stock exchanges

Stock Exchanges

RAHUL PRATAP SINGH KAURAV

Rahul P

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2What is Stock Exchange?

The Securities Contracts (Regulations) Act, 1956 has defined Stock exchange as an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities.

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3Organization of Stock Exchange

There is no uniformity in the organisational pattern of various stock exchanges in India.

Under the Securities Contracts (Regulation) Act, 1956, the Central Government is empowered to nominate a maximum of its three representatives on the governing board.

In the day-to-day management, the governing board is assisted by a number of subcommittees like listing committee, arbitration committee, defaulters committee admission committee, and share-examination committee.

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4Functions of Stock Exchanges

Ready Market Mobilisation of Savings Evaluation of Securities Capital Formation Proper Chanalisation of Capital

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5Methods of Trading in Stock Exchange

Specialists Floor Brokers Stockbrokers/Financial Advisers Day Traders Casual Traders Online Trading

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6Factors Affecting Stock Exchange

Economic Factors Inflation And Deflation Interest Rates Foreign Markets

Market Factor Demand AND SUPPLY Market Cap News Earning/Price Ratio

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7Traditional Approach

Personal Choice

Local Loyalty of entrepreneur

Availability of raw material

Labor

Market

Transport

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8Weber’s deductive theory of location [Alfred Weber [1909] (1868-1958]

Primary Factors

Which influence distribution of industrial units over the different regions.

1. Transport cost

2. Labor cost

Secondary Factors

a) Element of cost

Building, labor, machines, fixed assets, power & fuel

b) Agglomerative

c) Deagglomerative

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10Critics of Weber’s theory

It is over simplified and unrealistic.

Assumptions for fixed labor centers is wrong.

Assumptions of fixed consumption centers is also not good.

Transportations and labor cost is not measures in monetary terms.

Government factors are ignored.

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Andreas Predohl’s approach

He suggested that every change in location of industry involves an change of combination of means of production

Sargant Florence’s approach

Explained as the degree of dissimilarities between geographical distribution of the industry and population of the country

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12Hotelling 1929: Locational Interdependence

This is the impact of demand upon location

The interaction of entrepreneurial decisions

He used two ice cream sellers on a beach as an example

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13Factors influencing location

Raw material availability

Nearness to market Availability of labor. Fuel and power Transport facilities Soil and climate Personal factors

Government policy Financial facilities Political and economic policies Future expansion Competition nearby

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14Government policy towards the localization

Positive Approach Provision of public utility services in selected areas. These

services include electricity, water, gas transport, etc.

Provision of socio- economic amenities like recreation, education, health, etc.

Certain ancillary economic facilities, like institutions for imparting technical knowledge to the workers and marketing organizations for the benefit of localized industries.

Granting of direct and indirect subsidies. Direct subsidies

Indirect subsidies

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Positive Approach Granting of income tax exemption to the units set- up in

backward areas. Giving assurance by the State to purchase the products of

the industrial units established in backward areas. Providing adequate and cheap financial facilities directly by

the Government or through the financial institutions. Liberal issue of licenses on a preferential basis for setting

up industrial units in backward areas.

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Negative Approach Enhanced rates of local taxes may be introduced. Licensing policy may be so designed that it discourages

new units in highly developed regions. The Industrial Policy, 1977 stated that no more licenses

should be issued to new industrial units within certain limits of big cities having a population of more than ten lakhs and urban areas with a population of more than 5 lakhs.

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17Balanced regional development

“ A country can only develop if there is over all development of all regions.”

“It should be done to remove regional disparities.”

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18Objectives of regional development

Use of local resources

Creation of employment

Proper use of overhand facilities

Social problems

Strategic considerations

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19Causes of regional imbalances

Historic factors

Resource availability

Infrastructure facilities

Technical factors

Social factors

Development strategies

Business Combinations

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21Meaning of business combination

Business combination is a method of economic organization where in a common control, of greater or lesser completeness, is exercised over a number of firms which are operating in competition or are independent.

Whenever two or more business units engaged in the same line of business or in different relate processes or stages of the same line of their business federate or unit or associate together with a view to carry on their activities and shape their polices on common coordinated basis for mutual benefit, they are said to form a business combination.

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22Causes of combination

Elimination of the competition and price war. Economies of large scale business. Rise of joint stock company. Improved mean of transport and communication. Requirement of huge capital. Desire to enjoy monopoly. Personal ambition. Government pressure.

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23Types of combinations

Horizontal Vertical Circular Diagonal

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24Horizontal combination

“ It takes place where units carrying identical business activities join hands to achieve common objectives.”

Eg. :- Association of cement manufacturers, sugar syndicate

Features of horizontal combination

Combination of firms with same business

Common policies & common management

Firms face problems together

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25Horizontal combination

Advantages

To minimize the Cost per unit.

To eliminate competition.

To hire the services of experts.

To supply the goods at lowest price.

To avoid over production.

To achieve the benefits of large scale.

To find proper market for their product.

To reduce the middleman commission.

Disadvantages

Exploitation of customer

Manipulation in prices

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26Vertical Combination

“In this combination such firms which are inter-dependent for the supply for processing.”

“The firm operates at successive stages of same industry.”

Characteristics of vertical combination:-

One finished material becomes raw for another.

All process are compulsory.

Important for balanced production and control over it.

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27Vertical Combination

Advantages Assurance of raw material.

To minimize the cost per unit.

To eliminate competition.

To hire the services of experts.

To supply the goods at lowest price.

To avoid over production.

To use improved methods of production.

To find proper market for their product.

To reduce the middleman commission.

To earn maximum profit.

Disadvantages Limited Utility

Mutual dependence

Less coordination

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28Circular or Mixed Business Combination

Concept When different types of business

units combine themselves under the one management it is called circular combination.

Objectives The main object of mixed

combination is to secure the benefits of administrative ability through common management.

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29Diagonal Business Combination

Concept When two or more than two

business units performs subsidiary services, if they combine themselves under the main industry it is called diagonal combination.

Objective The main object and advantage f

this combination is that it makes the business unit very large and self sufficient.

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30Risk and Business Risk

Risk – the possibility of loss or injury

Business risk – risk of loss that is naturally incurred by owing and operating a business

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31Types of Business Risk

Insurable vs.

uninsurable risk

Controllable vs.

uncontrollable risk

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32Other types of risk

Pure risk Economic risk Human risk Natural risk

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33Pure Risk

o Threat of loss with no opportunity for gain

Examples:

Employee theft

Accidents

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34Economic risk

Occurs when there is likelihood of financial loss

May result from changes in overall business conditions

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35Human risk

Risk of harm caused by human mistakes, dishonesty or other factors attributed to people

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36Natural risk

The possibility of a catastrophe caused by natural elements that can cause damage of loss or property

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37EXAMPLE

Floods

Tornados

Hurricanes

Fires

Lightning

Droughts

Earthquakes etc.

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38Types of businesses and their risk

Small scale businesses

Medium scale businesses

Large scale businesses

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39Common risks in small businesses

Breakdown of machinery and equipment High employees turnover or loss of key staff

members especially if they have unique skills Security of data and intellectual property theft

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40 Common risks

Bad debts creating customers Increase in competition Negative cash flow Natural disasters such as fires and storms

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41Common risks

Intellectual property

Theft

Increased competition

Operational risk

Political risk

Country risk

Technological risk

Environmental risk

Economic risk

Financial risk

Terrorism risk

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Causes of Business Risk

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43Human causes

Strikes, dishonesty, carelessness are examples of human causes of business risk.

Dishonesty of employees, misappropriation of cash and theft of goods may also become a cause of loss for business

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44Economic causes Which is caused mainly due to fluctuation in the market prices of

various commodities

Inflation and unemployment are examples of economic causes of business risk

Trade cycle and other unforeseen changes in the economy may also create business risks

Assets used in business may depreciate in value

Technical changes and mechanical defects also result in business risks

Physical causes

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45Political causes

Some political events can change the business scenario

A major policy change by government can change the business environment

Changes in the taxation policies create uncertainty and loss

political disturbances such as fall of government and civil war etc. may lead to heavy loss in business

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46Methods Of Risk Protection

Reducing or eliminating the risk

Efficient management

A reserve cash

Shifting of risks

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Thank You!