Basic Concepts For MBA

Basic Study Material
For First Year Students
Basic Study Material PUMBA Instructions To Students

The content of this study material has been designed while keeping the first year curriculum in mind. Important basic concepts relating to Finance, Marketing, HR, Operations and Statistics have been introduced here.
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Basic Study Material PUMBA
Introduction to Financial Markets

Financial markets can be classified as follows: By Nature of Claims Debt Market Equity Market By Maturity of Claims Money market - short term claims Capital Market - long term claims By Seasoning of Claims Primary market - New claims Secondary market - Outstanding claims By Timing of Delivery Cash / Spot Market Forward / Futures Market By Organization Structure Exchange Traded Over the counter
Financial M arkets
Capital M arkets
M oney M arkets
Prim ary M arket
S econdary M arket
B ond M arkets
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Financial markets
Organizations that facilitate the trade in financial products i.e. Stock exchanges facilitate the trade in stocks, bonds and warrants. The coming together of buyers and sellers to trade financial products i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold.
Capital Markets
The capital market is the market for securities, where companies and governments can raise long-term funds. The capital market includes the stock market and the bond market. It consists of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded.
Primary Market
The Primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. In the case of a new stock issue, this sale is an Initial Public Offering (IPO).
Initial Public Offering (IPO)

IPO is an abbreviation for "Initial Public Offering" which signifies a company's first sale of shares to the public. When a company declares an IPO, it is on its way to becoming a "Public" company, hence the term "going public." With an IPO, a company raises money from the public for the first time through sale of Shares and Debentures. Important Points to consider in IPO: 1) At an IPO, a company can sell the shares at Par (at Nominal or Face Value) or at a Premium (above Nominal or Face value) depending on how long the company has been in existence, its profitability, current Assets and many other factors.
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2) If we apply for an IPO and are allocated some New Issues, we are said to be purchasing from the Primary Market. However, if we purchase shares or debentures already listed and trading at the Stock Exchange through Brokers, we are said to be purchasing from the Secondary Market. 3) IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.
Secondary Market
The secondary market is the financial market for trading of securities that have already been issued in an initial private or public offering. Alternatively, secondary market can refer to the market for any kind of used goods. The market that exists in a new security just after the new issue is often referred to as the aftermarket. Once a newly issued stock is listed on a stock exchange, investors and speculators can easily trade on the exchange, as market makers provide bids and offers in the new stock. Important points to note: 1) In the secondary market, securities are sold by and transferred from one investor or speculator to another. It is therefore important that the secondary market be highly liquid. (Originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated). 2) Secondary market is vital to an efficient and modern capital market. With secondary markets, investors know that they can recoup some of their investment quickly, if their own circumstances change because of high liquidity that it provides.
Bond Markets
The Bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of
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bonds. Bond markets in most countries remain decentralized and lack common exchanges like stock, future and commodity markets. This has occurred, in part, because no two bond issues are exactly alike, and the number of different securities outstanding is far larger. Bond Market Participants: Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both. It includes: Institutional investors; Governments; Traders; and Individuals
Because of the specificity of individual bond issues, and the lack of liquidity in many smaller issues, the majority of outstanding bonds are held by institutions like pension funds, banks and mutual funds. In the United States, approximately 10% of the market is currently held by private individuals Terms used in the Bond or Debenture market
Coupon: It is the annual interest that is paid on the bond. Expiry Date: It is the date on which the bond matures and the investor gets the
principal amount back.
Face Value: It is the actual worth of a bond. Current Yield: The current yield considers the current market price of the bond,
which may be different from the par value and gives you a different return on that basis. Examples: For example, if you bought a $1,000 par value bond with an annual coupon rate of 6% on the open market for $800, your yield would be 7.5% because you would still be earning the $60, but on $800 instead of $1,000.
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Money Markets
In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquid funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold. Important Points to note 1) The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. 2) Money market trades in short term financial instruments commonly called "paper". This contrasts with the capital market for longer-term funding, which is supplied by bonds and equity. 3) The core of the money market consists of banks borrowing and lending to each other Link between Money Market and Debt Market The money market is a market dealing in short-term debt instruments (up to one year) while the debt market is a market for long-term debt instruments (more than one year). The money market supports the long-term debt market by increasing the liquidity of securities. A developed money market is a prerequisite for the development of a debt market.
Important Terms and Definitions related to Financial Markets

1. Shares/Stocks A company ownership is divided into small and equal portions, each of which is called a Share (also referred to as a Stock). Each company will have different number of shares at different prices (based on a number of factors) and these Shares or Stocks are what we (as Individual Share Market investors) purchase and sell to make our profit. We can become a shareholder in a company by purchasing shares of that
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company and we can transfer our ownership rights by selling our shares to others. Since the company is an independent legal entity, it is not affected by any changes in its owners. 2. Equity Shares and Preference Shares The shares that we described above can also be referred to as Equity Shares (hence the term Equity Market). It just specifies that the shares dont carry a fixed rate of dividend. The company has the freedom to decide on the rate of dividend from time to time to provide returns to it shareholders. Preference Shares or Preferential Shares give a fixed rate of dividend. In case the company runs in loss for a year and is not able to pay dividends even to the Preference Shareholders, then the unpaid dividends can be carried over till the company is able to clear all arrears on Dividend payment. Such preference shares would be called Cumulative Preference Shares. A company is not allowed (in most countries) to pay any dividends to its Equity Shareholders till all pending dividend has been paid to the Preference Shareholders. 3. The Stock Exchange The Stock Exchange (also called the Stock Market) is the marketplace where Shares and Securities are traded. Securities is the broad term covering Shares/Stock and Debentures/Bonds. So, a Stock Exchange would facilitate purchase and sale of all of these. Unlike other markets, one is not permitted to buy and sell shares directly in the Stock Market one has to do so through a Stockbroker. The Stockbroker is a licensed member of the Stock Exchange and is authorized to buy and sell shares on our behalf on a commission basis. This commission is called Brokerage. Companies have to list their Securities with one or more Stock Exchanges for them to be eligible for trading. At the time of writing, there are 23 Stock Exchanges in the country. However the most popular ones are both in Mumbai, The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
4. Face Value and Market Value
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The Face Value of a share (also called the Nominal Value or Par Value) is the term used to describe the value of the share when the company was formed. These shares are taken against the initial capital that goes into the company to make it a profitable business. The price at which the Share is trading currently is called the Market Value of the Share. Another term used to describe Market Value is CMP (Current Market Price). 5. Dividend When companies pay part of their profits to the Shareholders, this amount paid out is called Dividend. This amount is decided by the Companys Board based on performance and future plans of the company and the amount paid is proportional to the no of shares one owns. These can be paid on a Quarterly, Half Yearly or Annual Basis. Also, there is no compulsion to pay Dividends even if the Company is making Profits if the Board decides that using the money for some other purpose would be more beneficial in the long run. This amount can be paid in the form of Money, Shares and in some rare cases in the form of Company Products or even Property. Dividend is calculated on the Face Value or Nominal Value. Which means if the Company declares 30% dividend, and the Face value of the shares is Rs. 10, then the company will be paying all Shareholders Rs. 3/- per share. 6. Market Regulatory Body - SEBI (Securities and Exchange Board of India) Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 - is the body that is responsible for protecting the interests of investors in securities, promoting the development of, and regulating, the securities market. The SEBI Act came into force on 30th January, 1992 and with its establishment, all public issues are governed by the rules & regulations issued by SEBI. SEBI was formed to promote fair dealing in issue of securities and to ensure that the capital markets function efficiently, transparently and economically in the better interests of both the issuers and the investors. The promoters of a company should be able to raise funds at a relatively low cost. At the same time, investors must be protected from unethical practices and their rights must be safeguarded so that there
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is a steady flow of savings into the market. There must be proper regulation and code of conduct and fair practice by intermediaries to make them competitive and professional. 7. SENSEX The Bombay Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market. This was called the SENSEX. The SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. 8. NIFTY The S&P CNX Nifty (called NIFTY for Short) is the Index used to represent the overall performance of the stocks trading at NSE. The NIFTY was designed based upon solid economic research. A trillion calculations were expended to evolve the rules for the Nifty index. The results of this effort were remarkably simple: (a) the correct size to use is 50 (b) stocks considered for the S&P CNX Nifty must be liquid by the `impact cost' criterion; (c) the largest 50 stocks that meet the criterion go into the index.
9. ARBITRAGE
The simultaneous purchase and sale of a financial asset (commodity, currency, or bill of exchange etc.) in two different markets, in order to profit from a price discrepancy. True arbitrage is risk-free. The arbitrage process plays a central role in ensuring that prices are consistent in different markets.
10. MARKET CAPITALIZATION

The value ascribed to a listed company by the market place. This can be calculated by multiplying the number of shares in issue by their current market price. For e.g. If Market price of a share X is Rs. 1,000 and number of outstanding shares is 200,000 then the market capitalization of share X would be 200,000*1,000.
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Reliance industries, ONGC, NTPC and Bharti are some of the companies with substantial market capitalization in the SENSEX.
11. OVER-THE-COUNTER (OTC)

This refers to any transaction which is made outside of a regulated and organized exchange. This means, inter alia, that due performance is not guaranteed beyond the means of the parties to the transaction, and that the transaction may be difficult to renegotiate in a secondary market. telephone rather than over a counter. OTC deals are usually made over the
12. BETA
This is the second letter of the Greek alphabet which is used by Wall Street to describe the volatility of a stock relative to a stock market index. Beta is regarded by some as a measure of stock market risk. Higher the beta, higher the stock volatility.
13. BEAR Market

It describes a situation where the majority of shares are dropping in price and the market is generally declining. 14. BULL Market It describes a situation where the majority of shares are rising in price and the market is generally rising. 15. Corporatization of stock exchanges Corporatisation is the process of converting the organizational structure of the stock exchange from a non-corporate structure to a corporate structure. Traditionally, some of the stock exchanges in India were established as Association of persons, e.g. the Stock Exchange, Mumbai (BSE), Ahmedabad Stock Exchange (ASE) and Madhya Pradesh Stock Exchange (MPSE). Corporatisation is the process of converting them into incorporated Companies. 16. Redemption Date
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The date on which redeemable preference shares, debentures or loans will be redeemed by the company. These are really forms of long-term indebtedness, which clearly have to be paid back on pre-determined dates. 17. Demutualization of stock exchanges Demutualization refers to the transition process of an exchange from a mutuallyowned association to a company owned by shareholders. In other words, transforming the legal structure of an exchange from a mutual form to a business corporation form is referred to as demutualization. This means that after demutualization, the ownership, the management and the trading rights at the exchange are segregated from one another. 18. Delisting of securities The term "delisting" of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.
19. YIELD-TO-MATURITY (YTM)

The yield that an investor would get on an investment such as a bond, if the investor kept the investment to maturity.
20. YIELD CURVE

A yield curve is a plot of yields-to-maturity against the term to redemption. The normal (positively sloped) yield curve occurs when long-term securities give a higher return than short-term securities. The inverse yield curve occurs when near-dated stocks have a higher YTM than far-dated stocks
Basic Financial Instruments

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Mutual Fund
A mutual fund is a pool of money from numerous investors who wish to save or make money just like you. Investing in a mutual fund can be a lot easier than buying and selling individual stocks and bonds on your own. Investors can sell their shares when they want. You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. 2) If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Professional Management: Each fund's investments are chosen and monitored by qualified professionals who use this money to create a portfolio. That portfolio could consist of stocks, bonds, money market instruments or a combination of those. Fund Ownership: As an investor, you own shares of the mutual fund, not the individual securities. Mutual funds permit you to invest small amounts of money, however much you would like, but even so, you can benefit from being involved in a large pool of cash invested by other people. All shareholders share in the funds gains and losses on an equal basis, proportionately to the amount they've invested. Mutual Funds are Diversified: By investing in mutual funds, you could diversify your portfolio across a large number of securities so as to minimize risk. By spreading your money over numerous securities, which is what a mutual fund does, you need not worry about the fluctuation of the individual securities in the fund's portfolio. Mutual Fund Objectives: There are many different types of mutual funds, each with its own set of goals. The investment objective is the goal that the fund manager sets for the mutual fund when deciding which stocks and bonds should be in the fund's portfolio. For example, an objective of a growth stock fund might be: This fund invests primarily in
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the equity markets with the objective of providing long-term capital appreciation towards meeting your long-term financial needs such as retirement or a childs education.
Certificate of Deposit (CD)

A certificate of deposit (CD) is a marketable document of title to a time deposit for a specified period. CD is a receipt given to the depositor by a bank or any other institution entitled to issue CD for funds deposited with it. CDs and conventional time deposits differ in a few ways. CDs are negotiable while time deposits are not. CDs require stamp duties while time deposits dont, etc.
Commercial Papers
Commercial Papers (CPs) are debt instruments issued by Corporates for raising shortterm resources from the money market. These are unsecured debts of Corporates. They are issued in the form of promissory notes redeemable at par to the holder at maturity. Only Corporates who get an investment grade rating can issue CPs. as per RBI rules. Though CP is issued by Corporates, they could be good investments if proper caution is exercised.
Corporate bonds
A Corporate Bond is a
bond issued by a corporation generally with a maturity date falling
at least a year after their issue date. Corporate bonds are different from commercial papers in that they are issued for a longer duration.
Convertible Bonds
A convertible bond is a bond that gives the holder the right to "convert" or exchange the par amount of the bond for common shares of the issuer at some fixed ratio during a particular period. As bonds, they have some characteristics of fixed income securities. Their conversion feature also gives them features of equity securities.
Government Securities (Gilt Edged Securities)

Government securities refer to the marketable debt instruments issued by the government Central and States. A government security is a claim on the government. It is a totally secure financial instrument ensuring safety of both capital and income. That is why it is called gilt-edged security. Central Government securities are the safety
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amongst all securities. They may be dated Securities or Treasury bills. State Governments in India also issue their securities.
Treasury bills
Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price. For e.g., if face value is 1,000 and the bill is issued at 960, then 40 is the return that the investor gets. There are different types of Treasury bills based on the maturity period and utility of the issuance like, ad-hoc Treasury bills, 3 months, 12months Treasury bills etc. In India, at present, the Treasury Bills are the 91-days and 364-days Treasury bills.
Derivatives
The emergence of markets for derivative products can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. Derivative is a product whose value is derived from the value of one or more basic variables, called bases. Bases can be equity, forex, commodity, index or a reference rate.
Difference in Shares and Derivatives

The difference is that while shares are assets, derivatives are usually contracts (the major exception to this are warrants and convertible bonds, which are similar to shares in that they are assets). We can define financial assets (e.g. shares, bonds) as: claims on another person or corporation; they will usually be fairly standardized and governed by the property or securities laws in an appropriate country. On the other hand, a contract is merely: an agreement between two parties, where the contract details may not be standardized. Due to their great flexibility, many different types of investors use derivatives. A good toolbox of derivatives allows the modern investor the full range of investment strategy: speculation, hedging, arbitrage and all combinations thereof.
Important derivative products Page 15
Forwards:
A contract that obligates one counter party to buy and the other to sell a specific underlying asset at a specific price, amount and date in the future is known as a forward contract. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price.
Futures:
Future contracts are special type of forward contracts in the sense that the former are standardized exchange-traded contracts. A future contract is one in which one party agrees to buy from/ sell to the other party a specified asset at price agreed at the time of contract and payable on future date. The agreed price is known as strike price. The Futures are usually performed by payment of difference between strike price and market price on fixed future date and not by the physical delivery and payment in full on that date.
Options:
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date. The two types of options are calls and puts: A call gives the holder the right to buy an asset at a certain price within a specific period of time. Calls are similar to having a long position on a stock. Buyers of calls hope that the stock will increase substantially before the option expires. A put gives the holder the right to sell an asset at a certain price within a specific period of time. Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.
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Introduction to Banking
Origin of Banking
The term Bank can be traced to Italian and French languages: In French, Banque means - chest (for safekeeping). In Italian, Banca means bench (for conducting transactions).
Similarly, the term bankrupt has come from the Italian phrase, banca rotta, which referred to a bank that went out of business as its bench was physically broke. This referred to the interesting practice of Italian money lenders who transacted in big rooms or open areas, where every lender worked out of a table or bench. The first bank to provide basic banking functions emerged in Spain in 1401. It was called the Bank of Barcelona. Some of the other banks that served as foundations of modern banking were: Bank of Venice (1587) Bank of Amsterdam (1609) Bank of Hamburg (1619)
Other key developments in Europe were: Bank of France set up by Napoleon in 1800. Stock-issuing banks set up in the 19th century in Germany. London goldsmiths were the originators of banking in the British isles.
How Does Bank Gain Revenue?

A bank earns profits from the interest spread. Interest spread = (Interest charged on loans) (Interest offered on deposits) In addition, banks perform several services for which they charge transaction fees. Banks have historically followed lending long and borrowing short strategy. They tend to borrow for short terms and lend for long terms. For example, most
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mortgages have a term of 15 to 20 years, but some of the funding comes from term deposits with a term of less than a year. This creates problems, because banks are lending money that they do not own or control. If the bank only controls the money for 6 months lending it for a twenty year term is odd. Hence, bank management has to ensure that it has adequate cash reserves.
What is NPA?
NPA stands for Non-Performing Assets. Alternatively, they are also termed as NonPerforming Loans (NPL). NPA refers to those loans that have stopped making any returns, i.e., defaulted loans. Formally, these are defined as loans on which debtors have failed to make contractual payments for a predetermined time. Different Types of Banks
Central Bank
A Central Bank, a bank regulator, generally controls monetary policy and acts as a lender of last resort. It is the banker of banks. Some of the central banks are the Reserve Bank of India, the US Federal Reserve Bank and the Bank of England.
Investment Banks
An Investment Bank refers to an individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities, but which does not accept deposits or make loans. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. Investment banks are essentially financial intermediaries, who primarily help businesses and governments with raising capital, corporate mergers and acquisitions, and securities trade. In USA such banks are the most important participants in the direct market by bringing financial claims for sale. They help interested parties in raising capital, whether debt or equity in the primary market to finance capital expenditure.
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Merchant Banks
These often refer to banks involved in trade financing. In recent times though, the definition also covers banks offering capital by way of shares not funds. They do not invest in start-ups unlike venture capital firms.
Private and Offshore Banks

Private Banks are involved in asset management of wealthy clients (called High Net worth clients). Offshore Banks refer to banks in low taxation/supervisory locations such as Switzerland. A majority of these banks are private banks. Union Bank of Switzerland is one of the largest private banks. Switzerland is the hub for global private banking activities. Swiss banks are legendary for their discreetness. They are prohibited by Swiss law from divulging their client details to any third party including legal, national or law enforcement agencies. The banking act has a special section introduced in 1934, in order to protect accounts of Germans, especially German Jews, from Nazi confiscation. This act makes such confidentiality breaches criminal offense.
Savings Bank
Savings Bank is a traditional bank that accepts deposits. However, now its functionalities have widened. In contrast, Postal Savings Bank refers to savings banking functions related with national postal systems.
Commercial Bank
This is a normal bank as opposed to an investment bank. However, now its commonplace to give this name to a bank or a bank division that transacts with corporations.
Universal Bank
This refers to a financial services organization offering a host of banking and non-banking financial services. Most of the banks are involved in several activities, e.g. Citigroup (now Citi). The trend is towards universal banking. Where banks commercial or retail cannot diversify on their own, consolidation is occurring, mostly through mergers or acquisitions.
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Virtual Bank
This is a new category of banks; they are completely online and hence are termed Virtual Banks. E.g. Virtual Bank, Egg Bank.
Types of Deposits
Depending on the region and supervisory rules, there are several types of deposits. However, the fundamental types of deposits are given below: Demand Deposits Savings and Current Time/Term deposits Flexi deposits
Banks offer a number of deposits, which are nothing but combinations of the above basic types of accounts. E.g. ICICI Banks Money Multiplier Account combines the features of a fixed deposit and a savings account.
Demand Deposit
A demand deposit is one where the deposit amount needs to be paid to the depositors on demand. This type of deposit account is also called operating account. The types of demand deposits are: Savings Account Current Account
A demand deposit is also known by the following names, based on the country: checking account (United States banks) current account (United Kingdom banks) share draft account (United States credit unions) savings account (Australian banks) cheque account (New Zealand banks)
o Savings Account
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Savings Deposit is a form of demand deposit, which is subject to restrictions as to the number and amount of withdrawals allowed by the bank during a given period.
o Current Account
A current account is a running and active account opened by business person / companies / partnership firms. Banks normally do not pay interest for this account. This is a kind of demand deposit where withdrawals are permitted any number of times subject to the account balance or up to a specified amount. Generally, Current Account is meant for businesses or certain high net-worth individuals characterized by high transaction volume.
Term Deposit
A term deposit, also called Time Deposit, is one which is invested for a fixed term for a fixed rate of interest (applies for the duration of the term). When the term is over it can be withdrawn or it can be renewed for another term. The longer the term, the better the yield (returns) on the money. It includes deposits such as Recurring, Cumulative, Annuity, Reinvestment deposits and Cash Certificates, among others.
Notice Deposit
Notice Deposit is a interest-bearing term deposit for specific period, but withdrawal is possible on giving at least one complete banking days notice. This type of a deposit earns decent returns with reasonable liquidity.
Recurring Deposit
Recurring deposit is a kind of term/time deposit where cash is deposited into this account every month for a specific period. Alternatively, the bank is authorized to take money from savings account. At the end of the period, customer would get the money deposited with the interest. The interest rate paid by the bank in recurring deposit is usually higher than the saving account and almost on par with the fixed deposit.
Important Functions of a Central Bank
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Following are the main functions of any Central Bank. The Central Bank Acts as a Currency Authority. Functions as a Banker to the Government. Is a Banker of the Banks Issues and maintains Public Debt. Is involved in monetary regulation by declaring monetary policy. Regulates and supervises commercial Banks and Non-Banking Financial Institutions. Manages and controls exchange management. Is involved in developing and maintaining Payment Systems. Plays developmental role by offering industrial, export and rural credit. Plays a proactive role in market development.
Principal Functions of Investment Banks

Global investment banks typically have several business units, each looking after one of the functions of investment banks. For example:
Corporate Finance , concerned with advising on the finances of corporations,

including mergers, acquisitions and divestitures;
Research,
as hedge funds
concerned and
with
investigating,
valuing, and
and
making and
recommendations to clients - both individual investors and larger entities such mutual funds regarding shares corporate government bonds.
Sales and Trading , concerned with buying and selling shares both on behalf of
the bank's clients and also for the bank itself. In short the functions of Investment banks include: 1. Raising Capital Corporate Finance is a traditional aspect of Investment banks, which involves helping customers raise funds in the Capital Market and advising on mergers and acquisitions. Generally the highest profit margins come from advising on mergers
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and acquisitions. Investment Bankers have had a palpable effect on the history of global business, as they often proactively meet with executives to encourage deals or expansion. 2. Brokerage Services Brokerage Services, typically involves trading and order executions on behalf of the investors. This in turn also provides liquidity to the market. These brokerages assist in the purchase and sale of stocks, bonds, and mutual funds. 3. Proprietary trading Under Investment banking proprietary trading is what is generally used to describe a situation when a bank trades in stocks, bonds, options, commodities, or other items with its own money as opposed to its customers money, with a view to make a profit for itself. Though Investment Banks are usually defined as businesses, which assist other business in raising money in the capital markets (by selling stocks or bonds); they are not shy of making profit for itself by engaging in trading activities. 4. Research Activities Research, is usually referred to as a division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. Although in theory this activity would make the most sense at a stock brokerage where the advice could be given to the brokerage's customers, research has historically been performed by Investment Banks (JM Morgan Stanley, Goldman Sachs etc). The primary reason for this is because the Investment Bank must take responsibility for the quality of the company that they are underwriting Vis a Vis the prices involved to the investor. 5. Sales and Trading Often referred to as the most profitable area of an investment bank, it is usually responsible for a much larger amount of revenue than the other divisions. In the process of market making, investment banks will buy and sell stocks and bonds with the goal of making an incremental amount of money on each trade. Sales
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are the term for the investment banks sales force, whose primary job is to call on institutional investors to buy the stocks and bonds, underwritten by the firm. Another activity of the sales force is to call institutional investors to sell stocks, bonds, commodities, or other things the firm might have on its books.
Risk and Risk Management

Risk is defined as the volatility of a corporations market value. It is also defined as the chance of something happening that will have an impact on objectives. It is measured in terms of consequences and likelihood. Risk Management is defined as the systematic application of management policies, practices, and procedures to the task of identifying, analyzing, assessing, treating and monitoring risk. The goal of the entire exercise is to ensure the following: There is a clear understanding of risks within the bank. Banks risk exposure is within the pre-determined levels. Risk decisions comply with the banks business objectives. Adequate capital is available as a buffer for risks.
As a financial intermediary, a bank inherently accepts and manages risk. In essence, Risk Management is not about eliminating risk, but about optimizing the risk-return trade-off. Various Types of Risks Faced by a Bank
1. Liquidity Risk: Also known as funding risk. This is the risk that a firm cannot
obtain the funds necessary to meet its financial obligations, for example short-term loan commitments.
2. Credit risk: The potential financial loss resulting from the failure of
customers to honor fully the terms of a loan or contract. Increasingly, this
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definition is being expanded to include the risk of loss in portfolio value as a result of migration from a higher risk grade to a lower one.
3. Market risk: The risk to earnings arising from changes in interest rates or
exchange rates, or from fluctuations in bond, equity or commodity prices. Banks are subject to market risk in both the management of their balance sheets and in their trading operations.
4. Interest rate risk: Exposure to loss due to an absolute or relative change in

interest rates.
5. Operational risk: The potential financial loss as a result of a breakdown in

day-to-day operational processes. Operational risk can arise from failure to comply with policies, laws and regulations, from fraud or forgery, or from a breakdown in the availability or integrity of services, systems or information. Islamic Banking Islamic banking refers to a system of banking or banking activity, which is consistent with Islamic law (Sharia, also know as Fiqh-al Muamalat) principles and guided by Islamic economics. In particular, Islamic law prohibits the collection and payment of interest, also commonly called riba in Islamic discourse. Generally, Islamic law prohibits interest and trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered haram (such as businesses that sell alcohol or pork, or businesses that produce un-Islamic media). While Islamic law prohibits the collection of interest, it does allow a seller to resell an item at a higher price than it was bought for, as long as there are clearly two transactions.
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Important Terms To Know

FDI
FDI is generally defined as a form of long-term international capital movement, made for the purpose of productive activity and accompanied by the intention of managerial control or participation in the management of a foreign firm. It seeks management control and is motivated by profit. Foreign Direct Investment (FDI) is the outcome of the mutual interests of multinational firms and host countries. The essence of FDI is the transmission to the host country of a package of capital, managerial, skill and technical knowledge. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a Multinational corporation (MNC). In order to qualify as FDI the investment must afford the parent enterprise control over its foreign affiliate. A recent United Nations report has revealed that FDI flows are less volatile.
FII
Foreign Institutional Investment / Foreign Portfolio Investments are liquid in nature and are motivated by international portfolio diversification benefits for individual and institutional investors in industrial countries. They are usually undertaken by institutional investors like pension funds and mutual funds. Such flows are, therefore, largely determined by the performance of the stock markets of the host countries relative to world markets. With the opening of stock markets in various emerging economies to foreign investors, investors in industrial countries have increasingly sought to realize the potential for portfolio diversification that these markets present.
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Difference between FDI and FII
FDI- Foreign Direct Investment refers to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment. On the other hand, FPI (Foreign Portfolio Investment) represents passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities' issuer by the investor. Unlike FDI, it is very easy to sell off the securities and pull out the foreign portfolio investment. Hence, FPI can be much more volatile than FDI. For a country on the rise, FPI can bring about rapid development, helping an emerging economy move quickly to take advantage of economic opportunity, creating many new jobs and significant wealth. However, when a country's economic situation takes a downturn, sometimes just by failing to meet the expectations of international investors, the large flow of money into a country can turn into a stampede away from it.
GDP (Gross Domestic Product):The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. GDP is defined as the total market value of all final goods and services produced within the country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value. The components of GDP: GDP = C + I + G + (X-M) C is private Consumption in the economy. This includes most personal expenditures of households such as food, rent, and medical expenses and so on but does not include new housing.
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I is defined as Investments by business or households in capital. Examples of investment by a business include construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households on new houses is also included in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not mean purchases of financial products. Buying financial products is classed as 'saving', as opposed to investment. G is the sum of Government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. X is gross exports. GDP captures the amount a country produces, including goods and services produced for other nations' consumption, therefore exports are added. M is gross imports. Imports are subtracted since imported goods will be included in the terms G, I, or C, and must be deducted to avoid counting foreign supply as domestic. Difference between GDP and GNP:GDP- goods and services produced by Indian companies in India + goods and services produced by foreign companies in India. GNP- goods and services produced by Indian companies in India + goods and services produced by Indian companies Abroad.
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Introduction to Monetary Policy

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls
I. II. III.
The supply of money, Availability of money, and Cost of money or rate of interest,
In order to attain a set of objectives oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy. Monetary policy is generally referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy should be contrasted with fiscal policy, which refers to government borrowing, spending and taxation.
Some Monetary Policy terms

Bank Rate: Bank rate is the minimum rate at which the central bank provides loans to the commercial banks. It is also called the discount rate. Usually, an increase in bank rate results in commercial banks increasing their lending rates. Changes in bank rate affect credit creation by banks through altering the cost of credit. Cash Reserve Ratio: All commercial banks are required to keep a certain amount of its deposits in cash with RBI. This percentage is called the cash reserve ratio. The current CRR requirement is 8 per cent.
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Inflation: Inflation refers to a persistent rise in prices. Simply put, it is a situation of too much money and too few goods. Thus, due to scarcity of goods and the presence of many buyers, the prices are pushed up. The converse of inflation, that is, deflation, is the persistent falling of prices. RBI can reduce the supply of money or increase interest rates to reduce inflation. Money Supply: This refers to the total volume of money circulating in the economy, and conventionally comprises currency with the public and demand deposits (current account + savings account) with the public. The RBI has adopted four concepts of measuring money supply. The first one is M1, which equals the sum of currency with the public, demand deposits with the public and other deposits with the public. Simply put M1 includes all coins and notes in circulation, and personal current accounts. The second, M2, is a measure of money, supply, including M1, plus personal deposit accounts - plus government deposits and deposits in currencies other than rupee. The third concept M3 or the broad money concept, as it is also known, is quite popular. M3 includes net time deposits (fixed deposits), savings deposits with post office saving banks and all the components of M1. Statutory Liquidity Ratio: Banks in India are required to maintain 25 per cent of their demand and time liabilities in government securities and certain approved securities. These are collectively known as SLR securities. The buying and selling of these securities laid the foundations of the 1992 Harshad Mehta scam. Repo: A repurchase agreement or ready forward deal is a secured short-term (usually 15 days) loan by one bank to another against government securities. Legally, the borrower sells the securities to the lending bank for cash, with the stipulation that at the end of the borrowing term, it will buy back the securities at a slightly higher price, the difference in price representing the interest. Open Market Operations: An important instrument of credit control, the Reserve Bank of India purchases and sells securities in open market operations. In times of inflation, RBI sells securities to mop up the excess money in the market. Similarly, to increase the supply of money, RBI purchases securities. When is the Monetary Policy announced?
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Historically, the Monetary Policy is announced twice a year - a slack season policy (AprilSeptember) and a busy season policy (October-March) in accordance with agricultural cycles. These cycles also coincide with the halves of the financial year. Initially, the Reserve Bank of India announced all its monetary measures twice a year in the Monetary and Credit Policy. The Monetary Policy has become dynamic in nature as RBI reserves its right to alter it from time to time, depending on the state of the economy. However, with the share of credit to agriculture coming down and credit towards the industry being granted whole year around, the RBI since 1998-99 has moved in for just one policy in April-end. However, a review of the policy does take place later in the year.
Objectives of the Monetary Policy

The objectives are to maintain price stability and ensure adequate flow of credit to the productive sectors of the economy. Stability for the national currency (after looking at prevailing economic conditions), growth in employment and income are also looked into. The monetary policy affects the real sector through long and variable periods while the financial markets are also impacted through short-term implications. There are four main 'channels' which the RBI looks at: Quantum channel: money supply and credit (affects real output and price level through changes in reserves money, money supply and credit aggregates). Interest rate channel. Exchange rate channel (linked to the currency). Asset price.
Types of monetary policy In practice all types of monetary policy involve modifying the amount of base currency in circulation. This process of changing the liquidity of base currency through the open sales and purchases of (government-issued) debt and credit instruments is called open market operations. Constant market transactions by the monetary authority modify the supply of currency and this impacts other market variables such as short term interest rates and the exchange rate.
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The distinction between the various types of monetary policy lies primarily with the set of instruments and target variables that are used by the monetary authority to achieve their goals.
Monetary Policy Inflation Targeting Price Level Targeting Monetary Aggregates Fixed Exchange Rate Gold Standard Mixed Policy
Target Market Variable Interest rate on overnight debt Interest rate on overnight debt The spot price of the currency The spot price of gold Usually interest rates
Long Term Objective A given rate of change in the CPI A specific CPI number
The growth in money supply A given rate of change in the CPI The spot price of the currency Low inflation as measured by the gold price Usually unemployment + CPI change
A consumer price index (CPI) is an index number measuring the average price of consumer goods and services purchased by households.
Inflation targeting Under this policy approach the target is to keep inflation, under a particular definition such as Consumer Price Index, within a desired range. The inflation target is achieved through periodic adjustments to the Central Bank interest rate target. The interest rate used is generally the interbank rate at which banks lend to each other overnight for cash flow purposes. Depending on the country this particular interest rate might be called the cash rate or something similar. The interest rate target is maintained for a specific duration using open market operations. Typically the duration that the interest rate target is kept constant will vary between months and years. This interest rate target is usually reviewed on a monthly or quarterly basis by a policy committee. Price level targeting Price level targeting is similar to inflation targeting except that CPI growth in one year is offset in subsequent years such that over time the price level on aggregate does not move.
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Monetary aggregates In the 1980s several countries used an approach based on a constant growth in the money supply. This approach was refined to include different classes of money and credit. Fixed exchange rate This policy is based on maintaining a fixed exchange rate with a foreign currency. There are varying degrees of fixed exchange rates, which can be ranked in relation to how rigid the fixed exchange rate is with the anchor nation. Under dollarisation, foreign currency (usually the US dollar, hence the term "dollarisation") is used freely as the medium of exchange either exclusively or in parallel with local currency. This outcome can come about because the local population has lost all faith in the local currency, or it may also be a policy of the government (usually to rein in inflation and import credible monetary policy). Managed Float Officially, the Indian Rupee (INR) exchange rate is supposed to be 'market determined'. In reality, the Reserve Bank of India (RBI) trades actively on the INR/USD with the purpose of controlling the volatility of the Rupee - US Dollar exchange rate - within a narrow bandwidth. (i.e pegs it to the US Dollar) Mixed policy In practice a mixed policy approach is most like "inflation targeting". However some consideration is also given to other goals such as economic growth, unemployment and asset bubbles. This type of policy was used by the Federal Reserve in 1998.
Fiscal Policy
Fiscal policy, taking the scope of budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes, or through some spending (fiscal allowances). Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the
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supply of money. The two main instruments of fiscal policy are government spending and taxation. Government's revenue (taxation) and spending policy designed to 1) Counter economic cycles in order to achieve lower unemployment, 2) Achieve low or no inflation, and 3) Achieve sustained but controllable economic growth In a recession, governments stimulate the economy with deficit spending (expenditure exceeds revenue). During period of expansion, they restrain a fast growing economy with higher taxes and aim for a surplus (revenue exceeds expenditure). Fiscal policies are based on the concepts of the UK economist John Maynard Keynes (1883-1946), and work independent of monetary policy which tries to achieve the same objectives by controlling the money supply.
3 Possible Stances of Fiscal Policy

Fiscal policy refers to the overall effect of the budget outcome on economic activity. The three possible stances of fiscal policy are neutral, expansionary and contractionary: 1. Neutral A neutral stance of fiscal policy implies a balanced budget where G = T (Government spending = Tax revenue). Government spending is fully funded by tax revenue and overall the budget outcome has a neutral effect on the level of economic activity. 2. Expansionary An expansionary stance of fiscal policy involves a net increase in government spending (G > T) through a rise in government spending or a fall in taxation revenue or a combination of the two. This will lead to a larger budget deficit or a smaller budget surplus than the government previously had, or a deficit if the government previously had a balanced budget. Expansionary fiscal policy is usually associated with a budget deficit. 3. Contractionary Contractionary fiscal policy (G < T) occurs when net government spending is reduced either through higher taxation revenue or reduced government spending or a combination of the two. This would lead to a lower budget deficit or a larger surplus than the government previously had, or a surplus if the government previously had a balanced budget. Contractionary fiscal policy is usually associated with a surplus.
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Methods of funding
Governments spend money on a wide variety of things, from the military and police to services like education and healthcare, as well as transfer payments such as welfare benefits. This expenditure can be funded in a number of different ways: Taxation Seignorage, the benefit from printing money. Borrowing money from the population, resulting in a fiscal deficit. Consumption of fiscal reserves. Sale of assets (e.g., land).
Funding the deficit: A fiscal deficit is often funded by issuing bonds, like treasury bills or consols. These pay interest, either for a fixed period or indefinitely. If the interest and capital repayments are too great, a nation may default on its debts, usually to foreign creditors. Consuming the surplus: A fiscal surplus is often saved for future use, and may be invested in local (same currency) financial instruments, until needed. When income from taxation or other sources falls, as during an economic slump, reserves allow spending to continue at the same rate, without incurring a deficit.
How is the Monetary Policy different from the Fiscal Policy?

Two important tools of macroeconomic policy are Monetary Policy and Fiscal Policy. The Monetary Policy regulates the supply of money and the cost and availability of credit in the economy. It deals with both the lending and borrowing rates of interest for commercial banks. The Monetary Policy aims to maintain price stability, full employment and economic growth.
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The Reserve Bank of India is responsible for formulating and implementing Monetary Policy. It can increase or decrease the supply of currency as well as interest rate, carry out open market operations, control credit and vary the reserve requirements. The Monetary Policy is different from Fiscal Policy as the former brings about a change in the economy by changing money supply and interest rate, whereas fiscal policy is a broader tool with the government. The Fiscal Policy can be used to overcome recession and control inflation. It may be defined as a deliberate change in government revenue and expenditure to influence the level of national output and prices. For instance, at the time of recession the government can increase expenditures or cut taxes in order to generate demand. On the other hand, the government can reduce its expenditures or raise taxes during inflationary times. Fiscal policy aims at changing aggregate demand by suitable changes in government spending and taxes. The annual Union Budget showcases the government's Fiscal Policy.
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Accounting Basics
Every organization needs to maintain good records to track how much money they have, where it came from, and how they spend it. These records are maintained by using an accounting system. These records are essential because they can answer such important questions as: Am I making or losing money from my business? How much am I worth? Should I put more money in my business or sell it and go into another How much is owed to me, and how much do I owe? How can I change the way I operate to make more profit?
business?
Even if you do not own or run a business, as an accountant you will be asked to provide the valuable information needed to assist management in the decision making process. In addition, these records are invaluable for filing your organizations tax returns. The modern method of accounting is based on the system created by an Italian monk Fra Luca Pacioli. He developed this system over 500 years ago. This great and scientific system was so well designed that even modern accounting principles are based on it. In the past, many businesses maintained their records manually in books hence the term bookkeeping came about. This method of keeping manual records was cumbersome, slow, and prone to human errors of translation. A faster, more organized, and easier method of maintaining books is using Computerized Accounting Programs. Accounting and Business Accounting is the system a company uses to measure its financial performance by noting and classifying all the transactions like sales, purchases, assets, and liabilities in a manner that adheres to certain accepted standard formats. It helps to evaluate a Companys past performance, present condition, and future prospects. A more formal definition of accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character and interpreting the
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results thereof. Types of Business Organizations Three principal types of organizations have developed as ways of owning and operating business enterprise. In general, business entity or organizations are:
Sole proprietorship Partnerships Corporations
Let us discuss these concepts starting with the simplest form of business organization, the single or sole proprietorship. 1. Sole Proprietorship A sole proprietorship is a business wholly owned by a single individual. It is the easiest and the least expensive way to start a business and is often associated with small storekeepers, service shops, and professional people such as doctors, lawyers, or accountants. The sole proprietorship is the most common form of business organization and is relatively free from legal complexities. One major disadvantage of sole proprietorship is unlimited liability since the owner and the business are regarded as the same, from a legal standpoint. 2. Partnerships A partnership is a legal association of two or more individuals called partners and who are co-owners of a business for profit. Like proprietorships, they are easy to form. This type of business organization is based upon a written agreement that details the various interests and right of the partners and it is advisable to get legal advice and document each persons rights and responsibilities.
There are three main kinds of partnerships: General partnership Limited partnership Master limited partnership
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General Partnership A business that is owned and operated by 2 or more persons where each individual has a right as a co-owner and is liable for the businesss debts is termed as a General Partnership. Each partner reports his share of the partnership profits or losses on his individual tax return. The partnership itself is not responsible for any tax liabilities. A partnership must secure a Federal Employee Identification number from the Internal Revenue Service (IRS) using special forms. Each partner reports his share of partnership profits or losses on his individual tax return and pays the tax on those profits. The partnership itself does not pay any taxes on its tax return.
Limited Partnership In a Limited Partnership, one or more partners run the business as General Partners and the remaining partners are passive investors who become limited partners and are personally liable only for the amount of their investments. They are called limited partners because they cannot be sued for more money than they have invested in the business. Limited Partnerships are commonly used for real-estate syndication.
Master Limited Partnership Master Limited Partnerships are similar to Corporations trading partnership units on listed stock exchanges. They have many advantages that are similar to Corporations e.g. Limited liability, unlimited life, and transferable ownership. In addition, they have the added advantage if 90% of their income is from passive sources (e.g. rental income), then they pay no corporate taxes since the profits are paid to the stockholders who are taxed at individual rates.
3. Corporations The Corporation is the most dominant form of business organization in our society. A Corporation is a legally chartered enterprise with most legal rights of a person
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including the right to conduct business, own, sell and transfer property, make contracts, borrow money, sue and be sued, and pay taxes. Since the Corporation exists as a separate entity apart from an individual, it is legally responsible for its actions and debts. The modern Corporation evolved in the beginning of this century when large sums of money were required to build railroads and steel mills and the like and no one individual or partnership could hope to raise. The solution was to sell shares to numerous investors (shareholders) who in turn would get a cut of the profits in exchange for their money. To protect these investors associated with such large undertakings, their liability was limited to the amount of their investment. Since this seemed to be such a good solution, Corporations became a vibrant part of our nations economy. As rules and regulations evolved as to what a Corporation could or could not do, Corporations acquired most of the legal rights as those of people in that it could receive, own sell and transfer property, make contracts, borrow money, sue and be sued and pay taxes. The strength of a Corporation is that its ownership and management are separate. In theory, the owners may get rid of the Managers if they vote to do so. Conversely, because the shares of the company known as stock can sold to someone else, the Companys ownership can change drastically, while the management stays the same. The Corporations unlimited life span coupled with its ability to raise money gives it the potential for significant growth. A Company does not have to be large to incorporate. In fact, most corporations, like most businesses, are relatively small, and most small corporations are privately held. Some of the disadvantages of Corporations are that incorporated businesses suffer from higher taxes than unincorporated businesses. In addition, shareholders must pay income tax on their share of the Companys profit that they receive as dividends. This means that corporate profits are taxed twice. There are several different types of Corporation based on various distinctions, the first of which is to determine if it is a public, quasi-public or Private Corporation. Federal or state governments form Public Corporations for a specific public purpose such as making student loans, building dams, running local school districts etc. Quasi-public Corporations are public utilities, local phones, water, and natural gas. Private
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Corporations are companies owned by individuals or other companies and their investors buy stock in the open market. This gives private corporations access to large amounts of capital. Public and private corporations can be for-profit or non-profit corporations. For-profit corporations are formed to earn money for their owners. Non-profit Corporations have other goals such as those targeted by charitable, educational, or fraternal organizations. No stockholder shares in the profits or losses and they are exempt from corporate income taxes. Professional Corporations are set up by businesses whose shareholders offer professional services (legal, medical, engineering, etc.) and can set up beneficial pension and insurance packages. Limited Liability Companies (LLCs as they are called) combine the advantages of S Corporations and limited partnerships, without having to abide by the restrictions of either. LLCs allow companies to pay taxes like partnerships and have the advantage of protection from liabilities beyond their investments. Moreover, LLCs can have over 35 investors or shareholders (with a minimum of 2 shareholders). Participation in management is not restricted, but its life span is limited to 30 years.
The Business Entity Concept

It is an important accounting principle that the business is treated as an entity separate and distinct from its owners and any other people associated with it. This principle is called the Business Entity Concept. It simply means that accounting records and reports are concerned with the business entity, not with the people associated with the business. Now, lets us review the two main accounting methods.
Types of Accounting
The two methods of tracking your accounting records are: Cash Based Accounting Accrual Method of Accounting
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Cash Based Accounting Most of us use the cash method to keep track of our personal financial activities. The cash method recognizes revenue when payment is received, and recognizes expenses when cash is paid out. For example, your personal checkbook record is based on the cash method. Expenses are recorded when cash is paid out and revenue is recorded when cash or check deposits are received. Accrual Accounting The accrual method of accounting requires that revenue be recognized and assigned to the accounting period in which it is earned. Similarly, expenses must be recognized and assigned to the accounting period in which they are incurred. A Company tracks the summary of the accounting activity in time intervals called Accounting periods. These periods are usually a month long. It is also common for a company to create an annual statement of records. This annual period is also called a Fiscal or an Accounting Year. The accrual method relies on the principle of matching revenues and expenses. This principle says that the expenses for a period, which are the costs of doing business to earn income, should be compared to the revenues for the period, which are the income earned as the result of those expenses. In other words, the expenses for the period should accurately match up with the costs of producing revenue for the period. In general, there are two types of adjustments that need to be made at the end of the accounting period. The first type of adjustment arises when more expense or revenue has been recorded than was actually incurred or earned during the accounting period. An example of this might be the pre-payment of a 2-year insurance premium, say, for $2000. The actual insurance expense for the year would be only $1000. Therefore, an adjusting entry at the end of the accounting period is necessary to show the correct amount of insurance expense for that period. Similarly, there may be revenue that was received but not actually earned during the accounting period. For example, the business may have been paid for services that will not actually be provided or earned until the next year. In this case, an adjusting entry at the end of the accounting period is made to defer, that is, to postpone, the recognition of
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revenue to the period it is actually earned. Although many companies use the accrual method of accounting, some small businesses prefer the cash basis. The accrual method generates tax obligations before the cash has been collected. This benefits the Government because the IRS gets its tax money sooner.
Accounts
The accounting system uses Accounts to keep track of information. Here is a simple way to understand what accounts are. In your office, you usually keep a filing cabinet. In this filing cabinet, you have multiple file folders. Each file folder gives information for a specific topic only. For example you may have a file for utility bills, phone bills, employee wages, bank deposits, bank loans etc. A chart of accounts is like a filing cabinet. Each account in this chart is like a file folder. Accounts keep track of money spent, earned, owned, or owed. Each account keeps track of a specific topic only. For example, the money in your bank or the checking account would be recorded in an account called Cash in Bank. The value of your office furniture would be stored in another account. Likewise, the amount you borrowed from a bank would be stored in a separate account. Each account has a balance representing the value of the item as an amount of money. Accounts are divided into several categories like Assets, Liabilities, Income, and Expense accounts. A successful business will generally have more assets than liabilities. Income and Expense accounts keep track of where your money comes from and on what you spend it. This helps make sure you always have more assets than liabilities.
Account Types
In order to track money within an organization, different types of accounting categories exist. These categories are used to denote if the money is owned or owed by the organization. Let us discuss the three main categories: Assets, Liabilities, and Capital.
Assets
An Asset is a property of value owned by a business. Physical objects and intangible rights such as money, accounts receivable, merchandise, machinery, buildings, and inventories for sale are common examples of business assets as they have economic
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value for the owner. Accounts receivable is an unwritten promise by a client to pay later for goods sold or services rendered. Assets are generally listed on a balance sheet according to the ease with which they can be converted to cash. They are generally divided into three main groups: Current Asset A Current Asset is an asset that is either:-
Cash includes funds in checking and savings accounts Marketable securities such as stocks, bonds, and similar investments. Accounts Receivables, which are amounts due from customers Notes Receivables, which are promissory notes by customers to pay a definite sum plus interest on a certain date at a certain place.
Inventories such as raw materials or merchandise on hand Prepaid expenses supplies on hand and services paid for but not yet used (e.g. prepaid insurance)
In other words, cash and other items that can be turned back into cash within a year are considered a current asset. Fixed Assets Fixed Assets refer to tangible assets that are used in the business. Commonly, fixed assets are long-lived resources that are used in the production of finished goods. Examples are buildings, land, equipment, furniture, and fixtures. These assets are often included under the title property, plant, and equipment that are used in running a business. There are four qualities usually required for an item to be classified as a fixed asset. The item must be: Tangible Long-lived Used in the business Not be available for sale
Certain long-lived assets such as machinery, cars, or equipment slowly wear out or become obsolete. The cost of such as assets is systematically spread over its estimated useful life.
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This process is called depreciation if the asset involved is a tangible object such as a building or amortization if the asset involved is an intangible asset such as a patent. Of the different kinds of fixed assets, only land does not depreciate. Intangible Assets Intangible Assets are assets that are not physical assets like equipment and machinery but are valuable because they can be licensed or sold outright to others. They include cost of organizing a business, obtaining copyrights, registering trademarks, patents on an invention or process and goodwill. Goodwill is not entered as an asset unless the business has been purchased. It is the least tangible of all the assets because it is the price a purchaser is willing to pay for a companys reputation especially in its relations with customers.
Liabilities
A Liability is a legal obligation of a business to pay a debt. Debt can be paid with money, goods, or services, but is usually paid in cash. The most common liabilities are notes payable and accounts payable. Accounts payable is an unwritten promise to pay suppliers or lenders specified sums of money at a definite future date. Current Liabilities Current Liabilities are liabilities that are due within a relatively short period of time. The term Current Liability is used to designate obligations whose payment is expected to require the use of existing current assets. Among current liabilities are: - Accounts Payable, Notes Payable, and Accrued Expenses. These are exactly like their receivable counterparts except the debtor-creditor relationship is reversed. Accounts Payable is generally a liability resulting from buying goods and services on credit. Suppose a business borrows $5,000 from the bank for a 90-day period. When the money is borrowed, the business has incurred a liability a Note Payable. The bank may require a written promise to pay before lending any amount although there are many credit plans, such as revolving credit where the promise to pay back is not in note form. On the other hand, suppose the business purchases supplies from the ABC Company for
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$1,000 and agrees to pay within 30 days. Upon acquiring title to the goods, the business has a liability an Account Payable to the ABC Company. In both cases, the business has become a debtor and owes money to a creditor. Other current liabilities commonly found on the balance sheet include salaries payable and taxes payable. Another type of current liability is Accrued Expenses. These are expenses that have been incurred but the bills have not been received for it. Interest, taxes, and wages are some examples of expenses that will have to be paid in the near future. Long-Term Liabilities Long-Term Liabilities are obligations that will not become due for a comparatively long period of time. The usual rule of thumb is that long-term liabilities are not due within one year. These include such things as bonds payable, mortgage note payable, and any other debts that do not have to be paid within one year. You should note that as the long-term obligations come within the one-year range they become Current Liabilities. For example, mortgage is a long-term debt and payment is spread over a number of years. However, the installment due within one year of the date of the balance sheet is classified as a current liability. Capital Capital, also called net worth, is essentially what is yours what would be left over if you paid off everyone the company owes money to. If there are no business liabilities, the Capital, Net Worth, or Owner Equity is equal to the total amount of the Assets of the business.
Key Accounting Concepts

The two fundamental accounting concepts which were developed centuries ago but remain central to the accounting process are: The accounting equation Double-entry bookkeeping
The Accounting Equation
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Now let us discuss the accounting equation, which keeps all the business accounts in balance. We will create this equation in steps to clarify your understanding of this concept. In order to start a business, the owner usually has to put some money down to finance the business operations. Since the owner provides this money, it is called Owners equity. In addition, this money is an Asset for the company. This can be represented by the equation: ASSETS = OWNERS EQUITY If the owner of the business were to close down this business, he would receive all its assets. Lets say that owner decides to accept a loan from the bank. When the business decides to accept the loan, their Assets would increase by the amount of the loan. In addition, this loan is also a Liability for the company. This can be represented by the equation: ASSETS = LIABILITIES + OWNERS EQUITY Now the Assets of the company consist of the money invested by the owner, (i.e. Owners Equity), and the loan taken from the bank, (i.e. a Liability) . The companys liabilities are placed before the owners equity because creditors have first claim on assets. If the business were to close down, after the liabilities are paid off, anything left over (assets) would belong to the owner. The Double Entry System As we had mentioned earlier that todays accounting principles are based on the system created by an Italian Monk Fra Luca Pacioli. He developed this system over 500 years ago. Pacioli had devised this method of keeping books, which is today known as the Double Entry system of accounting. He explained that every time a transaction took place whether it was a sale or a collection there were two offsetting sides. The entry required a two-part give-and-get entry for each transaction. Here is a simple explanation of the double entry system. Say you took a loan from the bank for $5,000. Now if you can recall in an earlier discussion we had mentioned that: ASSETS = LIABILITIES + OWNERS EQUITY
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Since the company borrowed money from the bank, the $5,000 is a liability for the company. In addition, now that the company has the extra $5,000, this money is an asset for the company. If we were to record this information in our accounts, we would put $5,000 in an account called Loan Taken from the Bank , and $5,000 in an account called Cash Saved in the Bank . The former account will be a Liability and the second account would be an Asset. As you can see, we created two entries. The first one is to show from where the money was received (i.e. the source of the money). The second entry is to show where the money was sent (i.e. the destination of the money received). In a double entry accounting system, every transaction is recorded in the form of debits and credits. Even for the simplest double entry, transaction there will be a debit and a credit. In simpler terms, a debit is the application of money, and credit is the source of money.
Financial Statements
In order to manage your business effectively you need reports that tell you how your business is performing. For example, you may want to know the value of your assets like, Cash you have on hand, Cash in bank, and Inventory in stock. In addition, you would like to know the value of your liabilities, loans, income earned, and expenses incurred. Accountants prepare financial statements that summarize these transactions. Two of the most important reports for managing your business are Income Statement and the Balance Sheet. Income Statement An Income Statement is also called a Profit and Loss Report. In addition, the word Revenue is often used in place of the word Income. An Income Statement is used to inform you about the income earned, expenses incurred, and the total profit or loss in a particular period. Two common periods for creating an income statement are monthly and annually. This report summarizes all Income (or sales), the amounts that have been or will be received from customers for goods delivered or services rendered to them, and all expenses, the costs that have arisen in generating revenues. To show the actual profit or loss of a company, the expenses are subtracted from the revenues to show the Net Income profit or the bottom line.
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Income Accounts: These accounts are used to track income earned during the process of operating your business. The income of a business comes from sales to customers or fees for services or both. Some of the common names for income accounts are: Income from Sales Income from Freight Other Income
Expense Accounts: These accounts are used to track expenses incurred during the process of operating your business. Expenses include both the costs directly associated with creating products and general operating expenses. Some of the common names for expense accounts are: Cost of Sales Office Supplies Utilities Payroll Expenses Tax Expenses
A very simple form of an income statement displays in the following example: Specimen Income Statement Income Income from Sales Income from Freight Other Income Total Income 15,000.00 1,000.00 250.00 16,250.00
Expenses Cost of Sales Office Supplies Telephone Expense Utilities Consulting Fees Maintenance Insurance 2,000.00 250.00 500.00 100.00 750.00 300.00 250.00
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Miscellaneous Expenses Travel & Entertainment Bank Charges Payroll Expense Tax Expense Total Expenses Net Income/Loss 375.00 650.00 25.00 4,000.00 2,500.00 11,700.00 4,550.00
Balance Sheet A Balance sheet is like a snapshot that gives you the overall picture of the financial health of a company at one moment in time. This report lists the assets, liabilities, and owners equity in the business. Unlike the income statement, this report is always created to show the financial status as of a certain date. Two common ending periods to create a balance sheet are the end of a month and the end of the year. The Balance Sheet has two sections. The first section lists all the Asset accounts and their balances. At the end of the list, the totals of all assets are listed. In the second section, the Liability and Owners Equity accounts are listed. There are two sub-totals for the Liability and the Equity accounts. At the end, there is a combined total of the Liabilities and Owners Equity. As discussed earlier in the accounting equation, the Assets equal the sum of the Liabilities and the Equities. You will also notice that the Profit from the income statement is listed in the Equity section of the balance sheet. Some of the important accounts in the balance sheet are: Current Assets: Current assets are always listed first and include cash and other items that can be converted into cash within the following year. This includes funds in checking and savings accounts. Accounts Receivable: Accounts Receivable represents money owed to the business. These usually result from the sale of merchandise or performance of services for a client on account. The phrase On Account indicates that on the date the goods were sold to the client, or the service performed for him, the business did not receive full payment. However, it did obtain an asset the right to collect payment for merchandise sold or Services performed. The claim a business has against a credit client is referred to as an
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Account Receivable. It is an asset because it represents a legal claim to cash. Inventory: Inventories may represent merchandise purchased for resale as well as the raw materials acquired by a manufacturing firm to put into the product. In the case of a manufacturer, the term inventories also includes manufacturing supplies, purchased parts, the work that is in process, and finished goods. Inventory is also an asset account. Accounts Payable: When you purchase goods or services on account, you are usually required to pay within a fixed period of time. These amounts you owe for the goods or services purchased are called accounts payable. The payment of these purchases is usually due within a relatively short period of time. Usually this period is one year or less. Typical periods are thirty to sixty days. The payment for these short-term liabilities requires the use of existing resources like the Cash or The Checking Account.
Specimen Balance Sheet Assets Checking Account Investments Inventory Accounts Receivable Machinery & Equipment Investments Total Assets Liabilities & Equity Accounts Payable Loans Payable Salaries Payable Taxes Payable Total Liabilities Owners Equity Profit/Loss Total Equity Total Liabilities & Equity 15,000.00 60,450.00 75,000.00 2,500.00 152,950.00 100,000.00 4,550.00 104,550.00 257,500.00 25,000.00 75,000.00 25,000.00 10,000.00 22,500.00 100,000.00 257,500.00
Linking the Income Statement and Balance Sheet Generally, a balance sheet and an income statement are prepared and issued together
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because in a way they are twin reports, the income statement showing what happened over a period of time and the balance sheet showing the resulting condition at the end of that period. Since these statements are usually studied in relation to one another, it is highly desirable for them to tie together with one common figure. You will see that the Net Profit/Loss on the bottom of the income statement discussed earlier was $4,550.00. If you look at the Equity section of the balance sheet shown earlier, you will notice that the $4,550.00 Profit/Loss lists as a part of the total equity. This ties the income statement to the balance sheet report.
Introduction to Marketing
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Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Marketing Mix Marketers use numerous tools to elicit the desired responses from their target markets. These tools constitute a marketing mix: Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. These tools are classified in four broad groups, known as the 4 Ps of marketing: product, price, place, and promotion Place Channels Coverage Assortments Locations Inventory Transport Promotion Sales promotion Advertising Sales force Public relations Direct marketing Price List price Discounts Allowances Payment period Credit terms Product Product variety Quality Design Features Brand name Packaging Sizes Services Warranties Returns
The sellers four Ps correspond to the customers four Cs. Four Ps Product Price Place Promotion Needs, Wants, and Demands The successful marketer will try to understand the target markets needs, wants, and demands. Needs describe basic human requirements for food, air, water, clothing, and shelter. People also have strong needs for recreation, education, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but wants a hamburger, French fries, and a soft drink. A Four Cs Customer solution Customer cost Convenience Communication
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person in Mauritius needs food but wants a mango, rice, lentils, and beans. Clearly, wants are shaped by ones society. Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few are able and willing to buy one.
Competition
We can broaden the picture by distinguishing four levels of competition, based on degree of product substitutability:
1. Brand competition: A company sees its competitors as other companies that offer
similar products and services to the same customers at similar prices. Volkswagen might see its major competitors as Toyota, Honda, and other manufacturers of medium price automobiles, rather than Mercedes or Hyundai.
2. Industry competition: A company sees its competitors as all companies that make
the same product or class of products. Thus, Volkswagen would be competing against all other car manufacturers.
3. Form competition: A company sees its competitors as all companies that

manufacture products that supply the same service. Volkswagen would see itself competing against manufacturers of all vehicles, such as motorcycles, bicycles, and trucks.
4. Generic competition: A company sees its competitors as all companies that

compete for the same consumer dollars. Volkswagen would see itself competing with companies that sell major consumer durables, foreign vacations, and new homes.
Customer Needs
A company can carefully define its target market yet fail to correctly understand the customers needs. Clearly, understanding customer needs and wants is not always simple. Some customers have needs of which they are not fully conscious; some cannot articulate these needs or use words that require some interpretation. We can distinguish among five types of needs: (1) stated needs, (2) real needs, (3) unstated needs, (4) delight needs, and (5) secret needs.
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The Boston Consulting Group (BCG) Matrix

The Boston Consulting Group (BCG), a leading management consulting firm, developed and popularized the growth-share matrix.
The market growth rate on the vertical axis indicates the annual growth rate of the market in which the business operates. Relative market share, which is measured on the horizontal axis, refers to the SBUs market share relative to that of its largest competitor in the segment. It serves as a measure of the companys strength in the relevant market segment. The growth-share matrix is divided into four cells, each indicating a different type of business:
Question marks are businesses that operate in high-growth markets but have low
relative market shares. Most businesses start off as question marks as the company tries to enter a high-growth market in which there is already a market leader. A question mark requires a lot of cash because the company is spending money on
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plant, equipment, and personnel. The term question mark is appropriate because the company has to think hard about whether to keep pouring money into this business.
Stars are market leaders in a high-growth market. A star was once a question mark,
but it does not necessarily produce positive cash flow; the company must still spend to keep up with the high market growth and fight off competition.
Cash cows are former stars with the largest relative market share in a slow-growth
market. A cash cow produces a lot of cash for the company (due to economies of scale and higher profit margins), paying the companys bills and supporting its other businesses.
Dogs are businesses with weak market shares in low-growth markets; typically,
these generate low profits or even losses.
After plotting its various businesses in the growth-share matrix, a company must determine whether the portfolio is healthy. An unbalanced portfolio would have too many dogs or question marks or too few stars and cash cows. The next task is to determine what objective, strategy, and budget to assign to each SBU. Four strategies can be pursued:
1. Build: The objective here is to increase market share, even forgoing short-term
earnings to achieve this objective if necessary. Building is appropriate for question marks whose market shares must grow if they are to become stars.
2. Hold: The objective in a hold strategy is to preserve market share, an appropriate

strategy for strong cash cows if they are to continue yielding a large positive cash flow.
3. Harvest: The objective here is to increase short-term cash flow regardless of longterm effect. Harvesting involves a decision to withdraw from a business by implementing a program of continuous cost retrenchment. The hope is to reduce costs faster than any potential drop in sales, thus boosting cash flow. This strategy is appropriate for weak cash cows whose future is dim and from which more cash flow is needed. Harvesting can also be used with question marks and dogs.
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4. Divest: The objective is to sell or liquidate the business because the resources can
be better used elsewhere. This is appropriate for dogs and question marks that are dragging down company profits. Successful SBUs move through a life cycle, starting as question marks and becoming stars, then cash cows, and finally dogs. Given this life-cycle movement, companies should be aware not only of their SBUs current positions in the growth-share matrix (as in a snapshot), but also of their moving positions (as in a motion picture). If an SBUs expected future trajectory is not satisfactory; the corporation will need to work out a new strategy to improve the likely trajectory.
Marketing Research
Marketing research process
Define the Problem and Research Objective s
Develop the Researc h plan
Collect the Informatio n
Analyze the Information
Present the Findings
Consumer behavior
Freuds theory Sigmund Freud assumed that the psychological forces shaping peoples behavior are largely unconscious, and that a person cannot fully understand his or her own motivations. A technique called laddering can be used to trace a persons motivations from the stated instrumental ones to the more terminal ones. Then the marketer can decide at what level to develop the message and appeal.16 In line with Freuds theory, consumers react not only to the stated capabilities of specific brands, but also to other, less conscious cues. Successful marketers are therefore mindful that shape, size, weight, material, color, and brand name can all trigger certain associations and emotions.
Maslows theory:
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Abraham Maslow sought to explain why people are driven by particular needs at particular times.17 His theory is that human needs are arranged in a hierarchy, from the most to the least pressing. In order of importance, these five categories are physiological, safety, social, esteem, and self-actualization needs. A consumer will try to satisfy the most important need first; when that need is satisfied, the person will try to satisfy the next-most-pressing need. Maslows theory helps marketers understand how various products fit into the plans, goals, and lives of consumers.
Herzbergs theory:
Frederick Herzberg developed a two-factor theory that distinguishes dis-satisfiers (factors that cause dissatisfaction) from satisfiers (factors that cause satisfaction). The absence of dis-satisfiers is not enough; satisfiers must be actively present to motivate a purchase. For example, a computer that comes without a warranty would be a dis-satisfier. Yet the presence of a product warranty would not act as a satisfier or motivator of a purchase, because it is not a source of intrinsic satisfaction with the computer. Ease of use would, however, be a satisfier for a computer buyer. In line with this theory, marketers should avoid dis-satisfiers that might unsell their products. They should also identify and supply the major satisfiers or motivators of purchase, because these satisfiers determine which brand consumers will buy.
Porters Five Force Model Page 58
Threat of New Entrants: High As a result of various steps taken by the Government on a continuing basis, India is now very high on the agenda of several leading global Electronics and IT hardware manufacturers. To capitalize on the growth potential, a number of reputed companies like Nokia, Motorola, DELL, Samsung, LG, FoxConn, Flextronics, Aspcom, have either set up their units or are coming forward to invest in the country. Rivalry among competitors: High When mid-sized Indian consulting firms like TCS and Infosys introduced off-shoring by charging lower prices per consultant, big IT consulting houses like IBM and Accenture had to hire IT professionals in India and charge similar prices per consultant. Threat of Substitutes: Low Indian software industry having no substitutes but it has more opportunity in future. So, Infosys which will take advantage of that in future. Bargaining Power of Buyer: High IT has always been a cost center in a business. Once the Y2K hype was over and we entered the new millennium, it became clearer that the buyers of IT consulting services had the upper hand, as opposed to the suppliers of these services.
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Bargaining Power of Suppliers: High Infosyss Range of Expertise: Application, Development & Maintenance, Corporate performance management, Enterprise quality services, Infrastructure services, packaged application services, product engineering & system integration. Industry Verticals: Aerospace & defense, Automotive, Banking & Finance Services, Communication services, Consumer packaged goods, Education, Energy, Healthcare, Hospitality & leisure, Insurance, life sciences, Media & entertainment, Manufacturing, Non-Profits, Process Industry, Real Estate & Construction, Retail, Telecom, Travel & Transportation.
Ansoff Matrix
To portray alternative corporate growth strategies, Igor Ansoff presented a matrix that focused on the firm's present and potential products and markets (customers). By considering ways to grow via existing products and new products, and in existing markets and new markets, there are four possible product-market combinations. Ansoff's matrix is shown below: Ansoff Matrix Existing Products Existing Markets Market Penetration New Products Product Development
New Markets
Market Development
Diversification
Ansoff's matrix provides four different growth strategies: Market Penetration - the firm seeks to achieve growth with existing products in their current market segments, aiming to increase its market share.
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Market Development - the firm seeks growth by targeting its existing products to new market segments. Product Development - the firms develops new products targeted to its existing market segments. Diversification - the firm grows by diversifying into new businesses by developing new products for new markets. Selecting a Product-Market Growth Strategy The market penetration strategy is the least risky since it leverages many of the firm's existing resources and capabilities. In a growing market, simply maintaining market share will result in growth, and there may exist opportunities to increase market share if competitors reach capacity limits. However, market penetration has limits, and once the market approaches saturation another strategy must be pursued if the firm is to continue to grow. Market development options include the pursuit of additional market segments or geographical regions. The development of new markets for the product may be a good strategy if the firm's core competencies are related more to the specific product than to its experience with a specific market segment. Because the firm is expanding into a new market, a market development strategy typically has more risk than a market penetration strategy. A product development strategy may be appropriate if the firm's strengths are related to its specific customers rather than to the specific product itself. In this situation, it can leverage its strengths by developing a new product targeted to its existing customers. Similar to the case of new market development, new product development carries more risk than simply attempting to increase market share. Diversification is the most risky of the four growth strategies since it requires both product and market development and may be outside the core competencies of the firm. In fact, this quadrant of the matrix has been referred to by some as the "suicide cell". However, diversification may be a reasonable choice if the high risk is compensated by the chance of a high rate of return. Other advantages of diversification include the potential to gain a foothold in an attractive industry and the reduction of overall business portfolio risk.
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Conjoint Analysis
Conjoint Analysis is a model and technique used to assess the different weights individuals place on the variables presented to them in a given purchase situation. For example, if a consumer decides to buy a house there are a couple of distinct variables involved: Purchase Price Size (Sq. Feet) Quality of Bathrooms/Kitchens Proximity to Schools /markets
A conjoint study usually involves showing respondents product profiles and asking them to indicate (in a variety of ways) how much they like or prefer these alternative product profiles. Statistics are then used to work out the contribution that each product attribute is making to the overall likeability.
T.U.R.F Analysis - Total Unduplicated Reach and Frequency Analysis

TURF is a statistical model that can used to answer questions like: Where should we place ads to reach the widest possible audience? What kind of market-share will we gain if we add a new line to our model?
It was originally devised for analysis of media campaigns, and has been expanded to apply to product, line and distribution analysis. Multiple Choice/Multiple Answer question can be analyzed using TURF. The TURF Simulator calculates optimal configurations for maximizing reach. Reach or Coverage is defined as the proportion of the audience (target group) that chooses a particular option. In a research context, TURF analysis provides estimates of market potential. TURF analysis identifies the number of users reached and/or their frequency of usage of a particular product configured in a certain way.
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For example, say you want to market 10 new flavors of yogurt. There may be ten possible flavors for a new yogurt, but in actuality the market will only purchase three. The TURF algorithm identifies the optimal product line to maximize the total number of consumers who will purchase at least one SKU (Stock Keeping Unit) and, at the same time, minimize consumer overlap across all the flavors. TURF analysis provides marketing managers with answers to the following questions: How many consumers will use each offering (reach) in the product line? What is the volume (frequency) of usage for each offering in the product line? What is the nature of consumer's usage among offerings in the product line?
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Introduction to Human Resources (HR)
Human Resource Management (HRM) is the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business. The terms "human resource management" and "human resources" have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations. Some of the functions of HRM are: Human Resource Planning Recruitment Selection Training & Development Performance Appraisal Compensation & Benefits Employee Welfare Industrial Relations Human Resource Audit
Some of the Human Resource Management related terms are explained below. Talent management A conscious, deliberate approach undertaken to attract, develop and retain people with the aptitude and abilities to meet current and future organizational needs. Talent management is a process that emerged in the 1990s and continues to be adopted, as more companies come to realize that their employees talents and skills drive their business success. These companies develop plans and processes to track and manage their employee talent, including the following: Recognizing talent: Notice what do employees do in their free time and find out their interests. Try to discover their strengths and interests. Also, encourage them to discover their own latent talents. For instance, if an employee in the operations department
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convincingly explains why he thinks he's right even when he's wrong, consider moving him to sales! Attracting Talent: Good companies create a strong brand identity with their customers and then deliver on that promise. Great employment brands do the same, with quantifiable and qualitative results. As a result, the right people choose to join the organisation. Selecting Talent: Management should implement proven talent selection systems and tools to create profiles of the right people based on the competencies of high performers. It's not simply a matter of finding the "best and the brightest," it's about creating the right fit - both for today and tomorrow. Retaining Talent: In the current climate of change, it's critical to hold onto the key people. These are the people who will lead the organisation to future success, and you can't afford to lose them. The cost of replacing a valued employee is enormous. Organizations need to promote diversity and design strategies to retain people, reward high performance and provide opportunities for development. Managing Succession: Effective organizations anticipate the leadership and talent requirement to succeed in the future. Leaders understand that it's critical to strengthen their talent pool through succession planning, professional development, job rotation and workforce planning. They need to identify potential talent and groom it. Change Organization Culture: Ask yourself, "Why would a talented person choose to work here?" If the organization wishes to substantially strengthen its talent pool, it should be prepared to change things as fundamental as the business strategy, the organization structure, the culture and even the calibre of leaders in the organization. Talent management is also known as HCM (Human Capital Management). Job Description Job descriptions are written statements that describe the duties, responsibilities, most important contributions and outcomes needed from a position, required qualifications of
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candidates, and the reporting relationship of a particular job. Job descriptions are usually developed by conducting a job analysis.
Job Analysis
Job Analysis is a process to identify and determine in detail the particular job duties and requirements and the relative importance of these duties for a given job. An important concept of Job Analysis is that the analysis is conducted of the Job, not the person. While Job Analysis data may be collected from incumbents through interviews or questionnaires, the product of the analysis is a description or specifications of the job, not a description of the person. Purpose of Job Analysis The purpose of Job Analysis is to establish and document the 'job relatedness' of employment procedures such as training, selection, compensation, and performance appraisal. Determining Training Needs Job Analysis can be used in training/"needs assessment" to identify or develop: Training content Assessment tests to measure effectiveness of training Equipment to be used in delivering the training Method of training (i.e., small group, computer-based, video,
classroom) Compensation Job Analysis can be used in compensation to identify or determine: Skill levels Compensable job factors Work environment (e.g., hazards; attention; physical effort) Responsibilities (e.g., fiscal; supervisory) Required level of education (indirectly related to salary level)
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Selection Procedures Job Analysis can be used in selection procedures to identify or develop: Performance Review Job Analysis can be used in performance review to identify or develop: Goals and objectives Performance standards Evaluation criteria Length of probationary periods Duties to be evaluated Job duties that should be included in advertisements of vacant Appropriate salary level for the position to help determine what Minimum requirements (education and/or experience) for screening Interview questions; Selection tests/instruments (e.g., written tests; oral tests; job Applicant appraisal/evaluation forms; Orientation materials for applicants/new hires
positions; salary should be offered to a candidate; applicants;
simulations);
Methods of Job Analysis Several methods exist that may be used individually or in combination. These include: Review of job classification systems Incumbent interviews Supervisor interviews Expert panels Structured questionnaires
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Task inventories Check lists Open-ended questionnaires Observation incumbent work logs
A typical method of Job Analysis would be to give the incumbent a simple questionnaire to identify job duties, responsibilities, equipment used, work relationships, and work environment. The completed questionnaire would then be used to assist the Job Analyst who would then conduct an interview of the incumbent(s). A draft of the identified job duties, responsibilities, equipment, relationships, and work environment would be reviewed with the supervisor for accuracy. The Job Analyst would then prepare a job description and/or job specifications. The method that you may use in Job Analysis will depend on practical concerns such as type of job, number of jobs, number of incumbents, and location of jobs. What Aspects of a Job Are Analyzed? Job Analysis should collect information on the following areas: Duties and Tasks: The basic unit of a job is the performance of
specific tasks and duties. Information to be collected about these items may include: frequency, duration, effort, skill, complexity, equipment, standards, etc. Environment: This may have a significant impact on the physical requirements to be able to perform a job. The work environment may include unpleasant conditions such as offensive odors and temperature extremes. There may also be definite risks to the incumbent such as noxious fumes, radioactive substances, hostile and aggressive people, and dangerous explosives. Tools and Equipment: Some duties and tasks are performed using specific equipment and tools. Equipment may include protective clothing. These items need to be specified in a Job Analysis.
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Relationships: Supervision given and received. Relationships with Requirements: The knowledges, skills, and abilities (KSA's)
internal or external people. required to perform the job. While an incumbent may have higher KSA's than those required for the job, a Job Analysis typically only states the minimum requirements to perform the job. Recruitment It is the process of finding and attracting capable applicants for employment. The process begins when new recruits are sought and ends when their applications are submitted. The process involves sourcing. Sourcing: It means developing lists of potential candidates. It relates to the task of requisitioning, or creating job descriptions, approval workflows and actual job postings. Most e-recruitment software providers include modules for requisitioning. It involves: 1) advertising, a common part of the recruiting process, often encompassing multiple media, such as the Internet, general newspapers, job ad newspapers, professional publications, window advertisements, job centers, and campus graduate recruitment programs; 2) Recruiting research, which is the proactive identification of relevant talent who may not respond to job postings and other recruitment advertising methods done in #1. This initial research for so-called passive prospects, also called name-generation, results in a list of prospects who can then be contacted to solicit interest, obtain a resume/CV, and be screened Every organization has the option of choosing the candidates for its recruitment processes from two kinds of sources: internal and external sources. The sources within the organization itself (like transfer of employees from one department to other, promotions, retired employees, employee referrals) to fill a position are known as the internal sources of recruitment.
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Recruiting candidates from all the other sources (like outsourcing agencies etc.) is known as the external sources of recruitment. Some of them are: Press advertisements Advertisements of the vacancy in newspapers and journals are a widely used source of recruitment. The main advantage of this method is that it has a wide reach. Educational institutes Various management institutes, engineering colleges, medical Colleges etc. are a good source of recruiting well qualified executives, engineers, medical staff etc. They provide facilities for campus interviews and placements. This source is known as Campus Recruitment. Employment exchanges Government establishes public employment exchanges throughout the country. These exchanges provide job information to job seekers and help employers in identifying suitable candidates. Unsolicited applicants Many job seekers visit the office of well-known companies on their own. Such callers are considered nuisance to the daily work routine of the enterprise. But can help in creating the talent pool or the database of the probable candidates for the organisation. Online recruitment websites Such sites have two main features: job boards and a rsum/Curriculum Vitae (CV) database. Job boards allow member companies to post job vacancies. Alternatively, candidates can upload a rsum to be included in searches by member companies. Fees are charged for job postings and access to search resumes. In recent times the recruitment website has evolved to encompass end to end recruitment. Websites capture candidate details and then pool then in client accessed candidate management interfaces. Key players in this sector provide e-recruitment software and services to organisations of all sizes and within numerous industry sectors, who want to e-enable entirely or partly their recruitment process in order to improve business performance.
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Online recruitment websites can be very helpful to find candidates that are very actively looking for work and post their resumes online, but they will not attract the "passive" candidates who might respond favorably to an opportunity that is presented to them through other means. Also, some candidates who are actively looking to change jobs are hesitant to put their resumes on the job boards, for fear that their current companies, co-workers, customers or others might see their resumes. Headhunters Headhunters are third-party recruiters often retained when normal recruitment efforts have failed. Headhunters are generally more aggressive than in-house recruiters. They may use advanced sales techniques, such as initially posing as clients to gather employee contacts, as well as visiting candidate offices. They may also purchase expensive lists of names and job titles, but more often will generate their own lists. They may prepare a candidate for the interview, help negotiate the salary, and conduct closure to the search. They are frequently members in good standing of industry trade groups and associations. Headhunters will often attend trade shows and other meetings nationally or even internationally that may be attended by potential candidates and hiring managers. Headhunters are typically small operations that make high margins on candidate placements (sometimes more than 30% of the candidates annual compensation). Due to their higher costs, headhunters are usually employed to fill senior management and executive level roles, or to find very specialized individuals. Selection It is the process of picking candidates from a pool of applicants to fill the jobs in the organization. Some of the methods of selection are: Personal Interviews A job interview is a process in which a potential employee is evaluated by an employer for prospective employment in their company. Multiple rounds of job interviews may be used where there are many candidates or the job is particularly challenging. A common initial interview form is the phone interview, a job interview conducted over the
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telephone. This is especially common when the candidates do not live near the employer and has the advantage of keeping costs low for both sides. After the preliminary interview if the candidate is found suitable there might be the next round of interview, the selection interview. The aim of the selection interview is to determine whether the candidate is interested in the job and competent to do it. A selection interview also has the following functions: to explain the work of the organisation, the job and any features such as
induction and probation to set expectations on both sides, including a realistic discussion of any
potential difficulties (if appropriate) to enable the candidate to assess whether they want the job being offered.
Group selection methods Group selection methods are most frequently used to assess candidates' leadership qualities and their ability to express themselves clearly and get on with and influence colleagues. The types of exercise which are used include: Leaderless group discussions; Command or executive exercises Group problem solving.
Group exercises are time consuming and, therefore, costly. However, they may be particularly useful for appointments requiring good leadership and communication skills. Skills tests Skills test are used where candidates need to possess a particular skill in order to perform the job, e.g. word processing, use of software packages, prioritizing workloads, driving a motor vehicle, or operating a piece of machinery or laboratory equipment. Many such skills are taught and tested by outside bodies, in which case candidates are likely to hold certificates in proficiency but it is recommended that competency is checked by use of appropriate short skills tests.
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Written and oral presentations Presentations are often used to assess the qualities of candidates applying for posts which require a complex set of skills, together with specific professional/academic knowledge. By asking candidates to prepare and deliver a presentation on a given subject, and in some cases to participate in a discussion afterwards, selectors can see an example of the individual's skills of written and oral presentation, analysis and reasoning, as well as gaining some evidence of their professional/academic knowledge and of their attitudes. Case studies As with presentations, case studies can be a valuable way of assessing candidates' knowledge of a particular subject area, and their likely approach to handling a particular situation. This selection method is sometimes used for candidates for managerial posts, or for posts requiring knowledge of specific procedures, regulations or legislation. Assessment centres An assessment centre is a standardised selection method which uses a variety of different tests, interviews and exercises to evaluate a candidate's potential performance in a particular post. The assessment centre programme usually spans several days during which time the participants are observed, and at the end of which they are given feedback on their performance. This selection method is extremely effective but costly. It is generally used when large numbers of candidates are being assessed. On boarding/ New Employee Orientation The process of moving a new hire from applicant to employee status ensuring that paperwork is done, benefits administration is underway, and orientation is completed. It also involves integrating a new employee or a newly-promoted leader or associate into an organization or role. Onboarding begins when the candidate accepts the position; it includes orientation, and extends through about month six, and sometimes up to one year, depending on the organization.
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Payroll Documentation created and maintained by the employer containing such information as hours worked, salaries, wages, commissions, bonuses, vacation/sick pay, contributions to qualified health and pension plans, net pay and deductions. Performance Management Performance management is the systematic process by which an agency involves its employees, as individuals and members of a group, in improving organizational effectiveness in the accomplishment of agency mission and goals. It involves the following:
Planning: In an effective organization, work is planned out in advance. Planning means setting performance expectations and goals for groups and individuals to channel employees efforts toward achieving organizational objectives. Getting employees involved in the planning process will help them understand the goals of the organization, what needs to be done, why it needs to be done, and how well it should be done. Monitoring: In an effective organization, assignments and projects are monitored continually. Monitoring well means consistently measuring performance and providing ongoing feedback to employees and work groups on their progress toward reaching their goals. Developing: In an effective organization, employee developmental needs are evaluated and addressed. Developing in this instance means increasing the capacity to perform through training, giving assignments that introduce new skills or higher levels of
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responsibility, improving work processes, or other methods. Providing employees with training and developmental opportunities encourages good performance, strengthens job-related skills and competencies, and helps employees keep up with changes in the workplace, such as the introduction of new technology. Carrying out the processes of performance management provides an excellent opportunity to identify developmental needs. During planning and monitoring of work, deficiencies in performance become evident and can be addressed. Areas for improving good performance also stand out, and action can be taken to help successful employees improve even further. Rating: Within the context of formal performance appraisal requirements, rating means evaluating employee or group performance against the elements and standards in an employee's performance plan and assigning a summary rating of record. The rating of record is assigned according to procedures included in the organization's appraisal program. It is based on work performed during an entire appraisal period. Rewarding: In an effective organization, rewards are used well. Rewarding means recognizing employees, individually and as members of groups, for their performance and acknowledging their contributions to the agency's mission. A basic principle of effective management is that all behavior is controlled by its consequences. Those consequences can and should be both formal and informal and both positive and negative. Good performance is recognized without waiting for nominations for formal awards to be solicited. Recognition is an ongoing, natural part of day-to-day experience. A lot of the actions that reward good performance like saying "Thank you" don't require a specific regulatory authority. Nonetheless, awards regulations provide a broad range of forms that more formal rewards can take, such as cash, time off, and many nonmonetary items. The regulations also cover a variety of contributions that can be rewarded, from suggestions to group accomplishments. 360 Degree Feedback
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360-degree feedback, also known as 'multi-rater feedback', 'multisource feedback', or 'multisource assessment', is employee development feedback that comes from all around the employee. "360" refers to the 360 degrees in a circle. The feedback would come from subordinates, peers, and managers in the organizational hierarchy, as well as self-assessment, and in some cases external sources such as customers and suppliers or other interested stakeholders. It may be contrasted with upward feedback, where managers are given feedback by their direct reports. The results from 360-degree feedback are often used by the person receiving the feedback to plan their training and development. The results are also used by some organizations for making promotional or pay decisions, which is sometimes called "360degree review." Balanced Scorecard A popular strategic management concept developed in the early 1990's by Drs. Robert Kaplan and David Norton, the balanced scorecard is a management and measurement system which enables organizations to clarify their vision and strategy and translate them into action. The goal of the balanced scorecard is to tie business performance to organizational strategy by measuring results in four areas: financial performance, customer knowledge, internal business processes, and learning and growth. Open Door Policy An open door policy means, literally, that every manager's door is open to every employee. The purpose of an open door policy is to encourage open communication, feedback, and discussion about any matter of importance to an employee. Succession Planning It is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players such as the chief executive officer (CEO) within an organization as their terms expire. From the risk management aspect, provisions are made in case no suitable internal candidates are available to replace the loss of any key person.
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Succession Planning involves having senior executives periodically review their top executives and those in the next lower level to determine several backups for each senior position. This is important because it often takes years of grooming to develop effective senior managers. A careful and considered plan of action ensures the least possible disruption to the persons responsibilities and therefore the organizations effectiveness. Examples include such a person who is: a. Suddenly and unexpectedly unable or unwilling to continue their role within the organization; b. Accepting an approach from another organization or external opportunity which will terminate or lessen their value to the current organization; c. Indicating the conclusion of a contract or time-limited project; or d. Moving to another position and different set of responsibilities within the organization. A succession plan clearly sets out the factors to be taken into account and the process to be followed in relation to retaining or replacing the person. Glass Ceiling The term glass ceiling refers to situations where the advancement of a qualified person within the hierarchy of an organization is stopped at a lower level because of some form of discrimination, most commonly sexism or racism, but since the term was coined, "glass ceiling" has also come to describe the limited advancement of the deaf, blind, disabled, aged and sexual minorities. This situation is referred to as a "ceiling" as there is a limitation blocking upward advancement, and "glass" (transparent) because the limitation is not immediately apparent and is normally an unwritten and unofficial policy. The "glass ceiling" is distinguished from formal barriers to advancement, such as education or experience requirements. Moonlighting
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The experience of working multiple jobs (also referred to as dual or multiple jobholding). People working multiple jobs come from just about every demographic group. HR Audit It is a method by which human resources effectiveness can be assessed. It can be carried out internally or HR audit systems are available. Downsizing Downsizing means to reduce the number of employees in an organization. Downsizing or lay-offs reduce the size of a work force. Used sparingly, and with planning, downsizing can be an organizational lifesaver, but when layoffs are used repeatedly without a thoughtful strategy, downsizing can destroy an organization's effectiveness. Also known as: reduction in force. Attrition It is a term used to describe voluntary and involuntary terminations, deaths, and employee retirements that result in a reduction to the employer's physical workforce. Attrition is a crisis in India, especially in sectors such as IT, ITeS, telecom and retail that are growing at the fastest pace. The average BPO attrition rate was 30-35 percent in 2005. A Nasscom Hewitt-Associates Survey shows that the cost of attrition is 1.5 times the annual salary of an employee. Costs are due to loss of productivity, temporary replacement, loss of knowledge and new recruitment and training. Last but not the least, regular poaching by competitors contributes to employees leaving the organization for a better salary, a better position or career opportunities Johari window It is a cognitive psychological tool created by Joseph Luft and Harry Ingham in 1955 in the United States, used to help people better understands their interpersonal
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communication and relationships. It is used primarily in self-help groups and corporate settings as a heuristic exercise. When performing the exercise, the subject is given a list of 55 adjectives and picks five or six that they feel describe their own personality. Peers of the subject are then given the same list, and each pick five or six adjectives that describe the subject. These adjectives are then mapped onto a grid. Adjectives selected by both the participant and his or her peers are placed into the Arena quadrant. This quadrant represents traits of the participant of which both they and their peers are aware. Adjectives selected only by the participant, but not by any of their peers, are placed into the Faade quadrant, representing information about the participant of which their peers are unaware. Adjectives into the that Blind are not selected by quadrant. the
participant but only by their peers are placed Spot These represent information of which the participant is not aware, but others are, and they can decide whether and how to inform the individual about these "blind spots". Adjectives which were not selected by either the participant or their peers remain in the Unknown quadrant, representing the participant's behaviors or motives which were not recognized by anyone participating. This may be because they do not apply, or because there is collective ignorance of the existence of said trait.
Employee Engagement It is the means or strategy by which an organization seeks to build a partnership between the organization and its employees, such that:
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Employee fully understands and is committed to achieve the organizations objectives, The organization respects the personal aspirations employees. It is seen largely that it is the organizations responsibility to create an environment and culture conducive to this partnership. A fully engaged employee: Is intellectually and emotionally bound with the organization Gives 100 percent Feels passionately about its goals and Is committed to live by its values. and ambitions of its
This employee goes beyond the basic job responsibility to delight the customers and drive the business forward. Moreover, in times of diminishing loyalty, employee engagement is a powerful retention strategy. Learning Organisation It is an organization that learns and encourages learning among its people. It promotes exchange of information between employees hence creating a more knowledgeable workforce. This produces a very flexible organization where people will accept and adapt to new ideas and changes through a shared vision. In the Fifth Discipline, Peter Senge describes learning organizations as places "where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole (reality) together". They do so by:
Seeing, learning and practicing to work with interrelations (circles of causality or "feedback") as well as processes of change (or the time (delays) it takes for change to happen). The extent to which we see and work with these feedbacks and delays hinges on the frames or lenses we are using to help us make sense of our realities. Are we learning to see (practice) the "whole story" or a part of it
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(linear cause-effect)? The extent to which we see our frames determines the extent to which we understand our realities.
Sharing a set of tools / methodologies and theories: A learning organization creates a common and agreed upon understanding of terms, concepts, categories and keywords that apply within that organization that facilitates this work.
Building Guiding Ideas: Leaders and members in a Learning Organization, see primacy of the whole (understand complexities), the generative power of language (generative conversations by recognizing one's frames that get in the way of seeing another's frames) and the community nature of self (seeing oneself and the connectedness to the whole and the world). The true learning organization is redesigning itself constantly or not merely led by the leader (and his frame). A leader in the organization instead supports this redesigning by acting as a steward (stewarding persons' visions), teacher and designer (bringing different views together for all of us to see the extent of the system (or ship)as compared to the merely being the captain of the ship). See article below on "The Leaders' New Work"
Workforce Diversity Generally speaking, the term Workforce Diversity refers to policies and practices that seek to include people within a workforce who are considered to be, in some way, different from those in the prevailing constituency. The goal of Workforce Diversity is three -fold: 1) To identify, attract, and retain the best people of each group; 2) To create a workplace where that talent can perform at its best to maximize shareholder value; 3) To use external contributions to eliminate disadvantage / increase the diversity of the talent pool. For example, Dr. Reddys has embraced associates from diverse origins, cultures, ethnicities and academic streams. This has created a strong character that enables the company to realize its full potential. This diversity of over 8000 associates across 40 nationalities chapters their creative and unconventional thinking.
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They believe that by promoting diversity in employment, associates with the best of abilities, thinking and experience come together on a single platform, creating a powerful workforce that can achieve remarkable results. Competency Management Competencies are areas of personal capability that enable people to perform successfully in their jobs by achieving outcomes or completing tasks effectively. A competency can be knowledge, skills, attitudes, values, or personal characteristics. When companies explicitly define the competencies they need, and also provide the tools for assessing those competencies in their employees, then they can more easily and objectively manage talent. This is known as Competency management. Specifically, Competency Management supports the other components of Talent Management in the following ways:
Performance Management: Competencies help provide the level of knowledge, the skills, and the types of behaviors expected from the employee who fills each position.
Career Development: As employees map out their future goals and desired positions, they can view the specific competencies required to achieve them. Succession Planning: Managers who seek candidates for succession of a position can compare the competency requirements of that position, and seek candidates who meet or nearly meet those requirements.
Learning Management: To improve competencies to meet performance, career development, or succession goals, employees engage in learning activities that are tied to those competencies.
Compensation Management: Helps mangers perform compensation planning for their organizations. Many times bonuses and merit increases are tied directly to individual competency ratings.
Workforce Acquisition: Competencies set the right expectations for each position, and ensure that job descriptions result in more effective and successful recruiting efforts.
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1. Two Factor Theory Also known as Herzberg's Motivation-
Hygiene Theory was developed by Frederick Herzberg, a psychologist who found that job satisfaction and job dissatisfaction acted independently of each other. Two Factor Theory states that there are certain factors in the workplace that cause job satisfaction, while a separate set of factors cause dissatisfaction Two Factor Theory distinguishes between: Motivators (e.g. challenging work, recognition, responsibility) which give positive satisfaction, arising from intrinsic conditions of the job itself, such as recognition, achievement, or personal growth. Hygiene factors (e.g. status, job security, salary and fringe benefits) which do not give positive satisfaction, although dissatisfaction results from their absence. These are extrinsic to the work itself, and include aspects such as company policies, supervisory practices, or wages/salary 2. Maslows Need Hierarchy The basis of Maslow's theory is that human beings are motivated by unsatisfied needs, and that certain lower needs need to be satisfied before higher needs can be satisfied. Per the teachings of Abraham Maslow, there are general needs (physiological, safety, love, and esteem) which have to be fulfilled before a person is able to act unselfishly.
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Introduction To Operations Management
Operations management designs and operates productive systems. Often defined as a transformation process, operations turns individual inputs into a valuable output. The area emerged as a business function during the Industrial Revolution with the widespread production of consumer goods. One of three primary functions of a firm, operations encompasses many activities ranging from organizing work to planning production. Operations managers deal with a variety of people, technologies, and deadlines in a marketplace characterized by an emphasis on quality, e-business, service industries, globalization, and competitiveness. Operation Strategy An organization's strategy provides unity and consistency in decision making through a common vision. Strategy formulation translates the organization's mission or vision into action by defining the organization's primary task, assessing its core competencies, determining order winners and order qualifiers, and positioning the firm. Operations provide support for corporate strategy, and often serve as the firm's distinctive competence. Even the most carefully formulated strategy may be difficult to put into action. To increase the probability of successful strategy implementation, firms use such techniques as policy deployment and balanced scorecard. Quality Management Quality management is a method for ensuring that all the activities necessary to design, develop and implement a product or service are effective and efficient with respect to the system and its performance. Quality management can be considered to have three main components: quality control, quality assurance and quality improvement. Quality management is focused not only on product quality, but also the means to achieve it. Quality management therefore uses quality assurance and control of processes as well as products to achieve more consistent quality. Quality Management is all activities of the overall management function that determine the quality policy, objectives and
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responsibilities and implement them by means such as quality control and quality improvements within a quality system. Statistical Process Control Statistical Process Control (SPC) is an effective method of monitoring a process through the use of control charts. Control charts enable the use of objective criteria for distinguishing background variation from events of significance based on statistical techniques. Much of its power lies in the ability to monitor both process center and its variation about that center. By collecting data from samples at various points within the process, variations in the process that may affect the quality of the end product or service can be detected and corrected, thus reducing waste as well as the likelihood that problems will be passed on to the customer. With its emphasis on early detection and prevention of problems, SPC has a distinct advantage over quality methods, such as inspection, that apply resources to detecting and correcting problems in the end product or service. In addition to reducing waste, SPC can lead to a reduction in the time required to produce the product or service from end to end. This is partially due to a diminished likelihood that the final product will have to be reworked, but it may also result from using SPC data to identify bottlenecks, wait times, and other sources of delays within the process. Process cycle time reductions coupled with improvements in yield have made SPC a valuable tool from both a cost reduction and a customer satisfaction standpoint. Supply Chain Management Supply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it
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also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise. Some experts distinguish Supply Chain Management and logistics, while others consider the terms to be interchangeable. Supply Chain Management can also refer to Supply chain management software which are tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes. Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned. Logistic Logistics is the management of the flow of goods, information and other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers (frequently, and originally, military organizations). Logistics involve the integration of information, transportation, inventory, warehousing, material-handling, and packaging. Logistics as a business concept evolved only in the 1950s. This was mainly due to the increasing complexity of supplying one's business with materials and shipping out products in an increasingly globalized supply chain, calling for experts in the field who are called Supply Chain Logisticians. This can be defined as having the right item in the right quantity at the right time at the right place for the right price and is the science of process and incorporates all industry sectors. The goal of logistics work is to manage the fruition of project life cycles, supply chains and resultant efficiencies.
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In business, logistics may have either internal focus (inbound logistics), or external focus (outbound logistics) covering the flow and storage of materials from point of origin to point of consumption (see supply chain management). The main functions of a qualified logistician include inventory management, purchasing, transportation, warehousing, consultation and the organizing and planning of these activities. Logisticians combine a professional knowledge of each of these functions so that there is a coordination of resources in an organization. There are two fundamentally different forms of logistics. One optimizes a steady flow of material through a network of transport links and storage nodes. The other coordinates a sequence of resources to carry out some project. Forecasting Forecasting is the process of estimation in unknown situations. Prediction is a similar, but more general term. Both can refer to estimation of time series, cross-sectional or longitudinal data. Usage can differ between areas of application: for example in hydrology, the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur over a long period. Risk and uncertainty are central to forecasting and prediction. Forecasting is used in the practice of Customer Demand Planning in every day business forecasting for manufacturing companies. The discipline of demand planning, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and a consensus process. Forecasting is commonly used in discussion of time-series data. Capacity Planning Capacity planning is the process of determining the production capacity needed by an organization to meet changing demands for its products. In the context of capacity planning, "capacity" is the maximum amount of work that an organization is capable of completing in a given period of time.
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A discrepancy between the capacity of an organization and the demands of its customers results in inefficiency, either in under-utilized resources or unfulfilled customers. The goal of capacity planning is to minimize this discrepancy. Demand for an organization's capacity varies based on changes in production output, such as increasing or decreasing the production quantity of an existing product, or producing new products. Better utilization of existing capacity can be accomplished through improvements in Overall Equipment Effectiveness. Capacity can be increased through introducing new techniques, equipment and materials, increasing the number of workers or machines, increasing the number of shifts, or acquiring additional production facilities. Capacity is calculated as (Number of machines or workers) x (number of shifts) x (utilization) x (efficiency) The broad classes of capacity planning are lead strategy, lag strategy, and match strategy Inventory Management Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials. There are three basic reasons for keeping an inventory: Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time" Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement and storing brings in economies of scale, thus inventory.
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Material Requirement Planning Requirements Planning (MRP) is software based production planning and inventory control system used to manage manufacturing processes. Although it is not common nowadays, it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives: Ensure materials and products are available for production and delivery to customers. Maintain the lowest possible level of inventory. Plan manufacturing activities, delivery schedules and purchasing activities. MRP is a tool to deal with these problems. It provides answers for several questions: o o o What items are required? How many are required? When are they required?
ENTERPRISE RESOURCE PLANNING Enterprise resource planning (ERP) is the planning of how business resources (materials, employees, customers etc.) are acquired and moved from one state to another. An ERP system is a business support system that maintains in a single database the data needed for a variety of business functions such as Manufacturing, Supply Chain Management, Management. An ERP system is based on a common database and a modular software design. The common database can allow every department of a business to store and retrieve information in real-time. The information should be reliable, accessible, and easily shared. The modular software design should mean a business can select the modules they need, mix and match modules from different vendors, and add new modules of their own to improve business performance. Financials, Projects, Human Resources and Customer Relationship
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Ideally, the data for the various business functions are integrated. In practice the ERP system may comprise a set of discrete applications, each maintaining a discrete data store within one physical database. Project Management Project Management is the discipline of planning, organizing, and managing resources to bring about the successful completion of specific project goals and objectives. A project is a finite endeavorhaving specific start and completion datesundertaken to create a unique product or service which brings about beneficial change or added value. This finite characteristic of projects stands in sharp contrast to processes, or operations, which are permanent or semi-permanent functional work to repetitively produce the same product or service. In practice, the management of these two systems is often found to be quite different, and as such requires the development of distinct technical skills and the adoption of separate management philosophy, which is the subject of this article. The primary challenge of project management is to achieve all of the project goals and objectives while adhering to classic project constraintsusually scope, quality, time and budget. The secondaryand more ambitiouschallenge is to optimize the allocation and integration of inputs necessary to meet pre-defined objectives. A project is a carefully defined set of activities that use resources (money, people, materials, energy, space, provisions, communication, motivation, etc.) to achieve the project goals and objectives.
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Statistics
Statistics is a mathematical science pertaining to the collection, analysis, interpretation or explanation, and presentation of data. It is applicable to a wide variety of academic disciplines, from the natural and social sciences to the humanities, and to government and business. 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) The 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. The Mode The mode in a list of numbers refers to the list of numbers that occur most frequently.
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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) Variance and Standard Deviation
The standard deviation is a measure of the dispersion of a set of values. The standard deviation is usually denoted with the letter (lowercase sigma). It is the most measure of how widely spread the values in a data set are from the mean. If many data points are close to the mean, then the standard deviation is small; if many data points are far from the mean, then the standard deviation is large. If all data values are equal, then the standard deviation is zero. A useful property of standard deviation is that, unlike variance, it is expressed in the same units as the data.
Example Suppose we wish to find the standard deviation of the set of the numbers 3, 7, 7, and 19. Step 1: Find the arithmetic mean (or average) of 3, 7, 7, and 19, (3 + 7 + 7 + 19) / 4 = 9. Step 2: Find the deviation of each number from the mean, 39 79 79 19 9 =6 =2 =2 = 10.
Step 3: Square each of the deviations (amplifying larger deviations and making negative values positive),
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( 6)2 = 36 ( 2)2 = 4 ( 2)2 = 4 102 = 100. Step 4: Find the mean of those squared deviations, (36 + 4 + 4 + 100) / 4 = 36 36 is the VARIANCE of the given items Step 5: Take the non-negative square root of the VARIANCE to get the standard deviation (Converting squared units back to regular units). So, the standard deviation of the set is 6. This example also shows that in general the standard deviation is different from the mean absolute deviation (which is 5 in this example).
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References and Links for further research:

1. 2. 3. 4. 5. 6. Marketing Management Philip Kotler (South Asian Edition) What the CEO wants you to know- Ram Charan Who moved my Cheese? Dr. Spencer Johnson Book-keeping & Accountancy Chopde & Choudhary India unbound - Gurcharan Das The One Minute Manager Kenneth Blanchard & Spenser
Johnson 7. 8. 9. Economics Samuelson Human Resource Management K Ashwathappa
http://www.hrmarketer.com/home/hcm_glossary.htm
10. http://humanresources.about.com/od/glossaryofterms/Glossaries_o f_Human_Resources_Terms.htm 11. http://www.12manage.com/i_hr.html 12. www.investopedia.com 13. www.wikipedia.org 14. www.eagletraders.com/books/afm/afm_glossary.htm 15. www.traderji.com 16. www.financialsense.com
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Basic Study Material

For First Year Students

Basic Study Material PUMBA Instructions To Students

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Introduction to Financial Markets

Prim ary M arket

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Initial Public Offering (IPO)

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Important Terms and Definitions related to Financial Markets

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4. Face Value and Market Value

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10. MARKET CAPITALIZATION

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11. OVER-THE-COUNTER (OTC)

13. BEAR Market

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19. YIELD-TO-MATURITY (YTM)

20. YIELD CURVE

Basic Financial Instruments

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Certificate of Deposit (CD)

bond issued by a corporation generally with a maturity date falling

Government Securities (Gilt Edged Securities)

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Difference in Shares and Derivatives

Important derivative products Page 15

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How Does Bank Gain Revenue?

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Private and Offshore Banks

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Important Functions of a Central Bank

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Principal Functions of Investment Banks

Corporate Finance , concerned with advising on the finances of corporations,

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Risk and Risk Management

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4. Interest rate risk: Exposure to loss due to an absolute or relative change in

5. Operational risk: The potential financial loss as a result of a breakdown in

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Important Terms To Know

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Introduction to Monetary Policy

Some Monetary Policy terms

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Objectives of the Monetary Policy

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