External Environment of Business

A host of external and often largely uncontrolled factors influence a firm's choice of direction and action and ultimately its organizational structure and internal processes. These factors which constitute the external environment can be divided into two interrelated subcategories those in the remote environment and those in immediate operating environment.

Remote environment
The remote environment is composed of a set of forces that originate beyond and usually irrespective of any single firm 's operating situation--

Economic
Political
Social
Technological
Industry

Economic Consideration
It refers to the nature and direction of the economy in which the business operates

Social Consideration
This involves the beliefs ,values, attitudes, opinions , and lifestyles of those in a firm's external environment, as developed from their cultural,ecological,demographic,religious,educational and ethnic conditioning.

Political Conditioning
The direction and stability of political factors is a major consideration for managers in formulating company strategy. Political considerations define the legal and otherwise governing parameters in which the firm must or may wish to operate.

Technological Considerations
To avoid obsolescence and promote innovation, a firm must be aware of technological changes that might influence its industry.

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Money Markets Instruments

Money Market Securities in India The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure. Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to e...

A Summary of Behavioral Finance

The central assumption of the traditional finance model is that people are rational. The behavioral finance model , however , argues that people suffer from cognitive and emotional biases and act in a seemingly irrational manner. The important heuristic-driven biases and cognitive errors that impair judgment are : representativeness, overconfidence, anchoring, aversion to ambiguity, and innumeracy. The form used to describe a problem has a bearing on decision making, Frame dependence stems from a mix of cognitive and emotional factors. The prospects theory describes how people frame and value a decision involving uncertainty. People feel more for a pain from a loss than the pleasure from an equal gain-about two and half times as strongly. This phenomenon is referred to as loss aversion . People tend to separate their money into various mental accounts and treat a rupee in one account differently from a rupee in another because each account has a different significance...

NPV-Net Present Value :Capital Budgeting Concepts

DEFINITION OF 'NET PRESENT VALUE - NPV' Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of a projected investment or project. The following is the formula for calculating NPV: where C t = net cash inflow during the period t C o = total initial investment costs r = discount rate , and t = number of time periods A positive net present value indicates that the projected earnings generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a positive NPV will be a profitable one and one with a negative NPV will result in a net loss . This concept is the basis for the Net Present Value Rule , which dictates that the only investments that should be made are th...

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