HIMANSHU KUMAR MBA (FT) HKHIMANSHU375@GMAIL.

COM MOBILE: 8800216346

Q 1) What is the role of economics in management? Find out at least one live case study to bring out the significance of economics in business decision making. A 1) concept of economics in management in the marketing of Guinness in Nigeria: Guinness is a popular dry stout that originated in the brewery of the great arthur Guinness at st. James gate, Dublin. Guinness Nigeria, incorporated in 1962, is a subsidiary of Diageo plc of the United Kingdom. With the 15% annual growth in sales, Nigeria is the biggest market of Guinness in Africa and the third biggest market worldwide following America and Cameroun. The Guinness extra stout brewed in Nigeria has been acclaimed as one of the best due to his high quality sorghum; a major ingredient in stout, found in Nigeria. A) ORAGIZATION Guinness Nigeria plc. is endowed with a formidable team of professionals, both indigenous and foreign experts, and form various fields of life. The market, Nigeria: with a population of about 141 million, Nigeria is the most populous country in Africa. Furthermore age classification was given as:

0-14 year: 44 % 15-64 year: 53% 65years & over: 3%

(male 27,181,020; female 26872317) (male 33,495,794; female 32,337,193) (male 1,729,149; female 1,722,349)

Guinness Nigeria limited which accounts for about one fifth of total bear production in Nigeria had a turnover of N240 million in 1983; employed 4339 people and paid 105 million in company tax, excise duty & import duties. B) THE PRODUCT, GUINNESS FOREIGN EXTRA STOUT Guinness foreign extra stout, brewed in Nigeria by Guinness Nigeria plc. Is made of ingredient such as: Hops Water Malt(containing barley) And sorghum The sorghum obtained in Nigeria has been considered to be of very high quality and this makes the demand for Nigeria brewed Guinness extra stout to high in the international market. C) COMPETITION AND MARKET ANALYSIS The competing stouts are: Legend extra stout(brewed by Nigeria breweries) Wilfort dark ale(brewed by Sona breweries) Given the two major competitors of Guinness foreign extra stout, it is amazing that Guinness foreign extra stout is still in high demand due to the following reasons: 1) Quality Advert:

Guinness during one of its re-launching campaign used the world known, award-winning artist,Tuface Idibia. This not only drew the publics focus to Guinness stout that increased demand of Guinness stout among the fans of tuface idibia. Also, the Micheal Power character synonymous to Guinness extra stout is an enticement towards the product. 2) Strategised product placement: Guinness have over the year strategically placed its foreign extra stout in a class where its demand is always on the lips of the customer. How has this been done? One way was through the football viewing centers, also called the 17:59 football viewing centers. Guinness have contributed to the development of Nigeria through the donation of three Guinness eye centres in Nigeria, the water for life project that supplies water to over 500000 Nigerians and scholarships to student from its operating location. 3) High quality of ingredient used: The Guinness foreign extra stout brewed in Nigeria is of high demand in the national market due to the high quality of sorghum available in Nigeria. Sorghum is a major ingredient of stout. 4) Good pricing: The price of Guinness is higher than that of any other stout in the Nigerian market:

Given the current prices of stouts in Nigeria; as shown in the table above, one will want to think that Guinness stout will not be in high demand. However, contrary to that, Guinness has over the years created a brand known for quality and that is available in every locality of the country.

D) Demand function The demand for Guinness foreign extra can be attributed to the function of advert, price, ingredient, product placement. Whereas, factors like sex, employment status does not directly affect the demand for stout as both male and female consume Guinness stout and both the employed and employed walk in to the bar in the evenings for a taste of Guinness which might be bought by a friends. Qd=f (advert, price, ingredient, product placement, social status) E) Conclusion: In conclusion, it can be seen that both micro and macro economic factors directly or indirectly affect the demand & supply Guinness foreign extra stout and invariably, any goods.

Q 2) What are the different types of costs? Also explain the relationship between them, if any. A 2) Cost: Ordinarily, the word cost refers to the money expenses incurred in the production of a commodity. During the process of production a number of factors of production join hand. These can be classified as fixed & variable. The level of production can be raised by increasing the quantity of variable factors, whereas the quantity of the fixed factors remains constant. Types of costs: Costs can be classified as follows 1) Money cost 2) Real cost 3) Opportunity cost

4) Incremental & sunk cost

1)

Money cost: The major components of the money cost are as follows:
a)

Explicit costs: Money expenses incurred on the resources used in the production of a commodity are known as explicit costs of a commodity. E.G. wages paid to labour. Implicit costs: implicit costs are those costs of self owned, self-employed resources that the frequently overlooked in computing the expenses. E.G. rent of own land.

b)

2)

Real cost: Real cost refer to those payments which are made to the factors of production to compensate for toil & efforts in rendering their services. Opportunity cost: The concept of opportunity cost emphasizes the problem of choice. Because resources are scarce, we are forced to choose. A choice means that we have4 one or the other at a time. If we choose to have more of one thing, we shall have to accept less of another thing. For example, a given labour force can produce either 50000 tooth brushes or 10000 hair brush if the firm choose to have 10000 hair brushes, it would imply that it forgoes 50000 tooth brushes. In other words, the alternative or opportunity cost of 10000 hair brushes is 50000 tooth brushes Incremental cost & sunk cost:

3)

4)

Incremental cost: Incremental cost differ from the marginal cost in the sense that whereas the marginal cost measures changes in total cost per unit of output, the incremental cost measures change in total cost as a result of change in total output Sunk cost: sunk cost is one which is not affected or altered by a change in the level or nature of business activity. It will remain the same

whatever the level of business activity. The most important example of sunk cost is the amortization of past expenses. E.G., depreciation. On the basis of this classification there can b three kind of cost Fixed cost b) Variable cost c) Semi variable cost Fixed costs:
a)

Costs that don't change over a period of time and don't vary with output. E.g. salaries, rent, tax, insurance, heating and lighting. Fixed costs can also be called indirect costs as they are not directly associated with the final product. Fixed costs have to be paid even if the company is not producing any goods.

Variable costs:

Costs that vary directly with output so when output increases, variable costs also increase. E.g. raw materials, electricity. Variable costs can also be called direct costs as they are directly associated with production. Marginal cost: Marginal cost is the addition to the total cost as a result of a unit increase in the output. MC = TCn-TCn-1 Where, MC = marginal cost TCn = total cost at unit n TCn-1= total cost at unit n-1 Relationship among total cost fixed cost & variable cost: TC = TFC+TVC

Where, TC = total cost TFC = total fixed cost TVC = total variable cost Total cost & total variable costs are positively related to each other that means an increase in total variable cost will increase the total cost of a product. Total fixed cost doesnt make any affect on total cost it remains same even at zero level of production.

Q 3) write short notes on perfect competition, oligopoly and monopoly. Give an example for each. A 3) Economists assume that there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand. Furthermore, for almost every product there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and the supplier have equal ability to influence price. In some industries, there are no substitutes and there is no competition. In a market that has only one or few suppliers of a good or service, the producer(s) can control price, meaning that a consumer does not have choice, cannot maximize his or her total utility and has have very little influence over the price of goods. There are three kind of market: a) Monopoly b) Oligopoly

c) Perfect competition

Monopoly: A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political. For instance, a government can create a monopoly over an industry that it wants to control, such as electricity. Another reason for the barriers against entry into a monopolistic industry is that oftentimes, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government has sole control over the oil industry. A monopoly may also form when a company has a copyright or patent that prevents others from entering the market.

Oligopoly: In an oligopoly, there are only a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces. Assume, for example, that an economy needs only 100 widgets. Company X produces 50 widgets and its competitor, Company Y, produces the other 50. The prices of the two brands will be interdependent and, therefore, similar. So, if Company X starts selling the widgets at a lower price, it will get a greater market share, thereby forcing Company Y to lower its prices as well. The perfect example for oligopoly in todays time is telecommunication; there are only a few telecom companies right now.

Perfect competition: There are two extreme forms of market structure: monopoly and, its opposite, perfect competition. Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage. For example, in a perfectly competitive market, should a single firm decide to increase its selling price of a good, the consumers can just turn to the nearest competitor for a better price, causing any firm that increases its prices to lose market share and profits. Mostly all the companies are under this category; change in once price changes others demand. For example, there are around thousand companies producing ball pens. If Reynolds increases its price the demand of cello will increase & vice a versa. Q 4) Understand the following measures of central tendency & give atleast one example where each would be most suitable to be used:
a) b) c)

Mean Median Mode

A 4) Mean: Before we begin to understand statistics, there are three terms we need to fully understand. The first term 'average' is something we have been familiar with from a very early age when we start analyzing our marks on report cards. We add together all of our test results and then divide it by the total number of subjects . We often call it the average. However, statistically it's the Mean!

Example: Four tests results: 15, 18, 22, 20 The sum is: 75 Divide 75 by 4: 18.75 The 'Mean' (Average) is 18.75 (Often rounded to 19) Types of mean: I. Arithmetic mean II. Geometric mean III. Harmonic mean

I.) Arithmetic mean (AM)

The arithmetic mean is the "standard" average, often simply called the "mean".

The mean may often be confused with the median, mode or range. The mean is the arithmetic average of a set of values, or distribution; however, for skewed distributions, the mean is not necessarily the same as the middle value (median), or the most likely (mode). For example, mean income is skewed upwards by a small number of people with very large incomes, so that the majority have an income lower than the mean. By contrast, the median income is the level at which half the

population is below and half is above. The mode income is the most likely income, and favors the larger number of people with lower incomes. The median or mode are often more intuitive measures of such data. Nevertheless, many skewed distributions are best described by their mean such as the exponential and Poisson distributions. Mean of simple data: For example, the arithmetic mean of six values: 34, 27, 45, 55, 22, and 34 is

Mean of grouped data:

The mean of the grouped data is calculated by dividing the sum of all observations by the number of observations So, if x1, x2, x3 .......xn are the given observations with their respective frequencies f1, f2, f3 .......fn Then, Sum of observations = f1x1 + f2x2 + f3x3 + ....................... + fnxn The number of observation = f1 + f2 + f3 + ....................... + fn Thus, The sum is represented by Greek letter (sigma). So,

Thus method will be clearer with an example. Example 1: Calculate the mean of following data.

Observation (xi) 10 20 30 40 50 60 65 70 79 80 81 85 90 95 98 10 105 0 Frequency (fi) 4 5 4 4 3 2 2 6 10 3 5 5 2 4 5 6 10 Solution: xi 10 20 30 40 50 60 65 70 79 80 81 85 90 95 98 100 105 fi 4 5 4 4 3 2 2 6 10 3 5 5 2 4 5 6 10 fi=80 fixi 40 100 120 160 150 120 130 420 790 240 405 425 180 380 490 600 1050 fixi=5800

fi = 80 fi x i = 5800 = 5800 / 80 = 72.5 Let us convert the data given in example into grouped data with class internal 10. Example 2: Class interval Class marks (xi) Frequency (fi) fixi

10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100 100 - 110

15 25 35 45 55 65 75 85 95 105

4 5 4 4 3 4 16 13 11 16 fi= 80

60 125 140 180 165 1200 1200 1105 1045 1680 fixi= 5960

Note : Here, we have omitted the class interval 0 - 10 because it has frequency 0. fi = 80 fixi = 5960

= 5960 / 80 =74.5 Note: In example 1 and example 2 we have calculated the mean of the same data but the means are different. This is because in example 2 we have assumed that the frequencies are the frequencies of the mid point of their respective class intervals. So their can be some variations. Though the mean calculated in example 1 is more accurate but it is a tiresome job to calculate mean by this method when there are huge number of observations. In such cases grouping the data makes the job of finding mean easier. The method by which we have calculated mean in example 2 is know as direct method of finding the mean of grouped data. The direct method of calculation of mean is easier but the calculation is complicated when the class marks are decimal numbers and their frequencies are huge. In such cases there are two methods which make this job comparatively easier. Those methods are known as

(a) Assumed mean method. (b) Step deviation method. a) Assumed mean method: Like its, name in this method we assume a number as the mean of the given data. Then we subtract this assumed mean from all class marks. Hence find di. Let a is our assumed mean and x1, x2, x3 .......xn are the class marks. Then, d1 = x1 - a d2 = x2 - a d3 = x3 - a ------------------------dn = xn - a Collectively we can write di = xi - a After that we calculate fi di = f1 d1 + f2 d2 + f3 d3 + ------- + fn dn Now

This is the formula for calculating mean with assumed mean method. The method will be more clear with following example Note: You can assume any number as assumed mean (a) but the general choice is Any xi which lies in the middle of range of xi. Example: Calculate the mean of following data with the help of assumed mean method. CI 102030405060708090100-

Fi

20 4

30 5

40 4

50 4

60 3 Xi 15 25 35 45 55 = a 65 75 85 95 105

70 4

80 16 di = xi-a -40 -30 -20 -10 0 10 20 30 40 50

90 13

100 11

110 16

CI 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100 100 - 110

fi 4 5 4 4 3 4 16 13 11 16 fi = 80

fidi -160 -150 -80 -40 0 40 320 390 440 800 fi di = 1560

Let a = 55 Now

= 55 + (1560 / 80) = 55 + 19.5 = 74.5 b) step deviation method: In Assumed mean method example you have seen that when we find out di, we get all such values of di which are divisible by size of class interval (h). If divide di by h then we get ui ui = di / h ui= xi - a / h

Then, we multiply the frequencies with their respective ui Hence get fi ui

Example: Calculate the mean of following data with the help of step deviation method. CI Fi 1020 4 2030 5 3040 4 4050 4 5060 3 6070 4 7080 16 8090 13 90100 11 100110 16

Solution: CI 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 80 - 90 90 - 100 100 - 110

fi 4 5 4 4 3 4 16 13 11 16 fi = 80

Xi 15 25 35 45 55 = a 65 75 85 95 105

ui = (xi-a)\h -4 -3 -2 -1 0 1 2 3 4 5

fidi -16 -15 -8 -4 0 4 32 39 44 80 fi di = 156

Here, a = 55 h = 10

= 55 + (156/80) x 10 = 55 + 19.5 = 74.5

II.) Geometric mean (GM)

The geometric mean is an average that is useful for sets of positive numbers that are interpreted according to their product and not their sum (as is the case with the arithmetic mean) e.g. rates of growth.

For example, the geometric mean of six values: 34, 27, 45, 55, 22, and 34 is:

III.) Harmonic mean (HM)

The harmonic mean is an average which is useful for sets of numbers which are defined in relation to some unit, for example speed (distance per unit of time).

For example, the harmonic mean of the six values: 34, 27, 45, 55, 22, and 34 is

b) Median: The Median is the 'middle value' in your list. When the totals of the list are odd, the median is the middle entry in the list after sorting the list into increasing order. When the totals of the list are even, the median is equal to the sum of the two middle (after sorting the list into increasing order) numbers divided by two. Thus, remember to line up your values, the middle number is the median! Be sure to remember the odd and even rule. Examples: Find the Median of: 9, 3, 44, 17, 15 (Odd amount of numbers) Line up your numbers: 3, 9, 15, 17, 44 (smallest to largest) The Median is: 15 (The number in the middle) Find the Median of: 8, 3, 44, 17, 12, 6 (Even amount of numbers) Line up your numbers: 3, 6, 8, 12, 17, 44 Add the 2 middles numbers and divide by 2: 8 12 = 20 2 = 10 The Median is 10. Median of grouped data: On arranging the data in ascending or descending order median is the middle most observation. If the number of observations are odd then the median is (n+1 / 2)th Observation where 'n' is the number of observations. If number of observations are even then median is the average of (n / 2)th and (n / 2 + 1)th observation. Example: Find the median of the given data.

Wages 3800 of workers Number 12 of workers

4100

4400

4900

5200

5500

6000

13

25

17

15

12

Solution: Wages of workers 3800 4100 4400 4900 5200 5500 6000

Number of workers

12 13 25 17 15 12 6 Total = 100 Here, the number of observations (n) = 100 This is an even number, so the median is average of ( n / 2 )th and (n / 2 + 1)th observations i.e. average of ( 100 / 2 )th and [(100 / 2) + 1]th observation. i.e. average of 50th and 51th observations. To find these observations let us arrange the data in the following manner. Wages of workers Number of workers 3800 Upto4100 Upto4400 Upto4900 12 12+13=25 25+25=50 50+17=67

Upto5200 Upto5500 Upto6000

67+15=82 82+12=94 94+6=100

The frequencies arranged in above manner are known as cumulative frequencies. The table shown below tells you how to calculate cumulative frequency column quickly

So, the 50th observation is 4400 and 51th observation is 4900 Median = 4400 + 4900 / 2 Median = 9300 / 2 Median = 4650 This means 50% workers got wages less than Rs. 4650 and another 50% got more than Rs. 4650. We will know the method for calculating median of grouped data. But before that let us know about the cumulative frequency of (a) Less than type (b) More than type for the given grouped data. The grouped data is Marks

Number of Student

0 - 10 10 - 20 20 - 30 30 - 40 40 - 50

2 12 22 8 6

Let us construct a cumulative frequency table of less than type for the above data. Here 2 students got the marks between 0 and 10 which means 2 students have marks less than 10. Now 12 students got marks between 10 - 20. So the students who got marks less than 20 are (2 + 12) i.e. 14 students. Proceeding in the similar way, we get the following cumulative frequency table. Marks Number of Student Less than 10 Less than 20 Less than 30 Less than 40 Less than 50 2 2+12 = 14 14+22 = 36 36+8 = 44 44+6 = 50

the above table is known as cumulative frequency table of less than type. Let us know the method of calculating cumulative frequency table of more than type for the above data. Here, all students got marks more than or equal to 0. Which means 50 students got more than or equal to 0 marks. Since 2 students got less than 10 marks. Thus ( 50 -2 ) i.e. 48 students got more than equal to 10 marks. Preceding in the same way 48 -2 = 36 students got more than 20 marks. Hence, we get the cumulative frequency distribution table of mare than type. Marks Number of Student

More than 0 More than 10 More than 20 More than 30 More than 40 More than 50

50 50 2 = 48 48 12 = 36 36 22 = 14 14 8 = 6 66=0

Now, let us know the method of calculating median of grouped data. For this we require to calculate cumulative frequencies of less than type. After then we calculate n / 2, with its help we determine the class whose cumulative frequency is nearly equal to n /2. This class is known as median class. Then, the median is calculated by the following formula. Median =

l = lower limit of median class cf = cumulative frequency of class prior to median class. f = frequency of median class. h = class size. Let us understand this method more clearly with the help of an example. Example: Calculate the median of following grouped data. Marks Number of Student 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 2 12 22 8 6

Solution: Marks( C. I.) 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 f 2 12 22 8 6 cf 2 14 36 44 50

Here n / 2 = 50 / 2 = 25 So, 20 -30 is the median class. Now, l =20 h = 10 cf = 14 f = 22 Median = Median = 20 + [(25 - 14) / 22] x 10 Median = 20 + (11 / 22) x 10 Median = 20 + 5 Median = 25 This means 50% of the students got less than 25 marks and other 50% got more than 25 marks. c) Mode: The mode in a list of numbers refers to the list of numbers that occur most frequently. Examples: Find the mode of: 9, 3, 3, 44, 17 , 17, 44, 15, 15, 15, 27, 40, 8, Put the numbers is order for ease: 3, 3, 8, 9, 15, 15, 15, 17, 17, 27, 40, 44, 44, The Mode is 15 (15 occurs the most at 3 times)

*It is important to note that there can be more than one mode and if no number occurs more than once in the set, then there is no mode for that set of numbers. The mode of given data is the observation which is repeated maximum number time. This can be found just by observing the data carefully when the data is ungrouped. Example: The size of shirts manufactured by a tailor is as follows 32, 33, 35, 39, 33, 37, 42, 33and 36. Find the mode of the above data. Solution: Let us construct a frequency table for the given data Size of 32 33 35 36 37 39 42 shirts Number 1 3 1 1 1 1 1 of shirts Here, the frequency of 33 is maximum. Thus, the mode of the data is 33. You have seen that by just observing the given ungrouped data carefully its mode can be obtained. However, for grouped data it is not possible to find the mode just by observation. For finding the mode of grouped data, first of all we have to determine the modal class. The class interval whose frequency is maximum is known by this name. the mode lies in between this class. Then the mode is calculated by the following formula. Mode =

Here, l = lower limit of modal class f1 = frequency of modal class

fo = frequency of class preceding the modal class. f2 = frequency of class succeeding the modal class h = size of class interval. Let us understand this method more clearly with the help of an example. Example: Find the mode of following data Class 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 interval (C. I) Frequency 3 (fi) 5 7 2 4

Solution: Here frequency of class interval 15 - 20 is maximum. So, it is the modal class Now l = the lower limit of modal class = 15 f1 = frequency of modal class = 7 fo = frequency of class preceding the modal class = 5 f2 = frequency of class succeeding the modal class = 2 h = size of class intervals = 5 So, Mode =

Mode = 15 + [(7 - 5) / (2 x 7 - 5 - 2)] x 5 Mode = 15 + [2 / (14 - 7)] x 5 Mode = 15 + (2 / 7) x 5 Mode = 15 + (10 / 7) Mode = 15 + 1.42

Mode = 16.42

Q 5) Discuss the role of SEBI. A 5) SEBI (Security Exchange Board of India): In 1992 an Act of parliament invested it with statutory powers. The Board can regulate the business in stock exchanges and any other securities market; register and regulate the work of brokers, sub brokers, transfer agents, bankers to an issue, underwriters, portfolio managers, investment advisers, or any other bodies associated with the securities market in any manner; register and regulate mutual funds; prohibit fraudulent trade practices relating to securities markets; promote investor education; prohibit insider trading; regulate substantial acquisition of shares and takeover of companies; and perform any other function as called upon by the central government. The SEBI has already succeeded in ensuring proper disclosure to investors through prospectus; issuing guidelines for merchant bankers, share transfer agents registrars to an issue, portfolio management service, and for insider trading; in introducing the Stock invest scheme to eliminate delayed refunds. It has also started registration of intermediaries associated with stock exchanges.

Role of SEBI: The basic purpose of SEBI is to create an environment to facilitate efficient mobilization & allocation of resources through the securities market. This environment aims at meeting the needs of the three groups the issuer of securities (companies), the investors & the market intermediaries.

To the issuer, it provides a market place in which they can confidently raise finance in an easy, fair and efficient manner. To the investors, it provides protection of their rights & interests through adequate, accurate and authentic information. To the intermediaries, it offers a competitive, professionalized and expanding market with adequate and efficient infrastructure so that they are able to render better service to the investors and issuers.

Functions of SEBI: SEBI is considered as the watch dog of the securities market. It performs the following regulatory, development & protective functions to perfect the interests of investors and to promote the development of the securities market. Regulatory functions:
i. ii.

Registration of brokers & sub brokers in the market. Registration of collective investment scheme & mutual funds. Regulation of stock brokers & portfolio exchange, and merchant bankers. Controlling takeover bids and imposing penalties for such practices. Conducting enquiries and audits of stock exchange & intermediaries.

iii.

iv.

v.

vi.

Levying fee or other charges for carrying out the purposes of the Act.

Development functions: i.
ii.

Training of intermediaries of securities market. Conducting research & publishing information useful to all market participants. Undertaking measures to develop the capital markets by adapting a flexible approach. SEBI has permitted internet trading through registered stock brokers. Investor education.

iii.
iv.

v.

Protection functions:
i.

SEBI prohibits fraudulent and unfair trade practices in the securities market. SEBI prohibits insider trading and imposes penalties for such practices. An insider is any person connected with the company who is having price sensitive information (in respect of securities of the company), which is not available to the general public. Undertaking steps for investor protection. Promotion of fair practices and code of conduct in securities market.

ii.

iii. iv.

Q 6) Understand the following terms: 1) Demat Account 2) Hedging 3) Speculation 4) Bull Market 5) Bear Market 6) Depreciation A 6) 1) Demat Account: The term Demat, in India, refers to a dematerialised account. For individual Indian citizens to trade in listed stocks or debentures. The Securities Exchange Board of India (SEBI) requires the investor to maintain a Demat account. In a demat account shares and securities are held in electronic form instead of taking actual possession of certificates. A Demat Account is opened by the investor while registering with an investment broker (or sub broker). The Demat account number which is quoted for all transactions to enable electronic settlements of trades to take place. Access to the demat account requires an internet password and a transaction password as well as initiating and confirming transfers or purchases of securities. Purchases and sales of securities on the Demat account are automatically made once transactions are executed and completed. Advantages of Demat 1) The demat account reduces brokerage charges. 2) Makes pledging/hypothecation of shares easier.

3) Enables quick ownership of securities on settlement resulting in increased liquidity. 4) Avoids confusion in the ownership title of securities, and provides easy receipt of public issue allotments. 5) It also helps you avoid bad deliveries caused by signature mismatch, postal delays and loss of certificates in transit. 6) It eliminates risks associated with forgery, counterfeiting and loss due to fire, theft or mutilation. 7) Demat account holders can also avoid stamp duty (as against 0.5 per cent payable on physical shares). Disadvantages of Demat The disadvantages of dematerialization of securities can be summarized as follows: 1) Trading in securities may become uncontrolled in case of dematerialized securities. 2) It is incumbent upon the capital market regulator to keep a close watch on the trading in dematerialized securities and see to it that trading does not act as a detriment to investors. 3) The role of key market players in case of dematerialized securities, such as stock-brokers, needs to be supervised as they have the capability of manipulating the market. 2) Hedging : Hedging is basically done to reduce the risk of your current investment positions. Lets say you are long on a stock (ABC), now if shares of ABC drop significantly you may lose your profit or increase your losses. To counter that, you may buy a put option contract on ABC which allows you to sell your shares at a specified price before the contract expires. Now, if ABC drops below the contract price, you can execute your put option (contract) and sell your shares (to the option's writer) at a price

higher than the market. Thus, you have the ability to lock in a guaranteed price for your asset no matter what the market price is. 3) Speculation : Investment decisions based on the hope and expectation there will be a profit, but no firm evidence that this will be the case. As a general rule, the more speculative the venture, the greater the reward should be, commensurate with the risk taken. In other words, purchasing risky investments that present the possibility of large profits, but also pose a higher-than-average possibility of loss is called speculation. 4) Bull market: A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as a result of an economic recovery, an economic boom, or investor psychology. In other words, a financial market of a group of securities in which prices are rising or are expected to rise is called bull market. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities. 5) Bear market: A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. In simple word, a bear market is a general decline in the stock market over a period of time. 6) Depreciation: Depreciation means a fall in the value of an asset because of usage or with passage of time or obsolescence or accident. Every fixed asset looses its value, once it is put to use. It would be proper to consider some important definitions of depreciation. These are,

The permanent & continuing diminution in the quality, quantity or value of an asset. By Pickles Depreciation is the diminution in the intrinsic value of the asset due to use and/or lapse of time. ICMA(London) Having consideration the above definitions, now depreciation can be defined as a part of the cost of fixed asset which has expired on account of its usage and/or the lapse of time. In other words, it is reduction in the value of a fixed asset. Here, it is important to note that depreciation is charged on all fixed assets except land. Usually the value of land appreciates over a period. The reason is that unlike other assets like machinery, furniture it doesnt have finite economic life. Methods of calculating depreciation: Strait line or fixed percentage on original cost or fixed installment method. b) Written down value or fixed percentage on diminishing balance or reducing installment method.
a)

a) Straight line method: Under this method, a suitable percentage of original cost of the asset is written off every year. It means that the amount of depreciation is uniform from year to year. In this method depreciation can be calculated as: Depreciation = (cost estimated scrap value)/number of years estimated life b) Written down value method: Under this method, depreciation is charged at fixed rate on the reducing balance (i.e., cost less depreciation) every year. A certain percentage is applied to the book value and not to the cost of the asset.

Q 7) Evaluate the following as an investment option: a) Government bonds b) Gold c) Equity investment A 7) a) Government bonds: A bond is a debt investment in which an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company. A government bond is a bond issued by a national government denominated in the country's own currency. Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds. The first ever government bond was issued by the English government in 1693 to raise money to fund a war against France. It was in the form of a tontine. Government bonds are usually referred to as risk-free bonds, because the government can raise taxes to redeem the bond at maturity. Some counter examples do exist where a government has defaulted on its domestic currency debt, such as Russia in 1998 (the "ruble crisis"), though this is very rare. As an example, in the US, Treasury securities are denominated in US dollars. In this instance, the term "riskfree" means free of credit. However, other risks still exist, such as currency risk for foreign investors (for example non-US investors of US Treasury securities would have received lower returns in 2004 because the value of the US dollar declined against most other currencies). Secondly, there is inflation risk, in that the principal repaid at maturity will have less purchasing power than anticipated if the inflation outturn is higher than expected. Many governments issue inflation-indexed bonds, which should protect investors against inflation risk.

b) Gold: There are many savings and investment options available in India. One of the options is gold. Gold has been valued since prehistoric times and is the investment option that has been seen as the ultimate form of safe haven investment and the only true form of wealth. Gold has been popular in India because it acted as a good hedge against inflation. There is so much uncertainty in the world in terms of economic growth and geopolitics, it is no surprise that many investors, big and small have chosen to hedge their investments through gold. Investors generally buy gold as a hedge or safe haven against any economic, political, social, or fiat currency crises (including investment market declines, burgeoning national debt, currency failure, inflation, war and social unrest). The gold market is also subject to speculation like most commodities, especially through the use of futures contracts and derivatives. Gold is also money, although it is treated by some investors as a commodity. C) Equity investment: Equity investments generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gain as the value of the stock rises. It also sometimes refers to the acquisition of equity (ownership) participation in a private (unlisted) company or a startup (a company being created or newly created). When the investment is in infant companies, it is referred to as venture capital investing and is generally understood to be higher risk than investment in listed going-concern situations. In simple words, equity investment is Money that is invested in a firm by its owner(s) or holder(s) of common stock (ordinary shares) but which is not returned in the normal course of the business. Investors recover it only when they sell their shareholdings to other investors, or when the assets of the firm are liquidated and proceeds distributed among them after satisfying the firms obligations. Conclusion: now we know about all three investment options, now the question arise which is the best option among them,

All three are good options for investment but it depends on the person who wants to invest because all three have their good & bad qualities. Government bonds are less profitable but they are also less risky. Gold is a nice option to hedge your money because your money is safe if you invest in gold but gold is not like share certificates that can easily be placed any where, you need some space to keep your gold. Equity investment is also an investing option like government bonds. It offers you more profit than government bonds but risk in equity is also more than government bonds. So, a rich entrepreneur can invest in equity to earn more profit because he can bear that risk but a small business man or service man cant bear that risk then government bonds are better option for him. Gold is all time favorite investment option. Q 8) Understand the term product life cycle? A 8) product life cycle: All products and services have certain life cycles. The life cycle refers to the period from the products first launch into the market until its final withdrawal and it is split up in phases. During this period significant changes are made in the way that the Product is behaving into the market i.e. its reflection in respect of sales to the company that introduced it into the market. Since an increase in profits is the major goal of a company that introduces a product into a market, the products life cycle management is very important. The understanding of a products life cycle, can help a company to understand and realize when it is time to introduce and withdraw a product from a market, its position in the market compared to competitors, and the products success or failure. For a company to fully understand the above and successfully manage a products life cycle, needs to develop strategies and methodologies. The products life cycle - period usually consists of five major steps or phases: (1) Product development, (2) Product introduction,

(3) Product growth, (4) Product maturity and (5) Finally Product decline. These phases exist and are applicable to all products or Services from certain make of automobile to a multimillion-dollar lithography tool to a one-cent capacitor. These phases can be split up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the products sales performance. Fig. 1: Product Life Cycle Graph

Source: William D. 1. PRODUCT DEVELOPMENT PHASE Product development phase begins when a company finds and develops a new product idea. This involves translating various pieces of information and incorporating them into a new product. A product is usually undergoing several changes involving a lot of money and time during development, before it is exposed to target customers via test

markets. Those products that survive the test market are then introduced into a real marketplace and the introduction phase of the product begins. During the product development phase, sales are zero and revenues are negative. It is the time of spending with absolute no return. 2. INTRODUCTION PHASE The introduction phase of a product includes the product launch with its requirements to getting it launch in such a way so that it will have maximum impact at the moment of sale. A good example of such a launch is the launch of Windows XP by Microsoft Corporation. This period can be described as a money sinkhole compared to the maturity phase of a product. Large expenditure on promotion and advertising is common, and quick but costly service requirements are introduced. A company must be prepared to spend a lot of money and get only a small proportion of that back. In this phase distribution arrangements are introduced. Having the product in every counter is very important and is regarded as an impossible challenge. Some companies avoid this stress by hiring external contractors or outsourcing the entire distribution arrangement. This has the benefit of testing an important marketing tool such as outsourcing. Pricing is something else for a company to consider during this phase. Product pricing usually follows one or two well structured strategies. Early customers will pay a lot for something new and this will help a bit to minimize that sinkhole that was mentioned earlier. Later the pricing policy should be more aggressive so that the product can become competitive. Another strategy is that of a pre-set price believed to be the right one to maximize sales. This however demands a very good knowledge of the market and of what a customer is willing to pay for a newly introduced product. A successful product introduction phase may also result from actions taken by the company prior to the introduction of the product to the market. These actions are included in the formulation of the marketing strategy. This is accomplished during product development by the use of market research. Customer requirements on design, pricing, servicing and packaging are invaluable to the formation of a product design. A customer can tell a company what features of the

product is appealing and what are the characteristics that should not appear on the product. He will describe the ways of how the product will become handy and useful. So in this way a company will know before its product is introduced to a market what to expect from the customers and competitors. A marketing mix may also help in terms of defining the targeted audience during promotion and advertising of the product in the introduction phase. 3. GROWTH PHASE The growth phase offers the satisfaction of seeing the product take-off in the marketplace. This is the appropriate timing to focus on increasing the market share. If the product has been introduced first into the market, then it is in a position to gain market share relatively easily. A new growing market alerts the competitions attention. The company must show all the products offerings and try to differentiate them from the competitors ones. A frequent modification process of the product is an effective policy to discourage competitors from gaining market share by copying or offering similar products. Other barriers are licenses and copyrights, product complexity and low availability of product components. Promotion and advertising continues, but not in the extent that was in the introductory phase and it is oriented to the task of market leadership and not in raising product awareness. A good practice is the use of external promotional contractors. This period is the time to develop efficiencies and improve product availability and service. Cost efficiency and time-to-market and pricing and discount policy are major factors in gaining customer confidence. Good coverage in all marketplaces is worthwhile goal throughout the growth phase. Managing the growth stage is essential. Companies sometimes are consuming much more effort into the production process, overestimating their market position. Accurate estimations in forecasting customer needs will provide essential input into 1 A good example of a virgin market can be considered the market of China. This market was closed to most western companies and their products and is slowly opening up to new products and services. production planning process. It is

pointless to increase customer expectations and product demand without having arranged for relative production capacity. A company must not make the mistake of over committing. This will result into losing customers not finding the product on the self. 4. MATURITY PHASE When the market becomes saturated with variations of the basic product, and all competitors are represented in terms of an alternative product, the maturity phase arrives. In this phase market share growth is at the expense of someone elses business, rather than the growth of the market itself. This period is the period of the highest returns from the product. A company that has achieved its market share goal enjoys the most profitable period, while a company that falls behind its market share goal, must reconsider its marketing positioning into the marketplace. During this period new brands are introduced even when they compete with the companys existing product and model changes are more frequent (product, brand, model). This is the time to extend the products life. Pricing and discount policies are often changed in relation to the competition policies i.e. pricing moves up and down accordingly with the competitors one and sales and coupons are introduced in the case of consumer products. Promotion and advertising relocates from the scope of getting new customers, to the scope of product differentiation in terms of quality and reliability. The battle of distribution continues using multi distribution channels2. A successful product maturity phase is extended beyond anyones timely expectations. A good example of this is Tide washing powder, which has grown old, and it is still growing. 5. DECLINE PHASE 2 Multi distribution channel is one that offers back up distribution ways. A good example is the use of retail stores and the use of Internet. The former requires a completely different distribution channel than the latter and a product usually is distributed through the former first. The decision for withdrawing a product seems to be a complex task and there a lot of issues to be resolved before with decide to move it out of the market. Dilemmas such as maintenance, spare part availability, service

competitions reaction in filling the market gap are some issues that increase the complexity of the decision process to withdraw a product from the market. Often companies retain a high price policy for the declining products that increase the profit margin and gradually discourage the few loyal remaining customers from buying it. Such an example is telegraph submission over facsimile or email. Dr. M. Avlonitis from the Economic University of Athens has developed a methodology, rather complex one that takes under consideration all the attributes and the subsequences of product withdrawal process. Sometimes it is difficult for a company to conceptualize the decline signals of a product. Usually a product decline is accompanied with a decline of market sales. Its recognition is sometimes hard to be realized, since marketing departments are usually too optimistic due to big product success coming from the maturity phase. This is the time to start withdrawing variations of the product from the market that are weak in their market position. This must be done carefully since it is not often apparent which product variation brings in the revenues. The prices must be kept competitive and promotion should be pulled back at a level that will make the product presence visible and at the same time retain the loyal customer. Distribution is narrowed. The basic channel is should be kept efficient but alternative channels should be abandoned. For an example, a 0800 telephone line with shipment by a reliable delivery company, paid by the customer is worth keeping.