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1.1 Introduction:
Cash is the important current asset for the operation of
the business. Cash is the basic input needed to keep the business running on a
continuous basis, it is also the ultimate output expected to be realized by selling the
service or product manufactured by a firm.
Cash is the most liquid asset of all and is vital for
existence of any business firm. Its efficient management is crucial to the solvency of
the business because as we all know cash is the focal point of the funds flows in a
business. It can be understood in two senses, one is actual cash held by firm and
deposits withdraw able on demand, and in another sense it includes marketable
securities, which can be convertible into cash immediately.
management is to reduce the amount of cash that is being used within the firm so as to
increase profitability, but without reducing business activities or exposing the firm to
undue risk in its financial obligations. Cash flows in connection with credit serve to
introduce the concept of FLOAT which is the time lag or delay between the moment
of disbursement of funds on the part of the customer and the moment of receipt of
funds on the part of the seller (i.e., mail time, processing time, and clearing time with
the banking system).
accounting purposes. This also depends on the processing time taken by the banks
well as the inter bank system to get credit in the desired account. The greater the firms
deposit float, the longer the time taken in converting cheques into usable funds.
Attempt should be made to reduce the firm deposit float by speeding up the mailing,
processing & collection times.
How much time does it takes
How to accelerate cash collections?
1. Decentralized collections
2. Lock-box system
3. Prompt payment by Customers
4. Early conversion of payment into cash
Ways to Improve Collection of Cash?
A. Changing Customer Paying Habits
1. Letters, telephone calls, or personal visits
2. Economic incentive for paying bills faster; offer discounts
B. Improve the Delivery system (reduce the negative float)
1. Regional banking (customers pay bills to banks since they can transfer funds more
quickly than mail order delivery).
2. Lockbox collection system (firm rents a post office box in a particular city and the
bank monitors the lockbox periodically).
3. Electronic communications (i.e., data-phone wire systems).
C. Bypass the Problem (Factoring of Receivables).
How to control disbursements?
1. There is no advantage in paying sooner than agreed.
5
By delaying payments much as possible, the firm makes maximum use of trade credit
as a source of funds- a source which is interest free.
2. Disbursement or payment float: is defined as the
difference between the book balance and the bank balance of an account. For
example, assume that you go to the bank and open a checking account with $500. You
receive no interest on the $500 and pay no fee to have the account. Now assume that
you receive your water bill in the mail and that it is for $100. You write a check for
$100 and mail it to the water company. At the time you write the $100 check you also
record the payment in your bank register. Your bank register reflects the book value of
the checking account. The check will literally be in the mail for a few days before it
is received by the water company and may go several more days before the water
company cashes it. The time between the moment you write the check and the time
the bank cashes the check there is a difference in your book balance and the balance
the bank lists for your checking account. That difference is float. This float can be
managed
1.3 Determining the Optimum Cash Balance
Optimum Cash balance Under certainty: Baumols Model
This model considers cash management similar to an
inventory managements problem.
Assumptions of Baumols Model
1. The firm is able to forecast it cash need with certainty.
2. The firms cash payments occur uniformly over a period of time.
3. The opportunity cost of holding cash is known and it does not change over a period
of time.
4. The firm will incur the same transaction cost whenever it converts its securities to
cash.
6
Analyzing your cash flow will help you spot some of the problem areas in the
cash flow cycle of your business. As in any good analysis, you need to look
individually at each of the important components that make up the cash flow
cycle, to determine if it's a problem area or not.
A cash flow budget is good way of predicting your business's cash flow for the
next month, six months, or even the next year. Check out the Business Tools
area if you want to prepare a cash flow budget for your business. We've taken
care of some of the work for you!
Improving your cash flow will, without a doubt, make your business more
successful. Accelerating your cash inflows and delaying your cash outflows
are key factors for improving and managing your cash flow. The cash flow
budget is also a handy tool to use in the improvement and management of your
cash flow.
Filling your cash flow gaps: from time to time, almost every business
7
experiences the need for more cash than it has. If you find yourself in this
position, you may have to borrow money to fill the gap.
Commercial Paper
An unsecured, short-term debt instrument issued by a
corporation, typically for the financing of accounts receivable, inventories and
meeting short-term liabilities. Maturities on commercial paper rarely range any longer
than 270 days. The debt is usually issued at a discount, reflecting prevailing market
interest rates.
Commercial paper is not usually backed by any form of
collateral, so only firms with high-quality debt ratings will easily find buyers without
having to offer a substantial discount (higher cost) for the debt issue.
A major benefit of commercial paper is that it does not
need to be registered with the Securities and Exchange Commission (SEC) as long as
it matures before nine months (270 days), making it a very cost-effective means of
financing. The proceeds from this type of financing can only be used on current assets
(inventories) and are not allowed to be used on fixed assets, such as a new plant,
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Bank Deposits
Bank Deposits include money invested in insured bank
accounts such as Checking Accounts, Savings Accounts, Bank Money Market
Accounts, and Certificates of Deposit.
Money Market
The market in which financial instruments with high
liquidity and very short maturity are traded.
act
as
payment
agents
by
conducting
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.
Phase 1
The General Bank of India was set up in the year 1786.
Next came Bank of Hindustan and Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as
independent units and called it Presidency Banks. These three banks were
amalgamated in 1920 and Imperial Bank of India was established which started as
11
1980 with seven more banks. This step brought 80% of the banking segment in
Indiaunder Government ownership.
The following are the steps taken by the Government of
India to Regulate Banking Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalisation of State Bank of India.
1959: Nationalisation of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalisation of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the
public sector bank India rose to approximately 800% in deposits and advances took a
huge jump by 11,000%. Banking in the sunshine of Government ownership gave the
public implicit faith and immense confidence about the sustainability of these
institutions.
Phase-111
The country is flooded with foreign banks and their
ATM stations. Efforts are being put to give a satisfactory service to customers. Phone
banking and net banking is introduced. The entire system became more convenient
and swift. Time is given more importance than money.
The financial system of India has shown a great deal of
resilience. It is sheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This is all due to a flexible exchange
13
rate regime, the foreign reserves are high, the capital account is not yet fully
convertible, and banks and their customers have limited foreign exchange exposure.
BANKING SERVICES:
Commercial banks and thrifts offer various services to
their customers. These services fall into three major categories: deposits, loans, and
cash management services.
DEPOSITS
There are four major types of deposits: demand deposits,
savings deposits, hybrid checking/savings deposits, and time deposits. What
distinguish one type from another are the conditions under which the deposited funds
may be withdrawn.
A demand deposit is a deposit that can be withdrawn on
demand at any time and in any amount up to the full amount of the deposit. The most
common example of a demand deposit is a checking account. Money orders and
travelers checks are also technically demand deposits. Checking accounts are also
considered transaction accounts in that payments can be made to third partiesthat is,
to someone other than the depositor or the bank itselfvia check, telephone, or other
authorized transfer instruction. Checking accounts are popular because as demand
deposits they provide perfect liquidity (immediate access to cash) and as transaction
accounts they can be transferred to a third party as payment for goods or services. As
such, they function like money.
Savings accounts pay interest to the depositor, but have
no specific maturity date on which the funds need to be withdrawn or reinvested. Any
amount can be withdrawn from a savings account up to the amount deposited. Under
normal circumstances, customers can withdraw their money from a savings account
simply by presenting their passbook or by using their automated teller machine
(ATM) card. Savings accounts are highly liquid. They are different from demand
14
deposits, however, because depositors cannot write checks against regular savings
accounts. Savings accounts cannot be used directly as money to purchase goods or
services.
The hybrid savings and checking account allows
customers to earn interest on the account and write checks against the account. These
are called either negotiable order of withdrawal (NOW) accounts, or money market
deposit accounts, which are savings accounts that allow a maximum of three thirdparty transfers each month.
Time deposits are deposits on which the depositor and
the bank have agreed that the money will not be withdrawn without substantial
penalty to the depositor before a specific date. These are frequently called certificates
of deposits (CDs). Because of a substantial early withdrawal penalty, time deposits are
not as liquid as demand or savings deposits nor can depositors write checks against
them.
LOANS
Banks and thrifts make three types of loans: commercial
and industrial loans, consumer loans, and mortgage loans. Commercial and industrial
loans are loans to businesses or industrial firms. These are primarily short-term
working capital loans (loans to finance the purchase of material or labor) or
transaction or longer-term loans (loans to purchase machines and equipment). Most
commercial banks offer a variable rate on these loans, which means that the interest
rate can change over the course of the loan. Whether a bank will make a loan or not
depends on the credit and loan history of the borrower, the borrowers ability to make
scheduled loan payments, the amount of capital the borrower has invested in the
business, the condition of the economy, and the value of the collateral the borrower
pledges to give the bank if the loan payments are not made. Consumer loans are loans
for consumers to purchase goods or services. There are two types of consumer loans:
closed-end credit and open-end credit. Closed-end credit loans are loans for a fixed
15
amount of money, for a fixed period of time (usually not more than five years), and
for a fixed purpose (for example, to buy a car). Most closed-end loans are called
installment loans because they must be repaid in equal monthly installments. The item
purchased by the consumer serves as collateral for the loan. For example, if the
consumer fails to make payments on an automobile, the bank can recoup the cost of
its loan by taking ownership of the car.
Open-end credit loans are loans for variable amounts of
money up to a set limit. Unlike closed-end loans, open-end credit does not require a
borrower to specify the purpose of the loan and the lender cannot foreclose on the
loan. Credit cards are an example of open-end credit. Most open-end loans carry fixed
interest ratesthat is, the rate does not vary over the term of the loan. Open-end loans
require no collateral, but interest rates or other penalties or fees may be chargedfor
example, if credit card charges are not paid in full, interest is charged, or if payment is
late, a fee is charged to the borrower. Open-end credit interest rates usually exceed
closed-end rates because open-end loans are not backed by collateral.
(ATMs) enable bank customers to withdraw money from their checking or savings
accounts by inserting an ATM card and a private electronic code into an ATM. The
ATMs enable bank customers to access their money 24 hours a day and seven days a
week wherever ATMs are located, including in foreign countries. Banks also offer
debit cards that directly withdraw funds from a customers account for the amount of
a purchase, much like writing a check. Banks also use electronic transfers to deposit
payroll checks directly into a customers account and to automatically pay a
customers bills when they are due. Many banks also use the Internet to enable
customers to pay bills, move money between accounts, and perform other banking
functions.
For
businesses,
commercial
banks
also
provide
without knowing for certain that the importer will pay for them. By substituting the
credit of a foreign bank known to the exporters bank, the exporter knows payment
will be made and will ship the goods. Credit enhancements are frequently called
standby letters of credit or commercial letters of credit.
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VISION
To build a strong brand image to make the South Indian
Bank technology driven, customer oriented and the most preferred bank, where
passion for excellence is a way of life, innovation is a tradition, commitment to values
is unshaken and customer loyalty is abiding, enabling the Bank to achieve an
impressive all round, (but better than the peer group) business growth, build a healthy,
qualitative and strong asset base and earn commensurate profits.
Mission
To become the most preferred and fastest growing
among the Coimbatore based banks, with a strong brand image as customer focused,
technology driven and an innovative bank with core competence in fostering
relationship banking, garnering core deposits with accent on cost, creating and
maintaining high yielding quality assets through focused marketing, qualitative
appraisal and effective monitoring, ensuring a high level of internal efficiency through
impeccable housekeeping and enhancing shareholder value by achieving the highest
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Future Aspects
The South Indian Bank with a new logo and image
marches on. With branches all over India and a clientele across the world, the bank is
considered one of the most pro active banks in India with a competent tech savvy
team of professional at the core of services.
INTERNET BANKING
CREDIT CARD
SIB COLLECT
DEMAT SERVICES
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2. INTERNET BANKING
Sibernet is the Internet Banking Service of South
Indian Bank Ltd, which allows its customers to avail the banks services through
Internet.
Advantages of Sibernet
Conduct Banking Operations from House/Office/Cyber-cafe
Service available for 24 hours & 365 days a year
Accessible from any where in the world using Internet.
Inquiries
Get complete details of all your accounts (SB/Deposit/Loan )
Print/Save the pass-sheet of any of your Operative accounts for any period.
Cheque Status Inquiry
Clearing Instruments Inquiry
Lien Inquiry
Nominee Inquiry
Interest Details of Deposit Accounts
3) CREDIT CARD
SIB-CITI BANK CO-BRANDED INTERNATIONAL CREDIT
CARD
The bank always tries to offer the best available products
in the market to their customers. They had been offering a Domestic credit card,
which they want to enhance to an International credit card. Therefore, they have made
a tie up with Citibank for an International VISA affiliated co-branded credit card and
21
4) SIB COLLECT
The Bank has introduced an attractive product, SIB
collect, for fast collection of outstation instruments. The customers of any particular
town can deposit their collection instruments and other request in the drop boxes
available at all branches at that centre. All the instruments are pooled at a central
office via fast courier services and collected very fast. The bank also makes use of its
anywhere banking facility for the fast collection of the instruments. This facility is
now available at Coimbatore, Ernakulam, Thrissur, Chennai, Bangalore and Mumbai.
It is a centralized cheque collection system.
It is based on the drop box concept
It gives freedom to the customer to deposit instruments at convenient centers
It gives freedom to the customer to transact at convenient time
It saves time to the customer by just dropping the instruments instead of waiting at the
counters for acknowledgement.
It makes use of anywhere banking facility concept of finance for fast collection.
It saves the time of the branches in doing outstation collection and dispatch
5) DEMAT SERVICES
The South Indian Bank is offering Depository services
for the benefit of its customers. Through this facility, their customers can hold their
securities in electronic form with Central Depository Services (India) Ltd
(CDSL).Thus the customers of the bank can now open Demat accounts with them
through their designated branches. A Demat Account is an account, which holds the
Beneficial Owner's (BO's) securities in electronic form. There are many advantages in
opening a Demat account and keeping the securities in dematerialized form.
22
23
and
financial
institutions
offer
various
investment products and services that cater to every investor. They have dedicated
departments with trained personnel who can guide investors on the best products to
help them grow and manage their investments. In the UAE, most international and
local banks, investment companies and other financial institutions have trained and
certified investment consultants to provide their services to investors.
24
2.1 Y.C. Halan How to invest wisely. The week, June 24 2001
While making an investment three parameters should be remembered:
Safety of principal amount
Regular return
Availability of money when one needs it.
25
Secondary:
1. To find out the cash receipts and payment cycle followed by various
enterprises.
2. To determine credit period enjoyed as well as credit period offered by various
customers.
3. To determine how much surplus cash is maintained by small enterprises for
short term uses.
Scope:
The scope of the project is combined to study the
various aspects such as investment preference, investment patterns and how the small
enterprises maintain their short term surplus.
Limitation:
The study is limited only to enterprises in Coimbatore city, so it may not be applicable
to other areas. The study is combined to every type of small enterprises or industry
and not on a single industry. The time and cost incurred during the study was another
constraints which has really propelled the study to have limitation and so it cannot be
accepted as a general one.
2. RESEARCH METHODOLOGY
27
RESEARCH DESIGN
A research design is purely the framework or plan for a
study that guides the collection and analysis of data. The research design used for this
study is of descriptive type. Descriptive research includes surveys and fact-findings of
different kinds. The major purpose of descriptive research is description of the state of
affairs, as it exists at present.
SAMPLE DESIGN
The sample design is a definite plan for obtaining a
sample from a given population. It refers to the technique or the procedure which
would adopt in terms for the samples.
Sample population: The population is defined as the small scale industries in and
around Coimbatore.
Sample size: The sample size is determined as 70.
Sampling method: Convenient sampling.
Primary Data
The primary data are those which are collected afresh
and for the first time, and thus happened to be original in character. Primary data was
collected through Questionnaire distributed to customers. There are some
irregularities in the field, instead of this researcher had collected the data with
patience. Results were collected through survey and observation.
Secondary Data
The secondary data are those which are already available
or collected for the second time. Secondary data was also used for this study.
Information regarding company profile, consumer behavior, mutual funds etc. was
collected from the company website, books, journals etc.
DATA ANALYSIS
ANALYTICAL TOOL
For obtaining conclusion researcher has applied
STATISTICAL PACKAGE FOR SOCIAL SCIENCES (S.P.S.S). Tables and graphs
are used in this study for representing the data.
PERCENTAGE ANALYSIS
In this method all the given data is converted to
percentage and is represented in the form of bar diagrams. This method helps in
knowing the ups and downs of data respectively.
Table 1
3.1 Type Of Organization
Type
Respondents
Percentage
Business
35
50
Financial
10
14
Educational
15
22
Medical
Others
Total
70
100
Inference:
From the above table it can be inferred that 50% of the
enterprises fall under the category of business. It includes construction,
manufacturing, software, general stores, travel agencies and hotel industry. 14% of the
enterprises come under financial industries. 22% comes under medical industry and 5
% comes under educational institution and 5 % comes from other type of industries.
Chart 1
3.1 Type Of Organization
30
Table 2
3.2 Funds Available To The Enterprises
31
Fund Available
Respondents
Percentage
Term Loans
19
18
Cash Credit
22
20
Overdraft
18
17
Own Funds
37
34
Others
12
11
Total
108
100
Note: Many enterprises use more then one particular fund so the table is overlapping.
Inference:
From the above table it shows that 18% of the
enterprises uses term loans as their funds, 20% uses cash credits as a portion of their
funds. Again 17% uses overdraft facility for meeting of their fund requirement. 34$
uses their own fund to run their business. 11% uses other donations.
Chart 2
3.2 Funds Available To The Enterprises
32
Table 3
3.3 Investment Done By Enterprises
33
Investment
Respondents
Percentage
Fixed Deposits
20
29
Mutual Funds
Current
28
40
Others
16
22
Total
70
100
Account
Note: Many enterprises invest more then one portfolio, so the table is overlapping.
Inference:
From the above table it evident that 29% of the
surplus/profit is put in fixed deposits, 9% put their profit in mutual funds. Again 40%
put their profit in current account. And 22% use their surplus cash for reinvestment,
expansion and diversification.
Chart 3
3.3 Investment Done By Enterprises
34
Table 4
3.4 Investment Preferred By Enterprises:
35
Investment
Respondents
Percentage
21
30
10
15
13
No Response
30
42
Total
70
100
Reasonable Risk
Enhanced Returns And Moderate
Risk
Note: Many enterprises put their surplus in different deposits rather than in various
portfolios, so the table in the above table is overlapping.
Inference:
It is evident from the above table that 30% of the
enterprises in the city is only ready to take low risk, but needs steady return, only 15%
is ready to bear reasonable risk but wants capital protection. Only 13% is ready to
bear moderate risk but expects enhanced returns. Rest 42% has no opinion.
Chart 4
3.4 Investment Preferred By Enterprises
36
Table 5
3.5 Credit Period Enjoyed From Vendors By Different Enterprises:
37
Credit Period
Respondents
Percentage
One Week
Fortnight
One Month
22
31
No Credit
38
54
70
100
Period Allowed
Total
Note: Many institutions such as education and cooperative societies does not enjoy
credit period from vendors
Inference:
From the above table it is clear that only 7% gets one
week or fortnight as a credit period from vendors. But 31% of the enterprises get one
month credit period. 54% of the institution does not get any credit period.
Chart 5
3.5 Credit Period Enjoyed From Vendors By Different Enterprises
38
Table 6
3.6 Credit Period To Customers:
39
Credit Period
Respondents
Percentage
One Week
Fortnight
One Month
18
26
No Credit
45
64
70
100
Period Allowed
Total
Note: Many institutions such as education and cooperative societies does not enjoy
credit period from vendors
Inference:
From the above table it can be understood that only 4%
of the enterprises enjoy one week credit period. 6% of the enterprises enjoy a fortnight
as a credit period, and 26% of the enterprises enjoy one month credit period and 64%
or most of the enterprises do not provide credit period to the customers.
Chart 6
3.6 Credit Period To Customers
40
Table 7
3.7 Payment Cycle Followed By Different Enterprises:
41
Payment Cycle
Respondents
Percentage
Every Week
10
Once In A
11
16
18
26
Quarterly
Others
34
45
Total
70
100
Fortnight
Once In A
Month
Note: Some enterprises such as automobile or hotel industry follow payment cycle
according to their own interest.
Inference:
From the above table it can be concluded that 10% of
the enterprises follow payment cycle every week. 16% every fortnight, 26% follow
monthly payment and 43% follow the payment cycle according to their own interest.
Chart 7
3.7 Payment Cycle Followed By Different Enterprises
42
Table 8
3.8 Cash Receipt Cycle:
43
Cash Receipts
Respondents
Percentage
Every Week
14
20
Once In A
11
Quarterly
Others
45
64
Total
70
100
Fortnight
Once In A
Month
Note: Some enterprises such as automobile, school or hotel industry follow payment
cycle according to their own interest.
Inference:
It is evident from the above table that 20% of the
enterprises follow weekly payments, 3% make their payment in fortnight and 11% do
it in one month, 2% quarterly and 64% of the enterprises follow other types of
payment cycle.
Chart 8
3.8 Cash Receipt Cycle
44
Table 9
3.9 Current Account Balance Maintained By Different Enterprises:
45
Current
Respondents
Percentage
> 1 lakh
21
30
< 1 lakh
11
< 1.5lakh
Not Available
39
56
Total
70
100
Account
Balance
Inference:
From the above table it is evident that 30% of the
enterprises maintain a amount less then 1 lakh in their current account during an
week end and 11% of the enterprises maintain a current account balance above 1 lakh
and 3% maintain their current account balance above 1.5 lakh and 56% of the
enterprises current account balance is not available.
Chart 9
3.9 Current Account Balance Maintained By Different Enterprises
46
During the research it was found 50% of the enterprises was under the
category of the business and its area of operation was within Coimbatore.
Regarding the usage of funds it can be interrelated that 34%(i.e.) most of their
enterprises depends upon their own funds.
Looking into the investment done by enterprises it is seen that 40% prefer
current account (i.e.) they prefer in deposits rather in risky returns.
The kind of investment preferred by 53% enterprises is with steady returns and
low risk.
54% of the enterprises does not enjoy any credit period from their vendors.
64% of the enterprises do not provide any credit period to their customers.
56% of the enterprises follow cash receipt cycle that is most suitable to them.
4.2 SUGGESTIONS:
48
Indulge the enterprises to use their surplus short term cash for investment in
risky avenues through portfolio management.
Conclusion:
49
APPENDIX
50
o
Investment in steady returns and low risk
o
Investment with capital protection and reasonable risk
o
Investment with enhanced returns and moderate risk
7. What is the credit period enjoyed from vendor?
(Mark a tick over the corresponding answer)
o
One week
o
Fortnight
o
One month
o
No credit period allowed
o
Not applicable
8. What is the credit period offered to the vendors?
(Mark a tick over the corresponding answer)
o
One week
o
Fortnight
o
One month
o
No credit period allowed
9. On an average what is the amount you maintain in your current account during your
week end___________________
10. What is the payment cycle that you follow?
(Mark a tick over the corresponding answer)
o
Every week
o
Once in a Fortnight
o
Once in a month
o
Quarterly
o
Others
11. How frequent are your cash receipts
(Mark a tick over the corresponding answer)
o
Every week
o
Once in a Fortnight
o
Once in a month
o
Quarterly
o
Others
BIBILIOGRAPHY
52
WEBSITES:
www.investorwords.com
www.amfiIndia .com
www.southIndianbank.com
BOOKS
Kothari, C.R., Research Methodology- Methods and Techniques, revised 2nd edition,
Delhi. NEW AGE INTERNATIONAL (P) LTD, PUBLISHERS, 2004
I.M. Pandey., Financial Management-, 8th edition, Delhi, VIKAS PUBLISHING
HOUSE PVT LTD, 1999
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