Significance or importance of organizing

A sound organizing facilitates administration, promotes specialization, encourages growth, and stimulates creativity. It can contribute to the success of an organization. Hence, the significance of organizing may be discussed as below:

1)Efficient administration: Organizing is an important and the only tool to achieve enterprise goals. A sound organizing helps the management in many ways. It defines various activities and their authority relations in the organizational structure. It can avoid confusion and delays as well as duplication of work and overlapping of effort. It is the mechanism by which management directs, controls, and coordinates the various activities in the enterprise.

2)Optimum use of human resources: Sound organizing ensures that every individual is placed on the job for which he is best suited. Such matching of jobs and individuals helps in better use of human talent. It also provides the benefits of specialization, which results in economy of operations and reduction in cost.

3)Growth and diversification: A sound organizing contributes to the growth and diversification of the enterprise through decentralization and divisionalization. Through organization management can multiply its strength and undertake more actives. That is why many small firms have grown and become big.

4) Optimum use of new technology: A sound organizing is flexible. It has the capacity of absorbing changes in the environment. Hence, it provides for optimum use of technological improvements.

5)Coordination and communication: Organizing is an important means of creating coordination and communication among different departments of the enterprise. Different jobs and positions are welded together by structural relationship. It also specifies are welded together by structural relationship. It also specifies the channels of communication among different members of the enterprise.

6)Training and development: A sound organizing provides a good scope for the development of managerial ability through proper delegation of authority and decentralization. It provides responsibility, sufficient freedom to the supervision and creative thinking in different levels.

7)Productivity and job satisfaction: A sound organizing is based on democratic and participative management. Hence, the entire organizational environment is favorable for productivity and job satisfaction.

Principles’ of organizing

Organizing is one of the major functions of management. The success or failure of the organization depends upon sound and efficient organizational structure. Hence, there is a need to follow certain principles of organizing to formulate and develop sound and efficient organization. These principles are as follows:

Unity of objectives

The goals of the organization influence the organization structure. Hence, the goals and objectives must be clearly defined for the entire organization, for each department and even for each position in the organization structure. If there is contradiction among the various levels of objectives, then entire goals of the organization cannot be achieved.

Specialization

The total task in an organization should be divided in such a manner that every person is confined to a single job. This leads to specialization. An employee repeatedly performing a specific single job becomes an expert in that job. The work assigned should be according to his abilities and aptitude. Then he can work with greater economy and efficiency.

Span of control

Span of control represents a numerical limit of subordinates to be supervised or controlled by a manager. As there is a limit to the number of subordinates that can be supervised effectively. However, the exact number of subordinates will vary depending upon the nature of job, competence of the manager, quality of subordinates.

Exception

Each manager should make all decisions within the limitation of delegated authority. However, only exceptionally complex matters should be referred to the higher levels for their decision. This will enable the executives at higher levels to devote time to more important and crucial issue.

Scalar principle

This principle sometimes known as the “chain of command”. It is unbroken line of authority from the top level to the bottom of an organization. It makes clear about who will work under whom. The chain of command should be short and clear which makes decision making and communication more effective.

Unity of command

The principle of command suggests that an employee should have one and only one boss. Each subordinate should have only one supervisor whose command he has to obey. Directions from several superiors may result in confusion, chaos, conflict and indiscipline.

Delegation of authority

Proper authority should be delegated at all levels of management. The authority delegated should be equal to responsibility so as to enable each manager to accomplish the task assigned to him

Organizing and staffing function

The organizing means different things to different people. It is used widely to mean a structure of relationship, a process, a group of people, and a function of management, organizing is the basic function of management. By organizing, a manager achieve organizational goals. Organization as a process integrates and coordinates the efforts of human, financial, technological and other resources. As a group of people organizing contributes their efforts towards attainment of common goals.

Once a manager has set goals and developed a workable plan, the next management function is to organize people and other resources necessary to carry out the plan. The organizing function creates a structure of task and authority relationships. It also involves assigning activities, dividing work into specific jobs and tasks, and specifying who has the authority to accomplish certain task. Another major aspect of organizing is grouping activities into departments or some other logical subdivision. In essence organizing is the process of creating organizational structure that enables the organization to function effectively as a cohesive whole.

Effective organizing can provide a number of benefits. First, the process of organizing helps to clarify the specialized tasks and performance expectations for each person. Second, it produces appropriate authority structure with accountability to support planning and control throughout the organization. Thirds, it creates channels of communication that support decision-making and control. Fourth, the organizing process establishes a logical flow of work group. Fifth, it develops a division of labor that avoids the misuse of resources, conflict, and duplication of effort. Sixth, it creates coordinating, mechanisms in diversified activities. Finally, organizing produces focused work efforts that are logically and efficiently related to a common goal.

Departmentation

The grouping of similar and logically connected activities of organization is called departmentation. This is one of the primary tasks in designing an organization structure. Departmenatation is a process where tasks are grouped into jobs, jobs into effective work groups and work groups into identifiable departments. It leads to grouping of both activities and personnel. A department may be called a division, branch, section or some other organizational unit.

The purpose of departmentation is to administer the enterprise in the best possible manner. It increases the operating skill and efficiently of an enterprise. Departmentation is basically the process of assigning fixed responsibility to an executive in charge of a particular department. It provides distinct advantages of division of labor and specialization.

The importance of departmentation can be explained from the following points:

• Departmentation provides the advantages of specialization of work.
• Departmentation helps in fixing the responsibility and consequently accountability for the results.
• Departmentation facilitates to development of managers.
• Managerial performance of the managers can be appraised more objectively through departmentation.
• Departmentation gives the feeling of autonomy, which provides the satisfaction and motivation leading to higher efficiency of operations.
• Departmentation facilities administrative and financial control.

Organizing and staffing function

The organizing means different things to different people. It is used widely to mean a structure of relationship, a process, a group of people, and a function of management, organizing is the basic function of management. By organizing, a manager achieve organizational goals. Organization as a process integrates and coordinates the efforts of human, financial, technological and other resources. As a group of people organizing contributes their efforts towards attainment of common goals.

Once a manager has set goals and developed a workable plan, the next management function is to organize people and other resources necessary to carry out the plan. The organizing function creates a structure of task and authority relationships. It also involves assigning activities, dividing work into specific jobs and tasks, and specifying who has the authority to accomplish certain task. Another major aspect of organizing is grouping activities into departments or some other logical subdivision. In essence organizing is the process of creating organizational structure that enables the organization to function effectively as a cohesive whole.

Effective organizing can provide a number of benefits. First, the process of organizing helps to clarify the specialized tasks and performance expectations for each person. Second, it produces appropriate authority structure with accountability to support planning and control throughout the organization. Thirds, it creates channels of communication that support decision-making and control. Fourth, the organizing process establishes a logical flow of work group. Fifth, it develops a division of labor that avoids the misuse of resources, conflict, and duplication of effort. Sixth, it creates coordinating, mechanisms in diversified activities. Finally, organizing produces focused work efforts that are logically and efficiently related to a common goal.

Fixed income securities

A fixed income security is a financial obligation in which the issuer of the security agrees to pay a specified amount to the holder of the security at specified future dates. Debt obligation, such as bonds, and preferred stock are the two most common types of fixed income securities. The holders of debt obligations are called lenders or creditors, while issuers of debt securities are called borrowers. The holders of preferred stocks are called preferred stock holders.

The payments that are made on debt obligations are interest and principal repayments; preferred stocks pay dividends. Under most circumstances, the failure to pay interest or principal repayments on debt obligations in a timely manner is an act of default. However, preferred stockholders, as equity investors in a company, are entitled to preferred dividends only if they are declared by the issuers board of directors. Preferred stockholders have the right to dividends ahead of common shareholders. They also have a prior claim on funds resulting from a company’s liquidation that comes ahead of common shareholders.

The contract between the issuer of bonds and the bondholders that sets forth the obligations of the borrower and the rights of the lender is called an indenture. However, a trustee is interposed between the issuer and the bondholders. The trustee is a fiduciary who is charged with the duty of representing the bondholders, making sure the issuer meets its obligations and the bondholders rights are upheld. It is the trustee who can send an issuer into default if it fails to honor the bondholders rights. It is the trustee who can send an issuer into default if it fails to meet all of its obligations as set forth in the indenture.

Reasons for financial analysis

Investors have to make decision on the basis of financial analysis. Financial analysis provides strength and weaknesses of the company. To make investment decision, an investor has to the analyze the company. Some reasons for the investment analysis are given below:
To identify mispriced securities:
Security analysis involves examining a number of individual securities within the broad categories of financial assets. The purpose for conduction such examinations is to identify those securities that currently appear to be mispriced.
Fundamental analysis begins with the intrinsic value of any financial asset equals the present value of all cash flows that the owner of the assets expects to receive. Once the intrinsic value of the common stock of a particular firm has been determined, it is compared with security’s current market price of the common stock. If the current market price of the common stock is below the intrinsic value, a purchase is recommended. Conversely, if the current market price is above this intrinsic value, a sale is recommended.

To determine security characteristics:
The financial analysis is try to determine the certain characteristics of securities. Financial analyst should estimate a security’s future sensitivity to major factors and unique risk to determine the risk of a portfolio. The analyst will also want to estimate the dividend yield of a security during the next year to indemnity its suitability for the portfolio in which dividend yield is relevant. Careful analysis of such matters as a company’s dividend policy and future earnings and cash flows may lead to better estimates.

To get the information about the company:
An investor makes financial analysis to make the financial decision.
Sometimes investors fail form the decision due to lack of information. Success or failure of public limited companies depends much on their investment analysis and performance.

To make sound judgment and forecasting:
Investors can correct decision on the basis of the financial analysis. Therefore financial analysis is the base for the sound judgment and forecasting. In present situation, some investors are very conscious to make investment analysis in stock market. Investors gradually have to know that when to beat the market. Sometimes, investor fails to select right judgment and forecasting for the best securities.

To select of good security:
Financial analysis helps the investors to select the right security for investment. Funds available for investors are limited, so investors have to select best securities that provide high return.

To help in risk analysis:
Investors can predict the riskiness of the securities from the financial analysis. After the assessment of risk analysis, investors can determine the rate of return with the help of financial analysis.

Advantages and Disadvantages of Preferred Stock

Advantages of preferred stock

Preferred stock are advantageous from the viewpoint of the issuer and the investors.

Form the company’s viewpoint:

Risk less leverage advantage: Preferred shares increase financial leverage because, first of all, the preferred dividend is a fixed obligation and unlike debentures there is no default ever if the dividend is not paid. That means, non-payment of dividend doesn’t force the company into insolvency. Thus, there is an increased risk less financial leverage.

Repayment anxiety and dividend postponability: The maturity period of a perpetual preferred stock is not specified. Thus, there is no obligation to call the preferred stock within a specified time. This is a permanent source of financing, which will not result in liquidation ever if the dividend and par value/stock value is not paid for a longer period of time. The firm has no repaying anxiety and can easily postpone the payment of dividend.

Fixed dividend: The preferred dividends are restricted to the stated amount. Thus, preferred shareholders do not participate in excess profit as the ordinary shareholders do.

Control: preference shareholders do not have a voting right unless the dividend arrears exit. They do not have a voice in the management of the company, therefore the control of ordinary shareholders remains secure.

Flexibility: preferred stocks are free of maturity period. Besides, the dividend can be postponed if earning is insufficient or uncertain. Thus, this is a flexible source of financing.

Ease in expansion: It facilitates those firms that want to expand their business because preferred stock secures the interest of the shareholders as they have a prior claim on the earning and assets. Hence, the company can raise a greater fund by issuing preferred stocks than by issuing common stock

Participation in earning: Ordinary shareholders have equal participation in the earnings made through additional issuance of ordinary shares. But, such participation is not there in case of preferred stock. Their claim is restricted to a limited amount per share. Hence, preferred stocks are in flavor of the owners.

Disadvantage of preferred stock

Cost: It is costly because, generally, dividend rate on such shares is higher than interest rate payable on debentures. Similarly, preference dividend is paid out of earning after interest and tax. The higher the tax rate, the higher the cost of preference shares and it will be inefficient to raise fund through preferred stock issuance. In other words, it is costlier than debentures because it is not tax deductible.

Difficult to sell the stocks: Investors may not like to invest on preferred stocks because they go only a fixed amount of dividend even though unstable they may not get preferred dividend as such dividend even though the firms earning is too high. Besides, if the earning of the firm is low or unstable they may not get preferred dividend as such dividend is not an obligation to the firm. Thus, it is difficult to sell the stocks.

Seniority claim: The preferred stockholders have a prior claim over the earning and assets of the company. This adversely affects the claim of ordinary shareholders. Their claim will, however, be lower than that of preferred stockholders.

Commitment to pay dividend: Common stockholders cannot get dividend unless preferred dividend is paid. Thus, it becomes a sort of obligation to pay preferred dividend.

Preferred stock and Common stock

Preferred stock

Preferred stock represents the long term source of financing under which the stockholders are entitled to get fixed amount of dividend out of the earning of the company after payment of debenture interest and tax.

Preferred stock, also called preference share, is a hybrid form of long term financing with combined features of both common stock and long term debenture. As in the case of common stock the nonpayment of preference dividend doesn’t force the company to insolvency. Dividends cannot be deducted for tax purpose i.e, they have no maturity date. Now, similar to debentures, fixed rate of dividend is paid and generally, preference shareholders have no voting right. But preference shareholders have claims on income and assets prior to common stockholders except that of creditors.

Preference dividend is discretionary. Failure to pay such dividend will not result to default of company’s obligation or insolvency of the company. Hence, if needs be, the board of directors may postpone or omit such dividend because treatment of preferred stock dividend as a fixed obligation increases the explicit cost of the company. Hence preferred stocks are less risky than bonds from the corporations point of view

Dividend does not have to be paid if profit is not earned.

Nonpayment of preferred dividend will not bankrupt the firm.

Characteristics of common stocks

Common stock is an ownership share in a corporation. Common stock certificates are legal documents that evidence ownership in a company that is organized as a corporation; they are also marketable financial instruments. Sole proprietorship and partnership are other forms of business organizations, but only corporations can issue common stocks.

Common stock is the recipient of the residual income of the corporation. Though the right to vote, holders of common stock have a legal control over the corporation. An element of risk is also involved in equity ownership due to its low priority of claim at liquidation. Common stockholders have limited liability. Common equity provides a cushion for creditors if losses occur on dissolutions. The equity-to-total-assets ratio is an indicator of the degree by which the amount realized on the liquidation may decline from the stated book value before creditors suffer losses.

Diversification

The process of adding securities to a portfolio in order to reduce the portfolios unique risk and thereby, the portfolios total risk.

The objective of portfolio analysis is to reduce risk. By combining securities of low risks with securities of high risk, success can be achieved by an investor in making a choice of investment outlets. Combination of securities can be made in many ways.

Forms of diversification

Portfolio approaches usually assume one of the following forms of diversification.

Simple diversification: The simple diversification would be able to reduce unsystematic or diversifiable risk. Simple diversification is the random selection of securities that are to be added to a portfolio. Simple diversification reduces a portfolios total diversifiable risk to zero and only the undiversifiable risk remains. It was found in many research studies that 10-15 securities in a portfolio would bring adequate returns. So this approach assumes that an investor can expect a reasonable return for a given level of risk.

Superfluous diversification: It refers to the investors spreading himself in so many investments on his portfolio. The investors finds it impossible to manage the assets on his portfolio because the management of a large number of assets requires a knowledge of the liquidity of each investment, return, the tax liability and this will become impossible without specialized knowledge. He also finds it both difficult and expensive to look after a large number of investments. If the plans to switch over investments by often selling and buying assets expecting a high rate of return, he involves himself in high transaction costs and more money will be spent in managing superfluous diversification.

Diversification across industries: some investment counselors advocate selecting securities from different industries to achieve better diversification. It is certainly better to follow this advice than to select all the securities in a portfolio from one industry. But, empirical research has shown that diversifying across industries is not match better than simply selecting securities randomly.

Simple diversification across quality rating categories: Simple diversification reduces risk within categories of stocks that all have the same quality rating.

Markowitz diversification: Markowitz diversification is the combining of assets, which are less than perfectly positively correlated in order to reduce portfolio risk. It can sometimes reduce risk below the undiversifiable level. Markowitz diversification is more analytical than simple diversification and considers assets correlations. The lower the correlation between assets, the more that Markowitz diversification will be able to reduce the portfolios risk.

Non-satiation and risk aversion

There are two assumptions implicit in the portfolio selection problem. First, investors want to select a portfolio, which provides the highest possible return. An assumption of non-satiation is made n the Markowitz portfolio, in which investors are assumed to always prefer higher levels of terminal wealth to lower levels of terminal wealth. Therefore, given two portfolios with the same standard deviations, the investor will choose the portfolio with the higher expected return.

The portfolio theory presumes that individual investors attempt to maximize the utility of their portfolios. However, since individuals differ in their attitude toward risk, differences in their risk aversion factor will lead to different investment policies. The portfolio theory defines three types of investors:

Risk averse: Investors who have positive risk aversion factors. They view the true return that is earned on an investment as being its expected return, less an amount that compensates for its risk.

Risk neural: Investors who have a risk aversion factor equal to zero. Their utility functions only consist of an investments expected return. Such investors tend to ignore risk when making an investment decision.

Risk loving: Investors who have negative risk aversion factors. This means that, for them, the greater the risk, the more they like an investment. They view the true compensation that an investment offers as consisting of both its expected return and the thrill of the game.

Concept of portfolio

Portfolio theory was originally proposed by Harry M. Markowitz in 1952. The theory is concerned with the selection of an optimal portfolio by a risk-averse investor. A risk –averse investor is an investor who select a portfolio that maximizes the expected return for any given level of risk or minimizes the risk for any given level of expected return. Thus a risk-averse investor will select only efficient portfolios.

The selection of the optimal portfolio depends on the investors preferences for risk and returns. The investors risk-return preferences can be represented by indifference curves. By combining the efficient portfolios with the investor’s indifference curves. By combining the efficient portfolios with the investor’s indifferences curves, the optimal portfolio can be determined.

Portfolio theory assumptions

The portfolio model developed by Markowitz is based on the reasonable assumption:

• The expected return from asset is the mean value of a probability distribution of future returns over some holding period.
• The risk of an individual asset or portfolio is based on the variability of returns.
• Investors depend solely on their estimates of return and risk in making their investment decisions. This means that an investors utility is only a function of the expected return and risk.
• Investors adhere to the dominance principle. That is for any given level with a lower expected return; for assets with the same expected return, investors prefer lower to higher risk.

Function of security market

Price discovery

Price discovery is the first function of the security market. Price discovery is a determination of a fair price of the securities it trades. The interactions of buyers and sellers in a security market determine the price of the security.

The provision of liquidity

Liquidity refers to how an asset can be converted into cash. Security markets provide a mechanism for an investor to sell a financial security. Due to this feature, it is said that a security market offers liquidity. If you takes a long time to sell the shares or if you can sell them immediately only at a sacrifice, it does not meant liquidity. If you sell 20 shares of standard chartered immediately for a fair price, then the market provides you a good liquidity.

The minimization of trading costs or transaction costs

The third function of the security market is that it reduces the cost of transaction. There are two costs associated with transacting i.e. search costs and information costs.

Search costs represent explicit costs, such as the money spent to advertise ones intention to sell or purchase a financial security, and implicit costs, such as the value of time spent in locating a counter party. The present of some form of organized security market reduces search costs. Information costs are costs associated with assessing the investment merits of a financial security.

Organized securities markets lower the trading costs in a variety of ways. By restricting access and setting rules, by standardizing trades, by providing a framework for conflict resolution, and by guaranteeing execution.

Types of organization

Organization may be classified on several bases such as size- small, medium, large and giant, ownership- public, private, and joint, legal form- sole trading, partnership, joint stock Company, cooperative society, and multinational company. Organizations can be classified as follows can on the basis of their objective:

1) Business organizations: they are formed for earning profits. They are mainly concerned with producing goods and services of value to the society. Companies, partnership firms, and sole trading firms are organized along these lines with a profit motive to survive against competition, future expansion and development. Their prime beneficiaries are their owners.

2) Government organizations: such organizations are formed for the satisfaction of the people and their welfare. They are engaged in public services. They can be government departments, ministries and public corporations. Their prime beneficiaries are general publics.

3) Service organizations: service organizations are voluntary organizations, which are formed for promoting social welfare activities in the country. They are non-profit social organizations such as schools, hospitals, social welfare agencies, etc. the prime beneficiaries are the clients who come in the direct contact with the organization.

4) Political organizations: political organizations render services to upliftment of the society. They seek to elect a member of their group to public office of the country such as parliament, district committee, etc. political parties and associations comes under this category.

5) Religious organizations: they serve for the attainment of spiritual needs of members and try to convert non-believers to their faith. Churches, Vishwa Hindu Parishad, etc. come under this category.

6) Associative organizations: they satisfy the needs of people to friendships and to have contact with others who have common interests. Clubs, team etc. come under this category.

7) International organizations: they are association of many countries. It can be international or regional associations such as UNDP, WORLD BANK, ASEAN, SAARC, etc. the prime beneficiaries are member countries.

Security issue process

Before issuing security the board of director of the firm decides how much fund to be raised. It also decides whether to raise funds from private placement or public sale. In private placement, fund can be raised promptly with lower cost. If the issue is big, the public sale can also be made at lower cost.

If the issue has to be sold publicly the firm should select investment bank. An individual investment bank alone may take the responsible of issue and sale and distribute of the security. If the issue is big, many investment banks make syndicate and take the responsibility of issue jointly.

The investment bank receives the new security at low price as far as possible and earns profit by selling to other investors. The investment bank may directly purchase security with the issuing firm, or may only guarantee the fixed price of the security. But in both situations, the investment bank bears the risks of profit or loss that occur in security market.

After selecting the investment bank, the bank and the firm jointly make final decision regarding the basis, maturity, type, interest rate of the security and the commission of the investment bank etc. the commission charged by the investment bank may be a great financial cost particularly in small issue. Most of the firms have the rights to negotiate the commission charged by the investment bank. It is know as negotiated issue. But the public utilities select the investment bank by competitive bids. The investment bank which provides cheapest service is selected in it. The bid reduces the profit of an investment bank.

The delay in selling the security is regarded as the great enemy of the investment bank. It is because, he has to get addition fund to keep the security not sold and has also additional risk of fall in price. In case of adverse change in the price there is decline in the prestige of the investment banking business is risky and highly competitive due to various uncertainties.

The security can be sold through underwriting or on best efforts basis. In underwriting the investment bank sells the security to the ultimate investor by buying with the firm. Since the issuer already receives money in it, he needs not worry at all. The bank bears all risk as an underwriter or a guaranteer.

In best effort basis, the investment bank does not make guarantee of sale. He just makes maximum effort to sale the security. In case of no sale, he returns to the firm itself. The bank receives commission on the basis of amount sale.

After registration on the concerned agency by the investment bank it makes the prospectus available to the potential investors. The prospectus contains firm’s history, management, financial position, feature of security, promoters, share to be allotted the promoters and outsiders.

In final, the security is sold to the general public. The formal public sale is called ‘opening the book’. The sales start after opening the books. In case of high demand, the book is immediately closed and an application given more than requirement is announced. It is called the issue ‘flayed out of the windows.’ If the issue is not sold, time is increased and the book is kept open.

Business environment and its importance

An organization is a part of society and the business environment has a direct relationship with the policy of the organization. The environment may imposes several constrains on the organization as it has a tremendous impacts and influence. The organization on the other hand, has very little control over its environment. Therefore, the success of an organization depends to a very large extent on its adaptability to the environment.

Business organizations are neither self-sufficient nor self-contained. They exchanges resources with outside environment and depend on it for their survival. They draw inputs such as raw materials, capital, labor, energy and information from the external environment. They transform inputs into products and services and supply as outputs to the external environment.

Davis Keith defines the business environment as - “aggregate of all conditions, events, and influences that surround and affect it.”

There are two sets of environment: internal and external environment, which influences the business policy of an organization. The internal environment is known as controllable factors because the organization has control over these factors. They consist of employees, shareholders and board of directors, and culture. Organization can modify or alter such factors to suit the environment.

The external environment is known as uncontrollable factors because such factors are largely beyond the control of the legal and technological environment. They are uncertain and complex.

The importances of business environment are as follows:

1) The study of the business environment helps an organization to develop its broad strategies and long term policies.

2) It enables an organization to analyze its competitor’s strategies and thereby formulate effective counter strategies.

3) The environment is constantly changing. Knowledge about the changing environment will keep the organization dynamic in its approach.

4) Such a study enables the organization to foresee the impact of the socio-economic changes at the national and international level on its stability.

5) As a result of the study, executives are able to adjust to the prevailing conditions and thus, influence the environment in order to make it suitable to business.

Classification of security markets

There are many ways to classify security markets. One way is by the type of financial claim, such as debt markets and equity markets. Debt market is market in which financial instruments dealing in outstanding debts are bought and sold. The New York bonds exchange is debt market equity market is market in which financial instruments dealing in outstanding equity are bought and sold.
Another is by the maturity of the claim. For example, money market and capital market. Money markets are the markets for short-term debt securities. Examples of money markets securities are treasury bills, banker’s acceptance, commercial paper and negotiable certificate of deposit issued by government, business and financial institutions. These instruments are very liquid and considered extraordinary safe. Because they are extremely conservative, money market securities offer significantly lower return than most other securities. Capital market is the market for long term loans and equity capital. Companies and the government can raise funds for long term investments via the capital market. The capital market includes the stock market, the bond market and the primary market.
Security markets can be categorized as those dealing with financial claims that are newly, called the primary market and those for exchanging financial claims previously issued, called the secondary market or the market for seasoned instruments.
A market can be classified by its organizational structure.

MAJOR STOCK MARKETS

Most of the major securities markets are continuous. However, call market procedures are used when trading volume is low and orders have to accumulate over time in order to give depth to a market. Most organized markets use a mixture of both systems. For example, the NYSE generally is a continuous market. However, call market procedures are sued to set the opening prices of shares traded on the NYSE.


NEW YORK STOCK EXCHANGE (NYSE)
The New York stock exchange (NYSE), the largest organized securities market in the United States, was established in 1817 as the New York stock exchange board.
At the end of 2000, approximately, 3000 companies had issues listed on the NYSE, for a total of a about 3200 stock issues with a total market value of more than $13.0 trillion.
The average number of shares traded daily on the NYSE has increased steadily and substantially. The NYSE has dominated the other exchanges in the United States in trading volume. During the past decade, the NYSE has consistently accounted for about 85 percent of all shares traded on U.S. listed exchanges, as compared with about 5 percent for the American stock exchange and about 10 percent for all regional exchanges combined. Because shares prices on the NYSE tend to be higher than those on other exchanges, the dollar value of trading on the NYSE has averaged about 87 percent of the total value of U.S. trades, compared with less than 3 percent for the AMEX and about 10 percent for the regional exchanges.

American stock exchange (AMEX)

The American stock exchange (AMEX) is the second largest organized U>S. security exchange in terms of the number of listed companies, but in terms of dollar volume of trading, the AMEX is actually smaller than the two largest regional exchanges – the Midwest and the pacific. Its organization and procedures are quite similar to those of the New York stock exchange

NASDAQ stock market
NASDAQ is the largest U.S. electronic stock market. With approximately 3300 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. It is home to category-defining companies that are leaders across all areas of business including technology, retail, communications, financial services, transportation, media and biotechnology. NASDAQ is the primary market for trading NASDAQ-listed stocks. Approximately 54% of NASDAQ-listed shares traded are reported to NASDAQ systems.

The national association of security dealers automated quotation system NASDAQ is the largest OTC market.

NASDAQ stock market is divided into two sectors: NASDAQ national and NASDAQ small cap market. Share volume is higher than on the NYSE but dollar volume is slightly less than that on the NYSE; Microsoft, Intel are listed in the NASDAQ.

Foreign stock exchanges
In addition to the domestic stock exchanges there are a number of foreign stock exchanges. In Canada, the Toronto stock exchange and the Montreal stock exchange are the dominant exchanges. On the worldwide basis the Tokyo stock exchange, and the London stock exchange are first and third in dollar volume; respectively; the New York stock exchange is second. Other important foreign exchanges includes the Zurich stock exchange (Switzerland), Sydney stock exchange (Australia), Paris stock exchange (France), Frankfurt stock exchange (west Germany), Hong Kong stock exchange (china), and south African exchange. The foreign exchanges are organized in a fashion similar to those in the United States and create a marketplace in which the securities of companies based in the given country are traded. Often these companies are foreign subsidiaries of American companies.

London stock exchange (LSE)
The London stock exchange is a stock exchange located in London. Founded in 1801, it is one of the largest stock exchanges in the world, with many overseas listings as well as UK companies.

The former stock exchange tower, based in Threadneedle Street/old Broad Street was opened by Queen Elizabeth II in 1972 and housed the trading floor where traders would traditionally meet to conduct business. This became largely redundant with the advent of the “big bang” on 27 October 1986, which deregulated many of the stock exchanges activities. It eliminated fixed commissions on security trades and allowed securities firms to act as brokers and dealers. It also enabled an increased use of computerized systems that allowed dealing rooms to take precedence over face to face trading.

In July 2004 the London stock exchange moved from thread needle street to paternoster square (EC4) close to st pauls cathedral, still within the “square mile”. It was officially opened by Queen Elizabeth II once again, accompanied by the duke of Edinburgh, on 27 July 2004. The new building contains specially commissioned dynamic sculpture called “the source”, by artists Greyworld.

Security markets

A market is the means by which products and services are bought and sold, directly or through an agent. a market need not be a physical location. There is no requirement of ownership by those who establish and administer and market they need only provide a cheap, smooth transfer of goods or services for a diverse clientele.

A market should provide accurate information on the price and volume of past transactions and current supply and demand. Clearly, there should be rapid dissemination of this information. Adequate liquidity is desirable so that participants may buy and sells their goods and services rapidly, at a price reflecting the supply and demand. The costs of transferring ownership and middleman commissions should be low. Finally, the prevailing price should reflect all available information.
a securities market can be defined as a mechanism bringing together buyers and sellers of financial assets in order to facilitate trading alternatively, security market is a place where securities are bought and sold, the facilities and people engaged in such transactions, the demand for and availability of securities to be traded, and the willingness of buyers and sellers to reach agreement on sales. Over the counter markets the New York stock exchange (NYSE), the Chicago board of trade (CBT), the American stock exchange (AMEX) and Nepal stock exchange (NEPSE) are the example of security markets.

The investment environment

The environment is the context in which firms or companies operate and which insist on the firms operation. Investment environment refers to the financial assignment in which investors operate, consisting of the kinds of marketable securities available for purchase or sale of securities and how and where these securities are bought and sold. To state differently, investment environment refers to all the internal as well as external sources that have a bearing on the functioning of investment decisions.
Investment environment encompasses securities, security markets and intermediaries. The following section includes a brief description of each of these elements.



Securities
In general a security is a legal document that shows an ownership interest. In other words, security is a piece of paper evidencing the investor’s right to the assets. it is the legal representation of the right to receive prospective future benefits under stated conditions and to acquire or sell ownership interests. Share, bond, preferred stock, Treasury bill, commercial paper etc are the examples of securities.

Security markets
A security market (alternatively a financial market) is a mechanism designed to facilitate the exchange of financial assets or securities by bringing buyers and sellers of securities together. Precisely speaking, a security market allows suppliers and demanders of funds to make transactions.
There are various ways of categorizing security markets. The following classification predominant.
(i) Money market and capital market
This categorization is made on the basis of life span of securities. Money market refers to that financial market in which securities with a short term (one year or less) and highly liquid debt securities are traded. Thus, money market comprises the securities that have short in comparison to other securities. Money market facilitates flow of short term fund. The participants of money market are short term deficit units and surplus units. Instrument traded in the money market are Treasury bill, commercial paper, certificate of deposits etc.
In contrast to money market, capital market refers to the financial market in which long-term securities are traded. Specifically speaking, securities having life spans of more than one year are traded in the capital market. Long-term financial instruments such as stocks issued by corporations are basically traded in a capital market. Capital market facilitates flow of long term fund. The participants of capital market are long term surplus units and deficit units. Instruments traded in the capital market are common stock, treasury bonds, corporate bonds etc.

(ii) Primary market and secondary market
On the basis of the economic function, capital markets can be categorized into primary and secondary markets. The markets through which the funds are transferred from savers to investors are called primary market. Hence, the transferred of securities issued for the first time take place in the primary market. Primary market facilitates direct transfer of funds. The participants of primary market are issuing company, investment bankers and investors. The institutions that perform the role of an export in issuing new securities are called investment bankers. These bankers make a available advice to the business firms regarding the nature of security, maturity, interest rate and underwrite the issue of securities


Financial intermediaries
Financial intermediaries or institution are the organizations that channel the savings of governments, businesses, and individuals into loans or investments. Thus, financial intermediaries position themselves between providers and users of funds. the role of the financial intermediaries is to accumulate funds from various savers and lend those funds to borrowers and thus they actively participate in the money market and the capital market. Savings and loan associations, mutual funds, pension funds, credit unions, life insurance companies etc are the examples of financial intermediaries.

Concept of investment

The income receives by a person may be used to purchasing goods and services that he currently requires or it may be saved for purchasing goods and services that he may require in the future. In other words, income can be spent for consumption or saved for the future consumption. Savings are generated when a person or an organization abstains from present consumption for a future use. Investment is an activity that is engaged in by people who have savings, i.e. investment is made from savings. But all savers are not investors. Investment is an activity which is different from saving. Let us see what is meant by investment.

If you have ever deposited money in a savings account, you already have at least one investment to your name. An investment is simply any alternative into which funds can be placed with the expectations that they will generate positive income and/or that their value will be preserved or increased. If one person has advanced some money to another, he may consider his loan as an investment. He expects to get back the money along with interest at a future data. A person may purchase an insurance plan for the various benefits it promises in future.

In all these case it can be seen that investment involves employment of funds with the aim of achieving additional growth in values. The essential quality of an investment involves waiting for a reward.

Forms of investment
Assets can be categories into two forms financial assets and real assets. Accordingly, there are two forms of investment

i) Financial investment
ii) Real investment

Financial investment
Investment in financial assets like common stocks, bond etc is called financial investment. A financial asset represents a financial claim. It is an asset that is usually documented by some forms of legal representation. Although tangible certificates of ownership typically represent financial assets, the financial asset itself is intangible. They are also called securities. Financial assets themselves do not directly posses productive capacity. Financial assets can be viewed as claims to the income generated by real assets. In this context, the value of financial assets is derived from the value of the underlying real assets. Financial assets are also called ‘paper assets’.

The entity that agrees to make future cash payments is called the issuer of the financial asset; the owner of the financial asset is referred to as the investor.

Real investment
A real asset represents an actual tangible asset that may be seen, felt, held or collected e.g. real estate, gold etc. investment in such tangible assets is called real investment. Real assets have productive capacity. The capital formation is the direct outcome of this productive investment.

Although the importance of real assets can’t be overlooked, I use the term investment in this book strictly with reference to financial investment.

However, it is noted that the real investment and financial investment are complimentary to each other. For instance, a company issues shares of common stock to finance the plant and machinery. Here, the purchase of plant and machinery is area investment by the firm and on the other hand, investment in common stock by the investor is a financial investment. Because of the divisibility, marketability and availability of information, financial investment is getting much more popular nowadays.

Concept of investment

The income receives by a person may be used to purchasing goods and services that he currently requires or it may be saved for purchasing goods and services that he may require in the future. In other words, income can be spent for consumption or saved for the future consumption. Savings are generated when a person or an organization abstains from present consumption for a future use. Investment is an activity that is engaged in by people who have savings, i.e. investment is made from savings. But all savers are not investors. Investment is an activity which is different from saving. Let us see what is meant by investment.

If you have ever deposited money in a savings account, you already have at least one investment to your name. An investment is simply any alternative into which funds can be placed with the expectations that they will generate positive income and/or that their value will be preserved or increased. If one person has advanced some money to another, he may consider his loan as an investment. He expects to get back the money along with interest at a future data. A person may purchase an insurance plan for the various benefits it promises in future.

In all these case it can be seen that investment involves employment of funds with the aim of achieving additional growth in values. The essential quality of an investment involves waiting for a reward.

Forms of investment
Assets can be categories into two forms financial assets and real assets. Accordingly, there are two forms of investment

i) Financial investment
ii) Real investment

Financial investment
Investment in financial assets like common stocks, bond etc is called financial investment. A financial asset represents a financial claim. It is an asset that is usually documented by some forms of legal representation. Although tangible certificates of ownership typically represent financial assets, the financial asset itself is intangible. They are also called securities. Financial assets themselves do not directly posses productive capacity. Financial assets can be viewed as claims to the income generated by real assets. In this context, the value of financial assets is derived from the value of the underlying real assets. Financial assets are also called ‘paper assets’.

The entity that agrees to make future cash payments is called the issuer of the financial asset; the owner of the financial asset is referred to as the investor.

Real investment
A real asset represents an actual tangible asset that may be seen, felt, held or collected e.g. real estate, gold etc. investment in such tangible assets is called real investment. Real assets have productive capacity. The capital formation is the direct outcome of this productive investment.

Although the importance of real assets can’t be overlooked, I use the term investment in this book strictly with reference to financial investment.

However, it is noted that the real investment and financial investment are complimentary to each other. For instance, a company issues shares of common stock to finance the plant and machinery. Here, the purchase of plant and machinery is area investment by the firm and on the other hand, investment in common stock by the investor is a financial investment. Because of the divisibility, marketability and availability of information, financial investment is getting much more popular nowadays.

Meaning characteristics of organization

Today’s, more and more people are employed by organization. We need so many services to sustain life. Which are provided by them. Hence, organizations are processing units, which transform certain inputs from the environment into specified outputs desired by society. They have become instruments of work that produce essential goods and services for the greater society.
An organization comes into existence when there are a number of persons willing to contribute towards a common goal.
First, an organization is a collection of people. Their combined effort produces synergy or a total effort that is greater than the sum of the individual efforts. Second, through division of labor or specialization the work is subdivided which permits individuals to develop expertise in their assigned task. As a result, they improve their own and the group’s effectiveness. Third, these specialized tasks must be coordinated as the people work together towards the fourth component, a common goal. Thus, an organization is a group of people who come together to attain a common goal.

Characteristics of organization are as under:
Social composition: organization is a social unit which consists of two or more people. They work together and develop social relations and patterns of interactions. They set and pursue common goal.
Goal orientation: an organization is deliberately created to achieve certain goals. Without a goal no organization would have a reason to exist. They provide direction and guide actions of the organization. A typical organization seeks to accomplish three primary goals: profit, growth, and survival. Goal can be multiple and confliction. Thus, organizations exist for stated and sometimes unstated goal/purposes.
Differentiated functions: organizations must have people with different skill and knowledge to perform varied types of functions to achieve the common goals. For efficiency, organization typically divides the work so member can specialize in one or two areas. Every function is assigned to the employee who is the most fit to perform the particular function.
Rational coordination: the efforts of various people working in different functional areas need to be coordinated. Work activities are coordinated in some rational manner to achieve common goal. If different departments work independently, it may lead to chaos and make uncertain to achieve common goal.
Continuity: members may join and leave the organization. But organization continues and enjoys eternal equity. Most organizations are born with the intention of staying alive, although that does not always happen.
Structure: an organization is a structure, in which jobs to be performed are arranged in a hierarchy. It is the skeleton around which an organization is built. The coordination and integration of human activities requires a structure where various people are fitted. Within the structure, people work to achieve the common goal.
Environment: organization exists and operates in a dynamic environment. Their internal as well as external environments such as economic, social, political-legal and technical environment influence every organization. Hence, organizations have to maintain a close relationship with them.