Consumer Behavior- Introduction

Employee Training and Development

Questionnaire Design

The questionnaire is a structured technique for collecting primary data in a marketing survey. It is a series of written or verbal questions for which the respondent provides answers. A well-designed questionnaire motivates the respondent to provide complete and accurate information.

 Also Read:  Questionnaire & Form Design
                   How to do Fieldwork for Marketing Research

The survey questionnaire should not be viewed as a stand-alone tool. Along with the questionnaire, there is field work, rewards for the respondents, and communication aids, all of which are important components of the questionnaire process.

Steps to Developing a Questionnaire
The following are steps to developing a questionnaire - the exact order may vary somewhat.

• Determine which information is being sought.
• Choose a question type (structure and amount of disguise) and method of administration (for example, written form, email or web form, telephone interview, verbal interview).
• Determine the general question content needed to obtain the desired information.
• Determine the form of response.
• Choose the exact question-wording.
• Arrange the questions into an effective sequence.
• Specify the physical characteristics of the questionnaire (paper type, number of questions per page, etc.)
• Test the questionnaire and revise it as needed.

Required Information
To determine exactly which information is needed, it is useful to construct tables into which the data will be placed once it is collected. The tables will help to define what data is needed and what is not needed.

Question Type and Administration Method
Some question types include fixed alternative, open-ended, and projective:

• Fixed-alternative questions provide multiple-choice answers. These types of questions are good when the possible replies are few and clear-cut, such as age, car ownership, etc.
• Open-ended questions allow the respondent to better express his/her answer, but are more difficult to administer and analyze. Often, open-ended questions are administered in a depth interview. This technique is most appropriate for exploratory research.
• Projective methods use a vague question or stimulus and attempt to project a person's attitudes from the response. The questionnaire could use techniques such as word associations and fill-in-the-blank sentences. Projective methods are difficult to analyze and are better suited for exploratory research than for descriptive or causal research.

There are three commonly used rating scales: graphic, itemized, and comparative.

• Graphic - simply a line on which one marks an X anywhere between the extremes with an infinite number of places where the X can be placed.
• Itemized - similar to graphic except there are a limited number of categories that can be marked.
• Comparative - the respondent compares one attribute to others. Examples include the Q-sort technique and the constant sum method, which requires one to divide a fixed number of points among the alternatives.

Questionnaires typically are administered via a personal or telephone interview or via a mail questionnaire. Newer methods include e-mail and the Web.

Question Content
Each question should have a specific purpose or should not be included in the questionnaire. The goal of the questions is to obtain the required information. This is not to say that all questions directly must ask for the desired data. In some cases, questions can be used to establish rapport with the respondent, especially when sensitive information is being sought.

Sensitive questions can be posed in ways to increase response likelihood and to facilitate more honest responses. Some techniques are:

• Place the question in a series of less personal questions.
• State that the behavior or attitude is not so unusual.
• Phrase the question in terms of other people, not the respondent.
• Provide response choices that specify ranges, not exact numbers.
• Use a randomized response model giving the respondent pairs of questions with a randomly assigned one to answer. The interviewer does not know which question the person is answering, but the overall percentage of people assigned to the sensitive question is known and statistics can be calculated.

Form of Question Response

• Questions can be designed for open-ended, dichotomous, or multichotomous responses. 
• Open-ended responses are difficult to evaluate but are useful early in the research process for determining the possible range of responses.
• Dichotomous questions have two possible opposing responses, for example, "Yes" and "No".
• Multichotomous questions have a range of responses as in a multiple choice test.

The questionnaire designer should consider that respondents may not be able to answer some questions accurately. Two types of error are telescoping error and recall loss.

• Telescoping error is an error resulting from the tendency of people to remember events as occurring more recently than they actually did.
• Recall loss occurs when people forget that an event even occurred. For recent events, telescoping error dominates; for events that happened in the distant past, recall loss dominates.

Question Wording

The questions should be worded so that they are unambiguous and easily understood. The wording should consider the full context of the respondent's situation. In particular, consider the who, what, when, where, why, and how dimensions of the question.

For example, the question,

"Which brand of toothpaste do you use?"

might seem clear at first. However, the respondent may consider "you" to be the family as a whole rather than he or she personally. If the respondent recently changed brands, the "when" dimension of the question may be relevant. If the respondent uses a different, more compact tube of toothpaste when traveling, the "where" aspect of the question will matter.

A better wording of the question might be,

"Which brand of toothpaste have you used personally at home during the past 6 months? If you have used more than one brand, please list each of them."


When asking about the frequency of use, the questions should avoid ambiguous words such as "sometimes", "occasionally", or "regularly". Rather, more specific terms such as "once per day" and "2-3 times per week" should be used.

Sequence the Questions

Some neutral questions should be placed at the beginning of the questionnaire in order to establish rapport and put the respondent at ease. Effective opening questions are simple and non-threatening.

When sequencing the questions, keep in mind that their order can affect the response. One way to correct for this effect is to distribute half of the questionnaires with one order, and the other half with another order.

Physical Characteristics of the Questionnaire

Physical aspects such as the page layout, font type and size, question spacing, and type of paper should be considered. In order to eliminate the need to flip back and forth between pages, the layout should be designed so that a question at the bottom of the page does not need to be continued onto the next page. The font should be readable by respondents who have less-than-perfect visual acuity. The paper stock should be good quality to project the image that the questionnaire is important enough to warrant the respondents' time. Each questionnaire should have a unique number in order to better account for it and to know if any have been lost.

Test and Revise the Questionnaire

The questionnaire should be pre-tested in two stages before distributing. In the first stage, it should be administered using personal interviews in order to get better feedback on problems such as ambiguous questions. Then, it should be tested in the same way it will be administered. The data from the test should be analyzed the same way the administered data is to be analyzed in order to uncover any unanticipated shortcomings.

Different respondents will answer the same questionnaire differently. One hopes that the differences are due to real differences in the measured characteristics, but that often is not the case. Some sources of the differences between scores of different respondents are:

• True differences in the characteristic being measured.
• Differences in other characteristics such as response styles.
• Differences in transient personal factors such as fatigue, etc.
• Differences in a situation, such as whether a spouse is present.
• Differences in the administration, such as interviewer tone of voice.
• Differences resulting from sampling of items relevant to the characteristic being measured.
• Differences resulting from lack of clarity of the question - may mean different things to different people.
• Differences caused by mechanical factors such as space to answer, inadvertent check marks, etc.

Some key features of good questionnaire design:-

1) Introductory paragraph
2) Confidentiality statement
3) Allocation of a unique number to each questionnaire – for use in subsequent processing
4) Precise instructions on how to complete questionnaire

5) Clear sign-posting to the relevant sections
6) Codes pre-printed on the form
7) Questions in a logical order
8) Put controversial questions at the end
9) Avoid questions that are not required
10) Take account of processing requirements
11) Good layout
12) Say “Thank you” at end of questionnaire

Marketing shapes consumer needs and wants versus marketing merely reflects the needs and wants of consumers

Marketing has often been defined in terms of satisfying customers’ needs and wants. Critics, however, maintain that marketing does much more than that, marketing creates needs and wants that did not exist before. According to these critics, marketers encourage consumers to spend more money than they should on goods and services they really do not need.

Take a position

Marketing shapes consumer needs and wants versus marketing merely reflects the needs and wants of consumers.

Suggested Response

Pro: With the vast amount of information available to marketers today and the emphasis on relational marketing, marketers are in more of a position to suggest needs and wants to the public. Certainly, not all consumers have all the needs and wants suggested by society today. However, with the vast amount of exposure to these societal needs and wants via the media, a substantial amount of consumers will, through mere exposure, decide that they “have” the same needs and wants of others. Marketers by their efforts increase peer pressure, and group thinking, by showing examples of what others may have that they do not. An individual’s freedom to choose is substantially weakened by constant and consistent exposure to a range of needs and wants of others. Marketers should understand that when it comes to resisting the pressure to conform, that individuals are and can be weak in their resolve. Marketers must take an ethical position to only market to those consumers able to purchase their products.


Con: Marketing merely reflects societal needs and wants. The perception that marketers influence consumers’ purchasing decisions discounts an individual’s freedom of choice and their individual responsibility. With the advent of the Internet, consumers have greater freedom of choice and more evaluative criteria than every before. Consumers can and do make more informed decisions than previous generations. Marketers can be rightly accused of influencing wants, along with societal factors such as power, influence, peer pressure, and social status. These societal factors pre-exist marketing and would continue to exist if there was no marketing efforts expended.

Management Information System :Revision Questions

1. What is an information system? What activities does it perform?

The textbook defines an information system as a set of interrelated components that work together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis, and visualization in an organization. In addition to supporting decision making, coordination, and control, information systems may also help managers and workers analyze problems, visualize complex subjects, and create new products.

2. What are the Internet and the World Wide Web? How have they changed the role played by information systems in organizations?
The Internet is the world’s largest and most widely used network. It is a global “network of networks” that uses universal standards to connect millions of different networks with more than 350 million host computers (public and private networks) in over 200 countries around the world. Over 500 million people working in science, education, government, and business connections to the Internet every day. Individuals and organizations use the Internet to exchange information and perform business transactions with other individuals and organizations around the globe. It should be noted that the digital firm uses the Internet as its primary technology platform. The Internet has created a new “universal” technology platform on which to build new products, services, strategies, and business models. For most business firms today, using Internet technology is both a business necessity and a competitive advantage.

The World Wide Web is a system with universally accepted standards for storing, retrieving, formatting, and displaying information in a networked environment. The Web is a part of the Internet that provides a graphically-based system of pages for storing information on the Internet. Web pages contain text, graphics, animations, sound, and video and are linked to other Web pages. By clicking on highlighted words or buttons on a Web page, you can link to related pages to find additional information and links to other locations on the Web.

The Internet and World Wide Web have had a tremendous impact on the role information systems play in organizations. The Internet and World Wide Web are responsible for the increased connectivity and collaboration within and outside the organization. The Internet, World Wide Web, and other technologies have led to the redesign and reshaping of organizations. The Internet and World Wide Web have helped transform the organization’s structure, the scope of operations, reporting and control mechanisms, work practices, workflows, and products and services.

3. Name and describe four quality-of-life impacts of computers and information systems.
Four quality of life impacts of computers and information systems include:

• Jobs can be lost when computers replace workers or tasks become unnecessary in re-engineered business processes
• Ability to own and use a computer may be exacerbating socioeconomic disparities among different racial groups and social classes.
• Widespread use of computers increases opportunities for computer crime and computer abuse
• Computers can create health problems, such as repetitive stress injury, computer vision syndrome, and technostress.

4. What are the three different regimes that protect intellectual property rights? What challenges to intellectual property rights does the Internet pose?
Intellectual property is subject to a variety of protections under three different legal traditions:

• Trade secrets
• Copyright
• Patent law

Traditional copyright laws are insufficient to protect against software piracy because the digital material can be copied so easily. Internet technology also makes the intellectual property even more difficult to protect because the digital material can be copied easily and transmitted to many different locations simultaneously over the Net. Web pages can be constructed easily using pieces of content from other Web sites without permission.


5. List and describe the components of IT infrastructure that firms need to manage.
IT infrastructure today is composed of seven major components.

• Internet Platforms – Apache, Microsoft IIS, .NET, UNIX, Cisco, Java
• Computer Hardware Platforms – Dell, IBM, Sun, HP, Apple, Linux machines
• Operating Systems Platforms – Microsoft Windows, UNIX, Linux, Mac OS X
• Enterprise Software Applications – (including middleware), SAP, Oracle, PeopleSoft, Microsoft, BEA
• Networking/Telecommunications – Microsoft Windows Server, Linux,
• Novell, Cisco, Lucent, Nortel, MCI, AT&T, Verizon
• Consultants and System Integrators – IBM/KPMG, EDS, Accenture
• Data Management and Storage – IBM DB2, Oracle, SQL Server, Sybase, MySQL, EMC Systems

6. Define and describe the following: Web server, application server, multi-tiered client/server architecture.

• Web server: software that manages requests for Web pages on the computer where they are stored and that delivers the page to the user’s computer.
• Application server: software that handles all application operations between browser-based computers and a company’s back-end business applications or databases.
• Multi-tiered client/server architecture: client/server network in which the work of the entire network is balanced over several different levels of servers

7.What is Java? Why is it important today?
Java is a programming language that delivers only the software functionality needed for a particular task. With Java, the programmer writes small programs called applets that can run on another machine on a network. With Java, programmers write programs that can execute on a variety of operating systems and environments. Further, any program could be a series of applets that are distributed over networks as they are needed and as they are upgraded.
Java is important because of the dramatic growth of Web applications. Java is an operating system that can run on multiple hardware platforms and is used widely to run Web servers. It provides a standard format for data exchange and for Web page descriptions.

8. What are software mashups? How do they benefit businesses?

Mashups are new software applications and services based on combining different online software applications using high-speed data networks, universal communication standards, and open-source code. Entrepreneurs are able to create new software applications and services based on combining different online software applications.
These new combined applications depend on high-speed data networks, universal communication standards, and open-source code. The idea is to take different sources and produce a new work that is “greater than” the sum of its parts. Web mashups combine the capabilities of two or more online applications to create a kind of hybrid that provides more customer value than the original sources alone.

9. What is business intelligence? How is it related to database technology?
Powerful tools are available to analyze and access information that has been captured and organized in data warehouses and data marts. These tools enable users to analyze the data to see new patterns, relationships, and insights that are useful for guiding decision making. These tools for consolidating, analyzing, and providing access to vast amounts of data to help users make better business decisions are often referred to as business intelligence. Principle tools for business intelligence include software for database query and reporting tools for multidimensional data analysis and data mining.

10. What is a data warehouse? How can it benefit organizations?

A data warehouse is a database with archival, querying, and data exploration tools (i.e., statistical tools) and is used for storing historical and current data of potential interest to managers throughout the organization and from external sources (e.g., competitor sales or market share). The data originate in many of the operational areas and are copied into the data warehouse as often as needed. The data in the warehouse are organized according to company-wide standards so that they can be used for management analysis and decision making. Data warehouses support looking at the data of the organization through many views or directions. The data warehouse makes the data available to anyone to access as needed, but it cannot be altered. A data warehouse system also provides a range of ad hoc and standardized query tools, analytical tools, and graphical reporting facilities. The data warehouse system allows managers to look at products by customer, by year, by a salesperson, essentially different slices of the data. Normal operational databases do not permit such different views.

11. List some benefits of a DBMS and the solutions it provides for the problems of a traditional file environment.
A DBMS can reduce the complexity of the information systems environment, reduce data redundancy and inconsistency, eliminate data confusion, create program-data independence, reduce program development and maintenance costs, enhance flexibility, enable the ad-hoc retrieval of information, improve access and availability of information, and allow for the centralized management of data, their use, and security.

12. List and describe the problems of the traditional file environment.

Problems with the traditional file environment include data redundancy and confusion, program-data dependence, lack of flexibility, poor security, and lack of data sharing and availability. Data redundancy is the presence of duplicate data in multiple data files. In this situation, confusion results because the data can have different meanings in different files. Program-data dependence is the tight relationship between data stored in files and the specific programs required to update and maintain those files. This dependency is very inefficient, resulting in the need to make changes in many programs when a common piece of data, such as the zip code size, changes. Lack of flexibility refers to the fact that it is very difficult to create new reports from data when needed. Ad-hoc reports are impossible to generate; a new report could require several weeks of work by more than one programmer and the creation of intermediate files to combine data from disparate files. Poor security results from the lack of control over the data because the data are so widespread. Data sharing is virtually impossible because it is distributed in so many different files around the organization.

Introduction to Human Resource Management

Buying Behaviour Model

Also Read: Introduction of Consumer Behaviour

Telemarketing

Introduction

Telemarketing is the use of telephones and call centers to attract prospects, sell to the existing customer and provide service by taking orders and answers calls.

Telemarketing helps companies increase revenue, reduce selling costs, and improve customer satisfaction.

The Company uses call centers for inbound telemarketing-receiving calls from customers and outbound telemarketing- initiating calls to prospects and customers

Telemarketing In India

India accounts for over 40% of the global BPO market. Of the top 10 BPO destinations in the world, five are in Asia, with India's dominant share ensuring that nearly 26% of South Asia's exports come from services. Within services, the key segments are business process outsourcing and short- term migration.

The BPO industry in India doubled in size last year, to $6.3 billion, and is expected to clock 37% annual growth over the next five years. Large multinational companies have demonstrated their growing confidence in Call Center Outsourcing and in India as an outsourcing hub, by signing multi-million-dollar, long-term BPO contracts with trusted Indian outsourcing service providers.

Why use telemarketing?                                                                                      

•         Telemarketing is cost-effective when compared to hiring sales people
•         Reach out to customers across the world with telemarketing
•         Easily market products/services to existing & potential customers
•         Find out if customers are interested in your product/service right away

Telemarketing Cycle

Even before telemarketing team starts work on the project, a comprehensive step by step process is involved before the commencement of the project

1.The company will establish a comprehensive understanding of client product, service, and market positioning.

2. Agree on the specific product that is to be promoted throughout the sales campaign.

3. Identify the profile of target clients:

o    Industry Sector

o    Client by Employee Size

o    Client by Sales Turnover

o    SME or PLC Focus

4. Agree on the specific sales call objectives:

o    New Client Data Capture

o    Sales Lead Generation

o    New Client Appointment Setting

o    Finalize Objection Handling

5. Target Client Data

o    Establish Client Data Sources

6. Agree on Geographic Strategy

o    Local Market

o    National Market

o    Sales by County

7. Client to create draft telephone sales pitch geared to product launch and agreed call objectives.

8. It will be then re-model the draft sales pitch get final approval from the client.

9. Account Management: A project account manager is appointed.

10. Internal Training: Sales team complete 1-week internal training and sales pitch rehearsal.

11. Email Configuration: Email configuration form to be completed to set up client mail at the company

12. Marketing Material: Client to provide marketing material if required.

13. Sales Reporting:

o    Can be done through the web application like Sales now.

o    Disposition report to detail out the day's performance.

o    Call recordings if requested will be forwarded via FTP.

o    Weekly review for performance check.

14. Project Commences

Although the telemarketing has become the major direct marketing tool, its intrusive nature has led the government to stipulate restrictions on banks and  financial services companies regarding the use of telemarketing

Effective telemarketing depends on choosing the right telemarketers, trains them well and providing performance incentives.

Risk in a Traditional Sense

Introduction

Risk in holding securities is generally associated with possibility that realized returns will be less than the returns that were expected. The source of such disappointment is the failure of dividends (interest) and/or the security’s price to materialize as expected. Forces that contribute to variations in return price or dividend interest) constitute elements of risk.

Some influences are external to the firm, cannot be controlled, and affect large numbers of securities. Other influences are internal to the firm and are controllable to a large degree. In investments, those forces that are uncontrollable, external and board in their effect are called sources of systematic risk. Conversely, controllable internal factors somewhat peculiar to industries and/or firms are refereed to as sources of unsystematic risk. Systematic risk refers to that portion of total variability in return caused by factors affecting the prices of all securities. Economic, political, and sociological changes are sources of systematic risk. Their effect is to cause prices of nearly all individual common stocks and/or all individual bonds to move together in the same manner. For example, if the economy is moving toward a recession and corporate profits shift downward, stock prices may decline across a broad front. Nearly all stocks listed on the New York Stock Exchange (NYSE) move in the same direction as they NYSE Index. On the average, 50 percent of the variation in a stock’s price can be explained by variation in the market index. In other words, about one-half the total risk in an average common stock is systematic risk. Unsystematic risk is the portion of total risk that is unique to a firm or industry. Factors such as management capability, consumer preferences, and labor strikes cause systematic variability of returns in a firm. Unsystematic factors are largely independent of factors affecting securities markets in general. Because these factors affect one firm, they must be examined for each firm.

Systematic Risk

Market Risk

Finding stock prices falling from time to time while a company’s earnings are rising, and vice versa, is not uncommon. The price of a stock may fluctuate widely within a short span of time even though earnings remain unchanged. The causes of this phenomenon are varied, but it is mainly due to a change in investors’ attitudes toward equities in general, or toward certain types or groups of securites in particular. Variability in return on most common stocks that is due to basic sweeping changes in investor expectations is referred to as market risk. Maket risk is caused by investor reaction to tangible as well as intangible events. Expectaitions of lower corporate profits in general may cause the larger body of common to fall in price. Investors are expressing their judgement that too much is being paid for earnings in the light of anticipated events. The basis for the reaction is a set of real, tangible events political, social, or economic. Intangible events are related to market psychology. Market risk is usually touched off by a reaction to real events, but the emotional instability of investors acting collectively leads to a snow balling over reaction. The initial decline in the market can cause the fear of loss to grip investors, and a kind of her instinct builds as all investors make for the exit. These reactions to reactions frequently culminate in excessive sellings, pushing prices down far out of live with fundamental value. With a trigger mechanism such as the assassination of a politician, the threat of war, or an oil shortage, virtually all stocks are adversly affected. Likewise, stocks in a particular industry group can be hard hit when the industry goes “out of fashion.” This discussion of market risk has emphasized adverse reactions. Certainly, buying panics also occur as reactions to real events; however, investors are not likely to think of sharp price advances as risk. Two other factors, interest rates and inflation, are an integral part of the real forces behind market risk and are part of the larger category of systematic or uncontrollable influences. Let us turn our attention to interest rates. This risk factor has its most direct effect on bond investments.

Interest-Rate Risk

Interest-rate risk refers to the uncertainty of future market values and of the size of future income, caused by fluctuations in the general level of interest rates. The root cause of interest-rate risk lies in the fact that, as the rate of interest paid on U.S. government securities (USGs) rises or falls, the rates of return demanded on alternative investment vehicles such as stocks and bonds issued in the private sector, rise or fall. In other words, as the cost of money changes for nearly risk-free securities (USGs), the cost of money to more risk-prone issuers (Private sector) will also change. Investors normally regard USGs as coming closest to being riskfree. The interest rates demanded on USGs are thought to approximate the “pure” rate of interest, or the cost of hiring money at no risk. Changes in rates of interest demanded on USGs will permeate the system of available securities, from corporate bonds down to the riskiest common stocks. Interest rates on USGs shift with changes in the supply and demand for government securities. For example, large operating deficits experienced by the U.S. government will reuqire financing. Issuance of added amounts of USGs will increase the available supply. Poetntial buyers of this new supply may be induced to buy only if interest rates are somewhat higher than those currently prevailing on outstanding issues. If rates on USGs advance from, say, 9 percent to 9¼ percent, investors holding outstanding issues that yeid 9 per cent will notice a decline in the price of their securities. Because the 9 percent rate is fixed by contract on these “old” USGs, a poetntial buyer would be able to realize the comptetive 9¼ percent rate only if the current holder “market down” the price. As the rate on USGs advances, they become relatively more attractive and other securities become less attractive. Consequently, bond purchasers will buy governments instead of corporates. This will cause the price of corporates to fall and the rate on corporates to rise. Rising corporate bond rates will evnetually cause preferred- and common-stock prices to adjust down woard as the chain reaction is felt through out the system of security yields. (The exact nature and extent of this mark down process and the relationships between rates, prices, and maturity will be exploraed in Chaper 9.) Thus, a rational, highly interconnected structure of security yeilds exists. Shifts in the “pure” cost of money will ripple through the structure. the direct effect on increases in thelevel of interest rates is to cause security prices to fall across a wide span of investment vehicles. similarly, falling interest rates precipitate prices markups on outstanding securities.In addition to thedirect, systematic effect on bonds, there are indirect effects on common stocks. First, lower or higher interest rates make the purchase of stocks on margin (using borrowed funds) more or less attractive. Higher interest rates, for example, may lead to lower prices because of a diminished demand for equities by speculators who use margin. Ebulient stock markets are at times propelled to some excesses by margin buying when interest rates are relatively low. Second, many firms suchas public utilities finance their operations quite heavily with borrowed funds. Others, suchas financial institutions, are principally in the business of lending money. As interest rates advance, firms with heavy doses of borrowed capital find that more of their income goes toward paying interest on borrowed money. This may lead to lower earnings, dividends, and share prices. Advancing interest rates can bring higher earnings to lending institutions whose principal revenue sources is interest received on loans. For these firms, higher earnings could lead to increased dividends and stock prices.

Purchasing-Power Risk

Market risk and interest-rate risk can be defined in terms of uncertainties as to the amount of current dollars to be received by an investor. Purchasing-power risk is the uncertainity of the purchasing power of the amounts to be received. In more everyday terms, purchasing-power risk refers to the impact of inclation or deflation on an investment. If we think of investment as the postponement of consumption, we can see that when a person purchses a stock, he has foregone the opportunity to buy some good or service for as long as he owns the stock. If, during the holding period, good or services rise, the investor actually loses purchasing power. Rising prices on goods and services are normally associated with what is referred to as inflation. Falling prices on goods and services are termed deflation. Both inflation and deflation are covered in the all-encompassing term purchasing power risk. Generally, purchasing-power risk has come to be identified withinflation (rising prices); the incidence of declining prices in most countries has been slight. Rational investors should include in their estimate of expected return an allowance for purchasing-power risk, in the form of an expected annual percentage change in prices. If a cost-ofliving index begins the year at 100 and ends at 103, we say that therate of increase (inflation) is 3 percent [(1030100)/100]. If from the second to thethird year, the index changes from 103 to 109, the rate is about 5.8 percent [109-103/103]. Just as changes in interest rates have a systematic influence on the prices of all securities, both bonds and stocks, so too do anticipated puchasing-power changes manifest themselves. If annual changes in the consumer price index of other measure of purchsaing power have been averaging steadily around 3.5 percent and prices will apparently spurt ahead by 4.5 percent over the next year, required rates of return will adjust upward. This process will affect government and corporate bonds as well as common stocks. Market, purchasing-power and interest-rate risk are the principle sources of systematic risk in securites; but we should also consider another important category of security risk a unsystematic risks.

Unsystematic Risk

Unsystematic risk is the portion of total risk that is unique or peculiar to a firm or an industry, above and beyond that affecting securites markets in general. Factors such as management capability, consumder preferences, and labor strikes can cause unsystematic variability of returns for a company’s stock. Because these factors affect one industry and/or one firm, they mustbeexamined separately for each company. The uncertainty surroundings the abilityof theissuer to make payments on securities stems from two sources: (1) the operating environment of the business, and (2) the financing of the firm. These risks are referred to as business risk and financial risk, respectively. They are strictly a function of the operating conditions of the firm a and they way in which it chooses to finance its operations. Our intention here will be directed to the broad aspects and implications of business and financial risk. In-depth treatment will be the principal goal oflater chapters on analysis of the economy, the industry, and the firm.

Business Risk

Business risk is a function of the operating conditions faced by a firm and the variability these conditions inject into operating income and expected to increase 10 percent per year over the foreseeable future, business riskwould behigher if operating earnings could grow as much as 14 percent or as little as 6 percent than if the range were from a high of 11 percent to a low of 9 percent. The degree of variation from the expected trend would measure business risk. Business risk can bedivided into two broad categories: external and internal. Internal business risk is largely asociated with the efficiency with which a firm conducts its operations with in the broader operating environment imposed upon it. Each firm has its own set of internal risks, and the degree to which it is successful in coping with them is reflecting operating efficienty.

To large extent, external business risk is the result of operating conditions imposes upon the firm by circumstances beyond its control. Each frim also faces its own set of external risks, depending upon the specific operating environmental factors with which it must deal. The external factors, from cost of money to defense-budget cuts to higher traffs to a down swing in the business cycle, are far too numerous to list in detail, but the most pervasive external risk factor is probably the business cycle. The sales of some industries (steel, autos) tend to move in tandem with the business cycle, while the sales of others move countrycyclically (housing). Demographic considerations can also influence revenues through changes in the birth rate or the geographical distribution of the population by age, group, race, and so on. Political Policies are a part of external business risk; government policies with regard to monetary and fiscal matters can affect revenues through the effect on the cost and availability of funds. If money is more expensive, consumers who buy on credit may postpone purchases, and municipal governments may not sell bonds to finance a water-treatment plant. The impact upon retail stores, television manufacturers, of water-purification systems is clear.

Financial Risk

Financial risk is associated with the way in which a company finances its activities. We usually gauge financial risk by looking at the capital structure of a firm. The presence of borrowed money of debt in the capital structure creates fixed payment in the form of interest that must be sustained by the firm. The presence of these interest commitments fixed interest payments due to debt of fixed-dividend payments on preferred stock causes the amount of rasidual earnings available for common stock dividends to be more variable than if no interest payments were required. Financial risk is avoidable risk to the extent that managements have the freedom to decide to borrow or not to borrow funds. A firm with no debt financing has no financial risk. By engaging in debt financing, the firm changes the characteristic of the earnings stream available to the common-stock holders. Specifically, the reliance on debt financing, called financial leverage, has at three important effects on common-stock holders. Debt financing (1) increases the variability of their returns, (2) affects their expectations concerning their returns, and (3) increases their risk of being ruined.

Assigning Risk Allowances (Premiums)

One way of quantifying risk and building a required rate of return (r), would be to express the required rate as comprising ariskless rate plus compensation for individual risk factors previously enunciated, or as:

r = i + p + b + f + m + o

Where:

• i = real interest rate (risk-less rate)
• p = purchasing-power-risk allowance
• b = business-risk allowance
• f = financial-risk allowance
• m = market-risk allowance
• o = allowance for “other” risks

The first step would to determine a suitable risk less rate of interest. Unfortunately, no investment is risk-free. The return on U.S. Treasury bills or an insured savings account, which ever is relevant to an individual investor, can be used as an approximate risk less rate. Savings accounts possess purchasing-power risk and are subject to interest-rate risk of income but not principal. U.S. government bills are subject to interest-risk of principal. The risk less rate might by 8 percent. Using the rate on U.S. government bills and assuming that interest-rate-and-risk compensation is already included in the U.S. government bill rate, we see in Figure 3-1 the process of building required rate of return for alternative investments. To quantify the separate effects of each type of systematic and unsystematic risk is difficult because of overlapping effects and the sheer complexity involved. In the remainder of the chapter, we will examine some proxies for packaging into a single measure of risk all those qualitative risk factors taken together that perhaps cannot be measured separately.

Can we reduce the Risk Exposure?

Every investor wants to guard himself from the risk. This can be done by understanding the nature of the risk and careful planning. Lets see how can we protect ourselves as an investor from the different types of risks.

Market Risk Protection

· The investor has to study the price behaviour of the stock. Usually history repeats itself even though it is not in perfect form. The stock that shows a growth pattern may continue to do so for some more period. The Indian stock market expects the growth pattern to continue for some more time in information technology stock and depressing conditions to continue in the textile related stock. Some stocks may be cyclical stocks. It is better to avoid such type of stocks. The standard deviation and beta indicate the volatility of the stock.


· The standard deviation and beta are available for the stocks that are included in the indices. The National Stock Exchange News bulletin provides this information. Looking at the beta values, the investor can gauge the risk factor and make wise decision according to his risk tolerance.

· Further, the investor should be prepared to hold the stock for a period of time to reap the benefits of the rising trends in the market. He should be careful in the timings of the purchase and sale of the stock. He should purchase it at the lower level and should exit at a higher level.

Protection Against Interest Rate Risk

§ Often suggested solution for this is to hold the investment sells it in the middle due to fall in the interest rate, the capital invested would experience tolerance.

§ The investors can also buy treasury bills and bonds of short maturity. The portfolio manager can invest in the treasury bills and the money can be reinvested in the market to suit the prevailing interest rate.

§ Another suggested solution is to invest in bonds with different maturity dates. When the bonds mature in different dates, reinvestment can be done according to the changes in the investment climate. Maturity diversification can yield the best results.

Protection Against Inflation

§ The general opinion is that the bonds or debentures with fixed return cannot solve the problem. If the bond yield is 13 to 15 % with low risk factor, they would provide hedge against the inflation .

§ Another way to avoid the risk is to have investment in short-term securities and to avoid long term investment.The rising consumer price index may wipe off the real rate of interest in the long term.

§ Investment diversification can also solve this problem to a certain extent. The investor has to diversify his investment in real estates, precious metals, arts and antiques along with the investment in securities. One cannot assure that different types of investments would provide a perfect hedge against inflation. It can minimise the loss due to the fall in the purchasing power.

Protection Against Business and Financial Risk

a. To guard against the business risk, the investor has to analyse the strength and weakness of the industry to which the company belongs. If weakness of the industry is too much of government interference in the way of rules and regulations, it is better to avoid it.

b. Analysing the profitability trend of the company is essential. The calculation of standard deviation would yield the variability of the return. If there is inconsistency in the earnings, it is better to avoid it. The investor has to choose a stock of consistent track record.

c. The financial risk should be minimised by analysing the capital structure of the company. If the debt equity ratio is higher, the investor should have a sense of caution. Along with the capital structure analysis,. he should also take into account of the interest payment. In a boom period, the investor can select a highly levered company but not in a recession.

Consumer India: General Features

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8P of Luxury Marketing

Performance

Performance refers to the delivery of superior experience of a luxury brand at two levels – first, at a product level and, second, at an experiential level.
At a product level, fundamentally it must satisfy the functional and utilitarian characteristic as well as deliver on its practical physical attributes – a recipe of quality or design excellence ingredients such as craftsmanship, precision, materials, high quality, unique design, extraordinary product capabilities, technology and innovation.
A luxury brand must perform at an experiential level as well, i.e. the emotional value of the brand the consumers buy into – beyond what the product is to what it represents.
For example, Rolex stands of symbol of heroic achievement and Tiffany & Co. is a symbol of love and beauty.

Pedigree

Many luxury brands have a rich pedigree and extraordinary history that turn into an inseparable part of the brand’s mystique.
This mystique is generally built around the exceptional legendary founder character of the past, making up an integral part of the brand story and brand personality.
So, when consumers buy, say, a Cartier or a Chanel product, it is not only because of the product performance factor, but subconsciously they are also influenced by the brand’s rich lineage, heritage and the years of mastery.

Paucity

Over-revelation and distribution of luxury brands can cause dilution of luxury character. Hence, many brands try to maintain the perception that the goods are scarce.
A case in point is Burberry, which diluted its brand image in Britain in the early 2000s by over-licensing its brand, thus reducing its image as a brand whose products were consumed only by the elite.
Gucci is now largely sold in directly-owned stores following a nearly crippling attempt to widely license its brand in the 1970s and ’80s.
Broadly, there is natural paucity – the actual scarcity – as well as the technology-led paucity and the tactical-driven paucity.
Natural paucity is triggered by scarce ingredients such as platinum, diamonds or those goods that require exceptional human expertise such as handcrafted quality that constraints the mass production.
Tactical-driven paucity is more promotional in nature such as the limited editions or the special series to generate artificial desire and demand.
Another deviation within this is the customization of luxury goods. For example, Garson USA custom made a diamond-encrusted Mercedes SL600 for Prince Al-Waleed bin Talal of Saudi Arabia in 2007.

Persona

The persona of a luxury brand is largely a result of, first, its distinctive projection plus coherence of its applications across consumer touch points and, second, the brand communication through its advertising.
The visual brand identity captures the brand’s personality, mystique and emotional values in a nutshell.
The distinct and consistent orchestration of the identity is central to establishing the visibility, familiarity and common identifiable brand imagery.
The visual brand orchestration can manifest by way of its coherent application of its identity, brand colors, other design elements such as icons, uniquely identifiable design, branded environment and even the tone of voice.
While the luxury brand’s visual identity is a fairly stable factor, luxury brand advertising is a more dynamic and versatile marketing vehicle.
While the pedigree of the brand has its role, keeping up the contemporary appeal and the newness factor is crucial for enduring brand relevance.
Therefore, luxury advertising not only needs to generate the desire for the seasonal collection, but at the same time it must also enhance the brand’s cool-quotient, thereby making it continuously desirable and aspirational.
At an overall level, luxury advertising messages can be observed:

• As more emotional and sensual to distance it from mass-premium brands
• Create a world and an aura that is truly exceptional to their brand signature
• Generate major differentiation in its production and execution

One of the relatively new trends within luxury brand communication is the use of the long-form-commercials or the short-film-videos to generate interest with the online audience.
It is clearly a pursuit where luxury brands are looking to bridge the gap between the familiar world of print and the fast-evolving world of online.
It has also proved impactful as in a matter of few minutes, the viewer can have a clear understanding of the brand image or the story that the brand is trying to convey or simply promotion of the new collection.
Apart from these, with the intent of enhancing the “emotional connections” with discerning mindsets, luxury brands have been exploring the digital space by engaging them in their activation programs.
The objective is to generate a genuine affinity with the brand that transcends beyond the product to an extent where the consumers feel that they have found a soul mate.
For example, with the objective of strengthening the brand’s association to love and romance, Tiffany launched whatmakeslovetrue.com and an iPhone app as a guide to those who want to take their romantic relationship forward.
The Web site also showcases select true love stories of real people to give that personal touch.
Some luxury brands have also used social media.
The objective may not necessarily be engaging the audience in their storytelling, but it has been done largely to generate the desire or the lust for the brand or the product.
It is also an effective tool to keep up the contemporary appeal and the newness factor by having a continuous dialogue.

Public figures

Public figures or celebrities have traditionally been employed as one of the marketing mix in luxury brand advertising and they still continue to garner attention, credibility and impact.
Public figures can span from film stars to music personalities, from sports personalities to royal families and even the designer themselves.
But because celebrity endorsements are no longer exclusive to the luxury space and extensively used and abused across mass categories, they take a different meaning when it comes to luxury brand endorsement.
Not only does the public figure’s associated values and personality have to resonate with that of the luxury brand’s aura, but there is a distinct difference in the way celebrity role is crafted, executed and strategically used.
Beyond traditional advertising – largely print in selected media – less in-your-face advertising tools are employed such as accessorizing or dressing celebrities for their walk down the red carpet, product placements within movies and television programs and invites to special events.
This strategy attempts to remove the appearance of “selling” while still promoting the product by making it seem as a part of the celebrity’s lives, thereby positively affecting the consumer’s attitudes, brand value and purchase intention.
For example, Chopard has been official partner of the Cannes Film Festival for the last 14 years, showcasing and premiering its collection by accessorizing celebrities on the red carpet.
Long-form-commercials or short-films have also used the celebrity-factor.
Chanel, for instance, recently created a three-minute film with actress Keira Knightley who replaced Kate Moss in its ads for its Coco Mademoiselle fragrance.
Other previous faces of Chanel have included French star Catherine Deneuve and Nicole Kidman, who represented Chanel No.5.
Similarly, as a part of its “core values” campaign, Louis Vitton used its Web site as the online medium to showcase its celebrity endorser’s journey and his or her story to bring to life how the brand has been promoting the art of travel and inspiring legendary journeys.

Placement

The retail branded environment in luxury branding is all about heightening the consumer’s brand experience and amplifying the brand aura.
Hence, the branded environment and the movement of truth is where it must “live” the brand by orchestrating immaculate detailing that engages all senses of the discerning audience.
Starting from the choice of store location, the chain of touch points that consumers interact with, the salesperson’s presentation and the impact of each touch point is critical in creating a unique indulging experience.
That said, today’s evolving luxury consumers are increasingly looking beyond the typical sophisticated, over-the top, cosmetically elegant presentation or even the exclusive invites, privileged previews.
With the increasing democratization of luxury brands and the rapid emergence of masstige brands, luxury consumers have become more discriminating and demanding.
These consumers seek a more knowledgeable and professional assistance and a trusted and reliable collaboration helping them to manage their stature and lifestyle.
Not only has this led to the new business offerings, but luxury brands are also increasingly investing in training and empowering their sales staff.
Another important point to note within the placement factor is that it is not limited to the physical environment where the brand retails, but it extends to all of the environments or consumer touch points with which that brand associates itself.
This spans from the extremely selective niche media where it advertises to the sports, events, art and conversations with which it identifies.
For example, Rolex associates itself with more than 150 events in golf, sailing, tennis, motor-sport, arts and equestrian tournaments rather than with sports such as football or cricket that have more of a mass following.

Public relations

Public relations in luxury branding plays an enormous role in image proliferation of the brand, thereby subtly influencing public opinion.
PR is also employed to convey other supporting messages and attributes of the brand that cannot be explicitly captured in advertising, but are by no means are less important to create brand’s personality, mystique and emotional values – whether it is via the pedigree factor or via public-figure any of the previous seven P’s mentioned.
It is also a sophisticated branding machine for maintaining ongoing relevance and dialogue with the luxury consumer, especially in fashion, technology and seasonal trends-driven categories.
At a tactical level, PR is used to generate buzz and convey brand news, point of views of inspirers and influencers including celebrity talk or the designer speak and a crucial support for brand activation such as the fashion weeks, sport events and themed previews.

Pricing

Pricing plays a quite a big role in the way that consumers perceive luxury brands.
Consciously or subconsciously, consumers tend to generate a mental luxury stature or image with the price range that the brand operates.
Therefore, it is important for luxury brands to price themselves right as setting the price lower than consumer expectation and willingness to pay can potentially harm the brand value, whereas the reverse can potentially not, given enough justification for consumers to go ahead and buy.
The pricing strategy in luxury brands gained spotlight recently not only because of the challenging economic environment, but because of more informed-and-exposed consumers who are more discriminating and demanding and for whom premium pricing without substance does not imply luxury.
A recent research by Unity Marketing suggests that affluent shoppers will not spend ten times more for something only three times better.
Luxury brands must, therefore, justify their price through the interplay of the seven P’s mentioned above, thereby keep up and maintain a higher perceived value.
Sales promotions also tend to be handled differently by luxury marketers.
While few have resorted to sales and discounts, most others play it by adding more value to the purchase such as gift with purchase, gift certificates or rebates for the next purchase, multiple item discounts, online or email exclusives, more loyalty points and no shipping and handling charges by online retailers.
Luxury brands also use as a channel luxury retailers such as Harvey Nichols and Saks Fifth Avenue that offer annual sales via slightly lower prices.
Another strategy employed by luxury brands is creating an extension into a secondary line with relatively lower price points such as Giorgio Armani’s Armani Exchange, Roberto Cavalli’s Just Cavalli, Prada’s Miu Miu and Alexander McQueen’s McQ lines.

Key takeaways

In conclusion, the key to luxury brand marketing boils down to the following three points:

• Product excellence by itself in not enough. The luxury brand must perform at an experiential level as well.
• As luxury consumers evolve, not only does product quality act as a point of differentiation, but also as substance to justify a premium value and pricing.
• While pedigree factor is important to celebrate the years of mastery or lineage, it is crucial to generate ongoing relevance and dynamism through the persona, PR and public-figure factor.
• Luxury brands must continue to maintain a certain degree of exclusivity and stature with the paucity factor and the placement factor – from the retail experience to the touch points with which it associates itself.
• The 8 P’s of luxury brand marketing can provide a holistic framework to luxury marketers.
• The 8 P’s may not be a universal methodology, but they present a strong analytical toolbox to audit and leverage the brand potential.
• That said, a pragmatic approach must be stressed, as the situation and challenges will differ from brand to brand and market to market.
• Now read more from History of Marketing P to know how it all started.

Stock Exchanges:Secondary Market and Its Operations

Introduction

The market for long term securities like bonds, equity stocks and preferred stocks is divided into primary market and secondary market. The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market predominantly deal in the equity shares.
Debt instruments like bonds and debentures are also traded in the stock market. Well regulated and active stock market promotes capital formation. Growth of the primary market depends on the secondary market. The health of the economy is reflected by the growth of the stock market.

History of Stock Exchanges in India

The origin of the stock exchanges in India can be traced back to the later half of 19th century. After the American Civil War (1860-61) due to the share mania of the public, the number of brokers dealings in shares increased. The brokers organised an informal association in Mumbai named “The Native Stock and Share Brokers Association” in 1875. Increased activity in trade and commerce during the First World War and Second War resulted in an increase in the stock trading. Stock exchanges were established indifferent centres like Chennai, Delhi, Nagpur, Kanpur, Hyderabad and Banaglore. The growth of stock exchanges suffered a set back after the end of World War. Worldwide depression affected them. Most of the stock exchanges in the early stages had a speculative nature of working without technical strength. Securities and Contract Regulation Act, 1956 gave powers to the central government to regulate the stock exchanges. The stock exchanges in Mumbai, Calcutta, Chennai, Ahmedabad, Delhi, Hyderabad and Indore were recognised by the SCR Act. The Bangalore stock exchange was recognised only in 1963. At present we have 23 stock exchanges and 21 of them had hardware and software compliantn to solve Y2K problem. Till recent past, floor trading took place in all the stock exchanges. In the floor trading system, the trade takes place through open outcry system during the official trading hours. Trading psts are assigned for different securities where buy and sell activities of securities took place. This system needs a face to face contact among the traders and restricts the trading volume. The speed of the new information reflected on the prices was rather slow. The deals were also not transparent and the system favoured the brokers rather than the investors. The setting up of NSE and OTCEI with the screen based trading facility resulted in more and more stock exchanges turning towards the computer based trading. Bombay stock exchange introduced the screen based trading system in 1995, which is known as BOLT (Bombay On-line Trading System). Madras stock exchange introduced Automated Network Trading System (MANTRA) on Oct 7th 1996. Apart from Bombay stock exchange, Vadodara, Delhi, Pune, Bangalore, Calcutta and Ahemedabad stock exchanges have introduced screen based trading. Other exchanges are also planning to shift to the screen based trading. The turnover and market share of the various stock exchanges are given in Table 4:1.

Functions of Stock Exchange

Maintains Active Trading

Shares are traded on the stock exchanges, enabling the investors to buy and sell securities. The prices may vary from transaction to transaction. A continuous trading increases the liquidity or marketability of the shares traded on the stock exchanges.

Fixation of Prices

Price is determined by the transactions that flow from investors’ demand and supplier’s preferences. Usually the traded prices are made known to the public. This helps the investors to make better decisions.

Ensures Safe and Fair Dealing

The rules, regulations and by-laws of the stock exchanges’ provide a measure of safety to the investors. Transactions are conducted under competitive conditions enabling the investors to get a fair deal.

Aids in Finacing the Industry

A continuous market for shares provides a favorable climate for raising capital. The negotiability and transferability of the securities helps the companies to raise long-term funds. When it is easy to trade the securities, investors are willing to subscribe to the initial public offerings. This stimulates the capital formation.

Dissemination of Information

Stock exchanges provide information through their various publications. The publish the share prices traded on daily basis along with the volume traded. Directory of Corporate information is useful for the investors’ assessment regarding the corporate. Handouts, handbooks and pamphlets provide information regarding the functioning of the stock exchanges.

Performance Inducer

The prices of stock reflect the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance.

Self-regulating Organisation

The stock exchanges monitor the integrity of the members, brokers, listed companies and clients. Continuous internal audit safeguards the investors against unfair trade practices. It settles the disputes between member brokers, investors and brokers.

Regulatory Framework

A comprehensive legal framework was provided by the Securities Contract Regulation Act, 1956 and the Securities and Exchanges Board of India Act, 1992. A three tire regulatory structure comprising the Ministry of Finance, the Securities and Exchanges Board of India and the Governing Boards of the Stock Exchanges  regulates the functioning of stock exchanges.

Ministry of Finance

The stock Exchanges Division of the Ministry of Finance has powers related to the application of the provision of the SCR Act and licensing of dealers in the other area. According to SEBI Act, the Ministry of Finance has the appellate and supervisory powers over the SEBI. It has power to grant recognition to the stock Exchanges and regulation of their operations. Ministry of Finance has the power to approve the appointments of executive chiefs and nominations of the public representatives in the Governing Boards of the stock exchanges. It has the responsibility of preventing undesirable speculation.

The Securities and Exchange Board of India The Securities and Exchange Board of India even though established in the year 1988, received statutory powers only on 30th Jan 1992. Under the SEBI Act, a wide variety of powers is vested in the hands of SEBI. SEBI has the powers to regulate the business of stock exchanges, other security markets and mutual funds. Registration and regulation of market intermediaries are also carried out by SEBI. It has the responsibility to prohgibit the fraudulent unfair trade practices and insider dealings. Take overs are also monitored by the SEBI. Stock Exchanges have to submit periodic and annual returns to SEBI. SEBI has the multipronged duty to promote the healthy growth of the capital market and protect the investors.

The Governing Board

The Governing Board of the stock exchange consists of elected member directors, government nominees and public representatives. Rules, byelaws and regulations of the stock exchange provide substantial powers to the Executive Director for maintaining efficient and smooth day to day functioning of the stock exchange. The governing Board has the responsibility to maintain and orderly and well regulated market. The governings body of the stock exchange consists of 13 members of which (a0 6 members of the stock exchange are elected by the members of the stock exchange (b) central government nominates not more than three members. (c) the board nominates three public representatives (d) SEBI nominates persons not exceding three and (e) the stock exchange appoints one Executive Director. One third of the elected members retires at annual general meeting. The retired member can offer himself for election if he is not elected for two consecutive years. If a member serves in the governing body for two years consecutively, he should refrain from offering himself for another two year. The members of the governing body elect the President and vice-president. It needs no approval from the Central Government or the Board. The office tenure for the President and Vice-President is one year. They can offer themselves for reelection, if they have not held office for two consecutive years. In that case they can offer themselves for re-election after agap of one-year period.

The Stock Exchanges

The names of the stock exchanges are given below

• Ahmedabad Stock Exchange
• Bangalore Stock Exchange
• Bombay Stock Exchange
• Bhubaneswar Stock Exchange
• Bombay Stock Exchange
• Calcutta Stock Exchange
• Cochin Stock Exchange
• Coimbatore Stock Exchange
• Delhi Stock Exchange
• Guwahati Stock Exchange
• Hyderabad Stsock Exchange
• Indore Stock Exchange
• Jaipur Stock Exchange
• Kanpur Stock Exchange
• Ludhiana Stock Exchange
• Madras Stock Exchange
• Magadh Stock Exchange
• Managlore Stock Exchange
• Pune Stock Exchange
• Saurashtra Stock Exchane
• Vadodhara Stock Exchange
• National Stock Exchange
• OTCEI

Inter Connected Stock Exchange Stock exchanges normally function between 10:00 a.m. and 3:45 p.m. on the working days. Badla sessions are held on Saturdays.

Member of the Stock Exchange

The Securities Contract Regulation Act of 1956 has provided uniform regulation for the admission of members in the stock exchanges. The qualifications for becoming a member of a recognized stock exchange are given below The minimum age prescribed for the members is 21 years. He/she should be an Indian Citizen. He should be neither a bankrupt nor compounded with the creditors. He should not be convicted for fraud or dishonesty. He should not be engaged in any other business connected with a company. He should not be a defaulter of any other stock exchange. The minimum required educational qualification is a pass in 12th examination. The Mumbai and Calcutta stock exchanges have set up training institutes to enable the members to understand the complexities of the stock trading. In recent days highly qualified persons such as Company secretaries, Charted accountants and MBA’s are becoming members. Corporate membership is also permitted now. The members transacting business through their appointed members. The governing board has to approve the partnership and the appointed membership in other stock exchanges. If he applies before the completion of five years he has to relinquish the If membership of the present membership before accepting the other.

The Broker

A member/broker registered with the recognized stock exchange has to apply to the SEBI for registration. Likewise a sub-broker even though he is registered with the stock exchange should apply to SEBI for registration. Usually the agreement between the broker and the sub broker is carried out on a nonjudicial

stamp paper of Rs 10. The agreement generally specifies the authority and responsibility of the broker and sub broker. The broker has to abide by the code of conduct laid down by the SEBI. The code of conduct prevents the malpractice, manipulation and gives other statutory requirements. If abroker is involved in manipulation or price rigging or gives false information, his registration is likely to be suspended. If the rules and regulations regardings insiders’ trading and take over codes are not adhered to, the registration may even be cancelled. The number of brokers in various exchanges is given in Table 4.2.

Broker and the Investor

1. The broker should provide adequate information regarding the stocks.

2. The broker should be capable of giving short term and long term investment suggestions to the investors.

3. The broker should be able to confirm the purchase and sale of the securities quickly.

4. He should be able to provide price quotes quickly, which is now possible with the computer network.

5. The broker should be noted for his integrity. He should have a good name in the society.

6. The broker should have adequate experience in the market to take correct decision.

7. The broker should have contact with other stock exchanges to execute the order profitably.

8. The broker should also offer incidental service like arranging for financing the clients’ transaction.

Types of Orders

Buy and sell orders are placed with the members of the stock exchanges by the investors. The orders are of different types.

Limit Orders

Orders are limited by a fixed price. ‘Buy Reliance Petroleum at Rs 50. Here, the order has clearly indicated the price at which it has to be bought and the investor is not willing to give more than Rs 50.

Best Rate Order

Here, the buyer or seller gives the freedom to the broker to execute the order at the best possible rate quoted on that particular date for buying. It may be the lowest rate for buying and the highest rate for selling.

Discretionary Order

The investor gives the range of price for purchase and sale. The broker can use his discretion to buy within the specified limit. Generally the approximate price is fixed. The order stands as this ‘Buy BRC 100 shares around Rs 40’.

Stop Loss Order

The orders are given to limit the loss due to unfavorable price movements in the market. A particular limit is given for waiting. If the price falls below the limit, the broker is authorized to sell the shares to prevent further loss. Ex. Sell BRC Ltd at Rs 25, stop loss at Rs 22.

Buying and Selling Shares

To buy and sell shares the investor has to locate a registered broker or sub broker who can render prompt and efficient service to him. Then orders to buy or sell the specified number of shares of a company of the investor’s choice are placed with the broker. The order smay be of any of the above mentioned type. After receiving the order, the broker tries to execute the order in his computer terinal. Once matching order is found, the order is executed. The broker delivers the contract note to the investors. It gives details regarding: the name of the company, number of shares bought, price, brokerage, and date of delivery of shares. In the physical trading form, once the broker gets the share certificate through the clearing houses he delivers the share certificate along with transfer deed to the investor. The investor has to fill the transfer deed and stamp it. Stamp duty is one-half percentage of the purchase consideration, the investor should lodge the share certificate and transfer deed to the registrar or transfer agent of the company. If it is bought in the demat form, the broker has to give a matching instruction to his depository participant to transfer the share bought to the investors’ account. The investor should be an account holder in any of the depository participant. In the case of sale of shares on receiving payment from the purchasing broker, the broker effects the payment to the investor.

Share Groups

The listed shares are divided into three categories: Group A shares (specified shares) B1 shares and B shares. The last two groups are referred to cleared securities or no-specified shares. The shares that come under specified group can avail the carry forward transactions. In ‘A’ group, shares are selected on the basis of equity, market capitalisation and public holding. Further it should have a good track record and a dividend paying company. It should have good growth potential too. The trading volumes and the investors base are high in ‘A’ group share. Any company when it satisfies these criteria would be shifted from ‘B’ group to “A” group. In the B1 group actively traded shares are included. Carry forward transactions are not allowed in this group. Settlement take place through the clearing house along with the “A” group shares. The settlement cycle and the procedure are identical to “A” group security. The rest of the company shares listed form the B group.

Settlement Cycle

A settlement cycle consists of five days trading period within which any transaction buy/sell must be completed. There are two types of settlement: fixed and rolling. A fixed cycle starts on a particular day and ends after five days. For example, in the Mumbai stock exchange the settlement cycle starts on Monday

and ends of Friday. In the NSE it starts on Wednesday of one week and ends on the Tuesday of the following week. A pay-in day and a pay-out day follow the settlement cycle. The pay-in day refers to all the buyer brokers depositing the money for the purchase of shares. The payout day refers to the exchange

handing over the proceeds to the seller brokers. A settlement cycle is important for the investors and brokers. If, an investor purchase 1000 shares of Asian Paints on Monday, to square up the position by the end of the settlement, the sale will have to take place before Friday, the same week. If the sale has not taken place, he has to paya consideration for the broker at the end of the settlement period. The broker collects the payments from the clients and deposits it with the exchange on the pay-in day. The exchange allows four days, from the end of the settlement cycle to the pay-in day to enable the brokers to collect the payments from the clients. After found days, on the pay-out day the exchange hands over the proceeds to the seller broker.

Thesame trading/settlement cycle and procedure of the specified group are followed in the “B1” non-specified group. But no carry forward (Badla) transaction is allowed for “B1” group shares. The pay-in for B1 group securities can be done with “A” group simultaneously under one balance sheet. In the B group shares, clearing house handles the money and part of the transaction. Physical delivery of securities is done by

the members. In the pay-in day the balance sheet is filed alongwith cheques/drafts. Only on the payout day monetary are made by the clearingshouse.

Rolling Settlement

SEBI introduced rolling settlement from Jan 10, 2000. Ten stocks are seleced for rolling settlement. They are BFL Software, Citicorp Securities, Cybertech Securities, Hitech Drilling, Lupin Laboratories, Mars Software, More pen labs, Sri Adhikari Brothers, Tata Infotech and Visuals Soft. SEBI has announced a list of 156 stocks which would be included in rolling settlement made by the first fortnight of May 2000. In a rolling settlement of a T+5 period trades are settled five days from the date of tansaction. If an investor purchase of

3000 shares of Tata Infotech and sells 2000 shares on Monday he would be asked to settle the net outstanding that is 1000 shares on the following Monday, the fifth or sixth day. This means all open positions on a trading day are settled on the fifth working day after the trading day. Already rolling settlement is adopted by institutional trade.

Price Filters

A bnormal rise or fall in the prices of the securities destroys the investors’ confidence and such price fluctuations can lead to high transaction risk. Brokers create instability in prices to earn quick profits. Broker’s interest in the stock is initially triggered by market rumours such as takeover, bonus issue, good or bad

financial performance and management problems. If the rumours are positive, there would be a scramble for the company’s shares. This is done in anticipation of the increase in demand once the information becomes public. Prices can be increased by the traders through circular trading. Circular trading refers to the trading that takes place among the brokers to mainpulate the prices for their personal gain. For example, if there is a rumour about the issue of bonus share by a company, the traders enter into matching deals among themselves (that is buy and sell order) at a price higher than the prevailing market price. Market psychology is that when the price increases investors think that it will go up further and enter into the market. At this juncture, the traders exit booking profits from the transactions. The investors asre caught unaware of the real situation. To prevent these happenings price filters are introduced.

Intra day Price Bands

Here the price range is fixed to restrict the price movement of a scrip during a trading session. For example take the case of TVS Suzuki scrip. Suppose, the stock closed on Monday at Rs. 500 at the NSE, it would be allowed to trade on Tuesday only in a 10% percent variation of Monday’s close. It would be allowed

to trade between Rs. 450 and Rs. 550. The intra day price bank is laid by all the exchanges depending

upon the price asnd volatility of the stock. At NSE the Nifty and Junior Nifty stocks’ have 10 per cent and other stocks have fiver per cent intra day price bands. In August 1997, BSE reduced the filter limit from 10 per cent to5 per cent in 32 stocks because of the uncertain market conditions. Price filter ensures that the stock is traded only witin the given range. Transaction beyond the band are rejected by the system. For example if thereis an order to buy TVS Suzuki scrip at Rs. 555, the system will not accept the trade.

Limitations

The intra day price band does not allow for the proper reaction in prices for the given information. Consider the situation of the Thai currency crisis, it affected exports to that nation and in turn the share prices of some companies might have a retreat. However, the price band places an artificial check on the reaction of the price. If the price band has to be released, the NSE has to get special permission from the SEBI.

Secondly, the intra day price band does not curb the automatic price movements within a day. For example, the TVS Suzuki scrip may open on Tuesday at Rs. 470 and rise immediately to anintra day high of Rs. 535 and may finally close at Rs. 485. The sudden increase of Rs. 65 would increase the investment risk due to the heavy transactions that take place on BSE and NSE. To smoothen the price volatility Madras stock exchange has introduced graded price filters. In MSE, intra day price band prevents an order being executed at Rs. 530 after being opened at Rs. 470. An intermediate price filter is applied at Rs. 468,80

(that is 4 per cent of Rs. 470). If there is no matching orders at this price, the stock price is frozen at this level for the day. If the matching is order is found, it would be allowed to rise further by another intermediate price filter level, say 6 percent. Such graded price filters effectively prevent the knee-jerk price movements.

Inter Week Price Band

Herem the weekly price movements are controlled by applying a weekly price band. The range would be fixed for the weekly price movement. This range is fixed in accordance with the price volatility. The inter week price band is 25 per cent of the previous week’s close on Nifty and Junior Nifty stocks.

Margins

Margins are additional filters applied by the stock exchanges to curb the price volatility. For every transaction undertaken by the broker he has to deposit a margin amount to the stock exchange. The margin amount paid is used as a tool to discourage the speculative and circular trading. it can be made simple with an example, if the MSE were to impose a margin of 20 per cent, traders would have to deposit Rs. 20 with the exchange for every Rs. 100 worth of shares transacted. This would certainly dampen the circular tradings.

Margins are of different types

• Gross Exposure margin
• Net Exposure margin
• Mark to Market margin
• Concentration margin
• Special margin

Gross Exposure Margin

This margin limits the risk exposure of the trader by putting an upper limit to his transaction. This would prevent him from trading beyond his means and the default risk. In the NSE the gross exposure is up to 7 times of the traders base capital, with Rs. 1 lakh he can trade up to Rs. 7 lakh. If it crosses that limit, he has to either switch over his terminal or should bring the gross exposure within the limits or he can deposit additional margin with the exchange to increase the limit. The enhanced limit would exist for three months. At the end of the period the broker has the choice to continue the present level or revert to the older level. The outstanding exposures at the end of the settlement cycle i.e. Wednesday to Tuseday at NSE and Monday to Friday at BSE, would be added to the first trading day of the next settlement period.

Net Exposure Margin

Here, the trader has to deposit margins at a graded basis if the purchase is greater than sales in any day. This is imposed to curtail the risk involved in heavy purchase of shares without matching sales. For example, if a trader buys one lakh shares of Reliance at Rs 185 and sells only 30,000 for the net outstanding position of 70,000 shares poses as threat. Hence, the trader has to deposit a margin for the net exposure. Ten per cent margin is for net exposures excees of the total purchase.

Market to Market Margin

The gross and net exposure margins try to stabilize the high transaction volume. The risk arises not only through the volume transacted but also through the price volatility. The trader may be able to find a matching order only at a lower price. For example, if Reliance stock price falls from Rs 185/- at the end of the trading session, the exposure risk would be high for the trader. In the mark to market argin the trader has to deposit a sum that would be a fixed percentage of the product of the difference between the closing selling and purchasing price and the outstanding net postion at the end of the day. This would be 50% of the price difference on the scripts, which fluctuate by 5% in a day or 10% over a settlement period. This margin is not

imposed on share with market value of Rs 50 or less. In our example the Reliance share price closes at Rs 180, the broker has to deposit Rs. 1,75000 = .5(185-180×70,000). If, the trader buys two stocks and if, one of the stock closed at Rs 5 higher and other Rs 5 lower the exchange markets the trader to deposit it the margin for the latter transaction not for the first transaction. This mark to market margin is refunded by the stock exchange to the concerned broker at the end of the settlement period.

Concentration Ratio Margin

This margin is levied to prevent the trader showing interest on a few stocks to manipulate their prices. Margin is computed on a graded basis, if 70 per cent of trader’s total turn over in the previous quarter is derived from three or fewer stocks.

Special Margin

Special margins are impsed to arrest price rigging. If there is a high degree of volatility in a particular scrip’s prices, even 100 per cent margin is imposed by the exchange. The 100 per cent margin curbs the high degree of price fluctuations.

Recent Trends in the Margin

In a move to curb excessive volatility in stock prices, the Securities and Exchange Board of India (SEBI) has reduced the daily price band from the current level of 10 per cent to 8 per cent. Replaced the existing weekly price band of 25 per cent by a graded margin system linked to price movements. A security is considered to the volatile if its price varies by plus or minus 16 per cent or more in a single trading cycle. For computing the price variation the closing price at the end of each day is compared with the closing price at the end of the previous settlement. If the price variation is 16 per cent or or more more, the margin rate is 5 per cent for 24 per cent or more variation 20 per cent, for 32 per cent or more variation 30 per cent and for 40 per cent or more the margin is 40 per cent. Price variations because of calls, bonuses, rights, mergers, amalgamations and scheme of arrangements are excluded for determining volatile securities and adjustments in prices. The additional volatility margins came into effect from the first trading period commencing on or after July 6, 1998. Simultaneously there restrictions on short sales are imposed and the 50 per cent margin for securities on no-delivery is removed. Once a security attracts the volatility margin, the margin will continue on the security at the margin rate as on the last day of the previous trading period for the first two trading days in the subsequent trading cycle also. The additional volatility margin is applicable for the cash and carry forward markets. This margin would be applicable on the buy side when prices rise and on the sell side when the prices fall. The margin would be payable on the outstanding buy or sell positions of the security at the end of each day. The margin would be paid in cash, bank guarantees or fixed deposits in banks by the brokers. The margins collected will be due for release along with other margins on completion of pay-in of securities. The additional volatility margin would not be mandatory for securites whose price is less than Rs 40. However, it would be up to the exchanges to consider applying the additional volatility margin on the securites in case it is deemed necessary by the exchanges. If, the price of a security increases to Rs 40 or more, it will be eligible for consideration towards this margin. If the price goes down below Rs 40 in a trading period it will still be eligible for consideration during that trading period. The additional volatility margin is levied, along with existing mark to market margin, daily carry forward margin, incremental carry forward margin, concentration margin and special margins. In the case of carry forward trade, the cumulative margin on a security on account of the above additional volatility margin and incremental carry forward margin is subject to an upper limit of 50 per cent. In press release issued, SEBI stated, “Such a graded margin system would on the one hand contain volatility in securities, which on the other keep open and exit route for investors. It was felt that this graded margin system should be in addition to the existing margin system. This would provide additional market sarety and also act as a deterrent to building up of excessive outstanding positions in the market”. In May 2000 index linked margins for badla has been introduced. The new carry forward margin provides for the following:

A 12.5 per cent margin if the BSE Sensitive index is below 4,500 points

A 15.0 per cent margin if the BSE Sensitive index isbetween 4500 and 5,250 points

A 17.5 percent margin is the BSE Sensitive index is between 5,250 to 6,000 points

A 20.0 per cent margin if the BSE Sensitive index is over 6,000 points

The additional carry forward margin has been linked to the gross outstanding position (GOP) of net outstanding position (NOP) arrived at after the carry forward sessions. The slabs prescribed are as follows:

If the GOP is over Rs 250 Cr or NOP is between Rs 150 and 200 Cr, the margin is 15 percent. If the GOP is between Rs 150 Cr and Rs 200 Cr or NOP is between Rs 100 Cr and Rs 150 Cr, the margin is 10 percent. If the GOP is between Rs 100 Cr and Rs 150 Cr and the NOP is between Rs 80 Cr and Rs 100 Cr, the margin is 5 percent.

Carry Forward Transactions

In the specified group, shares settlements can be done in three ways (a) delivery against payment (b) squaring up of the transaction(i.e. a purchase is offset by sales and vice-versa) (c) carrying over the settlement to next settlement period. The first two types are simple but the third one is complex. It can be explained by an example. An investor Mr. A buys 1000 shares on Monday at the price of Rs 50 but on the settlement day the settlement price is Rs 60. Now A has three options Paying Rs 50,000 and taking delivery of the shares .

Selling and booking a profit (Rs 60-50) × 1000 = Rs 10000 Carrying the transaction forward if he believes that the price may go up further. In the third situation Mr A is postponing the payment as well as taking delivery of the shares. Either he can enter into a contract withthe carry forward broker or with the badla financier. It depends upon the condition whether he has bought the shares straight from the carry forward broker or not. He has to get the difference between the consideration for which he has bought and the mark-up price on the settlement day. The markup price is determined by the stock exchange i.e. the rate (price) at which the setttlement has to be carried over. The mark-up price resembles the closing market price of the previous day. Forward seller or the badla finacier executes a resale contract with Mr. A for a subsequent settlement at the new rate i.e. Rs 60/-plus badla charges (the interest factor) for the remaining

amount to be setled (Rs 50,000). Now, on the next settlment date if there is a further rise in the price of the scrip, Mr. A again has the options either to close the transaction or carry forward the settlement to the next cycle. The same procedure mentioned above will take place again. This transaction may be carried forward up to 90 days. If, an investor sells shares and wants to carry forward, he gets profit when the share price falls and loose when it gains. To carry forward his short position he has to pay a back wardation charge or undha badla charge for borrowing the share certificate. He has to enter into a contract to resell the shares to the lender at the next settlement period and pay interest rate. Now it is clear from the above example that four parties are involved in the carry forward system the investor, the broker, the badla financier and the stock exchange.

Investor

There is no compulsion for the investor to specify the nature of trade, which he is going to have, he has to option to inform the broker whether the trade is for delivery or for carry forward. If it is not specified, the stock exchange will treat it as a carry forward trade. It can be settled within the settlement period or it can be carried forward to the next period. If the trade is informaed for delivery, the trader has to play lower margins. The margin for the carry forward trade is 15 per cent, whereas that for delivery is 7.5 per cent. The lower margin is applied both for buying and selling. An investor can avoid paying the margin provided the stock are deposited withs the clearing house within 48 hrs of the transaction. Once the investor has opted for delivery, he cannot reverse the situation i.e. an investor cannot buy and sell or vie cersaa in the same settlement period. If the investor has declared to carry the trade or remained silent, he has the only disadvantage of paying higher margins but he can liquidate his trade or carry it forward. The investor has to bring in additional funds whenever there is a loss in the carry forward transactions. These losses are computed on weekly basis by marking the position to market at the prevailing price. The profits earned under carry forward transactions are forzen till the positions are squared.

Brokers

The brokers are categorized into: (1) not interested in carry forward business (2) interested in vyaj badla i.e. money or scrip lenders (3) interested in carry forward business. Members can switch from one category to another. The broker has to give two reports: a daily report and another at the end of the carry forward system. There are two additional sessions, held along with the regular trading sessions. Ayaj badla members can lend shares or money in these sessions The reports give the details of sales for delivery, sales for carry forward, purchases for delivery, purchases for carry forward, vyaj badla and share badla. The limits are imposed for each member  each scrip and the total trades. If the limits are crossed they have to inform the stock exchange. This daily reporting is exempted for the first few days of each settlement.

Badla Financier

Badla financing is carried out by two ways either by lending money or sby lending shares for the sort position. The badla money financier enters into contract on the badla finacing day. The badla financier cannot use his position to earn higher badla charges in the next settlement period. The shares received from the seller have to be deposited in the clearing house till the arrangement for the borrowed fund is complete. If the original buyer carries forwsard the position for four settlements the financier get the principal only at the end of the fourth settlement.

The Stock Exchanges

The stock exchange has to arrange for separate tgrading sessions for the carry for ward transactions. In an extraordinary situation it has to levy special margins for thje various types of ntransactions and limit the total trades. The exchange has to monitor the margins deposited by the members with the clearing house under different transactions, thelimits prescribed for each member against individual scrips, the over all limit for each member and the over all limit for the scrip under carry forward system. The exchange provides one exclusive carry forward transaction day (on Saturday following the last day of settlement between 9.30 a.m. and 1.30 p.m.) followed by at least two carry forward sessions along with normal screen based trading session. The exchange also provides several screen based trading features for the carry forward sessions. A quote driven automated trading facility with the order book functioning as an auxilary jobber is provided. The trading system is fair to the jobbers who give two way quotes by giving them the priority to match orders when theirs and other operator’s rates match.

Badla Track Record

Introduction of badla and ban on badla is not new to the market players. If one reviews the history, badla was banned several times.

• Upto 1969 : Badla system was in vogue
• June 1969 : Government of India prohibits all transactions other than for ash/delivery
• 1970 : Lifting of the ban on forward trading was suggested by Prof. J.J. Anjaria Committee but ban continued.
• 1972 : Mumbai, Ahmedabad, Delhi and Calcutta Stock exchanges evolve a pattern of trading similar to the earlier system.
• 1983 : Forward trading was permitted for the specified group shares for a period of 90 days. The settlment cycle was 14 days.
• Only Mumbai, Ahmedabad, and Calcutta stock Exchanges were permitted to adopt the system.
• Dec 1993:Badla was prohibited by SEBI. Six weeks grace period was given to settle the open positions.
• Jan 1994 : SEBI bans Badla
• March 1994 : Stock exchanges suggested modified proposal for Carry forward and SEBI rejected the proposal.
• Feb 1995 : SEBI appoints three-member committee Comprising
• Mr. G.S. Patel, Mr.Deepak Parek, Mr. M.R. Mayya to review the carry forward system.
• March 1995 : G.S. Patel Committee submits its report.
• Jan 1996 : New System with light control introudced.
• Jan 1997 : BSE asks for a review of the revised system.
• March 1997 : SEBI appoints J.S. Varma Committee to reviewthe revised badla system.
• July 1997 : J.S. Varma Committee report has been submitted.

J.S. Varma Committee Report

Varms committee has been set up to review the functioning of the restricted carry forward system. The Varma committee has recommended the introduction of Modified Carry Forward system in the place of RCF. The MCF virtually resembles the badla system, which was in use before January 1994 except for a 10 per cent standard margin. The committee has more or less accepted all the changes desired by the BSE. As a result, some of the key restrictions imposed under the RCFs are proposed to be done away with. The key recommendations of the Varma committee on modified carry forward system are given below:

Abolition of twin track system of carry forward and delivery system.

Abolition of the 90 day limit and settlement by delivery after the 75th day

Abolition of limit (Rs. 10 crores) on financier funding.

Removal of overall limit on trading, the sub limits on purchase and salke and scripwise limit on carry forward.

Exchange must have proper software for computing margins, the governance structure and infrastructure for the monitoring/margining system

Capital adequacy norm should be enforced

Scrips for carry forward must have good liquidity

Shares received by the Vyaj badla must be delivered with the clearing house

Clearing house must have the insurance policy for all the shares lying with it.

Summary

Outstanding securities are traded in the secondary market.

Stock exchanges are regulated by the Ministry of Finace, SEBI and the govering board of the stock exchanges.

Share groups are divided into A, B1, and B group share. Carry forward transactions are permitted in the “A” group shares.

Rolling settlement cycle is adopted for institutional trades.

Carry forward trading was reintroduced in Jan 1996 with the 90 days limit to carry forward the trade.

Intra day price band fixes the price range for a scrip for a trading session. Inter wek price band controls the weekly price movement.

Brokers have to deposit daily margin and concentration margin on the amount of transaction undertaken in the stock exchange.

Questions

1. What are the functions of stock exchanges? How are the managed?

2. Specify the conditions for a person to become a member of a stock exchange.

3. How are trades settled in the stock markets?

4. What are the measures taken to contain the price volatility?

5. What is carry forward transaction? Explain.

6. What is meant by stock exchange? What are the functions of a stock exchange?

7. How do stock exchanges function? Discuss the recent changes that have taken place in the trading?

8. How are stock exchanges controlled by the regulatory authority?

9. What are the requirements to become member of the stock exchange? Explain the role of brokers in the trading of stock.

10. Enumerate the various types of orders.

11. How are listed shares classified? Explain the settlement cycle of the Mumbai stock Exchange.

12. “Price filters reduce the price volatility” - Discuss

13. How do price filters control circular trading?

14. What is meant by margin? Explain the different types of margin imposed on the trading of the stocks.

15. How are the fluctuations in the stock prices controlled?

16. Discuss the functioning of the carry forward transaction.

17. Explain the parties involved in carry forward transaction.

18. What are the margins imposed on the carry forward transaction?

19. “Price filters and margins imposed on the carry forward transaction?

20. Discuss the present position of secondary market in India.

Multiple Choice Questions

1. Stock exchange

a. Helps in the fixation stock prices

b. Ensures safe and fair dealing

c. Induces good performance by the company

d. All the above

[Ans d]

2. In the governing body of the stock exchange, certain percentage of the elected members retire at annual general meeting. That is

a. 33%

b. 40%

c. 50%

d. 25%

[Ans a]

3. The President and Vice President of the stock exchange can offer themselves for re-election after a gap of

a. One year

b. Two year

c. Three years

d. Six years

[Ans a]

4. “Sell Reliance Petro shares at Rs 60”. This order is a

a. Best rate order

b. Limit order

c. Discretionary order

d. Stop loss order

[Ans b]

5. In BSE shares are divided into

a. Two categories

b. Three categories

c. Four categories

d. Five categories

[Ans b]

6. The settlement cycle in BSE and NSE are

a. 10 days

b. 8 days

c. 7 days

d. 15 days

[Ans c]

7. The rolling settlement period introduced in the stock

exchanges is

a. T + 5

b. T + 7

c. T + 10

d. T + 15

[Ans a]

8. Carry forward transactions are permitted for a period of

a. 70 days

b. 75 days

c. 80 days

d. 90 days

[Ans d]

9. In May 2000 the badla transaction’s compulsory margin is

linked with

a. BSE Sensex

b. BSE-100

c. BSE-200

d. trading of the broker

[Ans a]

10. The broker has bought 10,000 ABC share at Rs 200 and

sold 8,000 shares at Rs 190 on the same day the margin he

has to pay is

a. Gross exposure margin

b. Special margin

c. Mark to market margin

d. Concentration ratio margin

[Ans c]