Fy-Fm - Unit - Iii & Iv

Mervin Classes P A G E – [ 1]
FUNCTIONAL MANAGEMENT
F.Y.B.Com. SEMESTER: II UNIT- III & IV
 INDEX: UNIT PAGE NO.
 STOCK EXCHANGE: III
[A]. MEANING OF STOCK EXC HANGE: 02 - 02
[B]. CHARACTERISTICS OF A GOOD MARKET: 02 – 04
[C]. FUNCTIONS OF STOCK E XCHANGE: 04 – 06
[D]. SERVICES OF STOCK EXCHANGE : 06 – 07
[E]. IMPORTANCE OR BEN EFI TS OF STOCK EXCHANGE : 07 – 08
[F]. PARTICIPANTS IN THE SECURITY MARKET: 08 – 10
[G]. PRIMARY & SECON DARY EQUITY MARKET: 10 – 12
[H]. BUYING AND SELLING S HARES : 12 – 14
[I]. PROCEDURE OF TRADING AND SETTLEMENT: 14 – 16
[J]. ROLE OF SEBI : 16 – 17
[K]. SECURITY MARKET: 17 - 19
 SOURCES OF FINANCE: III
[A]. SOURCES OF FINANCE : 20 – 21
[B]. IMPORTANCE OF RATIO ANALYSI S: 21 – 23
 PORTFOLIO MANAGEMENT: III
[A]. CONCEPT OF PORTFOLIO MANAGEMENT: 24 – 24
[B]. PROCESS OF PORTFOLIO MANAGEMENT: 24 – 25
[C]. SPECIFICATION OF INVESTMENT OBJECTIVE & CONSTRAINTS: 25 – 26
[D]. MEANING AN D METHODS OF SECURITY ANALYSIS : 26 - 27
STEPPI NG STO NE TO SUCCESS PTO – [2]

 INDEX: UNIT PAGE NO.
OFFICE MANAGEMENT & MANAGEMENT

INFORMATION SYSTEM :
IV
[A]. MEANING AN D DEFINI TION S OF OFFICE: 28 - 29
[B]. MEANING OF OFFICE MA NAGEMENT: 29 - 30
[C]. IMPORTANCE OF OFFICE: 30 - 30
[D]. HISTORICAL DEVELOPMENTS & FACTORS CONTRIBUTING THE

30 - 31
GROWTH OF OFFICE WORK:
[E]. FUNCTIONS OF AND OFFICE : 31 - 34
[F]. OFFICE SYSTEMS /ROUTINES AND PROCEDURES: 34 - 35
[G]. OBJECTIVES OF SYSTEMS AND PROCEDURE: 35 - 36
[H]. IMPORTANCE OF OFFICE RECORDS: 36 - 36
[I]. MEANING OF FILING SY STEM: 37 - 43
[J]. MEANING OF INDEXING : 44 - 45
[K]. MANAGEMENT INFOR MATI ON SYSTEM [MI S] : 45 - 47
[L]. SIGNIFICANCE OF MANAGEMENT INFORMATION SYSTEM: 48 - 49
[M]. BENEFITS & LIMITATIONS OF MANAGEMENT

49 - 53
INFORMATION SYSTEM :

UNIT: III
STOCK EXCHANGE
Explain the meaning and functions of Stock Exchange.
[A]. MEANING OF STOCK EXCHANGE:

A Stock Exchange is the place or market, where industrial securities are bought and sold,
according to rules and regulations. Securities include shares, stock, bonds and debentures
issued by companies, and government securities and bonds issued by semi-government units. It
provides capital to industry, commerce and government.
[1]. DEFINITION OF STOCK EXCHANGE :
As defined by the Securities Contracts [Regulation] Act, 1956, a stock exchange is;
[i]. “An association, organization or body of individuals, whether incorporated or not,
[ii]. Established for the purposes of assisting, regulating and controlling business in buying, selling
and dealing in securities”.
[B]. CHARACTERISTICS OF A GOOD MARKET:

A market provides a mechanism through which buyers and sellers interact for transfer of goods
or services. Two aspects of this general definition may be noted.
First, a physical location is not a necessary feature of a market. What matters is that the market
provides a platform for the buyers and sellers to communicate about the relevant aspects of the
transaction.
Second, the market per se need not own the goods and services. The function of the market is
to facilitate the transfer of goods and services.
The following characteristics are considered to evaluate the quality of a market:
[1]. Timely and accurate information
[2]. Liquidity
[3]. Transaction cost
[4]. Informational efficiency
[1]. TIMELY AND ACCURATE INFORMATION:
People participate in a market to buy or sell a good or service quickly at a price that reflects the
prevailing demand and supply. To establish the appropriate price, market participants would like
to have timely and accurate information on the volume and prices of past transactions and
currently outstanding bids and offers. So, the availability of timely and accurate information is an
attribute of a goods market.
[2]. LIQUIDITY:
In a liquidity market, it is easy to sell or buy an asset quickly at a price close to the prices of prior
transactions, assuming no new information is available. The liquidity of a market may be judged
in terms of its depth, breadth, and resilience. Depth refers to the existence of buy as well as sells
orders around the current market price. Breadth implies the presence of such orders in
substantial volume.
Resilience means that new orders emerge in response to price changes. Generally, equity
shares of large, well-established companies enjoy high marketability and equity shares of small
companies in their formative years have low marketability.

[3]. TRANSACTION COS T:
A efficient market is one in which the transaction costs, as a percent of the value of the trade, are
low. Lower transaction costs imply internal efficiency.
[4]. INFORMATIONAL EFFICI ENCY:
A desirable attribute of the market is its ability to adequately reflect all available information and
adjust rapidly and rationally to the flow of new information. This attribute is called informational
efficiency or external efficiency.
To sum up, the characteristics of a good market are availability of timely and accurate
information, liquidity, low transaction costs, and informational efficiency.
[C]. FUNCTIONS OF STOCK EXCHANGE:
[1]. SPOT MARKET:
An organised stock exchange provides a ready and continuous market for buying and selling of
share, debenture and other securities.
It is a market for existing or second-hand securities. Persons with cash can convert it into
securities, and back to cash. This easy marketability of shares and securities increase their
liquidity.
The liquidity in turn increases the value of securities and facilities their use as collateral securities
for loan. As a continuous and ready market, it also provides price continuity and negotiability to
capital locked .up in investment.
The creditor constantly knows the worth of his security on the basis of the price quotations of
securities on the stock exchange.
[2]. DISSEMINATION OF PRI CE INFORMATION:
The stock exchange brings about the fairest and most accurate prices for shares and
debentures, and the prices reflect as closely as possible the present and future income yielding
prospectus of the various companies.
This is an important service to the investor. Under the stock exchange rules, all transactions in
the exchange are required to be recorded and made public so that the prices paid and received
become the official market quotations. On the basis of these quotations, every holder of
securities knows its worth at any point of time.
[3]. CAPITAL MOBILISATION :
Stock exchange mobilises the surplus funds of the community, i.e. funds, which would either
remain idle or would have been locked up in commercial banks getting lower interest incomes.
These are mobilised by the stock exchange for investment in corporate securities.
The publicity, which the stock exchange gives to various securities and their prices, induce
people to invest their savings in useful projects. The steady and continuous facilities provided by
the stock exchange for the purpose and sale of securities encourage people to save and invest.
It also creates the habit of risk taking among the general public.
In this manner, it maintains a steady and regular flow of capital into new enterprises. Even the
dividend and interest earned on investments are invested in industrial enterprises or government
projects.
Thus, stock exchange facilitates infrastructure development in the country by providing financial
support through adequate capital support.
[4]. MOBILITY OF CAPITAL:
The liquidity of securities enables fixed capital investment to become negotiable, and therefore
mobile. It gives mobility to the capital, particularly in the direction of profitable avenues. People
like to invest their savings in securities in companies yielding good profits.

The moment an enterprise ceases to be profitable; capital begins to leave it and begins to move
towards other profitable enterprises. This works through the security prices on the stock
exchange.
[5]. OFFERS LIQUIDITY:
The stock market quotations enable the investors to know the approximate worth of their
securities. The stock exchanges provide continuous markets, high negotiability of securities, and
correct evaluation by facilitating to liquidate investments as and when funds are required.
All these services are made available only if an organised stock exchange works under a code of
well-defined rules and regulations.
[6]. FACILITATES SPECULATION:
The essential idea of speculation is the purchase or sale of a commodity or security at one time,
with the object of making profit by its sale/purchase at another time.
The stock exchange enables shrewd businessmen or genuine investors to speculate and secure
substantial gains through fluctuations in security prices.
If a speculator expects a big rise in the price of a security, he begins to purchase it in advance,
and sell all his holding at the peak level for booking the profit. Speculators offer liquidity to the
markets.
[7]. BETTER CORPORATE GOV ERNANCE PRACTICES:
A company, which wants its securities to be quoted and traded on a stock exchange, has to get it
listed in the official trading list of the particular exchange. For this it has to follow certain rules and
fulfil certain conditions.
Such companies should also furnish all reasonable information concerning their financial affairs,
minority shareholders, etc. periodically to the exchanges where they are listed. Stock exchanges
exercise wholesome influence on the working and management of the companies through their
rules and regulations.
This factor safeguards the interest of the investing public, and also regulates company
management.
[8]. OFFERS PRICE STABILI TY:
Price stability is an essential element or requirement of liquidity. To provide for greater liquidity,
the investor should be able to withdraw his capital from investments at relatively small variations
from the last quoted price. Bulls, bears, and stockbrokers buy or sell securities accordingly, to
take price advantage.
For instance, speculators who expect future rise in share prices buy them at lower prices now,
and dispose them off in the future. This results in gradual price rise, and avoids violent
fluctuations in share prices.
On the other hand, stock traders make heavy buying when the share prices are low, and thus
increase the demand for securities.
This would lead to a rise in share prices. When share prices are high, they tend to depress the
rise by selling securities, and thus increase supply. Thus, stock exchanges ensure continuous
stability in share price through their regular purchase and sale of securities.
[9]. ENSURES WIDER OWNERS HIP OF SECURITIES:
If a company‟s securities are listed in different stock markets of the country, its securities will be
bought and sold by persons scattered all over the country, and the ownership is also widely
scattered.
Now, securities can be listed in overseas exchange also. Many of the leading Indian companies
like Tata, Infosys and Wipro are listed in overseas exchanges like London Stock Exchange,
NASDAQ, and so on.

Thus, stock markets can tap more and more new sources of capital from the domestic market as
well as abroad. Broad ownership also tends to safeguard the corporate sector from criticism and
government interference. Thus, stock markets make efforts to spread shared ownership as
widely as possible.
[10]. BAROMETER OF BUSINES S PROGRESS:
Stock exchange also acts a barometer of the business conditions in the country. Booms and
depressions are reflected by the index of prices of various securities maintained by the stock
exchange.
The causes for the changes in the business climate can be ascertained by analysing the ups and
downs of the market quotations.
DISSEMINATION OF INF ORMATION:
The companies listed in the stock exchanges have to furnish quarterly financial results to the
respective stock exchanges. This information is published by the exchanges, and the analysis
uses this data and given their opinion about various scrip‟s traded in the market. These analyses
are published in print as well as visual media.
Often, the TV anchor personnel interviews the top executives of the companies with regard to their
policies and future plans. Such programmes not only provide information about the company to the
investors, they also give good publicity to the company as well, at no additional cost.
[D]. SERVICES OF STOCK EXCHANGE:

The Stock exchanges constitute an organized market wherein the securities issued by the Indian
companies and central and state government traded.
 A well-ordered stock market performs the several economic functions as discussed below:
[1]. CONTINUOUS MARKET FOR SECURITIES:
The stock exchange provides a ready market for sale and purchase of securities. It provides
continuous marketability to the listed securities.
[2]. PROPER DIRECTION TO FLOW OF CAPITAL:
Stock exchange is a sensitive barometer of business activities. This is because, when the sales
and profit of a company increases, the prices of its shares are rising.
Thus, the prices of different securities indicate their relative profitability. This provides guidance
to the investors. They can invest their fund in the securities of those companies, which are more
profitable.
Thus, stock exchange provides proper direction to the flow of capital.
[3]. HELPS IN DISTRIBUTION OF NEW SECURITIES:
The listed securities fetch [gets] higher price as compared to unlisted securities. So, the listed
shares are more acceptable by investors. Due to this reasons, when the new shares or securities
are issued through stock exchange, they get good public response. So, it is possible to sell
shares easily.
[4]. ENSURES SAFETY OF FU NDS:
The stock exchange operates according to rules and regulations. Moreover, it takes necessary to
steps to prevent activities like overtrading, illegitimate speculations and manipulations. So, there
is safety of the funds of investors.
This increases their confidence in the stock market, and stimulates [encourage] large investment
in corporate securities.

[5]. MOBILIZATION OF SAVI NGS:
Stock exchange helps in mobilization of savings, facilitates capital formation and assists the
process of economic growth.
In absence of stock exchange, it will not be possible to mobilize [to collect] the surplus funds of
people and to direct its investment in remunerative channels.
[6]. MIRROR OF BUSINESS C YCLE:
The investment depends upon the economic conditions of the country as well as the expected
boom or depression in the economy.
 Now, the falling prices of the listed securities indicate the depression in the economy.
 Similarly, increasing prices along with increases in an investment shows the booming conditions
in the economy.
Thus, the stock exchange indicates the economic conditions and business condition of economy.
So, it is known as the mirror of business cycle.
[7]. PROVIDES INFORMATION ABOUT PRICES AND SALES:
 Stock exchange maintains a complete record of all transactions of different securities every day.
 We can get information about minute to minute movement in the prices of selected shares on TV
Channels like, CNBC, Zee News, NDTV, etc.
 This helps the investor to take decision on purchase or sale of securities.
[8]. BETTER ALLOCATION OF FUNDS:
 As a result of stock market transactions, there is flow of funds from less profitable to more
profitable enterprises.
 This ensures better allocation of financial resources of the economy.
Discuss the benefits/utility/Advantages/Importance of Stock Exchange.
[E]. IMPORTANCE OR BENEFITS OF STOCK EXCHANGE:

The functions performed and the services rendered by the Stock Exchange can be a lso
understood from the perspective of its benefits to the various sections/sectors in the
economy.
 The benefits of Stock Exchanges are discussed below from the three perspectives:
[1]. BENEFITS OF STOCK EXCHANGE TO COMMUNITY AND COUNTRY:

[i]. It includes [develops or encourage] saving habits among people & helps in raising capital formation.
[ii]. Through capital mobilization, it helps in the process of economic growth.
[iii]. It ensures diversification of investment on the basis of stable and increasing yields [income].
[iv]. It provides proper evaluation of the worth [value] of different securities.
[v]. It gives idea of economic situation [depression or boom] of a country. Thus, it is a mirror of
economic situation of a country.
[vi]. Through stock exchange, people can invest their funds in safe and more profitable securities.
Thus, it ensures optimum and equitable utilization and avoids wastage of scarce financial
resources of a country.
[vii]. It helps the government in raising funds of public sector projects of national importance.

[2]. BENEFITS [OR SERVICES] TO INVESTORS:
[i]. It provides guidance to investors regarding the choice of securities.
[ii]. It provides continuous marketability and liquidity of securities. So, the investors can sell their
security, when they require funds.
[iii]. It provides latest information about the prices of securities, [to the investors], through daily
quotations of listed securities.
[iv]. Purchases of listed securities are less risky [because it pre-supposes their evaluation by the
Stock Exchange Authorities].
[v]. It avoids undue fluctuations in the prices of securities, by balancing the operations of speculators
[bulls and bears].
[vi]. The securities, which can be easily sold on stock exchange, become a good collateral security for
loans.
[vii]. The stock exchange operates according to rules & regulations. This safeguards the interest of
investors.
[3]. BENEFITS TO THE COMPANIES:

[1]. It enlarges [widens] the market for securities.
[2]. When the shares/securities of a company are listed on the stock exchange, its credit-standing
and goodwill increases.
[3]. Listed securities get quick and better response from the investors.
[4]. Market value of listed securities is higher than that of unlisted securities. This increases the
financial stability, bargaining power [in takeover or merger] and the goodwill of the company.
[5]. It gives an idea of the general economic conditions of a nation and guides the company in its
investment decisions.
Who are the various participants of Stock Exchange.
[F]. PARTICIPANTS IN THE SECURITY MARKET:

The Indian securities market constitutes of a number of participants who link demanders of funds
with suppliers of funds. They are as follows:
 REGULATORS:
The key agencies that have a significant regulatory influence, direct or indirect, over the
securities market are currently as follows:
[1]. The Company Law Board (CLB) which is responsible for the administration of the Companies Act,
2013.
[2]. The Reserve Bank of India (RBI) which is primarily responsible, inter alia (among other things),
for the supervision of banks, money market, and government securities market.
[3]. The Securities and Exchange Board of India (SEBI) which is responsible for the regulation of the
capital market.
[4]. The Department of Economic Affairs (DEA), an arm of the government, which, inter alia, is
concerned with the orderly functioning of the financial markets as a whole.
[5]. The Ministry of Company Affairs (MCA), an arm of the government, which is responsible for the
administration of corporate bodies.
[1]. STOCK EXCHANGES :
A stock exchange is an institution where securities that have already been issued are bought and
sold. The major exchanges in India are NSE and BSE.

[2]. BANKERS TO AN ISSUE :
The bankers to an issue collect money on behalf of the company from the applicants.
[3]. BROKERS:
Brokers are registered members of the stock exchanges through whom investors transact. There
are approx. 10,000 brokers in India.
[4]. LISTED SECURITIES :
Securities that are listed on various stock exchanges and hence eligible for being traded there
are called listed securities. Presently a lot of securities are listed on all the stock exchanges in
India put together.
[5]. DEPOSITORIES:
A depository is an institution which dematerialises physical certificates and effects transfer of
ownership by electronic book entries. Presently there are two depositories, in India, viz., the
National Securities Depository Limited (NSDL) and the Central Depository Services (India)
Limited (CDSL).
[6]. FOREIGN INSTITUT IONAL INVESTORS:
Institutional investors from abroad who are registered with SEBI to operate in the Indian capital
market are called foreign institutional investors. There are approx. 600 of them and they have
emerged as a major force in the Indian Market.
[7]. MERCHANT BANKERS:
Firms that inter alia specialise in managing the issue of securities are called merchant bankers.
They have to be registered with SEBI.
[8]. PRIMARY DEALERS:
Appointed by the RBI, primary dealers serve as underwriters in the primary market and as
market makers in the secondary market for government securities.
[9]. MUTUAL FUNDS:
A mutual fund is a vehicle for collective investment. It pools and manages the funds to investors.
There are approx. 30 mutual funds in India.
[10]. CUSTODIANS:
A custodian looks after the investment back office of a mutual fund. It receives and delivers
securities, collects income, distributes dividends, and segregates the assets between
schemes.
[11]. REGISTRARS AND TRANS FER AGENTS:
A registrar and transfer agent is employed by a company or a mutual fund to handle all investor-
related services.
[12]. UNDERWRITERS:
An underwriter agrees to subscribe to a given number of shares or any other security in the even
the public subscription is inadequate. The underwriter, in essence, stands guarantee for public
subscription.
[13]. DEBENTURE TRUSTEES:
When debentures are issued by a company, a debenture trustee has to be appointed to ensure
that the borrowing firm fulfils its contractual obligations.
[14]. VENTURE CAPITAL FUND S:
A venture capital fund is a pool of capital which is essentially invested in equity shares or equity-
linked instruments of unlisted companies.

[15]. CREDIT RATING AGENCI ES:
A credit rating agency assigns ratings primarily to debt securities.
Explain primary equity market and important changes introduced by SEBI.
[G]. PRIMARY & SECONDARY EQUITY MARKET:

[a]. PRIMARY EQUITY MARKE T:
Although the equity market in India has been functioning since the late nineteenth century, the
primary equity market, also called the new issues market, remained rather dull and inactive,
barring occasional but brief bursts of activity, till 1991.
In 1992, the Control of Capital Issues Act was abolished and SEBI was entrusted with the
responsibility of regulating the primary market.
A series of initiatives taken by SEBI, along with a more conducive environment that emerged in
the wake of economic reforms, imparted a strong boost to the primary market.
 Some of the important changes introduced by SEBI are worth mentioning.
[1]. FREE:
Pricing Companies have been given freedom in pricing their equity shares and determining the
interest rate structure on their debt securities.
[2]. ISSUE OF CAPITAL AND DISCLOSURE REQUIREME NTS (ICDR):
Issues of securities have to conform to fairly elaborate disclosure requirements, so that investors
can take more informed decisions.
ICDR and their continual improvement have made Indian disclosure requirements comparable to
the best international practices. Of course, this had made the offer document quite voluminous.
[3]. EFFICIENT DELIVERY M ECHANISM:
SEBI has made it mandatory for all new IPOs to be issued only in the dematerialised form.
Further, the time lapse between the closure of an issue and the listing of shares has been
compressed.
 There are three ways in which a company may raise equity capital in the primary market.
[a] Public issue,
[b] Rights issue,
[c] Private placement.
Discuss the secondary equity market.
[b]. SECONDARY EQUITY MAR KET:

The origin of the stock market in India goes back to the end of the eighteenth century when long-
term negotiable securities were first issued. However, for all practical purposes, the real
beginning occurred in the middle of the nineteenth century after the enactment of the Companies
Act in 1850, which introduced the feature of limited liability and generated investor interest in
corporate securities.
An important early event in the development of the stock market in India was the formation of the
Native Share and Stock Brokers’ Association at Bombay in 1875, the precursor of the present
day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in
Ahmadabad (1894), Calcutta (1908), and Madras (1937).

In addition, a large number of ephemeral exchanges emerged mainly in between periods only to
recede into oblivion during depressing times subsequently. In order to check such aberrations and
promote a more orderly development of the stock market, the central government introduced a
legislation called the Securities Contracts (Regulation) Act, 1956.
Under this legislation, it is mandatory on the part of a stock exchange to seek governmental
recognition.
National Stock Exchange (NSE) the Over the Counter Exchange of India Limited (OTCEI)
and Inter-connected Stock Exchange of India Limited (ISE) have mandate to nationwide
trading network. The Bombay Stock Exchange was established in 1875 and is one of Asia‟s
Oldest Stock Exchange.
The most important development in the Indian stock market was the establishment of the
National Stock Exchange (NSE) in 1994. Within a short period, it emerged as the largest stock
exchange in the country surging ahead of the Bombay Stock Exchange (BSE) which was
historically the dominant stock exchange in India.
At present, NSE and BSE account for almost 100 percent of the total turnover on the Indian stock
market, thanks to three factors;
[i] advent of automated trading and the nation wide reach of NSE and BSE;
[ii] introduction of a common rolling settlement system; and
[iii] abolition of regional listing requirement.
Since NSE and BSE loom large over the Indian stock market, it may be instructive to learn about
their distinctive features.
Explain the distinctive features of National Stock Exchange.
 THE NATIONAL STOCK EXCHANGE:

Inaugurated in 1994, the National Stock Exchange seeks to
(a) Establish a national wide trading facility for equities, debt, and hybrids,
(b) Facilitate equal access to investors across the country,
(c) Impart fairness, efficiency, and transparency to transactions in securities,
(d) Shorten settlement cycle, and
(e) Meet international securities market standards.
The distinctive features of NSE, as it functions currently, are as follows:
[1]. The NSE is a ring less, national, computerised exchange.
[2]. The NSE has two segments; [a] the Capital Market segment and the Wholesale Debt Market
segment. The Capital Market segment covers equities, convertible debentures, and retail trade in
non-convertible debentures.
The Wholesale Debt Market segment is a market for high value transactions in government
securities, PSU bonds, commercial papers, and other debt instruments.
[3]. The trading members in the Capital Market segment are connected to a central computer in
Mumbai through a satellite link-up, using VSATs (Very Small Aperture Terminals).
Incidentally, NSE is the first exchange in the world to employ the satellite technology. This enabled
NSE to achieve a nation-wide reach. The trading members in the Wholesale Debt Market segment
are linked through dedicated high speed lines to the central computer at Mumbai.

Explain the distinctive features of Bombay Stock Exchange.
 THE BOMBAY STOCK EXCHANGE:

Established in 1875, the Bombay Stock (BSE) is one of the oldest organized exchanges in the
world with a long, colourful and chequered history.
Its distinctive features are as follows:
[1]. The BSE switched from an open outcry system to a screen-based system in 1995 which is called
BOLT (which is an acronym for BSE-On Line Trading). It accelerated its computerisation
programme in response to the threat from the NSE.
[2]. To begin with, BOLT was a „quote-driven‟ as well as an „order-driven‟ system, with jobbers
(specialists) feeding two-way quotes and brokers feeding buy or sell orders. This hybrid system
reflected the historical practice of BSE where jobbers played an important role.
A jobber is a broker who trades on his own account and hence offers a two-way quote or a bid-
ask quote. The bid price reflects the price at which the jobber is willing to buy and the ask price
represents the price at which the jobber is willing to sell. From August 13, 2001, however, BSE,
like NSE, became a completely order-driven market.
[3]. In October 1996 SEBI permitted BSE to extend its BOLT network outside Mumbai. A number of
various, subsidiary companies of regional exchange became members of BSE and through them
members of regional exchanges now serve as sub-brokers of BSE. This has expanded the reach
of BSE considerably.
Explain the Procedure of Buying & Selling shares at Stock Exchange.
[H]. BUYING AND SELLING OF SHARES:

Procedure of buying and selling of shares involves the three basic steps:
[1] Locating a Broker [2] Placement of order [3] Executing the order
Traditionally, the investors or the person trading or intending to trade can do so only with the help
of the members authorized for same, i.e. brokers and others. But, with the introduction of
technological developments on the Indian stock exchanges the picture has changed.
Today, the person can trade in securities by various modes;
[1]. Trading through Brokers (Traditional Methods and Modern Method)
[2]. Internet trading; [1] Through banks [2] Through trading firms
The procedure of buying and selling of shares by various modes in explained below:
[1]. TRADING PROCEDURE OF BUYING & SELLING SHARES THROUGH

BROKERS:
[a]. PROCEDURE OF BUYING SHARES:
Following are the main steps in the procedure of buying shares or debentures.
[1]. SELECTING OR LOCATING A BROKER:
When a person wants to buy or to sell shares or securities, he has to select a broker. He should
select such a broker who can provide prompt and efficient service and protect his interest. To buy or
to sell the shares or debentures, he has to submit a client registration form and member-constituents
form. [Or a sub-broker client agreement form].
It contains the terms & conditions relating to order/trade confirmation, brokerage charged by a trading
member/registered sub-broker, and delivery of securities and funds.
STEPPI NG STONE TO SUCCESS PTO – [13]

[2]. PLACEMENT OF ORDER:
After selecting a suitable broker, he has to place an order to buy shares. The order must clearly
indicate:
[i]. The name of company
[ii]. Type of securities [equity, preference share, or debentures]
[iii]. No. of shares/securities, to be purchased and
[iv]. The maximum limit of price.
In stock exchange, all the transactions are settled through the depositories. So, he must have a
demat account with an authorized depository, before placing an order. [When he places an order,
he may specify the highest price or limit price. When he submits an order to buy, he must
indicate the quantity of shares to be purchased and the maximum price.]
[3]. EXECUTION OF ORDER:
On receiving the order, the broker will feed the same on his terminal. When the order is
confirmed, the broker informs the buyer and sends a “contract note”. It contains details of the
transaction. Now, the buyer has to make payment to broker within stipulated period. After making
the payment, the broker will transfer the shares in electronic form to his demat account.
[b]. PROCEDURE OF SELLING SHARES:
[1]. SELECTION OF BROKER:
As given in buying procedure.
[2]. PLACEMENT OF ORDER:
After selecting a broker, the seller has to place a sale order with the broker. It indicates the name
of company, no. of shares to be sold, and minimum price acceptable to seller. He may place a
“limit order” or “market order”. The limit order indicates the minimum price, acceptable to seller,
but the market price give an instruction to the broker to sell at the best possible market price.
Before placing the sale order, the seller must have the shares in his demat account.
[3]. EXECUTION OF ORDER:
On receiving the sale order, the broker will feed the same in his terminal. When the order is
confirmed, the broker will inform the seller and will send a contract note. Now, the seller has to
transfer the shares to broker by issue of a depository participant cheque.
This cheque transfers the shares from the demat account of seller to broker‟s account. After this,
the seller receives payment from the broker in about a week‟s time.
[2]. INTERNET TRADING:

[1]. INTERNET TRADING THR OUGH BANKS :
From February 2000, stock trading through internet was introduced in India with this another
mode of the trading was introduced, online trading through banks, authorized for the same. In
this case, apart from having computer, a modem, and a telephones and internet connection, one
has to open with the authorized banks, for the purpose, savings account, demat account as well
as the securities trading account. These banks through securities trading account feed on the
client‟s computer the terminal thus authorized (NSE/BSE).
The procedure for purchase and selling of the securities is changed here. The client does not
have to give details about the securities to be purchased / sold to the broker but, through the
securities trading account password can get the terminals of the stock exchanges (NSE/BSE),
can trade and monitor the ups and down in the stock market. Any transaction of either purchase
or sale, when placed, will be confirmed by the receipt from the concerned bank under the
depository services provided by them.

[2]. INTERNET TRADING THR OUGH TRADING FIRM :
Currently, ICICI Web trade, Share khan, Kotakstreet, Geogit securities, investment provides the
services of internet trading, and this manages the portfolio of the investors.
For internet trading through this mode, one has to get registered as a client with the internet
broker, apart from having a computer, a modem, and a telephone connection. One has to keep a
minimum deposit in the bank account with the internet broker, which the broker can directly debit
and credit.
For example; trading through ICICI web trade, one should open bank account as well as the
Demat account with the ICICI bank. Rest of the procedure remains same; here one has to place
the order with internet broker and accordingly carries out the trading.
Explain the Procedure of Trading and Settlement.
[I]. PROCEDURE OF TRADING & SETTLEMENT:

The listed securities on the stock exchanges, its trading as well as the settlement have passed
through various changes with the development of the technology, increasing interest of the
investors and the requirements for amending the rules and regulations of stock exchanges,
thereby keeping a check on the entire functioning of the Stock exchanges as well as the players
of this game.
The picture of trading and settlement of the securities before as well as at present is explained
below:
[a]. PROCEDURE OF TRADING SYSTEM:
In stock exchange, only listed and permitted securities are traded. Further, only the members of
stock exchange [brokers] can buy or sell securities at the stock exchange. So, if a person wants
to buy or to sell the securities, he has to place his orders with the brokers/members of the
exchange.
There are two ways of organizing trading activities:
[1]. OPEN OUTCRY SYSTEM :
In this system, the traders shout and use certain signals on the trading floor of stock exchange to
buy or to sell the shares.
Buyers make their bids and sellers make their offers and by bargain, transactions are concluded
at agreed prices. When the offers of both the parties match with each other, a transaction is
confirmed. Now In India this system has been stopped.
[2]. SCREEN-BASED SYSTEM:
In this system, the physical trading floor is replaced by computer screen and there is sale and
purchase of shares through the computer network. The screen-based system is also known the
Open Electronic Limit Order Book [OELOB] market system.
Following are the main features of this system:
[i]. The buyers and sellers place their orders on computer terminal. These orders may be limit
orders or market orders.
In limit order, price limit is specified for sale or purchase of shares. A market order is an order to
buy or to sell at the best prevailing price.
[ii]. The computer instantly tries to match the offers of buyers and seller. The matching is done on
the basis of price and time priority.
When the offers of seller and buyer match with each other the transaction is confirmed.

[b]. PROCEDURE OF SETTLEMENT SYSTEM:
[1]. PHYSICAL MOVEMENT OF THE SECURITIES-DE-MATERIALIZED MODE:
[a]. TRADITIONALLY:
Trades in India were settled by physical delivery. There was the physical movement of the
securities, from seller to seller‟s broker, from seller‟s broker to purchaser‟s broker (through the
clearing house of the stock exchange), and from purchaser‟s broker to the purchase.
Further, the purchaser has to ledge the securities with the transfer agents of the company and
the process of transfer took one to three months. This had further led to high paper cost, and
created bad paper risk, including the transfer charges and the uncertainty factor.
[b]. MODERN DAY TRANSACTI ONS:
Modern day transactions are settled mainly through electronic delivery facilitated by depositories
to overcome the problems of the physical transfers and the cost thereby.
A depository is an institution which dematerialize physical certificates and the effect of transfer of
ownership in made through electronic book entries.
[c]. DEMATERIALIZED TRADI NG SYSTEM IN INDIA:
In order to enable dematerialized trading in India, Central Government circulated the Depository
Ordinance in 1995, which was followed by the Depositories Act 1996. Each depository has to
be registered with the Securities and Exchange Board of India.
Every depository will be required to be registered with the SEBI. Investors will have the choice of
continuing with the existing share certificates or opt for the depository mode.
While the depository will be registered owners in the register of the company, the investors will
enjoy the economic benefits and the voting rights on the shares concerned. Shares in the
depository mode will be fungible. This means they will cease to have distinctive numbers.
Investors having entered the depository mode can leave the system and get share certificate
from the company as registered owners in the books of the company.
Ownership changes in the depository system will be made automatically on the basis of delivery
against payment; there will be no stamp duty on transfer of ownership. Any loss caused to the
beneficial owners due to the negligence of the depository or the participant will be indemnified by
the depository. The National Securities Depositories Limited (NSDL) was the first
depository in India, set up in 1996. NSDL was promoted by National Stock Exchange and
with the collaboration of some financial institutions.
The Central Depositories Securities (India) Limited (CDSL), was incorporated in 1999 with
collaboration of Bombay Stock Exchange and banks.
Initially, investors were given a choice to continue the physical delivery of securities or opt for the
dematerialized mode of the transfer, but, later with regulations of SEBI it was made compulsory.
It means that if one wants to buy or sell shares on any exchange, they have to do it only in the
dematerialized form. Investors willing to join the depository mode are required to register with the
agents of the depositories i.e. open the “demat Account” with the agents of the depositories. For
example; agencies like banks, financial institutions, and large brokerage firms.
[2]. SETTLEMENT:
[a]. WEEKLY ACCOUNT PERIO D SETTLEMENT SYSTEM :
Share transactions in India were also settled on the basis of the weekly account period. (In BSE
the account period was from Monday to Friday and in NSE the account period was from
Wednesday to Tuesday). It means that the purchases and selling transactions during the account
period were settled at the end of the week, and the actual transfer of securities and the amount
was the difference thus arrived. But this system led to uncontrolled speculative activity and
periodic market crisis.

For example; suppose if you have purchased 200 shares of Reliance at Rs.4,000 a share on
Monday and sold 100 of the shares at Rs.4500 a share on Friday.
Here you were suppose to take the delivery of only remaining 100 shares by paying Rs.3,50,000
(purchase consideration-8,00,000 and Sale consideration 4,50,000) at the end of the account period.
[b]. ROLLING SETTLEMENT S YSTEM:
In rolling settlement system, purchase and selling of the securities was one virtually and not in
reality, but for which the account was maintained by the parties, broker as well as investor.
In this account, the details of the transactions were recorded as if the transaction has actually
taken place.
The purchase or sale of securities continue as specified by the investor, until and unless, any of
the party (Broker or investor), demands for settlement of the account. On demanding, from either
of the party, the balance amount was then transferred along with the number of shares, to the
concerned party.
[c]. INTRA-TRADE:
In case of intra-trade, the person trading has to settle the transaction on the same day. It means,
for example, if the shares are purchased in morning at a particular price, then the same share
are to be sold in the evening at the price prevailing in the market of those securities.
The license of the broker, not following these rules, of its selected settlement options, will be
cancelled or forfeited by the stock exchange authorities.
[d]. DELIVERY BASED:
Many of the investors prefer the pattern of “delivery based”, for their transaction in the securities.
Here, the person is not compelled to sell of the securities within the time declared in advance, but
it is at his own discretion, to sell or to buy the securities.
Explain need/objectives, functions and role of SEBI in India.
[J]. ROLE OF SEBI:

Before the establishment of the Securities and Exchange Board of India (SEBI), the principal
legislations governing the securities markets in India were the Capital Issues Control Act, 1956
(governing the primary market) and the Securities Contract (Regulations) Act, 1956, (governing
the secondary market).
The regulatory powers were vested with the Controller of Capital Issues (for the primary market)
and the Stock Exchange Division (for the secondary market) in the Ministry of Finance,
Government of India.
In 1989, SEBI was created by an administrative fiat of the Ministry of Finance. Since then, SEBI
has gradually been granted more and more powers. With the repeal of the Capital Issues Control
Act and the enactment of the SEBI Act in 1992, the regulation of the primary market has become
the preserve of SEBI.
Further, the Ministry of Finance, Government of India, has transferred most of the powers under
the Securities Contracts (Regulations) Act, 1956 to SEBI
[a]. NEED/OBJECTIVES OF S EBI:
The basic objective of SEBI is to protect the investor‟s right and to enforce an orderly (well
managed) growth of markets. However, the major objectives of SEBI are as follows:
[1]. To promote fair dealing by the issue of security and to ensure a market place from where they
can raise funds at a relatively low cost.
[2]. To protect/safeguard the interest of investors and to ensure continuous flow of savings to the
market.

[b]. SALIENT FEATURES (PR INCIPLES) SEBI ACT 1 992:
Following are the salient features of the SEBI Act 1992:
[1]. The SEBI shall be a body corporate (corporate personality/legal entity). It has name with
perpetual succession and common seal.
[2]. The SEBI has right to acquire, hold and dispose of the property in its own name.
[3]. The head office shall be Bombay. The SEBI may establish offices at other places in India.
[4]. The central government makes the appointment of the chairman and members of SEBI.
[5]. The govt. can prescribe terms of office & other conditions of service of chairman & member of the
board.
[6]. The members of the SEBI have to do the general superintendence, direction and management of the
SEBI.
[7]. The primary duty of the SEBI is to protect the interest of investors in securities and to promote
the development and regulate the market by various measures.
[c]. FUNCTIONS OF SEBI :
[1]. Regulating the business in stock exchange and other securities.
[2]. Registering and regulating the working of stock brokers, sub-brokers, share transfer agents,
merchant bankers, underwriters, portfolio managers associated with stock market.
[3]. Promoting and regulating self regulatory organizations.
[4]. Registering and regulating the working of collective investment scheme like mutual fund.
[5]. Prohibiting fraudulent and unfair trade practices.
[6]. Promoting investor‟s education and trading to intermediaries.
[7]. Prohibiting insider trading.
[8]. Regulating substantial acquisition of shares and take over of companies.
[9]. Undertaking inspection and conducting inquires and audit of the stock exchange, intermediaries
an self-regulatory organizations.
[10]. Performing the functions and exercising powers under the provisions of securities contract
(Regulations) Act, 1956, as may be delegated by central board.
[11]. Levying fees or other charges to carry out the purpose of the act.
[12]. Conducting research on above purpose.
[13]. Performing other functions as may be prescribed by relevant authorities.
[K]. SECURITIES MARKET:

The sensex falls by 360 points in a day of hectic trading. The Reserve Bank of India lowers the
repo rate by 25 basis points.
The Government of India raises Rs.4500 crore rupees by issuing bonds with a maturity of 10
years, so on and so forth. All these are example of securities market at work. Most people are
aware that this market has an important bearing on modern life and they speak of “ Dalal Street”,
the “gild – edged market” and the “Nifty” with a somewhat vague understanding of these terms.
The securities market is the market for equity, debt, and derivatives. The debt market in turn may
be divided into three parts, viz, the government securities market, the corporate debt market, and
the money market.
The derivatives market, in turn may be divided into two parts, viz., the options market and the
futures market. The structure of the securities market is shown in the figure below.

Except the derivatives market, each of the above market has two components, viz., the primary
market and the secondary market. The market where new securities are issued is called the
primary market and the market where outstanding securities are traded is called the secondary
market.
Structure of the Securities Market
Securities
Market
Equity Debt Derivatives

Market Market Market
Government Corporate Money Option Future

Securities Debt Market Market Market
Market Market
 PUBLIC ISSUES:
By far the most important method of issuing securities, a public issue involves sale of securities
to the public at large. Public issues in India are governed by the provisions of the Companies Act,
2013, Issue of capital and Disclosure Requirement (ICDR) Regulations of SEBI, and the listing
agreement between the issuing company and the stock exchanges.
The Companies Act describes the procedure to be followed in offering shares to the public and
the type of informations to be disclosed in the prospectus and the SEBI guidelines impose certain
conditions on the issuers besides specifying the additional information to be disclosed to the
investors.
 SEBI INITIATIVES:
SEBI has taken a number of steps in the last few years to reform the Indian capital market. It has
covered the entire range of capital market activities through nearly 30 legislations.
The important initiatives are mentioned below.
[1]. FREEDOM IN DESIGNING AND PRICING INSTRUMENT:
Companies now enjoy substantial freedom in designing the instruments of financing as long as
they fully disclose the character of the same. More important, they enjoy considerable freedom in
pricing the same.
[2]. BAN ON BADLA:
The financial irregularities of 1992 highlighted the deficiencies of the „badla‟ system which
permitted excessive controlling. To rectify the defects in trading practise, the „badla‟ system has
been banned.
STEPPI NG STONE TO SUCCE SS PTO – [19]

[3]. SCREEN – BASED TRADING:
Thanks to the competition posed by the National Stock Exchange and the insistence or
encouragement done by SEBI, all the exchanges have switched to screen – based trading.
[4]. ELECTRONIC TRANSFER:
The traditional method of transfer by endorsement on security and registration by issuer has
been replaced by electronic transfer in book, entry from by depositories.
[5]. RISK MANAGEMENT:
A comprehensive risk management system has been put in place. Inter alia (amongst other
things), it covers capital adequacy limits on exposure and turnover, margins based on VAR (
value at risk), client level gross margins, online monitoring of positions, stringent KYC (know your
customers) norms, market – wide circuit breakers, and script – wise price bands.
[6]. ROLLING SETTLEMENT:
The trading cycle, which was previously one week, has been reduced to one day and the system
of rolling settlement has been introduced.
[7]. CORPORATE GOVERNANCE CODE:
A new code of corporate governance, based on the recommendations of the Kumaramangalam
Birla Committee report, has been defined. It has been operationalised by inserting a new clause
(cluase49) in the Listing Agreement the agreement that a listed company enters into with the
stock exchange where its securities are listed.
[8]. CHANGE IN MANAGEMENT STRUCTURE:
Stock exchanges easier were broker dominated SEBI now requires 50 percent non- broker
directors. Further, it has mandated that a non- broker professional be appointed the Executive
Directors.

UNIT: III
SOURCES OF FINANCE
Explain the Sources of Finance.
[A]. SOURCES OF FINANCE:

One of the most difficult problems in the new venture creation process is obtaining financing. For
the entrepreneur the available financing needs are to be considered from the perspective of debt
versus equity and using internal versus external funds.
[a]. DEBT VS EQUITY FINANCING:

There are two types of financing needs to be considered;
[1]. Debt financing and
[2]. Equity financing.
[1]. DEBT FINANCING:
Debt financing is a financing method involved an interest-bearing instrument, usually a loan, the
payment of which is only indirectly related to the sales and profits of the venture. Typically, debt
financing (also called asset-based financing) requires that some asset (such as car, house, plant,
machine, or land) be used as collateral.
Debt financing requires the entrepreneur to pay back the amount of funds borrowed as well as a
fee expressed in terms of the interest rate. If the financing is short term (less than 1year), the
money is usually used to provide working capital to finance inventory, accounts receivable, or the
operation of the business. The funds are repaid from the sales and profits during the year.
Long-term debt (lasting more than 5 years) is frequently used to purchase some asset such as
a machinery, land or building, with part of the value the asset (usually from 50 to 80 per cent of
the total value) being used as collateral for the long-term loan. Particularly when interest rates
are low, debt (as opposed to equity) financing allows the entrepreneur to retain a larger
ownership portion in the venture and have a greater return on the equity.
The entrepreneur needs to be careful that the debt is not so large that regular interest payments
becomes difficult, as if it becomes impossible to make the payment then, a situation will arise
which will reduce the growth and development and possibly lead the company into liquidation
[2]. EQUITY FINANCING :
Equity financing does not require collateral and offers the investors some form ownership
position in the venture. The investor shares in the profits of the venture as well as any disposition
of its assets on a pro rata basis based on the percentage the business owned. Key factors
favouring the use of one type of financing, another is the availability of funds, the assets of the
venture, and the prevailing interest rates. Usually, an entrepreneur meets financial needs by
employing combination of debt and equity financing.
All ventures will have some equity, as all ventures are owned by some person or institution.
Although owner may sometimes not be directly involved in the day-to-day management of the
venture, there is always equity funding involved that is provided by the owner. The amount of
equity involved will of course vary the nature and size of the venture.
In some cases, the equity may be entirely provided by the owner, such as to run a small Ice
Cream Parlour or pushcart in the mall or at a sporting event. Larger ventures may require ample
owners, including private investors and/or venture capitalists. This equity funding provides the
basis of debt funding, which together make up the capital structure of the venture.
STEPPI NG STON E TO SUCCESS PTO – [21]

[b]. INTERNAL VS EXTERNAL FUNDS:
Financing is also available from both internal and external funds. The type of funds most
frequently employed is internally generated funds.
Internally generated funds can come from several sources within the company profits, sale
of assets, and reduction in working capital, extended payment terms and accounts
receivable.
In every new venture, the start-up years involve putting all the profits back into the venture; even
outside equity investors do not expect any dividends in these early years. The needed funds can
be sometimes be obtained by selling assets which are not of any use.
Assets, whenever possible, should be on a rental basis (preferably on a lease with an option to
buy) and not on ownership basis, as long as there is not a high level of inflation and the rental
terms are favourable.
This will help the entrepreneur preserve cash, a practice that is particularly critical during the
start-up- phase of the company‟s operation.
A short-term, internal source of funds can be obtained by reducing short-term assets; inventory,
cash and other working-capital items. Sometimes an entrepreneur can generate the needed cash
for a period of 30 to 60 days through extended payment terms from suppliers.
Although care must be taken to ensure good supplier relations and continuous sources of supply,
taking a few extra days in payment can generate needed short-term funds.
A final method of internally generating funds is collecting bills (accounts receivable) more quickly.
Key account holder should not be irritated by implementation of these practices.
Mass merchandisers, for example, pay their bills to supply companies in 60 to 90 days,
regardless of a supplying company‟s accounts receivable policy, the size of the company, or the
discount offered for prompt payment.
If a company wants this mass merchandiser to carry its product, it will have to abide by this
payment schedule. The other general source of funds is external to the venture.
Alternative sources of external financing need to be evaluated on three bases; the length of time
the funds are available, the cost involved, and the amount of company control lost.
In selecting the best source of funds, each of the sources needs to be evaluated along these
three dimensions. The more frequently used sources of funds are from entrepreneur himself,
family and friends.
Commercial banks, R & D limited partnership, government loans programs and grants, venture
capital and private placement.
Explain the meaning of ratio analysis and some of its types.
[B]. IMPORTANCES OF RATIO ANALYSIS AND ITS TYPES:

Calculations of financial ratio can also be extremely valuable as an analytical and control
mechanism to test the financial well-being of a new venture during its early stages.
These ratios serve as a measure of the financial strengths and weaknesses of the venture, but
should be used with caution since they are only one control measure for interpreting the financial
success of the venture.
There is no single set of ratios that must be used, nor are there standard definitions for all ratios.
Ratio analysis is typically used on actual financial results but can also provide the entrepreneur
with some sense of where problems exist in the Performa statement as well.

[1]. LIQUIDITY RATIO:
[a]. CURRENT RATIO:
This ratio is commonly used to measure the short-term solvency of the venture or its ability to
meet its short-term debts. The current liabilities must be covered from cash or its equivalent; or
otherwise the entrepreneur will need to borrow money to meet these obligations.
The formula and calculation of this ratio when current assets are Rs.108,050 and current
liabilities are `.40,500 is:
Current assets 108,050
= 40,500 = 2.67 times
Current liabilities
While a ratio of 2:1 is generally considered favourable, the entrepreneur should also compare
this ratio with any industry standards. One interpretation of this result is that for every rupees of
current debt, the company has Rs.2.67 of current assets to cover it.
[b]. ACID TEST RATIO:
This is a more rigorous test of the short-term liquidity of the venture because it eliminates
inventory, which is the fast liquid current asset.
The formula given for the same current assets (1,08,050) and liabilities(40,500) and inventory of
Rs.10,450 is:
Current assets inventory (108,050- 10,450) 97,600

= 40,500 = 2.40 times
Current liabilities
The result from this ratio suggests that the venture is very liquid since it has assets convertible to
cash of Rs.2.40 for every rupees of short-term obligations. Usually a 1:1 ratio would be
considered favourable in most industries.
[2]. ACTIVITIES RATIO:

[a]. AVERAGE COLLECTION P ERIOD:
This ratio indicates the average number of days it takes to come accounts receivable into cash.
This ratio helps the entrepreneur to gauge the liquidity of accounts receivable or the ability of the
venture to collect from its customers.
Using the formula with account receivable of Rs.46,400 and sales of Rs.995,000 results in:
Accounts receivable 46,400
× 365 × 365 = 17 days
Average daily sales 9,95,000
This particular result needs to be compared with industry standards since collection will vary
considerably. However, if the invoice indicates a 20 days payment required, and then one (17
days) could conclude that most customers are paying you on time.
[b]. INVENTORY TURNOVER:
This ratio measures the efficiency of the venture in managing and selling its inventory. A high
turnover is a favourable sign indicating that the venture is able to sell its inventory quickly. There
could be a danger with a very high turnover that the venture is under stocked, which could result in
lost orders. Managing inventory is very important to the cash flow and profitability of a new venture.
The calculations of this ratio when the cost of goods sold is Rs.645,000 and the inventory is
Rs.10,450 are:
Cost of goods sold 6,45,000 = 61.72
Inventory 10,450
This would appear to be an excellent turnover as long as the entrepreneur feels that he or she is
not losing sales because of under stocking inventory.

[3]. LEVERAGE RATIOS:
Debt ratio many new ventures will incur debt as a means of financing the start-up. The debt ratio
helps the entrepreneur to assess the firm‟s ability to meet all its obligations (short and long term).
It is also a measure of risk because debt also consists of a fixed commitment in the form of
interest and principal repayment.
With total liabilities of Rs.249,700 and total assets of Rs.308,500, the debt ratio is calculated
below:
Total liabilities 2,49,700
x 100 x 100 = 81%
Total assets 3,08,500
This result indicates that the venture has financed about 81 percent of its assets with debt. On
paper this looks very reasonable but would also need to be compared with industry data.
 DEBT TO EQUITY:
This ratio assesses the firm‟s capital structure. It provides a measure of risk to creditors by
considering the funds invested by creditors (debt) and inventors (equity). The higher percentage
of debt the greater the degree of risk to any of the creditors.
The calculation of this ratio using the same total liability with stockholder‟s equity being
Rs.58,750 is:
Total liabilities
2,49,700 = 4.25 times
Stockholder‟s equity
58,750
This result indicates that this venture has been financed mostly from debt. The actual investment
of the entrepreneurs or the equity base is about one-fourth of what is owed.
[4]. PROFITABILITY RATIOS:

[a]. NET PROFIT MARGIN :
This ratio represents the venture‟s ability to translate sales into profits. You can also use gross
profit instead of net profit to provide another measure of profitability. In either case the important
to know what it is reasonable in your industry as well as to measure these ratios over time.
This ratio and calculation when net profit is Rs.8,750 and the same net sales are Rs.999,000
is:
Net profit 8,750
Net sales x 100 9,99,000 x 100 = 0.88%
[b]. RETURN ON INVESTMENT:
The return on investment measures the ability of the venture to manage its total investment in
assets. You can also calculate a return on equity, which substitutes stockholder‟s equity for total
assets in the formula below and indicates the ability of the venture in generating a return to the
stockholders.
The formula and calculation of the return on investment when total assets are Rs.2,00,400 and
net profit is Rs.8,750 is:
Net profit 8,750
x 100 x 100 = 4.37%
Total assets 2,00,400
The result of this calculation will also need to be compared with industry data. However, the
positive conclusion is that the firm has earned a profit in its first year and has returned 4.37 % on
its asset investment. There are many other ratios that could also be calculated.

UNIT: III
PORTFOLIO MANAGEMENT
Explain the Concept and Process of Portfolio Management.
[A]. CONCEPT OF PORTFOLIO MANAGEMENT:

Portfolio management is the professional management of various securities like, shares, bonds
etc. and assets e.g. real estate. To meet specified investment goals for the benefit of the
investors. Investors may be institutions like insurance companies, pension funds, corporations,
etc. or private investors like both directly via investment contracts and more commonly via
collective investment schemes, e.g. mutual funds.
The term asset management is often used to refer to the investment management of collective
investments, at the same time as the more generic fund management may refer to all forms of
institutional investment as well as investment management for private investors.
Investment managers who specialize in advisory or discretionary management on behalf of
(normally wealthy) private investors may often refer to their services as wealth management or
portfolio management often within the context of so-called “private banking”.
The provision of „investment management services‟ includes elements of financial analysis, asset
selection, stock selection, plant implementation and ongoing monitoring of investments.
Investment management is a large and important global industry in its own right responsible for
taking care of trillions of dollars, euro, pounds and yen. It comes under the remit of financial
services many of the world‟s largest companies are at least in part investment managers and
employ millions of staff and create billions in revenue. Fund manager (or investment adviser in the
U.S.) refers to both a firm that provides investment management services & an individual who directs
fund management decisions.
[B]. PROCESS OF PORTFOLIO MANAGEMENT:

Investment management (or portfolio management) is a complex activity which may be shown
into the following steps.
[1]. SPECIFICATION OF INVESTMENT OBJECTIVES AND CON STRAINTS:
The typical objectives sought by investors are current income, capital appreciation, and safety of
principal. The relative importance of these objectives should be specified. Further, the constraints
arising from liquidity, time horizon, tax, and special circumstances must be identified.
[2]. CHOICE OF THE ASSET MIX:
The most important decision in portfolio management is the asset mix decision. Very broadly, this
is concerned with the proportions of „stock‟ (equity shares and units/shares of equity-oriented
mutual funds) and „bonds‟ (fixed income investment) in the portfolio. The appropriate „stock-bond‟
mix depends mainly on the risk tolerance and investment horizon of the investor.
[3]. FORMULATION OF PORTF OLIO STRATEGY:
Once a certain asset mix is chosen, suitable portfolio strategy has to be made. Two broad
choices are available; an active portfolio strategy or a passive portfolio strategy.
An active portfolio strategy tries hard to earn superior risk-adjusted returns by resorting to
market timing, or sector rotation [pharma, construction, IT, etc.] or security selection [equity,
preference, debenture, etc.], or some combination of these.
A passive portfolio strategy, on the other hand, involves holding a broadly diversified portfolio
and maintaining a pre-determined level of risk exposure [combination of equity and debt capital].

[4]. SELECTION OF SECURITIES:
Generally, investors pursue an active stance with respect to security selection. For stock
selecting, investors commonly go by fundamental analysis and/or technical analysis. The factors
that are considered in selecting bonds (or fixed income instruments) are yield to maturity, credit
rating, term to maturity, tax shelter, and liquidity.
[5]. PORTFOLIO EXECUTION :
This is the phase of portfolio management which is concerned with implementing the portfolio
plan by buying and/or selling specified securities in given amounts. Though often glossed over in
portfolio management discussions, this is an important practical step that has a bearing on
investment results.
[6]. PORTFOLIO REVISION
The value of a portfolio as well as its composition the relative proportions of stock and bond
components may change as prices of stocks and bonds fluctuate. Of course, the fluctuation in
stock prices is often the dominant factor underlying this change.
In response to such changes, periodic rebalancing of the portfolio is required. This primarily
involves a shift from stocks to bonds or vice versa. In addition, it may call for sector rotation as
well as security switches.
[7]. PERFORMANCE EVALUATION:
The performance of a portfolio should be evaluated periodically. The key dimensions of portfolio
performance evaluation are risk and return and the key issue is whether the portfolio return is
proportionate with its risk exposure. Such a review may provide useful feedback to improve the
quality of the portfolio management process on a continuing basis.
Explain Port Folio management‟s Objective and Constraints.
[C]. SPECIFICATION OF INVESTMENT OBJECTIVE AND CONSTRAINTS:

The first step in the portfolio management process is to specify the investment policy which
summaries the objectives, constraints and preferences of the investor.
 The investment policy may be expressed as follows:
[a]. OBJECTIVES:
[i] Return requirements and [ii] Risk tolerance
Aspects to be considered;
[1]. Income:
To provide a steady stream of income through regular interest/dividend payment to the investors.
[2]. Growth:
To increase the value of the principal amount though capital appreciation.
[3]. Stability:
To protect the principal amount invested from the risk of loss.
[b]. CONSTRAINTS AND PREFERENCES:
In purchasing your investment objective, which is specified in terms of return requirement and
risk tolerance, you should bear in mind the constraints arising out of or relating to the following
factors:
[i] Liquidity, [ii] Investment horizon, [iii] Taxes, [iv] Regulations and [v] Unique circumstances

[1]. LIQUIDITY:
Liquidity refers to the speed with which an asset can be sold, without suffering any significant
discount to its fair market price.
For example, money market instruments are the most liquid assets, whereas antiques are among
the least liquid. Taking into account your cash requirements in foreseeable future, you must
establish the minimum level of „cash‟ you want in your investment portfolio.
[2]. INVESTMENT HORIZON :
The investment horizon is the time till the investment or part thereof is planned to be liquidated to
meet a specific need. For example, the investment horizon may be years to fund a child‟s college
education or thirty years to meet retirement needs. The investment horizon has an important
bearing on the choice of assets
[3]. TAXES:
What matters finally is the post-tax return from an investment. Tax considerations therefore have
an important bearing on investment decisions. So, carefully review the tax shelters available to
you and incorporate the same in your investment decisions.
[4]. REGULATIONS:
While individual investors are generally not constrained much by law, institutional investors have
to conform to various regulations. For example, mutual funds in India are not allowed to hold
more than 10 percent of the equity shares of a public company.
[5]. UNIQUE CIRCUMSTANCES :
Almost every investor faces unique circumstances. For example, an individual may have the
responsibility of looking after ageing parents. Or, an endowment fund may be precluded from
investing in the securities of companies making alcoholic products and tobacco products.
Explain the meaning and methods of security analysis.
[D]. MEANING AND METHODS/NEED OF SECURITY ANALYSIS:

Securities that have return and risk characteristics of their own, in combination make up a
portfolio. The entire process of estimating return and risk for individual securities is known as
securities analysis. A portfolio is simply a collection or group of securities considered in total as
a single investment unit. A portfolio can be defined very broadly and be taken to include property,
antiques works of art, bullion, commodities, financial securities, etc. When any particular portfolio
is assessed the concern will be with us overall characteristics, its expected return and its risk.
Portfolio theory is concerned with the problem of making a selection of optimum investments in
respect of a particular investor, taking into account the anticipated returns and the risks
associated with them and the requirements of the investor in the short, medium and long-term
and his attitude towards risk. Portfolio management is the dynamic function of evaluating and
revising the portfolio in terms of stated investor objectives.
 The methods of Securities Analysis are classified under two heads;
[1]. Fundamental Analysis, and
[2]. Technical Analysis.
[1]. FUNDAMENTAL ANALYSIS:
Fundamental analysis is the analysis of basic details (fundamental details) of the business. Such
as the revenue, expenses, assets, liabilities and all other fundamental aspects of the company. It
takes in to account those variables which are directly related with the company.

There are two types of fundamental analysis,
[a]. Quantitative analysis and
[b]. Qualitative analysis.
[a]. QUANTITATIVE ANALYSIS:

The quantitative analysis is based on numerical terms and factors like operational efficiency,
profitability, and capital structure and demand policy.
The quantitative factors are those which can be obtained from the financial statements. The
factors like revenue, expenses, profit, deferred revenue, capital structure, working capital,
deferred revenue etc.
[b]. QUALITATIVE ANALYSIS:

The qualitative analysis includes analysis or examination of non-measurable data like,
 Nature of industry.
 Investment environment.
 Factors relating to specific industries.
 Competitiveness.
 Quality management.
 Corporate governance etc.
[2]. TECHNICAL ANALYSIS:

The technical analysis is based on an assumption that the prices of stock depends upon its
supply and demand in the market. Further the financial performance and market information of
company directly affects its market price. On the basis of this it is possible to predict future price
and movement of the stock. This is known as technical analysis. It believes that historical
performance of stock and market are the indicators of future performance.
DIFFERENCE BETWEEN TECHNICAL ANALYSIS & FUNDAMENTAL ANALYSIS :
TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS
It tries to predict short term movement in the It tries to predict long term price on value of the
price of the stock. stock.
It mainly focuses on internal market data It mainly focuses on factors relating to
particularly price and volume of data. economy, industry and the company.
It is mostly used by speculators, who want to It is mostly used by long term investors (who
make quick money. wants to invest on long term basis)

UNIT: IV
OFFICE MANAGEMENT & MANAGEMENT INFORMATION SYSTEM
Explain the meaning and definition of Office. Discuss the objectives (purposes)
and functions of Office.
[A]. MEANING AND DEFINITION OF OFFICE:

[a]. MEANING OF OFFICE:
[1]. According to Random House Dictionary, “Office means a place, where business is transacted.”
[2]. According to Webster Dictionary, “Office is a place, where business is carried on.”
Thus, in general, the word „office‟ means a place where,
 All kind of clerical activities are performed and
 All the records (papers, letters, files, etc.) are maintained.
Though, this meaning is correct it is incomplete, because the nature of clerical work performed
by office is much more elaborate than this.
[b]. DEFINITION OF OFFICE :
[1]. As explained by B.N. Tondon, “Office is a place;
[i]. Where decisions regarding policy matter and administrative matters are taken, or
[ii]. Where the activities of an organization are directed.”
[2]. According to the Offices, Shops and Railway Premises Act, 1963 of England;
“Office means a building, or a part of building, which is used as an office or office or for office
purpose.”
The term office purpose used in this Act includes purposes of administrative or clerical work,
which means correspondence, filing, typing, duplicating, book-keeping, handling money,
telephone, etc.
 EXPLANATION:
[i]. It is immaterial, whether it is run by an individual, firm, private or public company or even by a
govt.
[ii]. The Office may be small or medium or large one.
[iii]. It is not necessary that an office should have many rooms, many tables and chairs, many
employees and large no. of office equipments.
Thus, office activities includes administrative as well as clerical activities, like,
 To receive, record and supply necessary information to managers and executives,
 Receive and mail the letters,
 Typing and duplicating,
 To maintain files and records,
 To preserve important documents,
 To formulate policies with the help of these informations and to implement them.

[c]. PURPOSES OR OBJECTIVES OF OFFICE:
Following are the objectives of office;
[1]. To direct and co-ordinate the activities of various departments.
[2]. To plan the policies of the business and ensure their implementation.
[3]. To handle inward correspondence.
[4]. To maintain accounts, statutory and non-statutory books etc. of the business.
[5]. The first objective of the office is to provide necessary services to the management. If office
cannot provide necessary services to various departments, it is useless to maintain office.
[6]. Another objective is to provide necessary information to the management, so that it can
formulate its policy and it can take proper decision and necessary action.
When the decisions of management are based on accurate, sufficient and timely information,
they are more effective. They lead to better performance of the whole organization. This means,
they result into more production, efficient distribution and increase in profit.
 Some of the office activities are;
[a] processing incoming and outgoing mail [b] Dictation, [c] Transcription, [d] typing, [e] printing [f]
copying [g] filing, [h] records retrieval, [i] records disposal and [j] communication.
Write a shorts-note on “Office Management”.
[B]. MEANING OF OFFICE MANAGEMENT:

The term “Management” means to control. Therefore, the term “Office Management” means the
technique of controlling and office in order to achieve its purpose or objective, which is possible
only when the office is well-organized and managed.
 DEFINITION OF OFFICE MANAGEMENT:
Office Management has been defined as –
 “The art of guiding the personnels of the office, in the use of means,
 Appropriate to its environment,
 In order to achieve its specified purpose.”
Thus, there are four elements involved in office management;
[1]. PERSONNELS:
Personnels means who performs all the office activities.
[2]. MEANS:
They are the tools with the help of which, office personnels perform their duties.
[3]. ENVIRONMENT:
This includes the environment or conditions, under which the various jobs are performed. It
includes both-internal as well as external environment of business, e.g. proper wages or salaries,
incentives, proper lighting, proper ventilation, safety measures, etc.
[4]. PURPOSE:
This means the definite objectives, which the office manager has to achieve, with the help of
personnel and means. One of the functions of management is to organize or to arrange the office
and to lay down to decide the methods of obtaining performance, so that it can achieve its
objectives.

The management has to also see that all its material and human resources are properly and
effectively utilized. The management has to plan the work of office. This means, to decide;
 How to obtain work;
 Who should do it;
 When to do it, etc.
After the work of planning, the management has to appoint suitable persons for different jobs and
to assign definite job to each person. Management has to also fix their duties and
responsibilities.
After assigning work, management has to issue necessary order and instructions to the
employees. It has to give necessary guidance and counselling to the employees, during the
performance of their duties. After this, the supervisors have to see that the work given to the
employee is done according to the instructions and schedule (time table). They should be also
encouraged to improve their performance.
Write a short note on the Importance of Office.
[C]. IMPORTANCE OF OFFICE:

An office is an important and indispensable part of every organization. Be it a government
institution, trading or manufacturing organization, a hospital or an educational institution, an office
is vital for its functioning. The office act as a store house and nervous system of every operation.
A well managed office is an indispensable aid to management. It helps the management to plan
its operations intelligently and to put them in action competently. The office co-ordinates all
activities of the business. Without an efficient and an organized office business activities cannot
be carried through systematically.
The modern office serve as an (a) Information centre, (b) An intermediary, (c) A co-coordinator,
(d) a service centre (e) an administrative nerve centre and (f) as a control centre.
Leffingwell and Robinson have summed up the importance of an office thus “A well organized
office make it possible for the management to plan it operation intelligently, to put it plans into
effect surely, to follow their progress currently, to determine their effectiveness promptly, to
appraise their results without delay and co-ordinate all the activities of the business.
Write a short note on the Historical Developments and Factors Contributing to

the Growth of Office.
[D]. HISTORICAL DEVELOPMENTS & FACTORS CONTRIBUTING THE GROWTH

OF OFFICE WORK :
[a]. HISTORICAL DEVELOPMENTS:
The following technological developments made during the last 150 years that have led to the
evolution of the modern office:
[1]. 1870: First commercial typewriter introduced
[2]. 1880: Alexander Graham Bell Invented telephone
[3]. 1920: Electric typewriter introduced
[4]. 1930: Important machines like duplicators, Dictaphones, intercoms, developed
[5]. 1950: Calculators, computers, copying machines, addressographs, franking, tabulating and
accounting machines developed.
[6]. 1961: Memory electronic typewriters launched
[7]. 1964: Word processing equipments, cash registers etc.

[8]. 1970: Introduction of digital networks Local Area Networks (LAN)
[9]. 1980: Computerized telephone networks, picture phones etc.
[10]. 1990: Personal computers, micro processing equipments, electronic mail, fax machines,
moderns, pages, cellular phones, interest system etc.
[b]. FACTORS CONTRIBUTING THE GROWTH OF OFFICE WORK:
According to Leffingwell and Robinson: “Office work is concerned with records and statistics, with
communication, with computing, with planning and scheduling. Every office task comes within the
scope of one or the other of these activities”.
The amount of office work has grown considerably in our modern economy. With the growth of
industrial revolution and expansion of economic activities, the quantum of office work has increased
manifold. In addition, the following factors have also contributed to the growth of office work.
[1]. Increase in size and complexity of modern business caused the growth of office work.
[2]. Need of proper and timely information on all aspects of the business operations so as the arrive
at intelligent decisions.
[3]. Recognizing the indispensability of research and development activities for survival and growth in
modern times, business houses are increasingly having Research and Development in such
aspect of markets, products, manufacturing process, etc. As a result additional paper work is
caused.
[4]. The ever-increasing information demands of Government are also continuously causing growth
of paper work.
[5]. With the increase in number in size of service activities like banking, insurance companies,
advertising, mail order houses etc. with which a particular business has to deal, office work has
grown.
[6]. A large amount of growth of office work occurred because of failure to modernize and simplify
office practices in keeping time with changing requirements of the office.
Explain the functions of an Office.
[E]. FUNCTIONS OF AN OFFICE:

The functions of modern office may be classified into two categories.
[a]. Basic Functions or routine functions, and
[b]. Administrative Management Functions
[a]. BASIC FUNCTIONS OR ROUTINE FUNCTIONS:
The basic function of an office can be said to receiving, recording, arranging (and analyzing)
and giving of information. In the work of an office, be it sales, purchasing, personnel or even the
drawing office, it has seen that this is done most of the time.
Following are the basic functions of an Office.
[1]. TO RECEIVE INFORMATI ON:
One of the important functions of an office is to receive and collect information from within the
organization or from outside. Information may be received from within the organization from
internal sources such as from various departments, executives, etc. in the form of letters, inter-
departmental notes, circulars, reports, telephonic message, etc.
Information may be also received from outside i.e. external sources such as suppliers,
customers, government departments, etc. in the form of letters, invoices, inquiries, orders,
telegram, telephone, etc. Another source of information is personal contact with visitors in the
meetings, conferences, or by visiting other offices. An office has to obtain necessary information
from various sources and to pass on that information to the management.

[2]. TO RECORD INFORMATION:
The next function of office is to record such informations in such a way, that is readily available
whenever it is required. This function includes accounting records, correspondence i.e. letter
received and copies of letters dispatched, record of wages, progress of work, production, wages
paid, sales and purchases achieved during the particular period etc. Some of these records have
to be retained for several years, while others for a few years after which they may be destroyed,
e.g. for income tax.
[3]. TO ARRANGE THE INFOR MATION:
The information acquired by an office is rarely in the form in which it is given out; facts have to
gathered from various sources and calculations, tabulations, etc., have to be made.
An office is required to submit information in the form which best serves that purpose of the
management, and this is a function of the highest importance which must be carried out by a
properly trained staff.
Examples of arranging information are preparing invoices, payrolls, cost accounting statements,
statistical statements and reports.
[4]. GIVING INFORMATION :
An office furnishes information from its records as an when it is required by the management.
The information required by the management may be of a routine nature or of a special nature,
and may be supplied verbally or in writing.
Examples of given information are orders, estimates, invoices, progress reports, statement of
accounts, statistical and financial statements, and instructions issued on behalf of the
management. All this work involves typing, duplicating, telephoning, mailing, teleprompting, etc.
[b]. ADMINISTRATIVE FUNCTIONS:

The administrative functions of an office have to be performed for the smooth functioning of an
office.
These functions are as follows:
[1]. MANAGEMENT FUNCTION S:
For the efficient functioning of an office, the management functions include;
[i]. Planning, [v]. Communicating,
[ii]. Organizing, [vi]. Controlling,
[iii]. Staffing, [vii]. Co-ordinating and
[iv]. Directing, [viii]. Motivating
Office work has to be properly planned and then organized and executed according to the plan.
A proper control must be exercised over office activities, and the affairs of the different
individuals and department in the organization must be co-ordinate.
[2]. PUBLIC RELATIONS FUN CTIONS:
An office has not only to maintain cordial relations with other departments in the organization but
also with outsiders. It has, therefore to perform public relation function as well. Good public
relation enhances the goodwill and reputation of the organization. Public relations include the
reception service, the liaison service provided by the organization.
[3]. INSTITUTING OFFICE S YSTEM AND ROUTINES:
Systems and routine indicate a planned and systematic approach to the problem of
management. A system may be regarded as a planned approach to the attainment of desired
objectives. An office routine may be defined as a series of steps in the performance of office
work, each step in the series being performed in the same order and in the same way every time.

A procedure is a planned sequence of operations for the handling of recurring business
transactions uniformly and consistently. Office systems, routines and procedures etc. should be
developed to ensure an uninterrupted and smooth flow of office work so that it may be efficiently
performed.
[4]. RETENTION OF RECORDS :
Office records include correspondence, letters, invoices, orders, financial and cost records,
reports, statistical records, minutes, etc. These records have to be retained for future reference.
Apart from maintaining records, which is a basic function, an office has to perform functions like
those of filing and indexing and the preservation of outdated records.
[5]. SAFEGUARDING ASSETS:
It is the function of the office to safeguard the assets of the organization, which may be fixed
assets like building, plant and machinery, office equipment, lightning and air conditioning
equipments, or which may be movable assets like furniture, typewriter, calculating and
accounting machines, equipments of various types or which may be in the form of cash, title
deeds, securities and documents, etc.
Vital records such as major contracts must be properly protected, cash must be held in safe
custody or in bank, stock records must be properly maintained and deficiencies may be
immediately brought to the notice of the management, fixed assets should be protected against
hazards of fire and theft through insurance policies and by other means.
[6]. FORM DESIGNING AND CONTROL:
Since the office work is mostly paper work, office forms are extensively used to perform the
recording functions of the office, “A form is a standardized record which is used to accumulate and
transmit information for reference purpose.” Office forms serve as a store-house of information.
It is the task of the management to design, standardize, produce and control the forms to be
used in the office as well as the other departments of the organization.
[7]. STATIONERY AND SUPPLIES CONTROL:
Office work requires the supply of office stationery of suitable quality and in adequate quantity. It
is the duty of the office to carefully procure and maintain an adequate supply of stationery items.
Since stationery is a very costly item these days, it should be brought at competitive prices in
economic order quantities; reasonable levels of stock must be maintained and made available at
all times; and it should be issued only against authorized requisitions and stored scientifically to
avoid damage, loss or deterioration.
[8]. SELECTION AND PURCHA SE OF OFFICE APPLIANCES:
Office work also requires adequate equipments and machines like furniture, fixtures, telephone,
intercom system, Dictaphones, calculators, accounting machines, filing cabinets and drawers,
typewriters, duplicators, computers, etc. It is the duty of the office manager to purchase the right
type of machines, equipment and furniture and also to maintain these in efficient working order.
The office appliances should be suitable, simple to operate, flexible and adaptable.
[9]. PERSONNEL FUNCTION :
The efficiency of the office depends on the personnel manning it. The personnel should be
scientifically recruited and trained, and assigned work after a proper appraisal. The personnel
function, performed by the personnel department, is generally assisted by the office.
The office manager must make a provision of adequate and trained staff to ensure the
systematic, timely and efficient performance of office work. Job evaluation and merit rating is
periodically done; the staff should receive reasonable remuneration and should be properly
motivated to attain the best performance. Opportunities for betterment and promotion should be
made available to the office staff.

[10]. CONTROLLING OFFICE COSTS:

With the adoption of scientific method for office management, a modern office is further
supposed to discharge the functions of “controlling office costs.”
This may be done by;
[a]. Mechanization of the office
[b]. Adopting time and labour saving devices in the office
[c]. Analyzing the existing office routine and adopting improved ones.
Explain the office systems /routines and procedures.
[F]. OFFICE SYSTEMS, METHODS AND PROCEDURES:

[a]. OFFICE SYSTEM/ROUTINES:
In management a system may be regarded as a planned approach to the activities which are
necessary for the attainment of desired objectives. For example, a system for approving credit
risk in a business organization. The general objective is to screen out the prospective credit
buyers who are unable or travelling to pay and to encourage those who would pay.
A sequence of steps therefore established i.e. application is taken in a specially designed form,
applicant is interviewed, his reference are checked and then it is decided whether to grant credit
and if so, how much and then notify the applicant same pattern for each new credit.
It may be noted that most of the office work is composed of a pattern of office systems,
procedures and methods. The term system refers to a complete picture of the personnel, forms
records, machines and equipments involved in completing a major phase of office work.
For instance there is sales system which involves the forms, personnel, equipments and records
which are necessary to complete a sale from the time an order is received up to the time the
goods are shipped and payment is received. A similar system is developed for handling
purchase. Some system, such as the cost accounting system, many become an auxiliary control
function of a business.
Each system is composed of a number of procedures. Procedures or routines or operations may
be called the steps in a system.
For example, in a sale system, the receipt of a purchase order may involve a procedure. For
each operation, within a procedure there is a method for accomplishing a particular phase of the
work.
According to Milton Reitzfeld: „Success in business, government and non-profit ventures is
determined by the maximum utilization of people, information and resources.
Such utilization can be achieved only through the development, installation and supervision of
appropriate systems and procedures”.
[b]. DEFINITIONS OF SYSTEM PROCEDURE & METHOD:
I. SYSTEM:
A “system” is a planned approached to the activities needed to attain desired objectives. Specifically
a system may be defined as a group of interrelated and interdependent parts operating in sequence
according to predetermined plan, in order to achieve a goal or series of goals.
According to Terry, “a system is a network of procedures which are integrated and designed to
carry but a major activity.”An office system is a standard sequence of operations in a particular
business activity (e.g. paying of wages, sales, invoicing etc). and is concerned with how these
operations are perfomed as well as where and when they are performed.

II. PROCEDURE:
“Office procedure or office routine are a series of steps to be taken for doing a particular work in
the office as per the office systems”.
According to Nuner and Keeling “the term procedure or routine signifies a planned sequence of
operations for handling recurring business transactions uniformly and consistently”.
Carl Heyel describes “a procedure is a series of logical steps by which all repetitive business
action is initiated, performed, controlled and finalized.
A procedure establishes what action is required, who is required to act and when the action is to
take place. Its essence is chronological sequence and its implementation is translated into
results or action.”
III. METHOD:
“A method is a manual of mechanical means and devices by which each operation is performed.”
For each operation within a procedure, there is a method for accomplishing that phase of work.
For instance, in a order processing procedure there is a method for acknowledging the incoming
order, checking the credit status of the customer, preparing the sales invoice and distributing the
copies of the invoice.
A method is thus concerned with “a sequence of motions used in performing an operation and
with the specific equipment”.
SOME OF THE COMMON OFFICE SYSTEMS AND PROCEDURES APPLICABLE TO EVERY
OFFICE ARE:
Dictation and transcription, Filling, Inter-office communication, Duplicating and reproductive
services, Mailing incoming and outgoing and Telephone and telegraph service
Explain the Advantages and Limitations of the Objectives of systems and

procedure of an Office.
[G]. OBJECTIVES OF SYSTEMS AND PROCEDURE

i. To bring efficiency in the utilization of the organizational resources
ii. To control operating costs
iii. To improve operating efficiency by avoiding wasteful movements, delay and uncertainty
iv. Well designed system help to achieve the objective of the organisation.
v. To assist in carrying out the various functions of the organizations
[1]. ADVANTAGES OF SYSTEMS AND PROCEDURES:
i. Systems and routines provide an orderly plan of action to perform an activity. Every employee is
instructed to follow a definite track. It minimizes waste motions, delays and errors in the smooth
flow of work.
ii. If identical procedures are followed for similar work throughout the office, uniformity would be
achieved and the duplication of various routine would be avoided
iii. Systems and routine help in training office personnel in the efficient performance of their work
without supervisors.
The management need not supervise closely every activity. Only the exceptional matters are
reported to the management. So management can concentrate on strategic issues.
iv. Systems and routines bring about an economy in office operations, because unnecessary
operations and eliminate and wastage of any nature is controlled.
v. Responsibility can be fixed for each employee, for each is assigned a particular job.
vi. Through systems and procedures, office personnel can perform their job independently and with
confidence.

vii. Systems ensure better control of work. They fix the responsibility in performing the operation.
Any inconsistency or deviation is made known easily which facilities control by the management.
Many system do have inbuilt mechanism of control.
viii. Good system provides for co-ordination of different procedures necessary to perform the work.
They can also serve as a basis of achieving co-ordination among different sections of the
organization.
ix. Tool of training system can be used in training the new employees. Employees can be easily
made to understand about the details of their job, if they know the system and relationship of
their jobs to various systems.
[2]. LIMITATIONS OF OFFICE SYSTEMS AND PROCEDURES:
Office systems and procedures suffer the following limitations:
i. Limitations of planning:
The effectiveness of a system depends on planning. Therefore a system must be planned by doing a
sufficient ground work and it must be given a trail before it is put into practice.
A system must be kept up to date because it may become obsolete because of changes in the
organization.
ii. Rigidity:
Strict adherence to the system makes it inflexible and unworkable. A system should leave
something to the discretion and judgement of the personnel responsible for its application.
iii. Inflexible:
Systems need to be changed from time to time to meet the changing environments of
business. Certain systems have to be modified keeping in view the demands of other
systems which operate in an organization. Further system must be integrated to achieve the
desired objectives.
iv. Expensive:
The efficiency of the system should be evaluated by making a cost-benefit analysis of it. A
system should bring economy and should not result in an increased cost of office operation.
The repetitive use of a system adversely affects its efficiency in a large measure. On the other
hand, frequent changes in the system on the basis of current needs may impose the burden of a
great expenditure on the organization.
Write a short note on the Importance of Office Records.
[H]. IMPORTANCE OF OFFICE RECORDS:

The term Record refers to any written matter or documents prepared for possible future uses. It
may take the form of a letter notice, circular, invoice, voucher, picture, chart, diagram, statement,
registers, books of accounts, tapes and micro films.
It constitutes some of the tangible evidence of operations or transactions of an enterprise. There
are different types of records like correspondence records, accounting records, purchase and
sales records, personnel records, legal records, administrative records and other records like
survey reports, office diaries, visitor‟s book etc.
For the planning, policy making, co-ordination and control functions, management can be
provided necessary information only if past and present records are preserved properly and
located promptly. Filling helps to locate the file in proper order and indexing helps to locate
it.

Define Filing. Discuss the essential elements of a Good Filing System.
[I]. MEANING OF FILING SYSTEM:

[1]. Filing is the process of arranging and sorting the original records and their copies, so that they
can be easily located when required.
[2]. “Filing means systematic preservation of letters, documents, telegrams, etc., received and their
copies, sent out for future reference.”
Thus, in filing, there is a preservation of different records, documents, etc. without proper filing
system, we can not preserve and handle large number of papers and documents.
 DEFINITIONS:
Following are some of the definitions of filing:
[1]. According to Leffingwell:
 “Filing is the process of so arranging and sorting original records, or copies of them,
 That they can be readily located, when required.
Thus, as per this definition;
 In filing different type of records or the copies of records are systematically arranged.
 Filing should be such that when we require any record, it can be easily available.
[2]. “Filing is the systematic arrangement and keeping of business correspondence and records, so
that they may be found and delivered, when needed for future reference.”
Thus, from above definitions, we can point out following three objects of filing.
 Proper arrangement of records,
 Proper sorting/classification of records, and
 Easy availability of records.
 IMPORTANCE OF FILING :
Filing is one of the most important functions of an office. Without proper filing system, an office
cannot preserve a large number of papers and documents, but if there is a good filing system,
 It can preserve various documents and records for long period, and
 Required document or record can be easily available, when required.
Further, inward and outward correspondence should be carefully preserved for future reference,
because they are useful;
 In case of disputes and
 In case of receiving repeat orders, etc.
 ESSENTIALS OF A GOOD FILING SYSTEM:

There are different types of filing systems. Now, which system should be adopted-that depends
upon the requirements of the particular office.
Following are the essentials of a good filing system:
[1]. Simplicity:
The filing system should be simple, so that it can be easily understood by any person, without
any special training or knowledge. This is essential, where there is use of classification.

[2]. Rapidity of filing:
The filing system should be such that it does not require much time to file the letters. This is
possible, only when the filing system is simple.
[3]. Accessibility:
The filing system should be such that required letter or document can be easily obtained without
wastage of time and additions can be made without disturbing the existing order. Now, this
requires proper indexing. This means, if there are a large number of files, there should be use of
index system.
[4]. Economical or Cheap:
The filing system should be cheap or economical. It should not be costly or more expensive. It
should not require unnecessary appointment of large number of filing clerks. Further, the filing
equipments should not be too costly. In short, the cost of installing and running filing system, cost
of filing equipments, and the cost of space utilized should be lowest possible.
[5]. Minimum space or storage:
Now-a-days, floor space is very costly in big cities. So, filing system should be such that it
requires minimum floor space. For this purpose, unnecessary records or old files, which are not
required for any reference, should be destroyed. However, when it is compulsory to maintain
certain files by law, it should be maintained for long time, e.g. personnel or service records of
employees. Further, to minimize costs of storage and space, storage period should be
determined for particular files.
[6]. Safety:
The papers and files should be safely preserved for a long period, so that they are available
when required. The filing system should take proper care or files and records. They should not
be damaged by insects, mice, fire, dust, theft, etc. For this purpose, there should be use of
proper equipments, e.g. certain important documents like title deeds of property should be stored
in fire proof equipments.
[7]. Elasticity or Flexibility:
The filing system should be flexible or elastic. It should be possible to expand (increase) or to
contract (reduce) its capacity, according to the needs of organization. When there are reductions
in the business activities, it should be possible to reduce its capacity. So, its surplus space can
be utilized for other purposes. Thus, it should be adaptable (adjustable) to future business
requirement.
[8]. Accessible to filing department:
In case of Centralized Correspondence system, the filing department should be at such a place,
that every department can easily access to it. Records should be place at such a place that they
can be traced (find out) without delay.
[9]. Cross Reference:
A good filing system should provide the facility of cross reference. Sometime, a letter can be filed
under two different heads. In this case, a cross reference should be given under that head,
where it had been filed.
[10]. The guide:
When a file or a letter is removed from filing department, a guide or indicator should be inserted
giving information about;
 The letter or the file removed,
 To whom it was sent, and if possible,
 The signature of the person to whom it was delivered.

Discuss the objectives or advantages of Filing.
 ADVANTAGE [OR] OBJECTIVES OF FILING:

Following are the main advantages of an efficient filing system to the organization;
[1]. READY REFERENCE :
Records contain information and files act as the store house of information facilitating easy and
quick reference to the past and present activities of the business.
[2]. SAFETY RECORDS:
Filing ensures the safe storage of different types. Letters and other documents are put into
folders and the folders are kept in cabinets and fire proof almirahs. Filing ensures protections of
office records against possible losses or damage caused by the dirt, dust, fire, theft, etc.
[3]. DOCUMENTARY EVIDENCE :
Records serve as documentary evidence in case of disputes. The copies of the original letters
filled, if preserved properly, may be able to be produced to settle the claims with different parties.
Records can also be produced in a court of law when a party to a dispute resorts to the process.
[4]. PROMPT HANDLING OF CORRESPONDENCE:
Filling enables to handle the correspondence without delay. It builds up the reputation of the
organization and helps in securing orders.
[5]. STATUTORY REQUIREMENTS:
Records are kept in compliance with the provisions of various statutes like companies Act,
Factories Act, Income Tax Act, etc.
[6]. BAROMETER OF PROGRES S:
Filing makes possible the records of previous years and thus helps in comparing the current
year‟s performance with the previous years. Thus, it is an important aid in measuring the
efficiency of the enterprise and various departments.
[7]. HELPS IN POLICY FORM ULATION AND DECISION MAKING:
Filing helps office management in better planning and control of business activity by providing
timely and up to date information.
[8]. INCREASED EFFICIENCY:
Filing increases the efficiency of the office in the discharge of the various functions by providing
the required information. It makes available to the management the required information with
speed and accuracy which is helpful for prompt decision making. Follow up actions are also
taken quickly if records of past correspondence are easily available.
Explain the various methods of Filing.
 FILING METHODS :
[a] OLD METHODS [b] MODERN METHODS
[1]. Metal Holders/Guard Books [1]. Horizontal filing
[2]. Box files Flat files, Lever files
[3]. Spike files [2]. Vertical files
[4]. Pigeon Hole or docketing Suspension files, Lateral filing
[5]. Concertina filing Folders, Cabinets
[6]. Press copy book [3]. Open-shelf files
[7]. Expanding alphabetical cases

[a]. OLD METHODS:
[1]. METAL HOLDERS AND GU ARD BOOKS:
Under this method the papers are held together by metal holder or are pasted in bound books in
chronological order. They are both inconvenient and awkward and do not serve any purpose.
Therefore, this method is not used by big concerns.
[2]. BOX FILES:
Cardboard boxes, about 3 to 4 inches are been used for filing papers. The boxes are fitted with
spring clips to hold the papers down in the proper places. Sometimes papers may be placed in mania
folder, which may be kept in the box file. Box files are not suitable for permanent storage of papers as
and when they get old the hatches may become loose with the result that the papers will no longer
remain secure.
[3]. SPIKE FILES:
This method uses a spike or a wire fixed to a small wooden stand which may be placed on the
desk or may be hung on the wall. The letters, which are intended to be filed, are punched
through the sharp point of the spike. They pile up one above the other on the wooden base. This
equipment is very cheap and simple one and may be used by small shop vendors.
It can be used where letters and other documents, such as water bill, electricity bill, are to be
filed for a short period. The limitation of this method is that, the papers accumulate dust and may
become illegible and letters can be arranged in chronological order only.
[4]. PIGEON-HOLE OR DOCKETING:
Under this system a cupboard is provided. It is divided into number of small compartments, each
compartment being allotted to a letter of alphabet. The cupboard is open from one side and the
compartments are square holes, also known as pigeon-holes.
Sometimes the papers are just inserted into the compartment, which is marked with the letter of
the alphabet corresponding to the first letter of the subject matter.
The papers and letters are neatly folded and outside the fold brief particulars are given. The
writing of these particulars is known as docketing. The pigeonhole may be cleared periodically so
that letters, which are no longer in use, may be destroyed. This system of filing is suited only to
small offices.g3
[5]. CONCERTINA FILING:
It provides a series of cardboard pockets usually sufficient to permit alphabetical classification
and is readily portable. It is suitable for keeping only a small number of papers since its capacity
is limited. However, it is said to be an important land mark in the development of vertical filing.
[6]. PRESS COPY BOOK:
All the letters which are sent out are copied in a book marked for the purpose. The press
copybook may be divided either on alphabetical or on geographical basis. One press copy may
be allotted for a few letters of the alphabet, like from A to E.
The press copy book serves as good evidence for a particular letter having been written on a
particular day in the regular course of business. Another way of this system is to take photo copy
of all letters written and to file these copies in order, in which the letters were written. Such a file
is known as “master file”.
[7]. EXPANDING ALPHABETIC AL CASES:
There are letters or numbered pockets, in which letters and other papers can be placed
alphabetically or otherwise. These cases or pockets can be useful for sorting correspondence or
keeping papers together for temporary purposes. For permanent record, this method is not
suitable.

[b]. MODERN METHODS:
[1]. HORIZONTAL FILING:
Under this method, the files are placed in the folders and these folders are kept in horizontal
position. Folders or files containing papers are kept in drawers one upon the other and papers
are inserted in the order of the date on which it is received or dispatched. Naturally, the latest
papers are found on the top. An index is prepared allotting, the numbers to the file. Guide cards
may also be kept showing the movement of the files. The horizontal filing method can be;
[a]. Flat files,
[b]. Arch Lever files,
[c]. Shenon files
[a]. FLAT FILES:
These are covers made of card board or thick paper fitted with metal hinges for fastening the
papers together. A file is allotted to each customer or subject. All the papers relating to the
customers or subject are placed in that file in chronological order (date wise). The letters or
papers to be filed are punched and inserted into the metal hinges of the files. Then these files are
kept upon each other in cupboards or drawers.
[b]. ARCH LEVER FILES :
These files are made of very thick cardboard and are fitted with strong metal arches operated by
a lever (double spring). If any paper is to be inserted into the file, the lever is moved upwards
which will open the metal hinges and after inserting the paper press the lever down. The main
advantage of this system is that, a paper can be inserted at any place and can be taken out
without disturbing the order of other papers and it can preserve the paper for a long time. These
are commonly used in offices; it is very simple, cheap and convenient for filing large number of
invoices, delivery notes, letters, replies etc.
[c]. SHANNON FILES:
Papers under this system are attached to hinges of metal drawers which remain inserted in steel
cabinets containing 4 to 64 drawers. The drawers can be classified into alphabetical or any other
convenient order. The drawers can be brought out of the cabinets and replaced after inserting or
taking out papers in the drawers.
 Advantages/Merits of Horizontal filing:
[i]. It is easy to understand and simple to operate.
[ii]. It enables easy reference as the documents are arranged in chronological order.
[iii]. It is a flexible system; number of files can be increased or decreased depending on the volume of
papers.
[iv]. Papers can be inserted or taken out without disturbing the order of the papers.
[v]. It can keep all papers in proper order with the help of string fastening device, so misplacement
can be reduced.
[vi]. In this the best is flat filing method. In this method, papers remain well protected from theft, insects
and dust.
 Dis-advantages of Horizontal filing:
[i]. It is not suitable where the volume of papers is very large.
[ii]. It requires relatively more space.
[iii]. Location of exact paper at short notice is difficult as the files containing papers are placed on
above the other.
[iv]. In the event of expansion in the volume of papers, the drawers must be reorganized this is
troublesome and to take out any paper from a flat file, other papers have to be removed first.

[2]. VERTICAL OR UPRIGHT FILING SYSTEM:
In this method, the files are placed vertically or in a straight, standing position. Here the papers or
letters remain unfastened as against the flat filing system where they are carefully fastened. This
system consists of folders and cabinets.
[a]. SUSPENDED FILING :
Folders are suspended vertically from metal rods fitted across the inside of the drawers. It
becomes a visible vertical filing system. Papers are filed in folders, which are placed inside the
suspended pockets, each holding a number of folders. The top of each folder is made of metal
sheet. From side of the sheet is used for pasting the title of the paper. Hence, titles of all files can
be viewed without touching or shuffling the papers. It keeps the files upright and neat. It gives a
speed of reference by index strips on each pocket.
[b]. LATERAL FILE (FILING FROM SIDE TO SIDE) :
In lateral filing, files are placed vertically across the width of the cupboard with four or five
shelves. The documents are filed laterally along a shelf, the pockets having index strips on the
visible ends of the files. It saves 50% space, offers full visibility, has greater filing height i.e. 2
meters high with 5 filing rows, and it is very cheap.
In this method, papers after being put in inter-connected folders which have hooks are hung on
the railings of shelves in the same manner as cloth hangers are hung in the wardrobes. The top
of the folders is fitted with the indicators, which can be adjusted for the required angle of vision.
[c]. FOLDERS:
The folder consists of manila sheets. The back of a folder is slightly higher than the front part of
the sheet. This extended back part of the sheet is used for writing the details like name of the
correspondent, address, etc. For each correspondent, a separate folder is used. These folders
are kept in a standing position in chronological order. Any paper can be taken out or put back
without disturbing the other papers.
[d]. CABINET:
A cabinet with a wooden of steep drawers are used to preserve the papers. The drawers must be
deep enough to place the folders in standing position. The folders are placed vertically in the
drawers. Each drawer slides forward and backward so that folders can be taken out and put it back
into the drawer. These drawers are fitted with rods so sometimes a drawer can be easily suspended
from the rod.
[3]. OPEN SHELF FILING:

In this method, files are arranged in open shelves like books are kept in libraries. Generally the
shelves do not have doors but provision can be made for them. The files are arranged in
numerical order and the outer edges of the files show the serial number of the file. Open shelf
filing permits more visibility, provides compactness and help in doing the filing work faster and
efficiently.
[4]. MICRO FILMING:

Micro filming is also a filming method and is becoming popular because of space problem. Under
this method, record of documents is kept by taking their photographs on very small films. In the
film of 30 cubic centimetres, a record of 10 lakh cheques can be kept.
The information photographed on a film can be projected on a screen with the help of machine
called „Viewer‟ or „Reader‟. It is the filing method of the near future. It is gaining importance
because it saves office space, paper and overhead expenditure in maintaining huge filling equipment.
A micro film as compared to other method of filing, can record the same information permanently
and safely at two percent of the space, yet it will have the authenticity like the original document.

 ADVANTAGES/MERITS OF VERTICAL FILING:
[i]. It facilitates ready reference and thereby saves time and effort.
[ii]. It is economical to use as large number of folders can be accommodated in drawers when
vertically arranged.
[iii]. Files are easily accessible and can be referred to, inserted in, or withdrawn easily and quickly.
[iv]. It provides ample scope for expansion.
[v]. It ensures safety and security of the office records by means of locking devices.
[vi]. It is readily adaptable to the changes in classification as the folders can be arranged
alphabetically, numerically or geographically.
[vii]. It has wide applicability as it can be used for all types of papers and documents, e.g. orders,
invoices, quotation, traders, circulars, etc.
 DIS-ADVANTAGES/MERITS OF VERTICAL FILING:
[i]. There is a danger of files sagging under other files with the results that they may not become
readily available.
[ii]. Papers loosely inserted in folders may be misplaced in wrong folders unless it is done carefully.
[iii]. It needs to be supplemented by the use of flat files for movement of papers form dealing
assistants to one or more officers in connection with current matters.
 HORIZONTAL FILING V/S. VERTICAL FILING:
POINTS HORIZONTAL FILING VERTICAL FILING
[1]. Arrangements In the flat position i.e. one upon In the standing or upright position
of papers or each other
files
[2]. Filing (i) Flat files, (ii) Arch lever files (iii) (i) folders, (ii) cabinets, (iii) lateral
equipments Shenon files file (iv) suspended file
[3]. Misplacement No misplacement as papers are Possible as papers are kept in loose
of the papers fastened by a clip manner
[4]. Cost element Economical, as only file covers are Costly, as it requires folders,
necessary drawers, guide cards, cabinets,
cupboards
[5]. Flexibility Not flexible, having limited scope Flexible as it enjoys scope for
for expansion expansion
[6]. Reference Not easy and quick Easy and quick
[7]. Protection of Limited protection Maximum protection due to steel

records cabinets and almari with locking
devices
[8]. Suitability For small office For big offices
[9]. Requirements Large space Limited space

Define Indexing. What are the main objects of indexing?
[J]. MEANING OF INDEXING:

The term “index” means –
 To point out something,
 Index is anything which “indicates” or “points out”.
 “Anything which gives certain information regarding anything is called Indexing.”
Index indicates that where a particular file, information or document is available. It is one types of
guide‟, which guides a person as to – where a particular information will be available.
For example;
If index is prepared at the end of text-book, it gives information that on which page, what
information is available.
 INDEXING AND CLASSIFICATION:
The term „Indexing‟ and „Classification‟, both are not same. There is a difference between
these two terms. „Indexing‟ is a method of making reference to the records filed. With the help of
indexing, we can easily find out the required information, records, or document, but classification
means the methods of filling.
 WHERE INDEXING IS NOT REQUIRED?
(Where index can be dispensed with?)
When the filing system itself is self-indexing, it is not necessary to prepare index. Following are
different cases, in which index is not required.
[1]. When the files are arranged alphabetically, such as „A‟ – for account department files, „O‟ for
Office department files, etc. it is not necessary to prepare index.
[2]. Similarly, it is not necessary to prepare index, when files are arranged –
 According to the Alpha-Numerical or Geographical system, or
 According to the subject and
 If such files are again arranged alphabetically.
 OBJECT/OBJECTIVES OF INDEXING:
Following are different objectives of indexing:
[1]. Facilitates the Location of Records:
Indexing helps to locate (find out) a particular files or records easily. Index indicates (or points
out) the place where the document or information will be available.
[2]. To collect required Information:
Whenever any information is required, with the help of index, we can easily collect find out
information.
[3]. To Locate Page of Information :
Sometimes, an index is prepared inside (in turn) the index-book. It helps in locating the page, on
which the necessary information is given.
[4]. Self-Indexing Records:
If the records are kept, index should be prepared, even though the records themselves are „self-
indexing‟.

[5]. To Arrange Files in Order :
Indexing gives a list of different correspondence or files-titles in a numerical or alphabetical order.
So, it becomes possible to arrange correspondence and files in an order.
 ESSENTIAL OF GOOD INDEXING:

A good system of indexing should possess the following qualities.
[1]. Simplicity:
It should be simple and easy to operate.
[2]. Economy:
It should be economical in terms of money, space and efforts.
[3]. Efficiency:
It should ensure speed and accurate way of locating files.
[4]. Cross referencing:
It should ensure cross referring of documents relevant to two or more files.
[5]. Flexibility:
A good indexing system should have sufficient scope for expansion as the records of a firm go
on increasing day by day.
[6]. Safety:
Safety of index is required to avoid pilferage of index card and to save it from destruction by dust,
insects, rats, fire, water, etc. Index equipment should ensure the safety of records.
[7]. Conformity with the filing system :
The indexing system should go well with the filing system of the organization.
[8]. Signalling:
It should provide for suitable plastic or metallic signals. A signal is a metal clip, plastic tub or a
thick paper slip which is attached to the exposed edge of a card or file. Its purpose is to draw
attention to certain facts recorded on the card. For example, the blue signal on a staff card may
indicate that the concerned employee is a member of the staff pension scheme and a red signal
may indicate that the concerned employee is a member of the salary linked insurance plan.
Signals can also be used to find out folders, cards, ledger folios, etc.
Explain the meaning and characteristics of Management Information System.
[K]. MANAGEMENT INFORMATION SYSTEM [MIS]:

Management Information System is a combination of three English letters:
M: stands for Management
I: stands for Information
S: stands for System
With the help of these three letters we can make a number of combinations, namely;
[1]. MI: Management Information means information regarding management. (Qualification of
management, number of managers, policies, etc.)
[2]. MS: Management System means the basic structure of the management like the hierarchical
order of management.

[3]. IS: Information System, which provides information?
[4]. SM: System Management means how to mange a system whether it is a business organization,
computer system etc.
[5]. SI: System Information means the information regarding the system like what are the different
parts of a system, how they relate to each other etc.
[6]. IM: Information Management means how to manage particular information.
[7]. MIS: Management Information System.
Before going into the details of what is Management Information System? First of all we should to
know the meaning of three different terms which form Management Information System.
 MANAGEMENT:
We can define management in many ways like: one of the way in as follows:
“Manage Man Tactfully” or Management is an art of getting things done by others. But, for the
purpose of MIS, Management comprises the process and activity that a manager does in the
operation of their organization, i.e., to plan, organize, direct and control operations.
 INFORMATION:
Information simply means processed data or in the layman language, we can say that data which
can be converted into meaningful and useful form for a specific user.
 SYSTEM:
System can be defined as a set of elements joined together for a common objective.
[1]. A group of interrelated or interacting elements forming a unified whole e.g., business
organization as system.
[2]. A group of interrelated components working together towards a common goal by accepting input
and producing output in an organized transformation process.
 There are a number of definitions of MIS given by different authors. Some of them are:
[1]. According to Jerome or J. Kanter “MIS is a system that aids management in making, carrying
out and controlling decisions”. Here, MIS is a system that aids management in performing its job.
[2]. According to G. B. Davis, a MIS is “an integrated main/machine system for providing information
to support the operations, management and decision-making functions in an organization. Here,
the system utilizes hardware and software, manual procedures, management decision model
and data base.
[3]. After the introduction of computer, some people define MIS as computer based information system.
[4]. As system based on the database of the organization evolved for the purpose of providing
information to the people in an organization. In simple term, MIS is an information system that
provides information to support managerial decision-making.
A more comprehensive definition is that MIS consists of people, equipment and procedures to
gather sort, analyse, evaluate and distribute, timely and accurate information to the decision maker.
 CHARACTERISTICS OF MANAGEMENT INFORMATION SYSTEM:

Jerome Kanter in his work titled „Management Information Systems‟ mentions several
characteristics of MIS. Some of them are:
[1]. MIS IS MANAGEMENT OR IENTED:
The designing of MIS takes care of the managers, who meet the information requirement. The
development of the system starts after deciding the management needs and keeping in view the
overall objectives of the management.

[2]. MANAGEMENT DIRECTED:
Since MIS requires heavy planning and investment, management is deeply involved in the
design, implementation and maintenance of the system.
[3]. INTEGRATED SYSTEM :
Six Ms - Men, Money, Material, Machine and Methods, Market are the basic resources of
management information and is recognized as an important factor and its effective use contributes to
the success of the management. MIS is the „catalyst and nerve centre‟ of an organization.
It has a number of subsystems. In order to make these subsystems effective, it becomes
necessary that they have to be viewed as an integrated system, so that the result is
balanced.
It binds together databases of all subsystems of the business system and through information
interchange, integrates the organization.
[4]. AVOIDS REDUNDANCY IN DATA STORAGE:
Since MIS is an integrated system, it avoids unnecessary duplication and redundancy in data
gathering and storage.
[5]. COMMON DATA FLOW:
To achieve the objective of integration and to avoid duplication and redundancy in data
gathering, storage and retrieval, data capturing is usually confined to original sources and it is
done only once.
Common data flow tries to utilize minimum data processing efforts and strives to minimize the
number of outdated documents and reports.
This type of integration can avoid duplication and produce an effective MIS. But separate files
should be opened which are significant to one application with the use of common data flow.
[6]. DETAILED PLANNING:
Design and implementation of MIS require detailed planning of such activities as acquisition and
deployment of hardware, software, data processing operations, information presentation and
feedback.
[7]. SUB-SYSTEM CONCEPT:
MIS gives provision for breaking into various subsystems based on the activity as well as the
functions of the organization, so that effective implementation of each subsystem is possible at a
time.
[8]. COMMON DATABA SE:
It acts as a master that holds the functional subsystems together. It achieves this aim by allowing
access to different master files of data to several functional subsystems.
Data requirements for different levels of management also support the need of more than one
database, unique databases and common database.
[9]. FLEXIBILITY AND EASE OF USE:
MIS has been designed flexible enough to accommodate new requirements. The system is easy
to operate so that not much computer skills are required on the part of the user to access
database for information or for carrying out special analysis of data.
[10]. COMPUTERIZATION :
MIS can be computerized because of its nature as a comprehensive system. This provides
speed in creating and accessing files, accuracy, consistency in data processing, reduction in
clerical work, avoid human errors, etc.

Explain the Significance of Management Information System.
[L]. SIGNIFICANCE OF MANAGEMENT INFORMATION SYSTEM:

Management is the function of planning, organizing, staffing, directing and controlling. To perform
these major functions, a manager has to lay down the policy, communicate, motivate and take
decisions in different business situations.
The management has to take long term as well as short term decisions in order to achieve the
overall goal of an organization. This decision-making is better and sound, if the organization is
small or everything is under the control of management. This is a rosy picture which is
theoretically possible but in real life situation where things are complex and uncertain as well as
dynamic in nature, the management has to depend more on scientific decision-making rather
than based on his own judgement only.
For scientific decision-making, it is necessary that they should be based on the data concerning
the past performance viewed in present situation and projected for emerging future trends. This
type of decisions is arrived after collecting, processing, analyzing data and after that providing
information rather than being based on the intuition or judgment of the management. To achieve
this goal, every effort needs to be made to device means for obtaining data, storing it in such a
manner that all relevant data can be accessed with ease and processed to meet the desired
objective of assisting in decision-making. Management Information System is the tool which
helps the management by providing the relevant information in the right form to the right person
and at the right time. Right person means the various users of information in an organization like
clerk, an assistant, an officer, an executive or a manager.
To meet the objective of providing information, the Management Information System has to work
in an integrated manner. It is a complete solution in a sense that it is composed of an integrated
data base, a system for using the data base to develop required timely information and a plan to
utilize that information in future management plan and action.
Management Information System not only deals with the planning, coordinating, evaluating and
controlling of general processing, but also using and disposing the corporate and operation
information. Management Information System is a complex system made by different subsystems in
which data is processed to produce information which is used by each level of management either
operational, middle or top level of management. To understand the need, purpose of Management
Information System in an organization we can take the help of Following Diagram.
Environment
Management
Goal setting
Planning Organising Staffing Directing Controlling
Information support
Management Information System

The management after analyzing its environment sets the goals and objectives to be
accomplished and for this information is required. To perform each task of planning, organizing,
staffing, directing and controlling all other information needs are provided or supplemented by the
Management Information System.
So the objective of Management Information System is to set the objective to be achieved.
Information needed to evaluate performance must be traced out and must be applied effectively.
An effective mechanism must be developed, installed and maintained and the overall system‟s
adequacy as a basis of information for management decision must be reviewed and appraised
continually. Management Information System is the product of continuous and careful efforts
done by experts to meet the information needs of management.
It helps in performing day to day functions, enhances strategic decision-making for planning and
control. So, the main purpose of Management Information System is to support the management
in decision-making broadly in the management processes.
Explain the benefits and Limitations of Management Information System.
[M]. BENEFITS & LIMITATIONS OF MANAGEMENT INFORMATION

SYSTEM:
[1]. BENEFITS OF MANAGEME NT INFORMATION SYSTEM(MIS):
[1]. It provides timely, accurate, scientific, reliable and permanent information.
[2]. It avoids duplication of efforts.
[3]. Coordinates the whole organization.
[4]. It provides the information in form and formats as required by the information seeker.
[5]. It helps in making better and scientific decisions by the management.
[6]. Speed of processing and fast retrieval of data is possible.
[7]. The scope for the use of information system has expanded provides information to remote areas
users.
[2]. LIMITATIONS OF MANAGEMENT INFORMATION SYSTEM(MIS):

[1]. The quality of the operation of Management Information System depends on the quality of input
process.
[2]. Management Information System is not a substitute for effective management.
[3]. Management Information system may not have requisite flexibility to quickly update itself with the
changing needs of time, especially in a fast changing and complex environment.
[4]. Management Information System can not provide tailor-made information packages suitable for
the purpose of every type of decision made by executives.
[5]. Management Information System takes into account only quantitative factor. It cannot consider
the qualitative factors like moral and attitude of mangers, which have a major on decision making
by the managers.
[6]. Management Information System is less useful in non-programmed decisions which are not of
routine nature. The reason being the information for these decisions is not provided by the
existing system.
[7]. The Management Information System is not successful where secrecy is maintained in
disseminating information to their worker. In other words where sharing of information is not the
culture of organisation, the working of organization is affected in absence of required information.
[8]. The effectiveness of Management Information System is also affected or reduced in case of a
change in the top management, organizational structure and operational team.

 PHOTO EXAMPLES OF VARIOUS TYPES OF FILES AND INDEXES:
1.METAL 2.BOX FILES: 3. SPIKE FILES:
HOLDERS:
4.PIGEON-HOLE: 5.CONCERTINA FILING: 6.PRESS COPY BOOK:
7.EXPANDING 8.VERTICAL FILING : 9.FLAT FILES:

ALPHABABETICAL CASES :
10.FOLDER: 11.ARCH LEVER FILES: ARCH LEVER FILES :

12.SHANNON FILES : SHANNON FILES:
13.SUSPENDED FILING: SUSPENDED FILING :
14.LATERAL FILING: LATERAL FILING:
15.CABINETS: 16.OPEN SELF FILING:

17.MICRO FILMING : MICRO FILMING:
 PHOTO EXAMPLES OF VARIOUS TYPES OF FILES AND INDEXES:
1.ORDINARY PAGE/BOUND BOOK 2.LOOSE LEAF/VERTICAL CARD INDEX:

INDEX:
3.VISIBLE CARD INDEX: VISIBLE CARD INDEX:

NOTES
MERVIN CLASSES
„102‟, BLUE DIAMOND, FATEHGUNJ, VADODARA
ST EPP I NG ST O N E T O S UCC E S S

Fy-Fm - Unit - Iii & Iv

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Mervin Classes P A G E – [ 1]

F.Y.B.Com. SEMESTER: II UNIT- III & IV

 INDEX: UNIT PAGE NO.

 STOCK EXCHANGE: III

[A]. MEANING OF STOCK EXC HANGE: 02 - 02

[B]. CHARACTERISTICS OF A GOOD MARKET: 02 – 04

[C]. FUNCTIONS OF STOCK E XCHANGE: 04 – 06

[D]. SERVICES OF STOCK EXCHANGE : 06 – 07

[E]. IMPORTANCE OR BEN EFI TS OF STOCK EXCHANGE : 07 – 08

[F]. PARTICIPANTS IN THE SECURITY MARKET: 08 – 10

[G]. PRIMARY & SECON DARY EQUITY MARKET: 10 – 12

[H]. BUYING AND SELLING S HARES : 12 – 14

[I]. PROCEDURE OF TRADING AND SETTLEMENT: 14 – 16

[J]. ROLE OF SEBI : 16 – 17

[K]. SECURITY MARKET: 17 - 19

 SOURCES OF FINANCE: III

[A]. SOURCES OF FINANCE : 20 – 21

[B]. IMPORTANCE OF RATIO ANALYSI S: 21 – 23

 PORTFOLIO MANAGEMENT: III

[A]. CONCEPT OF PORTFOLIO MANAGEMENT: 24 – 24

[B]. PROCESS OF PORTFOLIO MANAGEMENT: 24 – 25

[C]. SPECIFICATION OF INVESTMENT OBJECTIVE & CONSTRAINTS: 25 – 26

[D]. MEANING AN D METHODS OF SECURITY ANALYSIS : 26 - 27

STEPPI NG STO NE TO SUCCESS PTO – [2]

 INDEX: UNIT PAGE NO.

OFFICE MANAGEMENT & MANAGEMENT

[A]. MEANING AN D DEFINI TION S OF OFFICE: 28 - 29

[B]. MEANING OF OFFICE MA NAGEMENT: 29 - 30

[C]. IMPORTANCE OF OFFICE: 30 - 30

[D]. HISTORICAL DEVELOPMENTS & FACTORS CONTRIBUTING THE

[E]. FUNCTIONS OF AND OFFICE : 31 - 34

[F]. OFFICE SYSTEMS /ROUTINES AND PROCEDURES: 34 - 35

[G]. OBJECTIVES OF SYSTEMS AND PROCEDURE: 35 - 36

[H]. IMPORTANCE OF OFFICE RECORDS: 36 - 36

[I]. MEANING OF FILING SY STEM: 37 - 43

[J]. MEANING OF INDEXING : 44 - 45

[K]. MANAGEMENT INFOR MATI ON SYSTEM [MI S] : 45 - 47

[L]. SIGNIFICANCE OF MANAGEMENT INFORMATION SYSTEM: 48 - 49

[M]. BENEFITS & LIMITATIONS OF MANAGEMENT

STEPPI NG STO NE TO SUCCESS PTO – [3]

Explain the meaning and functions of Stock Exchange.

[A]. MEANING OF STOCK EXCHANGE:

[B]. CHARACTERISTICS OF A GOOD MARKET:

STEPPI NG STO NE TO SUCCESS PTO – [4]

STEPPI NG STO NE TO SUCCESS PTO – [5]

STEPPI NG STO NE TO SUCCESS PTO – [6]

[D]. SERVICES OF STOCK EXCHANGE:

STEPPI NG STO NE TO SUCCESS PTO – [7]

Discuss the benefits/utility/Advantages/Importance of Stock Exchange.

[E]. IMPORTANCE OR BENEFITS OF STOCK EXCHANGE:

[1]. BENEFITS OF STOCK EXCHANGE TO COMMUNITY AND COUNTRY:

STEPPI NG STO NE TO SUCCESS PTO – [8]

[3]. BENEFITS TO THE COMPANIES:

Who are the various participants of Stock Exchange.

[F]. PARTICIPANTS IN THE SECURITY MARKET:

STEPPI NG STO NE TO SUCCESS PTO – [9]

STEPPI NG STO NE TO SUCCESS PTO – [10]

Explain primary equity market and important changes introduced by SEBI.

[G]. PRIMARY & SECONDARY EQUITY MARKET:

Discuss the secondary equity market.

[b]. SECONDARY EQUITY MAR KET:

STEPPI NG STO NE TO SUCCESS PTO – [11]