CLASS 12 (Quick Revision)

SUBJECT-BUSINESS STUDIES

Chapter 01 Topic-NATURE AND SIGNIFICANCE OF MANAGEMENT

Concept of Management
Management is the process of planning, organizing, staffing, directing and controlling the enterprise
resources efficiently and effectively for achieving the goals of the organisation.
Effectiveness in management is concerned with doing the right task, completing activities and achieving
goals.
Efficiency means doing the task correctly and with minimum cost.

Characteristics of Management-
(i) Goal oriented process
(ii) All pervasive
(iii) Multidimensional
(iv) Continuous process
(v) Group activity
(vi) Dynamic function
(vii) Tangible force.

Objectives of Management-
I-Organizational Objectives-
i-Survival
ii-Profit
iii-Growth

II-Social Objectives-
i-Using environmental friendly methods of production,
ii-Giving employment opportunities to the under privileged sections of society, iii-providing basic amenities
like schools and healthcare, etc., for community.

III-Personal Objectives-
i-Competitive salaries and perks,
ii-Peer recognition
iii-Personal growth and development. Management
iv-Personal goals

Importance of Management-
1-It helps in achieving group goals,
2-Increases efficiency,
3-Creates a dynamic organisation,
4-Helps achieve personal objectives,
5-Contributes to the development of society.

Nature of Management-
Management as an Art-
Art is the skillful and personal application of existing knowledge to achieve desired results. It can be
acquired through study, observation and experience.
(i) Existence of theoretical knowledge
(ii) Personalized application
(iii) Based on practice and creativity

Management as a Science-
Science is a systematized body of knowledge that explains certain general truths or the operation of general
laws
(I) Systematized body of knowledge,
(ii) Principles based on experimentation
(iii) Universal validity

Management as a Profession-
(i)Well-defined body of knowledge
(ii) Restricted entry
(iii) Professional association
(iv) Ethical code of conduct
v) Service motive.

Levels of Management-
1-The top management
-focuses on determination of objectives and policies,
2-Middle management
-attempts to achieve these objectives through the effort
of other managers and
3-Supervisory or operational management
-directly oversees the efforts of the workforce.

Functions of Management-
1-Planning,
2-Organising,
3-Staffing,
4-Directing,
5-Controlling.

Coordination-
Coordination is the force that binds all the other functions of management.
Coordination is the essence of management. It is the process of achieving unity of action among
interdependent activities and departments of an organisation.

Characteristics of Coordination
(i) Coordination integrates group Efforts
(ii) Coordination ensures unity of action
(iii) Coordination is a continuous Process
(iv) Coordination is an all pervasive Function
(v) Coordination is the responsibility of all managers
vi) Coordination is a deliberate function.

Importance of Coordination-
(i)Growth in size,
(ii) Functional differentiation
(iii) Specialization.
 CHAPTER 02 TOPIC-PRINCIPLES OF MANAGEMENT

Concept of Principles of Management

-Managerial principles are the general guidelines for decision-making and behavior.
-Framed on the basis of standard human behavior patterns but applied as per the need or demand of a
situation.
-Help managers to perform managerial activities more effectively and efficiently.

Principles of management v/s Principles of Pure Science

-Management principles are flexible and updated to meet the changing demands of the environment.
-Management principles are related to human behavior thus they need to be used creatively.
-Management principles cannot be tested in any laboratory.
-Application of same principle may give different results in different situations.

Principles of Management v/s, Techniques of Management

Management principles are the guidelines to take decisions whereas techniques are procedures to implement
decisions.

Principles of Management v/s, Values

-Values are the acceptable or desirable behavior of individuals whereas Principles of Management are the
guidelines for human behavior.
-Values are related to individual behavior in society but the Principles of Management are the
Technical rules related to work situations.
-Values are part of Principles of Management but Values may not include Principles of Management.

Nature of Principles of Management

Management principles are based on observations, experimentations and the personal experiences of
managers. The nature of principles of management can be stated as:
(1) Universal Applicability
Principles of Management are applicable at all levels of an organisation and in all types of organizations.
(2) General Guidelines
Principles of Management provide broad guidelines to solve business problems in general.
(3) Formed by practice and experimentation
The principles of management are formed on the basis of experiences, observations and analysis of events in
the past.
(4) Flexible
The principles of management are the guidelines or tools which managers may use as their discretion.
(5) Mainly behavior
Principles of Management though explain the relationship between human and material resources but they
influence human behavior the most while accomplishing organizational goals.
(6) Cause and effect relationship
Principles of management intent to provide the cause and effect relationship of the principles if
applied in a specific situation.
(7) Contingent
The application of principles of management are dependent on situations and time at which such situations
happen.

Fayol’s Principles of Management

1-Division of work- The entire work of the organization should be divided into small specialized tasks and
each task should be performed by a specialist or a trained employee.
2-Authority and Responsibility-Authority means the right to give orders and obtain obedience.
Responsibility means obligation to perform the of a subordinate to properly perform the
3- Discipline-Discipline is the obedience to organizational rules and employment agreement which are
necessary for the working of the organisation.
4-Unity of command-lt means that there should be one and only one boss for every individual employee.
Dual subordination should be avoided.
5-Unity of direction-lt means that all the units of an organisation should be moving towards the same
objectives through coordinated and focused efforts.
6-Centralisation and Decentralization-The concentration of decision-making authority is called
centralization. The dispersal of decision-making authority among more than one person is known as
decentralization.
7-Scalar Chain-The formal lines of authority from highest to lowest ranks are known as scalar chain. Gang
plank-Gang plank is a shorter route and has been provided so that communication.is not delayed in an
emergency.
8-Order-lt means that a place for everything (everyone) and everything (everyone) in its (his/her) place.
9-lnitiative-lnitiative means taking the first step with self-motivation. lt is thinking out and executing the
plan.
10-Remuneration- Principle of remuneration implies that every employee in the organization should be
given fair and adequate remuneration for their works.
11-Equity-Principle of equity implies similar treatment with all the employees in the organization.
12-Subordination of individual interest to general interest-In the organization, there are personal interest
of individuals as general interest of the organization as a whole. This principle means the interest of the must
be given preference over the individual interest.
13-Stability of Tenure-Personnel should be selected and appointed after due and rigorous (Extremely
through/carefully) procedures. Employees once selected to kept at their post for a minimum fixed period.
14-Esprit De corps-Management should promote a team spirit of unity and harmony among employees.

Significance of Principles of Management

(1)Providing managers with useful insights into reality-They provide ideas, hints or guidelines
to solve similar problems.
(2) Optimum utilization of resources and effective administration-The cause-and-effect relationship
helps managers to foresee the effect of their decisions and actions thus, enables them to use resources most
effectively.
(3) Scientific decisions-Principles based on experiments, observations and logic provide objective
assessment of a situation.
(4) Meeting changing environment requirements-The managers can modify principles to meet the needs
of dynamic business environment.
(5) Fulfilling social responsibility-By incorporating values as part of principles has enabled businesses to
fulfill social responsibilities.
(6) Management training, education and research-The principles of management and the managerial
experiences are used as case studies to train employees or for further modification or development of
principles already applied.

Taylor's Principles of Scientific Management

(1)Science Not Rule of Thumb
This principle states that maximum productivity can be achieved only by following standard methods of
production and the standard methods must be developed by evaluating the different methods followed in the
past and selecting the best possible method. Production techniques cannot be followed using hit and trial
method.
(2) Harmony, Not Discord
This principle states that management and workers must have good understanding and faith amongst each
other. The combined efforts of management and workers help an organisation to achieve its goals.
(3) Cooperation, Not individualism
This principle states that each individual in the organisation must work with the final aim of achieving
organizational goals. Management and workers must work as a team to be effective and efficient.
(4) Development of Each and Every Person to His or Her Greatest Efficiency and Prosperity
This principle states that organizations must appoint such people who possess the mental,
physical and intellectual capabilities required for the job. It must also provide continuous on the job training
for employees to improve their productivity and achieve growth.

Taylor's Techniques of Scientific Management

(1)Functional Foremanship
As per this technique, the planning and execution should be treated as two separate functions and each
function should be handled by a separate in-charge. Each in-charge must be assisted by four specialized
personnel who would give instructions to workers.
Assistants of Planning in-charge would be-
i-Instruction card clerk-For drafting instructions for workers.
ii-Route clerk-To specify the production route.
iii-Time and cost clerk-For preparing time and cost sheet.
iv-Disciplinarian-For maintaining discipline in the factory.
Assistants of Production in-charge would be-
i-Speed Boss-Will ensure that jobs is completed accurately and on time.
ii-Gang Boss-Responsible to keep machines and tools ready for operations.
iii-Repair Boss-Responsible for keeping the machines and tools in proper working conditions
iv-Inspector-Responsible to maintain the quality of work.

(2) Standardization of work means setting standards with respect to process followed, time taken, raw
material used, working conditions for each business activity.

Objectives of standardization:
-To produce products of fixed types, sizes and characteristics.
-To establish interchangeability of manufactured parts and products.
-To establish standards of excellence and quality in materials.
-To establish standards of performance of men and machines.

Simplification of work means simplifying work by eliminating needless varieties, sizes, dimensions etc. of
products produced to utilize resources optimally and reduce labour and overhead costs.

Work-Study Techniques

(3)Method Study
-Finds the best possible way of doing a particular job
-Decides sequence of operations and placement of human and physical resources while producing goods.
-Aims to minimize cost of production and maximize efficiency, quality, productivity and customer
satisfaction.

(4)Motion Study
-It is a study of movements undertaken while doing a job like lifting, putting objects, sitting
and changing positions etc.
-It designs the best method to perform repeated jobs.
-It eliminates unnecessary movements to complete the task in minimum time with greater efficiency.
-Body motions can be (i) productive motions (ii) incidental motions and (iii) unproductive motions. Through
motion study the unproductive motions can be eliminated.

(5)Time Study
-It determines the standard time for performing a well-defined job or a repeated activity.
-Standard time is fixed by using the average of time taken to perform same activity several times.

(6)Fatigue Study
-It determines the amount and frequency of rest intervals required to complete a task without getting
physically or mentally tired.
-The breaks in between work help workers to regain stamina to work with the same energy.

(7)Differential Piece Wage System

-It suggests that workers should be paid wages at different rates to recognize and reward efficiency
and penalize inefficiency.
-Under this system different wage rates are determined to make payments to workers for
performance as per standard output, above standard output and below standard output.
Ques. Question’s with suggested Answers Marks
No.
01. Business environment 1

Business environment is the sum of all external and internal factors that influence a
business.

Chapter No.-3 Name of Chapter. BUSINESS ENVIRONMENT--

02. ‘business environment’ means the sum total of all individuals, institutions and other 1
forces that are outside the control of a business enterprise but that may affect its
performance.
03. Importance of Business Environment 1
It enables the firm to identify opportunities and getting the first mover advantage.
It helps the firm to identify threats and early warning signals
It helps in assisting in planning and policy formulation.
It helps in coping with rapid changes.
04. Dimensions of Business Environment 1
ECONOMICAL, SOCIAL, TECHNICAL, POLETICAL, LOGICAL

05. Economic Environment: Interest rates, inflation rates, changes in disposable income of 1
people, stock market indices and the value of rupee are some of the economic factors
that can affect management practices in a business enterprise. Short and long term
interest rates significantly affect the demand for product and services.
06. Social Environment: The social environment of business include the social forces like 1
customs and traditions, values, social ,Cultural.
07. Technological Environment: Technological environment includes forces relating to 3
scientific improvements example- radio-tv-lcd-led-projector-mobile projector-watch
projector.
08. Political Environment: Political environment includes political conditions such as 3
general stability and peace in the count-try and specific attitudes that elected
government representatives hold towards business.

09. Legal Environment: Legal environment includes various legislations passed by the 3
Government administrative orders issued by government authorities, court judgments as
well as the decisions rendered by various commissions and agencies at every level of the
government— center, state or local.

10. Elements of business environment: Business environment consists of five important 3

dimensions including economic, social, technological, political and legal.
 CHAPTER:4 CHAPTER NAME- PLANNING
Meaning: - Planning is deciding in advance what is to do, when and where is to do, how is to do & by
whom it should be done.It bridges the gap between where we are standing and where we want to go.

Features of Planning
Decision making
Planning is pervasive
Objective achievement
Planning is Futuristic
Planning is a mental exercise
Planning is Primary function

Importance/Significance of Planning

Planning provides direction

Planning reduces the risk of uncertainties
Planning reduces overlapping and wasteful activities
Planning promotes innovative ideas
Planning facilitates decision-making
Planning establishes standard for controlling.

Planning Process/Steps involved in Planning:-

1. S- Setting Objectives
2. P-Developing Premises
3. I-Identifying alternative courses of Action
4. C-Evaluating alternative Courses
5. S-Selecting an Alternative
6. I-Implementing the Plan
7. F-Follow-up Action.
Limitations of Planning:
(a) No guarantee of success: For achieving success management hasto properly draw and implement plans.
Plans are required to be put into action. There is no guarantee that previously tried and tested plans will lead
to success.
(b) Planning involves huge cost: When plans are drawn, costs are involved in their formation in terms of
effort, time and money. Thecost incurred sometimes may not justify the benefits derived from the plans.
(c) Planning leads to rigidity: The plans are well defined and decide future course of action. Thus
managers may not be in a position to change them. Hence, there is rigidity and blind following of plans.
(d) Planning may not work in a dynamic environment: Business environment is dynamic and constantly
adopt itself to these changes. It becomes difficult to make plans where policies of a country and economic
conditions are not stable.
(e) Time consuming process: planning is a blessing in facing a definite situation but because of its long
process, it cannot face sudden emergencies. Thus planning is time consuming and it delayaction.
(f) Planning reduces creativity: Middle level managers are not allowed to deviate from plans or act on
their own. They only carryout order which leads to reduction of creativity and new ideas in the manager.
.TYPES PLANS
Plans is a document that outlines how goals are going to be met. It is a specific action proposed to help the
organization to achieve its objectives.
(i) Single use plan: - These are one time use plan. These are designed to achieve a particular goal that once
achieved will not reoccur in future.
(ii) Standing plan: - These plans are also known as Repeat Use Plans. These plans focus on situations which
occur repeatedly.
Types of plan:-
(a) Objectives: Objectives are the end towards which the activities are directed. They are the end result of every
activity.
(b) Strategy: It is a comprehensive plan to achieve the organizational objectives.
(c) Policy: It can be defined as organization’s general response to a particular problem or situation. In
simple words, it is the organization’s own way of handling the problems.
(d) Procedures: Procedures are required steps established in advance to handle future conditions.
(e) Rules: Rules are norms regarding actions and non-actions ofemployees.
(f) Programmed: Programmed are the combination of goals, policies, procedures and rules. All these plans
together form a programmed.
(g) Methods: Methods are formalized way of doing routine and repetitive jobs.
(h) Budgets: It is the statement of expected result expressed in numerical terms.
 CHAPTER: 5 CHAPTER NAME: ORGANISING
Topic Explanation
Meaning Organizing means establishing relationship between various factors of
production and it is concerned with establishing relationship amongst jobs,
sections, departments and positions. Organizing is the process of identifying
and grouping the work to be performed, defining and delegating
responsibility and authority and establishing relationships for the purpose of
enabling people to work most effectively together in accomplishing
objectives.
Steps in the process 1. Identification and division of work. It involves identification and
of organizing.
division of the total work to be done into specific activities in accordance
with previously determined plans. By divining the work, the burden of work
can be shared among the employees.
It facilitates specialization of work and skills. Duplication of work can be
avoided by dividing the work into manageable activities.
2. Departmentalization. The second step in organizing is to combine or
group similar or related jobs into larger units, called departments, divisions
or sections. They can be grouped on the basis of functions which an
organisation undertakes to achieve its objectives. For example, departments
may be created for manufacturing, marketing, financing, etc.
Departmentalization is done to achieve coordination and to facilitate unity of
efforts.
3. Assignment of Duties. Once departments have been formed each of them
is placed under the charge of an individual called departmental head (ex:
Production Manager, Finance Manager, etc.). Jobs are then allocated to the
members of each department according to their skills and qualifications.
4. Establishing Reporting Relationships. Merely allocating work is not
enough. Each individual should also know from whom he has to take orders
and to whom he is accountable. It helps in coordination amongst various
departments.
Importance of 1. Benefits of Specialization. In organizing, every individual is assigned a
Organizing.
part of total work and not the whole task. Due to this division of work into
smaller units, the repetitive performance leads to specialization. Thus,
 organizing promotes specialization which in turn leads to efficient and
speedy performance of tasks.
2. Clarity in Working Relationships. It helps in creating well-defined jobs
and also clarifying the limits of authority and responsibility of each job. The
superior, subordinate relationship is clearly defined in organizing.
3. Effective Administration. It provides a clear description of jobs and
related duties which help to avoid confusion and duplication. Clarity in
working relationships enables proper execution of work which results in
effective administration.
4. Optimum Utilization of Resources. The proper assignment of jobs
avoids overlapping/ duplication of work. This helps in preventing confusions
and minimizing the wastage of resources and efforts.
5. Adaptation of Change. It allows a business enterprise to adapt itself
according to changes in the business environment. Organizational structures
can be suitably modified according to changes.
6. Development of Personnel. Sound organisation encourages initiative and
creative thinking on the part of enterprise.
7. Expansion and Growth. It helps in growth and diversification of an
enterprise by adding more job positions and department.
Organisation It seeks to establish relations among all the persons working in the
Structure.
organisation. Under the organizational structure, various posts are created to
perform different activities for the attainment of the objectives of the
enterprise. Relations among persons working on different posts are
determined. The structure provides a basis or framework for managers and
other employees for performing their functions. The organisation structure
can be defined as the framework within which managerial and operating
tasks are performed.
Types of Organisation Span of management refers to the number of subordinates that can be
structures.
effectively managed by a superior. The span of management to a large extent
gives shape to the organisation structure. This determines the levels of
management in the structure.
Functional Structure. In functional structure, activities are grouped and
departments are created on the basis of specific functions to be performed.
For example, all the jobs related to production are grouped under production
department, sales department, etc.
Advantages.
1. Specialization. Better division of labour takes place which results in
specialization of functions and its consequent benefits.
2. Coordination is Established. All the persons working within a
department are specialist of their respective jobs. It makes the coordination
easier at department level,
3. Helps in Increasing Managerial Efficiency. Managers of one department
are performing same type of function again and again which makes them
specialized and improves their efficiency.
4. Minimizes Cost. It leads to minimum duplication of effort which results
in economies of scale and thus lowers cost.
Disadvantages.
1. Ignorance of organizational objectives. Each departmental head works
according to his own wishes. They always give more weight to their
departmental objectives. Hence overall organisation objectives suffer.
2. Difficulty in inter-departmental coordination. All departmental heads
work as per their own wishes which results coordination within the
department but it makes inter-departmental coordination difficult.
3. Hurdle in complete development. Because each employee specializes
only in a small part of the whole job.
Suitability.
1. Where the size of business unit is large.
2. Where specialization is required.
3. Where there is mainly only one product sold.
Divisional Structure. Dividing the whole enterprise according to the major
products to be manufactured (like metal, plastic, cosmetics, etc.) is recognize
as divisional organisation structure.
Advantages.
1. Quick Decision Making. Divisional manager can take any decision
regarding his division independently which makes decisions quick and
effective.
2. Divisional Results can be Assessed. Divisional results (profits/loss) can
be assessed easily. On this basis unprofitable division can be closed.
3. Growth and Expansion. It facilitates growth and expansion as new
divisions can be added without disturbing existing departments.
 Disadvantages.
1. Conflicts. Conflicts can be possible among different divisions on
allocation of resources.
2. Duplication of Functions. Entire set of functions is required for all
divisions. It gives rise to duplicity of efforts among divisions.
3. Selfish Attitude. Every division tries to display better performance even
sometimes at the cost of other divisions. This shows their selfish attitude.
Suitability.
1. Where the number of main products is more than one.
2. Where the size of the concern is large enough.
Difference between Basis Formal organisation Informal organisation
formal and informal Meaning It refers to the structure of It refers to the network of
organisation. well-defined authority and social relationships which
responsibility develops automatically.
Nature Rigid Flexible
Authority Arises by virtue of Arises out of personal
positions in management qualities.
Adherence to Violation of rules may lead No such punishments.
rules to penalties and
punishments
Flow of Takes place through the Not through a planned
communication scalar chain route. It can take place in
any direction.
Difference between Basis Delegation Decentralization
delegation and Nature It is a compulsory act It is an optional policy
Decentralization' Freedom of Less freedom to take More freedom of action
action decisions due to more due to less control by the
control by the superiors. top management.
Status It is a process of sharing It is the result of policy
tasks and authority decisions taken by top
management.
Scope Narrow scope- as it is Wide scope. It includes
confined to a superior and extension of delegation to
his immediate subordinate. the lowest lf management.
Purpose To reduce the burden of To increase the role and
the manager. autonomy of lower level
management.
 CHAPTER:6 STAFFING
Meaning
Staffing means putting people to jobs. It begins with human resource planning and includes
different other functions like recruitment, selection, training, development, promotion and
performance appraisal of work force.

Need and Importance of Staffing

1. Obtaining Competent Personnel: Proper staffing helps in discovering and obtaining
competent personnel for various jobs.
2. High Performance: Proper staffing ensures higher performance by putting right person on the
right job.
3. Continuous growth: Proper staffing ensures continuous survival and growth of the enterprise.
4. Optimum utilization of human resources: It prevents under-utilization of personnel and high
labour cost.
5. Improves job satisfaction: It improves job satisfaction and morale of employee.
Staffing As a Part of Human Resource Management (HRM)
Staffing
• Function which all managers have to perform as all managers directly deal with people
• Staffing refers to this kind of role played by all managers in small organizations.
• As organizations grow and number of people employed increases, a separate department called
the human resource department is formed which consists of specialists who are experts in dealing
with people.
• In fact early definitions of staffing focused narrowly on only hiring people for vacant positions.
But today staffing is a part of HRM which encompasses not only staffing but also a number of
other specialized services such as job evaluation, management of labour relations.

Human Resource Management

• Involves procuring, developing, maintaining and appraising a competent and satisfied workforce
to achieve the goals of the organization efficiently and effectively.
• Its purpose is to enable every human being working in the organization to make his best possible
contribution.
PROCESS OF STAFFING

RECRUITMENT
(A) Recruitment: Recruitment may be defined as the process of searching for prospective
employees and stimulating them to apply for jobs in the organization.
Sources of Recruitment
(A) Internal Sources
(B) External Sources
(A) Internal Sources of Recruitment
Internal sources refer to inviting candidates from within the organization. Following are important
sources of internal recruitment:

1. Transfers: It involves the shifting of an employee from one job to another, from one department
to another or from one shift to another shift.
2. Promotions: It refers to shifting an employee to a higher position carrying higher
responsibilities, prestige, facilities and pay.
3. Lay-Off: To recall the temporary worker for work is called Lay-Off, who were temporarily
separated from organization due to lack of work.
Advantages of Internal Sources Recruitment:
(1) Employees are motivated to improve their performance.
(2) Internal recruitment also simplifies the process of selection & placement.
(3) No wastage of time on the employee training and development.
(4) Filling of jobs internally is cheaper.

Limitation of Internal Sources

(1) The scope for induction of fresh talent is reduced.
(2) The employee may become lethargic.
(3) The spirit of competition among the employees may be hampered.
(4) Frequent transfers of employees may often reduce the productivity of the organization.

External Sources of Recruitment

When the candidates from outside the organization are invited to fill the vacant
job position then it is known as external recruitment. The common methods of
external sources of recruitments are:
1. Direct Recruitment: Under the direct recruitment, a notice is placed on the notice board of
the enterprise specifying the details of the jobs available.
2. Casual callers: Many reputed business organizations keep a data base of unsolicited
applicants in their office. This list can be used for Recruitment.
3. Advertisement: Advertisement in media is generally used when a wider choice is required.
Example– Newspapers, Internet, Radio, Television etc.
4. Employment Exchange: Employment exchange is regarded as a good source of
recruitment for unskilled and skilled operative jobs.
5. Placement Agencies and Management Consultants: In technical and professional areas, private
agencies and professional bodies appear to be doing substantive work. Placement agencies provide a
nationwide service in matching personnel demand and supply.
6. Campus recruitment and labour contractors can be used for the purpose.
7. Recommendations of Employees: Applicants introduced by present employees, or their friends and
relatives may prove to be a good source of recruitment.
8. Web Publishing: Internet is becoming a common source of recruitment these days. There are certain
websites specifically designed and dedicated for the purpose of providing information about both job
seekers and job opening.
 9. Labour Contractors: Labour contractors maintain close contacts with laborers and they can provide
the required number of unskilled workers at short notice
10. Advertising on Television: The practice of telecasting of vacant posts over Television is gaining
importance these days.

Merits of External Sources

1. Qualified Personnel: By using external source of recruitment the management can attract
qualified and trained people to apply for the vacant jobs in the organization.
2. Wider Choice: The management has a wider choice in selecting the people for
employment.
3. Fresh Talent: It provides wider choice and brings new blood in the organization.
4. Competitive Spirit: If a company taps external sources, the staff will have to compete with
the outsiders.
Limitations of External Sources of Recruitment
1. Dissatisfaction among existing employees: Recruitment from outside may cause
dissatisfaction among the employees. They may feel that their chances of promotion are
reduced.
2. Costly process: A lot of money has to be spent on advertisement therefore this is costly
process.
3. Lengthy Process: It takes more time than internal sources of recruitment.
Selection
Selection is the process of choosing from among the candidates from within the
organization or from outside, the most suitable person for the current position or for
the future position.
PROCESS OF SELECTION

The successive stages in selection process are:

1. Preliminary Screening: After applications have been received, they are properly checked as
regarding qualification etc. by screening committee. A list of candidates to be called for
employment tests made and unsuitable candidates are rejected altogether.
2. Selection Tests: These tests include:
(a) Psychological tests which are based on assumption that human behavior at work can be
predicted by giving various tests like aptitude, personality test etc.
(b) Employment test for judging the applicant’s suitability for the job.
3. Employment Interviews: The main purpose of interview is:
(a) to find out suitability of the candidates.
(b) to seek more information about the candidate.
(c) to give the candidate an accurate picture of job with details of terms and conditions.
4. Reference Checks: Prior to final selection, the prospective employer makes an investigation of
the references supplied by the applicant. He undertakes a thorough search into candidate’s family
background, past employment, education, police records etc.
5. Selection Decisions: A list of candidate who clear the employment tests, interviews and
reference checks is prepared and then the selected candidates are listed in order of merit.
6. Medical/Physical Examination: A qualified medical expert appointed by organization should
certify whether the candidate is physically fit to the requirements of a specific job. A proper
physical exam will ensure higher standard of health & physical fitness of employees thereby
reducing absenteeism.
7. Job Offer: After a candidate has cleared all hurdles in the selection procedure, he is formally
appointed by issuing him an Appointment Letter. The broad terms and conditions, pay scale are
integral part of Appointment Letter.
8. Contract of Employment: After getting the job offer, the candidate has to give his acceptance.
After acceptance, both employer and employee will sign a contract of employment which contains
terms & conditions, pay scale, leave rules, hours of work, mode of termination of employment etc.
Nishant wants to set a unit in rural area where people have very few job opportunities and labour
is available at a low cost.
Training: Training is the act of increasing the knowledge and technical skills of an employee for
doing a particular job efficiently. Both existing employees and new employees get acquainted with
their jobs and this increases job related skills.

Training and Development

Training is concerned with imparting technical knowledge in doing a particular
job. But development is a wider process concerned with growth of an individual in
all respects. However, both are related processes; training helps the employees in
learning job skills whereas development shapes attitude of the employees.

Training Methods
On the Job Method: It refers to the methods that are applied at the work place,
where the employee is actually working. It means learning while doing.
The following are the methods of On-the job training:
1. Coaching: In this method, the superior guides and instructs the trainee as a coach.
2. Job Rotation: This kind of training involves shifting the trainee from one department to another or
from one job to another. This enables the trainee to gain a broader understanding of all parts of the
business and how the organisation as a whole
3. Apprenticeship Training: Under this, the trainee is placed under supervision of an
experienced person (master worker) who imparts him necessary skills and regulates his
performance. The trainee is given stipend while learning so that he/she can enjoy “earn
while you learn” scheme.
4. Internship Training: Under this method an educational institute enters into agreement with
industrial enterprises for providing practical knowledge to its students by sending them to
business organizations for gaining practical experience.
Off the job Method
1. Class Room Lectures: The lecture or conference approach is well adapted to conveying specific
information rules, procedures or method.
2. Films: They can provide information and explicitly demonstrate skills that are not easily represented
by the other techniques.
3. Case Study: Taken from actual experiences of organizations, cases represent attempts to describe, as
accurately as possible real problems that managers have faced. Trainees study the cases to determine
problems, analyses cause, develop alternative solutions, select what they believe to be the best
solution, and implement it
 4. Computer Modelling: It simulates the work environment by programming a computer to imitate
some of the realities of the job and allows learning to take place without the risk or high costs that
would be incurred if a mistake were made in real life situation
5. Vestibule Training: Employees learn their jobs on the equipment they will be using, but the training
is conducted away from the actual work floor
6. Programmed Instruction: This method incorporates a prearranged and proposed acquisition of some
specific skills or general knowledge.

CHAPTER:7 DIRECTING
Directing Meaning:

Directing is the process in which a superior provides instructions, guidance, and counseling to its
subordinate so as to motivate and lead them for the successful achievement of objectives.

Characteristics of Directing:

1. Directing Initiates Action: Directing is required at all stages; a manager has to perform this

function along with planning, organizing, staffing and controlling.

2. Directing Takes Place at all Levels of Management: every manager has to perform this function

and thence it takes place at all levels of management.

3. Directing is a Continuous Process: Directing takes place at all levels of the organisation so that

all activities are directed towards the achievement of organizational goals.

4. Directing Flows from Top to Bottom: Directing initiates at top level and flows to the bottom of

organisation through organizational hierarchy.

5. All pervasive: Directing takes place in every organization, and at every level of management.

Importance of Directing:

1. Initiates action: Directing helps to initiate action towards attainment of desired objective.

2. Integrates efforts: It integrates individual efforts as group effort to achieve organizational

Objectives.

3. Provide leadership and motivation: Directing motivates and provides effective leadership to

employees to realize their full potential.

4. Brings changes: Directing introduces changes in the organization through proper

communication, motivation and leadership.

5. Maintain stability: Balance and stability in the organization could be maintained through
effective directing

Principles of Directing:

1. Maximum individual Contribution: According to this principle directing technique must help

every individual in the organisation to contribute to his maximum potential for achievement of

organizational objectives.

2. Harmony of objectives: According to this principle, there must be full harmony between

organizational objectives and individual objectives. Good directing may balance between both

objectives.

3. Use of informal organisation: According to this principle, there must be a free flow of

information between the seniors and the subordinates and success of direction depends upon

effective exchange of information to a great extent.

4. Leadership: According to this principle, while directing the subordinates, managers should

exercise good leadership as it can influence the subordinates positively without causing

dissatisfaction among them.

5. Follow through: According to this principle, it must be monitored by management as to what

extent the policies framed and issued directions have been enforced.

Elements of Directing:

1. Supervision: Implies overseeing the work of subordinates by their superiors. It is an act of

watching & directing worker’s activities.

Importance of Supervision:

● Supervisor maintains friendly relationships with workers.

● Connects management plans and ideas to workers and represents workers grievances

and problems to management.

● Helps to maintain unity amongst workers.

2. Motivation: It means the process of making subordinates to act in a desired manner to

achieve certain organizational goals.

Features of Motivation:
1. Motivation is an internal feeling.

2. Motivation produces goal directed behavior.

3. Motivation can be either positive or negative.

4. Motivation is a complex process as the individuals are heterogeneous in their expectations,

perceptions, and reactions.

5. Motivation process: Motivation process is based on human needs.

Importance of motivation:

1. Improves Performance: It satisfies employee’s needs resulting in higher level of performance

contributing towards organizational goals.

2. Develops a positive attitude: Motivation techniques eliminate negativity and create a desire to

realize maximum potential.

3. Reduces employee turnover: A satisfied employee prefers to remain loyal to the organization

leading to a lesser number of people quitting the organization.

4. Reduces absenteeism: Motivation helps to make the workplace a source of pleasure and

provides the workers with a pleasant experience resulting in increased level of commitment

from employees towards work.

5. Brings change smoothly: A motivated staff accepts changes with much lesser resistance.

Leadership:

Leadership is the process of influencing the behavior of people by making them strive voluntarily

towards achievement of organizational goals.

Features of leadership:

1. Leadership indicates ability of an individual to influence others.

2. Leadership tries to bring change in the behavior of others.

3. Leadership indicates interpersonal relations between leaders and followers.

4. Leadership is exercised to achieve common goals of the organisation.

Importance of leadership:

1. Leadership influences the behavior of people and makes them to positively contribute them
energies for the benefit of the organisation.

2. A leader maintains personal relations and helps followers in fulfilling their needs.

3. A leader can solve every type of conflict effectively under the weight of his influence.

4. Leader provides training to their subordinates.

Qualities of a Good Leader

1. Physical features: Should be fit and presentable with positive energy.

2. Knowledge: Should have required knowledge and competence.

3. Integrity: Must possess a high level of integrity and honesty.

4. Initiative: Should grab opportunity and use it to the advantage of organization.

5. Communication skills: Must possess skill to communicate and convince people effectively.

6. Motivation skills: Should motivate the individuals to improve their performance.

7. Self-confidence: Should have a high level of confidence to handle difficult situations.

8. Communications: is the process of passing information, experience, opinion etc. from one

person to another.

Elements of Communication Process:

1. Sender: The person who conveys his thoughts or ideas.

2. Message: Content intended to be communicated.

3. Encoding: Process of converting message into communication.

4. Media: Path through which an encoded message is transmitted to the receiver.

5. Decoding: It is the process of converting the encoded message in a readable format.

6. Receiver: The person who receives a communication message from the sender.

7. Feedback: It refers to the information or suggestions provided by the receiver to the sender

in context to the communication or message he received.

8. Noise: The hindrances and obstruction to communication.

Importance of Communication:

1. Basis of coordination: Acts as a basis to coordinate their efforts of employees by explaining

organizational goals.
2. Smooth working of an enterprise: It makes interaction among all individuals possible helping

smooth and unrestricted working of an enterprise.

3. Basis of decision making: Communication acts as a medium for providing information needed

for decision making.

4. Increases managerial efficiency: Helps managers to convey important information to

subordinates to enable them to perform with efficiency.

5. Cooperation and industrial peace: The two-way communication promotes cooperation and

mutual understanding between the management and workers.

Formal and Informal communication:

Formal communication: Formal communication flows through official channels designed in the

organisation chart. There is a two-way information flow between the superior and subordinates.

The communications may be oral or written

The pattern through which communication flows within the organisation is called as

communication network.

Some of the popular communication networks are:

1. Single chain: Single chain in this communication exists between a supervisor and his

subordinates.

2. Wheel: In wheel network, all subordinates under one superior communicate through him

only as he acts as a hub of the wheel.

3. Circular: The communication moves in a circle.

4. Free flow: Free flow of communication with each and every one in an organisation.

5. Inverted V: A subordinate is allowed to communicate with his immediate superior as well

as his superior’s superior.

Informal Communication:

It refers to the communication within an organisation that is not officially sanctioned. This

communication is based on informal relations like friendship, membership of the same club, etc.

Advantage of informal communication:

1. Fast and effective communication.

2. Free environment.

3. Satisfying the social needs of the workers.

4. Easy solution of the difficult problems.

Limitations of informal communication:

1. It is difficult to detect the source of such communication.

2. It also leads to generate rumors which are not authentic.

3. People’s work may also affect due to informal discussion.

Difference between Formal and Informal Communication:

Barriers to Communication:

A. Semantic Barriers: Problems and obstructions in the encoding and decoding of messages into

words or impressions.

Reasons of semantic barriers are:

1. Badly expressed message: It involves the message with inadequate vocabulary, use of

wrong words, omission of important words, or framing the message improperly, etc., that

may distort the understanding and readability of the message.

2. Symbols with different meanings: Words with multiple meanings may change the intended

meaning of the message, such as idol and idle, the word value having two meanings (price

and importance), deer and dear.

3. Faulty translations: Incorrect translations may change the meaning of the message. For

example, the meaning of certain words may change in a translation of an instruction from

English to Hindi.

4. Unclarified assumptions: Sender and receiver may follow different assumptions while

understanding the message resulting in different understanding of the message.

5. Technical jargon: Meaning of a message may not be clear if technical words are used in the

communication with the workers who may not be familiar. For example the word drawings
have separate meanings for a commerce person and a person from non-commerce

background.

6. Body language and gesture decoding: Mismatch between body movement or gestures may

convey wrong meaning. As in your face expression reveals anger, while your hand

movements reveal otherwise.

B. Psychological Barriers: Sender or receiver's state of mind may influence the meaning of the

message.

Reasons of psychological barriers are:

1. Premature evaluation: judgement before listening leads to misunderstanding.

2. Lack of attention: poor listening due to preoccupied mind of the receiver may disappoint

the sender.

3. Loss by transmission and poor retention: When oral communication passes through

various channels of communication, it destroys the structure of the message or leads to

transmission of inaccurate message.

4. Distrust: If the parties do not believe each other, they cannot understand each other’s

message in its original sense.

C. Organizational Barriers: Organizational authority relationships, rules and regulations, may

result in communication barriers.

Reasons of organizational barriers are:

1. Organizational policy: Policies may not support free flow of communication.

2. Rules and regulations: Strict rules and regulations may result in delay of information,

such as following a certain path for communication etc.

3. Status: A status conscious manager, hampering the effectiveness of communication

between him and his subordinates.

4. Complexity in organizational structure: organization with too many levels may result in

delay or distort of communication due to several filter points.

5. Organizational facilities: Improper facilities may affect free flow of communication and
may create problems.

D. Personal Barriers: Personal factors of both superior and subordinate may influence an

effective communication.

Some of the personal barriers of superiors and subordinates are given below:

1. Fear of challenge to authority.

2. Lack of confidence of superior on his subordinate.

3. Unwillingness to communicate.

4. lack of proper incentives.

Improving communication Effectiveness:

1. Clarify the ideas before communication.

2. Communicate according to the needs of receiver.

3. Consult others before communicating.

4. Be aware of language, tone and content of message.

5. Convey things of help and value to listeners

6. Ensure proper feedback.

7. Communicate for present as well as future.

8. Follow up communication: helps to remove hurdles, misunderstanding of

instructions given by managers to subordination.

8. Be a good listener.
 CHAPTER: 8 CHAPTER NAME: CONTROLLING

CONCEPT EXPLANATIONS

1.Controlling Controlling means comparison between actual output

and planned output to find out the reasons for
deviations and taking corrective measures to stop such
deviation in future.

 2. Nature of 1. Controlling is a goal-oriented functions.

Controlling 2.Controlling is an all pervasive function.
3.Controlling is both backward looking and forward
looking function.
4.Controlling is a continuous function.

3. Importance of 1. He helps in achieving organizational goals.

Controlling 2.Judges accuracy of standards.
3.Makes efficient use of resources.
4.Improves employee’s motivation.
5.Ensures order and discipline
6.Facilitates coordination in action.

4. Relationship between 1.Planning and Controlling are inseparable twins of

Planning and Controlling management.
2.Planning is prescriptive and controlling is evaluative.
3.Planning and Controlling are interdependent and interlinked.
4.Planning and Controlling both are backward and forward
looking
5.Planning is pre-requisite for Controlling.

5.Controlling Process 1.Setting-up of (target) standards

2.Measuring of performance
3.Comparing performance against standard
4.Analysing deviations
5.Taking Corrective measures
6.Feedback in controlling

6. Critical Point Control It means giving more attention to activities and departments
which are more important and critical whereas non-critical
areas can be ignored.

It means ignoring the deviations within a permissible limit. “A

manager who tries to control everything may end up
7. Management by controlling nothing.”
Exception
 CHAPTER: 9 CHAPTER NAME: FINANCIAL MANAGEMENT
01. Business Finance - Money required for carrying out business activities.
02. Financial Management-
It is concerned with optimal procurement as well as the usage of finance.

IMPORTANCE/ROLE OF FINANCIAL MANAGEMENT

A capital budgeting/financial management decision to invest in Fixed assets would raise the
size of fixed assets.
The quantum of current assets is also influence the financial management decision. The
decision credit and inventory management affect the amount of debtors and inventory.
It involves the proportion of long term and short term funds to be invested.
03. OBJECTIVES OF FINANCIAL MANAGEMENT
To maximize shareholders’ wealth. It is achieved through-
(a) Ensuring effective utilization of funds.
(b)Ensuring safety of funds procured by creating reserves, reinvesting profits, etc.
04. FINANCING DECISION (as a part of Financial Decision)
Financing decision It deals with quantum of finance to be raised from long-term sources, viz debt
and equity. In other words, it refers to the determination as how the total funds required by the
business will be obtained from various long-term sources. It involve decision whether or not to use a
combination of ownership and borrowed funds and determining their precise ratio. It needs a
judicious mix of debt and equity.
05. FACTORS AFFECTING FINANCING DECISION
Cost ; Risk ; Floatation Cost ; Cash Flow Position ; Fixed Operating Cost ; Control
consideration ; State of Capital market
06. DIVIDEND DECISION (as a part of Financial Decision)
The decision involved here is how much of the profit earned by company (after paying tax) is to be
distributed to the shareholders and how much of it should be retained in the business. Must be
done keeping in mind the firms overall objective of maximizing the shareholders wealth.
07. FACTORS AFFECTING DIVIDEND DECISION

Amount of earnings ; Stable earnings ; Stability of Dividend ; Growth opportunities ; Cash

Flow Position ; Shareholders’ preference ; Taxation policy
08. INVESTMENT/CAPITAL BUDJETING/LONG TERM INVESTMENT DECISION
(as a part of Financial Decision)
The investment decision, therefore, relates to how the firm’s funds are invested in different
fixed assets.
Investment decision may be long-term or short-term. Long-term investment decision is called
capital
budgeting decision and short-term investment decision is called working capital decision.
09. FACTORS AFFECTING CAPITAL BUDGETING DECISION
Cash flow of the project ; Rate of return ; Investment Criteria
10. FINANCIAL PLANNING
A Financial planning is a blueprint of an organization’s future operations. It is the process of
estimating the fund requirement of a business and determining the possible sources from which it
can be raised.
11 OBJECTIVES OF FINANCIAL PLANNING
To ensure availability of funds whenever required
To see that the firm does not raise resources unnecessarily
12 IMPORTANCE OF FINANCIAL PLANNING
01 It helps in forecasting what may happen in future under different business situations
02 It helps in avoiding business shocks and surprises and helps the company in preparing for
 the future
03 It helps in co-coordinating various business functions
04 Reducing waste, duplication of efforts, and gaps in planning.
05 It tries to link the present with the future
06 It provides a link between investment and financing decisions on a continuous basis.
07 It Making the evaluation of actual performance easier.
13 CAPITAL STRUCTURE
Capital Structure refers to the mix between owners and borrowed funds. These shall be
referred as equity and debt in the subsequent text. It can be calculated as debt-equity ratio or
as the proportion of debt out of the total capital. The proportion of debt in the overall capital
is also called Financial Leverage.
14 TRADING ON EQUITY
Trading on Equity refers to the increase in profit earned by the equity shareholders due to the
presence of fixed financial charges like interest.
15 FACTORS AFFECTING CAPITAL STRUCTURE
Cash flow position
Interest coverage ratio
Debt service coverage ratio
Return on investment
Cost of debt
Tax rate
Cost of equity
Floatation costs
16 FIXED CAPITAL
The amount of capital investment in fixed assets is called fixed capital, e.g. plant and
machinery, land and building, etc. which is to be used over a long period of time and it also
affects the growth, profitability and risk of the business in the long run.
17 FACTORS AFFECTING FIXED CAPITAL REQUIREMENTS
Nature of business
Scale of operations
Choice of technique
Technology upgradation
Growth prospects
Diversification
Financing Alternatives
Level of collaboration
18 WORKING CAPITAL
Working capital is the amount that the company uses in its day to day trading operations. It is
a measure of company's efficiency and short term financial health or liquidity. It is that part
of total capital which is required for holding current assets. It may also be defined as an
excess of current assets over current liabilities. It refers to a firm’s investment in short term
assets such as cash, short term securities, account receivable and inventories.
19 FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS
Nature of business
Scale of operations
Business cycle
Seasonal factor
Production cycle
Credit allowed
Credit availed
Operating efficiency
Availability of raw material
Growth prospects
 CHAPTER: 10 CHAPTER NAME: FINANCIAL MARKETS
Introduction
Financial Intermediation = Process of allocating funds from saving surplus units (E.g. households) to
saving deficit units (e.g. industries, government etc.).
• Alternatives = Banks or Financial markets
Financial Markets are the institutional arrangements by which savings generated in the economy are
channelized into avenues of investment by industry, business and the government. It is a market for the
creation and exchange of financial assets.

So Financial market is the place, where financial assets are bought and sold. A business
organization can raise funds from the financial market. Financial market is a link between those who have
savings (savers/general public) and those who require funds (borrowers/business
Functions of Financial Market
1. Mobilization of savings and channelizing them into the most productive uses:

• Facilitates transfer of savings from the savers to the investors.

• Financial markets help people to invest their savings in various financial instruments and earn income and
capital appreciation.

• Facilitate mobilization of savings of people and their channelization into the most productive uses.
2. Facilitate Price Discovery:

• Price of anything depends upon the demand and supply factors.

• Demand and supply of financial assets and securities in financial markets help in deciding the prices of
various financial securities; where business firms represent the demand and the households represent the
supply.
3. Provide liquidity to financial assets:

• Financial markets provide liquidity to financial instruments by providing a ready market for the sale and
purchase of financial assets.

• Whenever the investors want, they can invest their savings into long term investments and whenever they
want, they can sell the investments/ instruments and convert them into cash.
4. Reduce the cost of transactions:

• By providing valuable information to buyers and sellers of financial assets, it helps to saves time, effort and
money that would have been spent by them to find each other.

• Also investors can buy/sell securities through brokers who charge a nominal commission for their services.
This way financial market facilitates transactions at a very low cost.
Types of Financial Markets

Money Market
Market for financial securities with maturity period of less than one year.

 Market for low risk, unsecured and short term debt instruments that are highly liquid are traded every
day.
• No physical location by conducted over the telephone and the internet.
• Helps to:

 Raise short term funds

 Temporary deployment of funds.
 The main instruments of money market are as follows:

Capital Market
Facilities and institutional arrangements through which long term securities are raised and invested- both
debt and equity.
• Nature of Capital Markets:
a. Important component of Financial markets
b. Two segments (primary and secondary)
c. Two forms (organized and unorganized)
d. long term securities
e. Satisfies long term requirements of funds
f. Performs trade-off functions
g. Creates dispersion in business ownership
h. Helps in capital formation i. Creates liquidity
• Features Of Capital Market Instruments:
a. Provide long term funds
b. Lesser outlay required as unit value of instruments is low
c. Duration more than 1 year
d. Liquidity
e. Lower safety
f. Higher expected returns as compared to short term securities.

The capital market can be divided into two parts:

1. Primary Market 2. Secondary Market

 Primary Market
• New issues markets
• Transfers investible funds from savers to entrepreneurs.
• Funds used for setting up new projects, expansion, diversification, modernization of existing projects,
mergers and take overs etc.
Methods of Floatation of New Issues in Primary Market
1. Offer through Prospectus: It involves inviting subscription from the public through issue of prospectus.
A prospectus makes a direct appeal to investors to raise capital through an advertisement in newspapers and
magazines.
2. Offer for Sale: Under this method, securities are offered for sale through intermediaries like issuing
houses or stock brokers. The company sells securities to intermediary/broker at an agreed price and the
broker resells them to investors at a higher price.
3. Private Placements: It refers to the process in which securities are allotted to institutional investor and
some selected individuals.
4. Rights Issue: It refers to the issue in which new shares are offered to the existing shareholders in
proportion to the number of shares they already possess.
5. e-IPOs: It is a method of issuing securities through an on-line system of stock exchange. A company
proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an
agreement with the stock exchange. This is called an e-initial public offer. SEBI’s registered brokers have to
be appointed for the purpose of accepting applications and placing orders with the company.
Secondary Market
1. Refers to a market where existing securities are bought and sold.
2. The company is not involved in the transaction at all. It is between two investors.
Features of Secondary market are:
1) Creates liquidity
2) Fixed location
3) Comes after primary market
4) Encourages new investment

Difference between Primary Market and Secondary Market

Basis Primary Market Secondary Market

Securities Only new securities are traded Existing securities are traded

Prices are determined by the forces by

Price of Prices of securities are determined by the
the demand and supply of the
Securities management of the company.
securities.

Purchase Securities are sold to investors directly by the Investors exchange ownership of
and Sale company or through intermediary. securities.

Place of
There is no fixed geographical location. Located at specified places.
Market

Both buying and selling of securities

Medium Only buying of securities takes place.
can take place.
Stock Exchange/Share Market
A Stock Exchange is an institution which provides a platform for buying and selling of existing securities. It
facilitates the exchange of a security i.e. share, debenture etc. into money and vice versa. Following are some
of the important functions of a Stock Exchange:
a. Gives liquidity and marketability to existing securities
b. Pricing of securities
c. Safety of transactions (membership = regulated + dealings well defined)
d. Contributes to economic growth (ensures that savings are channelized to most productive investment
avenues)
e. Spreading of equity cult(ensures wider share ownership)
f. Provides scope for speculation (in a restricted and controlled environment)

Trading Procedure on a Stock Exchange

1. Selection of Broker: in order to trade on a Stock Exchange first a broker is selected who should be a
member of stock exchange as they can only trade on the stock exchange.
2. Placing the order: After selecting a broker, the investors specify the type and number of securities they
want to buy or sell.
3. Executing the order: The broker will buy or sell the securities as per the instructions of the investor.
4. Settlement: Transactions on a stock exchange may be carried out on either cash basis or carry over basis
(i.e. bald). The time period for which the transactions are carried forward is referred to as accounts which
vary from a fortnight to a month. All transactions made during one account are to be settled by payment for
purchases and by delivery of share certificates, which is a proof of ownership of securities by an individual.
Earlier trading on a stock exchange took place through a public outcry or auction system which is now
replaced by an online screen based electronic trading system. Moreover, to eliminate, the problems of theft,
forgery, transfer, delays etc. an electronic book entry from a holding and transferring securities has been
introduced, which is called process of de materialization of securities.

Difference between Capital and Money Market.

Basis Capital Market Money Market

Financial Institutions, Banks, Corporate RBI, Banks Institutions and finance

Participants
Entities, foreign investors and individuals. companies.

Instruments Equity shares, bonds preferences and Treasury Bills, Trade Bills
traded debentures, call money etc. commercial paper

Investment Does not necessarily require a huge financial Entails huge sum of money as the
Outlay outlay. instruments are quite expensive.

Deals in medium and long term securities Deals in short term funds having a
Duration
having a maturity period of one year. maturity period up to one year.

Securities are less liquid as money market Money markets instruments are
Liquidity
securities. highly liquid

Expected High return Low return

Money market instruments are

Capital Market Instruments are riskier both
Safety generally much safer with a
with respect to return and repayment.
minimum risk of default.

Depository Services and DEMAT Accounts: Keeping in the mind the difficulties to transfer of shares in
physical form, SEBI has developed a new system in which trading in shares is made compulsory in
electronic form Depository services system and D-Mat Account are very basis of this system.
Depository Services: Just like a bank keeps money in safe custody for customers, a depository also is like a
bank and keeps securities (e.g. shares, debentures, bonds, mutual funds etc.) in electronic form on behalf of
the investor. In the depository a securities account can be opened, all shares can be deposited, they can be
withdrawn/ sold at any time and instruction to deliver or receive shares on behalf of the investor can be
given. At present there are two depositories in India: NSDL. (National Securities Depository Ltd.) and
CDSL (Central Depository Services Ltd.). which are known as “Depository Participants”. (DPs)
Services provided by Depository
Dematerialization (usually known as demat) is converting physical certificates to electronic form.
Dematerialization, known as remit, is reverse of demat, i.e. getting physical certificates from the electronic
securities.

• No counterfeiting of security certificate

• Physical presence of investor is not required in stock exchange.
• Risk of mutilation and loss of security certificate is eliminated.

Demat Account
Demat (Dematerialized) account refers to an account which an Indian citizen must open with the depository
participant (banks, stockbrokers) to trade in listed securities in electronic form. The securities are held in the
electronic form by a depository.

Benefits of Demat Account

1. Reduces paper work.
2. Elimination of problems on transfer of shares such as loss, theft and delay.
3. Exemption of stamp duty when transfer of shares.
4. The concept of odd lot stand abolished.
5. Increase liquidity through speedy settlement.
6. Attract foreign investors and promoting foreign investment.
7. A single demat account can hold investments in both equity and debt instruments.
8. Traders can work from anywhere.
9. Automatic credit into demat account for shares arising out of bonus/split/consolidation % merger.
10. Immediate transfers of securities.
11. Change in address recorded with a DP gets registered with all companies in which investor holds
securities eliminating the need to correspond with each of them.
Securities and Exchange Board of India (SEBI)
SEBI was established by Government of India on 12 April 1988 as an interim administrative body to
promote orderly and healthy growth of securities market and for investor protection. It was given a statutory
status on 30 January1992 through an ordinance which was later replaced by an Act of Parliament known as
the SEBI Act, 1992. It seeks to protect the interest of investors in new and second hand securities.

Objectives of SEBI
1. To regulate stock exchange and the securities market to promote their orderly functioning.
2. To protect the rights and interests of investors and to guide & educate them.
3. To prevent trade mal practices such as internal trading.
4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant
bankers etc.
Functions of SEBI
1. Protective Functions:
a) Prohibit fraudulent & unfair trade practices in secondary market (e.g. Price rigging & misleading statement).
b) Prohibit insider trading.
c) Educate investors Promote fair practice & code of conduct in securities market
2. Development Functions:
a) Promotes training of intermediaries of the securities market.
b) Investor education.
c) Promotion of fair practices code of conduct of all SRO‘s.
d) Conducting research & publish information useful to all market participants

3. Regulation Functions:
a) Registration of brokers and sub brokers & other players in the mkt.
b)) Registration of collective investment schemes & mutual funds.
c) Regulation of stock bankers & portfolio exchanges & merchant bankers.

CHAPTER: 11 CHAPTER NAME: MARKETING

01. Features of marketing.
NCCE
(i) Needs and Wants The process of marketing helps individuals and groups
in obtaining what they need and want.
(ii) Creating a Market offering creating offers like size, quality, taste available at
a given outlet or location.
(iii) Customer Value The process of marketing facilitates exchange of product
and service between buyers and sellers.
(iv) Exchange Mechanism The process of marketing involves exchange of
products and services for money or something.
02. Marketing Management – Philosophies

PPSMSm
(i) Production concept
(ii) Product Concept
(iii) Selling concept
(iv) Marketing Concept
03. Characteristics of a Good Brand Name
SSD AVC
(i) Short and Simple
(ii) Suggests the products and Qualities
(iii) Distinctive
(iv) Adaptable to packing or labelling
(v) Versatile to accommodate new products
(vi) Capable of being registered
04. Marketing Mix The marketing mix refers to the ingredients or the tools or the variable which the
marketeer mixes in order to interact with a particular market.
According to Philip Kotler, “Marketing mix are the set of – marketing tools that firm uses to pursue its
marketing objectives in the target market.”
Product Mix It refers to important decisions related to the product such as quality of product, design of
product packing of product etc.
Price Mix It refers to important decisions related to fixing the price of a commodity.
Place Mix It refers to important decisions related to physical distribution of goods and services. These
decisions are deciding the channel of distribution, market for distribution.
Promotion Mix It refers to all the decisions related to promotion of sales of products and services.
Following are the tools or elements of promotion. They are also called elements of promotion ‘mix.
(I)Advertising, (ii)Sales promotion
(iii) Personal selling (iv) Publicity
05. Advantages of Packaging
 • Rising Standards Of Health And Sanitation – As chances of adulteration in such
goods are minimized

• Self-Service Outlets – so some of the traditional role assigned to personal selling

w.r.t promotion has gone to packaging.

• Innovational Opportunities – innovation on packaging used to market products e.g.

tetra packs for milk.

• Product differentiation – color, size, material etc. of packaging makes a difference in

perception of customers about the quality of the product.

06. Advantages to the marketers:

1. Enables product differentiation:

• Distinguishes the firms’ products from that of its competitors, thus secures and
controls its markets.

2. Helps in advertising and display programmed:

• Without a brand, the advertiser can only create an awareness about the generic
product and not be sure of the sale of his brand.

3. Differential pricing:

• As when customers like and become used to a brand, they would agree to pay a
little more for it than the competing product

4. Ease in introduction of a new product

minimizes selling costs – enjoys the reflected glory of the brand.

Advantages to Customers:

1. Helps in product identification:

• If customer is satisfied with a brand, he will not make a close inspection every time.

2. Ensures quality:

• deviation in quality, customers can have a recourse to the manufacturer/marketer. ↑

 confidence and level of satisfaction of customers

3. Status symbol:

07. Personal Selling Personal selling means selling personally. This involves face-to-face interaction
between seller and buyer for the purpose of sale.

CHAPTER:12 CHAPTER NAME: CONSUMER PROTECTION

Importance of Consumer Protection

FROM THE POINT OF VIEW OF CONSUMERS

o Consumers are ignorant about their rights and duties. So they should be educated in order to remove
their ignorance and lack of knowledge.
o Consumers are unorganized as generally they do not have the necessary qualities to fight in an
organized manner against frauds and malpractices.
o Consumers are widely exploited by dishonest companies and business firms. They become victims of
unfair trade practices, hoarding, black marketing, etc.

FROM THE POINT OF VIEW OF BUSINESS

o Long-term Interest of Business. If business takes care of long-term interests of consumers then it grows.
o Moral Justification. Adoption of good business ethics can be logically supported. These business ethics
promote the welfare of consumers and in turn helps business.
o Government intervention. In order to avoid legal intervention in present and future, business firms adopt
good practices for consumers.
o Business uses society’s resources. As business uses resources that belong to the society as inputs to
produce goods as output, it should fulfill its responsibilities towards consumers.
o Social responsibility. Business should take care of consumers as they are also important

Consumer Protection Act. 1986

According to the Act, a consumer is a person who buys goods/services with the approval of the seller for
personal use (not for business motive). He buys these goods/services after paying the required amount of
money (consideration).
Consumer Rights

1. Right to Safety
2. Right to be Informed
3. Right to Choose
4. Right to be Heard
5. Right to seek Redressal
6. Right to Consumer Education

Consumer’s Responsibilities
Consumer should –
 1. read labels
2. have knowledge about standardized goods
3. buy only legal goods
4. read instructions given about the product
5. respect the environment
6. form Consumer organisation
7. take Cash Memo after paying for a product
8. file legal complaint in case he is cheated

Relief available to Consumers under the Consumer Protection Act. 1986

The manufacturer must –

1. Remove the defects in a good.

2. Replace the defective good with proper goods.
3. Refund the consumers
4. Stop production of hazardous goods.
5. Not offer hazardous goods.
6. Withdraw hazardous goods from sale.
7. Pay compensation and damage.
8. Make correction in the misleading advertisements.
9. Make payment to Consumer Welfare Fund (CWF) (not less than 5%) of the price of the good.

Three-tier Redressal Machinery

District Forum State Commission National Commission

President and two President and not less President and at least
members (At least than two members (At four members (At least
1. Composition
one should be a least one should be a one should be a
woman). woman). woman).

2. Appointed by State Government State Government Central Government

3. Value of
Should not exceed Exceeds Rs.1Crore but
goods and Exceeds Rs.10 crore.
Rs.1 Crore not Rs.10 crore.
services

If not satisfied with the

National Commission
If not satisfied with If not satisfied with the
one can appeal to
4. Where to District Forum, one State Commission one
Supreme Court. Only
Appeal if not can appeal to the can appeal to the
those cases will go to
satisfied? State Commission National Commission
Supreme Court whose
within 3 days. within 30 days.
value is more than Rs.1
crore, otherwise not.

Role of Consumer Organizations

1. Educating the consumers about their rights, reliefs and and responsibilities.
2. Helping in protesting and taking other actions if consumers are exploited.
3. Publishing journals and magazines for creating awareness about consumer rights
and other aspects connected with consumer protection.
4. Filing legal suites and providing legal assistance, whenever required.
5. Organizing seminars and workshops for creating consumer awareness.