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Q:-1 what are the essential requisites of an ideal form of business organization? Explain the
criteria for the selection of the form of organisation.
Ans:
1. Easy formation: An important factor for preferring a particular form of organisationto another is
the ease with which a business can be brought into existence. Thecomparative ease of difficulty in
forming a particular form of organisation mainlydepends on three factors:
formation expenses by way of registration fee, stamp duty,fees of legal experts, charges
involved in the drafting of documents, obtaining licence,etc.,
Procedural delays, etc. Unless it is very essential, it isbetter to go for an organisation which is
easy to form.
2. Scope of raising capital: The choice of organisation mainly depends on the amount ofcapital
required which is determined by the nature of business and the scale ofoperations. For example, if
you want to open a retail shop in groceries, the amount ofcapital needed will not be much. But if
you want to set up a sugar factory, you mayrequire a large amount of capital. Ideal form of
organisation is one which providesscope for raising the amount of capital as and when required.
3. Extent of liability: You know that the element of risk and uncertainty is prevalent ineach
business. In view of this, normally, the businessmen prefer limited liability.Obviously, limited
liability is considered as an important feature of a good form oforganisation. however, a certain
changing business conditions without much difficulty or complication. Forexample, if you want to
expand your business, diversify or modernise the plant andequipment, the organisation should be
able to meet all requirements.
5. Stability and continuity: Stability and long life of business is desirable from the pointof view of
owners, employees, and customers. Employees always prefer a stable andcontinuous employment.
If the business is stable, the owner should be able to formulateplans for the future and to make
investments paying for a considerable length of time.From the customers' point of view also,
regular supply of goods and services is expectedto meet their needs. An ideal form of organisation
is one which provides reasonableamount of stability to the business.
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involvement in business. Many times, theabsence of such spur leads to weakness, inefficiency and
amount of risk is also found to be important to providethe needed spur for initiative, drive, and
6. Effectiveness of management: As you know that the success of any business enterprisedepends
too many, the enterprise may have to divert a lot of time, money andenergy for complying with
legal formalities and instructions. In some cases there may be too much interference by the
government officials in the day-to-day business of the firm.No doubt, the investors, creditors, and
customers trust the business enterprises whose Activities are properly regulated by the
government. But too much governmental Interference is not favoured by the entrepreneurs
because it mars their initiative anddisrupts the working of their business.
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9. Tax:- Business taxes like sales tax, excise duty, and customs duty are charged products and
services. Hence, such taxes affect all forms alike and they will notaffect the choice. But the
income tax liability is different from one form of organisation Ito the other. Naturally, the form of
organisation which attract the minimum amount of Ithis tax liability is considered as an ideal
form.
10. Ownership prerogatives: Some persons have a very strong desire to control the entire business
activities themselves and place a great value upon their right of personal leadership. Some persons
are desirous of sharing the responsibilities and risks of abusiness. Some people may want to own
a part of the capital without a strong desire tocontrol the affairs of the business. You can also find
are
connecting
links
Retailers
between
the They
are
connecting
links
between
the
They purchase goods in large quantities from the They purchase goods in small quantities from the
manufacturers.
wholesalers.
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some persons who are not ready tobear the business risk. An ideal form of organisation takes care
The display of goods and decoration of premises They lay more emphasis on window display and
is not necessary for them.
Their business operations extend to different They usually localise at a particular place, area or
cities and places.
city.
They do not extend free home delivery and after They provide free home delivery and after sales
sales services
Specific
are Involved
Minimum 7 and
Maximum and no
no maximum no limit
maximum limit
Any amount
No subseqantial
capital can be
Resources
Regulation
Membership.
Capital
raised
Management
Complete separation
Not managed by
and ownership
of management
all members
Scope for
expertise
for expertise
Expertise
Volume of business
by each member
shares held
Ownership transfer
At will and
Restricted
very easy
Business
Perpetual existence
Death. Insolvency
stability
Death, insolvency of
of its members
the life
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Managerial
from ownership
Business
Exposed to public
Exposed to members
secrets
Secondary Market
buyers
at
and
a
sellers
place
and
is the most vital method to sell announce the rate at which they
financial securities.
supplementary
electronic
networks
matching machines.
investors
like
secondary markets
are
market
operations
are
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that
may
or
may not
as
Preferential
Allotment.
higher than ideal, and inefficient. Passing of risk involves both party to the contract. The general rule
is that unless otherwise agreed, risk passes with title. An agreement to the contrary may be either
high premium in order to mitigate the risk of paying too large a claim. The premium will thus be
expressed or implied. An insurable risk is a risk that meets the ideal criteria for efficient insurance.
The concept of insurable risk underlies nearly all insurance decisions
3. WarehousingWarehouse is a storage structure constructed for the protection of the quality and quantity of the
stored produce. The need for a warehouse arises due to the time gap between production and
consumption of products. Warehousing or storage refers to the holding and preservation of goods until
they are despatched to the consumers. By bridging this gap, storage creates time utility. There is a
need for storing the goods so as to make them available to buyers as and when required. Storage
enables a firm to carry on production in anticipation of demand in future. Warehouses enables the
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businessmen to carry on production throughout the year and sell their products, whenever there is
adequate demand. Need for warehouses arise also because some goods are produced only in a
particular season but are demanded throughout the year. Similarly, certain products are produced
throughout the year but demanded only during a particular season.
4. Development Bank
Development banks are specializes financial institutions. They provide medium and long-term finance
to the industrial and agricultural sector. They provide finance to both private and public sector.
Development banks are multipurpose financial institutions. They do term lending, investment in
securities and other activities. They even promote saving and investment habit in public. Development
banks are those financial institutions whose prime goal is finance the primary needs of society.
Q:-4 what is channel of distribution? Discuss various factors which influence the choice of
channel of distribution.
Ans:
The path through which goods and servicestravel from the vendor to the consumer or payments for
those products travel from the consumer to the vendor. A distributionchannel can be as short as a
direct transaction from the vendor to the consumer, or may include several interconnected
intermediaries along the way such as wholesalers, distributors, agents and retailers. Each intermediary
receives the item at one pricing point and movies it to the next higher pricing point until it reaches the
final buyer.
(1) The Nature of the Product:
These factors include physical characteristics of a product and their impact on the selection of a
particular channel of distribution.
Various factors under this category are:
so that goods could be delivered to the consumers without delay. Delay in distribution of these
products will deteriorate their quality.
(b) Size and weight of product:
Bulky and heavy products like coal and food grains etc. are directly distributed to the users involve
heavy transportation costs. In order to minimise these costs a short and direct distribution channel is
suitable.
(c) Unit value of a product:
Products with lesser unit value and high turnover are distributed by employing longer channels of
distribution. Household products like utensils, cloth, cosmetics etc. take longer time in reaching the
consumers.. On the other hand, products like jewellery having high product value are directly sold to
the consumers by the jewellers.
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Products which are perishable in nature are distributed by employing a shorter channel of distribution
(a) Perishability:
(c) Standardization:
Products of standard size and quality usually take longer time by adopting longer channel of
distribution. For example, machine tools and automobile products which are of standard size reach the
consumer through the wholesalers and retailers. Un-standardised articles take lesser time and pass
through shorter channels of distribution.
(e) Technical Nature of Products:
Industrial products which are highly technical in nature are usually distributed directly to the
industrial users and take lesser time and adopt shorter channel of distribution. In this case after sales
service and technical advice is provided by the manufacturer to the consumers.
On the other hand, consumer products of technical nature are usually sold through wholesalers and
retailers. In this manner longer channel of distribution is employed for their sales. After sales services
are provided by the wholesalers and retailers. Examples of such products are televisions, scooters,
refrigerators, etc.
(f) Product Lines:
A manufacturer producing different products in the same lines sells directly or through retailers and
lesser time is consumed in their distribution. For example, in case automobile rubber products this
practice is followed. On the other hand, a manufacturer dealing only in one item appoints sole selling
agents, wholesalers and retailers for selling the product. For example, in case of Vanaspati Ghee
longer distribution channel in undertaken.
(2) The Nature of the market:
This is another factor influencing the choice of a proper channel of distribution. The number of buyers
of the product affects the choice of af channel of distribution.
Following factors are considered in this regard:
In case of industrial markets, number of buyers is less; a shorter channel of distribution can be
adopted. These buyers usually directly purchase from the manufacturers. Marketing intermediaries are
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If the size of the order placed by the customers is big, direct selling can be undertaken by the
manufacturer as in case of industrial goods. But where the size of the order is small, middlemen are
appointed to distribute the products.
(d) Geographic concentration of market:
Where the customers are concentrated at one particular place or market, distribution channel will be
short and the manufacturer can directly supply the goods in that area by opening his own shops or
sales depot. In case where buyers are widely scattered, it is very difficult for the manufacturer to
establish a direct link with the consumers, services of wholesalers and retailers will be used.
(e) Buying habits of customers:
This includes tastes, preferences, likes and dislikes of customers. Customers also expect certain
services like credit and personal attention and after sales services etc. All these factors greatly
influence the choice of distribution channel.
Sometimes desired middlemen may not be available for the distribution of goods. They may be busy
in dealing with the competitive products. Under such circumstances the manufacturer has to make his
own arrangements by opening his branches or sales depots to distribute the goods to the consumers.
(c) Unsuitable marketing policies for middlemen:
The marketing policies of the manufacturer may not be welcomed by the middlemen the terms and
conditions may not favoursthe middlemen. For example, some wholesalers or retailers would like to
act as sole selling agents for the product in a particular area or region.
(d) Services provided by middlemen:
The manufacturer should select those middlemen who provide various marketing services viz,
storage, credit and packing etc. At the same time the middlemen should ensure various services to
customers.
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that may ensure various marketing services which cannot be offered by others.
channel of distribution.
(D) Industrial Conventions:
Industrial conventions followed influence the selection of distribution channel. If a particular mode of
distribution is adopted in an industry, the same will be followed by every manufacturing unit in that
industry in distribution their products.
(E) Services Provided By the Manufacturers:
The selection of marketing intermediaries is also influenced by various services provided by the
manufacturer. These services include extensive advertisement for the product, after sales services and
facilities of credit. The manufacturers providing these services can easily avail the services of reputed
retailers and wholesalers.
(5) Government Regulations and Policies:
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between the manufacturer and the consumer. The cost of distribution may be more by adopting such a
distribution. This is suitable in case of perishable goods and is helpful in establishing direct link
Government policies and regulations also influence the choice of distribution channels. The
Government may impose certain restrictions on the wholesale trade of a particular product arid
takeover the distribution of certain products. All these restrictions have a direct impact in selecting the
channel of distribution.
(6) Competition:
The nature and extent of competition prevalent in a industry is another detrimental consideration in
selecting a distribution channel. Different manufacturers producing similar products may employ the
same channels of distribution.
economic. Thus, duringperiods of economic and business prosperity prices of securities tend to rise.
4 Mobility of capital: Stock exchanges furnish an open and continuous market forsecurities. Savings
invested in securities are converted into cash for reinvestmentin other securities. Thus, stock
exchanges provide mobility to capital and facilitatesound investment.
5 Contribution to capital formation: Savings are encouraged when people come to know about the
avenues of investment. Stock markets educate investors as regardswhere and how to invest their
savings for a fair return.
6 Shockabsorbers: Stock exchanges bring about equilibrium in the prices ofsecurities which are
bought and sold by speculators. Speculators generally buysecurities in anticipation of rise in the
pricesSecondary Functions
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and the corresponding rise or fall in the prices of securities reflect theinvestors' assessment of the
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3 Barometer of economic and business conditions: The intensity of buying and sellingof securities
Safety of investment and equity in dealings: The stock exchanges do not allow trading in
each and every company's securities. Companies which want theirsecurities to be traded on
the floor of a stock exchange have to fulfil certainconditions. The stock exchange satisfies
itself about the genuineness andsoundness of the company to protect the investors from being
cheated. There area wide variety of securities.
Easy liquidity: The investors usually prefer liquidity of their investment i.e..easyconversion
into cash, besides adequate return on their investment. The stockmarkets provide that
assurance to investors. These are markets which facilitatebuying and selling of securities. As
such the investors readily come forward to
Subscribe to new issues. Thus, stock exchange assures liquidity of investmentswhich goes to
serve the investor's need.
Accurate and continuous report regarding sales: All stock exchanges maintainregular
record of the securities traded each day and the prices at which deals arefinalised. This
information is supplied to newspapers and other information mediaalongwith the prices of
important securities which ruled at closing time. Thestatistics relating to prices at which
securities were traded are published in weeklybulletins for the information of the investors.
This information helps inascertaining the trend of price fluctuations and promotes healthy
speculation.
Full information regarding listed companies: The organised stock exchanges collect
information about the companies listed with them and publish the information in the form of
"Official Year Book". This proves very useful to theinvestors in making investment decisions.
Q:-5 (b) There is no difference between money market and capital market. Comment upon
Ans:
Money Market:-
The money market is often accessed alongside the capital markets. While investors are willing to take
on more risk and have patience to invest in capital markets, money markets are a good place to "park"
funds that are needed in a shorter time period - usually one year or less. The financial instruments
used in capital markets include stocks and bonds, but the instruments used in the money markets
include deposits, collateral loans, acceptances and bills of exchange. Institutions operating in money
markets are central banks, commercial banks and acceptance houses, among others.
Capital markets are perhaps the most widely followed markets. Both the stock and bond
markets are closely followed and their daily movements are analyzed as proxies for the
general economic condition of the world markets. As a result, the institutions operating in
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the statement.
capital markets - stock exchanges, commercial banks and all types of corporations, including
nonbank institutions such as insurance companies and mortgage banks - are carefully
scrutinized.
The institutions operating in the capital markets access them toraise capital for long-term
purposes, such as for a merger or acquisition, to expand a line of business or enter into a new
business, or for other capital projects. Entities that are raising money for these long-term
purposes come to one or more capital markets. In the bond market, companies may issue debt
in the form of corporate bonds, while both local and federal governments may issue debt in
the form of government bonds. Similarly, companies may decide to raise money by issuing
equity on the stock market. Government entities are typically not publicly held and, therefore,
do not usually issue equity. Companies and government entities that issue equity or debt are
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