Chapter-10 financial market

Chapter -10 (Financial Market)

Case Studies

1. Investors in general consider increase in dividend as good news and stock market reacts positively to it. On the other hand, the Companies Act, places certain restrictions on payouts as dividend. To avoid these types of restrictions, the management of Crompton Ltd decided to raise funds through treasury bills, commercial bills etc.

Identify the type of market through which company decided to raise funds. State its two features.

2. Given below are two situation

a) A commercial bank requires funds to maintain CRR.

b) A company requires funds for launching a new product line.

In relation to the above, two situations answer the following questions

i) Which market should the organization approach in relation to A and B.

ii) State any two differences between such types of Market.

3. Few years ago, there were many malpractices and unfair trade practices like price rigging etc. All these had eroded investor’s confidence and multiplied their grievances. To overcome these, Govt. of India decided to set up separate regulatory body for this purpose.

a) Name the separate body set up by Govt. of India and when it was established.

b) Explain the regulatory function performed by it.

4. Supriya’s grandmother who was unwell, called her and gave her a gift packet. Supriya opened the packet and saw many crumpled share certificates inside. Her grandmother told her that they had been left behind by her late grandfather.

As no trading is now done in physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.

a) Identify and state the process.

b) Also give two reasons to Supriya why dealing with shares in physical form had been stopped? 

5. Pradeep Industries is planning to issue equity shares to raise funds worth Rs.1,000 crores for its expansion and growth. The company has 4 directors and each director is suggesting different method for the new issue. Name the market through which directors will offer. If the directors 

     [i] Offer the entire new issue to Life Insurance Company.

    [ii]Issue shares to public via issue houses and stock brokers.

    [iii] First ask existing shareholders to apply for new issue as it is a compulsory requirement under Companies Act.   

6. Saqib Ltd. is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply of raw material, and the duration of the production cycle has also increased. To add to the problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash. As a finance manager of the company name and explain the alternative to bank borrowing that the company can use to resolve the crisis     

     

7. Zaira Ltd.' is a large and creditworthy company manufacturing air-conditioned buses for the Indian market. It now wants to export these buses to other countries and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost, the company decides to tap the money market.

(a) Name and explain the money market instrument the company can use for the above purpose.

(b) What is the duration for which the company can get funds through this instrument ?

(c) State any other purpose for which this instrument can be used.

8. The directors of a company want to modernize its plant and machinery by making a issue of shares. They wish to approach a stock exchange, while the financial manager wishes to approach a consultant for new public issue of shares. Advise the director whether to approach the stock exchange or a consultant for the new public issue of share and why? Also advise about the different methods available for making the new public issue of shares.

9. The Securities and Exchange Board of India has charged A Vellayan, chairman of the Murugappa Group, one of India's leading business conglomerates, and directed the individuals and entities to surrender unlawful gains along with interest, a total amount of Rs 2.15 crore.

The regulator alleged that Vellayan had passed on unpublished price sensitive information pertaining to the acquisition of Sabero Organic Gujarat by group entiry, Coromandel International to some individuals who traded in the shares of Sabero on the basis of that information. 

Identify the malpractice highlighted in above case .

10. A stock exchange maintains complete record of all transactions taking place in different securities every day and supplies regular information on their prices and sales volumes to press and other media. In fact, now-a-days, you can get information about minute to minute movement in prices of selected shares on TV channels like CNBC, Zee News, NDTV and Headlines Today. This enables the investors in taking quick decisions on purchase and sale of securities in which they are interested. Not only that, such information helps them in ascertaining the trend in prices and the worth of their holdings. This enables them to seek bank loans, if required

Identify the function of stock exchange highlighted in above case and explain three other functions

11. In 2nd five year plan. “Industrialisation” was the “Main Focus”. But the major problem was saving and Investment Household used to invest in GOLD & Property only. Government had to take initiative for establishing Infrastructure and other basic industries. With pace of economic development, small savings were promoted by establishing an organised market. This market is regulated by SEBI and hasattributed a lot in economic development.

(i) Identify the market.

(ii) Name two functions of this market. 

12. Rajan had misplaced his number of share certificates while shifting his house.  After a long time he was able to trace his shares certificates.  Now he was facing problem in selling them off.  He shared his problem with one of his relatives who told him that he would now have to get his shares converted into electronic form and put it in an account.

1. Name the account which is required to be opened to deal in shares.

2. With whom will he have to open this account.

3. Also name two organisations which can keep those shares in electronic form.

13. Charu is a chartered accountant in Prakash Ltd. During the course of meeting with directors she came to know that as against the previous years, this year company is going to declare handsome dividend. Offer it is observed that when such news becomes public then the share-market jumps up. Considering it, charu purchased large number of company’s shares before this news reached the public.

(1) Identify type of malpractice used by charu.

(2) Name the authority which regulates such behaviour. Write any three other functions of this authority.

Chapter-9 financial management

Ch-9(Financial Management) Case Studies 

1. 

1. Style Ltd. is a Cosmetics manufacturing company. The company is confused with determining the relative Proportion of various types offunds, Company sells goods on credit basis so they ensure that enough cash is available to cover not only fixed payment obligation but there be sufficient buffer also. It has taken loan from bank to raise shares and Debentures from Public, to take care of unforeseen Circumstances the company has decided not full use of debt. The equity shares of company are more easily sold even at a higher Price and decided the public issue ofshares and debentures have been made under SEBI guidelines. TheCompany has a loyal customer profile because of quality products

1 This above discussion about company leads to various factors that decide how quantum of finance to be raised from various long term sources. Identify them by quoting lines from above  

2. Identify the value being referred above.

2. A company is engaged in the business of manufacturing the auto rickshaw. The company wants to diversify by setting up a separate line for production for manufacturing of the spare parts. For the aforesaid purpose, the company wanted to raise long term funds without diluting its control. It was observed that investors, in general were reluctant to take risk. The company also want to save its heavy tax liability. Suggest a suitable source of raising long term funds. Give three reasons for supporting the alternative you choose.

3. Suman, as a financial manager of the business engaged in the manufacturing of sewing machines want to raise the debt component of the business as its rate of return increase by 5% consistency since last three years. But Mohan, Finance executive has opined that debt component should not be increased as the rate of interest on debt is also increasing by 4% consistently. Mohan also observed that increasing the debt component will increase the financial risk of the company. 

1) State the condition in which the company should increase the debt component. 

2) Explain the concept which is highlighted in the above situation. 

4. Amar, Akbar and Anthony  are working AAA Enterprises as production manager, finance manager and marketing manager respectively. Recently, the company started facing certain problems. Sometimes, it has ample cash in hand and at bank and sometimes, it fails to meet its day to day obligations also such as payment of telephone and electricity bills, payment to suppliers etc. In such situation, it has to raise funds at higher cost.

a) Which decision is not taken by Akbar properly, when the company is not able to meet its day to day payment obligations?

b) Discuss any four factors that must be considered for taking the decision identified in part a.

6. Y Ltd. has invested Rs. 30 lakh and earns a profit before interest and taxes (EBIT) of Rs. 2 lakh. Tax rate is 30%.

(a) ​Calculate earnings per share (EPS) assuming that there is no debt.

(b)  ​What would be EPS, if total capital of the company includes Rs 10 lakh, 10% Debentures?

(c)  ​Will EPS increase or decrease in case (b)? Explain the reason.   ​​

7. ‘Abhishek Ltd.’ is manufacturing cotton clothes. It has been consistently earning good profits for many years. This year too, it has been able to generate enough profits. There is availability of enough cash in the company and good prospects for growth in future. It is a well-managed organisation and believes in quality, equal employment opportunities and good remuneration practices. It has many shareholders who prefer to receive a regular income from their investments. It has taken a loan of Rs.50 lakhs from I.C.I.C.I. Bank and is bound by certain restrictions on the payment of dividend according to the terms of the loan agreement. The above discussion about the company leads to various factors which decide how much of the profits should be retained and how much has to be distributed by the company. 

a) ​Identify the financial decision 

b) ​Quoting the lines from the above discussion, identify and explain any four factors affecting such decision. ​​​​​​

8. ‘R’ Limited is a real estate company which was formed in 1950. In about 56 years of its existence the company has managed to carve out a niche for itself in this sector. Lately, this sector is witnessing a boom due to the fact that the Indian economy is on the rise. The incomes of middle class are rising. More people can afford to buy homes for themselves due to easy availability of loans and accompanying tax concessions.  To expand its business in India and abroad the company is weighing various options to raise money through equity offerings in India. Finance manager of ‘R’ Limited made a blue print of financial requirement of business  and also thinking of Whether to tap equity or debt market, whether to raise money from domestic market or international market or Combination of both? Whether to raise the necessary finance from money market or capital market. 

        Name the financial blue print of company and list its objectives

9. Mr. Udai Kotak holds the designation of Finance Manager in ‘Jai Shree Ram Trading Limited’. Last year performance of his department was as per the expectation. Currently he is busy in preparing financial blueprint of the next five years. To begin with he tried to forecast the sales in the next five years. It is so because it is the sales on which depends the need for fixed and working capital. Thus an estimate was made with regard to both these items. Similarly, he collected data in respect of possible profits in the coming years. In this way, one can know how much of capital will be available from within the business. The rest of the funds will be arranged from outside the business. He is also thinking about the sources of finance to be tapped outside the business.

a) Identify the financial concept as referred to in the above paragraph

b) Explain five points of importance of the financial concept, so identified       

10. Keeping in view the increasing number of cars taking over the Delhi roads, the Delhi Government is organizing Car-Free day campaign -    “Ab Bus Karein”. The government has urged the people of Delhi to refrain from travelling in their cars and two-wheelers and rather use public transport on 22nd of every month. The government also announced that there will be more DTC buses and three-wheelers available to ensure that commuters do not face difficulty. A separate cycle lane was also made for those who use bi-cycles for commuting. The supporters of this campaign demanded for construction of cycle stands in offices, hotels and shopping malls, as they were not    able to get suitable space to park their bi-cycles.

State whether there will be any change in fixed capital requirements of government, offices, hotels, shopping malls etc., due to this campaign. Give reason to justify your answer.

State any two values highlighted in the above case.  

11. Naveen glass ltd is into this business for 20 years. Now due to expansion plans the company needs additional 100 crs. The finance manager is asked to decide about the capital structure after considering the pros and cons of both the sources-Owners fund and borrowed fund. He finds out the following facts. Cash flows of the company are unstable and he is in no mood to choose a source in which high risk is involved. Company also wants to retain control over the management of the affairs of the company. There is a boom period in the economy. The above disclosures lead to various factors which decide how much to finance from equity and how much from debt. The recent companies act has revised the tax on companies to 20% from 15%. Amidst all this the company is also facing heavy operating costs of salaries, rent, premiums etc. Quoting the relevant lines, identify and explain any six such factors                      

Chapter-7 DIRECTING

Chapter- Directing

Case studies and Application based questions

1.Mr. Fernandes is the owner of Unibie Enterprises, carrying on the business of manufacturing electrical appliances. There is a lot of discontentment in the organization and targets are not being met. He asked his son, Michel, who has recently completed his MBA, to find out the reason. Michel found that all decision making of the enterprise were in the hands of his father. Moreover, his father did not have confidence in the competency of the employees. Thus the employees were not happy. 

(a) Identify any two communication barriers because of which ‘UnibieEnterprise’ was not able to achieve its target. (b) State one more barrier each of the types identified in part (a) above[4] CBSE,OD 2016

2. A.S. Environs Ltd.’ is dealing in Environment- Consultancy. To get thebusiness, the team leader and his team used to travel to different states to give presentation to their clients. As per the policy of the company, the team leader used to travel by air whereas his team travelled by road/train. It was not only time consuming but also at times forced the female team members to travel alone. As a result, the subordinates were not acting in a desired manner to achieve organizational goals. The CEO of the company came to know about it. He called the team leader, discussed the matter with him and decided to change the travel policy of the company. It was decided that in future all the members including the leader would travel together and usefully utilize the travelling time in discussion about the presentation to be given to the clients. This made a positive impact and every member of the team started acting in a manner as desired by the team leader. State the features of the element of the function of management used by the CEO. [4] CBSE,OD 2016

3. Prateek is working in a multi national company in Noida. He was running temperature for the last many days. When his blood was tested, he was found positive for malaria. He was admitted in the hospital and a blood transfusion was advised by the doctors as his condition was very serious. One of his colleagues sent a text message to his superior ‘Mr. B. Chatterjee’. Mr. B. Chatterjee immediately sent a text message to the employees of the organization requesting them to donate blood for Prateek. When the General Manager came to know about it he ordered for fumigation in the company premises and for cleaning the surroundings.

(a) From the above para quote lines that indicate formal and informal communication (b) State any two features of informal communication (c) Identify any two values that are being communicated to the society in the above case. [5] CBSE,OD 2016

4. In the organisational context basic salary helps to satisfy the basic physiological needs of hunger, thirst, shelter, sleep etc. How are the remaining needs given by Maslow in his need hierarchy are satisfied? Explain briefly. [4] CBSE,DELHICOMPTT. 2016

5. ‘Laxmi Ltd. is an IT company having 1,000 employees. All its employees take things easy and are free to approach any one for minor queries and problems. Because of this the operations of the company are disturbed and its revenue has declined. Everyone is seen talking to each other resulting in inefficiency in its offices. It has also resulted in loss of secrecy and confidential information being leaked out. Explain the measures that the manager should adopt to improve communication system of ‘Laxmi Ltd’.[4] CBSE,DELHICOMPTT. 2016

6. Pramod was a supervisor at ‘Annapurna Ata’ factory. The factory was producing 200 quintals of aata every day. His job was to make sure that the work goes on smoothly and there was no interruption in production. He was a good leader who would give orders only after consulting his subordnatesand work out the policies with the acceptance of the group.

Identify and describe the leadership style being adopted by Pramod. [3] CBSE,DELHI 2015

7. Jaideep recently joined as the Managing Director of 'Tivori Ltd.', an apparel designing company. He observed that the company had a number of experienced fashion designers on its payroll. They regularly offered useful suggestions which were neither appreciated nor rewarded by the company. Instead the company outsourced its services to some renowned fashion designers and paid them a good compensation for their services. Because of this the employees felt disheartened and stopped giving useful suggestions.

(a) Identify the communication barrier discussed abov and State the category of this communication barrier.

(b) Explain any other communication barrier of the same category. [3] CBSE,OD 2015

8. Neeraj, a sales representative of ‘Omida Ltd.’ has changed seven jobs in the last one year. He

is a hard working person but is not able to finalise deals with the customers due to his inadequate

vocabulary and omission of needed words. Sometimes he uses wrong words because of which

intended meaning is not conveyed. All this created a misunderstanding between him and his

clients.

(a) Identify the communication barrier discussed above.

(b) State the category of this communication barrier.

(c) Explain any other communication barrier of the same category. [3] CBSE,DELHI 2015

(iii) State any three features of the element identified in (ii) above. [5] CBSE,DELHI 2015 

9. Anjali had been working with 'Tata Enterprises' for the last ten years. She was famous for her dedication towards the work. When the Manager senior to her retired, all her colleagues thought that now Anjali would be promoted. But to everyone's surprise the vacant post was filled by an outsider 'Miss Monika'. Anjali felt demoralised and her performance started declining. She would absent herself often and could not meet her targets. Miss Monika was a good leader who would not only instruct her subordinates, but also guide and inspire them. She noticed Anjali's behaviour and felt that her performance could be improved. She started involving Anjali in decision-making issues related to the organisation and made her a part of a high-level joint management committee. Anjali was now punctual to office and her performance started improving.

(a) Identify the function of management being performed by Monika (b) Name the element of the above function of management which helped Monika to improve Anjali's behaviour. (c) State any three features of the element identified in (b) above. [5] CBSE,OD 2015

10. Neha was a regional sales manager in 'Good Look Garments Ltd' for ten years. On the retirement of the marketing manager Neha applied for the same post as she was extremely ambitious and had dedicated all her energies to obtain the post of marketing manager. However, the top management of the company decided to fill this post by selecting a better person from outside the company. Because of this Neha was heart-broken and her performance declined. When the new marketing manager joined, one of her major problems was how to motivate and inspire Neha to her former level of performance? Suggest any three non-financial incentives that the new marketing manager may use to motivate Neha.  [3] CBSE,DELHICOMPTT. 2015

11. Aarav was working as a supervisor with 'Neer Purifier Ltd.' which was producing water purifiers. The target of the company was to produce 200 water purifiers every day. His job was to make sure that work goes on smoothly and there was no interruption in production. To achieve this, he always gives orders and insists that they are obeyed. He believes that reward or punishment both can be given depending upon the performance. Identify and describe the leadership style being adopted by Aarav. [3]CBSE DELHI 2014

12. KPM Ltd.' is manufacturing breads and biscuits for many years. It has approximately 150 employees and most of them are not happy with the working environment. Because of this the labour turnover rate is very high. Therefore the company appoints a new Human Resource Manager, Naveen, to analyse the situation. Naveen finds that there is no free flow of communication, and there is no suggestion box for the employees to voice their suggestions or grievances. The company rarely organises a social or cultural gathering, the employees just come, finish their work and leave the organisation.

(a) Identify the communication barrier discussed above. (b) State the category of this communication barrier. (c) Explain any other communication barrier of the same category[4] CBSE,FOREIGN 2015

13. The functions and performance of the supervisor are vital to an organisation because he is directly related with the workers whereas other managers have no direct touch with bottom level workers.’ In the light of this statement, explain any four functions of a supervisor.

14. Kavya is working in a company on permanent basis. As per the job agreement she had to work for 8 hours a day and was free to work overtime. Kavya worked overtime. But even after working for long hours and putting in her best efforts, no recognition was given to her by her boss. Due to overtime she fell ill and had to take leave from her work. No one showed concern and enquired about her health. She realised that she was fulfilling only some of her needs while some other needs still remained to be fulfilled. (i) Identify and explain the needs of Kavya discussed in the above para, by quoting the lines. (ii) Also explain two other needs of Kavya followed by the above needs, which still remained to be satisfied. 

15. Rahim was working in an enterprise on daily wages basis. It was difficult for him to fulfill the basic needs of his family. His daughter fell ill. He had no money for his daughter's treatment. To meet the expenses of her treatment, he participated in a cycle race and won the prize money. The cycle company offered him a permanent pensionable job which he happily accepted.
(i) By quoting the lines from the above para identify the needs of Rahim that are satisfied by the offer of cycle company.
(ii) Also, explain two other needs of Rahim followed by above that are still to be satisfied.

16. Ms. Aarja is promoted to the post of Principal in A.S. Public school. Ruchika and Anu  are Business studies teachers as well as good friends.  One day at lunch they were discussing about the behaviour of ​the newly appointed Principal. The Principal sets the targets for the subject teachers without discussing it with them .She verbally tells them that if task is not completed within the given time period then strict ​action will be ​taken against them.  On the next day, one of the teacher explain some problems to the​Principal but the Principal does not grasp the message as she was busy doing her own work.  At the end of the given time period, the Principal has seen that few teachers could not complete their task.  

a. Identify the type of communication used by Ruchika and Anu.

b. Which style of leadership is followed by Ms. Aarja?

c. Name the type of communication barrier highlighted in the given question.

d.  

17. Mr. Martin is working as a production manager in Cairn India Ltd. He is supported by a qualified and competent workforce. He gives opportunities to all his subordinates to give suggestions for achieving the most productive results. 

i. Identify the leadership style represented by Mr. Martin.

ii. Give its two advantages.

iii. Also give any two values that are being assumed by him.