionally, organizations were taken as a
“melting pot” where employees used to change their norms and value when they join the
organization. Nowadays, the reverse is true. However, diversity fosters the creativity,
innovativeness and synergistic effects. If the manager fails to manage the diversity, it will
create conflict turnover and absenteeism. The major issue is to maintain unity among the
diversity.
Professor Carlyss Y. Baldwin feels that one of the most notable trends in management
has been the rise of business ecosystem – defined as groups of firms which together provide
complex products and related services to meet end-to-end requirement of users across the
value chain. The integration between media, technology and telecommunication firms would
be a contemporary example. This has important implications for management because
innovation in business ecosystem has a character distinct from traditional, vertically
integrated firms. Every organization in the ecosystem has to be aware of the bigger picture.
As professor Baldin tells Wrong knowledge, innovation in ecosystem requires collective
action to both invent and appraise efficient, cross-organization knowledge flows, modular
architecture, and good stewardship of legacy system.
The study of psychology is considered as another of the major trends. Speaking of
interdisciplinary influence on business, the study of human psychology-probing into
cognition, motivation, behaviour and performance has become a key pillar of organizational
management. From employee management to customer satisfaction and social engagement,
satisfaction of business objective requires effective analysis of both individual and
institutional psychology. A good amount of research is, therefore, likely to be focused on how
psychological theory and research can be integrated into business academic and management
practice. Professor Ambile feels that with more evolved tools and access to ever growing
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information database, managers will have the power to substantially improve both the
practice of business and welfare of the society.
Nepalese Perspective to Management
In the context of our country, Nepal most of the management practices are largely
traditional. As Nepal just started industrialization, management practices have not become
fully advanced. In brief, Nepal’s management practices are characterized in the following
order:
 For planning in Nepal most of the organizations prepare annual budget and
operational plans of one year only. Long term strategic plan are lacking.
 Decision making in Nepalese organization are not effectively implemented.
Implementation lack effective monitoring, evaluation and follow-up. Feedback system
is not used properly.
 Organizational structures are unnecessarily long and rigid. The authority is generally
centralized in top. Authority is based on classical view that it originates at the top.
Accountability is missing in Nepalese organization. Mostly, crown prince
management system is practiced here.
 Motivation has not received adequate attention in Nepalese organization. Managers
assume that employees work for money and are lazy.
 In Nepal control is generally used for threat and punishment rather than correction of
poor performance to achieve planned goals.
 Staffing is carried out highly with nepotism and favoritism. Employees who are
familiar to the managers are given priority to the talented employees.
UNIT 3
COMPANY STRUCTURE
Definition of Related Terms
Judge a story by the morale not by its title. Before going to understand about something
we first need to learn the related terms and definition of them. The definition is the
explanation of the terms within one sentence by using a structure of definition. The various
terms related to company structure which are required to understand to get the full knowledge
of the report are-
1. Company structure
The hierarchical arrangement adopted by the company in order to Form easy
operational pyramid is termed as company structure.
2. Line structure: It is the simplest and the oldest type of structure. It is characterized by
direct lines of authority flowing from top to the bottom of the organization.
3. Matrix structure
It is a company structure in which the reporting relationships are set up as a grid, or
matrix, rather than in the traditional hierarchy.
4. Functional structure
This structure is based on the principle that the organization should
Be based on various functions and tries to bring about organizational balance.
5. Staff position
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The placement of the subordinate or staff as per their ability is known As staff
position. It may be personal staff, specialized staff, and general staff.
6. Chain of command
The flow of command from top to down structure by the superior to immediate
subordinate.
7. Decision making
The act of forming right and comprehensive decision which will work As per the rules
and principles of an organization is termed as decision making.
8. Chief Executive Officer (CEO)
The head of all the managerial position who attempts to manage other necessary
managerial position is called CEO.
9. Departmental head
The head of particular department who assist the command laid Down by CEO is
called departmental head.
10. Manager
The person who is responsible to check, manage, act, in order to manage particular
job or task is known as manager.
11. Subordinate
Subordinates are the exact work doer who performs the task as in a format laid by
managers and organization structure to meet competitive advantages.
12. Immediate superior
The available head or a employee to whom he or she must report the information is
known as immediate superior.
13. Immediate subordinate
The available employee to whom manager or head can give the instruction is called as
immediate subordinate.
14. Separate department
In a company structure separate department is formed where separate task that are
related to each other are performed in order to gain efficiency.
15. Innovation
The company structure innovates the introduction of something new in organizational
customs and rights.
16. Decentralization
It is the process of dividing an organization into decision making units which are not
centrally controlled.
17. Responsibility
The personnel of an organization bears the state of responsible accountable and
answerable to the higher authority.
18. Function
It is the specified activity in a company like production, marketing, finance etc.
19. Autonomous
It is considered as a freedom given to a particular department which is able to take a
decision without consulting a higher authority.
20. Profit
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The above mentioned structures are followed by an organization in order to gain a

additional capital through its daily transaction called profit. Profit increases the capital.
Theoretical Aspects of the company structure
Management without company structure is similar to the handicapped politics. The
hierarchical or pyramidal structure with the manpower that is arranged systematically as per
the operational custom is known as company structure. Various formats and orders are
necessary while determining a company structure. The general structures are line structure,
matrix structure, functional structure and staff position. Such structure mainly focuses the
incensement in efficiency of an organization operation.
Company structure maintains the principle to achieve competitive advantage in global
business. Similarly company structure links relation between different departments. Likewise
it is also based on a systematic manner that helps business houses to gain profit, cope with
change and the vital one is survival. We can say that company structure is the key of a
successful organization. It cannot be apart from a concept of management. Moreover
company structure provides a managed platform to run a business houses. A well managed
structure provides various advantages like innovation, decentralization, specialization,
autonomous and so on. Those business houses or a company that wants to achieve a
remarkable business success should not be unknown about company structure because the
absence of business structure may jeopardize the company’s existence. It also helps to make
decision regarding finance, production, marketing, allocating resources, and so on.
Most organizations have a hierarchical or pyramidal structure, with one person or a
group of people at the top, and an increasing number of people below them at each successive
level. There is a clear chain of command running down the pyramid. Our working style
depends upon the type of organization we are working in. the type of organization dictates
our role, responsibilities, working culture and just about everything else. It is termed as
company structure. Company structure explains about the settings of all organizational
performances.
Line structure is the most common and traditional type of industry or business
structure. In this structure authority travels downwards from top and accountability upwards
from bottom along the chain of command and each department manager has control over his
or her department’s affairs and employees. Here exists one way communication i.e upward to
downward. Moreover the figure is shown below:
 16

Figure 1-figure of line structure

Matrix structure is another type of a company structure in which the reporting
relationships are set up as a grid, or a matrix rather than in the line structure. Here employees
have dual reporting relationship. It means employees can report to more then one superior at
a time. For example, a product manager with an idea might be able to deal directly with
managers responsible for a certain market segment and for a geographical region. Here exist
two way communications. Moreover the figure of matrix structure is shown below:
 17

Figure 2-figure of matrix structure

A functional structure is quite different from other structures. It has a static role, i.e in
functional structure one will report to the functional manager, while in other types of
structures one will report either to the project manager or multiple managers. Here people are
grouped as per their area of specialization. These people are supervised by a functional
manager with expertise in the same field. Also the employees or people are classified
according to the function they perform within the organization. It includes two standard
criticisms. First people are concerned more on the success of their department than that of the
company. Secondly, separating functions is unlikely to encourage innovation. Moreover it can
be made clear by the figure drawn below:
 18

Figure 3- figure of functional structure

Some managing heads of an organization have colleagues or co-worker who helps
them: for example, there might be an assistant to the marketing manager. It is defined as staff
position. Its holder has no line authority, and is not integrated into the chain of command. In
other word staff position refers to the position hold by co-worker in order to help managing
heads at the time of requirement is called as staff position. To select a right candidate one
must go through fare recruitment and selection process. Moreover it also can be more
clarified by the following figure:

Figure 3-figure of staff position

To be a manager it is not a difficult task but to be a good manager one must go
through certain academic qualifications and hard labor. Likewise to run a business it is not a
big deal but too run a business in path of success matters much. It is done my company
structure. In fact it is a base of success of any organization.
Major Trends related to the company structure
Globalization is the worldwide movement towards economic, financial, trade and
communication integration. Globalization refers to the internationalization of activities where
 19

the world is converted in to global village. Business organizations are no longer restricted to
particular locality or region and driven by market economy. When demand exists, Business
operations are expanded across the nation using mass communication, internet, faster
transportation etc. irrespective of distance, location, climatic condition etc. So, the
advancement of information technology and in air travel have made the world slimmer and
boundary less, this adds the complexity to managers job. It creates global flow of investment
that increases the competitive pressure which is hard to hold to executives. Further, it makes
every country an idyllic ground for multiculturalism which makes the managerial activities
tougher. Today’s organizational leaders must develop and use a global mind set i.e. “Think
globally and act locally.”
Workforce diversity refers to employing heterogeneous workers in terms of sex, back
ground, education, experience, religion, ethnicity etc. Organizations focus on employing
diversified workforces to use their talents and potentials, improve innovativeness and achieve
synergistic effect. However, people have different expectations based on their diversity.
Further, employees working in the organization under similar rules and regulation want to
protect their own identity and interest. Managers need to understand such complexity behind
the diversity and capable for accommodating diversities. If they are managed effectively that
will improve creativity and innovation. If an organization failed to manage such diversity that
would lead to employees’ turnover, absenteeism and conflict and derails the performance. So,
achieving unity among the diversity is the most serious challenge to the management.
Empowering people refers making them in charge about what they do. It is pushing
down the decision making power down to the operating level employees. It is a process of
delegating power and authority to individual or group on decision making activities. It
encompasses various techniques such as self managed team, quality circle, simple
participation of employees or their involvement in decision making process. The
empowerment requires some changes on structure and leadership style and enhances the
considerable amount of commitment of employees but the challenge to the manager and
employees is how to give up authority and how to utilize the delegated authority.
Ethics refers to morale value and principles that define right and wrong or good and
bad. It focuses on right by avoiding the wrong. Ethical behavior focuses on following the
good or right behavior. However, what constitute ethical and unethical behavior is not clearly
defined because a behavior which is ethical in one organization may not be ethical in other
organization. Further, managers of the organization are knowingly involved in unethical
behavior that is the major challenge to the organization. Social responsibility is a way of
dealing relationship between business and stakeholders. In fact, it is business ethics and
obligation towards wide spectrum of the society. The growing expectation of consumers from
the business is to protect them from different from of pollution, proactively participation in
social and infrastructural development activities and availability of hygienic goods at
affordable costs.
 20

Technology refers to the combination of knowledge and equipment by which inputs

are converted in to outputs. The modern business is characterized by newer and ever-
changing technological development. The advent of sophisticated technology such as use of
computer technology has changed the whole system of decision making. It has accelerated
the pace of information, communication, saved the time and cost of the organization. At the
same time it has also made the competition tougher and tougher and threatened the existence
of those organizations who failed to assimilate the pace of changing technology. Technology
management has now emerged as an important emerged as a crucial management activity in
modern business firm to match the competitive market. Management has cope with all these
changing taking places in the technology.
Current global business environment has a strong business impact on theory and
practice of organization, as well as on working behavior of their employees. Increased
complexity and competitiveness is changing settled ways of organizing and working. Current
business world is related to the time of competition, dynamic nature and so on but company
structure is being as a useful sight for all these challenges. Company structure is
characterized by exponentially changing requirements that are increasing complexity and
raising the level of competitiveness. Settled ways of organizing and working have become
question. In order to eliminate the question business structure has proved it is an effective
discipline to follow path of success. In fact a current global trend company structure is being
used as a vital weapon to eliminate gap of theory and practice. The most successful
organizations today are the ones capable of aligning positive change due to presence of
company structure.
Nepalese perspective to the company structure
In the global business scenario company structure seems to be properly
Managed and utilized. It is found that the success of global business is the keen and fare
practice of business structure. In the today dynamic environment it is becoming a milestone
era for increasing the developing phase of an organization. Whenever the topic comes in case
of Nepalese perspective then there obviously arises a doubt that it is not well managed and
followed. As our country is a developing country so there is still strong knowledge of
management is lacking behind due to which entrepreneurs are money chaser rather
knowledge chaser. Due to which existence is jeopardized in near future. In order to be expert
in field of management Nepalese entrepreneurs should be familiar with this topic.
This is the exact formula to enhance the success of business. This would probably help in
development of business houses and uplift competition in global market.
UNIT 4
WORK AND MOTIVATION
Definition of key terms
Work motivation induces employees to pursue work-related task or goals. Motivation
comprises all internal urges which are desire, wishes and a thing. There are certain
terminologies used in work and motivation. They are:
Motivation
 21

Motivation is the internal or external factor that simulates desires and energy in people in
order to attain certain objectives.
Work
Work is a set of closely related task which are to be performed by an individual in an
organization.
Performance
Performance is the accomplishment of given task measured against present known standards
of accuracy, completeness, cost and speed.
Frustration
Frustration is the feeling of anger or annoyance which is caused by being unable to do
something.
Reward
Reward is something that is given in recognition of service, effort or achievement.
Demotion
Demotion means to lower something that is given in recognition of service, effort or
achievement.
Promotion
Promotion is the act of moving someone to higher or more important position or rank in an
organization.
Punishment
Punishment is the process of imposing penalty for wrong doing.
Suspension
Suspension is the state or period of being laid off such as temporary removal, temporary
withholding.
Drives
Drives are the factors which force an individual to workout.
Needs
Needs are the psychological or physiological requirements for the well-being of an organism.
Physiological needs
Physiological needs are the physical things needed for humans survival and proper
functioning of human body.
Psychological needs
Psychological needs are the mental needs that motivate a person to achieve goals and perform
certain actions.
Self actualization need
Self-actualization is a factor of motivation to realize one’s own maximum potential and
possibilities.
Self-esteem needs
Self-esteem is the feeling of having respect for oneself and ones abilities.
Social need
 22

Social needs are the thing such as acceptance, appreciation, belongingness and
companionship which are meant for forging relationship with other people.
Intrinsic reward
Intrinsic reward is a personal satisfaction which a person derives from sense of self-
accomplishment related to personal or business goals.
Extrinsic reward
Extrinsic reward is a tangible and visible reward given to an individual or an employee for
achieving something.
Goals
A goal is an observable and measurable end result having one or more objectives to be
achieved within a more or less fixed timeframe.
Autonomy
Autonomy describes a state of being independent in one’s thought and action.
2.2 Theoretical aspects of work and motivation
Work and motivation is a phrasal word that involves the combination of ‘Work’ and
‘Motivation’. The word motivation stems from the Latin word ‘Movere’ which means ‘to
move’. Similarly, ‘work’ is derived from old English word ‘weorc’ which means ‘to perform’.
Therefore work motivation induces employees to pursue work-related task or goals.
Motivation includes all internal urges which are desire, wishes and a thing..Motivation is the
process that starts with deficiency or needs that activates behavior that is aimed at goals or
incentives. It is a force which leads the people to act to gain or fulfill the objectives. It
energizes the behavior of people and directs towards attending some goals
Motivation is a psychological and continuous process. It is the process to achieve
desired results by simulating and influencing the behaviors of the subordinates. It is
concerned with needs and motivate which generates within an individual. It is an internal
feeling of an individual which forces him/her to action. Similarly, a satisfied person of today
may not be satisfied tomorrow. When one need is satisfied, another need emerges. Therefore,
motivation is a never ending process until the completion of objectives. Managers should
develop new techniques, systems and methods to fulfill the changing need of workers.
Subordinates differ in their approach and even two individuals cannot be motivated with the
same techniques. Thus, manager must be careful to understand the needs, motives and desires
of every worker in the organization.
Motivation is a pervasive function of all levels of management. Every manager from
top to lowest level in management hierarchy is responsible for motivation. A manager is
primarily responsible for motivating his subordinates and secondly other subordinates in the
management hierarchy. This is essential to develop the concept of group work and team spirit
among all members of the organization. Manager has to influence the behavior of workers
and inspire them to concentrate more on their works. Therefore, manager has to play the role
of leader in influencing the behavior of subordinates to achieve common goals.
 23

Abraham Maslow, the psychologist expounded the hierarchy of needs theory in 1943.
Maslow started this formulation with that man is wanting animal with hierarchy of needs of
which some are in lower scale and some are in higher scale. According to Maslow, a satisfied
need is not motivation. Unsatisfied needs propel individual to act in certain ways.The needs
have an order and are fulfilled only in an order It is the need that actually motivates the
employees. This theory is based on the assumption that there is a hierarchy of five needs-
social needs, esteem needs and self-actualization needs.
Psychological needs are the basic need of air, water food, clothing and shelter. In
other words, Psychological needs are the needs for basic amenities of life. The next in order
of need is safety need, the need to be free from danger either from people or free from
environment. It includes physical, environmental and emotional safety and protection. The
next is social needs in which individuals develop desires to work in a cohesive group and feel
sense of belongingness. Once this need is met, s/he feels the need to love and be loves and
belong and identified with group. The fourth need in Maslow’s need hierarchy is ego or
esteem needs. It reflects the desire for status and recognition, respect and prestige in work
group. It can be of two types: internal esteem need and external esteem needs. Similarly, self-
actualization need is an upper level need. It is also called self-realization needs. It induces the
urge for becoming capable or inept to become or the potential to become.
Motivation is a critical aspect for the management of human resources in the
organization. It maintains balance between employee’s competency and willingness. Human
resources are the unique assets of an organization. They are based on ‘old is gold’ principles
here old employees are more experienced and perform job efficiently then new employees.
However, there is a tendency to leave the organization after having some experience which
derails organization’s goodwill. Motivation forces the manager and organization to
understand needs and loyalty and retain them in the organization. Further, motivation is a tool
that frames various plans such as monetary and non monetary incentives, promotion
opportunities for efficient employees. It helps to reduce industrial disputes, increases
satisfaction and maximizes productivity which builds cordial and friendly atmosphere within
the organization.
Human resources are the innate resources who maintain and control over other
resources. The devotion, dedication and discipline of human resources to work are the pre-
requisites of successful operation of organization. In other sense, human resources need to
involve by their heart and mind to get competitive advantage. It can be possible through
motivation by building willingness in employees to work. It makes employees committed
towards organization and creates congenial and cooperative internal work environment. It
ensures best utilization of resources makes employees goal directed and simulated to act on
purposive manner.
Generally speaking, motivation is what energizes, maintains, and controls behavior.
As such, it is clear why it plays an important role in the workplace. But empirically
measuring that role is another matter; it is challenging to capture an individual's drive in
 24

quantitative metrics in order to ascertain the degree to which higher motivation is responsible
for higher productivity. However, it is widely accepted that motivated employees generate
higher value and lead to more substantial levels of achievement. The management of
motivation is therefore a critical element of success in any business; with an increase in
productivity, an organization can achieve higher levels of output.
Thus, motivation is a psychological and human aspect. It is a process of creating
willingness among employees to do work in the best possible way. It is the act of inspiring
employees to devote maximum effort to achieve organizational objectives. People do
something to fulfill their needs, desires and wishes. Motivation is an instrument through
which management understands why and how workers interact and work in accordance with
organizational requirements. It energizes the behaviors of subordinates and directs them
towards the attainment of common goals.
2.3 Major trends in the current business world about work and motivation
The study by Towers Watson, Tracking people priorities and trends in high performance
companies examined trends in employee opinions over a five year period. The study showed
that four specific areas above all others contributed to these organizations success i.e. career
development, empowerment, rewards and recognition. Nothing kills the motivation of
talented individuals like lack of career development opportunities. Employees in the high-
performing companies were increasingly pleased with the emphasis on valuing and fostering
talent, and the availability of long-term career opportunities and training. Similarly, high
performing organizations excel in providing open supportive cultures that encourage new
ideas and empower staff. Further, employees were increasingly satisfied with compensation,
benefits and non-monetary recognition.
In America, it has been discovered that only one third of the average American
workers are engaged in their work. This is a stable trend that has been found to occur all year
round. Research has found 18%are unhappy with their jobs and hence disengaged, 52% are
engaged but perform their jobs with no passion, 29% are engaged and they do their jobs with
a high degree of passion. As a result, from this lack of employee motivation, an estimated
$300 billion is lost every year by employer. This stems from the fact that 71% of American
workforces are disengaged from their jobs.
Market tools inc. collected responses from 230 United States employees in September
with the following discoveries made regarding lost satisfaction of employees:
 39% of workers do not feel appreciated at their work place.
 27% are satisfied with the level of recognition they received at their workplace while
76% were not.
 77% were willing to work hard if they were appreciated while 23% were not willing.
 It was also discovered that for every employees, 2 were planning to resign from the
job. This formed 66% of the sampled population.
 40% of the respondents of those that were not planning to resign appreciated more
recognition for the work they do.
 25

Monetary incentives tend to lack trophy values to employees. They cannot be

discussed with the others and are often forgotten and spent on everyday needs instead. A
compensation package is not seen as a incentive program in the eyes of employees. Results
from survey conducted by Westminster College U.S indicated that incentives would inspire
performance. Here is the list of top motivational techniques for employees:
 32% prefer a boost to their morale.
 27% love praise and recognition
 18% appreciates monetary rewards.
Thus, in summary it is ideal to recognize the contribution made by employees to
growth of the firm. This helps in keeping them more focused and engaged. Their needs are
quite achievable and are not tied to monetary values. Company’s policies should be adjusted
to accommodate this as this would significantly boost productivity in the organization.
2.4 Nepalese condition of work and motivation
Most of the management practices in Nepal are largely traditional. As Nepal just started way
of industrialization, management practices has not been fully advanced in brief. Some of the
motivation practices are as follows:
 Management’s effectiveness is low in Nepal. Managers lack requisite skills
and training.
 Motivation has not received adequate attention in Nepalese organization.
 Managers assume that employee work for money and are lazy. The low level
of wage increases the dissatisfaction among them.
 Most of the Nepalese organizations have authority structure. This prevents
youth manager to be creative and innovative.
Turning to specific issues related to Nepalese workplace, a number of papers in the
past indicated that organizations are unable to comply provisions of labor Act, the role of
personnel department is negligible in selection, training and development and performance
evaluation and its implications for career development of employees is not properly
understood. In almost 17% of the organization, there is no formal performance appraisal
system, there is lesser use of performance based system and people are highly dissatisfied at
work and with pay. Further, the main barriers prevailing in employee relations system are
over centralization of power, increasing dissatisfaction at work, lack of budget for training
and development and lack of performance management system.
The concept of motivation has lacked attention from business houses in Nepal.
Nepalese organizations suffer from restrictive policies, poor supervision, poor working
condition, poor salary and low status. It is felt that Nepalese organization should use modern
concepts in management and apply written form of vision statement to communicate a clear
guidance for rights of their followers by providing rewards. Money is a big factor for
motivation in Nepal. Hence, salary increments, bonuses, stock sharing among others should
be provided. That is not only solution; leaders should be providing intrinsic rewards like
challenging work, recognition, etc. The leaders are recommended to empower their
 26

employees for better results. They should focus on building harmonious relationship with
employees as well as pay attention to their task.
UNIT 5
MANAGEMENT AND CULTURAL DIVERSITY
Definitions of related terms
(1)Management: Management is a set of activities, which is organised to receive goals of
organization.
(2)Business ethics: It is a form of applied ethics or professionals ethics that examines ethical
problems that arises in business environment.
(3)Corporate culture: It is the pervasive values that characterize a company and guide its
practises.
(4)Business reporting: It is a public reporting of operating and financial data by a business
enterprises or the regular provision of information to decision makers within an
organization.
(5) Bribery: It is a specific offence which concerns the practice of offering something, usually
money to gain an illicit advantage.
(6)Corruption: Corruption is an abuse of a position of trust in order to gain an undue
advantage.
(7)Corporate governance: Corporate governance is the system of rules, practices and
processes by which a company is directed and controlled.
(8)Diversity: It means differences in terms of background, sex, religion, ethnicity etc.
(9) Human right: Human rights are inherent to all human beings, whatever our nationality,
ethnic origin, colour, religion entitled to our human rights without discrimination.
(10)Modern slavery: Modern slavery is a multibilliom dollar industry with estimates of up
to 35 billion generated annually.
(11)Leadership: Leadership is an act of influencing and supporting others for the attainment
of common goals.
(12)Employee: An individual who works for a company and sells his/her skills to earn money
is called employees.
(13)Fraud: It is a deliberate deception to secure unfair or unlawful gain, or to deprive a victim
of a legal right.
(14)Diversity: Diversity is nothing but differences from majority. In any culture there is a
majority and many minorities.
(15)Ethics: It is concerned with distinguishing good from evil in the world, and between right
and wrong in human action.
(16)Decision: A decision can be defined as a course of action purposely chosen from a set of
alternatives to achieve organizational objectives.
(17)Personal responsibilities: It refers to the personal obligations of an individual. Every
individual has certain firm obligation on certain matters such as honesty avoiding
criminal acts.
 27

(18)Official responsibilities: It refers to positional obligations. A person who is occupying a

certain position should strictly follow certain norms and other standards.
(19)Personal loyalties: It includes loyalties of a subordinates to his superior. So long as
superior is just and honest, the subordinates shall not face any problems.
(20) Motivation: Motivation is an act of encouraging people through providing positive
incentives and negative threats.
Since, management and cultural diversity is the process of managing employees from
different backgrounds at a same organization. It leads to many obligations and challenges
to manage it. Managers should be well concerned about it to face the challenges and
manage it.
THEORETICAL ASPECTS OF MANAGEMENT AND CULTURAL DIVERSITY
Management is a process of getting job done through others in scientific and systematic
manner. In management theory and business practice, dealing with diversity, especially a
diverse workforce has played a prominent role in recent years. The acceptance and
management of cultural diversity have been promoted and touted as positive tool in social
and organizational engineering aimed at solving and preventing group dynamic problem in
both business organizations and society as well. Positive attributes of cultural integration in
business organization have received fair and significant attention in past two decades. In
todays market or business environment diverse managemnt takes vital role for any
organizations.diversity in management creates many problems as well as many new
experiences and findings in work.
Diversity enhances creativity and innovation and produces advantages. It also helps
organization for entering the international area. Diverse teams makes it possible to enhance
flexibility and rapid response to change.The word “cultural diversity” here can be defined as
mixture of people with different group identities with in same social system. If the workforce
profile in an organization is composed of workers groups which shows differences depending
on demographic or other characterstics, diversity emergers.Management of cultural diversity
has been suggested as the human resources strategy enabling the effective management of the
workforce diversity craeated by demography and group of people. Organization around the
world has been realizing the cultural diversity within organization is not a negative aspect,
rather can faciliate organizational stalk for glory. However it is not easy to manage
employees with different cultural backgrounds. Nevertheless there are many policy guidelines
that can make take easy. On a broader perspective, cultural diversity can be manage through
communicating awareness among all employees about diverse values of peers through
communication.
There are many different innovatives ways that organization have adopted to manage
diversity.For instance Tabra incorporation, a small manufacturer of jewellery and accessories
in California comprised of modest work force is composition of Third World immigrants
from Cambodia, China, EL Salvador, Ethopia , India , Laos etc. To acknowledge importace
of their cultural association , at least 10-12 different falgs, are always hanged from the
 28

celeing of its main production facility which represents the countries of origin of
employyes.If cultural diversity can be managed effectively there is a potential to use diverse
workforce for organizational benefits.Cox and Balke (1991) asserts that multi-culturism is
directly linked to organizational success. Effective managed multi culture compenanies have
cost effective edge.It helps in promoting minority friendly reputation among propective
employees. Diverse cultural corporation help to get better customers which has variety of
people. Diverse group of employees are percieved to be more creative and efficient in
problem solving as compared to homogeneous group.
Ability to manage cultural diversity increases adaptability and flexibility of an
organization to environmental changes.Many organizational examples like in Australia, for
instance, Hotel Nikko in Sydney has unique edge tha staffs members in direct guest contact
areas speaks a total of 34 different langauges. Similarly Qantas flight catering has sixtysix
nationalities on staff, with various over seas born chefs. So dedicated diverse ethnic kitchens
gave Qantas a huge competitive edge that offers food based on customers ethnic taste and
requirements . Moreover Don’s smallgoods through litercay, language and cultural trainings
increased cross cultural communication and increased cross culture communication and
increased profit while lowering costs at the same time. Similarly the cheesecake Factory had
put especial effort to understand japanese quality and packaging culture as Asian employees
assist management to understand Asian employees assist management to understand
Asian tastes so that they can target exports to Asia. Cultural diversity in work place is
becoming more and more prevalent. Corporation in all industries are encouraging minorities,
women, elderly workers, people with disabilities as well as foreign workers to join white
males in the work place. Even if affirmative action, diversity of the workforce is clearly here
to stay.Busniness owners and managers, experts say, will need to maintain or step up efforts
to recruit and advance ethnic minorities. That’s essentially because having a diverse
workforce and managing it effectively will simply be good business for various companies.
One business leader who is the forefront of implementing diversity is the xerox
corporation. Xerox implemented their strategy for diversification through an aggressive hard
driving affirmative action plan. The company has been successful in grasping Diversity by
installing it in it’s organizational cultural and making it managemntpriority.Xerox corporation
has taken on the imperative responsibility to implement plans that ensure a true
representation of the community in which they are based and upholding a true picture
of globally based customers they served. Their strategy one that sets goals to recruit
and retain minorities for previously restricted position.
Their strategy is one that sets goals to recruit and retain minorities for previously
restricted positions and hold management accountable for reaching those goals. It is an
approach which has worked well for the organization. Because they are truly commited to
tapping into the expanded creativity minorities bring, Xerox has moved from the mandatory
focus of affirmative action programms to voluntary implementation of a business objective.
 29

According to John Fernandez, author of the book “managing a Diverse Work force”, white
males would make up only fifteen percent of the net addition to thelabour force between
1985 and 2000. White males were already in minority, representing only forty-five percent of
America’s 115 million workers in 1985.
Hence, the discussion suggest that it is imperative to realize that cultural diversity
should take as a tool for better organizational progress rather than managerial problem and if
effective managed. It can be key to gain competitive edge and success.management and
cultural diversity can be taken as a topic of advantage and advancement.
MAJOR TRENDS IN THE CURRENT BUSINESS WORLD
Todays world is known as days of modern technology and narrow world. Management is the
process of managing, planning, organizing, staffing, controlling, coordinating the managerial
work systematically. Cultural diversity is the differnce between people or employees
according to his/her culture. Comparing both management and cultural diversity we can say
that the process of managing all the employees of an organization from different culture
mentioning the same common oriented goal is called management and cultural diversity.The
current business world carries a large number of employees along with different views. It is
ovious that every organization has many workers relating to different societies. Managers of
today’s world should be more concious about managing the people from different
background.
Globally, the influences of cultural diversity is affecting in every organization. In the
context of developed countries like America, Canada, Dubai, UAE, Russia, United kingdom
and many others. The organizations of these developed countries are forced to input the
employees of different countries to operate a organization. Since, workers from different
countries are collected in an organization there is sure to be a cultural diversity. Just for
taking an example of Nepal, Nepal has more than 100 lagauges and more than 100 castes.
Since a single country nepal has this much of cultural diversity what about globally. So, every
business organization is facing problems of cultural diversity in every country. Although,
there are many disadvantages of cultural diversity in an organization there are advantages of
cultural diversity also. Generally when people of many culture gathers in a place to work that
creats many opinions which can create many disputes among the people. But, if that opinions
are managed and supervised systematically there may be new creation of knowlede and
practice of doing work. So, in today business trend , all over world organizations and
managers are professionally trained to manage all these conflicts and disputes among the
workers. Moreover they able to manage the people from different culture at a same work
place by providing equality, counseleing classes and many other measures which made the
current business world more effective, systematic and scientific.
Due to enough knowlede and understanding between people and organization. It is very
comfortable to adjust any worker from any culture to any organization. Technology and
professionals have made cultural diversity as a advantage for any busniess organization. In
todays world cultural diversity plays very important role for the advancement and
 30

development of business tradition in todays business world. Hence, management and cultural
diversity in toady’s business world is a matter friendlyness and co-opreation between workers
and managers.
NEPALESE PERSPECTIVE IN MANAGEMENT AND CULTURAL DIVERSITY
Nepal is a multi-lingual, multi-cultural, multi-ethnic country. It has more than billion
tradition, languages, culture and ethnic groups. It evantually effects on the context of
management and cultural diversity. Nepal is a appropriate country for a dicussion about the
matter of management and cultural diversity. Nepalese business organizations includes of
people from different societies, culture and traditiom which brings different opinions and
perspective among the people. It creates disputes among the people of a same organization
which adversly affect in the operation of nepalese business organization. But, although Nepal
has more number of languages, culture and many other ethnic group, people and employees
of Nepal are working in systematic manner without any disputes in some cases. Private
organizations and many other business houses carries different Nepalese from different
culture without having any unequity among them and treating them as a people of a single
countries. Moreover, in government organization, there are many disputes and feelings
among the people. Workers from the same organization may have many number of groups.
So called political parties is t example of a group of people. Same as a political party there
are many groups and individual formed with their similar thoughts and perspective in same
organization which creates disputes and disturbance in the daily operation of business
organization.
Management and cultural diversity plays vital role in the context of Nepal. Nepalese
perspectives in management and cultural diversity can be stated as a major problem of
nation.Hence, in the context of nepal management and cultural diversity is one of the major
defect of nation.Since, Nepal is a developing country, people of our country is lacking behind
in every sector including education. Nepalese people are not more educated enough to
manage the problem of cultural diversity and gain more advantages and advancement in the
nepalese business sector.
UNIT 6
RECRUITMENT
Definition of Related Terms
A project is incomplete without some definitions of related topic.Definitions of the
RECRUITMENT are given below:
1) Recruitment: Recruitment means the process of identifying and attracting the potential
candidate for the vacant post of the organization.
2) Advertisement: Advertisement is a medium which is used to make the people aware of
vacant post.
3) Candidate: Candidate is a person who is eligible to apply in a vacant post.
4) Application: Application is a printed form provided to the organization often used for
recruitment process that contains detail personal and educational information of applicant.
 31

5) Selection: Selection is the process which is used to choose the best candidate from pool
of applications.
6) Competency: Competency means the skill, ability and knowledge of the candidate who
take part in recruitment process.
7) Vacant post: Vacant post is an empty post which attracks the candidate to apply or take
part in the recruitment process.
8) Internal source: Internal source is a source which is used to acquire candidate from with
in the organization.
9) External source: External source is a source which is used to acquire candidate from
outside the organization.
10) Promotion: Promotion is an upward or vertical movement of employees in organization
which is appointment to higher rank or position.
11) Opportunities: Opportunities is a chance given to candidate often to take part in
recruitment process for vacant post.
12) Unsolicitated applicants: Unsolicited applicants are unexcepted applicants who visit the
organization seeking for a job.
13) Rehiring: Rehiring means the practise of recruiting employees from those who have left
the organization.
14) Poaching : Poaching is a practise which borrows the employees of other organization by
showing the attraction of salary,more benefits and facilities.
15) Cyber space: Cyber space is a source which helps the candidate keep their resume in
internet and get recruited through concered website.
16) Face to face meeting: Face to face meeting is a direct meeting with concerned party
which does not include in recruitment process.
17) Wide use: Wide use or space means broad or lagre area included by the recruitment
process to attract more than more people.
18) Head hunting: Head hunting means practise of capturing high ranking personel from
other organization.
19) Head hunter:Head hunter is a person who helps to obtain high ranking personnel from
other organization.
20) Previous Apllication: Previous application is a source in which the persons who took
part in selection process but screened out from the process due to various reasons and
after that again given opportunity to take part in recruitment process.
Theoretical Aspects of the Three Sectors of the Economy
Employees are the assets of an organization. Best employees are hired by the process
of recruitment. The process of finding and hiring the best qualified candidate from within or
outside of an organization for a job opening in the organization is called recruitment. The
recruitment process includes analyzing the recruitments of a job, attracting employees to the
job, screening and selecting applicant. After selecting applicants they are hired and integrated
as the new employee to the organization. Recruitment to attract the maximum candidate who
have competencies for vacant job. It is concerned with using effective measures for attracting
sufficient number of capable applicants so that it would support for selection of efficient
employees.
 32

The concept of recruitment dates back to 55 B.D.It was not until 1940.However,we
have seen more modern birth of the staffing industry till today. During the start of WWII
( World War II) many employees’ positions were vacanted when they left to join the
military.The extreme lack of talent and increase of open positions created a need for the first
ever staffing agency.During this time, the resume went from an added bonus to a job search
recruitment. However, many staffing companies were consistant in finding people work on a
daily basis. In this current market, the staffing agency was more about finding eligible works
than finding high quality talent.
Recruitment is the act of acquiring and identifying qualified candidate. It is the
process of attracting and capturing as many applicants as possible from qualified job seekers.
Many scholars have given their view about the concept of recruitment. Some definitions of it
are as follows:
Gary Desseler–“ Employees recruitment means finding or attracting applicants for the
employer’s open position.”
Fisher–“Recruiting is the process by which organizations locate and attract individuals to
fill job vacancies.”
Decenzo and Robbins–“Recruiting is the process of discovering potential job candidates.”
Mc Kenna and Beech–“Recruitment is the process of attracting a pool of candidates for a
vacant position.”
In sum, recruitment is specially the set of activities and processes used to legally
obtain a sufficien t number of people at right place and right time.
The integral part of human resource planning is recruitment Similarly,sources and
methods of recruitment are largely influenced by HR planning , job analysis and legal factors.
Its sources are where the potential job applicants are found. There are two sources of
recruitment i.e internal and external sources.Internal sources includes promotion , transfer,
job rotation, rehires and recall. Whereas, external sources includes trade unions and
associations,employment agencies,walk-ins,academic institutions and employee referral
programmes.Also recruitment methods are the means used to recruit candidate like as
sources. Recruitment methods also have two methods, internal and external methods.
Internal methods includes job posting and skill inventories. Where, external methods includes
radio and television , trade journals and newspaper. So methods and sources play an vital role
to acquire well qualified candidate.
Effective process is the key to complete any determined task.So recruitment involes
the entire process necessary for hiring epmolyees. The function of recruitment is started from
locating sources of workforce to meet the need of job specification.It starts with identifying
the potential candidate and ends up with the collecting the maximum applicantions from
them.It relates all the activities essential for the supply of potential employees on the basis of
need of jobs of the organization.It involves taking corrective measures for attracting the
sufficient number of people so that it can facilitate for effective selection of capable and
efficient employees.
Recruitment comes before the selection process and performed by certain
planning.Recruitment planning compriesthe activities and time allocated to complete the total
 33

recruitment process and procedures.It includes the planning such as understanding of

recruitment process, assigning responsibility for recruitment and implementation of
recruitment policies.It includes the time for environmental analysis,preparation of job
description and specification.It includes responsibility for undertaking recruitment activities
such as time, number of candidate required, collecting applications and receiving applications
from candidate.Overall, it includes time for collecting, screening application,conducting
interwiew and developing number of qualified candidate.A well recruitment process is only
possible with a good planning.
Organization takes certain common steps to recruit the human resources, this basic
process depends on organizational size, nature of job and number of people to be
recruited.Recruitment process involves certain procedure.Firstly, it starts with integrating the
corporate planning and HR planning which include strategic planning. Smilarly, job design
and job analysis which ensures that the people who are hired have the ability to do the job.
Next, legal considrerations which describes the national rules and regulations towards
developing a recruitment plan. After that, locating sources and methods i.e internal and
external .Finally, developing a pool of qualified candidate. So recruitment process is a well
defined process for identifying large number of candidate.
However, no any process is eligible without certain plans and policies.Recruitment
policies are determined by the human resource expert. It is a part of organization’s strategy
for two reasons i.e first, it seeks to provide the organization with people who have the talents
needed to achieve strategic goals and then it has impact on long range employment stability
and turnover. Every country has its policy development frameworks based on nature of
business, size of organizations and other environmental factors.Factors to be considered in
developing a recruitment policy depends on country specific rules and regulation , pattern of
ownership, corporate policies, managerial role, union representation and communication, and
finally consultation with employees. Thus effective recruitment policies are crucial to
recruiting personel inorder to achieve organizational goals and long term stability.
Recruitment is a primary process and selection is a secondary process to hire the
qualified candidate in the organization. Selection is the process of choosing potential
candidate to hire in vacant job after collecting the applications. There are many differences
between recruitment and selection. The aim of recruitment is to gather many applicants as
possible. It is comparatively easy and does not require expertise. It is a positive task requires
few steps and advertising the job is a major factor. It is done by the personnel department i.e a
staff function. However, selection attempts to eliminate applicants in different stages. It is
difficult job which requires specialized knowledge and skill to choose the best candidate.It is
a negative task because it rejects maximum applicants. Overall, selection and recruitment
process have negative relationship.
In sum, recruitment agents worked tirelessly to connect available people with open
position. This develop the marketing skill to those staffing agencies who were first to provide
clever advertisement and deliver results grew quickly and dominated the market. In this latter
half of the decade, after the war was over, these staffing agencies made a killing providing
 34

soldier with jobs upon there return home. These days, the primary objective of staffing
companies was to generate interested candidate and provide open positions to fill. So there
are a lot of advancements to come in the next installment of the history of recruitment.
Major Trends in the Current Business World about Recruitment
Recruitment involves the process of acquiring the potential candidate to hire in a
vacant post. The top challenges of any bussines for 2016, recruiting and retaining talent are
some where on that list. Smart companies know that they are only as good as their best
workers and will prioritize seeking out the best of the best for their organizations. Hiring
managers and HR expert predict many of the recruiting trends prevalent last year was
branding, maximizing talent analytics, repairing the candidate experience and leveraging
untapped sources of hire. Companies will take an even more strategic approach to talent
acquisition, becoming increasingly inventive to attract and retain valuable candidates.
The world of recruiting has gone nearly 100 percent digital. When linked In and
online job applications first brgan to gain traction, they were seen as supplements to the
traditional paper resume and in-person interview. Jon Bschke,CEO of Entelo noted that
digital profiles can provide far more in sight into a candidate than a traditional resume can
and many recruiters have realized that.Live, two-way web cam interviews will also
experience tremendous growth over the next three to five years. It is said that twenty
yearsago, the resume was apiece of paper but now it is a collection of all data that can be
found online, like participation in online communities, conferences and meet ups.
A job seeker should know their worth and should be aware of the competitive
landscape. Today’s job seeker know these things and they see opportunities every where, if
one employer takes too long to respond or makes it difficult to apply . Chief knowledge
officer of Think HR, LauravbKerekes said-“ Talent acquisition has become a seller’s
market.”some small employers can’t afford sophisticated technology for application process
but they can make it easy.They have got a website and make the process engaging and
simple. These integrated platforms are most cost effective and enable the collaborative hiring
of top talent employees.
Candidates will evaluate company brands before applying to or accepting a job. In the
same way they evaluate consumer brands when shopping.Company websites are the top job
hunting source for candidates. These company store front serve as a one stop shop where job
hunting begins. A well designed career site to deliver a cohesive brand image that reflects
company mission, vision and values. The company brand experience in combination with
detailed job description and an online application . It helps job seeker determine proactively
if they are cultural fit to the organization and whether to apply. Over all, the companies
should take the time to look at how they are being reviewed on site and if possible
incorporate that into their employment brand.
Recruiters have learned that these employee’s expectations about the hiring process
differ from those older generation.It is not efficient to manually sort through profiles and
social network data. The next trend will may be not just sourcing social and mobile recruiting
data but actually applying intelligence to summarizing the important information. Candidate
 35

information will increasingly get the big data treatment so recruiters can quickly and easily
locate the best people for the job.While digital tools will never fully replaced the human
instinct necessary for identifying the right candidates.So data analytics may even help
recruiters discover which passive candidates are better to approach.
Hence, the trends of recruitment are the major activities to be focus on hiring the
employees for a job. As the employment market continues to tighten, it will become
increasingly difficult for employers to find out the quality, skilled candidate to meet their
needs.To resonate in 2016 , branding, maximizing talent analytics,repairing the candidate
experience and leveraging untapped sources to hire.Therefore, the major trends plays an
increasingly important role in the way companies approach the talent search and the hiring
process.
Nepalese Perspective to the Three Sectors of the Economy
Choosing a qualified recruitment agency makes the job much easier. Recruiting
quality candidates is one of the most important responsibilities of a hiring manager.
According to Landmark HR consultant, best recruitment agency in Nepal, understand
perspectives of both the company and candidates.Candidate should choose only the top
recruitment agency in Nepal for such job.A recruitment agency whose approach and values
complement ones organization can be very good for that organization. This way, agency
develop effective selection criteria that best meets candidate hiring needs and then filter the
best recruitment agency in Nepal .
In hiring the best candidate JD (Jobs Dyamics) applies extensive recruitment
techniques from various sources.JD has been providing recruitment and selection services to
various known organizations ranging from advertising agencies to commercial banks.It has
been providing quality candidates that are pre screened.It has been involved in hiring of a
General Manager, Managers, Officers and Non officers including supervisors and
Assistants.JD portfolio includes- Worldlinks CommunicationsPvt.Ltd,Jyoti Group, Golcha
Organization- Him Electronics Pvt.Ltd,Evo Trade- Apple ans Asahi Beer, National Life
Insurance, King’s College, Quest Entertainment Pvt.Ltd,Eporios Nepal,Himalayan Bank Ltd,
Kumari Bank, Gorkha Travels,etc.Hence, JD is better equipped to understand its clients need
and provide professional services.
Selection is the next step after recruitment which is used by JD. It conducts complete
recruitment and selection process in pragmatic approach i.e conducting examinations, round
of interviews, in-depth group discussion and case analysis with mock presentation. It
simulates every new possible candidate in a right direction by assisting them from the basic
job recruitments to the professional dexerrity in a stepwise process. Are the details provided
in resume accurate? Is the background of the candidate you are hiring is clean? These are the
crucial question organization face when they are hiring employees.The benefits of this service
are:
1. Filter away false job applicants
2. Help to find the right and suitable candidate for the job
3. Retain the candidate and foster work environment
 36

Thus JD offers total recruitment and selection solutions with special emphasis on
helping the organization to select right human resources.That would be capable of
discharging their duties and responsibilities efficiently and effectively. It is working for
recruitment and selection process by conducting selection tests, inductions and orientation
facility and background checks.In this way, JD has become a one-stop destination for all of
Hr process need provide diverse HR related services under one roof in Nepal.
UNIT 7
LABOUR RELATIONS
Definitions of related terms
1. Employers: Employers are the people who invest and have direct interest in welfare
business.
2. Government: Government is a body or an institution that regulates industrial relation
through rules, laws, agreement, regulation and so on.
3. Workers: Workers are the key actors of labor relation who seek to improve terms and
conditions of their employment and who sale their skills, knowledge and ability to the
benefit of organization and themselves.
4. Industry: An industry is any productive activity in which individuals or group of
individuals are engaged.
5. Relation: Relation means the relationship that exists within the industry between
employer and his workmen.
6. Society: Society is the broad spectrum of industrial relation which represents both the
government and pressure group.
7. Security: Security is the state of being free or feeling safe from damage, threat or hazards
such as: accident, injury, illness, etc.
8. Management: Management refers to the effective and efficient utilization of resources to
get works done.
9. Investment: Investment is a process of investing money or capital in order to gain
profitable returns as interest, income or appreciation in value.
10. Conflict: Conflict is a state of opposition between ideas, interest, etc. often called
disagreement or controversy.
3.
11. Productivity: Productivity means quality, state or facts of being able to generate, create,
enhance or bring forth goods and services that shows relationship between input and
output
12. Communication: Communication is a way of exchanging information by speaking,
writing or using some other medias.
13. Agreement: Agreement is the situation in which people have same opinion or in which
they approve of or accept something that is guided by give and take principle.
14. Rights: Rights are the legal, social, moral or ethical principles of freedom or entitlement.
15. Trade unions: Trade unions are associations of workers and are formed with the
intention of protecting workers against exploitation of employers and also to improve the
worker’s condition.
 37

16. Collective Bargaining: Collective bargaining is the process of negotiation between

employers and organized workers represented by their union in order to determine the
terms and conditions of employment.
17. Labor Dispute: Labor dispute is the disagreement between employees and the
employers in matter regarding organization procedure.
18. Lockout: Lockout is the exclusion of employees by their employer from their place of
work until certain terms are agreed to.
19. Pressure Group: Pressure group is a formal group of personal who pressurizes
organization to address public expectations.
20. Labor Relation: Labor relation refers to the relationship between workers and their trade
union, management, employer’s association and the state concerned with the regulation of
employment.
21. Conciliation: Conciliation is the process by which representatives of employees and
employers are brought together to discuss, reconcile their differences and arrive at an
agreement.
22. Craft union: Craft union is the union in which workers of similar type of
work/trade/business and similar skills, specializations are involved.
Theoretical Aspects of Labor Relation
John Dunlop published the book named Industrial relations system in 1958. This
book is perhaps most influential work of last 60years in the area of industrial relations.
Industry relation is a multidisciplinary field that studies the employment relationship.
Industrial relation is increasingly being called employment relations or even employee
relations. This more is sometimes seen as further broadening of Human Resource
Management trend. Indeed some authors now define Human Resource Management as
synonymous with employee relations. In academia, labor relations is frequently a sub
area within industrial relations, through scholars from many disciplines including
economics, sociology, history, law and political science also study labor unions and
labor movements. In practice, labor relation is frequently a subarea within Human
Resource Management. Courses in labor relations typically cover labor history, labor
law, union organizing, bargaining, contract administration, and important contemporary
topics.
Labor relation plays crucial role in establishing and maintaining industrial
democracy and peace in the country. The concept of industrial relation has a wide
meaning. The expression industry relation by itself means relationship that arises out
day-to-day working and association of labor and management. Different terminologies
like industry relation, their old concept and modern concept are used. According to old
concept, it simply meant for the relation that exists in the industry between employer
and his workmen. According to modern concept, the dynamic concept incorporates not
only the relation between employer and employee but also the relation between
employer, employee and the government.
 38

Many management theorists stress the necessity of unions. In the 1970s, Peter
Drucker wrote that ‘Management is and has to be a power’. Any power needs restraint
and control- or else it become tyranny. The union serves an essential function in
industrial society. Yet one of the chief objectives of right-wing governments in the
1980s was to diminish the power of trade unions, and to deregulate labor markets in
accordance with the ideal of free markets. As a result of deregulation, working
conditions in many industries in many countries have worsened, leading to the creation
of a great many casual, part-time, unskilled jobs done by non-unionized workers.
France, for example, has the lowest number of workers in trade unions in the
industrialized world. The unions now represents less than 10% of the French work
force, and most of those are in the public sector.
Labor relation covers many areas related with employees such as labor history,
labor laws, union organizing, bargaining, contract administration and important
contemporary topics. Labor relation also known as employee relation or industry
relation is a joint effort of these major influences that maintain harmonious industry
relation between them. But it is a multidimensional force that is influenced by the
external forces consisting economic, social, cultural, political, legal, technological and
occupational forces. The primary focus of labor relation should be on grievance
handling, industrial dispute, and interpretation labor laws, etc. It provides a content in
which organizational roles assigned to members are performed . In practice, labor
relation is considered as an important element of human resource
management.
An Industrial relation systems consists of whole gamut of relationship between
employees and employers, employees and government and between these their respective
organization which are managed by means of conflict and cooperation. Therefore, three
parties are directly involved in industrial relations. Employers who are job providers
provides employment, pay wages and various allowances and regulate the work relation
through various rules, regulation and by enforcing labor laws. Workers are person or
group of persons who sale labor and skills to employees. They seek to improve terms
and conditions of their employment. Workers have an organization prominently known
as Trade union. Their main purpose is to protect economic interest through collective
bargaining and by bringing pressure on management through economic and political
man oeuvres. Society is the broad spectrum of industrial relation that represents both
government and pressure group.
In the united states, labor relation in the private sector is regulated by the
National Labor Relations Act. Public sector Labor relations is regulated by the Civil
Service Reform Act of 1978 and various pieces of state legislation. In other countries,
labor relations might be regulated by law or tradition. An important professional
association for U.S labor relations scholars and practitioners is the labor and
 39

employment relations association. British unions are known as trade unions because, as
in Germany, they are largely organized according to trade or skill: there is an
engineers’ union, an electricians’ union, a train-drivers’ union, and so on. In other
countries, including France and Italy, unions are largely political: workers in different
industries join unions with a particular political position.
In the organization, a sound labor relation maintains good working environment
which results in increasing organizational facilities in the work station. It also ensures
sufficient financial and non-financial benefits or incentives to lead better quality of
life. Therefore, labor relation brings an efficient relationship that aims to develop and
promote a good worker relationship within and outside organizational sphere. It uses
collective bargaining where conflicts and disputes solved through negotiations and
compromise. This ultimately results into high degree of industrial peace in the
organization.
Common definitions given by different scholars and institutions are:
John T. Dunlop, “Industrial relations are the complex of inter-relations among workers,
managers and government”.
International Labor Organization(ILO) , “Industrial relations deal with either the
relationship between the state and employers’ and workers’ organization or the
relation between the occupational organizations themselves”.
K. Aswathappa, “Labor relation is considered with the relationship between
management and workers and role of regulatory mechanism in resolving any
industrial dispute”.

Labor relation is a step by step process that begins with

the unionization of employees, moves through dispute to
collective bargaining, to settlement of dispute and finally
ends with administration of contract. The first step,
labor relation is continuing and long term process that
is targeted to form and maintain specific purpose of
blue collar worker. When the unions are formed,
employers create disputes in the work environment.
Hence, a dispute will be created after the formation of
trade union. The negotiated agreement serves as a
code defining the rights and duties of each employee.
When disputes are raised in work environment, such
hurdles are solved through collective bargaining
between concerned parties. Moreover, both conflicting
parties agree upon a consensus and sign on contract to
settle existing problem and finally monitoring team is
formed to monitor the effectiveness of signed contract
 40

Therefore, Labor relation seeks to balance the economic efficiency of organization

with equity and justice. It is concerned with the development of industrial to find
ways of minimizing and resolving disputes and conflicts. It also seeks to promote
harmonious relations between and among the actors directly involved and society as a
whole. So, when taken in wider meaning, it is a set of functional interdependence
involving historical, economic, social, psychological, demographic, technological,
occupational, political and legal variable.
Major Trends Of Labor Relation In Business World
The international labor movement on a global, as opposed to regional or national
level, consists of international associations of national federations of labor unions.
There are currently three such internationals reflecting different ideological tendencies:
the International Confederation Of Free Trade Unions(ICFTU), the World Federation of
Trade Unions(WFTU) and relatively small, originally Christians, World Congress Of
Labor(WCL). The ICFTU is the largest, with 174 affiliated union, from 124 countries in
1995, representing 110 million trade union members. Given population trends and trends
in labor force participation rates, the U.S workforce will continue to increase in
size but at a considerably slower rate than in the past. During the 1970s, the
workforce grew 2.6 percent annually, declining to 1.1 percent growth in the 1990s.
Between 2000 and 2010, the annual growth rate is projected to equal that of 1990s,
but it is projected to slow in the next decade to just 0.4 percent and in the following
decade to only 0.3 percent. Also, steadily increasing female labor force participation
rates, combined with declining male rates, have brought the labor force closer to
gender balance.

According to the Trade unions ordinance No.14 of 1935 of Sri Lanka, a trade
union is an association or a combination of workmen or employers whether temporary
or permanent and it may have many objectives. Therefore, the first person to introduce
the idea of trade unions in Sri Lanka was A.E Bultigens. The first formal strike action
was launched by fifty employees of British owned H.W care company, the largest
firm of printers and book sellers in Colombo on the grounds of delay in the payment
of wages. On the 17th of September 1893, the strikes held a meeting and formed the
“Ceylon printers society” the first Trade union not only in Sri Lanka but also
in South Asia.
Since 1930s, the process of free collective bargaining in the North American
Continent has gone through three different stages, organizational stage, containment
stage and accommodation stage. Prior to 1935, the union movement faced opposition
and hostility in its efforts to organize workers and to seek the right to be recognized
by management as the worker’s representatives in collective bargaining. It was
management’s belief that unions by their very nature, interfered with managerial
authority. The second stage involved containment of the union movement. In the late
 41

1930s and early 1940s , when political, economic and social events made the
acceptance of unions necessary, managements philosophy of industrial relations had to
change.
Future trends in technology, globalization and demographics will support higher
wages and are likely to affect the distribution of wages, just as they have in the past
several decades. In the absence of a strong increase in the supply of skilled workers
in response to the higher returns to education, wage dispersion – particularly as
measured by the gap between more and less educated workers- will likely
remain at current levels or even continue to widen. Meanwhile, greater turnover within
traditional employment relationships and shifts to nonstandard employment relationships
highlight the importance of fringe benefits being portable across jobs or even
independent of jobs.
From a policy perspective , many of the institutional features of the U.S labor
market - e.g. the laws and regulations that govern employment, hours, wages, fringe
benefits, occupational health and safety evolved in an earlier era. Given the above
trends and implications, some policies may need to be reexamined. For e.g. Are there
distortions or unintended consequences with current policies that precludedesirable
market adjustments? Are there new market failures policy can address? Are there
distributional consequences that could agree for government intervention? Therefore
these all helps to prepare the U.S labor market for the 21st century.

Nepalese Perspective of Labor Relation

From the perspective of dispute settlement, the governing labor Act 1992 has
classified the industrial disputes into two categories consisting of individuals disputes
and collective disputes. Individual disputes focus on right whereas collective dispute
focuses and based on interest. In general, the purpose of developing and maintaining
peaceful industrial relations in the country, the Labor Act 1992 has recommended the
following method and process of settlement of individual and collective disputes. They
include collective bargaining, conciliation, arbitration and adjudication.
In the field of industrial relation, Collective bargaining is a key means to
improve wages and condition of work and for regulating employment relations. As a
process of industrial relations, Collective bargaining is a base for worker’s participation
in decision-making. However, the success of collective bargaining in industrial unit
depends on the favorable policies and regulations of the state. If workers have any
discontent against company relating to their jobs and service, they may submit a
written complain to the company’s manager or management. The management of
company shall call the concerned worker for the discussion within 15 days of receipt
of complaint and solve the problem.
 42

Similarly, if the employer or management could not solve the problem, workers
may file petition on the labor office specifying their discontents. The labor office
convenes bilateral discussion between workers and employers and shall solve the
dispute within the 15 days of petition. If the worker is not satisfied with the decision
of labor office or labor office also failed to address workers complaints, they can
appeal before the labor court within 35days from the date the decision of labor
office. The labor court shall give final verdict within 60days, both parties should
accept the verdict. Labor Act of Nepal has made following for settlement of
collective disputes. Complaint to manager includes the signature of at least fifty-one
percent of workers, workers or their representatives file the collective claim to the
management. The manager should convene bilateral discussion between worker and
management within 21 days and try to sole dispute.
Likewise, if manager fails to reach on an agreement, aggrieved party files the
claim on labor office. The labor office has to call bipartite discussion between workers
and employers. A notice is to be given to go on strike should be given to concerned
office and authorities 30 days advance by passing special resolution of 60 percent of
workers through secret ballot. If the dispute is not solved even the efforts
of labor office, an arbitrator is appointed by department with the mutual consent of
company and workers. If any party is not satisfied with the decision, it may appeal to
the labor court within 35 days from notice of decision by arbitration. The labor court
adjudicates and gives its verdict on the dispute within 60 days from the receipt of
case and the verdict given by labor court is mandatory that should be accepted by all.

UNIT 8
PRODUCTION
Definition of Related Terms
1. Branding
Branding is a practice of giving a specified name to a product or a group of products of one
seller.
2. Individual brand
Individual brand is a type of branding in which each product has given a special and unique
brand name such as pooja, Lux, khukuri, Nokia etc.
3. Family brand
It is a type of branding in which single brand name is given for all product items under a
product line.
4. Raw materials
raw materilas are the first asssts that are used to produce somthing in the organization.
5. finance
finance refers to the monitory source that are required to conduct activities in the
organization.
6. manpower
 43

human resources refers to the poeple or group of people who perfom the fuction in oder to
getting the common goals.
7. location
location is the place where the company was established.
8. price
price is the machanism of determined the value of the product.
9. product
product is specific thing fulfill the consumers wants and desire.
10. cosumers
Consumers are the poeple or group of people that consume or puchase goods and services.
11. supliers
supliers are the distributed channel that suplies goods and services to the consumers or
sellers.
12. demnads
Demand means desire or wants of somthing including ability to pay wilingness to for that.
13. supply
Supply means the amount of output produce and distributed by the company .
14. compititor
compititor are the the same kind of organization that provide same kind of goods and sevice
to the people or group of people
15. Market analysis
market analysis means to collecting the information regarding market structure.
16. . organization
17. Organization is the place where all people are perfome their task in oder to getting
common goals .
18. Government
Government is the ruller who makes the law and regulation to regulate the business activities.
19. Financials agencies
Financials agencies refers to the insititution that fasilate the finacials helps to the
organization
20. warehouse
Warehouse is the place where the raw materials or a produce good and service are

21. Profit
Profit is the diffirence between income and expenditure.
Theoretical Aspects
Production is the process of workers combining various material inputs and materials
inputs in order to make something for consumption. In other world the process and method
used to transform tangible inputs and intangible inputs into goods and service. It’s the act of
creating output a goods and services, which has value and contribute to the utility of
individual. Resources are used in this process to create an output that is suitable for used or
 44

has exchange value. Production is helpful to maximize the profit and make sure the needs of
user or customers. Similarly it includes the eliminating wasted of time by providing process
flow, likewise it reduces the inventories cost and optimizing the equipment uses. Likewise
utilizing the time of employers and improving the delivery time of product and services
Production is making or growing something for sale at particular point of time. Production
activities of the organization is based on good quality. there is one saying " one good product
is better than many fake good". it means that organization or company mainly focus on thier
quality. How they can increase quality in such product. there is increase demand of that
product. Producing the quality product and increase the consumers satisfaction is one of the
objective.
Production activities are affected by the national and international law and regulation.
Every company produce something by following the provision of that country. Beside the
company has it own policy regarding the production topics. Most of the company or
organization established with the aim to earn more profit and stay at the top position over
long period of the time for that it's neccesary to produce more and more goods and services as
per the requirement of the customers.
Production is the process of satisfying the customers desired. It helps all the
customers fulfilling their wants by giving them what they want. Production can broadly
classified into 2 categories i.e. firstly production through the separation and secondly
production through the modification. Production through the separation involves desired
output is achieved through the separation or extraction from raw materials. Oil is converted
into different fuel product is one example of production through the separation. Likewise
production through modification involves change in chemicals and mechanical parameter
attributes of raw materials. Heating at high temperature and cooling is the example of
production by modification.
Production is a scientific process which involves transformation of raw materials
inputs into desired products or service output by adding economics values. Successful
organization has well defined line function and support function. Production comes under the
categories’ of the line function which directly affects customers experience and there by
future of the of the organization. Aim of the production function is to add value to product or
service which will create a strong and long lasting customers relationship or association.
The very essence of any business is to center needs of customers by providing goods
and services. Production policy talks about applying business concept in creation of goods
and services. However globalization of the business has compelled many manufacturing
firms to have operations in many countries where they have certain economic advantages this
has resulted in a level of competition among the manufacturing firm throughout the world.
More and more firm are recognizing the importance of production strategy for overall success
of their business.
Total quality management (TOQ) approach has been adopted by many firms to
achieve customer satisfaction by never quest for improving the quality of goods and services.
 45

Quality is the main basis for increasing the sale of goods and services. On the other hand to
establishing the organization over long time it need to be produce quality goods otherwise
organization failed to work in advance world. Quality determines the quantity of the
production. So the organization must try to improve quality in order to achieve the goals.
Production can broadly categorize into following based on technique: production
through separation. It involves desired output is achieved through separation or extraction
from raw material. A classic example of the separation is oil into various fuel products. And
production by modification; It involves change in chemical and mechanical parameters of the
raw materials without altering physical attributes of the raw materials. Heating at high
temperature and then cooling is example of the production by modification.
Almost all major corporations today are driven by three priorities: creating shareholder value,
a laser-beam focus on their customer, and competing in a global environment. These
objectives are interdependent and impossible to achieve in a vacuum. Distribution is the next
competitive battleground and the companies with the best-integrated logistics will have a
strong competitive edge. Logistics has become a hot competitive advantage as companies
hard-pressed to beat competitors on quality or price try to gain an edge through their ability to
deliver the right stuff in the right amount at the right time. Integrated logistics having the
right product in the right place at the right time is the new battleground in economic
competitiveness on a global scale. Companies are moving rapidly away from the
‘conventional wisdom’ to a more aggressive, dynamic, and innovative corporate strategy.
They are moving away from the traditions of the past and embarking on new courses of
action:
i. Away from functional excellence towards the pursuit of total business
ii. excellence.
iii. Away from broad funding of business towards selected capital investment.
iv. Away from competition based on price and quality to competition based
v. on time.
vi. Away from top-down management decree to frequent two-way communication
vii. with employees.
viii. Away from a product-driven approach to a market-driven approach.
ix. Away from technological evolution to technological revolution.
Today’s global economy presents a growing need for sophisticated, information based
logistics and transportation solutions. Logistics has always been important, but top
management has not considered it critical to competition until recently. Most companies have
explored re-engineering and applied total quality management. They have empowered their
employees. They have implemented the latest management tools and product innovations.
They have jumped headlong into the information age. And now they are focusing on logistics.
The seven principles of an old (1584) Japanese swordsman may be applied to winning in all
phases of business and serve as a tactic in competitive situations. The seven principles
represent the core principles of this competitive philosophy.
Ordered flexibility. Ordered flexibility embodies preparation, observation, timing, and
readiness to act. Excessive order and structure lead to brittleness and defeat. Balance order
 46

with flexibility. Move slowly when conditions are unfavorable; move powerfully when the
right course opens up. Think of winning, not of position. Focus on probable areas of success.
No person or company has enough resources to exploit every opportunity. Highly effective
executives focus on markets and battles that their companies can win and win big. They
direct high-output resources into opportunities that produce the greatest profit for the longest
time. Effective execution. Execution or action produces results. Execution creates profit.
Execution wins victories. Effective execution consists of taking an appropriate action at an
appropriate time. There is no way to tell, in the heat of battle, whether the actions you are
taking are the ‘right’ actions. A good idea executed promptly today is worth a dozen perfect
ideas executed next week; be prepared to act when the opportunity arises. This requires
courage and patience, order and flexibility. The ability to perceive and benefit from the
moment of advantage is developed through constant study and practice.
Resources. Resources are those assets and skills that each side brings to the conflict. They are
the raw material of tactics. In business, resources can include people, plant, equipment,
finances, and reputation. In all competitive situations, the most critical resource is timely and
accurate information.
Information is the fabric of tactics. You can never know too much about your enemy,
yourself, or the situation. Environment. In business, environment includes market trends,
economic and political climate, technology, and public opinion. Resources and environment
provide the setting in which a competitive situation arises and is resolved. Your initial
approach depends on your assessment of environment.
Attitude. The attitude you bring to the conflict will be the attitude you practice in training.
You must be confident and competent, aware and ready, neither afraid nor careless. Your
choice does not change the facts of the situation. Neither imagined fear nor false optimism
can change your real position and circumstances.
Concentration. In every situation, there are tactics that will work and tactics that will not
work. Effective tactics are based on the principle of concentrating strength against weakness
or resources into opportunity. Every opponent, every challenge you face, whether it is another
person, another company, or even change and innovation within your own company, has a
weakness or opportunity you can exploit with the proper attention. Concentration utilizes
your resources most effectively against the weakness or opportunity, contained in a specific
situation of threat.
Timing. The timing of competitive actions is often critical to success. When you engage in
competition, you should neither move too quickly nor too slowly. It is not speed in itself, but
rhythm and timing that are critical. The appropriate moment is that point in time when the
scales are tipped in favour of the tactics you chose. Concentration and timing work together.
If you do not concentrate thought and resources at the appropriate moment, your tactics will
probably fail.
Current trend in production
 47

The goal of business process re-engineering (BPR) is to improve customer service;

increase market share; reduce the cycle time inherent in business operations; reduce the cost
of operations; and achieve dramatic improvements in a company’s performance in a relatively
short period of time. Many approaches exist for improving manufacturing performance (JIT
OPT, etc.) but few approaches offer the opportunity to make dramatic improvements in the
non-manufacturing or “White collar” areas of a company business. Business process re-
engineering focuses on examining the workflow and processes within and between
organizations. BPR can be viewed as a set of logically related tasks performed to achieve a
definite business outcome Most business process re-engineering methodologies follow the
same pattern in terms of approach to projects and deliverables. The business drivers for any
integrated process improvement/information systems initiative are the company business
strategy and the critical success factors of the business. This should dictate the priority for
pursuing process improvement projects.
Computer-aided design (CAD) is computer software and hardware combination used
in conjunction with computer graphics to allow engineers and designers to create, draft,
manipulate and change designs on a computer without the use of conventional drafting. CAD
systems permit greater speed, precision and flexibility than traditional drafting systems.
Computer-aided manufacturing (CAM) incorporates the use of computers to control and
monitor several manufacturing elements such as robots, computerized numerical control
(CNC) machines, storage and retrieval systems, and automated guided vehicles (AGV). CAM
implementations are often classified into several levels. At the lowest level, it includes
programmable machines that are controlled by a centralized computer. At the highest level,
large-scale systems integration includes control and supervisory systems. Working with CAD
the designer is able to converse with the computer and receive a direct response from it. For
example the designer may generate a sketch on the monitor, as a result of previous
programming, the computer understand the sketch, makes calculations based on it, and
present answers or a revised sketch to the designer within a few seconds.
The main task of collaborative manufacturing in virtual enterprises is to support
communication both within a production plant and among the partners of the virtual
enterprise. The objective of virtual, network-shaped and temporal cooperation of
decentralized competencies is to increase flexibility and satisfy customer demands. From the
point of view of information processing, the shift of coordination tasks from internal
coordination within a company to external coordination of several companies working on a
common project is critical. In the borderline case of a virtual enterprise the problems arising
can serve as an example. There are many challenges to the information systems architecture
when setting up a virtual enterprise. Potential barriers to cooperation spanning different
enterprises are:
i. High degree of distribution. Applications and relevant data are highly distributed.
 48

ii. Highly heterogeneous environment. The environment consists of heterogeneous

applications, information systems, communication systems, operating systems, hard-
and software, which all have to integrate and operate seamlessly.
iii. Coordination and cooperation mechanisms. In order to achieve controlled and
coordinated cooperation of different applications, a controlling mechanism spanning
the partners of a virtual enterprise is needed.
The objective of common-sense manufacturing (CSM) is to regulate work in- process,
and enable the manufacturing line to meet the production goal. It allows operations teams on
the shop floor to regulate and adjust the work plan. Common-sense manufacturing (CSM)
results from combining the strengths of materials requirement planning (MRP) and just-in-
time (JIT) methods with the concepts of constraints management, strategic buffers, and
ongoing yield improvement. MRP systems approach the production control task from a ‘first
plan the work and then work the plan’ viewpoint. Unfortunately, such systems are often better
at planning than they are at working. At the point of production, the execution methodologies
of JIT systems, such as pull systems and kanbans, are better utilized.
Today the world market is regarded as a small village. A company has to compete on
a worldwide basis. With manufacturing globalization, new technologies, and new competitive
standards, only high-performance companies can compete efficiently. World class
manufacturers share four characteristics:
i. They exhibit outstanding leadership;
ii. They continually ask why and challenge what they are doing;
iii. They meticulously measure results;
iv. They place an extremely high priority on education.
World class manufacturing focuses on how systems operate. While methodologies exist that
focus on a design approach, say business process re-engineering (BPR), the key strength of
world class manufacturers is in use of operational processes which maximize efficiency. For
example, work-teams are often cited as a useful way of organizing workers. Teamworking is
about how a system can operate and so work-teams are an operational issue
Nepalese perspective of production
The process and method used to transform tangible inputs and intangible inputs into
goods and service the main causes behind the various problems which impair the
development and formation of a new product are: geographical structure, economical status,
low demand of the product, etc. Due to the very difficult geographical region in hilly and
mountain area of Nepal transportation facility is still cannot be reached which decreases the
demand of the product. They have no idea about new product and processed product. If they
are familiar with the product they cannot bought the product until it is extremely needed, this
is because of their economic status. Exchanging goods with goods also affect the marketing
and sales of product.
Marketing network plays vital role in the distribution of a product. For eg fish seller
network of Nepalese fishers is weak than those of Indian fishers, so we are forced to
 49

consume the fish imported from India although Nepal can fulfill the demand of Nepalese
market. This situation demotivates the fish producer and decrease in the productivity of
Nepal. Government policy is also very weak, there is no any facility of founding, investing
the money in formation of new product, promoting the new product. If Nepal government
being the new concept about promotion of Nepalese product then demands will obviously
increase and it will help to increase the economic status of Nepalese people.
In context of Nepal, technology is very behind. New technology cannot be applied for
the manufacture of product. They are still producing the product with old technology. It is
necessary to upgrade our technology and infrastructure. Continual improvement of the
product is very necessary to exist in this competitive world. So the skill manpower is
required to produce a quality product but due to lack of human resources the objective of a
form cannot be achieved. The infrastructure like transportation, communication, health,
electricity, water supply, etc. are necessary to provide in the area where the product are
produced and supplied.
We know that geographical structure, economical status, low demand of the product,
etc are the main causes behind the various problems which impair the development and
formation of a new product in the context of our country ‘Nepal’. This report has focused
exclusively on what are products and how they are developed. It has described the main
activities needed to bring a new product to market successfully. Government policy is also
very weak, there is no any facility of founding, investing the money in formation of new
product, promoting the new product. Technology is very behind. We are still producing the
product with old technology. It is necessary to upgrade our technology and infrastructure to
compete with other products in this competitive world. The successful product has to focus
on uncertainty reduction, which requires information, constant evaluation of options, which
requires information, and integration of various functional perspectives, also requiring the
sharing of information. Hence this type of consideration should be considered for achieving
products’ goals and objectives.
UNIT 9
PRODUCTS
Definition of the related terms
Judge a story by its morale not by its title. To understand the morale we need to
understand the whole story so, before going to understand about something we first need to
learn the related terms and definition of them. The definition is the explanation of the terms
within one sentence by using a structure of definition. The various terms related to products
which are important to understand to get the full knowledge of the report are-
1. Product
Product is a key element of marketing which consumers buy to satisfy their needs.
2. Quality
Quality is a degree of excellence which is fitness for use that meets the specification.
3. Packaging
 50

Packaging is coordinated system of preparation of goods for shipment, distribution storage,

protection and marketing at optimum cost compatible with the requirement of the product.
4. Price
Price is the amount spent to buy the product by consumer to satisfy their needs.
5. Branding
Branding is a device for identification of the product so that the consumer easily identify the
product and about the producer detail.
6. Labeling
Labeling is to provide information about product often used to explain manufacturer date,
price composition as well as quantity of a product.
7. Costs
Costs are total amount spent to produce and distribute products to the consumer.
8. Raw materials
Raw materials are the semi refined or unrefined products which need further processing to
give final product.
9. Distribution
Distribution is the process of transferring goods from one place to another to make the
product accessible and available to target customer.
10. Product warranty
Warranty is additional facilities provided along with product which include
repairing/replacing facilities for a certain time period.
11. Brand mark
Brand mark represents a branding decision in which a design element, such as a symbol,
logo, character or sound, is used to provide visual or auditory recognition for a product.
12. Co-branding
A branding strategy where a marketer with its own brand seeks to partner with an established
brand owned by another organization in hopes the synergy of the two brands is even more
powerful than a single brand alone
13. Convenience product
A category of consumer products with characteristics that include: appeals to large market
segment, purchase is frequent; pricing is relatively low; and product is widely distributed
14. Coupons
A form of sales promotion, mainly used in the consumer market and primarily offered in
either in print or electronic form that provides price savings or other incentives when
presented at the time of purchase,
15. Innovations
Anything new that offers solutions to needs by providing a significant advantage (e.g., more
features, ease of use) over existing products, services or methods
16. Bid pricing
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A process for setting the initial price for a product, mainly found in government and business
markets where multiple sellers compete for a large purchase, that requires the marketer to set
price without direct knowledge of competitors’ pricing since, in most situations, prices are
not made known until a purchase is awarded
17. Actual product
A component of the Total Product offered by the marketer, this represents part of the product
that is used (i.e., product features) as well as other elements that are included such as
branding, packaging and labeling.
18. Co-branding
A branding strategy where a marketer with its own brand seeks to partner with an established
brand owned by another organization in hopes the synergy of the two brands is even more
powerful than a single brand alone
19. Labeling
Labeling is to provide information about product often used to explain manufacturer date,
price composition as well as quantity of Product
20. Kiosk
it is a customer contact point consisting of standalone, interactive computers offering
customers the ability to handle their own service options including gaining product
information, making purchases, and reviewing customer account details.
21. Strategies
Strategies are the means to the ends, the game plan, or what a firm is going to do to achieve
its objectives.
22. Marketing
Marketing is the process of identifying and establishing, maintaining, enhancing and when
necessary terminating relationships with customers and other stakeholders, at a profit, so that
the objectives of all parties involved are met, where this is done by a mutual giving and
fulfillment of promises.
23. Advertising
A non-personal form of promotion delivered through media outlets that generally require the
marketer pay for message placement
Theoretical aspects-
“Can you imagine a market without product?”
Product refers to anything offered by a firm to provide customer satisfaction; it may be
tangible or intangible. It can be a single product, a combination of products, a product-service
combination, or several related products and services. It normally has at least a generic name
and usually a brand name although a product is normally defined from the perspective of the
manufacturer, it is also important to note two other points-of-view, those of the consumer and
of other relevant publics. We define product as follows: anything, either tangible or
intangible, offered by the firm; as a solution to the needs and wants of the consumer; is
 52

profitable or potentially profitable; and meets the requirements of the various publics
governing or influencing society.
Company’s market product composed of a combination of tangible and intangible
characteristics for certain prices. During the Industrial Revolution, firms focused primarily
on products and not so much on customers. The service-dominant perspective to marketing
integrates three different dimensions of product not only the product but also its price and
the services associated with it. This perspective helps marketers think more like their
customers, which helps firms add value to their products. Product based on a technology
platform, which can be used to create a product line. A product line is a group of similar
products. A product line can be deep (many products of a similar type) and/or broad
(products that are very different from one another and cover a wide range of customers’
needs). The entire assortment of products that a company offers is called the product mix.
There are four levels of a product: core, tangible, augmented, and promised. The core
product represents the central meaning of the product and conveys its essence. This is
centrally related to the key benefits expected by customers. Once the core product has been
indicated, the tangible product becomes important. This tangibility is reflected primarily in its
quality level, features, brand name, styling, and packaging. Literally every product contains
these components to a greater or lesser degree. Unless the product is one-of-a-kind, the
consumer will use at least some of these tangible characteristics to evaluate alternatives and
make choices. The augmented product includes those add-on extras which are not an intrinsic
part of the product but which may be used to enhance the product benefits. While the first
three layers describe how the product is now, the potential product constitutes a vision of
what it could be in the future. By considering the potential product the marketer is trying to
ensure that continuous improvement is at the heart of the process.
A classification used in marketing separates products targeted at consumers into three
groups: convenience, shopping, and specialty. A convenience good is one that requires a
minimum amount of effort on the part of the consumer. Extensive distribution is the primary
marketing strategy. The product must be available in every conceivable outlet and must be
easily accessible in these outlets. Vending machines typically dispense convenience goods, as
do automatic teller machines. These products are usually of low unit value, are highly
standardized, and frequently are nationally advertised. From the consumer's perspective, little
time, planning, or effort go into buying convenience goods. Consequently, marketers must
establish a high level of brand awareness and recognition. By contrast to convenience
products, shopping products represent something of a risk to the purchaser and so the
consumer is likely to be more active in searching out information and evaluating them.
Almost without exception, price is not a principle factor affecting the sales of specialty
goods. Although these products may be custom-made (e.g. hairpiece) or one-of-a-kind (e.g. a
statue), it is also possible that the marketer has been very successful in differentiating the
product in the mind of the consumer.
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Most companies put new product ideas through

a eight-step process, beginning with the idea generation
stage. Ideas for new products can come from anywhere
including one’s customers, employees, customers,
suppliers, and competitors. The next step in the process
is the idea screening stage, followed by the feature
specifications, development, testing, and launching
stages. After product is launched, it is evaluated. A
company must balance product’s investment risk (the
risk associated with losing the time and money put into
developing the product) against the product’s
opportunity risk (the risk associated with missing the
opportunity to market the product and profit from it).

fig-I new
Figure
product
4- new
development
product development
process process

Figure 5- product life cycle

The product life cycle helps a company understand the stages (introduction, growth,
maturity, and decline) a product or service may go through once it is launched in the
marketplace. The number and length of stages can vary. When a product is launched or
commercialized, it enters the introduction stage. Companies must try to generate awareness
of the product and encourage consumers to try it. During the growth stage, companies must
demonstrate the product’s benefits and value to persuade customers to buy it versus
competing products. Some products never experience growth. The majority of products are in
 54

the mature stage. In the mature stage, sales level off and the market typically has many
competitors. Companies modify the target market, the product, or the marketing mix in order
to extend the mature stage and keep from going into decline. If a product goes into decline, a
company must decide whether to keep the product, harvest and reduce the spending on it until
all the inventory is sold, or divest and get rid of the product.
A brand is a name, picture, design, or symbol, or combination of those items, used by
a seller to identify its products and differentiate them from competitors’ products. Branding
is the set of activities designed to create a brand and position it relative to competing brands
in the minds of consumers. An important decision companies must make is under which
brand a new product will be marketed. A brand extension involves utilizing an existing
brand name or brand mark for a new product or category (line) of products. Cannibalization
occurs when a company’s new product eats into the sales of one of its older products. It is
something to be avoided in most cases, but it can also be a sign of progress because it means
a company is developing new and better products. Packaging protects products from
damage, contamination, leakage, and tampering, but it is also used to communicate the
brand and its benefits, product warnings, and proper use.
As competition intensifies, design offers a potent way to differentiate and position a
company’s products and services. Design is the totality of features that affect how a product
looks, feels, and functions to a consumer. Design offers functional and aesthetic benefits and
appeals to both our rational and emotional sides. Design can shift consumer perceptions to
make brand experiences more rewarding. A bad design can also ruin a product’s prospects.
Design thinking is a very data-driven approach with three phases: observation, ideation, and
implementation. Design thinking requires intensive ethnographic studies of consumers,
creative brainstorming sessions, and collaborative teamwork to decide how to bring the
design idea to reality. Design is often an important aspect of luxury products. Marketing
Insight: Marketing Luxury Brands” describes some of the broader marketing issues luxury
brands face.
The price of a product or service will determine how consumers perceive it, reflect on
its brand positioning, influence the choice of marketing channel, affect how it is promoted
and have an impact on the level of customer service expected by target customers. The price
ingredient of the marketing mix will also affect the viability of the supplying organization.
The concept of pricing is complex and of fundamental importance to the successful
implementation of a marketing strategy. Pricing is one of the most important elements of the
marketing mix, as it affects profit, volume and share of the market and consumer perceptions.
Just as pricing plays a crucial role in determining brand image, increasingly companies are
being judged on the transparency and equity with which they treat price as a marketing
variable. Generally, it is acknowledged that pricing decisions are the most difficult to make
because of the complexity of the interaction between three groups involved in the marketing
process: consumers, the trade and competitors. In addition pricing decisions often have to be
 55

made quickly and with limited, or even no, test marketing. They almost invariably have a
direct effect on profit.
All sellers are legally responsible for fulfilling a buyer’s normal or reasonable
expectations. Warranties are formal statements of expected product performance by the
manufacturer. Products under warranty can be returned to the manufacturer or designated
repair center for repair, replacement, or refund. Whether expressed or implied, warranties are
legally enforceable. Extended warranties and service contracts can be extremely lucrative for
manufacturers and retailers. Analysts estimate that warranty sales have accounted for a large
percentage of Best Buy’s operating profits. Despite evidence that extended warranties do not
pay off, some consumers value the peace of mind. These warranties still generate multibillion
dollars in revenue for electronic goods in the United States, though the total has declined as
consumers have become more comfortable seeking solutions to technical problems online or
from friends. Many sellers offer either general or specific guarantees.
Thus the product are essential to fulfill the needs of consumers. The consumption of
product depends upon the availability of the product, use, importance and price as well as the
demonstration effect also helps for the demand of the product. A product should meet the
requirements of the various publics governing or influencing society. Product pricing is one
of the most important elements of the marketing mix, as it affects profit, volume and share of
the market and consumer perceptions. And,design is thetotality of features that affect how a
product looks, feels, and functions to a consumer. For a product a good design, brand name,
price and quality are essential for better marketing.
Major trends
“Have you ever thought to go green?”
Creating total green product is a major trend as well as major challenges to improve eco-
friendly product and services, at a competitive price. This approach involves adopting cleaner
technologies, maximum usage of raw materials, reduction of pollution and finally obtaining a
eco-friendly product. The total green product concept is s slogan for many multinational
companies. This concept focuses on the zero impact or nominal impact on environment.
Further the companies producing green product focuses on the use of energy efficiency and
recycling the old and outdated products. This concept helps to reduce the pollution, reduce to
wastage of raw materials. The total green concept is being the key strategy for many
organizations.
Managing the Dynamic Change in Technology Life-cycle to Improve Productivity
and Quality, Various types of technology used to improve productivity and quality in the early
1960s had an average life cycle of ten years. From the producer, supplier, and consumer
perspective, the ten-year life span for a typical technology was still short before new
technologies were introduced into the work environment. By 1986, most technology life
cycles have shortened to about two years and six months by the year 2000. This continually
shortening life cycle poses a real challenge for all organizations that desire to use technology
as a mechanism for productivity and quality improvement. It requires that the change from
 56

one product type to another will be done at a much faster pace. Product model development,
specification monitoring, prototype testing, product manufacturability and serviceability, and
process qualification and improvement will have to be performed within a short time. Just-in-
time productivity and quality improvement will require new techniques and tools for
managing the dynamic change of the input and output elements in the work environment. It
also requires a very close working relationship between the supplier, producer, and consumer
of the goods and services.
It is possible that the product benefit is so great that it overwhelms the consumer or it
is not believed by the consumer. Several new toothpaste manufacturers have recently come
out with products that partially restore decayed tooth areas. They have intentionally kept this
innovation very low-key because they feared the consumer would not believe it. Product
features include such factors as form, color, size, weight, odor, material, and tactile qualities.
A new car can offer thousands of alternatives when one considers the exterior and interior
options. The smell of fresh bakery products or a good Italian restaurant has clearly enticed
many a customer. The product must also be aesthetically pleasing. When the entire product is
put together, it must create an appealing, visually attractive and distinctive need-satisfier.
Product management is a strategic role. Developers want product managers to
prioritize requirements; marketing people want product managers to write copy; sales people
want product managers for demo after demo. Product managers are so busy supporting the
other departments they have no time remaining for actual product management. But just
because the product manager is an expert in the product doesn’t mean no one else needs
product expertise. Product managers bring a powerful combination of skills: product and
technology expertise combined with market and domain knowledge as well as business
savvy. Marketing people know how to communicate; product managers know what to
communicate. Sales people know what one customer wants to buy; product managers must
determine if the deal represents a single customer or a market full of customers. Developers
know what can be built; product managers know whether it should be built. Many people are
concerned with this release, this model, this deal, this customer. Who in your organization is
focused on next year and the one after, the next product, the next market? Product
management is a strategic role focused on what products and markets we can serve in the
years to come.
When a product is ready to deliver the sales and staff supply the product to concern
market which is called a supply chain. Marketing channel decisions are as important as the
decisions companies make about the features and prices of products. Channel partners are
firms that actively promote and sell a product as it travels through its channel to its user.
Companies try to choose the best channels and channel partners to help them sell products
because doing so can give them a competitive advantage. A direct marketing channel consists
of just two parties—a producer and a consumer. By contrast, a channel that includes one or
more intermediaries (wholesaler, distributor, or broker or agent) is an indirect channel. Firms
often utilize multiple channels to reach more customers and increase their effectiveness.
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Some companies find ways to increase their sales by forming strategic channel alliances with
one another. Other companies look for ways to cut out the middlemen from the channel, a
process known as disintermediation. Direct foreign investment, joint ventures, exporting,
franchising, and licensing are some of the channels by which firms attempt to enter foreign
markets.
Making marketing decisions in a fast-changing world is both an art and a science. To
provide context, insight, and inspiration for marketing decision making, companies must
possess comprehensive, up-to-date information about macro trends, as well as about micro
effects particular to their business. Holistic marketers recognize that the marketing
environment is constantly presenting new opportunities and threats, and they understand the
importance of continuously monitoring, forecasting, and adapting to that environment. Firms
are adjusting the way they do business for more reasons than just the economy. Virtually
every industry has been touched by dramatic shifts in the technological, demographic, social-
cultural, natural, and political-legal environments
The different concepts and trends are developed with the change of time. A good
producer learn to adjust with time and follow the trends or he could develop a new concept
which may be the trend after some time interval. The producer who do not care the trend may
suffer from the financial as well as reputations loss. Major trends is to be able to get a place
in the heart of customers. The various new concepts like the green product, managing the
dynamic change in technology life-cycle to improve productivity are being able to win the
heart by bringing the difference in the quality test and standard.

Nepalese perspective
The development of technology, increase in market competition and change in preference of
consumer brought vast change in demand and development of new product. The
establishment of super market and online stores has brought change in demand of the
product. in many town of Nepal the home delivery services have started which helps to take
competitive advantages for the producer. Although the investment in technologies and
resources is low in Nepal the expansion of market is satisfactory
There are the various problems which impair the development and formation of a new
product. The main cause behind this problems are ; geographical structure, economical
status, low demand of the product, etc. due to the very difficult geographical region in hilly
and mountain area of Nepal transportation facility is still cannot be reached. Which decrease
the demand of the product. They have no idea about new product and processed product. If
they are familiar with the product they cannot bought the product until it is extremely
needed, this is because of their economic status. Exchanging goods with goods also affect
the marketing and sales of product.
Marketing network plays vital role in the distribution of a product. For eg fish seller
network of Nepalese fishers is weak than those of Indian fishers, so we are forced to
consume the fish imported from India although Nepal can fulfill the demand of Nepalese
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market. This situation demotivates the fish producer and decrease in the productivity of
Nepal. Government policy is also very weak, there is no any facility of founding, investing
the money in formation of new product, promoting the new product. If Nepal government
being the new concept about promotion of Nepalese product then demands will obviously
increase and it will help to increase the economic status of Nepalese people.
In contest of Nepal, technology is very behind. New technology cannot be applied for
the manufacture of product. They are still producing the product with old technology. It is
necessary to upgrade our technology and infrastructure. Continual improvement of the
product is very necessary to exist in this competitive world. So the skill manpower is
required to produce a quality product but due to lack of human resources the objective of a
form cannot be achieved. The infrastructure like transportation, communication, health,
electricity, water supply, etc. are necessary to provide in the area where the product are
produced and supplied.
UNIT 10
MARKETING
Definitions of the related terms
 Production concept: The production Concept describes that consumer will favour those
product that are widely available and low in cost.
 Product concept: The product concept describes that consumer respond to good quality
products that are reasonably priced.
 Selling concept: The selling concept is an idea which is used to sell more goods and
services by adopting aggressive selling methods.
 Marketing mix: The marketing mix is the set of marketing tools which is used by
organization to achieve the marketing goal in a defined target market.
 Target market: Target market consists of a group of homogeneous customer which are
selected for marketing purposes.
 Direct Marketing: Marketing without middleman is direct marketing.
 Internet Marketing: Internet marketing describes paperless marketing communication.
 Relationship Marketing: Relationship marketing is a way of creating long term relation
with customer in order to earn and retain long term loyalty.
 Market Segmentation: Market segmentation is a process of dividing a market into distinct
groups of buyers who have different requirement or buying habits.
 Market opportunities: Market opportunities describes possibilities of filling unsatisfied
needs in sectors in which a company can profitably produce goods or services.
 Market research: Market research is a process of collecting, analyzing and reporting data
relevant to a specific marketing situation.
 Market: Market is a medium which allows buyers and sellers of a specific good or service
to interact in order to facilitate an exchange.
 Green Marketing: Green marketing is a form of marketing in which marketing managers
consider the impact of marketing on the natural environment.
 Quality Marketing: Quality marketing refers to the adoption of Total Quality Management
(TQM) concept to marketing.
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 Product Mix: Product mix means decisions of what to offer to the target customers.
 Price Mix: Price mix is a decision regarding the price setting.
 Place or Distribution Mix: Place decisions involve how to manage the flow of products
from the factory to the market.
 Consumerism: Consumerism is a form of consumer movement by pressure groups for
consumer protection against hazardous products and untruthful advertising.
 International Market: A market located across the national boundary is international
market.
 Domestic Market: A market defined by the national boundary is known as domestic
market.
Theoretical aspect of marketing
Marketing is a socio economic process. It's activities are designed to meet the needs
and expectations of the society.
According to Saul Colt, marketing is creating irresistible experiences that connect with
people personally and create the desire to share with others.
Peter Drucker, states that Marketing is that profitable sales and satisfactory returns on
investment can be achieve by identifying, anticipating, and satisfying customers needs and
desires.
In conclusion marketing is exploring, creating and delivering value and satisfaction
to the target market with appropriate design and implementation of the marketing mix.
Marketing today is perceived as the central activity of every organization. Even non-business
organizations working in the field of environment, health, population and education have
realized the importance of marketing. Marketing is importance to the consumer for standard
of living, value addition, information, product assortment and satisfaction. Likewise
marketing is importance for organization for demand management, product distribution,
coordinated use of resources and for the achievement of objective. Similarly Marketing is
importance to society for social wellbeing, employment generation, community needs,
economic management. Marketing survives and grows and survives in social context. This
safeguards the well-being of society. It meets community needs.
Marketing can be studied through various approaches. They are: Community approach
to marketing, Functional approach to marketing, System approach, Environmental approach,
Managerial approach, Economic approach and legal approach. Community approach is
community centered. It is concerned with supply demand, channels and transportation for
each commodity. Functional approach is function-centered and focuses on functions of
marketing like exchange function, distribution function.
The marketing management philosophies that direct the marketing operations of
organizations are popularly known as marketing concept. Several marketing management
philosophies have evolved over time that has guided marketers to plan and implement their
activities. These are: Production concept, selling concept, Product concept Societal
marketing concept and holistic marketing concept.
The marketing mix is the set of marketing tools which the organization blends to
achieve the marketing goal in a defined target market. The various components of marketing
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mix are product mix, place mix, price mix and promotion mix. Promotion includes all the
activities undertaken to communicate and promote product to the target market. It includes
advertising, sales promotion, publicity and personal selling. Similarly product is an offering
that can satisfy customer needs. Price is the amount of money that customer pay for the
product. And place or distribution mix includes various activities undertaken to market the
product accessible and available to target market.
There are reasons why business organization use marketing mix. The first reason is to
satisfy the customer needs. Similarly the second reason to attract, satisfy and retain long term
loyalty of customers. Marketing mix is importance to adapt to the changing political,
economic, socio-cultural and technological forces in the environment. Also marketing mix is
regarded as the powerful tool to respond to competitive pressures in the market. Likewise
organization can design marketing mix for the profitable segment of the market.
Marketing provides various values and benefits to the consumers, firms and society. It
provides occupation, employment and income to a large number of people involved in
production, distribution, and selling activities. It is the one of the biggest contributors to the
national income of every country.
Nepalese condition of marketing
The economy of Nepal is characterized by structural changes. Due to the topographical
diversity of the country and poor transport and communication facilities, marketing has
remained fragmented. The public sector remains dominant in the Nepalese economy.
Marketing has been traditionally a neglected aspect in Nepal. Enterprises tend to concentrate
on production and selling rather than marketing. The marketing concept has not been
embraced by most of the organization in Nepal. Because management philosophy in most
organizations of Nepal does not emphasize customer orientation.
Nepal has experienced significant socio-economic changes over the last thirty years.
Some private sector banks like Standard Chartered, HIMALAYAN have started practicing
consumer orientation in their marketing efforts. Global companies such as Nepal Lever,
Surya Tobacco, Coca-cola and Pepsi practice the new marketing concept. Nepal's
membership of WTO is likely to promote the new marketing concept.
Major trends of marketing in the current business world
Market trends are any significant changes to our market. If we identify the market
trends early then it is easier to plan for changes and grow our business successfully. Knowing
what marketing trends affect our market also allows us to take the advantage of positive
changes and guard against negative ones. The key with working with trend data is to know
which one are important and to keep an eye on them.
There are various types of marketing like Agricultural marketing, Industrial marketing
(B2B), E-Commerce, Telemarketing, Television marketing and so on. E-commerce is
conducted at three levels: (1) B2B, (2) B2C, and (3) C2C. B2C is the type of commerce
conducted by companies such as Amazon.com
India has picked up a fast growing moment in terms of Internet users. According to a
report, 42% of Indians has now access to Internet. India which was valued of $16 Billion in
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2013 is expected to grow by 35% to reach $56 billion in 2023. Digital marketing has also
grown at a rapid pace. The major share of digital marketing can be differentiated into social
media marketing (66%), Websites (54%) and Email marketing (53%) .
CHANGING MARKETING TRENDS TO TACKLE IN 2016
Trends that are changing the trends of marketing are:
1. Relationship Marketing: The goal of relationship marketing is to focus on building stronger
loyalty and long term customer engagement rather than on quick, short term customer
acquisition and individual sales.
2. Marketing Automation: Marketing Automation worth $5.5 Billion and is leading the way
in lead generation and prospect nurturing .It makes easier to schedule Emails, segments
contacts, automate social media posting, manage your content, and track life cycle of
customers in your marketing funnel.
3. Location-Based Marketing Technology: Radio Frequency Identification (RFID) and
iBeacons are the location based marketing technology that help target users at the point of
engagement.
4. Virtual Reality : Virtual technology, like Oculus Rift, will be able to literally tell 360-
degree storage, companies will be able to engage like never before .Companies who don't
have supply of virtual experience for prospective customers, such as retailers, could see a
drop in sale.
UNIT 11
ADVERTISING
Basic terminologies of advertising
Producer advertising: Producer advertising is a form of advertising for producer often used
for informing, persuading, reminding, reassuring and image building for their brands.
Mouth advertising: Mouth advertising refers to free advertising which occurs when the
satisfied customers recommend products to their friends.
Institutional/ Prestige advertising: Prestige advertising is the advertising often used by the
company that mentions their name rather than specific products or brands.
Reseller advertising: Reseller advertising refers to those dealers, wholesalers and retailers
involved in advertising o create market for products that they are selling.
Individual/Personal advertising: Personal advertising is a form of advertising is a form of
advertising sponsored by individuals on local and national media often used to wish birthday,
wedding and congratulate others.
Government advertising: Government advertising means advertising for procurement of
products and services, job opening, public notices by government.
Social advertising: Social advertising describes the advertisement of social organizations,
national government organizations and international non government organizations to build
public awareness.
Group advertising: Group advertising is the pressure groups that force the government to
enact or withdraw laws to protect their interests.
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Print or Press Media: Print or press is an advertising media which primarily contains
advertising through newspapers, magazines, and others.
Visual Media: Visual media is a successful method of advertising that attracts attention of the
prospects in the form of billboard, outdoor displays and indoor displays
Audio Media: Audio media is one of the most important parts of electronic media which can
deliver message in the form dialogue, drama and music of their combination
Online Media: Online is the most recent media of advertising which covers worldwide
market combining computer and telephone.
Product Information: Product information means informing, guiding and educating buyers
about the attribute, qualities, prices and availability of the products.
Demand Creation: Demand creation is a form of persuading the customers to buy the
advertised brand which positively influences the growth of company’s sales volume.
Competitive Tools: Competitive tools are the instruments that help in meeting the forces of
competition
Brand Loyalty: Brand advertising is a repetitive advertising which is developed by
consumers when the product succeeds in delivering the desired or claimed value satisfaction.
Increase in Sales: Increase in sales means the growth of company’s sales volume by
stimulating demand and creating a brand preference.
Wider Communication Approach: Wider communication approach is one of the factors of
advertising which supports other components of promotion and personal selling.
Comparative-parity Method: Comparative parity is the method of choosing to spend the
same amount on advertising as one’s competitors.
Theoretical aspects of advertising
The term advertising is derived from Latin word adventure which means to turn the
attention towards a specific thing. It is a process that informs consumers about the existence
and benefits of products and services, and attempts to persuade them to buy. By nature,
advertising is persuasive. It is an art of influencing the human action to possess one’s product.
Those sponsors who want to communicate their message; they have to purchase the space or
time. Later on, media provides the message in different forms. Hence, it is also known as
Paid-form of communication.
Similarly, Non-personal presentation is regarded as the next important feature of
advertising as well as it presents the message about a product, or a service or an idea as an
impersonal attempt. It is directed towards the mass audiences without the physical presence
of a person. It can also be considered as the most effective method of promotion. Advertising
is also called a Mass non-personal communication because it is addressed to the mass people
through mass media such as radio, TV, newspapers, magazines, etc. Also advertising plays
vital role in this competitive age. It helps to inform and aware consumers about the feature,
quality, price, durability of the products, etc.
Mainly there are three types of advertising which are presented by the following
chart:-
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Fig: Types of Advertising Media

Print Media advertising is a form of advertising done through newspapers,
magazines, periodicals, trade journals, etc. It is quick and prompt media advertising which
can be done in different sizes and contents. It has large circulation and can reach at large
number of people. This advertising also cost lower than electronic media Adjustment of space
and matter is possible according to the desire and will of the sponsors. Although response
from public sectors is fast, however, it cannot cover all the people as they could not read and
understand the meaning. In the same way, electronic media advertising are done through TV,
radio and internet. It is very fast and also covers the wide area at a time. Computers and
internet advertising, the latest medium of communication is also gaining popularity day by
day.
Besides these, display media is the other form of advertising media which refers to
arranging something for a view in short. It is the systematic arrangements of product to attract
the attention of the people. It is economical, flexible and effective. Although, mouth
advertising is the best form of advertising, yet virtually no providers of goods or services rely
on this only, but use paid advertising instead. Indeed many organizations also use institutional
advertising, which is designed to build up their reputation rather than to sell particular
products.
Although large companies could easily set up their own advertising departments,
write their own advertisements, and buy media space themselves, they tend to use the
services of large advertising agencies. These are likely to have more resources, and more
knowledge about all aspects of advertising and advertising media than a single company. The
most talented advertising people generally prefer to work for agencies rather than individual
companies as this gives them the chance to work on a variety of advertising accounts
( contracts to advertise products or services).
The client company generally gives the advertising agency an agreed budget and
an overall advertising strategy concerning the message to be communicated to the target
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customers. The agency creates advertisements and develops a media plan specifying which
media- newspapers, magazines, radio, television, cinema, posters, mail, etc- will be used and
in which proportions. Agencies often produce alternative ads or commercials that are pre-
tested in newspapers, television, stations, etc. in different parts of a country before a final
choice is made prior to a national campaign.
The agency’s media planners have to decide what percentage of the target market
they want to reach and the number of times they likely to see them. Advertising people talk
about frequency or OTS and the threshold effect-the point at which advertising becomes
effective. The choice of advertising media is generally strongly influenced by the
comparative cost of reaching 1000 members of the target audience, the cost per thousand.
The timing of advertising campaigns depends upon factors such as purchasing frequency and
buyer turnover.
How much to spend on advertising is always problematic. Some companies use
the comparative- parity method- they simply match heir competitor spending, thereby
avoiding advertising wars. Others set their ad budgets at a certain percentage of current sales
revenue. But both these methods disregard the fact that increased ad spending of counter-
cyclical advertising can increase current sales. On the other hand, excessive advertising is
counter- productive because after too many exposures people tend to stop noticing ads, or
begin to find them irritating. And once the most promising prospective customers have been
reached, there are diminishing returns, I.e.an ever smaller increase in sales in relation to
increased advertising spending.
2.3THE TOP TRENDS ADVERTISING IN 2016
Advertising does not occur in a bubble but depends on an understanding of the
needs, notions and nuances of a society. To help advertisers gauge the customer climate 2016,
MDG Advertising, a full service advertising agency is expected to drive new innovations to
enhance quality of life. It is one of Florida’s top branding firms with offices in Boca Raton
and New York. MDG’s capabilities include print advertising, direct mail advertising,
branding logo design, creative media buying and planning, radio and TV advertising, outdoor,
newspaper, digital marketing, website design and development, online video conferencing,
infographic development, email marketing, mobile marketing, content marketing and paid
search marketing.
WHAT’s on store for advertising in 2016? There were four big trends that has
been considered for effective advertising budgets in 2016:-
o Digital advertising to overtake TV
o Mobile had been the fastest growing segment in 2016
o An eye on Digital video
o Facebook being increasingly dominant
Similarly, we need to discover different strategies for successful advertising and also various
leading and contributing senses should be considered while advertising. Some of the major
inspiring factors are:-
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1. Relaying on Self-Reliance
2. Little Time and Lots To Do
3. Total Technology
4. Mindfulness is Top-of-Mind
5. A Revived Interest is Aging
6. Different is Desirable
Watch out TV, because digital advertising has been the top media category of 2016, while
digital spend will rise and maintain this momentum for many years , expect TV spend to stay
stable. As proof of this digital dominance, a spending statistics has been given:-
-More than a 16% increase in digital advertising in both 2014 and 2015.
-Digital totaled 80% of television ad spend in 2015
-Digital spend reached to $69 billion in 2016 and expected to reach $95 billion by 2019.
Likewise, in 2016 Facebook has updated it’s status as the leading social media
platform. The ever increasing mobile audience will drive it’s digital dominance in the
upcoming year and beyond. When it comes to how the U.S. spends it’s time online:
-1 out of every 5 minutes people use moble are spent on Facebook
-1 out of every 6 minutes people are on the internet are spent on Facebook

2.4Nepalese Perspective to Advertising

Nepal’s first printed form of advertisement, the only authentic document, was
published in a cover page of a book called Mokshashiddhi in 1919 BS. Likewise, the second
advertisement was found published after twenty six years in 1945 BS. It was the
announcement of forth coming monthly publication Gorkha Bharat Jivan in the cover page
of book Hasya Manjari Gorkhapatra appeared on 24th Baishak, 1958 as a weekly newspaper;
in it’s first publication it published the rate for advertisement in the paper. Similarly, after the
end of Rana Regime on 7th Falgun, 2007 BS the new democratic system brought significant
changes to media, especially towards the rise in quantities of newspapers and rise in
readership.
A Press Commission was formed to in 1957 and reported that “Newspapers need
to be given governments of government offices, departments and secretariats”. In 2027/2028
music was used for advertsing. Likewise, Ratna Recording Sansthan operated advertising
service in the country and paid the total cost. The situation after the restoration of democracy
in 2046 paved the way to the development of private media. The open economic and market
policy, international relationship, credibility of print media, rise in the number of newspapers
and the electronic media all increased the volume of advertising. Today advertising has been
recognized as the cornerstone for development of media.
According to AAN, there are about 500 advertising agencies in the country,
among them only 100 ad agencies are functioning. But the transaction in advertising agency
is of vast difference. The ad agency has 40 to 45 percent of total advertising share. There are
about 10-11 big ad companies, which have full capacity to produce advertising for print,
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audio and visual. The economic condition of the country determines the advertising industry,
due to economic crisis advertising has been decreased by 10-15 percent situation. But if this
trend of economic setback continues with the existing number of media , it is difficult for
media to sustain with the present advertising turnover. Research in advertising is the major
factor that helps boost the product using the particular media, to reach the target group. But
the research trend in advertising is negligible.
UNIT 12
PROMOTIONAL TOOLS

UNIT 13
BANKING
Definitions of related terms
i. Accounting: Accounting is an art of recording, classifying, summarizing and reporting of
transaction which shows the financial health of the organization to various internal as well
as external users.
ii. Financial statements: Financial statements are a structured representation of the financial
position and financial performance of an entity of accounting activities for a particular
period of time which provide financial position through the balance sheet and financial
performance through trial balance.
iii. Income statement: Income statement is the trading and profit and loss account or an
earnings statement which reports the operating results of a business firm for a stated period
of time.
iv. Statement of retained earnings: Statement of retained earnings is a profit and loss
appropriation account which contains the income statement and the balance sheet. The
statement of retained earning explains the changes in retained earning between two
balance dates.
v. Balance Sheet: Balance sheet is the statement of financial position which lists the
company’s assets, liabilities, and shareholder’s equity as on a particular date. It is like a
snap shot that captures the financial position of a company at a particular period of time.
vi. Capital: Capital is the amount of money invested at the beginning or any period of time by
the investor which involves the investment made in other forms that can be expressed in
monetary terms.
vii. Liabilities: Liabilities are the obligation of an organization to the outsiders which must be
discharged in a certain period of time.
viii. Assets: Assets are the economic resources which are owned and controlled by a firm so
that they can provide future benefit to the organization.
ix. Fixed Assets: Fixed Assets are the long term or noncurrent assets whose benefits are to be
realized for more than one accounting year.
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x. Tangible Fixed Assets: Tangible Fixed Assets are those fixed assets which have physical
existence, so they can be seen and touched. For example land, buildings, plant and
machinery, equipments, etc.
xi. Intangible Fixed Assets: Intangible Fixed Assets are those fixed assets which have no
physical existence, so they cannot be touched and seen. They exist in terms of monetary
value only as they provide benefit to the organizations directly and indirectly.
xii. Inventories: Inventories are the stock that a firm maintains a part of current assets which
are used within a year.
xiii. Debtors: Debtors is a person or organization from whom amounts are due for goods sold
or services render or in respect of contractual obligation.
xiv. Prepaid Expenses: Prepaid Expenses are the deferred expenses which have been made for
the period beyond the accounting year.
xv. Revenue: Revenue is the income of a business firm which is earned from the sale of goods
and services during a period of time.
xvi. Expenses: Expenses are the financial securities which are incurred for the production and
sales of goods and services.
xvii. Journal: Journal is the primary or original records of transactions which records the day-to-
day transactions in a chronological order.
xviii. Ledger: Ledger is a book in which all the accounts of a business relating to persons, assets,
expenses, incomes etc are maintained.
xix. Trial Balance: Trial Balance is a statement which is prepared to ensure that the debt total
equals with the credit.
xx. Earnings before Interest and Tax (EBIT): Earnings before interest and tax (EBIT), is the
firm’s operating profit and add or less any extra earnings, capital gains or losses from
businesses that were sold during the accounting period.
Theoretical aspects of accounting and financial statement
Accounting is an art of recording, classifying, summarizing and reporting of transaction
of an entity with the aim of showing its financial health to various internal as well as external
users. It is a body of principles and convention as well established general process for
financial information related to an entity’s resources and their use in meeting their goals.
Financial statements are a structured representation of the financial position and financial
performance of an entity of accounting activities for a particular period of time. They provide
financial position through balance sheet and financial performance through income statement.
Accounting is an art of recording, classifying, summarizing and reporting of
transaction of and entity to show its financial health to various users. Accounting involves
these main features; Accounting records the financial transactions only that can be expressed
in monetary terms only also accounting is a continuous process so it should be maintained
regularly. Similarly accounting system analysis, interpret and records the transactions.
Financial statements are expressed in monetary terms. They ignore the qualitative aspects. In
other words the non monetary events do not come under the scope of financial statements.
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Accounting is a process of providing quantitative information about economic entities

to aid the users in making decisions. The main objectives of accounting are; it maintains the
record of transactions according to specified rules for future reference. It also ascertains the
operating results i.e the difference between revenue and expenditure for a specific period of
time .Whereas financial statement provide the financial information to the internal and
external users. It reveals profitability and solvency of the company. It also helps to evaluate
the financial position and efficiency of the management.
There are different branches of accounting which are developed on the basis of the
nature of business, information sought and analysis required. Financial accounting system
was originally developed for the purpose of preparing financial statements with the aim of
communicating to various users. It includes preparation of accounts, generally based on past
data. Cost accounting was developed because of the limitation of financial accounting.
Financial accounting failed to provide information relating to the cost of individual jobs,
products, units or department etc. cost accounting basically involves estimating costs in
advance and detailed analysis. Whereas management accounting is primarily concerned with
the data gathering, analysis, processing, interpreting and communicating the resulting
information to the management.
Accounting information refers to the information that has been supplied by the
accounting system of a concern to it users. Such information is required by the users for
making economic decisions. The users of accounting information are of two types; external
and internal. The internal user consists of different levels of management. As the external
user are suppliers, government, financial institutions, etc. On the basis of accounting
information, economic decision can be made. They are mainly related to allocation of
resources. For instance, the management can decide whether to invest in a particular project
or not, make or buy, continue the production or drop, etc. similarly, the outsiders need the
accounting information to assess the profitability and financial strength of the business. It
further assets them to decide whether to invest on the business or not.
Accounting provides economic information to various users. The users can be divided
into two group mainly internal and external users. Internal users of accounting information
are concerned with the management. They are different functional managers as marketing
manager, production manager, finance director and company. They need accounting
information for planning, organizing, controlling, and running the business efficiently. The
external users are not directly involved in the management and operation of a concern and
they are external to the organization. However, they need accounting information as they are
concern and are closely associated with the operation of concern.
Financial statements present the result of operations and the financial position of the
company. Four statements are commonly prepared by publicly traded companies; balance
sheet, income statement, cash flow statement and statement of changes in equity. The balance
sheet tells us whether the company can pay its bills on time, its financial flexibilities to
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acquire capital and its ability to distribute cash in the form of dividends to the company’s
assets, liabilities and shareholder’s equity.
The income statement is also known as the profit and loss statement or P&L. It tells
us both the earning and profitability of a business. The P&L is always for a specific period of
time, such as a month, a quarter or a year. Because a company’s operations are ongoing, from
a business perspective these cut offs are arbitrary and they result in many of the problems in
income measurement. Nevertheless, periodic income statements are essential, because they
allow users to compare results for the company over time and to the results of other firms for
the same period.
A separate statement of changes in stockholder or owners equity is also prepared that
reconciles the various components on the balance sheet for the start of the period with the
same items at the end of the period. The statement recognizes the primacy of owner’s equity
for investors and other readers of financial statements. The cash flow statement tells us the
sources and use of cash during the period. It also provides information about the companies
investing and financing activities.
Major trend of accounting in today’s business world
As with most things in life, accounting world is ever changing. It was not that long ago that
accounting that have taken place in accounting recently, including those involving specialized
accounting fields, education and health care.
International business
The major trend in accounting business is international business. With many companies
having locations across the world, there is a need for more accountants who are bilingual and
also have knowledge of international accounting standards. While, GAAP (Generally
Accepted Accounting Principles) is the accounting standard for the United States, other
countries use a different method such as IASB
IASB stands for International Accounting Standard Board, and these standards are
comparable across different countries. Many countries such as Australia, Brazil, Japan,
Russia and Turkey have adopted these standards. We have to be able to convert their methods
back to GAAP for our reporting needs. The conversion from one standard to another standard
can be complex, requiring the accountant to put in more time and work.
Cloud accounting
This trend recently created a buzz in the financial industry — Cloud-based technology. Also
known as online accounting or cloud accounting, it involves the use of software that runs on
servers which make you access your data no matter when are where you are, as long as you
are connected to the internet.
Implementing social media strategy
Social networking sites have been very popular for years now, especially with Twitter and
Facebook. This enables accountants to reach a wider audience, be able to maintain business
relationships, and attract more potential clients at the same time.
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Outsourcing
Perhaps the biggest trend now in accounting industry is outsourcing. Whatever sizes your
company is, you will reap big benefits from it, so long as you’re using the same tools and
look at the same goals. Outsourcing gives you access to experienced accountants who can
provide compliance work according to your standards.
Nepalese perspective to the accounting and financial statement
Accounting is a language of business. It is the vehicle for reporting and communicating
financial information about a business entity to its stakeholders. So, Accounting standards are
useful for all entity. In this report, we have dealt about the Institute of Chartered Accountants
of Nepal (ICAN), and Nepal Accounting Standards (NAS). In Nepal, there are 26 issued
Nepalese accounting standards. Accounting standards regulate and bring the financial and
business transactions and events to common set of system so that all stakeholders can
understand and compare them efficiently.
In case of Nepal, even though Nepal has accepted IFRS and IAS, Nepal has issued its
own Nepalese Accounting Standards in 2001 AD to localize them properly. The current
developments in accounting and reporting standards are tending towards a degree of
commonality at national and international levels. The Institute of Chartered Accountants of
Nepal (ICAN) was established under a special act. ICAN is responsible for ensuring the
proper implementation of rules and procedures set by ASB. The Institute is an autonomous
body and the Council is fully authorized by the Act to undertake accountancy profession in
Nepal. Against the common understanding, it is not ICAN which sets the accounting
standards of Nepal, it is ASB which is responsible for development of standards and ICAN is
the body responsible for implementation and monitoring of those standards.
Nepal has also put an effort on the initiation of uniform accounting practice. In Nepal,
there are 26 issued Nepalese accounting standards. ICAN has taken responsibility to regulate
the accounting practice in Nepal. Institute of Chartered Accountant of Nepal (ICAN) came
into existence in 1997 by a special Act of the Parliament, The Chartered Accountant Act,
1997 with the objective of regulating the financial reporting and accounting professions, the
assistance to build up awareness and basic skills in developing the accounting standards. The
institute attempted to establish a set of accounting standards. Consequently in 2001, the
Institute established two internal committees called Accounting Standards Committee and
Auditing Standard Committee.
The Accounting Standard Committee became instrumental in doing all the
groundwork for the preparation of Accounting Standards. Within a short period this
committee developed exposure drafts of various standards needed instantly in the betterment
of accounting profession and financial environment in the Country. After a year Committee
was formally converted into the Accounting Standards Board (ASB) under Chartered
Accountants Acts 1997.
The Accounting Standards Board (ASB) is an independent statutory body with the
responsibility to set and issue accounting standards for preparation and presentation of
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financial statements in Nepal. The ASB was established in March 2003 with an amendment to
the Institute of Chartered Accountants of Nepal Act 1997 incorporating the provision for its
establishment and operation. The ASB is primarily responsible for setting accounting and
financial reporting standards for business enterprises in line with the International Financial
Reporting Standards (IFRSs). Since 2007, ASB has also been entrusted by Nepal Government
with the responsibility to develop accounting standards for public sector in line with the
International Public Sector Accounting Standards (IPSASs). Thus ASP/Nepal design and
prepares accounting Standards in Nepal.
UNIT 14
BANKING
Definition and terms of banking
This writing covers all the important terms and definitions used in banking in today’s
world. Some are mentioned below:
1) Banking : Banking is an payment system that enables the customers of a bank or other
financial institution to conduct the range of financial institution.
2) Account: Account is an arrangement made with a bank whereby one may deposit and
withdraw money and in some cases be paid interest.
3) Saving account: A saving account is an interest bearing deposit account held at a bank or
another institution that provides a modest interest.
4) Cash: Cash is a legal tender or coins that can be used to exchange goods debt or services.
5) Cheque: A cheque is a document that order a bank to pay a specific amount of money from
a person’s account to the person in whose name the cheque is been issued.
6) Teller: Teller is a staff member of the bank who cashes cheques, accepts deposit and
perform different banking services for the general public.
7) ATM: An ATM is an electronic banking outlet which allows customers to complete basic
transaction without the aid of branch representative or teller.
8) Journal: Journal is a business diary in which all financial data pertaining to the day to day
business transactions of a firm is recorded using double entry book keeping system.
9) Ledger: Ledger is a book containing accounts to which debits and credits are posted from
books of original entry.
10) Trial balance: A trial balance is a book keeping worksheet in which the balances of all
ledgers are compiled into debit and credit columns.
11) Voucher: A voucher is a document that shows goods have bought or services have been
rendered, authorizes payment and indicates the ledger accounts in which these transaction
have to be recorded.
12) Shares: Shares are units of ownership interest in a corporation or financial assets that
provide for an equal distribution in any profits if any are declare in the form of dividend.
13) Loan: A loan is a thing that is borrowed especially a sum of money that is expected to be
paid bank with interest.
14) Debenture: Debenture is a long term security yielding a fixed rate of interest issued by a
company and secured against assets.
15) Interest: An interest is the money paid regularity at a particular rate for the use of money
lend or for delaying the repayment of a debt.
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16) Bond: A bond is a debt investment in which an investor loans money to an entity which
borrows the funds for a defined period of time at variable or fixed interest.
17) Bank: Bank is a financial institution where different financial activities are carried on.
18) Saving: Saving means reducing expenditures and increasing the assets of persons.
19) Deposit: Deposit is the sum of money paid into the bank account.
20) Checking account: The account at financial institution into which you can deposit
money and from which you can write checks for purchase.
21) Liquidity: Liquidity is the ability of converting an investment quickly into cash with no
loss of values.
Theoretical aspects of the banking
The world is governed by institution that is not democratic i.e. Bank. Bank is the
financial institution where different financial activities are carried on. Banking is the business
activity of accepting and safeguarding money owned by other individuals. A bank is an
organization whose primary functions are concerned with accumulation of ideal money from
general public and advancing loan to individuals, traders, industries and business houses for
expenditure. This writing covers the process as well as importance of banking in today’s
world. After reading this paragraph every individual will be aware about the importance of
banking.
History of banking
There is no exact conclusion among the economist about the origin of the world
banking. The term bank is derives from the Italian word banc us which refers to the bench on
which bankers would keep its money for lending and exchanging. It is believed that ancestor
of modern banking system were merchants, goldsmiths and money lenders. The first bank
called the bank of Venice were established in Venice Italy in1157A.D to finance bank of
Genoa that was establish 1401 and 1408 respectively. After that bank of Amsterdam was
establish in 1609A.D. When the bank of England was established in 1940 it played the vital
role for the development of modern banking system. After its establishment banks spread all
over world.
Objective of banking
Every banks mission is to contribute to the sound economic and financial well being of
the country. The bank seeks to promote and maintain monetary stability, a safe sound and
stable financial system, an efficient payment mechanism. The first and foremost objectives of
every bank is to promote and maintain monetary stability, an efficient payments mechanism
and the liquidity, solvency and proper functioning of a soundly based monetary credit and
financial system in a country. Every bank will try to adopt with the change. It maintain sound
international financial relation and provide efficient banking service to its various clients.
Providing the sound economic and advice to government is also a major target of banks.
Importance of banking
Bank is an indispensable institution for an economy. It is the institution which gives the
mobility to the financial resources within or outside the economy. Banks act as payment
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agent by maintaining current account for customers, paying cheques drawn by customers on
the bank and collecting cheques deposited to customers current account. Banks provides
almost all payment services and a bank account is considered indispensable by almost
business, individuals and government. Bank works as facilitator of economic transactions and
also custodian of monetary assets of customers.
Functions of banking
financial system
supervisor of
Regulator and Formulates, implements
and monitor monetary
policy

Bankers to Bank Functions of

Banking Manager of exchange
control

Figure no.1 Functions of Banking

Banker to the Issuer of currency
government

Concept of commercial bank

The commercial banks are those banks which are established to accept deposit and
grant loans to industries, individual and traders with a view to earn profit. Apart from
financing they also render services like collection of bills and cheques safekeeping of
valuable financing advising etc. to their customer.
Table No.1: List of licensed commercial bank in Nepal
Commercial Banks Established date(B.S) Head office
Nepal Bank Ltd. 1994/07/30 Kathmandu
Rastriya Banijya Bank 2022/10/10 Kathmandu
Nabil Bank Ltd. 2041/03/29 Kathmandu
Nepal Investment bank Ltd. 2042/11/16 Kathmandu
Standard Chartered Bank 2043/10/16 Kathmandu
Himalayan Bank Ltd. 2049/10/05 Kathmandu
Nepal SBI Bank Ltd. 2050/03/23 Kathmandu
Nepal Bangladesh Bank Ltd. 2051/02/23 Kathmandu
Everest Bank Ltd. 2051/07/01 Kathmandu
Bank of Kathmadu Ltd. 2051/11/28 Kathmandu
Nepal credit and commerce 2053/06/28 Siddharthanagar
bank Ltd.
Lumbini Bank Ltd. 2055/04/01 Narayangadh
Nepal industrial and 2055/04/05 Biratnagar
commerce Bank Ltd.
Machhapuchre Bank Ltd. 2057/06/17 Pokhara
Kumari Bank Ltd. 2056/08/24 Kathmandu
Laxmi Bank Ltd. 2058/06/11 Birgunj
Siddhatha Bank Ltd. 2058/06/12 Kathmandu
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Global Bank Ltd, Kathmandu

Source: NRB
Online banking
Online banking also known as internet banking, e-banking is an electronic payment system
that enables customers of a bank or others financial institution to conduct a range of financial
transactions through the financial institution web sites. The online banking system will
typically Connect to be part of core banking system operated by a bank and is in contact to
branch banking which was the traditional way customers assessed banking services. Today
many banks are internet only institutions. These “virtual banks” have lower over head costs
than their brick-and-mortar counterparts.
Mobile banking
Mobile banking is a service provided by bank or other financial institutions that allows its
customers to conduct financial transactions remotely using a mobile devices such as mobile
phones or tablets. It uses software usually called as an app provided by the financial
institutions for the purpose of banking. Mobile banking is usually available on a 24 hours
basis. Transactions through mobile banking may include obtaining account balance and list of
latest transactions, electric bill payments and funds transfer between a customers or another
accounts. Some apps also enables copies of statement to be downloaded and sometimes
printed at the customers premises and some banks charges a fee for mailing hard copies of
bank statements.
Major trends in the current business world related to banking
The banking industry today is in the flux with the multiple technology, regularity and
demographic factors cutting across the length and breadth of value chain. At the beginning of
21st century, the biggest banks in industrial world have become complex financial
organizations that offers a wide variety of services to international markets and control
billions of dollar in cash and assets. These factors are impacting the way banks conduct their
business as the traditional banking method are not enough to meet increasing customers
experiences, expectation and improve profitability. This document aims to understand and
analyze the trends in banking that are expected to drive the dynamics of the banking
ecosystem in the near future.
Although the banking industry does not operate in the same manner all over the
world, most banks thinks about the corporate clients in terms of commercial banking and
investment banking. Over the past decades there has been an increasing convergence between
the activities of investment and commercial banks, because of the deregulation of the
financial sector. Today, some investment and commercial banking institutions complete
directly in money market operations, private placements, project finance, bonds underwriting
and financial advisory work.
Furthermore the modern banking industries have bought greater business
diversification. Some banks in the industrialized world are entering into investment,
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insurance businesses etc. Taken together, these changes have made banks even more
important entity in the global business community.
In some European countries(notably Germany, Switzerland and Austria ) there have
always been universal banks combining deposit and loan banking with share and bonds
dealing and investment services but for much of the 20th century American legislation
enforced a strict separation between commercial and investment banks. The Glass-steagall
act, passed during the depression in 1934 prevented commercial banks from underwriting
securities. This act was repealed in 1999. The Japanese equivalent was abolished the previous
year and the banking industry in Britain was also deregulated in the 1990s and financial
conglomerates now combine the services previously offered by banks, stockholders, and
insurance companies.
In most financial centers, there are also branches of lots of foreign banks, largely
doing Eurocurrency business. A Eurocurrency is any currency held outside its country of
origin. The first significant Eurocurrency market was for US dollars in Europe, but the name
is now used for the foreign currencies held anywhere in the world (e.g. Yen in the US, Euro in
Japan). Since the US dollar is the world’s most important trading currency and because the
US for many years had a huge trade deficit-there is a market of many billions of Eurodollar,
including the oil-exporting countries ‘petrodollars’. Although the center bank can determine
the minimum lending rate for its national currencies it has no control over financial
currencies. Furthermore banks are not obliged to deposit any of their Eurocurrency assets at
0% interest with the central banks, which means that they can usually offer better rate to
borrowers and depositors than in the home country.
Nepalese perspective to banking
In the context of Nepal like in other countries the goldsmith and landlord was the
ancient bankers. The Nepalese people were highly exploited by shahu mahajan by charging
higher interest rate, compound interest rate and even by manipulating the principle amount. If
we try to see the history of banking transaction in depth evidence of money lending functions
are found in practice before 8th century. In 780B.S Gunakamdev the ruler of Kathmandu
reconstructed Kathmandu valley by borrowing debt from people. 14th century Tanka Dhari
system had been running in the period of Ranodip Singh in Kathmandu established an office
called Tejarath Adda. From this office government distributed salary to their employee and
provided loans to government @5% of interest against the security of gold, silver etc.
Because of the development of economic activities in Nepal the above institution couldn’t be
fulfilled the need of people so in Kartik 30, 1994 B.S Nepal Bank limited was established as
one of the semi government commercial bank which has 10 million authorized capital and
842000 paid up capital. To fulfill the growing credit requirement of the country the
commercial bank called Rastriya Banijya Bank was established in 10th Bhadra 2022B.S. It is
also established to facilitates for the economic welfare of the general public. Nepal is an
agricultural country and to develop agricultural system industry agriculture development
bank and Nepal industrial development corporation was established in 2004 B.S and 2016
 76

B.S respectively. Now in our country there are 18 commercial Banks 15 development Banks
48 finance companies 34 corporate organization and 13 non bank institution after mid July
2006.
UNIT 15
STOCKS AND SHARES
Definition of the related term
A project is incomplete without some definitions of the related topics: Definition of the stock
and share are given below:
1. Stock
Stock is a share in the ownership of company. Stock represents a claim on the company's
assets and earnings.
2. Share
A share is a unit of ownership or equity in a company or a corporation. Share are one of the
most traded financial instrument.
3. Authorized share
The number of share of common stock that a firm’s corporate charter allows to issue.
4. Treasury stock
The number of outstanding stock that have been purchase and held by the firm.
5. Book value
The book value is an accounting concept. The firm’s book value of equity includes common
stock, share premium, and retained earnings.
6. Preferred stock
A hybrid security with feature of both debt stock and common stock and promises to pay
fixed dividend.
7. Liquidation value
The amount that a company could realize, if it sells its assets after having terminated its
business and paying to all claimant.
8. Intrinsic value
The present value of the cash flow stream provided to the investor, discounted at an
appropriate required rate of return.
9. Market value
Market value of a security is the current price at which the stock is being traded in the
market.
10. Equity share
Equity share are also called ordinary share .These share have no preferential right in the
payment of dividend or repayment of capital.
11. Right share
The share entitling to be subscribed by the existing shareholder of the company are called
right share.
12. Preference share
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Preference share are those share that are entitled to certain privileges .The dividend on
preference share is paid at a fixed rate.
13. Shareholder
The person who buy share in a company is called shareholder.
14. Par value
Par value is stated price in stock certificate.
15. Maturity
Common stock has no maturity date. It exists as long as the firm does.
16. Limited liabilities
The common shareholder are the actual owner of the company and have residual claim on all
assets, their liabilities in case of liquidation is limited to the amount of their investment.
17. Issue share
The number of share of common stock that has been offered by the company to sell is called
issue share.
18. Free cash flow
The cash generated in a given year less the cash needed to finance capital expenditure and
working capital needed.
19. Stock exchange
A stock exchange is a place or a organization by which stock traders can trade stock.
20. Stock derivative
A stock derivative is any financial instrument which has a value that is dependent on the price
of the underlying stock.
Theoretical aspects of stock and share
The origins of share and stock market and share go back to the middle ages. The London
stock exchange (LSE),which today is the largest in Europe and fourth largest in the world,
which was established back in 1801. The participants in those markets were predominantly,
professionals, typically, large institution investors. However, that has changed and today it is
far easier for individual investors in UK to buy and sell shares compared with only a few
years ago. Individual shareholders becomes popular through the many demutualization’s and
privatization of the 1990.This led to an increasing realization by individual investors that they
are participating in stock market through their investment in pension and insurance products
or as employee through work based share ownership schemes.
Plain and simple, stock is a share in the ownership of a company. Stock represents a
claim on the company’s assets and earning. As you acquire more stock, your ownership stake
in the company becomes greater. Whether you say share, equity, or stock, it all means the
same thing.A stock is represented by a stock certificate. This is a fancy piece of paper that is
proof of your ownership. A single share of the stock represents fractional ownership of the
co-operation in proportion to thetotal number of share .In liquidation, the stock represent the
residual assets of the company that would be due to stockholder after discharge of all seniors
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claims such as secured and unsecured debt. Stockholder equity cannot be withdraw from the
company in a way that is intended to be detrimental to the company creditor.
Share is the stock of the company is sold in units. A share is a unit of ownership or
equity in a company or a corporation. Share are one of the most traded financial instrument.
If you buys share of a company, that we are buying a piece of the company. When we own
more than one share in a company or several companies these are called stock because stock
generally refers to a portfolio of share. Share represent a fraction of ownership in a business.
A business may declare different types of share each having distinctive ownership rule,
privileges or share value ownership of share may be documented by issued of a stock
certificate. A stock certificate is alegal document that specifies the amount of share owned by
the shareholder and other specifies of the shares. Such as the par value, if any or the class of
the share.
Stock typically takes the form of share of either common stock or preference stock. A
share of common stock represents a share of ownership in the company that issues it. . The
price of the stock goes up and down, depending on how the company performs and how
investors think the company will perform in the future. The stock may or may not pay
dividends, which usually come from profits. If profits fall, dividend payments may be cut or
eliminated.Many companies also issue “preferred” stock. Like common stock, it is a share of
ownership. The difference is preferred stockholders get first dibs on dividends in good times
and on assets if the company goes broke and has to liquidate
Theoretically, the price of preferred stock can rise or fall along with the common. In
reality it doesn’t move nearly as much because preferred investors are interested mainly in
the dividends, which are fixed when the stock is issued. For this reason, Preferred stock is
more comparable to a bond than to a share of common stock. A company may have different
types of share that come with different condition and right i.e. Ordinary share and preference
share.
A stock market, equity market or share market is the aggregation of buyer and sellers
of stock and share. Stock market is an important institutional mechanism that plays a crucial
role in the economy by channeling investment where it is needed. The activities of buying
and selling securities in the stock market are extremely important for the efficient allocation
of capital within economies. A stock market can be founds around the worlds and there’s no
denying the global importance of stock market .Here are the top 10 stock market in the
worlds today ranks by market capitalization
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Figure 6-top ten stock market in the world

Shareholder (or stockholder) is an individual or company(Including a corporation) that

legally owns one or more shares of stock in a joint stock company. Both private and public
traded companies have shareholders. Shareholders are granted special privileges depending
on the class of stock, including the right to vote on matters such as elections to the board of
directors, the right to share in distributions of the company's income, the right to purchase
new shares issued by the company, and the right to a company's assets during a liquidation of
the company. However, shareholder's rights to a company's assets are subordinate to the
rights of the company's creditors. Shareholders are a one type of stakeholders, which may
include anyone who has a direct or indirect equity interest in the business entity or someone
with even a non-Pecuniary interest in a non-profit organization. The largest shareholder are
often mutual funds and especially passively managed exchange traded funds.
A stock derivative is any financial instrument which has aValue that is dependent on
the price of the underlying stock. Futures and options are the main types of derivatives on
stocks. The underlying security may be a stock index or an individual firm's stock, e.g.
single-stock futures .Stock futures are contracts where the buyer is long , i.e., takes on the
obligation to buy on the contract maturity date, and the seller is short , i.e., takes on the
obligation to sell. Stock index futures are generally delivered by cash settlement. A stock
option is a class of option. Specifically, a call option is the right (not obligation) to buy stock
in the future at a fixed price and a put option is the right (notobligation) to sell stock in the
future at a fixed price. Thus, the value of a stock option changes in reaction to the underlying
stock of which it is a derivative.
A stock exchange is a place or organization by which stock traders (people and
companies) can trade stocks. Companies may want to get their stock listed on a stock
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exchange. A stock exchange or bourse is an exchange where stock brokers and traders can
buy and/or sell stocks (also called shares), bonds, and other securities.Stock exchanges may
also provide facilities for issue and redemption of securities and other financial instruments,
and capital events including the payment of income and dividends. Securities traded on a
stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled
investment products and bonds. Stock exchanges often function as "continuous action"
markets, with buyers and sellers consummating transactions at a central location. There is
usually no obligation for stock to be issued the stock exchange itself nor must stock to be
subsequently traded on the exchange such trading may be off exchange or over the counter.
This is the usual way that derivatives and bonds are traded. Increasingly stock exchange are
the part of a global securities market.
The stock market is one of the most important ways for companies to raise money,
along with debt markets which are generally more imposing but do not trade publicly. This
allows businesses to be publicly traded, and raise additional financial capital for expansion by
selling shares of ownership of the company in a public market. The liquidity that an exchange
affords the investors enables their holders to quickly and easily sell securities. This is an
attractive feature of investing in stocks, compared to other less liquid investments such as
property and other immoveable assets. Some companies actively increase liquidity by trading
in their own shares.
History has shown that the price of stocks and other assets is an important part of the
dynamics of economic activity, and can influence or be an indicator of social mood. An
economy where the stock market is on the rise is considered to be an up and
comingEconomy. The stock market is often considered the primary indicator of a country's
economic strength and development. Rising share prices, for instance, tend to be associated
with increased business investment and vice versa. Share prices also affect the wealth of
households and their consumption. Therefore, central banks tend to keep an eye on the
control and behavior of the stock market and, in general, on the smooth operation of financial
system functions. In this way the financial system is assumed to contribute to increased
prosperity, although some controversy exists as to whether the optimal financial system is
bankbased 2Or marketbased.
Stock dilution, also known as equity dilution, is the decrease in existing shareholders’
ownership of a company as a result of the company issuing new equity. New equity increases
the total shares outstanding which has a dilutive effect on the ownership percentage of
existing shareholders. This increase in the number of shares outstanding can result from a
primary market offering (including an initial public offering), employees exercising stock
options, or by issuance or conversion of convertible bonds, preferred shares or warrants into
stock. This dilution can shift fundamental positions of the stock such as ownership
percentage, voting control, earnings per share, and the value of individual shares. A broader
definition specifies dilution as any event that reduces an investor's stock price below the
initial purchase price.
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Major trends current business world in stock and share

As country become richer, wealthier household and corporation have more complicated
financial needs, and financial markets emerge to meet this demand. But this is not the whole
story. India has a highly emerging stock market while other low income countries find it so
difficult to develop. There are many examples of failed efforts to develop stock markets. In
the early- to mid- 1990s, attempts to develop stock markets in the Gambia and Zambia did
not prove successful. These countries’ stock exchanges could not generate the fees to be self-
sustaining. So, it is felt necessary to find whether the small market size and other stock
market problems deterring for the development of Nepalese stock market
Besides differences in income, some of the differences in experience can be explained
by differences in legal systems, the availability, and quality of information, and corruption.
Hiring Management consultants for small and poor performance companies can be costly
endeavor and problem in some extent. Poor management and poor performance of companies
is detraction for stockholders. Little participation on stock investment is the phenomena of
developing countries. Low income, inadequate laws and regulations, information problems,
corruption and lack of enforcement all play a role in deterring stock market development (KC
(2010).
The most prestigious exchange in the world is the New York Stock Exchange
(NYSE). The "Big Board" was founded over 200 years ago in 1792 with the signing of the
Buttonwood Agreement by 24 New York City stockbrokers and merchants. Currently the
NYSE, with stocks like General Electric, McDonald's, Citigroup, Coca-Cola, Gillette and
Wal-Mart, is the market of choice for the largest companies in America. The NYSE is the first
type of exchange (as we referred to above), where much of the trading is done face-to-face on
a trading floor. This is also referred to as a listed exchange. Orders come in through
brokerage firms that are members of the exchange and flow down to floor brokers who go to
a specific spot on the floor where the stock trades. ;At this location, known as the trading
post, there is a specific person known as the specialist whose job is to match buyers and
sellers. Prices are determined using an auction method: the current price is the highest
amount any buyer is willing to pay and the lowest price at which someone is willing to sell.
Once a trade has been made, the details are sent back to the brokerage firm, who then notifies
theInvestor who placed the order. Although there is human contact in this process, don’t think
that the NYSE is still in the Stone Age: computers play a huge role inthe process.

2.4 NepalesePerspective to the stock and

share
Nepal Stock Exchange Limited ( abbreviated
asNEPSE ) is the only Stock Exchange of
Nepal. It is locatedin Singha Durbar Plaza,
Kathmandu Nepal. On March 23,2014 the
equity market capitalization of the

Figure 7-Nepal stock exckange

 82

companieslisted on NEPSE was approximately US$7896 million.The basic objective of

NEPSE is to impart freemarketability and liquidity to the government andcorporate securities
by facilitating transactions in itstrading floor through member, market intermediaries,such as
broker, market makers etc. NEPSE opened itstrading floor on 13 January 1994. As on April 4,
2013, the number of listed companies are 334, which includesCommercial Banks, Hydro
Power Companies, InsuranceCompanies and Finance Companies among others.
TheExchange has 50 registered brokers as of April 2013. The NEPSE Index is primary all
equity market index ofNEPSE.It is regulated by the Securities Board.
The historical background of stock market in Nepal starts with the establishment of
Biratnagar Jute Mill in1936 AD and Nepal Bank Ltd. in 1937AD. Securities Exchange Centre
was established in 1976 with an objective of facilitating and promoting the growth of capital
market, before conversion into Nepal Stock Exchange Ltd. (NEPSE). It was the only stock
market institution undertaking the job of brokering, underwriting, managing public issues,
market making for government bonds and other financial services. NEPSE opened its trading
floor for its members first on January 13, 1994, which could only accommodate 50 members
adopting an open out-cry system, which later on replaced by the partial automation system
for the transaction of securities .
The economic size of Nepal is increasing rapidly along with her population growth. In
the first nine months of the fiscal year 2010The NEPSE index is considered as the measure to
show the economic phenomena of Nepal. Stock market index and economic performance
should have positive relationship but in Nepalese context, it seems that the NEPSE index is
guided by political factors and fraudulent practices including pooling, warehouse, organized
runs, ramping, wash sale, matching, and insider trading. Small investors are not resistant to
hold stocks for long term perspective (Sullivan (2011)). Most of the Nepalese stock investors
are involved in hunch.
Stock market is dominated by mandatory issue of financial institutions as per the
provisions of Bank and financial institution Act, 2006 and directives of Nepal Rasta Bank.
Securities issues of other than bank and financial institution are negligible. In one side,
people seem interested of invest only on limited kinds of companies and another; most of
them even do not have sufficient knowledge. It all shows that the development of Nepalese
stock market is still in initial phase. With all these gaps and rationale in mind this study aims
to examine the problems and prospects of stock market in Nepal.
Development of capital market is must for a sound industrial development of the
country like least developed country Nepal. Capital market helps to mobilize the surplus unit
to deficit unit for productive investments. As it mobilize the scattered resources and channels
them in productive sector. It is an effective instrument of expanding productive capacities of
the country. In Nepal, unfortunately, despite a history of half decade of planned economics
activities to develop real sector of a country, little attention was paid to the development of
financial market. Over the past, one and half decade bond market, despite many problems,
has developed significantly in Nepal. Past decades has witnessed several new practices in
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Nepalese capital market. During this period a several initial public offering (IPOs) were
made.
UNIT 16
BONDS
Definition of the related terms
A project is incomplete without some definitions of the related topics: Definition of the bonds
are given below:
1. Bond: Bond is the written evidence of debt, bearing a stated rate or stated rates of
interest, and maturing on a date certain, on which date and upon presentation a fixed sum
of money plus interest is payable to the holder or owner.
2. Accrued interest: The dollar amount of interest accrued on an issue, based on the stated
interest rate on that issue, from its date to the date of delivery to the original purchaser.
This is usually paid by the original purchaser to the issuer as part of the purchase price of
the issue
3. Commission: The fee paid to a dealer when the dealer acts as agent in a transaction, as
opposed to when the dealer acts as a principal in a transaction
4. Common stock: A share representing participation in the ownership of an enterprise,
generally with the right to participate in dividends and in most cases to vote on major
matters affecting stockholder interests.
5. Debenture: Unsecured debt obligation, issued against the general credit of a corporation,
rather than against a specific asset.
6. Discount: Amount stated in dollars or a percent) by which the selling or purchase price of
a security is less than its face amount;
7. Flow of funds: Refers to the structure which is established in the bond resolution or the
trust documents which sets forth the order in which funds generated by the enterprise will
be allocated to various purposes.
8. Hedge: An investment made with the intention of minimizing the impact of adverse
movements in interest rates or securities prices.
9. Interest: The compensation paid or to be paid for the use of money, usually expressed as
an annual percentage rate.
10. Limited liability company: A special-purpose company incorporated under special
limited-liability company legislation enacted in many states and foreign countries.
11. Liquidity: The ability to trade bonds efficiently without causing any major changes in
their prices.
12. Market price or market value: For securities traded through an exchange, the last
reported price at which a security was sold; for securities traded "over-the-counter," the
current price of the security in the market.
13. Non-callable bond: A bond that cannot be called for redemption at the option of the
issuer before its specified maturity date.
14. Notes: Short-term promises to pay specified amounts of money, secured usually by
specific sources of future revenues, such as taxes, federal and state aid payments, and
bond proceeds.
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15. Preferred stock: An equity security that is junior to the issuing entity's debt obligations
but senior to common stock in the payment of dividends and the liquidation of assets.
16. Premium: The amount by which the price of a security exceeds its principal amount.
17. Principal: The face amount of a bond, exclusive of accrued interest and payable at
maturity.
18. Private placement: The negotiated offering of new securities directly to investors,
without a public underwriting.
19. Put bond: A bond that gives the holder the right to require the issuer or the issuer's agent
to purchase the bonds at a price, usually at par, at some date or dates prior to the final
stated maturity.
20. Redemption: The paying off or buying back of a bond by the issuer; also, repurchase of
investment trust units by the trustee, at the bid price.
21. Security: Specific revenue sources or assets pledged by an issuer to the bondholder to
secure repayment of the bond.
Theoretical aspects of bond
A bond is a long-term security or long-term promissory note. It promises to pay interest and
principal to the holders of the bond. In other words, it is a type of investment that represents a
loan between a borrower and a lender. Generally, bond issuer pays a fixed interest payment
on specific date each year until the bond matures. This payment is known as coupon .While
issuing a bond ,the issuer must prepare an indenture .It is a legal document that contains of
bond issues .The indenture provides the specific terms of loan agreement .It includes a
description of the bonds, rights of the bond holders , the rights of the issuing firm, the
responsibilities of the trustee.
Bonds have a number of features. Some of the features are general and some others are
specific in nature. These features expose the firm and investors to different level of risk and
cost /return. Therefore, a firm’s manager and investors must carefully examine such features
which agent the effective cost /yield and level of risk. Moreover, some of the debt contract
may have restrictions that might limit the firm’s future actions. In this section, we discuss
various features such as per value, coupon rate interest, indenture ,and indenture; call
provision, trustee and sinking fund.
Many people view Treasury securities as a lack luster but ultra-safe investment. From a
default stand point, treasuries are indeed our safest investments but their prices can still
decline in any given year if interest rates increase. All bonds aren’t alike, and they don’t
always move in the same direction. For example : corporate bonds are often callable and
issuers can default on them where economy is strong ,corporate generally produce higher
returns that Treasures because theirs promised returns are higher and most make their
promise payments because few go inter default .
Before we can fully understand the valuation of bond, certain terms must be discussed.
For one thing, a bond has a face value. This value is usually $ 1000 per bond in the United
States. In valuing bond, we are primarily concerned with discounting or capitalizing, the cash
flow stream that the security holder would receive over the life of the instrument. The terms
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of a bond establish a legally binding payment, when the bond matures, equal to the bonds
face value. Bonds can be valued as perpetual bond, zero coupon bonds, and coupon bonds
with a finite maturity and bond valuation with semiannual interest.
Bond yield refers to the different measures of bond return. The return on a bond can be
measured as rate of return, current yield, capital gain yield, yield to maturity (YTM) and yield
to call (XTC). Rate of return (coupon payment plus capital gain or loss) divided by
investment. Investors who do not plan to hold the bond to maturity and do not consider
capital gain or loss use current yield. It is computed by dividing fixed coupon interest by
current market price of bond. The yield to maturity (YTM) of a bond represents the rate of
return investors earn if they buy the bond at a specific price and hold it until maturity. Yield
to call is calculated just like the yield to maturity except that the time until call replaces time
until maturity and the call price replaces the par value.
There are various types of bonds trading in the financial market. On the basis of issuers,
these bonds can be classified into four main types: Treasury bond, corporate bond, municipal
bond and foreign bond. Treasury bonds are issued by government and have no default risk.
Corporate bonds issued by the companies to raise debt capital. Corporate bonds are exposed
to default risk. Municipal bonds are issued by state or local government. Foreign bonds are
issued by foreign government or foreign corporation. Other different sub types of bonds are
mortgage bonds, debenture, subordinated debenture, income bond, convertible bonds,
callable and potable bonds, zero coupon bonds, floating rate bonds and Junk bonds.
Bond rating is to assess and prescribe the quality of bond issued by corporation. It is
usually set up on the basis of credit worthiness of the issuing corporation and the default risk
associated with it. Higher the default risk, lower will be the quality of bond. Accordingly,
highly default bond is rated in lower quality categories. In other words, the bond rating
reflects the level of default risk and the level of protection that creditors have in the event of
default. There are two popular corporations in us that quality of the bonds on the basis of
financial information provided by issuing corporations. They are Moody’s rating and standard
and poor’s(S & P) rating. These quality rating agencies rate the quality of the corporate bonds
in U.S. on the basis of the assessment of credit worthiness and financial vulnerability of the
corporations.
Bond market is the market where buying and selling of bonds takes place. Similar to
stock market, the bond market also can be primarily and secondary market. For example,
government and corporations issue bond in the primary market, bonds are bought to raise
new capital. In secondary market, bonds are bought and sold among the investors. The
secondary market for bond also can be categorized as the organized exchange and over the
counter (OTC) markets. In OTC market, prices and trading volume of transaction are
privately negotiated between buyer and seller. In contrast, the organized exchanges such as
Nepal stock Exchange (NEPSE) furnish every pieces of information on price movement and
trading volume publically for every transaction.
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The World Bank (2000) provides an interesting justification for liberalizing and
deregulating bond markets. With increasing globalization, such opportunities for issuers and
investors do not last very long. Investors compete for a finite set of opportunities provided by
issuers and vice versa. As such the debt market is highly competitive. Therefore, anything
that hinders their decision making capability will undermine the confidence of the
participants. This is the primary motivation for having liberalized and deregulated markets. It
can be argued that debt markets typically are well developed in mature economies like the
USA, Japan or Germany and the development of corporate bond markets was preceded by
that of stock and government bond markets, which in turn was preceded by years of capital
accumulation through industrial development
Bonds are issued by public authorities, credit institutions, companies and supranational
institutions in the primary markets. The most common process for issuing bonds is through
underwriting. When a bond issue is underwritten, one or more securities firms or banks,
forming a syndicate, buy the entire issue of bonds from the issuer and re-sell them to
investors. The security firm takes the risk of being unable to sell on the issue to end investors.
Primary issuance is arranged by book runners who arrange the bond issue, have direct contact
with investors and act as advisers to the bond issuer in terms of timing and price of the bond
issue. The book runner is listed first among all underwriters participating in the issuance in
the tombstone ads commonly used to announce bonds to the public. The book runners'
willingness to underwrite must be discussed prior to any decision on the terms of the bond
issue as there may be limited demand for the bonds. In contrast, government bonds are
usually issued in an auction. In some cases, both members of the public and banks may bid
for bonds. In other cases, only market makers may bid for bonds. The overall rate of return on
the bond depends on both the terms of the bond and the price paid.[4] The terms of the bond,
such as the coupon, are fixed in advance and the price is determined by the market.
The issuer has to repay the nominal amount on the maturity date. As long as all due
payments have been made, the issuer has no further obligations to the bond holders after the
maturity date. The length of time until the maturity date is often referred to as the term or
tenor or maturity of a bond. The maturity can be any length of time, although debt securities
with a term of less than one year are generally designated money market instruments rather
than bonds. Most bonds have a term of up to 30 years. Some bonds have been issued with
terms of 50 years or more, and historically there have been some issues with no maturity date
(irredeemable). In the market for United States Treasury securities, there are three categories
of bond maturities:
1 short term (bills): maturities between one and five year; (instruments with maturities less
than one year are called Money Market Instruments)
2 medium term (notes): maturities between six and twelve years;
3 long term (bonds): maturities greater than twelve years
At the time of issue of the bond, the interest rate and other conditions of the bond will
have been influenced by a variety of factors, such as current market interest rates, the length
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of the term and the creditworthiness of the issuer. These factors are likely to change over
time, so the market price of a bond will vary after it is issued. The market price is expressed
as a percentage of nominal value. Bonds are not necessarily issued at par (100% of face
value, corresponding to a price of 100), but bond prices will move towards par as they
approach maturity (if the market expects the maturity payment to be made in full and on
time) as this is the price the issuer will pay to redeem the bond. This is referred to as "Pull to
Par". At other times, prices can be above par (bond is priced at greater than 100), which is
called trading at a premium, or below par (bond is priced at less than 100), which is called
trading at a discount. Most government bonds are denominated in units of $1000 in the
United States, or in units of £100 in the United Kingdom.
Bonds and stocks are both securities, but the major difference between the two is that
(capital) stockholders have an equity stake in the company (i.e., they are owners), whereas
bondholders have a creditor stake in the company (i.e., they are lenders). Being a creditor,
bondholders have priority over stockholders. This means they will be repaid in advance of
stockholders, but will rank behind secured creditors in the event of bankruptcy.[3] Another
difference is that bonds usually have a defined term, or maturity, after which the bond is
redeemed, whereas stocks are typically outstanding indefinitely. An exception is an
irredeemable bond, such as a console, which is a perpetuity, that is, a bond with no maturity
Major trends in the current business world related to bond
Some companies, banks, governments, and other sovereign entities may decide to issue bonds
in foreign currencies as it may appear to be more stable and predictable than their domestic
currency. Issuing bonds denominated in foreign currencies also gives issuers the ability to
access investment capital available in foreign markets. The proceeds from the issuance of
these bonds can be used by companies to break into foreign markets, or can be converted into
the issuing company's local currency to be used on existing operations through the use of
foreign exchange swap hedges. Foreign issuer bonds can also be used to hedge foreign
exchange rate risk. Some foreign issuer bonds are called by their nicknames, such as the
"samurai bond". These can be issued by foreign issuers looking to diversify their investor
base away from domestic markets. These bond issues are generally governed by the law of
the market of issuance, e.g., a samurai bond, issued by an investor based in Europe, will be
governed by Japanese law.
The issuer has to repay the nominal amount on the maturity date. As long as all due
payments have been made, the issuer has no further obligations to the bond holders after the
maturity date. The length of time until the maturity date is often referred to as the term or
tenor or maturity of a bond. The maturity can be any length of time, although debt securities
with a term of less than one year are generally designated money market instruments rather
than bonds. Most bonds have a term of up to 30 years. Some bonds have been issued with
terms of 50 years or more, and historically there have been some issues with no maturity date
(irredeemable). In the market for United States Treasury securities, there are three categories
of bond maturities:
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1. short term (bills): maturities between one and five year; (instruments with maturities
less than one year are called Money Market Instruments)
2. medium term (notes): maturities between six and twelve years;
3. long term (bonds): maturities greater than twelve years
Bonds are bought and traded mostly by institutions like central banks, sovereign wealth
funds, pension funds, insurance companies, hedge funds, and banks. Insurance companies
and pension funds have liabilities which essentially include fixed amounts payable on
predetermined dates. They buy the bonds to match their liabilities, and may be compelled by
law to do this. Most individuals who want to own bonds do so through bond funds. Still, in
the U.S., nearly 10% of all bonds outstanding are held directly by households.
The volatility of bonds (especially short and medium dated bonds) is lower than that
of equities (stocks). Thus, bonds are generally viewed as safer investments than stocks, but
this perception is only partially correct. Bonds do suffer from less day-to-day volatility than
stocks, and bonds' interest payments are sometimes higher than the general level of dividend
payments. Bonds are often liquid – it is often fairly easy for an institution to sell a large
quantity of bonds without affecting the price much, which may be more difficult for equities
– and the comparative certainty of a fixed interest payment twice a year and a fixed lump sum
at maturity is attractive. Bondholders also enjoy a measure of legal protection: under the law
of most countries, if a company goes bankrupt, its bondholders will often receive some
money back (the recovery amount), whereas the company's equity stock often ends up
valueless. However, bonds can also be risky but less risky than stocks.
U.S. Treasury
SYMBOL YIELD CHANGE
US 3-MO 0.52 -0.005
US 2-YR 1.174 -0.004
US 5-YR 1.85 -0.013
US 10-YR 2.355 -0.013
US 30-YR 2.954 -0.009
U.K. Government Bonds (GILT)
SYMBOL YIELD CHANGE
UK 2-YR 0.168 0.049
UK 5-YR 0.564 0.034
UK 10-YR 1.327 0.036
UK 30-YR 1.977 0.027
German Government Bonds (BOND)
SYMBOL YIELD CHANGE
Bund 10-Yr 0.253 -0.003
GER 20-YR 0.7524 -0.012
GER 30-YR 0.9986 -0.01
Nepalese perspective of bonds
Nepalese capital market was given proper structure in June 1993 with the establishment of
Securities Board of Nepal as the market regulator. Since its establishment, SEBON has been
concentrating its efforts on the legal and statutory frameworks, which are the bases for the
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healthy development of capital market. Nepal is the supreme body to regulate the Nepalese
capital market (Dangol 2008, and Gurung 2004); however, SEBON is highly influenced by
Nepal Rastra Bank (NRB) and Company Registrar office (Dangol, 2008). As a part of its
continuous efforts to build a sound system, Institutional Reform and Informal Sector advice
to amended the securities exchange act, 1983 in 1996. In addition, this act was amended for
the second time on January 30, 1997.
The establishment and operation of the bond market has opened door to small
investors otherwise limited by prevailing opportunities and inability to assemble diverse
sources. The only probable option left for them was bank deposits. Thus, enterprising and
venturesome small investors were deprived of opportunities to invest. However, the
establishment of the securities market in Nepal in 1985 and Nepal Stock Exchange Market in
1994, has opened an avenue to them. The Securities Exchange Board (SEBO) is operating
since 1993. However, to what extent, their interest is being given attention has remained an
issue of concern in Nepal. Security market is a place where buying and selling of securities
takes place in an organized way. The parties involved in security market are investors,
intermediaries and specialists. Investors who are willing to buy or sell securities quickly may
be searching good offers or accepting poor offers with higher risk and of higher return.
Securities markets provide options to all categories of investors and make the financial
market most competitive in developing countries
Nepal Rastra Bank (2011) observes that listed corporate debt forms only 2 per cent of
GDP. This is significantly low compared to other emerging economies, such as Malaysia,
Korea and China. Further, Nepal Government (2015) makes an important observation; even
today most of the large issuers in the corporate debt market segment are “quasi-government”
i.e. banks, public sector oil companies or government sponsored financial institutions. Of the
rest, only a few notable names dominate the market. Therefore, increasingly, there has been a
lot of focus on the development of debt markets in Nepal and it has garnered a lot of policy
and regulatory attention.
In context to Nepal, very few Nepalese manufacturing companies have used
bonds/debentures as a source of long term financing. In 2043, bottlers Nepal issued 18 %
coupon bonds amounted Rs 5 million. In 2048, Jyoti spinning mills ltd. Issued Rs 20 million
bond with 14% coupon and 2 years maturity. Shree Ram sugar mills ltd. introduced a
convertible bond of Rs 93 million with 14% coupon and 4 years maturity which was the first
convertible bond in Nepal. In 2059, Himalayan Bank issued bonds of Rs 360 million with 8.5
% coupon and 7 year maturity. It was the first bond from banking sectors. Nepalese corporate
bonds have high variation in coupon in coupon rate (6% to 14%) and maturity period (4year
to 10 year).
UNIT 17
FUTURES AND DERIVATIVES
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Definition of the related terms

1) Over-the-counter (OTC): Derivatives are contracts that are traded directly between two
parties, without going through an exchange or other intermediary.
2) Exchange-traded-derivatives (ETD): ETD is those derivatives instruments that are
traded via specialized derivative exchanges or other exchanges.
3) Forward: A tailored contract between two parties, where payment takes place at a
specific time in the future at today’s predetermined price.
4) Future: Future is contracts to buy or sell assets on a future date at a price specified today.
5) Options: Options are contracts that give the owner the right, but not the obligation, to
buy or sell an asset.
6) Binary Options: They are contracts that provide the owner with an all-or-nothing profit
profile.
7) Warrants: Apart from commonly used short dated options which have a maximum
maturity period of one year, there exist certain long dated options as well, known as
warrants.
8) Swaps: Swaps are contracts to exchange cash (flow) on or before a specified future date
based on the underlying value of currencies exchange rates, bonds/interest rates,
commodities exchange, stock or other assets.
9) Interest rate swap: These basically necessitate swapping only interest associated cash
flows in the same currency, between two parties.
10) Currency Swap: In this kind of swapping, the cash flow between the two parties include
both principal and interest.
11) Credit Default Swap (CDS): CDS is a financial swap agreement that the seller of the
CDS will compensate the buyer in the event of a loan default or other credit event.
12) Credit Derivative: A contract that transfers credit risk from a buyer protection to a credit
protection seller.
13) Hedge: Hedge or mitigate risk in the underlying by entering into a derivative contract
whose value moves in the opposite direction to their underlying position and cancels part
or all of it out.
14) Leverage: Derivatives are used to provide leverage such that a small movement in the
underlying value can cause a large difference in the value of the derivative.
15) Standardization: It defined as the underlying product or asset and whether it will be
delivered in cash or physical kind.
16) Regulation: Future exchanges like stock exchange are subject to financial regulation.
17) Equity Derivatives: In finance, an equity derivative is a class of derivative whose value
is at least partly derives from one or more underlying equity securities.
18) Foreign Exchange Derivatives: A foreign exchange derivatives is financial derivatives
whose pay off depends on the foreign exchange rate of two or more currencies.
19) Equity Swap: An equity swap is a financial derivative contract where a set of future cash
flows are agreed to be exchanged between two counter parties at set.
20) Interest Rate Derivatives: Interest rate derivatives is a derivative where the underlying
asset is the right to pay or receive a national amount of money at a given interest rate
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Theoretical aspects of futures and derivatives

In finance, a derivative is a contract that derives its value from the performance of an
underlying entity. This underlying entity can be an asset, index, or interest rate, and is often
simply called the “underlying”. Derivatives can be used for a number of purposes, including
insuring against price movements for speculation or getting access to otherwise hard-to-trade
assets or markets. Simply, derivatives are contracts between two parties that specify
conditions(especially the dates, resulting values and definitions of the underlying variables,
the parties contractual obligations, and the national amount) under which payments are to be
made between the parties.
Likewise, the asset include commodities stock, bonds, interest rate and currencies, but
they can also be other derivatives, which adds another layer of complexity to proper valuation.
The components of a firm’s capital structure, e.g., bonds and stock, can also be considered
derivatives, more precisely options, with the underlying being the firm’s assets, but this is
unusual outside of technical contexts. From the economic point of view financial derivatives
are cash flow that are conditioned stochastically and discounted to present value. The market
risk inherent in the underlying asset is attached to the financial derivative through contractual
agreements and hence can be traded separately. The underlying asset does not have to be
acquired. Derivatives therefore allow the breakup of ownership and participation in the market
value of an asset.
There are two groups of derivative contracts: the privately traded over-the-
counter(OTC) derivatives such as swaps that do not go through an exchange or other
intermediary, and exchange-traded-derivatives(EDT) that are traded through specialized
derivatives exchanges or other exchanges. Derivatives are more common in the modern era,
but their origins trace back on the ‘Dojima Rice Exchange’ since the eighteenth century.
Derivatives are broadly categorized by the relationship between the underlying assets and the
derivative(such as forward, option, swap), the type underlying asset(such as equity
derivatives, foreign exchange derivatives, interest rate derivatives, commodity derivatives, or
credit derivatives); the market in which they trade (such as exchange-traded or over-the-
counter); and their pay-off profile.
Derivatives may broadly be categorized as “lock” or “option” product. Lock products
(such as swaps, futures, or forward) obligate the contractual parties to the terms over the life
of the contract. Option products (such as interest rate swaps) provide the buyer the right, but
not the obligation to enter the contract under the terms specified. Derivatives can be used
either for risk management (i.e., to hedge by providing offsetting compensation in case of an
undesired event, a kind of insurance) or for speculation(i.e., making a financial “bet”). This
distinction is important because the former is a prudent aspect of operations as financial
management for many firms across many industries; the latter offers managers and investors a
risky opportunity to increase profit, which may not be properly disclosed to stakeholders.
Derivatives are used for different objectives. It is used for ‘Hedge’ or mitigate risk in the
underlying, by entering into a derivative contract whose value moves is the opposite direction
to their underlying position and cancels parts of all of it out. It creates option ability where the
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value of the derivative is linked to a specific condition or event. It is used to obtain exposure
to the underlying where it is not possible to trade in underlying. It is used to provide
leverage(or gearing), such that a small movement in the underlying value can cause a large
difference in the value of derivative. It is used to speculate and make a profit if the value of
the underlying asset classes without disturbing the underlying asset, as part of transition
management. It is used to avoid paying taxes. For example; an equity swap allows an investor
to receive steady payments, e.g., based on LIBOR rate, while avoiding paying capital gains
tax and keeping the stock.
There are two groups of derivative contracts, which are distinguished by the way they
are traded in the market. One is Over-the-counter(OTC) derivatives which are contracts that
are traded(and privately negotiated) directly between two parties, without going through an
exchange or other intermediary. Products such as swap, forward rate agreement, exotic
options and other exotic derivatives are almost always traded in this way. The OTC derivative
market is the largest market for derivatives, and is largely unregulated with respect to
disclosure of information between the parties, since the OTC market is made up of banks and
other highly sophisticated parties, such as hedge funds. Reporting of OTC amount is difficult
because trades can occur in private, without activity being visible on any exchange. Similarly,
Exchange-traded derivatives (ETD) are another type of derivatives which are those derivatives
instruments that are traded via specialized derivative exchanges or other exchanges. A
derivatives exchange is a market where individual trade standardized contracts that have been
defined by the exchange. A derivative exchange acts as an intermediary to all related
transactions, and takes initial margin from both sides of the trade to act as a guarantee.
Some of the common variants of derivative contracts are Forwards, Futures, Options
Binary Options, warrants and swaps A tailored contract between two parties, where payment
takes place at a specific time in the future at today’s pre-determined price. Futures are
contracts to buy or sell an asset on a future date at a price specified today options are contracts
that give the owner the right, but not the obligation, to buy or sell an asset. Binary options are
contract that provide the owner with an all-or-nothing profit profile. Similarly, apart from the
commonly used short dated options which have a maximum maturity period of one year, there
exist certain long-dated options as well, known as warrants. Finally, swaps are contracts to
exchange cash(flows) on or before a specified future date based on the underlying value of
currencies exchange rates, bonds/interest rates, commodities exchange, stocks or other assets.
The driving force behind the recent growth of derivatives was radical technological
advancements in computer science. This technological revolution was global and unleashed
profound transformations in every component of civilization from science to finance.
Derivatives provide three important economic functions i.e., risk management, price
discovery and transactional efficiency. The primary purpose of risk management is to protect
existing profits, not to create new profits. Price discovery represents the ability to achieve and
disseminate price information. Without price information, investors, producers and consumers
cannot make informed decisions. Similarly, transactional efficiency is the product of liquidity.
Inadequate liquidity results in high transaction costs.
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In the Nepalese perspectives to the futures and derivatives, there is lack of government
regulations in Futures and Derivatives’ market, hence regulatory body need to act very soon to
let hand in market efficiency, lucrative and partiality. There should be standardized
warehousing with sophisticated and reliable quality standard measurement for products. Also
qualified and knowledge based human resources need to be build up for further advancement
and market functioning. Similarly, internet connection should make through and speed access
to assist the trade and systematic and through knowledge to investors, brokers, and respected
individuals need to be disseminating in proper manner so as to maintain trade effectively and
rationally.
Derivatives are an essential instrument of finance. Derivatives is a collective term for
financial market products whose value depends on the price of another underlying asset such
as a stock, a stock index(the average value representative stocks in a given market), a
currency, a commodity, etc. The main derivatives are futures, options and swaps. They were
developed to allow companies to reduce uncertainty by guaranteeing future prices, at a
reasonable cost. The types, importance, objectives of derivatives and Nepalese perspectives of
derivatives are the major findings of this presentation.
Major trends of ‘futures and derivatives’
There are so many changes that are currently impacting the global derivatives industry.
Making the market safer is also one of the major challenge Ever since the financial crisis of
2008, the member nations of the Group of 20 have been engaged in a fundamental
restructuring of the regulatory frame work for derivatives. The goal is simple, to provide
greater protection from the risk of a catastrophic default by one or more major global financial
institutions. Similarly, risk of the exchange/clearing model is also one of the challenges. This
trend is not new, but it has been accelerated by the financial crisis of 2008 and the G20
reforms that came afterwards. If we look at the G20 reforms that came out of the Pittsburgh
summit 2009, we can see that one of the core lessons of the financial crisis is that the
derivatives exchanges and clearing houses continued to function without interruption before,
during, and after the crisis.
Similarly ,during the dark days of September 2008, when wall street seemed to be on
the verge of panic, the derivatives exchanges and clearinghouses in the financial centers of
Chicago, London, Frankfurt, and Singapore continued to fulfill their roles as centers for price
discovery and risk management. since that time, more than 50 trillion dollars in credit
products have been cleared through these clearinghouses, bringing greater transparency and
safety to this market place. Today, futures and options are used all around the world as risk
management tools. Companies are using these tools to protect themselves from price shocks
in every type of commodity-corn, wheat, crude oil, copper, plastics, and yes even eggs and
bacon.
The G20 reforms are pushing over-the-counter markets towards exchanges and
clearinghouses. For example; in the US, we now have rules that require clearing for certain
types of interest rate swaps and credit default swaps. It is estimated that more than 80% of the
interest rate swaps market is now being cleared. In addition to clearing, the CFTC has
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mandated that these products be traded on exchange-like platforms called Swap Execution
Facilities or SEFs, moving away from the traditional dealer markets that have dominated the
execution of these products. This transaction has been relatively slow up to now, but a large
share of these markets will migrate to the exchange model of trading. The same trend is
happening in Europe. We expect that mandatory clearing will start in Europe by end of this
year, and mandatory trading sometime thereafter. And there is similar changes in other parts of
the world, notably Australia, Canada, Hongkong , japan and Singapore.
Perhaps foremost among recent changes in world financial markets has been their
accelerating integration and globalization. This development,which has been fostered by the
liberalization of markets, rapid technological progress and major advances in
telecommunications, has created new investment and financing opportunities for business and
people around the world. Easier access to global financial markets for individuals and
corporations will lead to a more efficient allocation of capital, which in turn, will promote
economic growth and prosperity. Apart from this ongoing integration and globalization, world
financial markets have also recently experienced increased securitization. In part, this
development has been spurred by the surge in mergers and acquisitions and leveraged buy-
outs that has taken place in markets of late, not least in the euro area.
Other interesting developments in world financial markets include the continued
broadening and expansion of derivatives markets. The broadening of these markets has largely
come about because rapid advances in technology, financial engineering, and risk
management have helped to enhance both the supply of and the demand for more complex
and sophisticated derivatives to adjust exposure to risk in financial markets has also
contributed to the risk in the national amounts of outstanding derivatives contracts seen in
recent years, in particular in Over-the counter(OTC) derivatives markets with interest rates
and equities as underlying securities.
Nepalese Perspective
This project work attempts to explore the theory and practice of derivative instruments and
market in Nepalese context. We know that there is always a vast difference between theory
and practice but a strong theoretical foundation always proves beneficial especially to boost
confidence of the user in practical dealings. In today’s dynamic and complex global financial
markets, traders and investors are looking for various innovative ways to generate returns.
Commodities and derivatives trading offer exciting opportunities. The history of professional
trading started from “Hat Bazar” and the current financial exchanges are the modern and
advanced concept of the same “Hat Bazar” trading. Three commodities exchanges namely-
Commodities and Metal Exchange Nepal Ltd.(COMEN), Mercantile Exchange Nepal Ltd.
(NDEX) are working in Nepal to provide investment opportunities to around 2000-3000
people. The majority are in gold and crude oil products not produced in Nepal.
“Over 90 percent people want to invest in gold and crude oil” said Krishna Giri of
kashtamandap clearinghouse. Nepal has only a recent history of derivative market, which
opened with COMEN at the end of 2006. MEX was established in 2007 and NDEX on
November 20, 2008. According to SantoshPradhan of NDEX, “The exciting exchanges
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haven’t been able to explore the real potential of the commodities market.” They expect to fill
the gap. For example; our exchange is based on local price base and we will introduce mobile
trading as well, “he added. In the meanwhile, investors have been complaining about
government’s negligence over the commodity and derivative market.
UNIT 18
MARKET STRUCTURE AND COMPETITION
Definition and terms of market structure and competition
This writing covers all the important terms and definitions used in market structure and
competition.
1. Monopolistic competition : it is a type of imperfect competition such that many
producers sell products or services that are differentiated from one another(e.g. by
branding or quality) and hence are not perfect substitutes. In monopolistic competition, a
firm takes the prices changed by its rival as given and ignores the impact of its own prices
on the prices of other. This market structure exists when there are multiple sellers who are
attempting to seem different than each other.
2. Oligopoly : it is a market run by a small number of firms that together control the
majority of the market share. It is a similar in many ways to a monopoly. The primary
difference of a good or services, there are handful of producers or at least a handful of
producers that make up a dominant majority of the production in market share. The
various sub division of oligopoly are
3. Duopoly : a duo means ‘two’ and a duopoly is a situation in which two companies own
all or nearly all of the market for a given product or service . it is the most basic form of
oligopoly, a market dominated by a small number of companies. it is a special case of an
oligopoly with two firms.
4. Monopsony : a monopsony means ‘single’ is a market structure in which only one buyer
interacts with many would-be sellers of a particular product. In microeconoic theory of
monopsony, a single entity is assumed to have market power over terms of offer to its
sellers, as the only purchaser of a good or service, much in the same manner that
a monopolist can influence the price for its buyers in a monopoly in which only one seller
faces many buyers.
5. Oligopsony : it is a market form in which the number of buyers is small while the
number of sellers in theory could be large. This typically happens in a market for inputs
where numerous suppliers are competing to sell their product to a small number of (often
large and powerful) buyers. It contrasts with an oligopoly, where there are many buyers
but few sellers. An oligopsony is a form of imperfect competition.
6. Monopoly : monopoly refers to market structure where a single firms controls the entire
market. In this scenario, the firms has the highest level of market power, as consumer do
not have any alternatives. As a result, monopolists often reduce output to increase prices
and earn more profit.
7. Perfect competition : perfect competition is a market system characterized by many
different buyers and sellers. In the classical theoretical definition of perfect competition,
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there are an infinite number of buyers and sellers. And well informed that all elements of
monopoly are absent and the market price of a commodity is beyond the control of
individual buyers and sellers.
8. Contestable markets : an industry with freedom of entry and exit, low sunk costs. The
theory of contestability suggest the number of firms is not so important, but the threat of
competition.
9. Place concept of market : it is a traditional concept. The market is a physical place where
buyers and sellers meet to buy and sell products. They communicate with each other face-
to-face to negotiate.
10. Space concept of market : it is the emerging concept of market. It is on-line digital
market. It is shopping on the internet sites. It involves information communication
technology. Buyers and sellers do not communicate face-to-face. They may be located in
various places and countires.
11. Customers concept of market : this concept focuses on customers demand. A market is
regarded as group of customers. They have needs to satisfy, money to purchase and
willingness to spend. As the market aims to satisfy the demand of customers
12. Product mix : a product is any offering that can satisfy customers needs. It can be goods,
services, ideas, experiences, events, organization and information.
13. Price mix : it is the amount of money that customers pay for the product.
14. Place or distribution mix : it includes various activities undertaken to make the product
accessible and available to target customers.
15. Promotion mix : promotion mix includes all the activities undertaken to communicate and
promote products to the target markets
Theoretical aspect of market structure and competition
Market structure refers to the nature and degree of competition in the market for goods and
services. It is defined as the organizational and other characteristics of a market. We focuses
on those characteristics wish affect the nature of competition and pricing but it is important
not to place too much emphasis simply on the market share of the existing firms in an
industry. The structure of market both for goods market and services marker are determined
by the nature of competition prevailing in a particular market. As there are several market
structure in which firms can operate. The type of structure influences the firm’s behavior,
whether it is efficient, and the level of profits it can generate. Neo-classical theory of the firm
distinguishes a number of market structure, each with its own characteristics and assumption.
The structure of a market refers to the number of firms in the market, their market shares, and
other features which affect the level of competition in the market. Market structure are
distinguished mainly by the level of competition that exists between the firms operating in the
market.
The imperfectly competitive structure is quite identical to the realistic market
conditions where some monopolistic competitors ,monopolists, oligopolistic,
and duopolists exist and dominate the market conditions. The elements of Market Structure
include the number and size distribution of firms, entry conditions, and the extent
of differentiation. These somewhat abstract concerns tend to determine some but not all
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details of a specific concrete market system where buyers and sellers actually meet and
commit to trade. Competition is useful because it reveals actual customer demand and
induces the seller (operator) to provide service quality levels and price levels that buyers
(customers) want, typically subject to the seller’s financial need to cover its costs. In other
words, competition can align the seller’s interests with the buyer’s interests and can cause the
seller to reveal his true costs and other private information. In the absence of perfect
competition, three basic approaches can be adopted to deal with problems related to the
control of market power and an asymmetry between the government and the operator with
respect to objectives and information: (a) subjecting the operator to competitive pressures, (b)
gathering information on the operator and the market, and (c) applying incentive regulation.
In economics, "competition" is the rivalry among sellers trying to achieve such goals as
increasing profits, market share, and sales volume by varying the elements of the marketing
mix: price, product, distribution, and promotion. Merriam-Webster defines competition in
business as "the effort of two or more parties acting independently to secure the business of a
third party by offering the most favorable terms".
In his 1776 The Wealth of Nations, Adam Smith described it as the exercise of
allocating productive resources to their most highly valued uses and encouraging efficiency,
an explanation that quickly found support among liberal economists opposing the
monopolistic practices of mercantilism, the dominant economic philosophy of the time.
Smith and other classical economists before Cournot were referring to price and non-price
rivalry among producers to sell their goods on best terms by bidding of buyers, not
necessarily to a large number of sellers nor to a market in final equilibrium.
Later microeconomic theory distinguished between perfect competition and imperfect
competition, concluding that perfect competition is Pareto efficient while imperfect
competition is not. Competition, according to the theory, causes commercial firms to develop
new products, services and technologies, which would give consumers greater selection and
better products. The greater selection typically causes lower prices for the products,
compared to what the price would be if there was no competition (monopoly) or little
competition (oligopoly). It is generally accepted that competition results in lower prices and a
greater number of goods delivered to more people. Less competition is perceived to result in
higher prices with a fewer number of—and less innovation in—goods delivered to fewer
people. As a result, many governments use competition lawsto promote competition and
regulate against anti-competitive practices.
Major trends in current business world
The propose of this project is to review the main trends of market structure and competition
in the current business and globalization world. As marketing is fast changing. It is focused
on satisfying customers needs. New concept have emerged. Today, it has encompassed every
sphere of human interactions and every aspects of the society. This has been recongnized by
the holistic approach. The magic of marketing in the last quarter of the 20th century has
gradually evaporated. Marketing today is expected to play more responsible role to create a
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healthy, loyal and valued customers and clients. Global ranks like nike, adidas, nokia, sony,
Honda, kfc any many more have reached the developing world including Nepal. Customers
relationship and e-commerce have become so important. Various modern technology and
communication are increasing day by day so, Globalization is increasing rapidly. Marketing
managers define market structure a little differently than economists.
While knowing if their industry is an oligopoly or a purely competitive environment is
important, marketers dig deeper into the industry, searching for the market structure to
understand the competition and customer behavior. Understanding the market structure and
landscape helps marketers develop marketing plans and enact successful marketing strategies.
As part of a business plan, a definition of the market structure and competitive landscape is
vital to planning effective advertising or other marketing campaign. To define market
structure from a marketing perspective, ask the following questions. Who is the top player in
this market? When you look at the business category, what company or companies stand out?
Among booksellers, the obvious choice is Amazon, Barnes & Nobles, and Borders. Examine
your own industry and define the top layer of the competitive pyramid with the top player or
players. Who are their competitors? Now who's playing among the second, third, and fourth
tier? Who is online in this category, and who has only brick and mortar stores? Can you
research their gross revenues, their marketing plans? That may not be as far-fetched as it
sounds. Using any search engine, type in the company names and see what comes up.
Publicly traded companies (companies traded on one of the stock exchanges) must publish
Annual Reports. These provide potential investors with detailed information on the company
from finances to marketing strategies, but they're free, public knowledge, so you can gather
them online, read them, and distill your competitor's marketing strategies from them. Many
companies divulge juicy bits of competitive intelligence in their press releases. Releases are
often archived on their websites, providing another glimpse into their strategies. Who will be
the local competitors? If you are competing locally with a brick and mortar store, pay
particular attention to local competition
Nepalese perspective related to market structure and competition
Generally, market structure of Nepalese banking industry has significant changes over past
decades as a result of liberalization, deregulation, advances in information technology and
globalization. The financial sector liberalization resulted into entry of new firms in the
market; deregulation widened the scope of activities and delimited the banking activities;
advancement in technology resulted into new ways and tools to perform banking activities;
and globalization added more pressure on competitiveness of individual banks. Moreover, the
banks, nowadays, are entering into non-banking markets and other financial institutions are
entering into the banking markets that have traditionally been served by the banks. These
changes have changed the structure and market behavior of Nepalese banking industry. From
theoretical perspective, neoclassical organizational economic theories state that the structure
of industry that affects conducts (pricing) behavior of firms and conducts affects the
performance. The structure of industry is more subject to number of competing firms within
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an industry, nature of products and services they are providing, barriers to entry and exit and
the like. The structure-conductperformance (SCP) hypothesis states that concentration
encourages collusive behavior of firms by reducing the cost of collusion. Hence high
concentration may impair the competition. As number of firms in market increases and have
equal market share that results into competitive behaviors of the firm. In contrast to the SCP
hypothesis, the efficient structure hypothesis states the market behavior of firm largely
depends on the efficiency of the firm. The efficient firm may have some competitive
advantages hence can increase its market share and can realize higher performance. From
market contestability perspective, the theories further state that, a number of factors such as
restrictions on entry, cost of exit, competition from non-banking financial institutions,
development of capital - 2 - markets play an important role in determining the level of market
competition. The collusive behavior may exist and thrive even in the presence of a large
number of banks in the market if market is less contestable.
UNIT 19
TAKEOVERS, MERGERS AND BUYOUTS
Definition of related term
1 Takeover; It is the purchase of one company (the target) by another (the acquire or
bidder).
2 Friendly takeover; It is an acquisition which is approved by the management.
3 Hostile takeover; It allows a bidder to take over a target company whose management is
unwilling to agree to a merger or takeover.
4 Reverse takeover; It is a type of takeover where a private company acquires a publi8c
company.
5 Corporate Raider; It is an individual or organization which can purchase a large
fraction of the company’s stock and in doing so get enough votes to replace the board of
directors and the CEO.
6 Black flip takeover; It is any sort of takeover in which the acquiring company turns itself
into a subsidiary of the purchased company.
7 Leveraged buyouts; Acquisitions financed through debt are known as Leveraged
buyouts.
8 Loan note alternatives; It allows shareholders to take a part or all of their consideration
in loan note alternatives.
9 Buyouts; It is an investment transaction or by which the ownership equity of a company
or a majority share of the stock of the company is acquired.
10 Merger; It is a combination of two Corporation in which only one survives.
11 Horizontal Merger; It occurs when one firm combines with in its same types of
business.
12 Concentric; It means allied in nature as action.
13 Conglomerate merger; It occurs when unrelated enterprise combines.
14 Hostile; The acquiring firms offer is said to be hostile
15 Break up value; It is the value of the individual parts of the firm if they are sold off
separately.
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16 Privatization; It means to change the ownership of any economic activity from the public
sector to private sector.
17 Bond; A bond is a long term security as long term promissory note issued by sources ,
premising to pay interest and principal as per contract .
18 Profit; The difference between the income and the expenses of a particular period is
called profit
19 Loss; It is the difference between expenses and income
20 Swaps:; Swaps are contracts to exchange cash (flow) on or before a specified future date
based on the underlying value of currencies exchange rates, bonds/interest rates,
commodities exchange, stock or other assets.
Concept of takeovers, mergers, buyouts
A merger is a deal to unite two existing companies into one new company. There are several
types of mergers and also several reasons why companies complete mergers. Most mergers
unite two existing companies into one newly named company. Mergers and acquisitions are
commonly done to expand a company’s reach, expand into new segments, or gain market
share. All of these are done to please shareholders and create value. In 2015, there was a
record $4.30 trillion worth of mergers and acquisitions announced. Deal making continues to
be a popular way to grow revenue and earnings for companies of varying size. Mergers are
most commonly done to gain market share, expand to new territories, and unite common
products.
There are five main types of company mergers: Conglomerate is nothing in common
for united companies Horizontal is both companies are in same industry, deal is part of
consolidation Market Extension is companies sell same products but compete in different
markets Product Extension deals with add together products that go well together Vertical
Merger is two companies that make parts for a finished good combine A takeover occurs
when an acquiring company makes a bid in an effort to assume control of a target company,
often by purchasing a majority stake. If the takeover goes through, the acquiring company
becomes responsible for all of the target company’s operations, holdings and debt. When the
target is a publicly traded company, the acquiring company makes an offer for all of the
target’s outstanding shares.
The reasons for takeover is takeover is virtually the same as an acquisition, except the
term "takeover" has a negative connotation, indicating the target does not wish to be
purchased. A company may act as a bidder by seeking to increase its market share or achieve
economies of scale that help it reduce its costs and thereby increase its profits. Companies
that make attractive takeover targets include those that have a unique niche in a particular
product or service; small companies with viable products or services but insufficient
financing; a similar company in close geographic proximity where combining forces could
improve efficiency; and otherwise viable companies that are paying too much for debt that
could be refinanced at a lower cost if a larger company with better credit took over Major
types are "friendly takeover" is an acquisition which is approved by the management. Before
a bidder makes an offer for another company, it usually first informs the company's board of
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directors. In an ideal world, if the board feels that accepting the offer serves the shareholders
better than rejecting it, it recommends the offer be accepted by the shareholders. In a private
company, because the shareholders and the board are usually the same people or closely
connected with one another, private acquisitions are usually friendly. If the shareholders agree
to sell the company, then the board is usually of the same mind or sufficiently under the
orders of the equity shareholders to cooperate with the bidder. A "hostile takeover" allows a
bidder to take over a target company whose management is unwilling to agree to a merger or
takeover. A takeover is considered "hostile" if the target company's board rejects the offer,
and if the bidder continues to pursue it, or the bidder makes the offer directly after having
announced its firm intention to make an offer. Development of the hostile tender is attributed
to Louis Wolfson. A hostile takeover can be conducted in several ways. A tender offer can be
made where the acquiring company makes a public offer at a fixed price above the current
market price. A well-known example of an extremely hostile takeover was Oracle's hostile
bid to acquire PeopleSoft
A "reverse takeover" is a type of takeover where a private company acquires a public
company. This is usually done at the instigation of the larger, private company, the purpose
being for the private company to effectively float itself while avoiding some of the expense
and time involved in a conventional IPO. However, in the UK under AIM rules, a reverse
takeover is an acquisition or acquisitions in a twelve-month period which for an AIM
company would exceed 100% in any of the class tests; or result in a fundamental change in
its business, board or voting control A "backflip takeover" is any sort of takeover in which the
acquiring company turns itself into a subsidiary of the purchased company. This type of
takeover can occur when a larger but less well-known company purchases a struggling
company with a very well-known brand. Examples include. While pros and cons of a
takeover differ from case to case, there are a few reoccurring ones worth mentioning.
Increase in sales/revenues. Venture into new businesses and markets Profitability of target
company Increase market share Decreased competition Reduction of overcapacity in the
industry Enlarge brand portfolio Increase in economies of scale Similarly cons: are
Goodwill, often paid in excess for the acquisition Culture clashes within the two companies
causes employees to be less-efficient or despondent Reduced competition and choice for
consumers in oligopoly markets (Bad for consumers, although this is good for the companies
involved in the takeover) Likelihood of job cuts Cultural integration/conflict with new
management Hidden liabilities of target entity The monetary cost to the company Lack of
motivation for employees in the company being.
Bought Financing a takeover imcludes Funding Is Often a company acquiring
another pays a specified amount for it. This money can be raised in a number of ways.
Although the company may have sufficient funds available in its account, remitting payment
entirely from the acquiring company's cash on hand is unusual. More often, it will be
borrowed from a bank, or raised by an issue of bonds. Acquisitions financed through debt are
known as leveraged buyouts, and the debt will often be moved down onto the balance sheet
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of the acquired company. The acquired company then has to pay back the debt. This is a
technique often used by private equity companies. The debt ratio of financing can go as high
as 80% in some cases. In such a case, the acquiring company would only need to raise 20%
of the purchase price. Loan note alternatives is Cash offers for public companies often
include a "loan note alternative" that allows shareholders to take a part or all of their
consideration in loan notes rather than cash. This is done primarily to make the offer more
attractive in terms of taxation. A conversion of shares into cash is counted as a disposal that
triggers a payment of capital gains tax, whereas if the shares are converted into other
securities, such as loan notes, the tax is rolled over.
All-cash deals means If a takeover of a company consists of simply an offer of an
amount of money per share, (as opposed to all or part of the payment being in shares or loan
notes) then this is an all-cash deal.[3] This does not define how the purchasing company
sources the cash- that can be from existing cash resources; loans; or a separate issue of
shares. A buyout is the purchase of a company's shares in which the acquiring party gains
controlling interest of the targeted firm. A leveraged buyout (LBO) is accomplished by
borrowed money or by issuing more stock. Buyout strategies are often seen as a fast way for
a company to grow because it allows the acquiring firm to align itself with other companies
that have a competitive advantage. Breaking down 'Buyout' is a buyout may occur because
the purchaser believes it will receive financial and strategic benefits, such as higher revenues,
easier entry into new markets, less competition or improved operational efficiency. Buyout
Process is a complete buyout typically takes three to six months. The purchaser examines the
target company’s balance sheet, income statement and statement of cash flows, and conducts
a financial analysis on any subsidiaries or divisions seen as valuable.
A leveraged buyout (LBO) is the acquisition of another company using a significant
amount of borrowed money to meet the cost of acquisition. The assets of the company being
acquired are often used as collateral for the loans, along with the assets of the acquiring
company. The purpose of leveraged buyouts is to allow companies to make large acquisitions
without having to commit a lot of capital. In an LBO, there is usually a ratio of 90% debt to
10% equity. Because of this high debt/equity ratio, the bonds issued in the buyout are usually
are not investment grade and are referred to as junk bonds. Further, many people regard
LBOs as an especially ruthless, predatory tactic. This is because it isn't usually sanctioned by
the target company. Further, it's seen as ironic in that a company's success, in terms of assets
on the balance sheet, can be used against it as collateral by a hostile company. The reasons for
LBOs are conducted for three main reasons. The first is to take a public company private; the
second is to spin-off a portion of an existing business by selling it; and the third is to transfer
private property, as is the case with a change in small business ownership. However, it is
usually a requirement that the acquired company or entity, in each scenario, is profitable and
growing.
Major trend related to merger and take over
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M&A practice in emerging countries differs from more mature economies, although
transaction management and valuation tools (e.g. DCF, comparables) share a common basic
methodology. In China, India or Brazil for example, differences affect the formation of asset
price and on the structuring of deals. Profitability expectations (e.g. shorter time horizon, no
terminal value due to low visibility) and risk represented by a discount rate must both be
properly adjusted. In a M&A perspective, differences between emerging and more mature
economies include: i) a less developed system of property rights, ii) less reliable financial
information, iii) cultural differences in negotiations, and iv) a higher degree of competition
for the best targets. Property rights: the capacity to transfer property rights and legally enforce
the protection of such rights after payment may be questionable. Property transfer through the
Stock Purchase Agreement can be imperfect (e.g. no real warranties) and even reversible (e.g.
one of the multiple administrative authorizations needed not granted after closing) leading to
situations where costly remedial actions may be necessary. When the rule of law is not
established, corruption can be a rampant problem.
Information: documentation delivered to a buyer may be scarce with a limited level of
reliability. As an example, double sets of accounting are common practice and blur the
capacity to form a correct judgment. Running valuation on such basis bears the risk to lead to
erroneous conclusions. Therefore, building a reliable knowledge base on observable facts and
on the result of focused due diligences, such as recurring profitability measured by EBITDA,
is a good starting point. Negotiation: “Yes” may not be synonym that the parties have reached
an agreement. Getting immediately to the point may not be considered appropriate in some
cultures and even considered rude. The negotiations may continue to the last minute,
sometimes even after the deal has been officially closed, if the seller keeps some leverage,
like a minority stake, in the divested entity. Therefore, establishing a strong local business
network before starting acquisitions is usually a prerequisite to get to know trustable parties
to deal with and have allies. Competition: the race to acquire the best companies in an
emerging economy can generate a high degree of competition and inflate transaction prices,
as a consequence of limited available targets. This may push for poor management decisions;
before investment, time is always needed to build a reliable set of information on the
competitive landscape. If not properly dealt with, these factors will likely have adverse
consequences on return-on-investment (ROI) and create difficulties in day-to-day business
operations. It is advisable that M&A tools designed for mature economies are not directly
used in emerging markets without some adjustment. M&A teams need time to adapt and
understand the key operating differences between their home environment and their new
market.
Nepalese condition
Merger, take over and buyout are the parts of business world. They take place only in
developed countries where there is a large number of business market. So that country Nepal
is a developing country and there is a few numbers of industrial area so the take over and
buyout are not in practice in Nepalese business market. Only the merger is taking place
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rapidly. Nowadays banking sector are getting merge in large number like IME global bank,
Asia national bank But the recently Nepal Rastra Bank has brought the new policy in banking
system that any bank can take over to another bank to meet the target capital as mention by
central bank Mergers and acquisitions (M&A) are transactions in which the ownership of
one entity, business organizations or their operating units are transferred to another entity or
combined. As an aspect of strategic management, M&A allows enterprises to grow, shrink,
change the nature of their business or improve their competitive position.
The term 'Mergers' and 'Acquisitions' are often used interchangeably. However, there
are differences. While merger means unification of two into one, acquisition involves one
entity buying out another and observing the same. From economic stand point both the
Merges and Acquisitions result in the consolidation of assets and liabilities under one entity
and the distinction between the both is less clear. Nepal Accounting Standard on Business
Combination (NAS 21) calls Seller as 'Acquiree' and Buyer as 'Acquirer'. There are several
advantages in M&A – cost cutting, efficient use of resources, acquisition of competence or
capability, tax advantage and avoidance of competition are among the few. Income Tax Act of
Nepal does not define the Term 'Merger' and 'Acquisition'. However, it has referred Mergers
and Acquisition as the Amalgamation of two or more Companies to become one. Income Tax
Act of Nepal refers the term 'Mergers' in Section 47A for the Mergers of entities doing
banking or insurance business.
Mergers and Acquisition covers basically three tax aspects, taxability of assets and
liabilities of Acquiree Company, Taxability to the Shareholders of Acquiree Company and the
Treatment of assets and liabilities of Acquiree Company in the books of Acquirer Company.
In the Nepalese context, Income Tax Act has discouraged the concept of Merger and
Acquisition except for the entities doing Banking or Insurance Business. Tax Implication of
Mergers and Acquisition of entities doing other than Banking and Finance Business or
Insurance Business While the Mergers and Acquisition bring synergy after the merger by
creating economics of scale, creating new market, avoiding competition to name a few. The
impact of tax on the economics of Mergers and Acquisition transaction may be huge to both
the Acquirer and Acquiree Company.
Tax Implications on the Acquiree Company There are two basic implications of
M&A to the Acquiree Company. First being the tax implication of M&A on Assets and
Liabilities of the Acquiree Company and second the tax implication to the shareholders of the
Acquiree Company. The question remains whether the Assets and Liabilities being
amalgamated to the Acquirer Company constitutes disposal of Assets and Liabilities. If the
same is considered disposal than what would be the incoming and outgoing for the purpose of
calculating net gain/loss on such disposal of assets and liabilities. Similarly, in case of
Shareholder of Acquiree Company, the shareholders will either get cash or shares of Acquirer
Company in consideration to their shares held in Acquiree Company and whether such
replacement constitute disposal for the purpose of Income Tax Act. As per Section 40 of
Income Tax Act, Sub Section (1), "If the ownership of any person over any property ceases,
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he shall be deemed to have disposed that property. The disposal of property has to include
acts such as distribution of the property by the owner of the property, amalgamation of the
property in other property or liability, sale of the property in installments or lease out to any
other person under a financial lease, cancellation, destroy, loss, expiration or surrender of the
same." Sub Section (2) "If the burden of liability of any person ceases, he shall be deemed to
have disposed that liability. The disposal of liability has to include acts such as settlement,
cancellation, release and completion of the liability or amalgamation of liability in other
liability or property"
From the above provision, it is clear that in the event of transfer of shares from
Acquiree Company to Acquirer Company in any scheme of merger, the assets and liabilities
of Acquiree Company is deemed to be disposed off by virtue of Section 40(1) & 40(2) of
Income Tax Act. But interestingly Section 41 of Income Tax Act prescribes the manner for
the disposal under clauses (c), (d), (e) & (f) of Sub Section 3 of Section 40, however it does
not prescribe the manner in which disposal under Section 40(1) and 40(2) has to be done.
There is one view that for the purpose of computation of tax on such disposal under Section
40(1) & 40(2), Market Value of Assets or Liabilities will be considered as Incoming and Net
Expenses incurred in such Assets or Liabilities will be considered as outgoing. Such tax
should be paid by the Acquiree Company. However, to substantiate such view, there is no any
clear provision in the Income Tax Act of Nepal. The other view which the writer believes is
that in the event of disposal of assets and liabilities because of merger, Section 47 of the
Income Tax Act Applies. By virtue of Section 47, such assets and liabilities will be disposed
off at the Value of Net Expenses incurred for the Assets and Net Income Earning for the
Liabilities. Which suggest that the Assets and Liabilities will be disposed at Book Value and
there will not be any tax liability on such disposal of assets and liabilities of Acquiree
Company.
Taxability to the Shareholders of Merged/Acquiree Company Another important
aspect in Mergers and Acquisition is the taxability on the Shareholders of the Acquiree
Company on the disposal of its shares held in the Acquiree Company. Income Tax Act of
Nepal does not have a clear provision as to how the Shareholders of the Acquiree Company
will be taxed. In that case, Shareholders of Acquiree Company are left with two alternatives.
Alternative I: As per provision of Section 46(3) read with Rule 16 (1) of Income Tax Rules,
"In cases where, by virtue of the unification or restructuring of any entity, the interest of any
person in any entity is replaced by another interest of that entity or by the interest of any other
entity, an involuntary disposal shall be deemed to have been created." Rule 16(2) provides
that "In cases where an involuntary disposal is created pursuant to Sub-rule (1), the entity or
person shall submit an application to the Department for an approval" and as per Sub rule (3)
The Department may provide approval on the application submitted pursuant to Sub-rule (2).
And in case of involuntary disposal, by virtue of Section 46(1) and 46(2), for the
purpose of calculation of gain from disposal of such assets the incoming and net expenses
will be equal. Hence the tax base for calculating the tax on such disposal will be nil.To get the
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benefit of Section 46, the Tax payer shall submit the application to Inland Revenue
Department and it will be applicable, if such application is approved. Now, if the Shareholder
of Acquiree Company could not get approval from IRD to invoke Section 46, then there is no
clarity as to which section applies.
UNIT 20
EFFICIENCY AND EMPLOYMENT
Definition of the related terms
The various terms related to employment which is important to understand and to get the full
knowledge of this report are-
1. Efficiency: Efficiency means utilization of resources optimally with minimizing
wastages.
2. Employment: Employment is the act of involving in activities for the purpose of earning
money.
3. Economic development: Economic development is a dynamic concept which helps to
bring positive change and upward movement of entire social system.
4. Economic growth: Economic growth refers to increase in the level of output, income and
employment.
5. Economics: Economics is the study of resources allocation, distribution, and
consumption of capital, investment and of management of the factors of production.
6. Utilization: Utilization is psychological component and concerned with full exploitation
or consumption of skill, ability, knowledge, creativity, etc. of human resources.
7. Human resource: Human resource is the total number of all available workers or the
workforce.
8. Resources: Resources are the raw materials, or personnel that one uses to achieve an
objective.
9. Wages and salaries: Wages and salaries are the remuneration drawn by employees in
exchange of their skill and labor to the employers.
10. Unemployment: Unemployment is a situation of non-availability of job opportunities
for people whether they are willing to work at existing wage rate.
11. Foreign employment: Foreign employment is the act of going abroad for the purpose of
earning money.
12. Domestic employment: Domestic employment is the act of working in an organization
within the nation or own country.
13. Production: Production is the act of producing, making, converting the inputs to outputs.
14. Technology: Technology is the combination of knowledge and equipment by which
inputs are converted into outputs.
15. Capital: Capital is the amount of money invested by the investors used for carrying out
different business activities.
16. Poverty: Poverty is the state of being poor or indigent for the fulfillment of basic needs
or desires.
17. Prosperity: Prosperity is a period during which income, output, general price level and
employment are very high.
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18. Employers: Employers are job provider who provide employment, pay the wages and
various allowances, and regulate the work relation through various rules, regulation and
by enforcing labor laws.
19. Employees: Employees are persons or group of persons who sale labor skills to
employers by performing task in an organization.
20. Labor Relation: Labor relation refers to the harmonious relationship between employees
or their representatives, and between them and the government.
Theoretical aspects of efficiency and employment
Efficiency and employment involves of two different terms i.e. efficiency and employment.
Efficiency refers to the extent in which resources such as time, space, and energy are well
used for the intended task or purpose. Likewise, employment is the act of doing activities in
the organization. Employment can be of two different type’s i.e. domestic and foreign
employment. The relationship between efficiency and employment has contentious issue. In
economics, classical economists believe that there would be always full employment in the
economy in the long run. According to them, unemployment occurs due to rigid money wage.
They suggested that money wage should be flexible and wage cut policy leads to increase in
unemployment.
But Keynes has criticized this view. According to Keynes, wage cut policy leads to
increase in unemployment problem rather than solve it. He believes that unemployment was
due to lack of effective demand. The effective demand is the sum of consumption and
investment. There is positive relationship between employment and effective demand. The
effective demand is determined by the equality between aggregate demand and aggregate
supply. The aggregate demand depends upon the aggregate demand price which refers to
expected rate of return from given level of employment. The aggregate supply depends upon
aggregate supply price which refers to expected cost in the given level of employment. Thus,
effective demand is determined at that point where aggregate demand equals to aggregate
supply.
Nepal has long history of International Labor Migration(ILM). Around 200 years ago,
Nepalese started to seek work abroad and remittance back to their families in Nepal. So, the
Nepalese economy is increasingly becoming dependent on remittance sent home by migrant
workers. In early 19th century, for instance, the first men migrated to Lahore to join the army
of the Sikh ruler, Ranjit Singh. Since then, International labor migration of Nepalese has
never ceased and diversified in pattern. Similarly, the other research shows that Nepalese
people have started to move in the Gulf countries since 1985. And now it has also recorded
that 109 countries are open for foreign employment as decided by Nepal government.
Nepal labor policy has dealt the government policies and programmes on different
labor issues where the issues regarding the promotion and reliability of International Labor
Migration(ILM) is also highlighted to some extent. The provision mentioned in the NLP on
the issues of ILM is like a complementary action to increase the effectiveness of Foreign
Employment Act. Similarly, in the policy section of NLP, under the “employment promotion,
trainings and human resource development” has mentioned about foreign employment stating
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that to increase foreign employment and to make reliability on it. Further, appropriate
changes and amendment, the working policy section of NLP has following two major
policies:
i. For the protection of rights and security of Nepalese workers in foreign country,
diplomatic mission of Nepal,to the countries where the greater possibility of foreign
employment exits.
ii. To encourage the skilled human resources to be self-employment or foreign
employment, the programme to expansion the self-employment and foreign employment
shall be preceded as campaign by providing loans at the concession rate without security.
By observing all these provisions and policy oriented activities of NLP it is found that
the government looks very sincere and dedication to increase the effectiveness of ILM.
Moreover, provision regarding the rules and regulation of NLP especial emphasis has given
to establish bilateral labor relation committee in the enterprise level.
Research conducted in different sectors including manufacturing and service reveals
the fact that HR practices have critical role in the success of organizations. The lack of proper
HR practices in organizations employees show lower job involvement, exhibit dissatisfaction
in jobs, decrease effort, the number of accidents and turnover rises. Due to the lack of
employment opportunities, labor migration is of major economic and social interest for a
number of countries in the world. Migrant remittances represent a significant portion of
foreign exchange earnings for developing countries. Therefore, economic development, trade
and labor dimensions of migration have been identified as important concerns by a number of
Asian workers. How can states ensure appropriate attention to discourage irregular migration
and unfair competition with national workers? How does labor migration contribute to
development? For some states in Asia and elsewhere, the loss of skilled workers and trained
professional through emigration represents a serious threat to development efforts.
Managing human resources is the science and practice that deals with the nature,
decisions, actions, and issues relating to the employment relationship. In practice, it involves
an organization’s acquisition, development and utilization of employees as well as
employee’s relation to organization and its performance. These all focus on the compliance
aspect of HR where organizations have to ensure that they have enough number of people to
work with required capability and competence. Now-a-days, HR literature is more concerned
with the proper management of people. People in organizations want to get more and put less
effort. This clearly exhibits the need for enhancing commitment of people to make them
engaged at work.
In the current business world, full employment is one of the issues and challenging
task. Millions of people from around the world (especially from the developing world) are
leaving their usual place of residence for seeking better employment opportunities and supply
money as remittance for their dependents. Globalization and integration of regional
economics have added impetus to the growing mobility of workers across borders. Poverty
and inability of workersto earn enough are the major reasons behind the movement of work
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seekers from one place other another. So, the main challenge is to provide well-satisfied
permanent job to workers.
Migration of men and women in Nepal has become more common as they seek better
opportunities abroad. Though traditionally only men migrated in search of work from Nepal
but the migration of women in abroad in search of better employment has also begin since the
last decades. Women migrant workers have the lack of information and trainings. The label of
harassment is also very high. In all sense women are found to be uncertainty and confused
position. To restrict this vulnerable situation Nepal government has officially banned female
migration of Gulf countries. There is certain provision to be fulfilled for the female workers
to go to abroad. To obtain a passport a women have to produce a permission letter from their
guardian, that is from their husband, if they are married or from their father, if they are
unmarried.
Numerous cases of intolerable sufferings of Nepalese s workers have found in abroad.
It is bitter reality that Nepalese workers are accepted in East Gulf countries only because they
are cheap and they do whatever job they get. Most of them are educated male and female
from middle and lower middle class families who go abroad with a hope to earn much within
a short period of time. The large number among them works illegally. Migrant workers have a
lack of realistic information about the country of destination. So, they will go with a sweet
dream but come back with a sad story during their work place.
In future, as indicated by organizations, they are having problems relating to
recruitment of quality staff and retaining them in the future. Managing pay and benefits is
another crucial problem they are facing in the next 3 years. Nepalese employees need
developing their potential through training, competency, career development. Furthermore,
organizations specifically indicated the challenges relating to development of managerial and
senior managerial staff and identification of training needs. Training is still regarded as the
cost factor. Very few organizations allocated the fund for employee training and development.
Training programmes in government owned banks are not so effective.
Major trends of employment in the current business world
In the modern technology era, as more business employ telecommunicating strategies, it is
easy to overlook employee development and training. Business activities are growing rapidly.
Every business organization differs from each other but all these business sizes use a trend to
achieve their goals. From a technical perspective, trend involves looking at the statistical
analysis of historical data over a selected timeframe and charting theprogression. If the data
suggests consistent, increases and decreases, there exists a trend. Therefore, all businesses use
this kind of data to help predict the future strategic decisions. Top performing companies use
various types of tools to teach, monitor the employees about their working condition.
In the context of America, America companies have identified huge markets
internationally for their products and services. American companies are getting rapid success
in business by identifying a true market need. The American companies are able to provide
various kinds of technologies to the employers that help to make work easier. The
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government of America is able to provide job opportunities to a large number of people in

their own home markets. When the companies operate in their own home markets, most of
their employees come from areas with the same common culture. They can share the social
and ethical standards of company staff and management to a large degree. It helps to enhance
the condition of employees and employment.
In South Korea, a Korean company is providing good employment opportunities with
enough salary. Korean companies provide trainings to the employees to increase conceptual
and technical knowledge. For the unskilled workers it put them on lower footing than their
counterparts doing the same job with the same amount of training. Also, seeing the higher
pay and greater freedom of movement, which undocumented workers enjoy, many trainees
are tempted to “run away”. For the betterment of employees, the Alien Industrial Technology
Training program(AITTP) was established in 1991. It allowed trainees from third world
countries to learn industrial skills and technology.
The Taiwan government is business/employer friendly. It does not favor the migrants
but it wants them to come to Taiwan because their wages are far below those of local
workers. Vietnamese migrant workers must pay 12% taxes on their overseas earnings to the
home country. Taiwanese law does not protect migrant’s workers who are undocumented.
Once captured, they must pay taxes on 160 % of the minimum wage for the period of time
they have been in Taiwan whether they were employed or not. The labor standards law does
not cover domestics, caregivers and fisherman. The Taiwan government cannot force the
employer to follow the labor standards law(LSL).
A typology framework could be helpful to analyze and understand the degree of
commitment-and associated hard-soft HR issues. Based on McGregor’s (1960) work, four X,
Y zones are created. Zone X represents the hard HR issue and zone Y represents the soft HR
issue. High commitment denotes the presence of high degree soft HR dimensions whereas
high compliance denotes presence of high hard HR dimensions at work places. There is an
implication of typology framework for the HR professionals are order to understand the
degree of compliance and commitment at the workplace. Based on this framework, HR
professional can adopt or create a number of mandates to improve the situation of compliance
and commitment and thus to increase organizational performance.
Nepalese perspective to efficiency and employment
In the context of Nepal employment situation is not satisfactory. Unemployment rate is
increasing day by day. There is lack of skilled and trained manpower for the proper
management of employees. Nepal is one of the richest countries for the natural resources, but
these resources are not utilized properly due to lack of new technology and skilled manpower.
So, it creates problems like poverty and unemployment. In Nepalese workplaces challenges
are there to motivate employees and make them feel that they are safe and secured in jobs.
Employee relations are distorted in the public and private sector undertakings because of the
lack of a free flow of communication and information and due to high feeling of status and
prestige of the top management.
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Business organizations are performance seekers; thus the selection of HR practice

depends on past experience and future expectation of results or performance. Workplace
compliance and commitment are the function of better HR practices. Regarding compliance
issue, the matching model (also known as a hard HR model) initiated the debate and warned
that if organizations fail to follow appropriate HR activities, they will be beset by
inefficiencies. This model strongly recommends academicians and managers to integrate
business strategies and HR practices in order to get high performance outcomes. It is
observed that firms that engaged in a strategy formulation process that systematically and
reciprocally considers human resources and competitive strategy will perform better than the
others.
Many organizations indicated that they require social skills such as communication
and interpersonal skills. Such skills are required to develop social relations in organizations,
managing conflicts and personality development. Majority of the employees believe that their
leaders have poor leadership
competencies. The situation of
employee relations is not encouraging.
The main barriers prevailing in the
employee relations system is, for
example, over-centralization of power
and lack of trustful relation of top
management with the line
management. There are cases of
conflicts due to poor level of employee
relations. There are lack of HR
measures at the work floor to uplift morale and motivation of employees at the organizational
level.
This figure shows that the unemployment rate is further increases year after year
instead of decreasing. It leads to loss of economic growth of a country. In Nepal, the
unemployment rate measures the number of people actively looking for a job as a percentage
of the labor force. Unemployment rate in Nepal increased to 3 % in 2014 from 2.70 % in
2013. Unemployment rate in Nepal averaged 2.89 % from 1991 until 2014, reaching an all
the time high of 8.80 % in 2001 and a record low of 1.79 in 1999.
According to the Nepal Figure 8-Nepal unemployment rate

Employment Provision Act, a child under the age of fourteen years shall not be employed in
any business, or workplace, except for light work carried out under supervision of an adult
aged over eighteen years. A child shall not be employed in any work after being notified in
writing by a labor officer. Any person, including a labor union or employer’s organization,
may complain to a labor officer if he/she considers that a child is being employed in breach of
this section. However, this provision is not followed by some people in some areas. Children
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are humiliated by their employers. Therefore, Nepal government's provision islimited in

paper only but not in reality.
UNIT 21
BUSINESS ETHICS
Definitions of terms related to business ethics
1. Business: Business is an enterprise which is involved in provision of goods and services to
the customers in exchange of other goods, services, or money.
2. Ethics: Ethics is a set of moral principles that govern a person’s behavior or the
conducting of an activity.
3. Morality: Morality is the principle which is concerned with the distinction between right
and wrong or good and bad behavior.
4. Values: Values are a person’s or society’s beliefs about good behavior and what things are
important.
5. Business ethics: Business Ethics is a form of applied ethics that examines ethical
principles and moral or ethical problems that arise in business environment.
6. Social responsibility: Social Responsibility involves in conducting the business activities
in accordance with principles and functions recognized by and accepted to the society.
7. Shareholder: A shareholder is any person, company or institution that owns at least one
share of a company stock.
8. Employee: An employee is a person who works part-time or full-time under the contract
of employment, whether oral or written, express or implied, and has recognized rights and
responsibilities.
9. Customer: A customer is a party that receives or consumes products (goods or services)
and has the ability to choose between different products and suppliers.
10. Society: A society is the aggregate of people living together in a more or less ordered
community
11. Investor: An investor is any person who commits capital with the expectation of
financial returns.
12. Supplier: A supplier is a person or entity that is the source of goods or service.
13. Business partner: A business partner is a commercial entity with which another
commercial entity has some form of alliance.
14. Corporate governance: Corporate governance is the system s of rules, practices and
processes by which a company is directed and controlled.
15. Leadership ethics: Leadership ethics is the code of ethics which is used by leaders to
determine discipline procedures and the acceptable behavior for all workers in an
organization.
16. Employee ethics: Employee ethics is the ethical behavior among employees in an
organization which ensures that employees complete work with honesty and integrity.
17. Globalization: Globalization is the worldwide movement toward economic, financial,
trade, and communications integration.
18. Code of ethics: A code of ethics specifies the ethical rules of operation.
19. Theological principles: Theological principles are those principles related to the study of
god and god’s relation to the world.
Theoretical aspects of business ethics
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Business ethics is a combination of two terms ‘business’ and ‘ethics’. Business is simply a
financial activity. Business is an institution, or organization, or economic system which or
where goods and services are exchanged for money. And the ethics is derived from the Greek
word ‘Ethikos’ which mean custom or character. The concept of ethics deals with human
beings. So it is a social science. Ethics is a branch of philosophy and it is considered as
normative science because it is concerned with norms of human beings. Business ethics is the
application of general ethical ideas to business behavior. Ethical business facilitates and
promotes good to society, improves profitability, fosters business relation and employee
productivity. The term “business ethics” came into common use in the United States in the
early 1970s. Interest in business ethics accelerated dramatically during the 1980s and 1990s,
both within major corporations and within academia.
The concept of business ethics has come to mean various things to various people, but
generally it’s coming to know what is right or wrong in the workplace and doing what’s right.
Business ethics is concerned with the behavior of businessman in doing a business. Unethical
behavior and practices are creating problems to businessmen and business units. The life and
growth of a business unit depends upon ethics practiced by a businessman. Business ethics is
applicable to every type of business. The social responsibility if a business requires the
observing of business ethics. A businessman should not ignore the business ethics while
assuming social responsibility. Business ethics means the behavior of a businessman while
conducting a business, by observing morality in his business activities.
According to Wheeler, “Business ethics is an art and science for maintaining
harmonious relationship with society, its various groups and institutions as well as
recognizing the moral responsibility for the rightness and wrongness of business
conduct.”According to Rogene A. Buchholz, “Business ethics refers to right or wrong
behavior in business decisions.”Business ethics or ethical standards are the principles,
practices and philosophies that guide the business people in the day-to-day business
decisions. It relates to the behavior of a businessman in a business situation. They are
concerned primarily with the impacts of decisions of a society within or outside the business
activities. Business ethics can be primarily concerned with the issues not covered by the law,
or where there is no definite consensus on whether something is right or wrong.
Business ethics is characterized as the principles, which govern and guide business
people to perform business functions and in that sense business ethics is a discipline. It is
organized both as a science and an art. It continuously tests the rules and moral standards and
is dynamic in nature. It is based on theological principles such as security, human welfare,
service, good behavior etc. It is based n reality and social customs prevailing in business
environment. It studies the activities, decisions and behaviors which are related to human
beings. It has universal application because business exists all over the world. Many of
ethical principles develop the personal dignity. Business ethics keeps harmony between
different roles of businessman, with every citizen, owner and investors.
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The first and most important principles of business ethics emphasizes that means and
techniques adopted to serve the business ends must be sacred and pure. It means a good end
cannot be attained with wrong means even it is beneficial to the society. The second principle
of business ethics states that it is unethical to do a major evil to another or to oneself, whether
this major evil is a means or an end. Similarly, the principle of proportionality suggests that
one should make proper judgments before doing anything so that others do not suffer from
any loss of risks of evils by the conducts of business. The principle of non co-operation in
evil clearly points out that business should not co-operate any one for doing any evil acts.
According to Wilson, that is being done or to be done, should be brought to knowledge to
everyone. If everyone knows, none gets opportunity to do an unethical act. The equivalent
price principle suggests that the people are entitled to get goods equivalent to the value of
money they will pay. According to universal value principle, the conduct of business should
be done on the basis of universal values. As per the principle of dignity, man should not be
treated as a factor of production and human dignity should be maintained. Lastly, the
principle of violence states that the interest and rights of the society should not be hurt by
businessman.
There may be many reasons why business ethics might be regarded as an increasingly
important area of study, whether as students interested in evaluating business activities, or as
managers seeking to improve their decision-making skills. It is generally viewed that good
business ethics promote good business. The power and influence of business in society is
greater than ever before. Business ethics helps us to understand why this is happening, what
its implications might be, and how we might address this situation. Business has the potential
to provide a major contribution to our societies, in terms of producing the products and
services that we want, providing employment, paying taxes, and acting as engine for
economic development and thereby increase the goodwill. Business malpractices have the
potential to inflict enormous harm on individuals, on communities and on the environment.
Through helping to understand more about the causes and consequences of these
malpractices, business ethics helps to create mutual trust and confidence in relationship.
The demands being placed on business to be ethical by its various stakeholders are
constantly becoming more complex and more challenging. Business ethics provides means to
appreciate and understand challenges more clearly, in order that firms can meet these ethical
expectations more effectively. Business can helps to improve ethical decision making by
providing managers with the appropriate knowledge and tools that allow them to correctly
identify, diagnose, analyze, and provide solutions to the ethical problems and dilemmas they
are confronted with. A business can prosper on the basis of good ethical standards and it helps
to retain the business for long years. Business ethics can provide us with the ability to assess
the benefits and problems associated with different ways of managing ethics in organizations.
In the age of complexity in business fields, competition is increasing day-by-day. Good
ethical standards help the business to face the challenges.
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Business depends on society for inputs like money, men, and skills and also for
market where products have to be sold to the customers. The business depends on society for
existence, sustenance and encouragement. Being so much dependent on society, business also
has a definite responsibility towards different segments of society. Though profit making is
one of the main objectives of business but it has to satisfy employees, customer, government,
community and shareholders also.
No enterprise can succeed without the whole-hearted co-operation of the employees.
Responsibility of business towards employees is in the form of training, promotion, proper
selection, fair wages, safety, health, worker’s education, comfortable working conditions,
participation management etc. Mental, physical, economic and cultural satisfaction of
employees should be taken care of. Similarly, business is accountable towards owners as well
as managing business profitability, ensuring fair and regular return on capital employed by
investors, consolidating financial position of business to shareholders guaranteeing capital
appreciation so as to enable the owners to withstand any business contingencies.
Consumer is not the king in our country but a vehicle used by businessmen for driving
towards the goal of profit maximization. As a result of which the concept of ‘consumerism’
has come up to protect the rights of consumers. Business is responsible to produce and supply
quality goods to consumers. Distribution system should make goods easily available to avoid
artificial scarcities. Buying capacity and consumer preferences should be taken into
consideration while deciding the manufacturing policies. The consumer should be provided
full information about the products including their adverse effects, risks and care to be taken
while using the products.
A number of legislatives are formed from time-to-time by the government for proper
regulation and control of business. Businessmen should comply with all legal requirements,
execute government contracts, pay taxes honestly and in time, declare their incomes honestly
and correctly. They should make services of executives available for government, suggest
measures and send proposals to enact new laws for the business. And lastly, responsibility of
business towards community and society includes spending a part of profit towards civic and
educational facilities. Business houses should set up units at those places where sufficient
space is available for housing colonies of workers. Scarce natural resources should be used
very carefully and appropriate steps should be taken to prevent environmental pollution and
to preserve ecological balance.
To create an ethical organization certain steps are to be taken. Ethical or unethical
behavior of individual employees is influenced in the workplace both by their own moral
development and the influence that the organization culture exerts on them. They are
influenced by a group of forces that surround them such as their peers, their supervisors, and
superiors, the reward system, group norms, company values and policies and the number of
their implementation. Ethical behavior can be developed and managed in number of ways.
The pivotal role to manage and develop ethical behavior among employees lies within the
human resource management of that organization. Human resource management department
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can execute this through training, communication and discipline. The big organizations which
are ethically committed assign the primary task if managing and monitoring ethical behavior
to HRM department. In some other organization, there may be ethics officers who are
entrusted with the responsibility to bring ethics and managed ethics in every endeavor of their
organization.

Major trends of business ethics in current business world

For years, in fact for ages, business and ethics have always been considered as the opposites.
The general perception remained that profits and purity do not go together. The path to wealth
is not exactly sacred one. However, today ethics is increasingly becoming an integral
component of business worldwide. Today’s business world is much different from the
business world of early years in our country as well as the world. Today’s global business
world requires companies to take into account its peoples values and to follow through with
ethically sound practices. In current competitive business world, business ethics is gaining a
wide popularity. Businesses are beginning to realize the great value of ethics in their
businesses.
In early years, little regards were given for employees: children worked long hours,
women worked in unsafe conditions and the like. Today however, the world can see a drastic
change: children under 18 years can only work some hours a week, there are health and
safety codes in every company. People use words like values and ethics to describe the
policies and the actions of the companies in how they treat their employees, especially
globally. Personal values, just like cultural values need to be considered when a company is
forming its policies. Personal values are linked closely to cultural values and need to be
viewed as such by a company.
An increasing number of companies are setting up seminars and workshops for their
employees, policies, specific case studies, and legal requirements. The purpose of such
trainings is to sharpen the written ethical code, demonstrate its relevancy, and bring it to life.
As a part of more comprehensive compliance and ethical programs, many companies have
formulated internal policies pertaining to the ethical conduct of employees. Those policies are
generally meant to identify the company’s expectations of workers and to offer guidance on
handling some of the more common ethical problems that might arise in the course of doing
business.
The term ‘business ethics’ have become firmly entrenched and on established part of
our vocabulary. The many high-profile scandals have added urgency to this issue. The public
is constantly reminded of the important role of business decisions lay in their lives and,
consequently, expects a business to exhibit a very high degree of ethical performance.
Regulators are keen to promote transparency. Politicians are no longer opposed to legislating
ethical behavior for business. Self-monitoring of adherence to a corporation’s stated
principles and standards is becoming more common. Managers have embraced a new
business model in which ethics and profitability are treated as complimentary rather than as
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mutually exclusive. There has been heightened interest in recent years in ensuring that the
activities of the board are conducted with integrity and adherence to the highest ethical
standards. Many businesses have adopted codes of ethics for their directors and specified that
the primary duty of board members is to see the CEO and other senior management in the
competent and ethical operation of the corporation. Indeed, all these evidences point to be a
growing emphasis on business ethics in the future.
Condition of business ethics in Nepal
Unfair business practices and lack of clear procedures and policies are hindering promotion
of ethical business practices in Nepal. Unhealthy competition is affecting growth of ethical
business practice. Lack of clear provisioned to government officials are affecting ethical
business environment. Nepal’s private sector business is constantly facing ethical dilemmas.
The private sector business is often accused of smuggling, selling fake products, collusion,
and outright bribery. We have now health education and transport mafias. Our finance and co-
operative sector is riddled with thugs and swindlers.
The course on business ethics and social responsibility has become the most popular
course all over the world. In 2002, only one-third of business schools required their students
to take this course. It has reached 80 percent now. However, if one browses through courses
on business ethics in Nepal, one will be shocked to find it bare minimum. The treatment is
not only scarce and scanty; but they are also spread around different subjects to be taught.
They are also grossly outdated and lack proper treatment. Unfair practices and corruption
have posed a serious threat to sustainability. Most of the firms are engaged in unhealthy
practices/competition, and have not enacted code of conduct to promote ethical business.
One way to deal with business ethical dilemmas is to prepare future managers through
education and training. A separate course on business ethics and social responsibility should
be made compulsory at Bachelor-level and Master-level for preparing future generation of
managers. Businessmen must be committed to promote ethical business. Businesses should
adopt corporate governance, operate with a clear value system and enforce a code of conduct.
Businessmen should follow ethical norms and foster healthy competition.
UNIT 22
THE ROLE OF GOVERNMENT
Definition of the related term
1. Controlling:- Controlling is the process of supervising directing correcting the activities
to maintain the pressure upon the activities of country economy by its government
2. Balance of trade :- balance of trade is the trade in which import of goods and export of
goods form the equilibrium points
3. Subsidies :- A subsidies is a form of financial add or support extended to an economic
sector generally with aim of promoting social and economic policy
4. Fiscal policy :- Fiscal policy is the policy which is prepared by government which deals
with the expenditure of government and level of tax revenue
5. Balance of payment :- Balance of payment of the country is the record of economy
transaction between the resident of the country and rest of the world in particular period
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6. Controlling inflation :- Controlling inflation is the role of government to maintain the

price stability through the fiscal and monitory measures to enhance economic activity
7. Government :- Government are the authority who formulate plans polices , rules and
regulation supervise control and co ordinate the country activity to acchive the economic
progress
8. Legal trend :- legal trend are the law that should be accepted by the country and its
people which describe the rules and regulation to be followed.
9. Directing :- Directing is the path of showing the way or leading the country with certain
aim to develop economy of the country
10. Planning :- planning means a state of predetermined future oriented activitiesof the
government for the economic development
11. Monitory policy:- monitory policy is the policy which is prepared by central bank that
deals with supply of interest and money of the country.
12. Decision :- Decision is the major part of the government in which government takes the
decision by choosing the best alternative among the alternative to uplift country economy
13. Development of infrastructure:- Development of infrastructure is the developing of
infrastructure such as transport communication etc to uplift the economy of the country
without hindrance a upcoming generation.
14. Domestic market :- domestic market is the market in which supply and demand of goods
service and securities with in a country,
15. Mixed economy :- mixed economy is the economy which consist of mixture of either
market or economy planning public ownership and private ownership
16. Capitalism economic system :- capitalism is an economic system based on private
ownership of means of production wher there is no role of government
17. Investment :- investment is the amount which is invested by expecting something more
with the invest amount
18. Environment :- Environment is the situation or force that affects the activities of
government to achieve their objective and aim
19. Globalization :- globalization is the process of international integration arising from the
exchange of world vie service product etc
20. International trade:- International trade is the exchange of capital goods and services
across international borders or territories.
Concept of government
Government always guides its people and the country to the path of a success. Government
plays an important role to formulate plans , legal provision , run development
programs , supervise them and coordinate with international country Mainly there are
three type economy in the world adopted by the government .The government
supports the economy when it facilitates transport and communication via the postal
service and highways and establishes the police and military to safeguard life and
property. Local or state governments support the economy by funding education and
building roads.
Similarly Governments devise rules that ensure businesses operate in the best interests
of the public. For instance, the government may allow a monopoly to operate in a market or
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industry with little competition, such as in utility services, but limit the company’s freedom to
increase prices to avoid hurting consumers who would have no recourse. A government
devises monetary policies to keep the economy growing at the desired pace. By controlling
circulation of money, adjusting interest rates and tax rates, and controlling access to credit,
the government can control the inflation or the decline of the economy. Likewise, the
economy is affected when the government gives certain businesses preferential treatment,
such as by limiting foreign competition in a specific market or imposing higher taxes on
imports to boost domestic production.
The differences in rates of growth are often attributed to the factors. Government and
entrepreneurship the two are not mutually exclusive. In the early stage of sustained growth,
government has often provided the incentives for entrepreneurship to take hold. In economies
the development of transportation, power, and other utilities has been carried out by the
government. In others the government has offered finical inducements and subsidies. The
land given US railroad developers in the second half of the 19th century is a notable example
of the letter. Another importation roll government have played in the early stages is to help
establish the short of capital and money market in which lenders could have confidence
without financial intermediaries acting as brokers between lenders and business borrowers, it
is difficult to envisage economic growth taking place on a sustained and rapid basis
History and some theoretical aspect
In the 19th century most liberal thinkers held that the main role for government in a developed
capitalist system was that a police man to preserve law and order, uphold the sanctity of
privet property and give business as much freedom as possible. The generate depression of
the 1930 as persuaded many that a laissez fair system did not automatically innovation and
risk bearing essential for economic growth. This led to a good deal of writing on the role that
government might play in stimulating growth. Econoists have argued that, at the very least,
governments can undertake to prevent serious and prolonged recessions. Only in his way can
a general business psychology be develop the assumes growth to be the natural course of
things, so that investment programs will pay off.
Growth theorists seems world war II have gone further, arguing that is not enough
simply to achieve full employment periodically some maintain that is necessary to maintain
full employment over an extended period of time if high growth is to result. This argument
relates to the earlier point that to economies may experience the same rate of growth of
capital but that overall growth and technical progress will proceed at a much more rapid rate
in one then in the other because differences in the quality of new capital goods produced. The
term enterprise investment has been used to describe the kind of capital formation that
involves innovations and that by building ahead of demand generates rapid rates of growth of
productivity or technical progress but to get such growth, it has been argued an economy
must be run’’ flat out’’ at full speed while this has been subject to some dispute, there is a
fairly general consensus that growth will be faster when un employment fluctuates within a
narrow range at low level
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A variation on this argument is the question of how a government may intervene may
intervene to determine the distribution of output between those types of expenditure that
contribute to growth and those that lead to the immediate satisfaction of consumer demand.
Here the choice lies between business investments research and education on the one hand
and consumption on the other. The larger the first three the more rapid will be the rate of
growth. Government has given a high priority to growth a various means at their disposal for
influencing it. Consumption can and has been constrained through incecises in income tax
rates. Such as same is true of other tax rate such as the property tax –the chief revenue source
for primary and secondary education in the United States. Tax credit for research and
development expenditures is a common method for encouraging business outlays that many
lead to innovations . The same method has been used to stimulate business investment outlays
easy money policies on the parts of the center bank where by the cost of borrowed funds and
there availability are indirectly regulated in such a way as to encourage business borrowing
mat lead higher levels of real investment.
The true cost of stimulating growth will always be a temporary cut in current
consumption. Only in the future can the economical benefit of the higher investment realize
by the same token current consumption can always be enlarged by a neglect of the future . It
is even possible for current production to be so beside towards the satisfaction of immediate
needs that’s the productive capacity of an economy slowly declines as capital goods are not
replaced. Between the extremes of total neglect of future generations and the paring down of
currents consumption to a bare subsistence minimum lie on infinite number of possibilities.
Major role
Local governments set the overall direction for their municipalities through long-term
planning. Examples include council plans, financial plans, municipal strategic
statements and other strategic plans. Setting the vision, and then ensuring that it is achieved,
is one of the most important roles of local government. Local government is responsible for
managing and delivering a range of quality services to their communities, such as public
health and recreational facilities, local road maintenance, and public libraries. Local
governments legislate and make decisions in areas over which they have legislative authority.
Local laws are not allowed to replicate or be inconsistent with state and federal laws or the
operative planning scheme. The laws made by local governments are called local laws and
cover issues such as the activities permitted on public land, animal management, and use of
infrastructure. Local governments are also responsible for enforcing local laws and other
legislation over which they have authority. The activities of local governments are guided by
policies. Developing and implementing these policies are key functions.
Councils often represent their local community on matters of concern to those
constituents. Local governments have a role in advocating on behalf of their constituencies to
state and federal levels of government, statutory authorities and other sectors. Most economic
arguments for government intervention are based on the idea that the marketplace cannot
provide public goods or handle externalities. Public health and welfare programs, education,
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roads, research and development, national and domestic security, and a clean environment all
have been labeled public goods.
Public goods have two distinct aspects—"non excludability" and "nonrivalrous
consumption." Non excludability means that non payers cannot be excluded from the benefits
of the good or service. If an entrepreneur stages a fireworks show, for example, people can
watch the show from their windows or backyards. Because the entrepreneur cannot charge a
fee for consumption, the fireworks show may go unproduced, even if demand for the show is
strong In the past, government spending increased during wars and then typically took some
time to fall back to its previous level. Because the effects of World War I were not totally
gone by 1929, the line for the United States from 1790 to 1929 has a very slight upward slant.
But in the second quarter of the twentieth century, government spending began a rapid and
steady increase. While economists and political scientists have offered many theories about
what determines the level of government spending, there really is no known explanation for
either part of this historical recordThe distribution of income is central to one of the most
enduring issues in political economics. On one extreme are those who argue that all incomes
should be the same, or as nearly so as possible, and that a principal function of government
should be to redistribute income from the haves to the have-nots. On the other extreme are
those who argue that any income redistribution by government is bad
Deficit spending has been a way of life for the federal government for most years
since World War II. A whole generation of elected federal officials has come and gone
without ever balancing the budget. The last time that federal budget expenditures were
brought into balance with revenues was in 1969, and prior to that the last time was in 1960
Economists specializing in public finance have long enumerated four objectives of tax policy:
simplicity, efficiency, fairness, and revenue sufficiency. While these objectives are widely
accepted, they often conflict, and different economists have different views of the appropriate
balance among them Each level of government provides direct services. The postal system,
for example, is a federal system serving the entire nation, as is the large military
establishment. By contrast, the construction and maintenance of most highways is the
responsibility of individual state governments. The public education systems are primarily
paid for by state, county or city governments. In general, police and fire protection are the
responsibilities of local government.
The government regulates and controls private enterprise in many ways in order to
ensure that business serves the best interests of the people as a whole. Regulation is usually
considered necessary in areas where private enterprise has been granted a monopoly, such as
in electric or local telephone service, or in other areas where there is limited competition, as
with the railroads. Public policy permits such companies to make reasonable profits, but
limits their ability to raise prices "unfairly" (as defined by the regulators) because the public
depends on their services. Often control is exercised to protect the public, for example, when
the Food and Drug Administration bans harmful drugs, or requires standards of quality in
food. In other industries, government sets guidelines to ensure fair competition without using
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direct control. The government provides many kinds of help to businesses and individuals.
For example, tariffs permit certain products to remain relatively free from foreign
competition; imports are sometimes taxed or limited by volume so that American products
can better compete with foreign goods. Government also provides aid to farmers by
subsidizing prices they receive for their crops. In quite a different area, government supports
individuals who cannot adequately care for themselves by making grants to low-income
parents with dependent children, by providing medical care for the aged and indigent, and
through social insurance programs that assist the unemployed and retirees. Government also
supplies relief for the poor and help for the disabled.
Major trends
In the current world most of the country adopt mixed economy for the development of a
country there are three type economic system generally Patrice in a world. The tree economic
system are capitalism socialism and mixed economy In today’s context most of the
government are adopting mixed economy where both private and a government role are
equally determined Government just formulate the required plans and policies required for
the country and provide infrastructure . The work of private sector is to implement the law
and order and help the government in development programs.
If we have talk about the world second largest economy country China It has adopted
the socialism economy where government role is effective In china government look after
each and every activities of the country. The public sector have highly dominating the private
sector All though even the Chinese government gone a bid liberal in laws for the private
sector as well It formulate each and every development program for the country it shows that
the government have active role upon its country and people.
Likewise Although Japan's economic development is primarily the product of private
entrepreneurship, the government has directly contributed to the nation's prosperity. Its
actions have helped initiate new industries, cushion the effects of economic depression, create
a sound economic infrastructure, and protect the living standards of the citizenry. Indeed, so
pervasive has government influence in the economy seemed that many foreign observers
have popularized the term "Japan Inc." to describe its alliance of business and government
interests. Whether Japan in the mid-1990s actually fit this picture seems questionable, but
there is little doubt that government agencies continue to influence the economy through a
variety of policies.
Japanese attitudes towards government have historically been shaped by
Confucianism. Japan often has been defined as a Confucian country, but one in which loyalty
is more important than benevolence. Leadership stemmed from the government and authority
in general, and business looked to government for guidance. These attitudes, coupled with the
view of the nation as a family, allowed government to influence business, and businesses
worked hard not only for their own profits but also for national well-being. There was a
national consensus that Japan must be an economic power and that the duty of all Japanese
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was to sacrifice themselves for this national goal. Thus, the relationship between government
and business was as collaborators rather than as mutually suspicious adversaries.
Most of the country has mixed economy only the developed country has adopted the
particular economic system. Countries like China USA Japan have sdopted the particular
economic system. Although it also has been influence by mixed economy It has clarifies us
that both the private and government have an important role for the development of a country
Both of the sector need support for the development of country economy
Nepalese status
Government participation (or interference) in the economy was very strong, beginning with
the Rana period, which lasted from the mid-nineteenth century until the mid-twentieth
century. During Rana rule, there were very few industries other than cottage type, and they
were under strict government supervision. After the fall of the Ranas in 1950-51, economic
planning as an approach to development was discussed. Finally, in 1956 the First Five-Year
Plan (1956-61) was announced.
Economic plans generally strove to increase output and employment; develop the
infrastructure; attain economic stability; promote industry, commerce, and international trade;
establish administrative and public service institutions to support economic development; and
introduce labor-intensive production techniques to alleviate underemployment. The social
goals of the plans were improving health and education as well as encouraging equitable
income distribution. Although each plan had different development priorities, the allocation
of resources did not always reflect these priorities. The first four plans concentrated on
infrastructure--to make it possible to facilitate the movement of goods and services--and to
increase the size of the market. Each of the five-year plans depended heavily on foreign
assistance in the forms of grants and loans.
The First Five-Year Plan (1956-61) allocated about Rs576 million for development
expenditures. Transportation and communications received top priority with over 36 percent
of the budget allocations. Agriculture, including village development and irrigation, took
second priority with about 20 percent of budget expenditures. The plan, which also focused
on collecting statistics, was not well conceived, however, and resulted in actual expenditures
of about Rs382.9 million--two-thirds the budgeted amount. In most cases, targets were
missed by a wide margin. For example, although approximately 1,450 kilometers of
highways were targeted for construction, only about 565 kilometers were built.
After Parliament, which had been established under the 1959 constitution, was
suspended in 1960, the Second Plan failed to materialize on schedule. A new plan was not
introduced until 1962 and covered only three years, 1962-65. The Second Plan had
expenditures of almost Rs615 million. Transportation and communication again received top
priority with about 39 percent of budget expenditures. Industry, tourism, and social services
were the second priority. Although targets again were missed, there were improvements in
industrial production, road construction, telephone installations, irrigation, and education.
However, only the organizational improvement area of the target was met.
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The first two plans were developed with very little research and a minimal data base.
Neither plan was detailed, and both contained only general terms. The administrative
machinery with which to execute these plans also was inadequate. The National Planning
Commission, which formulated the second plan, noted the difficulty of preparing plans in the
absence of statistical data. Further, as was the case with the first plan, the bulk of the
development budget depended on foreign aid--mostly in the form of grants. The failure of
these plans was indicated by the government's inability to spend the budgeted amounts. The
Third Five-Year Plan (1965-70) increased the involvement of local panchayat. It also focused
on transport, communications, and industrial and agricultural development. Total planned
expenditures were more than Rs1.6 billion.
The Fourth Five-Year Plan (1970-75) increased proposed expenditures to more than
Rs3.3 billion. Transportation and communications again were the top priority, receiving 41.2
percent of expenditures, followed by agriculture, which was allocated 26 percent of the
budget. Although the third and fourth plans increased the involvement of the panchayat in the
development process, the central government continued to carry most of the responsibilities.
The Fifth Five-Year Plan (1975-80) proposed expenditures of more than Rs8.8 billion. For
the first time, the problem of poverty was addressed in a five-year plan, although no specific
goals were mentioned. Top priority was given to agricultural development, and emphasis was
placed on increasing food production and cash crops such as sugar cane and tobacco.
Increased industrial production and social services also were targeted. Controlling population
growth was considered a priority.
The Sixth Five-Year Plan (1980-85) proposed an outlay of more than Rs22 billion.
Agriculture remained the top priority; increased social services were second. The budget
share allocated to transportation and communication was less than that allocated in the
previous plan; it was felt that the transportation network had reached a point where it was
more beneficial to increase spending on agriculture and industry. The Seventh Five-Year Plan
(1985-90) proposed expenditures of Rs29 billion. It encouraged private sector participation in
the economy (less than Rs22 billion) and local government participation (Rs2 billion). The
plan targeted increasing productivity of all sectors, expanding opportunity for productive
employment, and fulfilling the minimum basic needs of the people. For the first time since
the plans were devised, specific goals were set for meeting basic needs. The availability of
food, clothing, fuelwood, drinking water, primary health care, sanitation, primary and
skillbased education, and minimum rural transport facilities was emphasized.
Because of the political upheavals in mid-1990, the new government postponed
formulating the next plan. The July 1990 budget speech of the minister of finance, however,
implied that for the interim, the goals of the seventh plan were being followed. Foreign aid as
a percentage of development averaged around 66 percent. The government continually failed
to use all committed foreign aid, however, probably as a result of inefficiency. In the Rs26.6
billion budget presented in July 1991, approximately Rs11.8 billion, or 44.4 percent of the
budget, was expected to be derived from foreign loans or grants.
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The government launched the Structural Adjustment Program and the Basic Needs
Program in 1985. These programs stressed selfreliance , financial discipline, and austerity as
goals through the year 2000. The Structural Adjustment Program sought to confront some of
the longer-term constraints to economic growth. Its measures included increasing domestic
resource mobilization, reducing the growth of expenditures and domestic bank borrowings,
and strengthening the commercial banking and public enterprise sectors.
The Structural Adjustment Program initiative focused on sustainable growth through
balance in different sectors of the economy. Rural development in particular was targeted in
order to raise the standard of living and increase agricultural production. Funds for education
and health services, electricity and power, irrigation, and transportation and communications
were provided. Government subsidies were supposed to be removed, new and improved
standards of government efficiency were issued, and privatization of government enterprises
was increased. Further, domestic resources were more fully used, and domestic bank
borrowings and the growth of expenditures were decreased. The initial response to the
Structural Adjustment Program was good, as gross domestic product (GDP), exports, and
agriculture showed growth.
The objective of the Basic Needs Program was also to improve the standard of living
by increasing food production, as well as to provide clothing, health services, and education.
Six goals were to be achieved by the year 2000. Daily food consumption was to be raised to
2,250 calories per capita. Each person was to have the equivalent of eleven meters of clothing
and a pair of shoes per year. Housing requirements were estimated at thirty square meters per
urban household and at forty to sixty square meters per rural household. Essential utilities and
sanitation were to be furnished by the government. Universal primary education for all
children between five and ten years of age also was to be provided. The government was
responsible for supplying teachers, classrooms, and educational materials, although villagers
pitched in with labor and supplies to build schoolhouses. The population growth rate was
targeted at 1.9 percent by 2000 (down from 2.6 percent in the 1980s), and life expectancy was
to increase to 65 years of age by 2000 (up from almost 51 years in the late 1980s). The infant
mortality rate was to be reduced to 45 deaths per 1,000 by the year 2000; World Bank figures
placed infant mortality at 171 per 1,000 in 1965 and at 126 per 1,000 in 1988. Universal
primary health services also were to be ensured, primarily by the government, improved
social services provided to handicapped people, law and order maintained, and an
environment conducive to development established.
UNIT 23
CENTRAL BANKING, MONEY AND TAXATION
Definition of related terms
A project work is incomplete without some definitions of related topic. Definition of the
CENTRAL BANKING, MONEY AND TAXATION are given below:
1. Central Bank: Central bank is an institution that manages a state’s currency, money
supply and interest bank.
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2. Money
Convenient and simple object used in daily exchange activities is known as money.
3. Taxation: Taxation refers to the compulsory or coercive money collection by levying
authority, usually a government.
4. Interest: Interest is the price paid or payment for the used of loanable funds.
5. Inflation: Inflation is a state in which the value of money is falling i.e. prices are raising.
6. Deflation: Deflation is a state in which the value of money is siring i.e. prices are falling.
7. Index Number: Index number is a number which is used to measure the change in value
of money in two different periods.
8. Velocity of circulation of money: The speed of unit of money which moves from one
person to another to solve the problem of exchange is known as the velocity of circulation
of money.
9. Supply of money: Supply of money means the total supply during certain time in a
country which is available for exchanged of goods and services.
10. Purchasing power of money: purchasing power of money is the reciprocal of the level
of the price, so that study of purchasing power of money is identical with the study of
price level.
11. Advancing loans: Advancing loans is the processing of providing loan facilities to the
public through different interest rates.
12. Money market: The financial market which carries out the transactions of short-term
credit is known as money market.
13. Direct Tax: A direct tax is really paid by the person on whom it is legally imposed but
indirect tax is imposed on one person but paid partly or wholly by another.
14. Indirect Tax: If the incidence is passed on to the other then it is called as an indirect tax.
15. Proportional Tax: proportional tax is such a system in which equal tax is taken from the
persons who have different levels of income.
16. Progressive Tax: If the ratio of tax increases along with the ratio of income, then it is
known as progressive tax.
17. Regressive Tax: If the amount of tax decreases along with the increase in income, then it
is known as regressive tax.
18. Depressive Tax: Depressive tax increases rapidly in proportion to the increase in income
in the beginning and after some point it starts to decrease.
19. Good Tax System: The system which follows the basic principles of tax and includes the
characteristics of the good tax is known as good tax system.
20. Principles of Taxation: The analysis of classical theories that allows the formulation of
principles and represent the qualities and tendencies of the modern taxation is known as
principle of taxation.
Theoretical aspects of central bank , money, and taxation
Central bank (reserve bank) is an institution that manages a state’s currency, money supply ,
and interest bank. A central bank possess a monopoly on increasing the monetary base in the
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state and usually also prints the national currency, which usually serves as the state’s legal
tender. Similarly Money is any item or verifiable record that is generally accepted as payment
of goods and services, repayment of bad debts in a particular country or socio-economic
context. The main functions of money are distinguished as: a medium of exchange, a unit of
account ,a store of value ,and sometimes standard of deferred payment. Any item or verifiable
record that these functions can be considered as money. Likewise, Taxation means the act of
imposing taxes and the fact of being taxed or a particular system of taxing people or
companies, the revenue gained from taxes .In another word, taxation refers to the practice of
government collecting money from citizens to pay for public services.
The functions of central banks may include that to implement monetary polices. It
also helps in setting the official interest rate (used to manage both inflation and country‘s
exchange rate).similarly it also controls the nation’s entire money supply. Likewise it also
manages the country’s foreign exchange and gold reserves and the government’s stocks
registers and also help in regulating and supervising the banking industry. In another way, the
primary function of central bank is to control the nation’s money supply, through active
duties such as managing interest rates, setting the reserve requirement, and acting as a lender
of last resort to the banking sector during times of bank insolvency or financial crisis and also
issues notes and coins and ensures people have faith in notes which are printed eg; protect
against forgery.
Frictional unemployment is the time period between jobs when a work is searching
for, or transitioning from one to another .unemployment beyond frictional unemployment is
classified as unintended unemployment. Macro economics aims generally aims to reduce
unintended unemployment. so in order to achieve high employment, central bank involves in
different activities such as rise in price of products ,and others to achieve goal of high
employment. Similary, it has main goal to maintain price stability. During the time of
inflation , the central bank charges high rate of interest in order to maintain price stability.
The efforts of the central bank to control inflation have been counterproductive. Likewise
,central bank has another goal to sustain economic growth by investment in capital, such as
more or better machinery. A low interest rate implies that a firm can burrow to invest their
capital stock and pay less interest for it. Lowering the interest is therefore is considered to
encourage economic growth and it is often used to all eviate times of low economic
growth .On the other hand, raising the interest is often used in times of high economic growth
as a contra-cyclical device to keep the economy from overheating and avoid market bubbles.
Further goals of are monetary policy, exchange rate markets, stability of interest rate and so
on.
The main monetary policy instruments available to central bank are open market
operations, bank reserve requirement, interest rate policy-relending and rediscount and credit
policy. Central bank typically controls certain types of short term interest rates. These
influence the stock and bond markets as well as mortgage and other interest rates. A typical
central bank has several interest rate such as marginal lending rate ,main refinancing rate,
deposit rate ,etc. similarly the another policy instrument of central bank is open market
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operations. Through the open market operations, central bank influences the money supply in
an economy. Open market operations usually takes the form of: buying or selling securities
,temporary lending of money for collateral securities and foreign exchange Likewise, capital
requirement is also a central bank policy instrument. Under this approach every financial.
banks should deposit certain amount of money as prescribed by central bank. In the same way
,central bank policy is also a margin requirements and other tools which works indirectly to
limit lending practices and otherwise restrict or regulate capital markets. Central bank often
have requirements for the quality of assets that may be held by financial institutions, these
requirements may acts as a limit on the amount of risk and leverage created by financial
system. These requirements may be direct, such as requiring certain assets to be bear
uncertain minimum credit ratings or indirect ,by the central bank lending to counter parties
only when security of certain quality is pledged as collateral.
Money and mechanism of exchange (1875),William Stanley Jevons famous analyzed
money in terms of four functions ,a medium of exchanged, a common measure value, a
standard of value and a store of value. By 1991,Jevons’s four functions of money were
summarized in couplet. Money is a matter of function four :A medium , a measure ,a standard
,a store. There have been many historical disputes as regarding the combination of money
functions ,some arguing that they need more separations and that a single unit is insufficient
to deal with them all. one of these arguments is that the role of money is a medium of
exchanged is in conflict with its role as a store of value .Its roles as a store of value requires
holding it without spending ,when its role as medium of exchanged requires it to circulate
.Others argue that storing a value is just deferral of the exchanged, but doesn’t diminish the
fact that money is a medium of exchanged that can be transported both across space and time.
The term financial capital is a more general and inclusive term of all liquid instruments,
whether or not the are uniformly recognized tender.
In economics , money is a broader term that refers to any financial instrument that can
fulfills the functions of money. These financial instruments together are collectively referred
to as money supply of an economy. In other words, money supply is the amount of financial
instrument within a specific economy available for purchasing goods and services. Since
money supply consist of various financial instruments (usually currency, demand deposits,
and various types of other deposits) , the amount of money in an economy is measured by
adding together, these financial instruments creating a monetary aggregate .The most
commonly used monetary aggregates are conventionally designated M1,M2 and M3 .These
are successively larger aggregate categories;M1 is currency (coins and bills) plus demand
deposits ,M2 is M1 plus saving account and time deposit ,M3 is M2 plus larger time deposits
and similar institutional accounts.M1 includes the most financial instruments. The precise
definition of M1,M2,M3,etc may be different in different countries. Another measure of
money is M0 is used: unlike the measure, it doesn’t represent actual purchasing power by
firms and households in the economy. M0 is base money or amount actually issued by the
central bank of a country. It is measured as currency plus deposits of banks and other
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financial institutions at the central bank. M0 is the only money that can satisfy reserve
requirements of commercial banks.
Currently most modern monetary system are based on flat money. However, for most
of history, almost all money was commodity money, such as gold and silver coins. A
economics developed commodity money was eventually replaced by representative money
such as gold standard, as traders found the physical transportation of gold and silver burden
some. Somehow, there are different types of money which are as follows:
1. Commodity money: Many items that has used as commodity money such as naturally
precious conchs ,shells, barley, beads etc is known as commodity money.
2. Representative money: Representative money is money that consists of token coins, paper
money or other physical token money such as certificates, that can reliably exchanged for
a fixed quantity or commodity such as gold or silver.
3. Flat money: Flat money is money value which is not derive from any intrinsic value or
gurantee that it can be converted into valuable commodity instead.
4. Coinage: The money which are in the form of coin as it in the form of silver and gold as
well as in bronze is known as coinage money.
5. Paper money: paper money is money which is need for credit and for circulating as
medium that was less of burden than exchanging of thousands of copper coins leads to
introduction to paper money.
Each country has an assortment of federal state, local and special- purpose
government jurisdictions. Each imposes taxes to fully or party funds its operations. These
taxes may be imposed on the same income, property or activity, often without set of one tax
against another. The types of tax imposed at each level of government vary in part due to
constitutional restrictions. There are various types of tax which are related with the
government which are mentioned as below:
1. Capital gains tax: A tax that a person or company pays on the profit you get from selling
property, or from money you have invested.
2. Corporate tax: A tax that companies pay on their profits.
3. Custom tax: The tax that you pay on goods that when you brings goods into country.
4. Direct tax: A tax collected from a person or organization instead of as part of the price of
a product or services.
5. Indirect tax: A tax on goods or services rather than on income.
6. Regressive tax: A tax system in which poor pay a bigger percentage of their income than
rich people.
7. Progressive tax: A tax system in which people who earns a lot of money pays a larger
percentage of their income in tax than people who earn less.
8. Value added tax (VAT): A tax paid on goods and services.
The analysis of classical theories allows the formulation of principle that represent the
qualities and tendencies of the modern taxation system. Some of the modern principles of
taxation are as given below:
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1. The rational combination of direct and indirect tax which implies the utilization of
various types of taxes, taking into consideration both the wealth and income of the tax
payer.
2. The Universalization of taxation which implies equivalent efficiency requirements to all
payers and an equivalent approach to the deduction of tax amount irrespective of income
source, type of activity or an economic sector.
3. One time taxation implies that one object can only be taxed once through one tax type
for a specific period of time indicated in the law.
4. Stability, or the endurance of taxation for a long period of time and the simplicity of
deducting the payment. Tax rates should determined by law and should not raised
frequently.
5. Application of tax allowances system which would lead to an actual stimulation of
investments into entrepreneurship activities and would, at the same time, comply with
the principles of social justice, including the insurance of minimum living standard of
the citizens.
Major trends in the world
In this modern era , there is extreme trend of globalization .under this era, if the central bank
of a country doesn’t run with according to the time then the country will face various
economic problems. so central banks are functioning according to the change in time ,country
,people ,etc. examples like Bank of America, Bank of Russia ,Bank Nagara Malaysia, Central
bank of India etc. some of the major functions of which the modern central banks are
providing are as follows:
1. Online banking/ internet banking
2. Cent smart pay
3. Online payment
4. Online trading
5. IRCTC debit card/credit card
6. ATM card
7. Multi checks deposits
8. Mobile banking
9. ABBS services
10. Digital bank
11. BLB (branchless banking)
12. Online lockers
13. Business credit cards
Besides, these functions there are various functions of modern banking system, such as
primary function .Under primary functions, generally central bank, accept deposits, making
loans and advances. Under accepting deposits, there is fixed deposit or time deposit, saving
deposit, current deposit and recurring deposit. And similarly, while making loans, it provides
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loans, cash credit, overdrafts and purchasing and discounting of bills. These are the primary
functions which are functioning in the modern world.
Today , central banks deloyed to technology intensive solutions like enhancing core
banking value, revamping the digital agenda, moving from information to insight, dealing
with unchanging risk, regime, from cash to electronic modes of payment, grappling with
financial inculsion ,empowering employees and accelerating innovation. Central banks have
changed their operations and moves towards universal banking along with the increased
usage of technology. Today banking is known as innovative banking. A wide range of
services are being offered by banks using electronics media . Banking through internet has
emerged as a strategic resource for achieving higher efficiency, control of operations and
reduction of cost by replacing paper based and labor intensive methods with automated
process leading to higher profit and productivity. Interest banking is highly comfort in our
routine life. So, modern central banks has made more facilities and they are functioning well.
All the difficulties of barter were overcome with the introduction of money and money is
anything that is generally accepted as a medium of exchanged. Money performs many
functions in the modern economy. The most important functions are given in the form couplet
quoted below. ”Money is a matter of functions four- a medium, a measure, a standard, a
store.” Money is one the fundamental inventions of mankind. Every branch has its
fundamental discovery. In mechanics, it is wheel; in science fire; in politics the vote.
Similarly, in economics, in the whole commercial side of man’s social existence, money is
the essential invention on which all the rest are based. All people must accept a thing a
money. Or the government should give it legal sanction. Modern money are functioning with
the used as store of value and standard of deferred payment –money should have stability of
value. Modern organizations are using money as for purchasing of raw materials, investment
and for payment and for extending the business in global markets. Therefore the money is
functioning well at the every parts of the country.
Similarly the function of taxation in the modern business world is increasing along with
the development and innovations. Modern function of taxation is that it funds the
expenditure for hospitals, schools and transport, transfers resources from the whether in
society to the less well-off, encourages certain activities that are beneficial to society such as
creating jobs or encouraging people to reuse plastic bags. There are five major functions of
taxation: fiscal, redistributory ,regulating, controlling, and promoting which are functioning
at the modern business trend. So they are functioning with different aspects in the modern
business trend.
Nepalese perspective to central banking ,money and taxation
Nepal Rastra Bank (NRB) ,the central bank of Nepal was established in 1956 under the Nepal
Rastra Bank Act 1995,to discharge the central banking responsibilities including guiding the
development of the embryonic domestic financial sector. Since inception, there has been a
significant growth in both the number and the activities of the domestic institutions. To reflect
this dynamic environment , the functions and objectives of the Bank have been recast by the
NRB Act of 2002 ,the preamble of which lays downs the primary functions of the Bank as:
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1. To formulate necessary monetary necessary monetary and foreign exchanged polices to

maintain the stability in price and consolidate the balances of payments for sustainable
development of the economy in Nepal ;
2. To develop a secure, healthy and efficient system of payments;
3. To make appropriate supervision of the banking and financial system in order to
maintain its stability and foster its healthy development ;
4. To further enhance the public confidence in Nepal’s entire banking and financial
system.
The Bank is eminently aware that, for the achievement of the above objectives in the
present dynamic environment, sustained progress and continued reform of the financial sector
is of utmost importance. Continuously aware of this great responsibility, NRB is seriously
pursuing various polices, strategies and action, all of which are conveyed in the annual report
Table 1-NRB Governors over the
years
on monetary policy.

Taxes are the largest source for collecting the government revenue. Taxes are
compulsory payments to the government without expectation of direct return or benefit to the
tax payer. Therefore, taxes are compulsory contribution collected by the government from the
citizens to fulfill the expenditure for public utility. Under Nepalese perspective there are some
major rules for maintaining the taxation which are as mentioned as below:
Table 2: Tax rates
For Individual For couple

Up to Rs. 250,000 @ 1 % Up to Rs. 300,000 @ 1%

Next up to Rs. 100,000 @ 15 % Next up to Rs. 100,000 @ 15%

Next up to Rs. 21,50,000 @ 35% Next up to 21,00,000 @ 25%

In the context of Nepal, money has using in the broader sense. Different financial
institutions ,banks and co –operatives organizations are utilizing the money in effective way.
Money can be withdrawn from ATM, Banks and by other modes. Many Nepalese banking
organization are providing monetary facilities to enhance the business, productivity, and for
payments and so on. Thus they are functioning well in the context of Nepal along with their
advantages , objectives and goals.
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UNIT 24
EXCHANGE RATES
Definition and terms of exchange rate
Exchange rate: Exchange rate is the rate at which one country currency is converted to
another country currency.
1. Flexible exchange rate: Flexible exchange rate is a system where rate of exchange
changes and determined by demand and supply of domestic currency.
2. Foreign exchange: Foreign exchange is the exchange of one currency for another or the
conversion of one currency into another currency.
3. Foreign exchange market: Foreign exchange market is a system of trading or converting
the currency of one country into that of other.
4. Foreign currency: Foreign currency is the currency other than the local currency which is
used to settling international transaction.
5. Currency pair: Currency pair is a exchange rate relationship between two currencies
where one currency is expressed in term of other.
6. Bid: Bid is a price at which buyers offers to buy currencies from sellers.
7. Currency converter: Currency converter is a system which allows the user to perform a
quick conversation of currencies at current exchange rates.
8. Major currencies: Major currencies are those currency which are relative to value of US
dollar.
9. Vendor: Vendor is a financial organization which collets packages and distributes up-to-
the minute price quotes from banks ans other financial institution.
10. Interbank prices: Interbank prices are currency prices that reflect market rate among
financial institution for transaction that is over one million dollar.
11. Spread: Spread is the difference between the bid and ask of currency price.
12. Bank: Bank is a financial institution that accepts deposits from the public and creates
credit.
13. Money: Money is any items or verifiable record that is generally accepted as payment for
goods and services and repayment of debts.
14. Cross currency: An exchange rate that does not have the domestic currency as one of the
two currency components is known as cross currency.
15. RER: RER is the purchasing power of currency relative to another at current exchange
rates and prices.
16. Functional currency: Functional currency refers to the main currency used by a business
or unit of business.
Theoretical aspects of exchange rate
Exchange rate is a rate at which one country currency is converted to another country
currency. Exchange rates are determined in the foreign exchange market which is open to
wide range of different types of buyers and sellers and where currency trading is continuous.
It is closely related to monetary policy and two are generally dependent on many of the same
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factors. Currencies are being continuously traded on the foreign exchange markets, with the
prices constantly changing as dealers adjusts to changes in supply and demand. Currencies
will also undergo long term changes depending on the state of comparative countries.
Fixed exchange rate system refers to a system in which exchange rate for a currency is
fixed by the government. The basic purpose of adopting this system is to ensure stability in
foreign trade and capital movements. Government undertakes to buy foreign currency when
the exchange rates become weaker and sell foreign currency when the rate of exchange gets
stronger. For this, government has to maintain large reserves of foreign currencies to maintain
the exchange rate at the level fixed by it. Under this system, each country keeps value of its
currency fixed in terms of some external standard. This external standard can be gold silver
other precious metal, another country’s currency or even some internationally agreed unit of
account. When value of domestic currency is tied to the value of another currency it is known
as pegging. When value of currency is fixed in terms of some other currency or in terms of
gold it is known as parity value of currency.
Whereas flexible exchange rate system refers to a system in which exchange rate is
determined by forces of demand and supply of different currencies in the foreign exchange
market. The value of currency is allowed to fluctuate freely according to changes in demand
and supply of foreign exchange. There is official intervention in the foreign exchange market.
Flexible exchange rate is also known as floating exchange rate. The exchange rate is
determined by the market that is through interaction of thousand of banks, firms and other
institutions seeking to buy and sell currency for purposes of making transactions in foreign
exchange.
Exchange rates are extremely important for a trading economy. There are several
reasons for this, including exchange rates represent a cost to firms which arises when
commission is paid on the exchange rate changes create a risk to those firms that hold assets
in currencies other than sterling. Exchange rates affects the price of exports which form a
significant part of aggregate demand and the price of payments. The monetary policy
committee of the bank of England will often take the exchange rate into account when setting
short term interest rates hence changes in the exchange rate have another transmission route
into the economy via their effect to interest area.
Exchange rate fixed by Nepal Rastra Bank
Currency Unit Buying in Rs. Selling in Rs.
Indian Rupee 100 160.00 160.15
Flexible exchange rate
Currency Unit Buying/RS Selling/RS
US dollar 1 108.23 108.83
European dollar 1 112.94 113.57
UK pound sterling 1 134.39 135.14
Swiss franc 1 105.14 105.72
Australian dollar 1 79.39 79.83
Canadian dollar 1 81.07 81.52
Singapore dollar 1 74.99 75.40
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Japanese yen 10 9.16 9.21

Chinese yuan 1 15.55 15.64
Saudi Arabian riyal 1 28.85 29.01
Qatari riyal 1 29.72 29.89
Thai baht 1 3.02 3.04
UAE Dirham 1 29.47 29.63
Malaysian Ringgit 1 24.17 24.31
South korea won 100 9.12 9.17
Swedish kroner 1 11.54 11.60
Danish kroner 1 15.19 15.28
Hongkong dollar 1 13.94 14.02
Kuwaity dinar 1 353.46 355.41
Bahrain dinar 1 287.08 288.67
Source: Nepal Rastra Bank 09/01/2017
In the late 1990s and early 1980s, the American, British and other governments
deregulated their financial systems, and abolished all exchange controls. Residents in these
countries are now able to exchange any amount of their currency for any country for any
other convertible currency transactions are unrelated to transactions in goods but are purely
speculative. Enormous amounts of money move round the world, chasing high interest rates
or capital gains, as investors – including rich individuals, companies and pension funds –
seek to maximize the value of their assets. In London alone, in the late 1990s, over $300
billion worth of currency was traded on an average day – the equivalent of about 30% of
value of goods Britain produces each year. Banks, of course make a profit from the spread
between a currency’s buying and selling prices.
Exchange rate will play important role for firms who exports goods and import raw
materials. Essentially depreciation will take exports cheaper and exporting firms will
benefits. However firms importing raw materials will face higher costs of imports. An
appreciation makes exports more expensive and reduces the competitiveness of exporting
firms. If there is a depreciation in the value of the pound, it will make UK exports cheaper
and it will make imports into the UK more expensive. Elasticity of demand, economic growth
in other countries depends on percentage of raw materials, imported are the factors that affect
the exchange rate on business.
There are many factors that influence exchange rate. Among them inflation is the major
one. Countries with lower inflation rate tend to see appreciation in the value of their currency.
Interest rate is another factors that influence exchange rate. When UK interest rates rise
relative to elsewhere it will become more attractive to deposit money in the UK. Higher
interest rates cause an appreciation. Change in competitiveness is that when British goods
become more attractive and competitive this will also cause the value of the exchange rate.
The change in value of other countries currencies also influence the exchange rate.
Government debt, government intervention, economic growth, balance of payments are other
factors that influence the exchange rate.
Major trends in current business world related to exchange rate
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The foreign exchange market is a global decentralized market for the trading of currencies.
This includes all aspects of buying, selling and exchanging currencies at current or
determined prices. In terms of volume of trading, it is by far the largest market in the world,
followed by credit market. The main participants in this market are the larger international
banks. Financial centres around the world function as anchors of trading between a wide
range of multiple types of buyers and sellers around the clock, with the exception of
weekends. The foreign exchange market does not determine the relative values of different
currencies, but sets the current market price of the value of currency as demanded against
another. According to the Bank for International Settlement the preliminary global results
from the 2016 Triennial Central Bank survey of foreign exchange and OTC Derivatives
markets activity show that trading in foreign exchange markets averaged $5.1 trillion per day
in 2016. This is down from $5.4 trillion in 2013 but up from $4.0 trillion in 2010.
Yet international speculators can be more powerful then governments. For example, on
a single day in September 1992 the bank of England lost five billion pounds in a hopeless
attempts to support the pound sterling. For weeks, all the world’s financial institutions and
rich individuals had been selling their pounds’ as everyone expect the British government
believed that the pound had been seriously overvalued ever since it belatedly joined the ERM
in 1990. When the British central bank ran out of reserves and could no longer buy pounds,
the currency was withdrawn from the ERM and allowed to float, instantly losing about 15%
of its value gained the D-mark. The next year, speculators attacked five other European
currencies, and the European monetary system was supposed it was later reintroduced in a
looser form.
Nepalese perspective to the exchange rate
The external balance of country’s macro economy, which focuses on achieving overall
balance of payments sustainability over time, is one of the important objectives of the
monetary policy in Nepal that can be achieved through appropriate exchange rate policy
given the political and economic situation. Nepal has adopted the conventional fixed peg
exchange rate arrangements with Indian currency(IC) and flexible exchange rate system with
rest of the currencies after frequent changes over in the past. That is, the exchange rate
Nepalese Rupee with other currencies is basically determined by the demand and supply
forces in the foreign exchange market whereas the exchange rate with IC is officially
determined by NRB at a fixed level. Currently, the exchange rate of NC with IC is 1.60 per
unit of IC, which was fixed in 1993. To maintain the pegged rate with IC, the NRB stands
ready to purchase/sell foreign exchange at the predetermined rate. Due to this, the pegged
exchange rate is nominal anchor of the monetary policy of Nepal. Even though there is 0no
dispute over the floating rate with other currencies, several questions are raised over the
pegged exchange rate with IC.
Now Nepalese rupee seems to be depreciating with respect to dollar because it is
pegged with IC. However, this does not show the real economic scenario. Whatever the
causes of depreciation, it has ability to make exports cheaper and foreign debt dominated in
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US dollar higher. These issues need to look over the appropriateness of the pegged rate with
IC has reduced the business uncertainty and transaction cost resulting smooth flow of foreign
trade and investment. If we allow the day-to-day fluctuation in the rate between NC and IC
there may be high speculation of currency, production and trade which hinder the flow of
international investments and fuels inflation also because of 1750 km long permeable border
in the south with India. Since India is our major trading partner covering around 60% of
foreign trade, our macroeconomic policy goal of achieving external sectors stability merely
requires the stability in exchange rate with IC that is currently made possible through the
pegged system.
UNIT 25
THE BUSINESS CYCLE
Definition of related terms
Terms are the point, line or superficies. One should have knowledge about various terms to
understand the concept about any topic. The topic business cycle also includes various terms
which one should understand to be clear about the concept and detail knowledge about trade
cycle. Below are listed some terms related to business cycle along with their definition.
1. Business cycle: Business cycle means a fluctuation in economic activities where
sometime prosperity and sometime depression occurs.
2. Capitalist economy: A capitalist economy is a system which is based on private
ownership of capital.
3. Business environment: Business environment describes a factor, forces, rules, regulation
and policies which influence the business decision.
4. Prosperity: Prosperity is a stage where condition of relatively low unemployment and
high total income prevail.
5. Recession: Recession is a period of business cycle where price, profit and income starts
to decrease.
6. Depression: Depression is a stage of a trade cycle where employment, income, output,
profit are relatively low.
7. Recovery: Recovery describes a state where output, profit, investment, demand and
income start to increase.
8. Fiscal policy: Fiscal policy is a control of government income and expenditure to achieve
certain macroeconomic goal.
9. Monetary policy: Monetary policy is a policy which is used by central bank to control
over the money supply for achieving objectives of economic policy.
10. Macro economic policy: Macro economics policy is a program undertaken by
government to control, regulate and manipulate macro economic variables to achieve
certain predetermined macroeconomic goal.
11. Inflation: Inflation means increase in money supply and decrease in value of money.
12. Deflation: Deflation is a phenomenon where money supply decreases and value of
money increases.
13. Unemployment: Unemployment is a period where people do not get job due to lack of
job opportunity.
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14. Stagflation: Stagflation describes a period of an economy where economy experiences

inflation and unemployment at the same period of time.
15. Direct controls: Direct controls’ describes a way of stabilization of economy by proper
allocation of scarce resources.
16. Short run: Short run period means a period of 12 months or less than one year.
17. Long run: Long run describes a period of more than 1 year in an economy.
18. Bank debit: Bank debit means increase in stock of money in the central bank.
19. Bank credit: Bank credit means decrease in stock of money in the central bank.
Theoretical Aspects of the Business cycle.
Business cycle also known as trade cycle is an important feature of capitalist economy. The
fluctuation in economic activities where sometime prosperity and sometime depression
occurs is called business cycle. In another words, business cycle means an alternative
expansion and contraction in overall business activity, such as the gross product, the index of
industrial production, employment and income. Similarly, a business cycle is a swing in total
national output, income and employment, usually lasting for a period of 2 to 8 years marked
by widespread expansion and contraction in the most sectors of the economy. Business cycle
is important to determine the level of aggregate demand, price, profit, income, investment,
and employment in a certain economic period. Hence business cycle is a change in macro
economic variable over a period of time.
Trade cycle is a fluctuation in economic activities. Characteristics mean a feature of
trade cycle. The first characteristic of trade cycle is cyclical nature. The nature of trade cycle
is generally cyclical. Fluctuation will be reoccurring consequently the depression occurs after
the state of prosperity. Similarly the second characteristic of trade cycle is regularity.
According to some economist there is regularity in the fluctuation of economic activities. In
addition to these wave like movement is also another characteristics of trade cycle. The
movement of trade cycle is just like the sea wave. Besides all these the final characteristics of
trade cycle is international. In modern economy the natures of trade cycle starts in one section
of the economy and expand through out the country and it expands from one country to
another.
Business cycle is a characteristic of capitalist economy where up’s and down occurs
one after another. The fluctuation can be classified into four phases i.e. depression, recovery ,
boom and recession. The first phase of trade cycle is depression. Depression is a period
during which employment , output and general price level is very low. During this period
prices of goods are very low so production and business man have to bear loss. So they
reduce the investment level o production. Consequently the level of employment and output
go down. Business man and producer become pessimistic due to low profit. In the same way
workers become pessimistic due to low wage and low employment level. During this period
bank credit goes down and bank debit increases. So resources are under utilized during this
period. Farmers are also pessimistic due to low price of agricultural product. The same way
service holder are also pessimistic due to low salary. The value of money is very high during
this period.
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Recovery is the phase that starts after depression when prices of goods start to
increase then it increases the profit of producer. So producers starts to increase investment
level in the economy. Consequently bank reserve starts to fall and bank credit starts to
increase. Financial intuition start to become optimistic. The producer are also optimistic due
to increase in profit. In the same way workers are also optimistic due to increase in
employment level and wage rate. In the economy national income and output both starts to
increase. Farmers are also optimistic due to increase in price of agricultural product.
Boom is a period which starts after recovery. During this period , price is very high so
profit is also very high. Consequently business person’s and producers are over optimistic. So
during this period investment is very high. Consequently employment and output level are
also very high. Workers , share holders , service holders are optimistic. But in some cases ,
they have to bear loss because price is always lag behind the wage. During this period
speculative activities increase in the economy. Sometime producer produce over production
due to over estimation, which starts to follow recession. During this period the bank credit is
very high but bank reserve is very low.
Recession is a period which starts after prosperity. During prosperity period ,
producers and business person are over optimistic so they increase investment in the
economy. In such a way that occurs over production which leads to fall in the price in the
economy and which brings the recession phase. When the prices of goods start to fall , it will
be continue in the economy. Consequently profit start to fall. The share holders , service
holders , business persons , producer , start to be pessimistic due to low profit. So they start to
decrease investment level in the economy which leads to fall in employment level , output ,
and income level. Workers start to be pessimistic due to low employment level and low wage
rate. Farmers start to be pessimistic due to fall in price of agricultural product. Bank reserve
start to increase but , bank credit starts to fall . so financial institutions also start to be
pessimistic.
Up’s and down in economic activities creates economic instability which is dangerous
for economic development . controlling of trade cycle describes method of be wielding
economic variables. The business cycle can be controlled by following fiscal and monetary
measures. The first is fiscal measures. Fiscal measures means control of government revenue
and expenditure. There are various instruments of fiscal measures. They are taxation ,
government expenditure and public borrowing . if the government feels depression in the
economy then government decreases rate of tax , increase in government expenditure , and
makes payment of past debt to people. As a result , aggregate demand increases there by price
, profit and income along with all macro economic variables increases. But if government
increases rate of tax , decrease in government expenditure , and increase in borrowing
activities from people. As a result aggregate demand decreases and thereby profit , price ,
income along with all macro economic variables start to decrease in the economy. By doing
so government can control fluctuation in the economic activities.
In the same way, monetary measures is also the method to control trade cycle.
Monetary measures describes the adjustment of money demand and money supply by the
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central bank. There are various instruments of monetary policy. They are bank rate , open
market operation and required reserve ratio. If central bank feels depression in the economy
then central bank decreases purchasing of securities by open market operation and decrease
required reserve ratio as a result aggregate demand increases and thereby income , output ,
and employment all macro economic variables start to increase in the economy. But if central
bank feels boom in the economy , then central bank increases bank rate , increase sale of
securities by open market operation and increases required reserve ratio as a result aggregate
demand decreases and thereby income , output and employment all macro economic
variables start to decrease in the economy. Hence , central bank can control fluctuation in the
economic activities by variation of bank rate , purchase and sale of securities and required
reserve ratio.
Therefore , business cycle is a phenomenon of cyclical boom and bust. The situation
of prosperity and depression keep on occurring in the capitalist economy such up’s and down
in the economic activities is called trade cycle. This answer provides complete information
about concept , characteristics , phases and controlling measures of business cycle. Major
theories with examples and diagrams are also included in this answer because of its
complexities and its length. There is huge effect of business cycle in the economy of the
country so everyone should be aware about the concept of business cycle as well as its
problems and solutions.
Major trends in the current business world related to the business cycle
Every country economic condition is determined by its GDP. The imf’s world economic
outlook data shows the economic condition of various countries. The U.S economy remains
the largest in the world in term of nominal GDP. The $18.5 trillion U.S economy is
approximately 25.5% of the gross world product. The United states is an economic
superpower that is highly advanced I terms of technology and infrastructure and has abundant
natural resources. However , the U.S economy lots its spot as the number one economy to
China when measured in terms , China’s GDP is $21.3 trillion and the U.S is way ahead of
china in terms of GDP per capita approximately $57294 in the U.S versus $15423 in china.
In the same way, the second largest economic condition in the world is China. China has
transformed itself from a centrally planned closed economy in the 1970’s to a manufacturing
and exporting hub over the years. The Chinese economy overtook the U.S economy in the
terms of GDP based on ppp. However , the difference between the economies in terms of
nominal GDP remains large with China’s $11.4 trillion economy. The Chinese economy has
long been known for its strong growth , a growth of over 7% even in recent years. However ,
the country saw its exports projected to grow only by 1.9% in 2016. And total GDP growth
has gone down to 6.5% and is projected to slow to 5.8% by 2021. The country’s economy is
propelled by an equal contribution for manufacturing and services (45% each , approx) with
10% contribution by the agricultural sector.
Japan’s economy currently ranks third in the terms of nominal GDP , while it ships to
fourth spot when comparing the GDP by purchasing power parity. The economy has been
facing hard times since 2008, when it was first showed recessionary symptoms.
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Unconventional stimulus packages and combined with subzero bond yields and week
currency have further strained the economy. Economic growth is once again positive , to just
over 0.5% in 2016 ; however it is forecasted to stay well below 1% during the next six years.
the nominal GDP of Japan id $4.73 trillion , its GDP (ppp) is $4.93 trillion , and its GDP(ppp)
per capita is $38.893.
Likewise Germany, United Kingdom , France ,India , Italy , Brazil , Canada take the TOP
10 economic condition of the world respectively. The nominal GDP of the world’s economy ,
and the top 15 economies add up to over 75% and the remaining 172 countries constitute
only 25% of the world economy. But beside the top 10 economies.
The five most prosperous countries in the world is in the table below.
Table 2-The five most prosperous countries in the world
S.N COUNTRY
1 NORWAY
2 SWITZERLAND
3 DENMARK
4 NEW ZEALAND
5 SWEDEN

Similarly, the top 5 most depressed countries in the worlds are:

Table 3-the top 5 most depressed countries
S.N COUNTRIES
1 UNITED STATES
2 UKRAINE
3 FRANCE
4 NETHERLANDS
5 COLOMBIA
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Nepalese perspective to the business cycle

Nepal’s agriculture dominated economy lack the entrepreneurial dynamism needed for broad-
based growth. A statist approach holds development far below the country’s potential.
Government interference continues to hurt regulatory efficiency and there has been little
effort to modernize the trade and investment requirement.
Economic development in Nepal has been complicated an affected by the constant change
in political scenarios which has ranged from being a monarchy to being ruled by the
communist part in the present context. Nepal. The economic condition of Nepal is presented
in following diagram:
Table 4-The economic condition of Nepal
GDP $67 BILLION
GDP GROWTH 5.1
GDP PER CAPITAL $2400
GDP BY SECTOR AGRICULTURE (35%) ,
INDUSTRY(20%) SERVICE (45%)
INFLATION(CPI) 10.01%
POPULATION BELOW POVERTY 25.2%
LINE
MAIN INDUSTRIES TOURISM, GARMENT, FFOD, AND
BEVERAGES METAL
MANUFACTURES, HERBS
EASE-OF-DOING BUSINESS RANK 45TH
MAIN EXPORT INDIA 61.2%
PARTNERSS UNITED STATES 9.4%
MAIN IMPORT INDIA 61.4%
PARTNERSS CHINA 15.4%
REVENUES $6 BILLION
EXPENSES $7 BILLION
Analyzing all these factors, Nepal will have significant impact of the global crisis because
its domestic economic activities are sluggish which implies that is already in the nearest point
of recession. But there will be greater impact from the present global economic crisis.
Millions of youths will lose their job in the foreign countries that reduces the remittance.
UNIT 26
KEYNESIANISM AND MONITARISM
Definition and terms of Keynesian and monetarism
This writing covers all the important terms and definitions used in Keynesian and
monetarism.
1. Effective Demand: It is defined as the total demand for goods and services both for
consumption and investment by the people in the economy.
2. Two sector Economy : It is such type of economy which consists of both private
consumption expenditure and private investment expenditure.
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3. Three sector Economy : It is such type of economy which consists of private consumption
expenditure, private investment expenditure and Government expenditure.
4. Four sector Economy : It is such type of economy which consists of private consumption
expenditure, private investment expenditure, Government expenditure and Foreign trade.
5. Aggregate Demand : It is the total demand for final good and services in an economy at a
given time.
6. Aggregate supply : It is the total supply of goods and services that firms in national
economy plan on selling during a specific time period.
7. Multiplier : It is a factor by which an increment of income exceeds the resulting
increment of saving or investment.
8. Super multiplier : It combines the multiplier with the accelerator that indicates that
investment is not only autonomous but is part of derived demand.
9. IS curve : IS curve is the locus of various combination of rate of interest and level of
income where AD is equal to AS which gives good market equilibrium.
10. LM curve : It is the locus of various combination of rate of interest and level of income in
money market equilibrium where demand for money is equal to supply of money which
gives money market equilibrium.
11. Monetarism : It is the theory or practice of controlling the supply of money as the chief
method of stabilizing the economy.
12. Macroeconomic policy :It is defined as a program of economic action undertaken by
government to control ,regulate and manipulate macroeconomic variables to achieve
certain predetermined goals.
13. Money supply : It is the total amount of money available in the economy at particular
point of time.
14. Monetary policy : It is the adjustment of money demand and money supply by central
bank to achieve some objectives of nation.
15. Fiscal policy : It is the means by which a government adjusts its spending levels and tax
rates to monitor and influences a nations economy.
16. Inflation : It is the increase in general price level and decrease in value of money in the
economy.
17. Deflation : It means decrease in general price level and increase in value of money in the
economy.
18. Demand pull- inflation : It is increase in general price level due to increase in aggregate
demand.
19. Cost-push inflation : It is such type of inflation where cost of production increases due to
increase in profit margin or price of international goods.
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Theoretical aspect of Keynesian and monetarism

After the publication of wealth of nation written by Adam smith in 1776 AD. The
classical era was started. The ideas provided by Adam smith were followed by other
economist J.B. say , Walker , Ricardo, Senier and other economist. Classical economist
believes that there would be always full employment in the economy. So overpopulation
would not be barrier to new production in the economy. They accepted that there would be
unemployment problem in the short run. They are frictional and voluntary unemployment.
Frictional unemployment was due to lack of adequate knowledge of job opportunities in the
short run. But it is short run phenomenon. When workers get adequate knowledge of job
opportunities, such problem would be solved. Voluntary unemployment was due to refusal on
the part of workers at going wage rate.
The classical theory believes that there would be always full employment in the
economy in the long run. According to them unemployment was due to rigid money wage.
They suggested that money wage should be flexible and wage cut policy is cure of
unemployment. But Keynes has criticized the view. According to wage cut policy leads to
increase in unemployment problem rather than solve it. According to Keynes, unemployment
was due to lack of effective demand. The effective demand is the sum of consumption and
investment. The employment depends upon the effective demand. There is positive
relationship between employment and effective demand.
Keynesian has determined income in three part. They are two sector , three sector and
four sector. Keynesian two sector model includes household sector and business sector.
Keynesian three sector includes household sector , business sector and government sector.
Keynesian four sector includes household sector , business sector ,government sector and
foreign trade. Household sector represents consumers and business sector represent producers
or firms. government expenditure is related to the promoting of public welfare like generation
of employment level , development of infrastructure, economic growth etc but not depends
upon the level of income in the economy. Government expenditure is treated as autonomous
expenditure. A foreign sector consists of exports and imports. Exports is sending goods and
services to the outside of the country whereas imports is bringing goods and services from
outside the countries.
According to classical economist, rate of interest determination in real sector
phenomenom. The equilibrium rate of interest is determined by equality between investment
and saving. But according to Keynes, rate of interest determination is purely monetary sector
phenomenom. The equilibrium rate of interest is determined by equality between money
demand and money supply. Hence according to classical economist , the equilibrium rate of
interest is determined is possible by real sector equilibrium and according to Keynes, the
equilibrium rate of interest determination is possible by monetary sector equilibrium. But
according to modern economist, the equilibrium rate of interest and income both are
determined by integration between real sector equilibrium and monetary sector equilibrium.
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Modern economist have presented ISLM model where IS refers for investment saving
equality and LM refers to money demand and money supply equality.
IS curve is the locus of various combination rate of interest and level income in goods
markets where as aggregate demand equals to aggregate supply or saving equals to
investment which gives goods market equilibrium. To explain IS model, hicks has used
Keynes consumption, saving and investment function. Investment is the function of rate of
interest. There is a negative relationship between the rate of interest and level of investment.
It means higher the interest rate lower will be the level of investment and lower the interest
rate higher will be the level of investment. Similarly, saving is the function of level of income
and there is positive relationship between level of income and saving. It means when income
increases, saving also increases and vice versa.
The LM curve shows the money market equilibrium at each and every point at this
curve. It shows different combination of rate of interest and level of income where money
demand is equal to money supply. Money is demanded fir transaction purpose, precautionary
purpose and speculative purpose. Money demand for transaction and precautionary depends
upon level of income positively and the speculative demand for money depend upon rate of
interest negatively. The money supply is exogenously determined by central bank. The money
market is equilibrium when money demand is equal to money supply. Hence, the LM curve is
derived by the various combination of rate of interest and income where money demand is
equal to money supply.
Monetarists argue that recession are not caused by long run market failures but by
short run errors by firms and workers who do not reduce their prices and wages quickly
enough when demand falls. When economic agents recognize that prices and wages have to
fall, the economy will come back to normal. Since the government will not be able to
recognize a coming. It will only be able to act at the same time as everyone else is
recognizing the need to cut prices and wages. Consequently, its fiscal measures will take
effect when the economy is already recovering and so will merely make the next swing in the
business cycle even greater.
Macroeconomic policy is defined as a program of economic action undertaken by
government to control, regulate and manipulate macroeconomic variable to achieve certain
predetermined economic goals. The economic goals are to increase in employment, correct
adverse balance of payment, to achieve price stability etc. government uses fiscal and
monetary policy instrument to achieve predetermined economic goals. The instrument of
fiscal policy are government expenditure, taxation, public borrowing etc and the instrument
of monetary policy are bank rate, open market operation and required reserve ratio. In
conclusion, macroeconomic policy is combined operation of fiscal and monetary policy to
achieve macroeconomics goals in the economy.
The term money supply means the total stock of money held by people. It is the total
amount of money available in the economy at particular point of time. It is both stock and
flow concept. When money supply considered at point of time, it is stock concept and when it
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is considered over a period of time, it is flow concept. One unit of money is used several time
during a period of time. The average number of times a unit of money changes. Hence during
given period of time is known as velocity of money. Money supply data are recorded and
published by the central bank of a country. Changes in money supply affect price level,
business cycle and economic growth of the country. Thus while formulation, monetary policy
the central bank manipulates the supply of money according to the objectives of monetary
policy.
Monetary policy is the adjustment of money demand and money supply by central
bank to achieve some objectives of nation. Increase in money supply is sometime not
beneficial to the nation because it creates various problems like inflation. Decrease in money
supply creates deflation, unemployment and so on. So, central bank always tries to manage
money supply with money demand. such effort of central bank is called monetary policy. The
objectives of monetary policy are
1. Full employment
2. Economic development
3. Price stability
4. Foreign exchange rate
5. Correct balance of payment
The term fiscal have been borrowed from Greek word ‘basket’ which refers to pocket
of government. In Italian language the term fiscal refers to treasury. Hence the public finance
is the subject which explains the operation of treasury of govt. fiscal policy can be defined as
the government programmed of making discretionary changes in the pattern and level of its
expenditure, taxation and borrowing in order to achieve certain economic goal sets such as
economic growth, employment, income inequality and stabilization of the economy on a
growth path. In the narrow concept of fiscal policy is budgetary policy while budgeting
policy refers to current revenue and expenditure of the final year. The importance of fiscal
policy:
1. Economic growth
2. Mobilization of resources
3. Full employment
4. Price stability
5. Economic equality
6. Favorable balance of payment.
Major trends in current business world
The purpose of this report is to review the main trends in the money theory, in
particular, to track the consistency of provisions of money theory which were declared by the
main schools and approaches in the economics: neoclassical school, Keynesian economics,
modern monetarism. In modern economics there is a competition between several large
trends of money theory. Monetarism and Keynesian economics have become the most
popular. The contribution of Keynes into the economic theory is associated, in particular, with
the revision of classical doctrine of interest and money. The level of savings, as Keynes
supposed, depends first of all on the level of consolidated income and not on the interest rate.
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While the interest rate is the payment for sharing the liquidity, and the intensity of the
liquidity preference depends on the demand and supply of money. Consequently, according to
Keynes, the interest rate is the money phenomenon which is created on the market of money
and alternative assets (bonds) and which is set to the real sector somewhat from the outsides.
Nepalese perspectives of Keynesian and monetarism
In Nepal, Keynesian and monetarism theory are followed as the same standard theory
proposed by the high scholars of economics. Keynesian theory affects the business cycle and
the ongoing rate of interest. Inflation is caused due to change in general price level. The
inflation rate is very much higher in the context of Nepal. It is due to increase in general price
level and decrease in value of money. Due to it price of goods are increasing day by day and
nation economic condition is declining. There is increase in the demand and decrease in
production of the good and services. Due to it Nepal structure of good production is changed
followed by declining of the market value.
Monetarism refers to the theory of controlling the price value of goods and services.
In Nepal there are two policy for controlling the macroeconomic variable. They are monetary
policy and fiscal policy. These policy is used for the betterment of macroeconomic variable
and helps to achieve certained predetermined goals of the nation. Fiscal policy and monetary
policy are used to control price instability, foreign exchange rate instability, income
instability etc. They are also used for capital formation and full employment in nation. Like
developing countries like Nepal these monetary policy is necessary for economic
development, correct balance of payment, employment opportunities etc.
UNIT 27
INTERNATIONAL TRADE
Definitions of related terms
TRADE: “One of the most important thing for living is TRADE”. Transaction of goods and
services between various people is called trade. It is done for various things like: earning,
helping etc. It is two way process. Trade is also the process of making a relationship with new
one. There are many types of trade, one of them is INTERNATIONAL TRADE.
INTERNATIONAL TRADE: “TRADE ACROSS THE POLITICAL BOUNDARIES”. The
exchange of goods and services between two different countries is called International trade.
It is also called foreign trade. It is done for the development of the nation, keeping
relationship with other nation, exporting ideas etc. International trade is the means of getting
connected with other nation’s economy. There are many things related to international trade
or things used in process of international trade and some of them are:
I. Import: The process of buying or bringing goods and services from other countries is
called import. Import is done by giving money, service, gold etc. Something that is not
available in the country which is necessary for the public daily life or the luxury of public
is imported in the country. Only the things allowed by the nation is been imported.
II. Export: The process of selling or sending goods and services to other countries is called
export. Export is done by taking money, service, gold etc. Something that is needed in
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other countries, which are made or available in our Country is exported. Only the things
allowed by the nation are been exported.
III. Export broker: One who brings together the exporter and importer for a fee and then
withdraws from the transaction are known as export broker. He/She is the person who
helps in buying and selling of the goods and services.
IV. Rate of exchange: The basis upon which money of one country will be exchanged for
that of another is called rate of exchange. Rate of Exchange are established and quoted
for foreign currencies on the basis of the demand, supply and stability of the individual
currencies.
V. Border: The place or the line which separate two or more countries is called border. The
trade between two countries is done at the border. Transaction of many things, recording
of all transaction, security of transaction etc. are done at border.
VI. Government: The group of people who rule or make rules for other for living in the
country is called government. Government makes the limitation or makes rules for what
to, how to and where to export/import the goods and services.
VII. Duty: The amount of money taken by calculating some percentage of the total amount
during trade is called tax. This amount of money is taken by the government for the use
of country. The amount or the percentage of money is taken according, to the goods and
services differently.
VIII. Transport: The means by, which the goods and services are taken from one place to
another is called transport. Transport is done through road way (trucks etc.), air way
(planes etc.), sea way etc.
IX. Globalization: Globalization refers to the permit or the way of working or expressing the
idea and business globally. Globalization helps in developing the countries as it helps in
treading with other nations and collecting the economic idea of other and expressing own
ideas too.
X. Inspection: The resource made for checking the condition of the goods and services
immediately prior to shipment. The inspection is done usually by the government body. It
helps in controlling the bad goods and services to enter in the nation, it secure nation
economy and border too.
XI. Chamber of commerce: The association of businessmen whose purpose is to promote
commercial and industrial interests in the community. They deal or do planning for
business with or in other nations and help in the development of own nation.
XII. Customs: A form of insurance which protects the seller against loss due to default on the
part of the buyer. It insures or records where the goods is to be send and also take care
till its delivery.
XIII. Exchange permit: A governmental permit sometimes required of an importer to enable
him/her to convert his own country’s currency into a foreign currency with which to pay
a seller in another country.
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XIV. Import License: A governmental document which permits the importation of the
product or materials into a country where licenses are necessary.
XV. SITC: SSIT stands for (Standard Industrial Classification). It is a number system
developed by US Government for the classification of commercial services and
industrial products. Also classifies establishments by type of activity.
XVI. VISA: A signature of formal approval on a document. It is obtained from Consulates. It
is given by the government. It is the main permit which let people to go outside the
country.
Theoretical aspects of international trade
International trade is the exchange of goods and services between countries. This type of
trade gives rise to a world economy, in which prices, or supply and demand, affect and are
affected by global events. Political change in Asia, for example, could result in an increase in
the cost of labor, thereby increasing the manufacturing costs for an American sneaker
company based in Malaysia, which would then result in an increase in the price that you have
to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other
hand, would result in you having to pay less for your new shoes.
Trading internationally gives consumers and countries the opportunity to be exposed
to goods and services not available in their own countries. Almost every kind of product can
be found on the international market: food, clothes, spare parts, oil, jewelry etc. Services are
also traded: tourism, banking, consulting and transportation. A product that is sold to the
global market is an export, and a product that is bought from the global market is an import.
Imports and exports are the main part in International Trade.
Global trade allows wealthy countries to use their resources - whether labor or
technology - more efficiently. Because countries are endowed with different assets and
natural Resources (land, labor, capital and technology), some countries may produce the same
good more efficiently and therefore sell it more cheaply than other countries. If a country
cannot efficiently produce an item, it can obtain the item by trading with another country that
can. This is known as specialization in international trade.
Let's take a simple example. Country Nepal and Country Bhutan both produce cotton
sweaters and rice. Nepal produces 6 sweaters and 10basket a year while Bhutan produces 10
sweaters and 6basket a year. Both can produce a total of same units. Nepal, however, takes
three hours to produce the sweaters and 10basket (total of five hours). Bhutan, on the other
hand, takes one hour to produce 10 sweaters and three hours to produce 6basket (total of four
hours. But these two countries realize that they could produce more by focusing on those
products with which they have a comparative advantage. Nepal then begins to produce only
basket and Bhutan produces only cotton sweaters. Each country can now create a specialized
output of 20 units per year and trade equal proportions of both products. As such, each
country now has access to 20 units of both products.
We can see then that for both countries, the opportunity cost of producing both
products is greater than the cost of specializing. More specifically, for each country, the
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opportunity cost of producing 16 units of both sweaters and basket is 20 units of both
products (after trading). Specialization reduces their opportunity cost and therefore
maximizes their efficiency in acquiring the goods they need. With the greater supply, the
price of each product would decrease, thus giving an advantage to the end consumer as well.
Other benefits of international trade
International trade not only results in increased efficiency but also allows countries to
participate in a whole world's economy, which is the amount of money that individuals invest
into foreign companies and other assets. In theory, economies can therefore grow more
efficiently and can more easily become competitive economic participants. As with other
theories, there are opposing views. International trade has two contrasting views regarding
the level of control placed on trade: free trade and protectionism.
Free trade is the simpler of the two theories: with no restrictions on trade. The main
idea is that supply and demand factors, operating on a global scale, will ensure that
production happens efficiently. Therefore, nothing needs to be done to protect or promote
trade and growth, because market forces will do so automatically.Advocates of this theory
believe that market inefficiencies may hamper the benefits of international trade and they aim
to guide the market accordingly. Protectionism exists in many different forms, but the most
common are tariffs, subsidies etc. These strategies attempt to correct any inefficiency in the
international market. As it opens up the opportunity for specialization and therefore more
efficient use of resources, international trade has the potential to maximize a country's
capacity to produce and acquire goods. Opponents of global free trade have argued, however,
that international trade still allows for inefficiencies that leave developing nations
compromised. What is certain is that the global economy is in a state of continual change,
and, as it develops, so too must all of its participants
MAJOR TRENDS IN CURRENT BUSINESS WORLD
Current trends are towards the increasing foreign trade and interdependence of firms, markets
and countries. Intense competition among countries, industries, and firms on a global level is
a recent development owed to the confluence of several major trends. International trade is
forced to succumb to trends that shape the global political, cultural,and economic
environment. International trade is a complex topic, because the environment it operates in is
constantly changing. First, businesses are constantly pushing the frontiers of economic
growth, technology, culture, and politics which also change the surrounding global society
and global economic context. Secondly, factors external to international trade (e.g.,
developments in science and information technology) are constantly forcing international
trade to change how they operate.
Countries cooperate with each other in thousands of ways through international
organizations, treaties, and consultations. Such cooperation generally encourages the
globalization of business by eliminating restrictions on it and by outlining frameworks that
reduce uncertainties about what companies will and will not be allowed to do. Countries
cooperate:
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A. To gain reciprocal advantages,

B. To attack problems they cannot solve alone, and
C. To deal with concerns that lie outside anyone’s territory.
Agreements on a variety of commercially related activities, such as transportation and
trade, allow nations to gain reciprocal advantages. For example, groups of countries have
agreed to allow foreign airlines to land in and fly over their territories, such as Canada’s and
agreed to allow foreign airlines to land in and fly over their territories, such as Canada’s and
Russia’s agreements commencing in 2001 to allow polar over flights that will save five hours
between New York and Hong Kong.
Groups of countries have also agreed to protect the property of foreign-owned
companies and to permit foreign-made goods and services to enter their territories with fewer
restrictions. In addition, countries cooperate on problems they cannot solve alone, such as by
coordinating national economic programs (including interest rates) so that global economic
conditions are minimally disrupted, and by restricting imports of certain products to protect
endangered species.
Finally, countries set agreements on how to commercially exploit areas outside any of
their territories. These include outer space (such as on the transmission of television
programs), non-coastal areas of oceans and seas (such as on exploitation of minerals), and
Antarctica (for example, limits on fishing within its coastal waters).Every country restricts
the movement across its borders of goods and services as well as of the resources, such as
workers and capital, to produce them. Such restrictions make international trade
cumbersome; further, because the restrictions may change at any time, the ability to sustain
international trade is always uncertain. However, governments today impose. Few restrictions
on cross-border movements than they did a decade or two ago, allowing companies to better
take advantage of international opportunities. Governments have decreased restrictions
because they believe that:
A. So-called open economies (having very few international restrictions) will give consumers
better access to a greater variety of goods and services at lower prices,
B. Producers will become more efficient by competing against foreign companies, and
C. If they reduce their own restrictions, other countries will do the same.
Technology transfer is the process by which commercial technology is disseminated.
This will take the form of a technology transfer transaction, which may or may not be a
legally binding contract, but which will involve the communication, by the transferor, of the
relevant knowledge to the recipient. It also includes non-commercial technology transfers,
such as those found in international cooperation agreements between developed and
developing states. Such agreements may relate to infrastructure or agricultural development,
or to international; cooperation in the fields of research, education, employment or transport.
The growth of emerging markets (e.g., India, China, Brazil, and other parts of Asia
and South America especially) has impacted international trade in every way. The emerging
markets have simultaneously increased the potential size and worth of current major
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international trade while also facilitating the emergence of a whole new generation of
innovative companies. According to “A special report on innovation in emerging markets” by
The Economist magazine, “The emerging world, long a source of cheap la, now rivals the
rich countries for business innovation”.
NEPALESE PERSPECTIVE
Nepal is a landlocked country, and we Nepalese have to import many things for daily
living in any cost. We have two countries connected to our border (China & India). Most of
the goods and services are imported from India where the border is open and only some
goods and services are imported from China, where the border is secured. Nepal export many
things too. Most of the things are handmade and full of art. Many servicers are also provided
by Nepal like:
Armed force, workers, technicians etc. Along being a landlocked country, Nepal is a
developing country. Many people from many different countries come for visit, work,
business etc. They work, changes environment (may be good or bad), earn and go. They hire
workers from nearby working place, and main higher level workers are been hired from place
of owner. They use raw materials of our country, men power of our country and earn and send
to their place. Nepalese can only work, only some can be employer else become employee. It
is difficult to develop the country, but we even can't stop them from doing that because of our
needs and locked land.

UNIT 28
ECONOMICS AND ECOLOGY
Definition of Related Terms
1. Economics:It is the study of economics variables which is classified into two types
‘Micro’ and ‘Macro’.
2. Micro economics:Micro Economics is defined as the branch of economic analysis which
studies individual units, wages, particular firms, industry, households commodities and may
be a person.
3. Macro economics:Macro Economics is defined as the branch of economic analysis which
studies about aggregate variables i.e. not individual units but all units, not with individual
quantities but aggregate of these quantities, studies about national output, general price level,
national output etc.
4. Ecology:Ecology refers to the relationship between business and their environment.
5. Government:Government establishes and maintains the relationship between business
activities and their environment by creating laws, policies, rules and regulations.
6. Business environment:Business environment is the environment in which every
organizations operates its daily business activities.
7. Rent:Rent is the price paid to those goods to their owners that are used for the production
process for specific period.
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8. Money:Money is the means of exchange of goods and services in the economic market.
9. Inflation:Inflation is such a monetary situation of an economy where general price level of
goods and services rises in a fast way.
10. Deflation:Deflation is a monetary situation of an economy where general level falls and
hence employment, output and income of an economy rises,
11. Banking:Banking refers to all financial institution and their activities in an economy.
12. Money market:Money Market refers to the activities of financial institutions to meet the
demand and supply of money for the specified period in an economy.
13. International trade:International Trade is the transactions of goods and services between
different countries.
14. Human resources:Human Resources are those resources that are hired or used for the
production of goods and services in the economy.
15. Society: Society is the broad spectrum of industrial relation which represents both
government and pressure group.
16. Domestic market:Domestic Market is the market in which supply and demand of goods,
services and securities within a country takes place.
17. Mixed economy: Mixed economy is a economy which consists of mixture of either
market and economic planning public ownership and private ownership.
18. Globalization:Globalization is the process of international integration arising from the
exchange of world views, product ideas etc.
19. Capitalism economic system:Capitalism is an economic system based on private
ownership of means of production where there is no role of government.
20. Environment:Environment is the situation or force that affects the activities of the
government to achieve their objective and aims.

2.2 Theoretical Aspects of Economics and Ecology

The three most important economists were Adam Smith, Karl Marx, and John Maynard
Keynes. Each was a highly original thinker who developed economic theories that were put
into practice and affected the world’s economies for generations.
Adam Smith, a scot and a philosopher who lived for 1732 to 1790, is considered the
founder of modern economics. Deep examination of the world of business affairs led Smith
to the conclusion that collectively the individuals in society, each acting in his or her own
self-interest, manage to produce and purchase the goods and services that they as a society
require. He called the mechanism by which this self-re3gulation occurs ”the invisible hand,”
in his groundbreaking book, The Wealth of Nations, published in 1776, the year of America’s
Declaration of Independence. While Smith couldn’t prove the existence of this ‘hand’ he
presented many instances of its working in society. For ex, The Butcher, the Baker, and the
candlestick maker don’t need to consult others for their production. In other words, it’s the
free market economy in action. The key doctrine of Classical economics is that a laissez-faire
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attitude by government toward the market place will allow the ‘invisible hand’ to
guideeveryone in their economic endeavors, create the greatest good for the greatest number
of people, and generate economic growth.
Karl Marx, a German economist and political scientist who lived from 1818 to 1883,
looked at capitalism from as more pessimistic and revolutionary viewpoint. Where Adam
Smith saw harmony and growth, Marx saw instability, struggle, and decline. Marx believed
that once the capitalism (the guy with the money and the organization skills to build a
factory) has set up the means of production, all value is created by the labor involved in
producing whatever is being produced.But Marx couldn’t abide the notion of a profit-oriented
organization. In this situation of management Marx saw the class struggle in the heart of
capitalism, and he predicted that that struggle would ultimately destroy capitalism. Marx
predicted the fall of capitalism and movement of society towards communism, in which ‘the
people’ (workers) owns the production and thus have no need to exploit labor for profit.
While Marx’s theories have been discredited, they are fascinating and worth knowing. They
even say something about the weakness in capitalism.
John Maynard Keynes, a British economist and financial genius who lived from 1883
to 1946, also examined capitalism and came up with some extremely influential views. They
were, however, different from those of Karl Marx and, for that matter, Adam Smith. In 1936,
he published his General Theory of Employment, Interest, and Money. Keynes believed that
there was only one way and one way out, and that was for the government to start spending in
order to put money into private-sector pockets and get demand for goods and services up and
running again. As it turns out, President Franklin D. Roosevelt gave this remedy a try when
he started a massive public works program to employ a portion of the idle workforce.
However, the United Sates entry into World War II rendered this a less than pure experiment
in government spending. The war effort boosted production to extremely high levels (to make
guns, ammunitions, planes, trucks, and other materials) while simultaneously taking millions
of men out of the civilian workforce and into uniform.
David Ricardo, an 18th century British Philosopher was famous for his ideas about
population growth in his book “An essay on the Principle of Population” first published in
1798. According to him, population will continue to grow until growth is stopped or reversed
by disease, famine, war or calamity. He further more describes about the rising population
which has become the major issue in the field of economic development of nations and the
continuous growth of population is becoming the major global challenges. It has become the
major issue for both developed or high economic countries as well as developing countries.
The rapid rise in growth can only be stopped by natural process or by famine or war.
Many other economist of note advanced theories and otherwise added to the body of
knowledge in the science. However, Adam Smith, Karl Marx, and John Maynard Keynes
(later lord Keynes) are widely recognized as the most influential- Smith because he founded
and formalized the science of economics, Marx because he challenged capitalism and had
such a forceful impact on society and politics, and Keynes because he prompted new practice
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as well as new theories in the world of economic policy. Keynes also played a key role in the
founding of the International Monetary Fund and in other political economic measures taken
at the end of World War II.

2.3 Major Trends in the Current Business World Related to the Economics and Ecology
Every year bring its share of economic that takes us by surprise. Few people predicted the
collapse in oil prices that started in the summer of 2014, or were able to time the sharp
decline in economic growth in China that started a few months ago. In 2016, new economic
trends emerged and gained steam, and shape the world for the better.
The Global Economy will continue to be powered by America. If you ask the average
American, he would be surprised to find out that the U.S. economy’s performance is best in
class. But with the rest of the wealthy world growing even more slowly than America, and
with the collapse in economic growth in China, that’s exactly what it’s become.The Chinese
government says that GDP growth there has slowed to 6.9% next year after averaging more
than 10% for the past decade. That sounds much faster than the 2.5% to 35 growth expected
here at home, but many economists doubt the accuracy of Chinese government numbers,
estimating that growth will be closer to 3% to 4% in the years to come. But more important,
the United States has by the largest trade deficit in the world, which means that the other big
economies like Germany, japan, and China are dependent on U.S. demand for their
economies to grow.
While Chinese leaders recognize that it’s imperative for their economy to shift from
an investment and export model to one built around consumer spending, expert global
economy to continue to lean on the U.S. consumer in 2016.China Will Stay Stuck in Second
Gear. For years, the World has watched as China posted economic growth rates three times as
fast as the United States, built on the back of government-directed capital investment and
massive exports to the wealthy world. The Chinese economy blew past the global financial
crisis without so much as flinching, again with the help of massive government stimulus that
enabled further investment-led growth.Commodities Will Be Cheap. The collapse in Chinese
growth helped commodities class have its worst year since 2008, with the Bloomberg
commodities index falling 26% in 2015. As China was the main source of demand for the
basic building blocks of the global economy, analysts expect commodities to remain soft in
2016.
India will become the new growth King. The IMF expects the Indian economy to
grow at 7.3% clip next year, faster than even the Chinese government’s trumped-up numbers.
2016 will be a turning point, in which a much younger and less technologically advanced
India surpasses its neighbor to east to become the fastest growing large economy.
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2.4 Nepalese Perspective to the Economy and Ecology

The international community has been heavily involved in supporting Nepal’s democratic
transition and making progress toward the achievement of the Millennium Development
Goals. UNDP’s Nepal human Development Report 2009 found that the underlying causes of
conflict have not been resolved (such as poverty and discrimination on the basis of caste and
ethnicity), nor most of the consequences of the conflict (for example, 50,000-70,000 people
were thought to still be displayed). Although the UN estimates that poverty in Nepal dropped
from 42% in 1996 to approximately 25% in 2009, that trend was not sustained; recent
estimates indicate that a quarter of the population are still below the poverty line.
The above results clarifies that the economic condition of Nepal is miserable. Still the
country Nepal is lagging far behind from its own neighbor countries. Our country’s
environmental and energy is very poor in the economy of the global challenge. Not only in
Nepal it has become the major issue globally. We can see the immediate problems, the fight
against poverty has become the fight for national security. This slows down the national
economic growth. Is the new episode of globalization just another wave or a seismic shift?
While individual elements feel familiar, the combined contours are unprecedented in scale,
speed and scope. Due to the Global imbalances and rise of new powers, Developed countries
or high economic level nations are growing much faster than the rest of the world, these
economies are changing the structure of international production and trade, the nature and
direction of capital flows, and patterns of natural resources consumption which have becomes
the major challenges for the developing countries like ours.