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...

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...

RISK in Investments

Investment decisions are a trade off between Risk and Return. Risk refers to the possibility that the actual outcome of an investment will differ from its expected outcome. Most investors are concerned about the actual outcome being less than the expected outcome. The wider the range of possible outcomes,the greater the risk. SOURCES OF RISK The three major sources of risk are: Business Risk Interest Rate Risk Market Risk Business Risk As a holder of corporate securities (equity shares and debentures) you are exposed to risk of poor business performance. This may be caused by a variety of factors like heightened competition, emergence of new technologies, development of substitute products , shifts in consumer preferences, inadequate supply of essential inputs,changes in governmental policies and so on. The principal reason might be inept and incompetent management. Interest Rate Risk The changes in interest rate have a bearing on the welfare of investo...

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