Cuban Culture

Cuban culture is known to be very expressive and vivid, because it inherited the mixture of Spanish and African cultures. Therefore Cuban culture is sometimes referred to as â€Å"melting point† of cultures. Firstly it is necessary to underline that interactions between parents and children are really special, because the family is the most important in their lives and very often several generations are living together in the same house. It is partly to economic situation and traditions. Therefore interactions in the family are friendly and open.Children display respect to elder generations as well as for teachers in schools. Nevertheless, it is common for them to refer to teachers by their first names. They use â€Å"Senor† only when addressing a foreigner with a higher social rank. (Cultural Information 2006) Concerning communications styles it is known that Cubans prefer to stand very close in informal situations, especially in line-up or crowd. However, in formal si tuations they tend to keep a distance of approximately two feet. Cubans are fond of eye contact considering it a sign of sincerity.It is apparent that Cubans communicate making lots of gestures and they are able to maintain the communication process even without speaking. The most popular nonverbal gestures used are wrinkling nose asking in such a way â€Å"What did you just say? † and pointing a index finger meaning â€Å"I am referring to a person of color†. Actually it is very important to learn all the gestures and their meanings. (Cultural Information 2006) Cubans always use gestures as well as facial expression to emphasize and to illustrate something. Especially they speak in a very loud voice. Their emotions are displayed in an open manner and in public.Display of affection is accepted whereas display of anger and negative emotions in public is considered negative behavior and is strongly criticized. Exaggerated manners are a part of Cuban culture; however it i s not accepted as good social pattern of behavior. Cubans tend to be very expressive. Concerning nonverbal communication it is necessary also to mention shaking hands with both women and men and giving a kiss. (Cultural Information 2006) Cubans’ communication style is very loud and direct compared with used in USA, England, Canada and other countries, but such style is not offensive.In such a way Cuban express their personality. Often Cuban may refer to even to unknown people with affectionate phrases such as â€Å"sweetheart† (mi amor). Light-hearted humor is appreciated, whereas sarcasm is not. Cubans are known for their sense of humor and very often their jokes refer to social and political situations in the country. Nevertheless, they won’t discuss government with unknown people, because their socialism system doesn’t allow freedom of expressions and they are afraid of becoming enemies of the government. (Cultural Information 2006)Cubans prefer to dre ss more informally compared with other states in Latin America because of scarcity of imported clothing. For example, men rarely wear formal suits. Nevertheless, if the occasion is formal they will wear guayabera (an elegant embroidered shirt for tropical hot weather). Women usually wear skimpy and close-fitting clothing which is not seen in USA. Cuban dress is informal, although it is always neat, ironed and tucked in as most Cubans are neat persons. It is necessary to underline that â€Å"women are respected as professionals, but other than that roles are fairly traditional†.Usually women are doing housework taking care of their children whereas men are relaxing watching TV after the ending of the working day. Concerning sexuality, the atmosphere is liberal and no taboos are applied. It is known that sexual harassments common and not considered serious problem compared with USA and European countries. (Cultural Information 2006) Earlier class differences were apparent and w ealthy were employing the servants. After the revolution the situation changed; property and wealth were redistributed. Nevertheless, nowadays due to economic reforms the slight difference is creeping back into society.The majority of population is considered mulatto i. e. mixed race inherited Spanish and African traits. Race discrimination is prohibited by the law, although â€Å"lingers somewhat in unconscious attitudes and prejudices†. Workplaces are heterogeneous and Cubans are aware of the underlying attitudes. (Cultural Information 2006) The main Cuban religion is Afro-Cuban or Santeria. Cubans worship African gods being identified with a Catholic saint. It is interesting that all religious rituals are expensive and elaborate; they involve even making offerings to the god.However, growth in evangelical and protestant religions is slight. Cubans government doesn’t recognize religious holidays except Christmas. The most important holiday is Mother’s Day and it is accepted to present cards, flowers and small gifts to all the mothers. It is strong evidence that family is the most important for all Cubans. (Cultural Information 2006) It is noted that Cubans don’t have any serious food prohibitions, typically they prefer fried sliced banana, beans and rice, boiled Yucca plant, garlic marinades and different rice dishes.Usually meat is v with a marinade creola style. Cubans are fond of sweet desserts such as yucca crullers in anise-flavoured syrup and guava marmalade with yellow cheese slices. After eating they dance till daybreak and drink rum. In conclusion it is necessary to outline that it is important to establish personal warm and friendly relations with Cubans, because their country is considered politically a very controversial place. Cubans have to know what motivates a person, who he/she is. It is possible to explain personal interest in communicating and display friendliness.Only the Cubans will trust a person and enter in to relations. Actually, it is favorable to talk about family as puts people at ease and provides common ground. It is apparent that Cubans are friendly and expressive people; they won’t hurt anybody without serious reason. They treat people the same way they are treated. Cuban culture in general is a very interesting example for discussion as it combines many cultural heritages. (Cultural Information 2006) References â€Å"Cultural Information: Cuba†. (2006, June 14). Retrieved October, 3, from http://www. intercultures. ca

Technology and Organizational Structure

Technology and Organizational Structure Wanda Armour University of Phoenix Technology and Organizational Structure This paper represents the research on how technology interacts with organizational structure. Two companies will be identified to compare and contrast their organizational structures. A matrix will be included to summarize the findings. Introduction Organizational structure in today’s complex multi-dimensional organizations is the connection that holds the infrastructure together to achieve the organizations goals.It is the patterns or arrangement of groups of jobs within an organization. It is also a process that requires organizational re-structuring as the company grows. Historically industry has shifted from the job-shop manufacturing to mass production, with innovative pioneers such as Frederick Taylor, Henri Fayol, and Max Weber ((Dristelzweig & Droege, n. d. ). These early pioneers were very different thinkers in terms of their principles to determine how t o structure organizations for maximum productivity.However, they all had a common view that it was like a machine and that power was in the position, not in the individual holding the position; clearly a vertical bureaucratic structural hierarchy ((Dristelzweig & Droege, n. d. ). This ‘one best way’ mindset gradually disappeared as concerns that the traditional organizational structure may hinder, rather than help promote creativity and innovation (Dristelzweig & Droege, n. d. ). Today, pressures in U. S. business structures to compete globally calls for a variety of organization structures.There is no ‘one fit all’ organizational structure that has proven effective in contributing to business success. Organizations operate in different environments with different opportunities, products, tasks, risks, strategies, constraints, strengths and weakness, and different organizational structures to meet those challenges (Reference for Business, n. d. ). There are two types of organizational structures found in business environments; centralized and decentralized. Centralized organizational structures rely on one individual to make decisions and provide direction or the company; decentralized organizations rely on a team environment at different levels of the business (Vitez, n. d. ). Organizational Structure Overview of Two Company’s Two very successful companies have been identified with different organizational structures; Toyota Motor Corporation and The Watson’s Creative Company. These two companies are on the opposite end of the spectrum in terms of organizational structure. Toyota, a Japanese, multinational corporation, has a centralized matrix organizational structure (the combination of two or more different structures-organic/mechanistic) with a bureaucratic infrastructure.The Watson’s Creative Company, a New York based adverting agency, has a small-decentralized organic organizational structure (organizations that are flexible and effectively adapt to change) (Dorf & Byers, 2008). Toyota is considered by some as the world’s largest maker of automobiles, trucks, buses, and robots. Toyota has factories all around the world, that manufacture and assemble vehicles for local markets (Taneja, Pryer, & Sewell, 2012). Toyota has an interesting blend of mechanistic, organic and bureaucracy in a centralized organizational structure, which allows them to accommodate their versatile product line.This structure develops a workforce who believes in the company’s products, image, and vision; along with placing a high value on the welfare of its employees (Taneja et al. , 2012). A recent SWOT analysis shows that intense competition could pose a threat resulting in lower price pressures. A recent massive product recall (10 million worldwide) which could hurt the company’s brand image and sales ((Toyota, 2012). Toyota is a company that has a reputation for reliability; the challenge n ow is rebuilding the emotional ties of customers.A bureaucratic organizational structure could be the flaw as hindered information sharing, miscommunication; along with delayed response time to quality and safety issues have been sighted as the root cause of the recall (Taneja et al. , 2012). One of the disadvantages to a matrix organizational structure is keeping communication channels clear so that potential conflicts do not arise and hinder organizational functioning (Reference for Business, n. d. ). As corporations become worldwide the process of restructuring is inevitable, as they must respond to challenges on a global level.The foundation of Toyota is respect of its people and continuous improvement through the ‘Toyota Way’ which is summarized by five keywords; â€Å"Challenge,† â€Å"Kaizen,† â€Å"Genchi Genbutsu,† â€Å"Respect† and â€Å"Teamwork† (â€Å"The Toyota Way,† n. d). The Watson’s a Creative Company, is an ad agency. They have a decentralized organic organizational structure that is simple and low in formalization. All parts of the organization need each other as an interdependence relationship improves functioning.As an organic organization they need to stay flexible in dealing with customers and in creating concepts for television commercials and print advertisement (Field, n. d. ). I recently visited the Watson’s ad agency and I found a confortable informal environment with a small staff and their dogs. It seemed quite remarkable that a company with such clients as ‘Whole Foods’, ‘Metropolitan Home Magazine’ and many others could work as a community. However it is in line with their mission statement of building lasting relationships between great companies and the audiences they benefit (â€Å"The Watson’s,† n. . ). Their core competency is in their knowledge management and creativity. An organic organization such as The Watsonà ¢â‚¬â„¢s is a knowledge-based organization. Tacit knowledge is exchanged through interaction with other knowledge workers. This interaction facilitates the development of a knowledge culture within the organization, supporting decision making of various knowledge workers through collaboration (Hosnavi & Ramezan, 2011). How Structure Affects the use of Technology and Technology Decisions Technology plays a crucial role in today’s organizational structure.Toyota understood that the traditional understanding of centralization in organizational structure would fail to capture its vision of technological development, and value in the employee in the face of new challenges and demands. Toyota adopted a matrix organizational structure to facilitate technology decisions ((Hosnavi & Ramezan, 2011). The Watson’s on the other hand believe that technology decisions are based the decentralization of power and control and a higher level of informality and a organic organizational st ructure was the best fit for their company.Toyota’s superior technology was not enough in light of the recent recalls. As a result they had to reduce their organizational structure, which is no easy task. My observation is that Toyota could have closed a blind eye but instead decided to restructure and fix the problem without deviating from their core competency and mission. The Watson’s interaction with technology is equally exciting as visual displays of artistic genius are created and displayed through a variety of avenues. Technology gives expression to the endless possibilities of the mind and allows them to make decisions based on whatever idea they can dream of.Working on something they believe in helps them to focus on the effectiveness of their products and services. TECHNOLOGY AND ORGANIZATION STRUCTURE| Inquiry| Toyota Motor Corporation| The Watson’s a Creative Company| Organizational Structure| Centralized Matrix Organizational Structure| Decentraliz ed Organic Organizational Structure| Environment| Stable, highly efficient and orderly. | Constant change, simple, low formalization. | Control| Hierarchic| Network community. | Internal Communication| Vertical, between superior and subordinates. Lateral between people. | Core Competency| Lean Manufacturing Tools, Supply Chain Management, Product Development Technology, Branding| Creative Advertising /Knowledge worker| Core Technology| Conventional and Hybrid Vehicles, Hybrid Systems, Safety and Environmental Technologies. | Web based advertising systems, HTML, XML, SVG and Flash, Communications protocols, Video and audio technology. | Enabling Technologies| Toyota Technology Institute, Toyota InfoTechnology Center, Home Living Assistant Robotics, Personal Mobility. R&D product portfolio. iAd mobile app, Ad tracking, Banner Ads, Rich Media Ads, Tradeshows, Commercial Emails, Poster Ads, Social Media| Organizational Members| Task Oriented| People Oriented| Control-Stability and predi ctability. | High| Low| Flexibility-Quick response to changing conditions| High| High| Knowledge Management| Reinforcement of hierarchy| Anywhere in the company| Technology Interaction with Organizational Structure Based on these comparisons I believe that the interaction of technology must be accompanied with the right fit of the organizations structure to achieve sustainability.Toyota works on a technological scale far beyond that of the Watson’s. It uses manufacturing technology that is the cutting edge of science (Taneja et al. , 2012). It is doing an amazing work with its robotic technology that will help the handicapped, as well as the individual. Taneia et al. , (2012 believes that Toyota’s research and development accomplishments are making groundbreaking strides in the area of defense against energy starvation. The Watson’s Creative Company is using the Internet to extend their market reach far beyond what was once thought possible through conventional channels.According to Behboudi, Hanzaee, Koshksaray, Khirkhani Tabar, & Taheri (2012), â€Å"Creative advertising can provide a competitive edge for a brand, add to its value, and give it an advantage over its rivals in terms of more positive market response†(p. 140). The Watson’s advertising agency has achieved sustainability with their creative and innovative ads through the technology of the Internet. In comparison mechanistic and organic organizational structures are like two musicians, one who plays’ by ear and the other who has to read music; both however deliver a beautiful arrangement of music.Toyota is continuously focused on increasing its technological capabilities, while The Watson’s are continuously looking for more ways to use technology to create ads that are an experience for the consumer. Both are making contributions that will add value to organizational learning, and technological capabilities. References Behboudi, M. , Hanzaee, K. , Ko shksaray, A. , Khirkhani Tabar, M. , & Taheri, Z. (2012). A Review of the Activities of Advertsing Agencies in Online World []. International Journal of Marketing Studies, 4(1), 138-149. Retrieved from Ebscohost Dorf, R.C. , & Byers, T. H. (2008). Technology Ventures (2nd ed. ). New York, NY: McGraw-Hill. Dristelzweig, H. , & Droege, S. B. (n. d. ). Organizational Structure. Retrieved from http://law-journals-books. vlex. com/vid/organizational-structure-51758780 Field, R. (n. d. ). Organizational Effectiveness, Structure and Technology. Retrieved from http://apps. business. ualberta. ca/rfield/Organizational%20Effectiveness,%20Structure,%20and%20Technology. h Hosnavi, R. , & Ramezan, M. (2011). Intellectual Capital and Organizational Organic Structure How are these

Shorefast Case Study B March 2013

Table of Contents Introduction†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 1 Financial Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦.. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 1 Strategy Diamond Model†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦7 Internal Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 8 Value Chain Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦Ã¢â‚¬ ¦.. 8 VRINE Analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦12 External Analysis †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦13 Porter’s five forces†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦13 PESTEL†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. †¦.. 14 Alternative Evaluations†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦15 Fit analysis†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦Ã¢â‚¬ ¦. 18 Conclusion†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 19 Re commendations†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦19Introduction Plant Nutrients Inc. (PNI) is an international company that supplied fertilizer ingredients used by its subsidiaries in 6 geographic area which are Northeastern United States, Eastern Canada, Europe, Australia, New Zealand, and South America. The general manager of PNI is Brian Dunwoodie and the marketing manager is Dave Claussen. Mr. Dunwoodie and Mr. Claussen are the main decision makers within the organization. They were meeting with each other to determine the main issues of the company, which how to improve company’s performance next year (1999).They came up with three potential alternatives, which are strengthening the existing business, adding a seed business and adding precision agricultural services to better PNI’s performance next year. For choosing the best alternatives, this paper will use d ifferent frameworks and models to analyze each alternative, for example financial analysis, strategy diamond model, internal analysis (Value Chain and VRINE), external analysis (Porter’s 5 forces and PESTEL). After analyzing all these parts, the fit between internal and external environment will be analyzed as well. Financial Analysis 1. Operating income statement (Exhibit 1)As Exihit 1 in the case shows that the main product PNI had sold was Fertilizer, the total sales of PNI in 1998 is $4,621,097, which consist of the sales of Fertilizer( $3,339,097), the sales of pesticides ($1,058,000) and the sale of services ($224,000). The sales of fertilizer accounted for 72. 3% ($3,339,097/ $4,621,097) of total sales, the sales of pesticides accounted 22. 9% in the total sales, and the service only accounted for 4. 8% in the total sales, so fertilizer product generate more sales than pesticides and services and this also means the sales of pesticide and services may have huge growth potential in the future.Hence, PNI should focus more on the sales of pesticide and service in the future. In addition, the gross margin of fertilizer was 20. 07%, and the gross margin of pesticides was 18%. Among these products, fertilizer was the major contributor of PNI’s profit. In terms of the sales of each product, the analyst will use the following tables to identify what the major markets and customers of these products. 2. Fertilizer sales No. 1 The percentage of PNI’s customers accounted in the Fertilizer Market. (Formula: Number of Customers in PNI / Number of Customers in the whole market)Market AreaPNI Farm SizeSalesCustomersSalesCustomersMarket Share Small$1,128,000527$986,00040476. 7% Medium$10,635,0001578$1,259,00017110. 8% Large$3,631,00095$319,00099. 5% Total$15,394,0002200$2,564,00058426. 5% No. 2 The percentage of the fertilizer sales for the market and for PNI over the total sales by customer segment, 1998 Market AreaPNI Farm sizeSalesSales Small7. 33%38. 5% Medium69. 1%49. 1% Large23. 6%12. 44% Total100%100% Market AreaPNI Farm sizeSalesSales Small100%87. 41% Medium100%11. 84% Large100%8. 79% Total100%16. 7% No. The percentage of PNI’s fertilizer sales contribute to the market sales by customer segment, 1998 3. Pesticide Sales No. 4 The percentage of PNI’s customers accounted in the Market. Market AreaPNI Farm SizeSalesCustomersSalesCustomersMarket Share Small$797000527$35600020939. 6% Medium$63120001578$4580001066. 7% Large$3,300,00095$244,00077. 4% Total$10,409,0002200$2,564,00032214. 6% No. 5 The percentage of pesticide sales for the market and for PNI over the total sale by customer segment, 1998 Market AreaPNI Farm sizeSalesSales Small7. 66%33. 6% Medium60. 64%43. 3% Large31. %21. 2% Total100%100% No. 6 The percentage of PNI’s pesticide sales contribute to the market sales by customer segment, 1998 Market AreaPNI Farm sizeSalesSales Small100%44. 67% Medium100%7. 26% Large100%6. 79% Total100%10. 16% I nterpretation of tables 1. Table No. 1 and No. 4 For both fertilizer products and pesticide Products, PNI’s major customers are the small farm owner (Fertilizer: 76. 7%, Pesticide: 39. 6%), so the future trend for PNI is to take more medium and large farm size customers (Medium: Fertilizer: 10. 8%, Pesticide: 6. 7%; Large: Fertilizer: 9. 5%, Pesticide: 7. %). 2. Table No. 2 and No. 5 in the market area, the sales of fertilizers, the medium farm account the largest portion of sales (69. 1%). For the sales of pesticides, the medium farm still accounts the largest portion of sales (60. 64%). In the PNI’s area, both the sales of fertilizers and pesticides to the medium farm customers have the highest percentage (Fertilizer: 49. 1%, Pesticide 43. 3%); therefore, PNI should focus on the sales of fertilizer and pesticide to the medium farms’ customers because it accounts the largest part of PNI’s total sales. 3. Table No. 3 and No. The sales of PNI’s fert ilizers and pesticides to the small farms’ customers have already gained the largest sales in the whole market (Fertilizer: 87. 41%, Pesticide: 44. 67%). However, for the sales of PNI’s fertilizers and pesticides to the medium and large farms customers account a very small portion of the total sales in the whole market (Medium: Fertilizer: 11. 84%, Pesticide: 7. 26%; Large: Fertilizer: 8. 79%, Pesticide: 6. 79%). Hence, PNI should also pay more attention to increase the sales to the medium and large farms’ customers due to its huge growth potential. . According to the Exhibit 5 in the case, the large farm size prefer Materials and Regular fertilizers and it contributes almost 54. 3% of the material sales to total sales. Therefore, PNI should focus on selling Materials to large farm size customers. However, the sales percentage of the premium and regular fertilizers, which in the medium farm size contributes the most to the total sales of the market, and the sale percentages are 53. 1% and 59. 7% respectively, and the Exhibit 4 showed that the Premium fertilizers and Regular fertilizers of PNI have the highest ($89. 5) and second highest gross margin ($66. 11); hence, PNI should focus on selling premium and regular fertilizers to small and medium farm size customers. In addition, it is unnecessary for PNI to focus on the sales to dealers because PNI cannot stop the trend that the sales volume to dealers is decreasing year after year. Observation: 1. Medium and large farmers have great grow potential. 2. Small and Medium farms prefer Premium blends fertilizers, which is the most profitable fertilizer product in PNI (gross margin: $ 89. 95/ ton) Strategy Diamond ModelThe strategy diamond, which includes arenas, vehicles, differentiators, staging and pacing, and economic logic, shows how well a company do its business in a strategic level. Arenas: PNI’s current product and service lines consisted of fertilizers, pesticides, custom appli cation services and oil testing. The PNI in Lancaster is one of the subsidiaries in the 6 geographical regions, which are Northeastern United States, Eastern Canada, Europe, Australia, New Zealand, and South America. In terms of distribution channel, the company outsource a trucking company to cut down on their distribution costs.Moreover, the company have modern equipment to produce products and have the best trained operators to provide services in the region. Vehicles: There is no information about vehicle in the current situation. However, if PNI select the second alternative, which is adding a seed business in the near future, the company may alliance with Larson Seed, a regional seed producer, to provide expertise and sales training for PNI sales consultants. Differentiators: PNI bundles their prices so that when a farmer buys their product the services are also included in the price.The services provided are also customizable to the farmer’s needs. They have the most q ualified operators in the region, and because of this, they are able to provide the highest quality services. They have a strong long lasting relationship with their customers as they have been in the business for 20 years. Furthermore, PNI is the only fertilizer supplier in the area with proprietary, premium fertilizers, had invested heavily over the years to develop and test their products. Each customer needs different services that depend on that customer's situation by creating value bundle.Staging and Pacing: There is urgency for PNI to do internal development because the company wanted to perform better in the next year (1999). So, the top management had come up with three alternatives to either adding new businesses or strengthening the current business. Economic logic: There is a great potential for PNI to generate more profits when the company minimize its cost. The case mentioned that PNI didn’t achieve its maximum capacity. For example, the capacity of PNI blendin g plant is 14,000 tons/ year; however, it just blended approximately 10,000 tons in 1998.By achieving the maximum capacity, the company can utilize the economies of scale to assign the fixed costs of the production into each process, so that the company can make more profit. Observations: Overall, PNI didn’t perform very well in 1998 because the operations within the organization don’t function well. The major reason of it is that the production level didn’t meet the maximum capacity, which increases the cost of each product. When costs go up, the revenue will decrease (assume the volume sold is the same).Internal Analysis-Value Chain analysis The Value Chain is a tool to analyze the internal environment of a company and determine where the business concentrates their efforts. Inbound logistics: PNI’s warehouse met the latest U. S. environment standards for fertilizer and pesticide storage; however, its storage is able to handle a substantially larger vol ume than currently required. This means the company have high variable cost per item because it didn’t fully utilize its storage. Operations: The capacity of PNI blending plant is 14,000 tons/ year; however, it just blended approximately 10,000 tons in 1998.This means PNI were not achieving the maximum capacity. The company has two types of application equipment, which are modern and in good working order. The first type is fertilizer equipment, which consist 25 bulk, full-typed spreaders. The cost of the equipment is incorporated in the price of fertilizer, so it is free for customers. However, customers just used bulk spreaders on about 80, 000 acres in 1998, which is about 32000 acres per spreaders, which is less than a spreader’s capacity of about 4000 acres. So, the company can reduce the number of spreader it gave to customers to reduce costs.Air spreader is more attractive to large and medium farmers. The capacity is 8000 acres per year under ideal condition, ho wever, only 4000 acres in 1998, which is only half of the actual capacity. Consumers can choose to pay for it by bundling price of equipment to fertilizers or separate the price for spray equipment and fertilizers. The other type of application equipment is pesticide application equipment. There are two self-propelled applicators under pesticide application equipment, which are small unit applicator and larger unit applicator.The capacity is 8,000 acres per year for smaller unit and 10,000 acres per year for larger unit. In the last two years, these two units are fully utilized, which sprays a total of 18, 000 acres of land each year. The problem is two application units were fully booked, whether lack of application capacity might be constraining pesticide sales. The soil testing lab can handle 14000 samples per year; however, it only handled 6000 samples in 1998. Outbound logistics: PNI deliver raw materials by using an excellent rail service and a local trucking firm handled all shipment to customers.Dunwoodie said that the outsourcing of PNI’s trucking had reduced costs and investments substantially. Marketing and sales: PNI is the only fertilizer supplier in the area with proprietary, premium fertilizers, had invested heavily over the years to develop and test their products, which are urea and ammonium, regular N-P-K, and premium N-P-K. The last product was a proprietary product that carried the Nutri-Plus brand, which provides significant economic benefits to farmers and the sales of it accounted for half of sales in 1988 and an increasing percent percentage of PNI's total sales over time.Most of customers didn’t ask about price, so they are less price sensitive. Dunwoodie estimated that to be about 40% of the total acres treated with chemicals sold by PNI. The market segments are depending on the size of farm, which are sorted by small, medium and large. There are up to 100 acres of crops in small farms, 100-500 acres of crops in medium f arms and over 500 acres of crops in large farms. PNI charge on the basis of the customer's ability and willingness to pay and are sharing in the benefits it create for the customers, which result in higher margin, premium products.However, PNI lost profit on the higher prices of these products due to high cost of service. The company had about $25,000 in its budget for marketing. PNI spent most of them on PNI-sponsored events where 25-50 local farmers were treated to a meal, some entertainment, and an information program. PNI also advertised in local newspaper and gave away hats, pens, and other premiums to customers and prospects. Moreover, $5000 was spent on a corporate brochure in 1998. Service: extensive agronomic services: soil analysis, crop scouting, nutrient consulting, micronutrients analysis, and pesticide and fertilizer application.Sales representative do delivery, application, consultation, consultation, and billing to customers. Also, they kept latest product knowledge and attempted to build strong personal relationships with each customer result in low customer turnover rate. Procurement: Supplied by its mother company. Technology development: PNI use modern equipment to produce products and advanced information system to provide more accurate data and feedbacks to the company. Also, if it decides to enter into the precision agricultural business, it needs to use GPS system and other AgriTechs, such as Yield Mapping and Remote Sensing Mapping.Human resources management: Brian Dunwoodie has 11 staffs reporting to him that includes sales, marketing, accounting, production, administrative functions. Staffs are flexible and empowered, so that they could do what needed to be done. Dave Claussen is responsible for developing PNI's marketing program. There are two services managers who work with sales consultant to determine the types of products and application rates for individual farmer clients. PNI is possible to use high-level technical support bec ause it use full time and better trained employees than competitors.Other company use part-time employees with little expertise with the equipment or procedures involved for applying fertilizers and pesticides. There are 4 sales consultants who is selling PNI products and services, working with existing customers, explaining soil test results, helping develop an annual fertilizer and pesticide program, providing general technical advice and attracting new customers. Average 30 days each year to sales and product training, compared to other competitors less than 15 days on training. Each consultant had a designated sales territory, which has approximately 140 customers. Observations: 1.PNI have extra capacity of warehouse and machinery. 2. Outsourcing trucking service reduce the company’s cost. 3. Staffs are well-trained and be able to provide superior services to customers. VRINE analysis VRINE is a tool to analyze the internal resources and capabilities to determine if a com pany has a competitive advantage over competitors. Value: There is no unique resource within the organization because the technology and resources the company use to produce the products is easy to access by other competitors. However, the company provide customized services and products to customers, which provide benefits to farmers.Also, PNI has the best operators within the organization to serve its customers, which helps the company to build a good relationship with customers. It also used the â€Å"win-win† philosophy and dispatched sales representatives to keep a good long-term relationship with its customers Rarity: The resources the company use are not rare, because it can be access by competitors too. Inimitability: The technology the company use to produce products is easy to imitate by competitors. Non-substitutability: The chemical fertilizer product can be substituted by Biofertilizers, which is made from microorganisms.Pesticide can be substituted if farmers bu y pest-resistant seed to remove the need to by pesticides. Exploitability: PNI didn’t manage its resources well because they have wasted a lot of resources in the process of operations. For example, the capacity of PNI blending plant is 14,000 tons/ year; however, it just blended approximately 10,000 tons in 1998. Air spreader is more attractive to large and medium farmers. The capacity is 8000 acres per year under ideal condition, however, only 4000 acres in 1998, which is only half of the actual capacity. Observation: 1.PNI has a non-sustainable competitive advantage. 2. The exploit of resource within the organization is poor. External analysis -Porter’s five forces Michael Porter's five forces model, which determined industry profitability, included degree of rivalry, threat of new entrants, supplier power, buyer power and threat of substitutes. Rivalry (High) There were five companies sell fertilizers and chemicals to farmers around Lancaster. PNI's largest competi tor is Lancaster County Co-op. It supplied both crop and livestock inputs and purchased grain through a separate division.It also offered application services-farmers were dissatisfied with the quality of these services and co-op didn't provide many value-added services, such as precision agriculture. Another competitor is Smith Farm Supply, which is an independent dealer. It only sold chemicals and fertilizers and provide custom application services using less expensive, poorly trained, part-time operators. Smith Farm Supply offered the best prices in the area. The other three competitors are Archibald Farm Supply, Henderson Farm Supply, Wilmington Crop Services; they all focus on supplying chemicals rather than fertilizer.Threat of new entrant (Low) Since the competition is so fierce, there is less chance that new entrant want to enter into the market. Supplier power (Low) PNI can directly get supplied from its mother company. Plant Nutrients International supplied fertilizer ingr edients to its subsidiaries. And their sales would not be influenced by the suppliers. Buyer power (High) The switching cost for customers is very low, so no matter which company offer good service and lower price customers could switch forth and back. Threat of Substitutes (medium-high)Fertilizer’s potential substitute: Customers may switch to biofertilizer, which is made from organism is applied either by coating seeds with the fungus, because people’s awareness of body health. Pesticide’s potential substitute: farmers may buy pest-resistant seed to remove the need to by pesticides Observation: Overall, the profitability of the market is not attractive because the competition is fierce, buyer power is high and there is some product can substitute the products the company currently sell. PESTEL AnalysisPESTEL analysis is used to analyze the external environment of a company; it stands for Political, Sociocultural, Environmental, Economic, Technological and Lega l. Political: PNI’s warehouse met the latest U. S. environment standards for fertilizer and pesticide storage. Sociocultural: Many of the small and some of the medium farms in Lancaster were owned by Amish farmers, they were hard-working farmers whose religious beliefs called stewardship of the land. Most of them are willing to adopt technology that supported stewardship of the land.Environmental: The chemical fertilizers and pesticides PNI sell have a potential to pollute land, so the company should be careful about the environmental costs regarding ecological or environmental issues. Economic: Asian financial crisis happened in 1997-1998, so it is not a timing to enter market into Asia. However, the financial crisis has limited influence to the United States’ economic environment. Technological: The company use advanced Information System to provide more accurate and detailed data on customers.Moreover, PNI is possible to use high-level technical support because it u se full time and better trained employees than competitors. Legal: Several federal regulations cover fertilizer manufacturing and transportation safety and limit their potential impact on the environment and security. Observation: Overall, there are many factors outside of the company have the power to influence a company’s decision and strategic plan. Alternatives Evaluation 1. Working the existing business harder Dunwoodie says that if they were to make no changes and just work their existing business harder they would be able to meet their objectives.They are lagging in the large farm segment and if they were to add 20 farms from that segment they would be able to meet their objectives. They could use their excess capacity to spread out their fixed costs. Advantages: a. It has a great potential to increase the number of customers from medium and large farmers. b. It can help the company to achieve its maximum capacity, which will reduce the cost of each product because it assigns the total fixed cost into more numbers of products. (Economies of Scale) c.Could meet the financial obligation within one year by attracting more medium farmers (the most profitable market segment) Disadvantages: a. It is hard to attract larger farmers because they prefer low-priced products. If PNI wants to attract larger customers, it should reduce product price, which means the profit will decrease as well. b. They should hire and train more sales consultant to meet the increasing number of customers, which increase PNI’s cost too. 2. Adding Seed Business Dunwoodie thought that adding a seed business to PNI would add value to the company.With the new genetic seed technology chemical sales would decline in the future thus creating more opportunities for seeds. Companies like Larson Seeds were already successful seed suppliers. Larson was looking for a distributer in Lancaster, but Dunwoodie was worried about the already existing competition in the seed market, the n ew staff they would need to hire, and the training for the employees and the company alike to get into this business. Advantages: a. Its new genetic technology might increase seed sales. b. It can help PNI complete the product line. Disadvantages: a. he new genetic technology can also decrease chemical sales in future, which conflict with PNI’s current product line. b. Another challenge for PNI to access to the seed business was that it needed to partner with a good seed producer, so whether PNI can cooperating with a regional producer would became an important question for Dunwoodie to consider if he wanted to enter the seed business. c. This alternative is hard to meet the company’s one year financial obligation because it is a new business to add a seed business, PNI should take times to discover the right strategy to sell seeds. . the competitive market is fierce, for example, Monsanto is a giant in the seed business. It is hard to steal market share from it. 3. Ad ding a Precision Agriculture Services If PNI was to adapt the precision agriculture they would be the first ones to market with this service, thus creating a huge competitive advantage. There would be a huge start-up cost to start such a venture, expenses like; new staff, equipment, trucks, and training. With is new technology they would be able to better serve their customers allowing them to put together superior agronomic packages.A lot of farmers were skeptical of the new technology but after reading the survey, I find that not many of the farmers are educated in the benefits of the new technology. It would be the sales force’s job to educate the customer on the benefits to be able to make the sale. Advantages: a. Many farmers were aware of precision agriculture and precision agriculture was a coming trend, so adding precision agriculture would improve the customer service and increase total sales. b. It can complete the company’s services by providing more precise and accurate method to application service. . It will be a competitive advantage for the company, because no competitor enters into this service. Disadvantages: a. High cost: it would cost $10,000 to set up one pull-type spreader and $225,000 to purchase the truck with six separate tanks. Moreover, PNI still needed people, computers, software, and monitors and so on; the investment would be extremely large. b. The survey found that many farmers had skepticism regarding the real benefits of the precision agriculture. c. It cannot meet the company’s financial obligation in one year. FIT AnalysisInternal: Internally PNI hires the best operators and most experienced sales consultants so that they are able to provide the best services and knowledgeable employees. By meet the company’s goal, which is better financial performance in the next year, PNI should hire more sales consultant to meet the increasing number of customers. Moreover, the company should try to achieve its maximum capacity in the next year, because it will significantly reduce the COGS. External: PNI has 5 competitors in Lancaster, which created a fierce competitive environment.However, PNI has its competitive advantage over other competitors, which is the customized and superior service it provided and also the relationship it built with customers are both the assets of the company Moreover, there are many factors externally have the power to influence a company’s decision and strategic plan. Observation: Overall there is a good fit between PNI’s internal and external environment. It recruited full-time and well trained staff to provide superior services to customers, which is a competitive advantage of the company.Externally, customers and even competitors perceived PNI as superior services providers with knowledgeable sales reps in the region. Conclusion In conclusion we think that PNI has the resource and capability to either entering new business or strengthening t he current business, because they haven’t achieve the maximum capacity of machinery and warehouse. Moreover, medium and large farmers have great growth potential and they prefer premium blends fertilizers, which is the most profitable fertilizer product in PNI.In addition, outsourcing trucking service reduces the company’s cost. Furthermore, PNI staffs are well-trained and be able to provide superior services to customers. PNI has a non-sustainable competitive advantage, which means its competitive advantage can be imitate by competitors. In addition, there are many factors outside of the company have the power to influence a company’s decision and strategic plan, such as government’s regulation and sociocultural factors. RecommendationAfter analyzing the organization’s internal and external environment, and all three alternatives, we recommend PNI choose the first alternative, which is working on the existing business harder. We also suggest that PNI focus on targeting medium farmer because of the following reasons: 1. PNI have a competitive advantage over their competitors because of their superior quality and customer relations. At the same time, medium farmers value good services when buying products, which is what PNI good at to do. 2.They are less price sensitive than larger customers, which can help PNI increase sales. 3. Medium farmers prefer premium blending fertilizer, which is the most profitable products in PNI. 4. There are only 6. 7% of medium farmers buy fertilizers of PNI and 10. 6% medium farmers purchase PNI pesticides. This means there is a great potential for PNI to get more customers from medium farmer segment because the customer base is big. 5. It has a greater potential than other alternatives to help PNI achieve its one year financial goal.Other two alternatives need longer term than the alternative 1 to breakeven, because PNI needs cost more money to implementing the seed business and precision busin ess. However, it costs the company less to implement the first strategy, because the company already have all capabilities and resources to implement the first alternative. However, it is not to say PNI should only target on medium customers. Instead, PNI should keep targeting small and large customers, because it is good to diversify the risk of targeting only one market segment. However, the medium farmers should be the priority of PNI.

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Film Blade Runner - Movie Review Example The movie that was the trend-setter was the Blade Runner. This movie ahs been a fore-runner of sorts, in many ways. For instance, it delves into science and genetics, it also gets into concepts like globalization, climate change, over-population and cyber-punk, to a name some prominent issues. While these issues are common concerns of today, the film voiced the same in 1982! This definitely makes it a futuristic approach. This write-up attempts to examine the theme of humanity in the movie. It portrays the 'replicants' who are similar to human, but are products of genetically engineered scientific processes. These replicant criminals are hunted down by the 'blade runners', who are the police. The events that occur and the twists the plot takes, are reflective of problems that menace today's world. The most striking one of these problems, is that of genetically engineered lives. Thus, the movie is explicitly built around the theme of humanity, as juxtaposed against the phenomenon of genetically engineered replicas. 'Humanity' as a theme in Blade Runner comes across in a number of contexts. Humanity is portrayed as the initial superior force in the movie, which is taken over by artificial intelligence, created by the same humans. It is due to this that a number of problems arise. Humanity and Pseudo-Humanism are portrayed with panache in a variety of venues. The following is analyses into the same. TECHNOLOGY AND HUMANITY In today's fast paced modern world, technology has redefined possibilities. Over the years, technology has revolutionized our lives to the extent that they have more often than not, substituted human action. After the building of such high tech applications and devices, man's attempt has been towards constructing technology that can replicate human beings. The artificial intelligence is one such example. In the process, we do tend to rethink and re-describe, what is distinctively 'human'. In other words, we have been seeking to replicate humans suing technology and have in turn been striving to identify what is humanly 'human'. "As we give our machines selected human characteristics to make them more efficient, they will tend to discover humanity in their own unique way, rising above their 'specifications' to actually become human..These films document how 'human' technology will always assume more human characteristics. They suggest that to be human is to reach some state of equilibrium. In other words, an entity initially bestowed with any combination of human related characteristics will spontaneously approach a more stable state through the passage of time, like a chemical system out of equilibrium. Just as we grow uniformly content through our venerable years, artificially created beings grow increasingly human with age. Roy, designed as a fierce "combat model," has ironically grown to be a poetically rich man and draws our attention to the pertinent issues of Blade Runner by the elegant efficiency of

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Maslow's Hierarchy of Needs as it relates to sexuality in older adults - Research Paper Example The inclusion of air, water, food, excretion, sleep and homeostasis is understandable but many critics have argued that sex should not be included as the absence of the act does not result to severe consequences. Maslow, however, countered by arguing that sex is mandatory for the survival of the species. Aside from the perpetuation of our species, several researches have found that the importance of sex transcends this purpose. The common thread among these researches is the self-actualization realized thru sexual interaction and satisfaction. In the published study of Susan Sprecher of the Illinois State University involving premarital couples, sex and the satisfaction gained from the act was a major determinant of relationship satisfaction, level of affection and degree of commitment. As people commit sex and gain satisfaction, the quality of the relationship becomes more enduring leading to higher levels of moral values. In a study involving old Chinese people, Kwong and Kwan (2006) found that a higher level of active composure, general well-being and satisfaction when sexual intercourse is practiced. Sex was found to be instrumental to daily living and would compensate for the depressing effects of inadequate incomes and physical weakness. Another interesting study was that of Walters and Williamson (1998) who examined the importance of sex in people who had undergone amputation in the lower extremities. The study is significant in this paper because the participants were mostly old people. Results indicated that having sex reduces the feelings of powerlessness and depression associated with the disability. Amputees stated that they felt ‘whole’ again and that they can do anything in the world again. Old people also need a healthy body to overcome depressive tendencies and become positive thinkers. To do this, the immune system of their body should be in an excellent state. Charnetski and Brennan (2004) was able to

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Effectiveness of the War on Drugs - Essay Example The purpose was to create a central office for waging the war on drugs. Upon its establishment, the DEA was comprised of 1,470 Special Agents with a US$75 million budget. The DEA currently has 5,200 Special Agents with an operating budget of US$2.6 billion.3 Both sides of the argument have merits. In other words it is equally arguable that the War on Drugs is ineffective and that the War on Drugs is effective. Therefore the best that can be deduced is that it is virtually impossible to measure the effectiveness of the War on Drugs. To start with, it is difficult to devise a benchmark for measuring the War on Drugs. For instance, is the War on Drugs measured by reference to the expenditure and the prevalence of drug use and exploitation? Or is it fair to measure the effectiveness of the War on Drugs by identifying the percentage of non-users? Each of these methods of measurements raise significant questions relative to their validity. For instance, if the expenditure were less would t he problems of drug use be greater? If there was no War on Drugs would the percentage of users be greater? Regardless, the US government and a majority of governments are determined to control drug use and production. Meanwhile, drug users and drug producers are just as determined to continue producing and using drugs. In measuring the effectiveness of the War on Drugs both of these factors are significant. The main question is whether or not drug users and producers’ determination to use controlled substances is matched by governments’ determination to control the use and production of illicit drugs.... n question is whether or not drug users and producers’ determination to use controlled substances is matched by governments’ determination to control the use and production of illicit drugs. In this regard, the US drug policy and its War on Drugs’ agenda is approached from a supply side initiative. In other words, the US government expresses its determination to control drug use and production by primarily focusing on interdicting drugs and thereby preventing its entry into the US. Given the extent of the drug problem in the US this interdiction oriented scheme is for the most part ineffective. Boyum and Reuter report that: Drugs are as accessible as ever as inflation-adjusted prices for cocaine and heroin have fallen by more than half.4 In other words, despite its best and most expensive efforts to prevent illicit drugs entering the US, these drugs continue to be available on the streets of the US. In fact Stokes reports that despite the War on Drugs, increasing ly, the street price of heroin and cocaine in the US has fallen and yet at the same time has improved in its quality and content.5 It would therefore appear that the supply side approach to the War on Drugs expresses a determination to cut off the supply of drugs to the US and by doing so curtail production and use. However, this determination is not matched by the determination to produce and use illicit drugs since all indications are that drugs are not only continuing to enter the US, but they are continuing to be used excessively. What these outcomes reveal is that the primary technique of taking a supply side approach to the War on Drugs is ineffective. The US government must therefore look at alternative methods for fighting the War on Drugs and expressing its determination to control illicit drug

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Accounting information systems Coursework Example | Topics and Well Written Essays - 1250 words

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Goodbye Pork Pie Hat by Charles Mingus disscusion paper Essay

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Analysis Essay Example | Topics and Well Written Essays - 250 words - 32

Analysis - Essay Example Last, but not the least, the third failure in materials can be identified as the corrosion fatigue which occurs in metals like iron most of the time. These failures have importance because avoiding them can reduce cost, manpower effort and energy. One of the common mistakes made in engineering work is employing material like iron in instances where there is a chance of corrosion. If as an engineer iron is used in structures which come in contact with water, then within years metal corrosion can takes place and structures like building and bridges can collapse. However, in such cases, the Swiss Cheese Model comes into play as it is used to gauge risk analysis in relevant engineering constructions. With this model, we can understand that corrosion in metal passing through corresponding holes in the layers of defences can cause active and latent failures. One of the failures which can be identified in Delatte’s reading is the stress corrosion in relevance to bridge collapse. If this failure is focused on then it can be characterized through one of the method described by Brosnan which is incompetence. According to (Brosnan 34 )â€Å" The correctness of engineering calculations represents only one part of the large scope of potential human error in construction work†. It means the engineering experts are misunderstanding the engineering principles and characteristics of system and materials in case of building

Settlement of the power conflict between top management of Cathay and pilots Essay Example for Free

Settlement of the power conflict between top management of Cathay and pilots Essay 1. INTRODUCTION 1.1 Background Information Since 1993, Cathay Pacific Airways Limited (Cathay) has experienced the threat of industrial actions initiated by unions. On 1 July 2001, another industrial action was commenced, resulted in a three-month chaos in Hong Kongs tourist industry. Being the representatives of the pilots of Cathay, Mr Nigel Demery, the President of Hong Kong Aircrew Officers Association (HKAOA), informed Cathays top management that the pilots refused to accept Cathays new pay proposal. Members of the HKAOA have decided to commence industrial actions to force Cathays top management to accept their demand. The event was followed by a sharp increase of pilots reporting sick leaves. Unlike previous industrial actions, Cathays top management held firm to their original standpoint and dismissed 52 pilots and chartered additional aircraft to moderate the problem of pilots reporting sick and absence from work. However, the incident did not come to an end. On the contrary, the problem escalated when HKAOA reacted by announcing support of the sacked pilots by taking legal actions against Cathay for the unfair dismissal. The pilots industrial action caused a financial loss of US$12.8 million to Cathay each day. In fact, this was not the first time for the pilots to use industrial actions as a mean to press the top management in accepting their demands. Three industrial actions have been taken place since 1999. These frequent industrial actions have not only caused financial loss, but also harmed the companys overall reputation. Table 1 provides a summary of the industrial actions that has been taken place since 1993. 2. OBJECTIVES 2.1 Objectives The chief objectives of this report include: Settlement of the power conflict between top management of Cathay and pilots Moderate the power of pilots in order to avoid or reduce industrial actions in future 2.2 Analysis of the Existing positions of both parties Luthans (1992, p.426) said that formal organizations are highly political and power is the name of the game. Managers and non-managers in an organization often manipulate power to accomplish goals. Cathays top management holds legitimate, reward and coercive power to perform various specific tasks and decisions. Legitimating refers to an upward appeal, which adds weight to an influence attempt by showing support from senior managers, rules or procedures.1 On the other hand, coercive power means the using of threats, intimidation and coercion to gain compliance.2 In the recent industrial action, the top management tried to utilize their legitimate and coercive power to gain pilots compliance. Apart from the effectiveness of this position-based power strategy, the use of coercive power always causes negative consequences such as weakening relationships. In contrast, the pilots hold strong expert power. Pilots have high-value expertise. Referring to the strategic contingencies model3 which focused on individual power and how it is obtained, the subunits that are most central to the flow of work in an organization acquires power. The major revenue of Cathay comes from passenger and cargo services. It is impossible for an aircraft to operate without a pilot. The past industrial actions showed the strength of pilots expert power. Thus, the power conflict between top management and pilots must be settled in the long run. Besides, Cathays pilots manipulated the coalition strategy to accomplish their goals. HKAOA is a typical coalition of pilots. At present, Cathay employs 1,500 pilots, more than 75% of the pilots are members of the HKAOA. Thus, each industrial action evoked by HKAOA has caused a significant impact on Cathays business and reputation. Given the fact that the majority of the general public was of the view that the pilots have been over-demanding and created much chaos to the tourist industry in Hong Kong (According to the interview results as well as from the media), it is a good opportunity for Cathay to take advantage of the situation and to moderate the power of the unions. 3. SOURCE OF INFORMATION 3.1 Source of Information This report is based on both primary and secondary information from various means. This includes:- ? Interview with representatives of both Cathay and the HKAOA. ? Annual Interim Reports of Cathay ? Newspapers ? Magazines and Journals ? Cathay Pacific Airways Official Web Site 4. FINDINGS Our findings are mainly based on the following sources:- * Interview Findings * Financial data published in the Next Magazine as showed at Tables 1-5. * Review of Cathays existing policies and procedures as showed in Appendix 1. 4.1 Interview Findings 4.1.1 Interviews with HKAOA (Interviewee: Mr. Spurrier M.) ? According to HKAOA, Cathay was intimidated by aggressive interviews by managers about delays; ? For other managers or employees acting on Cathays instructions had followed pilots into the cockpit to watch them doing flight checks even though they did not possess the required qualifications to know what was necessary, as such, prosecutions for those people may be possible under the safety law of Air Navigation Ordinance as intimidation risked distracting pilots from their jobs; ? The pay demand was reasonable to Cathay; 4.1.2. Interviews with Cathay Management (Interviewee: Mr. Tang) ? Many crews were being put under extreme pressure to sign the HKAOAs lawyers letter; ? Cathays net recurring profits has already been forecasted to fall by 20% to 25% in 2001 due to the global economic downturn; ? The pay demand of HKAOA was unacceptable; 4.1.3. Interviews with the Human Resources Department (Interviewee: Mr. Chau) ? Employees remuneration represented about 25% of Cathays Total Operating Expenses; 4.1.4. Interviews with a Cathay passengers (Interviewee: Mr. Lee) ? The respondent described the pilots pay demand as unreasonable while the economy was still recovering; ? He complained that the pilots threat of industrial action had thrown his holiday plans into chaos and the pilots union was selfish especially during peak travel seasons; 4.1.5. Interview with Tourists Right Association ? They said that industrial actions would not gain the support of the general public and would only injure Hong Kongs reputation and tourism industry; ? They claimed with anger that the pilots earned well in Hong Kong, but tried to endanger Hong Kong tourism industry; 4.1.6. Media Comments from the Next Magazine, Hong Kong ? Analysts said it would be hard for the pilots to pressure Cathay into roistering changes because of the financial implications; 5. SWOT ANALYSIS OF CATHAY 5.1 SWOT Analysis A SWOT analysis may help management to identify the companys strengths and weaknesses against its major competitors in the industry and to explore the opportunities and threats for effective strategic planning purposes. The analysis has been summarized from our findings and observations by various means as mentioned in Section 4 of this report. The SWOT analysis is mainly based on our observation and analysis on the financial information provided in Cathays annual report and from that of the Next Magazine. 5.1.1 Strengths ? Strong management team such as the director of corporate development, Tony Tyler, has implemented tough policy; ? Code share agreements with a number of other international airlines to provide greater flexibility such as British Airways, Japan Airlines, Malaysia Airlines, South African Airways. Swissair, THY Turkish Airlines; ? With the decisions made to cut schedules and bring in charter aircrafts, the level of flight disruptions and delays have been considerably reduced, and the effect on sickness levels have to reduce; ? With the prevention from government regarding overseas airlines in carrying passengers in Hong Kong to other destinations, Cathay became a price maker; 5.1.2. Weaknesses ? Existence of Tenure employment contracts strengthen pilots power; ? Contracts are issued to pilots according to HKAOAs instructions, for example, all newly recruited pilots must start from the entry post of a Junior Pilot regardless of his/her previous experience; ? Long history of tolerance to pilots for their industrial actions created wrong perception to pilots that industrial action was an effective way in request for a demand; ? Lack of local pilots as substitutes in time of strike; ? High cost of training a Cadet Pilot (approximately US$128K); ? Huge amount of financial interest of about US$1.3 million a day and labor cost of US$2 million per day; 5.1.3. Opportunities ? Prolonged industrial action created unnecessary anxiety to passengers and the public, resulting in the loss of confidence in pilots and its union; ? Insufficient coalition between the union and pilots as not all the pilots are willing to participate in the industrial actions; ? As pilots were sacked, Cathay could recruit pilots at a lower cost; ? Intensive trainings were held in an Adelaide aviation training school; ? Only a 3-year contract for new recruitment could be signed; ? More better experienced pilots can be recruited with closure of airlines subsequent to the 911 tragedy in America. 5.1.4. Threats ? The corporate image was spoiled by the HKAOA strike; ? As flights were delayed or suspended, loyal customers have been lost, resulted in loss of competitiveness; ? Aviation market has been opened up for competition; ? Owing to the pilots expertise, substitutes would be extremely difficult in the case of sickness; ? The pilots are forced to sign a letter drafted by the HKAOAs lawyers to Cathay and were intimidated by having their names as non-signers on its website when they refused to sign; ? The unions source of income was supported by the membership fee from 80% of the 1,500 pilots at 1% of their income and was proposed to increase the contribution up to 5%; 6. PROBLEM-SHOOTING AND RECOMMENTDATIONS 6.1 Problems Difficulties ? The industrial action has been too powerful for the company to deal with. This was evidenced in the prolonged action that has caused substantial damage to the tourism industry; ? High level of dependency on foreign pilots to carry their passengers; ? The HKAOA vowed no resolution to the Cathay dispute unless all the pilots who have been unfairly dismissed were reinstated. 6.2 Recommendations and Strategies Our recommendations are made to achieve 3 chief objectives:- i) Strengthen the power of the company ii) Weaken the power of the pilots iii) Building-up relations with the pilots 6.2.1 Strengthen the power of the company In order to strengthen the power of Cathay, playing games will be a good tactic. Authority game can be used to resist the power of the pilot. History indicated that Cathay lost in 3 industrial actions (from 1993 to 2000), as the company did not resist the power of the other party. Hence, the company original policy should be strictly adhered in order to win the game. In July 2001, Cathay proved that the Authority Game tactic was feasible with its firm adherence to its proposed pay, benefits and roistering package with up to 9% increment (Table 2 showed the salary package as proposed by Cathay). On the other hand, Cathay has publicly refused to consider negotiating with the pilots again unless they withdrew their industrial action. Besides, Cathay may consider using the coalition-building game to form alliance with other airlines, preferably nearby airlines. Coalition game is another power-base game to increase power through forming of alliances or coalitions with groups within the subunits of the company or groups outside the organization.4 Cathay can then enjoy immediate assistance by chartering additional aircrafts and rebook passengers on other aligned airlines. This increases the flexibility for Cathay even if HKAOA imposes further destructive actions. Moreover, all airlines should agree not to hire bad-listed pilots. Furthermore, Cathay can inform outsiders about the injustice and irresponsible actions of pilots via a whistle-blowing tactic. Firstly, they should let the public know the prospect and earnings of a qualified pilot, i.e. create a high-income earner image for the pilots (Table 3), during recruitment of cadet pilots. In general, the general public will not accept high-income earners taking industrial actions to fight for salary increment. Secondly, they may let the media know that more than 10,000 passengers were adversely affected by the industrial action in July 2001. Besides, joint efforts with the Government are required to show the economic damage to Hong Kong during the industrial action. 6.2.2. Weaken the power of the pilots Political influences are a good way to conform the pilots to meet organizational value. This can be done by position-based influence strategies through pressure and threats in return for compliance. Besides, coercive power depends on fear. During the industrial action in July 2001, 52 pilots were sacked without any reasons. The action tended to show the firm position of Cathay and intimidated the pilots to accept the offer. Since Cathay could afford to pay sacked pilots a better than most package, as the Hong Kong labor laws offered the company with certain flexibility. This implies that further dismissal of pilots is possible. The enforcement of pressure and threat can be achieved by the issuance of written statement warning that lateness will not be tolerated as this would breach of the employment contracts, which may in turn lead to dismissal. Moreover, the announcement of cutting foreign-based pilots is a feasible alternative. Another way is to abolish the tenure employment so as to reduce pilots employment security. The new employment proposal is a three-year contract for newly employed pilots. Renewal of contract is subject to performance, i.e. diluting the portion of permanent pilots. Substitutability refers to the ability to engage other pilots to perform the job of the existing pilots.5 This implies that if Cathay has or can obtain alternative sources of pilots to perform the job done by the existing pilots, the pilots union can be diminished. Therefore, Cathay can consider hiring pilots from other airlines, who have been sacked during the redundancy programs, e.g. America Airline, Continental Airlines, etc. The reduction in the dependency on foreign pilots becomes the most important aspect of power which is a function of dependency. This is because the greater Cathays dependency on the foreign pilots, the greater the pilot unions power has over Cathay. It can be observed that in August 2001, 10 local pilots have completed their Cadet Pilot Programme at BAE SYSTEMS Flight Training in Adelaide, South Australia. The 10 graduates brought the number of cadet pilots who have graduated from Cathay Pacifics training programme to almost 150 since its first launch in 1988. Cathays investment brings long-term commitment to develop Hong Kong aviation industries as well as reducing the dependency of the majority of the 90% overseas pilots. Obviously, foreign pilots are the source of power. Rule of thumb, if Cathay can have its own local pilot team, Cathay will not reply to hire the pilots from overseas. The sources of pilot unions will be diluted. Therefore, it is very important to speed-up the training of Cathays own local pilots team. 6.2.3 Develop relations with the pilots Building up better relationship with pilots is a long-term solution. This can be achieved through interpersonal influence. With the application of position-based influence strategies, Cathay can offer rewards or benefits in exchange/return for pilots compliance. Rewards can be anything that another person values which is the opposite of coercive power. In Cathays case, rewards can be monetary rewards, fringe benefits, favorable promotion prospects, flexible shifts or flight territories. If the company can give someone something of positive value or remove something of negative value, the company will have reward power over that person. Emphasis should be made on the fact that Cathays pilots are still the most expensive pilots when comparing to other American and European Airlines. This has been achieved during all public announcement and negotiation (as shown in Table 4 and Table 5). Motivating the pilots is crucial to Cathays long-term success. It is important to build up common goals and values to obtain support or commitment with personal-centered strategies. These are strategies that rely on an individuals characteristics and abilities to access expert and referent power bases, or inspirational appeals and consultation.6 One suggestion is that the pilot s remuneration package should split into basic salary and performance bonus, which relates to the company s annual profit. The outcome, consensus or agreement can be achieved through Normalization. Normalization influence can gradually change the opinions and the behaviour of pilots by reciprocal process and informational influence to achieve conformity.7 In fact, coercive and reward powers are counterparts of each other. If Cathay can remove the Unions powerful/dominant value from pilots or inflict negative values upon them, Cathay will have coercive power over them. As mentioned earlier, legitimate appeal can add weight over influence attempt by showing support of the senior management. Cathay may provide indication to the general public that the pilots are under intolerable pressure from Unions. First, it can be done through media to pronounce the number of calls that management had received complaints from pilots on managing Unions intimidation. Alternatively, it will be a good tactic for management to show care and understanding of pilots difficulties and to encourage them to follow the instructions from HKAOA by signing the lawyers letters back to Cathay. Lastly, ethical success will confront ethical dilemmas by the referent-powered management, like Mr. Tony Tyler. It is important that emphasis should be stress on Cathays pilots, Unions and the general public that the current package offered by Cathay is the best. The termination of industrial action is for the good benefits of pilots, passengers and the public instead of Cathay itself, which meets the utilitarian outcome. The packages offered allow the pilots an option to choose for their terms of package. The emphasis is on fairness, freedom of choice and individual rights. No strict rules for the pilots. In return, the dismissal of industrial action is expected from pilots. Message may be made to the general public with emphasis that Cathay has confidence over the pilots professionalism and legitimate power. They will be responsible for their actions. In addition, Cathay may show appreciation for those pilots who have filled in for their absent colleagues. 7. SUMMARY 7.1 Summary Since 1999, Cathay encountered threat from industrial strikes every few years (Table 1). Cathay compromised with HKAOA in the previous three strikes and gave in to the HKAOA industrial actions. This year, the fourth industrial action organized by HKAOA with an aim to fight for higher pilots salary increment and shorter working hours have caused Cathay loss of over millions of profits, not to mention the damage on its reputation and the loss of significant market share to major competitors. (Appendix 1 provides a summary of the vision of Cathay and its traffic figures from June to November 2001) This report has examined the current power between Cathay and HKAOA and accordingly recommended Cathays management to take proper actions to counter HKAOAs industrial action and to end HKAOAs threats in future. We have interviewed both the Cathays management and HKAOAs representative and gathered necessary information from other public means. We then evaluated these information to perform a SWOT analysis and based on it defined the problems facing by Cathay in its current situation. In general, Cathay is facing a powerful union, which has a very strong bargaining power due to the pilots expertise power. Hence, we have recommended Cathay to deploy political games to strengthen the companys power and to weaken the power of the pilots. In addition, we have recommended management to build up a long-term co-operative relationship with the pilots after the power struggle. By doing so, we trust Cathay can end this industry actions in a reasonable period and to prevent the same problem happen again in future. 8. REFERENCE BIBIOGRAPHY 8.1 REFERENCE Interviewee: Mr. Chau W., Director of Personnel, Cathay Pacific Airways Ltd. Interviewee: Mr. Lee, passenger of Cathay Pacific Airways Ltd. Interviewee: Mr. Spurrier M., Image Director of HKAOA. Interviewee: Mr. Tang A., Director of Corporation Planning, Cathay Pacific Airways Ltd. Luthans F. (1992). Organization Behavior 6th ed. Singapore: McGraw-Hill. 8.2 BIBIOGRAPHY Annual Report 2001, Cathay Pacific Airways Limited Botton V. Agencies, Cathay chaos may start today South China Morning Post, 3rd July 2001. Botton V., Pilots put battle plan into action South China Morning Post, 4th July 2001. Botton V. Agencies, Cathay may ground all flights South China Morning Post, 22 September 2001. Botton V., Cathay warns it may close foreign bases, South China Morning Post, 28 September 2001. Botton V., Secret Cathay peace talks fail South China Morning Post, 29 September 2001. Bowman J., Cathay turns screw on pilots South China Morning Post, 30th June 2001. Bowman J., Union denied access to Cathay mail boxes South China Morning Post, 3rd July 2001. Cheng A., Narrow nationalistic views clouding the Cathay issue South China Morning Post, 19th July 2001. Cheung C.F., Thousand stranded at airport South China Morning Post, 8th July 2001 Cheung J., Dispute may open extra routes South China Morning Post, 8th July 2001 Interim Report 2001, Cathay Pacific Airways Limited Ivancevich, J., Olekalns, M. Matheson, M. 2000, Organizational Behavior and Management, 1st Aust. Ed, Irwin, Sydney Lai C.Y., Cathay Strike, Next Magazine, 28th June, 2001. Lai C.Y., Cathay vs HKAOA Next Magazine, 12th July,2001. Lo J., Rostering and overtime remain key issue in Cathay negotiation South China Morning Post, 4th July 2001. Luthans, F., 1992, Organizational Behavior, McGraw-Hill, Singapore. Mintzberg H., 1983, Power in and around Organizations, Prentice-Hall, N.J., USA. Mullins, L., 1989, Management and Organizational Behavior, Pitman, Great Britain Pfeffer J., 1981, Power in Organizations, Pitman Publishing, M.A. USA. Porter L.W., Lawler E.E., and Hackman J.R. 1975, Behavior in Organizations, McGraw-Hill, N.Y., USA. Kotter P. 1987, The Empowered Manager, Jossey-Bass, San Francisco, USA. Reuters, Airline job cuts hit Europe South China Morning Post, 21 September 2001 Robbins S. P., 1994, Organizational behavior, 4th ed., Prentice Hall, N.J, USA. See http://www.cathaypacific.com Tichy N.M., 1986, The Transformational Leader, N.Y., USA. 1Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management, 1st Aust ed., McGraw-Hill, pg. 401. 2 Ibid. 3 Ibid, pg 393. 4.Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.403. 5 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.395. 6 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.401. 7 Ivancevich J, Olekalns M, Matteson M (2000), Organizational Behavior and Management , 1st Aust ed. McGraw Hill, pg.397.

Evaluating Derivatives Market in India

Evaluating Derivatives Market in India Introduction to Derivatives Market The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. Derivative products initially emerged, as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously both in terms of variety of instruments available, their complexity and also turnover. In the class of equity derivatives, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indices with various portfolios and ease of use. The lower costs associated with index derivatives vies-versa derivative products based on individual securities is another reason for their growing use. The following factors have been driving the growth of financial derivatives: Increased volatility in asset prices in financial markets, Increased integration of national financial markets with the international markets, Marked improvement in communication facilities and sharp decline in their costs, SCOPE OF THE STUDY The study is limited to â€Å"Derivatives with special reference to futures and option in the Indian context and the Networth Stock Broking Ltd., data for this study is from 27-DEC -2007 to 31-JAN- 2008 which represent sample for the study. The study cant be said as totally perfect. This study is only a humble attempt at evaluating derivatives market in Indian context. The study is not based on the international perspective of derivatives markets, which exists in NASDAQ, CBOT etc. HYPOTHESIS The Market data that has been used to see whether the Break Even Point (BEP) calculated can be used has an indicator to the investor to maximize the returns on its investment. OBJECTIVES OF THE STUDY 1. To understand the concept of derivatives in a more appropriate way. 2. To study various trends in derivative market. 3. To understand the scope and growth of derivatives in India. 4. To study the role of derivatives in Indian financial market 5. To study in detail the role of the future and options. METHODOLOGY 1. Data Collection : For this study the date collected is of secondary nature, The data of the Nifty index have been collected from â€Å"Economic Times† and internet. The data collected for January contract and the date consist from period 27th December, 2007 to 31st January, 2008. 2. Analysis: The analysis consist of the tabulation of the data assessing the profitability positions of the futures buyer and seller and also option holder and the option writer, representing the data with s and making the interpretation using data. TIME PERIOD Data collected for analyzing this study is from 27-DEC 2007 to 31-JAN-2008. Time taken to complete this project is 45 days LIMITATIONS OF THE STUDY The study is conducted in short period, due to which the study may not be detailed in all aspect. Lack of time on performing the project in detail study. Unavailability of software package which will help in calculation Lack of software knowledge to determine the correct future estimations. The data collected is completely restricted to 31st January, 2008; hence this analysis cannot be taken universal. CHAPTER II INTRODUCTION TO CAPITAL MARKET COMPANY PROFILE Introduction To Indian Capital Market Indias financial market began its transformation path in the early 1990s. The banking sector witnessed sweeping changes, including the elimination of interest rate controls, reductions in reserve and liquidity requirements and an overhaul in priority sector lending. Persistent efforts by the Reserve Bank of India (RBI) to put in place effective supervision and prudential norms since then have lifted the country closer to global standards. Around the same time, Indias capital markets also began to stage extensive changes. The Securities and Exchange Board of India (SEBI) was established in 1992 with a mandate to protect investors and improvements into the microstructure of capital markets, while the repeal of the Controller of Capital Issues (CCI) in the same year removed the administrative controls over the pricing of new equity issues. Indias financial markets also began to embrace technology. Competition in the markets increased with the establishment of the National Stock Exchange (NSE) in 1994, leading to a significant rise in the volume of transactions and to the emergence of new important instruments in financial intermediation. For over a century, Indias capital markets, which consist primarily of debt and equity markets, have increasingly played a significant role in mobilizing funds to meet public and private entities financing requirements. The advent of exchange-traded derivative instruments in 2000, such as options and futures, has enabled investors to better hedge their positions and reduce risks. In total, Indias debt and equity markets were equivalent to 130% of GDP at the end of 2005. This is an impressive stride, coming from just 75% in 1995, suggesting issuers growing confidence in market based financing. However, the size of the countrys capital markets relative to the United States, Malaysias and South Koreas remains low, implying a strong catch-up process for India. While some form of financial derivatives trading in India dates back to the 1870s, exchange traded derivative instruments started only in 2000. Then, stock index futures, with the Sensex 30 and the SP CNX Nifty indices as the underlying, began trading at the BSE and NSE. Since their inception, the basket of instruments has expanded and now features individual stock futures, and options for stock index and individual stocks. NATIONAL STOCK EXCHANGE (NSE) The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. NSE Mission 1. NSEs mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: 2. Establishing a nation-wide trading facility for equities, debt instruments and hybrids, 3. Ensuring equal access to investors all over the country through an appropriate communication network, 4. Providing a fair, efficient and transparent securities market to investors using electronic trading systems, 5. Enabling shorter settlement cycles and book entry settlements systems, and 6. Meeting the current international standards of securities markets. The standards set by NSE in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. Its that force which is guiding the industry towards new horizons and greater opportunities. Equity shares By investing in shares, investors basically buy the ownership right to the company. When the company makes profits, shareholders receive their share of the profits in the form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companys shares goes up in the market. This allows shareholders to sell shares at a profit, leading to capital gains. Investors can invest in shares either through primary market offerings or in the secondary market. The primary market has shown abnormal returns to investors who subscribed for the public issue and were allotted shares. Stock Exchange: In a stock exchange a person who wishes to sell his security is called a seller, and a person who is willing to buy the particular stock is called as the buyer. The rate of stock depends on the simple law of demand and supply. If the demand of shares of company x is greater than its supply then its price of its security increases. In Online Exchange the trading is done on a computer network. The sellers and buyers log on to the network and propose their bids. The system is designed in such ways that at any given instance, the buyers/sellers are bidding at the best prices. The transaction cycle for purchasing and selling shares online is depicted below: TRANSACTION CYCLE Role of Clearing House The clearing house of the exchange interposes itself between the buyer(the long position) and the seller (the short position).this mean clearing house becomes seller to buyer and the buyer to seller. Because the clearing house is obliged to perform on its side of each contract, it is the only party that can hurt if any trader fail to fulfill his obligation. The clearing house protects its interest by imposing margin requirements on traders. Ever since its inception in 1993, Networth Stock Broking Limited (NSBL) has sought to provide premium financial services and information, so that the power of investment is vested with the client. We equip those who invest with us to make intelligent investment decisions, providing them with the flexibility to either tap into our extensive knowledge and expertise, or make their own decisions. NSBL made its debut in to the financial world by servicing Institutional clients, and proved its high scalability of operations by growing exponentially over a short period of time. Now, powered by a top-notch research team and a network of experts, we provide an array of retail broking services across the globe spanning India, Middle East, Europe and America. Currently, we are a Depository participant at Central Depository Services India (CDSL) and aim to become one at National Securities Depository (NSDL) by the end of this quarter. Our strong support, technology-driven operations and busines s units of research, distribution and advisory coalesce to provide you with a one-stop solution to cater to all your broking and investment needs. Our customers have been participating in the booming commodities markets with our membership at Multi Commodity Exchange of India (MCX) and National Commodity Derivatives Exchange (NCDEX) through Networth Stock.Com Ltd. NSBL is a member of theNational Stock Exchange of India Ltd (NSE) andthe Bombay Stock Exchange Ltd (BSE)on the Capital Market and Derivatives (Futures Options) segment. It is also a listed company at theBSE. Corporate Overview †¢ Networth is a listed entity on the BSE since 1994 †¢ The company is professionally managed with experience of over a decade in broking and advisory services †¢ Networth is a member of BSE, NSE, MCX, NCDEX, AMFI, CDSL †¢ Current network in Southern and Western India with 107 branches and franchise. Presence in major metros and cities †¢ Empanelled with prominent domestic Mutual Funds, Insurance Companies, Banks, Financial Institutions and Foreign Financial Institutions. †¢ Strong experienced professional team †¢ 20000+ strong and growing client base †¢ Average daily broking turnover of around INR 1 billion †¢ AUM with Investment Advisory Services of around INR 3 billion Products and services Portfolio v Retail and institutional broking v Research for institutional and retail clients v Distribution of financial products v Corporate finance v Net trading v Depository services v Commodities Broking Infrastructure †¢ A corporate office and 3 divisional offices in CBD of Mumbai which houses state-of-the-art dealing room, research wing management and back offices. †¢ All of 107 branches and franchisees are fully wired and connected to hub at corporate office at Mumbai. Add on branches also will be wired and connected to central hub †¢ Web enabled connectivity and software in place for net trading. †¢ 60 operative IDs for dealing room †¢ State of the Art accounting and billing system, on line risk management system in place with 100% redundancy back up. †¢ In house technology back up team to ensure un-interrupted connectivity. Online Trading There is nothing more exhilarating, more daring and more rewarding than making the right trade at the right time. Welcome to our Internet trading platform which brings you a world class experience of online trading. Clicknetworth is a software application suite that offers comprehensive facilities so users can watch Market Prices while they trade. The application is highly integrated which enables the user to place orders in live environment. The user screen is fully customizable by the user to display information based upon his/her own preferences Trading Platform Networth offers advanced and convenient online trading facility with N-easy and N-swift which are completely safe and secure. N-easy: A Powerful and user friendly browser based platform ideally suited for Investors N-swift: An Advanced EXE based application suite that is ideally suited for Traders Features:- * Clients can trade in NSE Cash, NSE FO and BSE Cash. * Single screen order / trade entry as you can add NSE-Cash, Derivative BSE scripts in the same Market Watch. * Features such as Lock the Screen, TOP 20 by Most Active Volume, Value, Gainers, Losers, Market Movement and more will help you customise your trading platform according to your specific focus. * Facility for Online Funds Transfer. Your credit limit increases instantaneously on completion of a successful transfer. Total holdings with NSBL and NSBL CDSL DP (POA) can be viewed and delivery sale can also be made. * Needless to mention other standard features as Real-Time market data, live order status, Real time position updates etc. CHAPTER III REVIEW OF LITERATURE DEFINATION OF DERIVATIVE Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. There are two types of derivatives that are trades on NSE; namely Futures and Options. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the â€Å"underlying†. In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines â€Å"equity derivative† to include A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security. A contract, which derives its value from the prices, or index of prices, of underlying securities.The key to understanding derivatives is the notion of a premium. Some derivatives are compared to insurance. Just as you pay an insurance company a premium in order to obtain some protection against a specific event, there are derivative products that have a payoff contingent upon the occurrence of some event for which you must pay a premium in advance. Example: When one buys a cash instrument, for example 100 shares of ABC Inc., the payoff is linear (disregarding the impact of dividends). If we buy the shares at Rs50 and the price appreciates to Rs75, we have made Rs2500 on a mark-to-market basis. If we buy the shares at Rs50 and the price depreciates to Rs25, we have lost Rs2500 on a mark-to-market basis. Instead of buying the shares in the cash market, we could have bought a 1 month call option on ABC stock with a strike price of Rs50, giving us the right but not the obligation to purchase ABC stock at Rs50 in 1 months time. Instead of immediately paying Rs5000 and receiving the stock, we might pay Rs700 today for this right. If ABC goes to Rs75 in 1 months time, we can exercise the option, buy the stock at the strike price and sell the stock in the open market, locking in a net profit of Rs1800. If the ABC stock price goes to Rs25, we have only lost the premium of Rs700. If ABC trades as high as Rs100 after we have bought the option but before it expires, we can sell the option in the market for a price of Rs5300. Classification of Derivatives Types of Derivatives The most commonly used derivatives contracts in NSE are ,FUTURES and OPTIONS which we shall discuss in detail later. Here we take a brief look at various derivatives contracts that have come to be used. Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years. Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options. Participants and Functions v Hedgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk. v Speculators wish to bet on future movements in the price of an asset. Futures and options contracts can give them an extra leverage; that is, they can increase both the potential gains and potential losses in a speculative venture. v Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit. The derivative market performs a number of economic functions. First, prices in an organized derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of derivative contract. Thus derivatives help in discovery of future as well as current prices. Second, the derivatives market helps to transfer risks from those who have them but may not like them to those who have appetite for them. Third, derivatives, due to their inherent nature, are linked to the underlying cash markets. With the introduction of derivatives, the underlying market witnesses higher trading volumes because of participation by more players who would not otherwise participate for lack of an arrangement to transfer risk. Fourth, speculative trades shift to a more controlled environment of derivatives market. In the absence of an organized derivati ves market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in these kind of mixed markets. Fifth, an important incidental benefit that flows from derivatives trading is that it acts as a catalyst for new entrepreneurial activity. The derivatives have a history of attracting many bright, creative, well-educated people with an entrepreneurial attitude. They often energize others to create new businesses, new products and new employment opportunities, the benefit of which are immense. Sixth, derivatives markets help increase savings and investment in the long run. Transfer of risk enables market participants to expand their volume of activity. Derivatives thus promote economic development to the extent the later depends on the rate of savings and investment. The first stock index futures contract was traded at Kansas City Board of Trade. Currently the most popular index futures contract in the world is based on SP 500 index, traded on Chicago Mercantile Exchange. During the mid eighties, financial futures became the most active derivative instruments generating volumes many times more than the commodity futures. Index futures, futures on T-bills and Euro-Dollar futures are the three most popular futures contracts traded today. Other popular international exchanges that trade derivatives are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France, etc. Indian Derivatives Market Starting from a controlled economy, India has moved towards a world where prices fluctuate every day. The introduction of risk management instruments in India gained momentum in the last few years due to liberalisation process and Reserve Bank of Indias (RBI) efforts in creating currency forward market. Derivatives are an integral part of liberalisation process to manage risk. NSE gauging the market requirements initiated the process of setting up derivative markets in India. In July 1999, derivatives trading commenced in India CHRONOLOGY OF INSTRUMENTS 1991 Liberalisation process initiated 14-Dec-1995 NSE asked SEBI for permission to trade index futures. 18-Nov-1996 SEBI setup L.C.Gupta Committee to draft a policy framework for index futures. 11-May-1998 L.C.Gupta Committee submitted report. 7-July-1999 RBI gave permission for OTC forward rate agreements (FRAs) and interest rate swaps. 24-May-2000 SIMEX chose Nifty for trading futures and options on an Indian index. 25-May-2000 SEBI gave permission to NSE and BSE to do index futures trading. 9-June-2000 Trading of BSE Sensex futures commenced at BSE. 12-June-2000 Trading of Nifty futures commenced at NSE. 25-Sep-2000 Nifty futures trading commenced at SGX. 2-June-2001 Individual Stock Options Derivatives SWAPS A contract between two parties, referred to as counter parties, to exchange two streams of payments for agreed period of time. The payments, commonly called legs or sides, are calculated based on the underlying notional using applicable rates. Swaps contracts also include other provisional specified by the counter parties. Swaps are not debt instrument to raise capital, but a tool used for financial management. Swaps are arranged in many different currencies and different periods of time. US$ swaps are most common followed by Japanese yen, sterling and Deutsche marks. The length of past swaps transacted has ranged from 2 to 25 years. Swaps Pricing: There are four major components of a swap price. v Benchmark price v Liquidity (availability of counter parties to offset the swap). v Transaction cost v Credit risk Benchmark Price:Swap rates are based on a series of benchmark instruments. They may be quoted as a spread over the yield on these benchmark instruments or on an absolute interest rate basis. In the Indian markets the common benchmarks are MIBOR, 14, 91, 182 364 day T-bills, CP rates and PLR rates. Liquidity: which is function of supply and demand, plays an important role in swaps pricing? This is also affected by the swap duration. It may be difficult to have counter parties for long duration swaps, specially so in India Transaction costs include the cost of hedging a swap. Transaction cost: Say in case of a bank, which has a floating obligation of 91 days T. Bill. Now in order to hedge the bank would go long on a 91 day T. Bill. For doing so the bank must obtain funds. The transaction cost would thus involve such a difference. Yield on 91 day T. Bill 9.5% Cost of fund (e.g.- Repo rate) 10% The transaction cost in this case would involve 0.5% Credit risk: Credit risk must also be built into the swap pricing. Based upon the credit rating of the counterparty a spread would have to be incorporated. Say for e.g. it would be 0.5% for an AAA rating. Introduction to Futures Future contract is the simplest of all financial assets. A future contract is just an agreement between two parties to buy and sell an asset at a fixed price in the future. Futures markets were originally designed to solve the problems of forward markets. Future contracts are managed through an organized future exchange Future contracts are a type of derivative security because the value of the contract is derived from an underlying instrument. The exchange specifies standard features of future contract to facilitate liquidity in the futures contracts. The net value of a future contract is zero because future contract represents a zero sum game between a buyer and a seller. Future contracts are standardized to facilitate convenience in trading and price reporting. A futures contract may be offset before maturity by taking opposite position which means that future trading can be closed by entering into equal into an equal and opposite transaction. Future contract must specify at least five terms of the contract and they are: 1) The identity of the underlying commodity or financial instrument. 2) The future contract size. 3) The future maturity date. 4) The delivery or settlement procedure. 5) The future price. TYPES OF FUTURES A commodity future is a future contract in a commodity like cocoa, aluminum etc. A financial future is a futures contract in a financial instrument like Treasury bill, currency or stock index. Futures contracts are: v Futures contracts are organized/ standardized contracts, which are traded on the exchanges. v These contracts, being standardized and traded on the exchanges are very liquid in nature. v In futures market, clearing corporation/ house provides the settlement guarantee. v Every futures contract is a forward contract traded on exchange and clearing corporation/house provides the settlement guarantee for trades. v Are of standard quantity; standard quality (in case of commodities). Have standard delivery time and place. What Does Future Trading Apply to Indian Stocks? Future trading is a type of investments which involves speculating on the prices of securities in the future. Securities traded in future contract can be a stock (Reliance India Limited, TISCO, etc), Stock Index (NSE Nifty Index), commodity (Gold, Silver, Agricultural Products, etc) Unlike stocks and bonds, when we involve in future trading then we do not buy or own anything but we speculate the future direction of the price in the security we are trading. Suppose we speculate on Stock Index (NSE Nifty index). If we speculate that the future price of Stock Index can go up in the future then we would buy a future contract. If we speculate that the future price of Stock Index can go down then we would sell a future contract. Futures Trading accounts A future exchange allows only exchange members to trade on the exchange floor. There are various things to know about future trading accounts. The first thing is that a margin is always required. A margin is the amount of money that we put up to control a future contract. http://www.tradingpicks.com/futures.htm How to Trade in SP CNX NIFTY Futures? http://www.nse-india.com/content/press/futidx_invguide.pdf Trading on CNX Nifty futures is just like trading in other security. Before buying or selling we use to predict the direction of the market and based on that prediction we buy or sell the index. A profit is made when the closing price on the expiration day is higher than the value at which we had bought the index. If we had predicted a bearish market, and had sold the index then we make a profit. Trading cycle for SP CNX Nifty Futures The trading cycle for SP CNX Nifty future contracts is 3 months. On the trading day a new contract is introduced. This contract will be introduced for three month duration. As a result there will be 3 contracts available for trading in the market ( i.e., first contract is in near month, second in mid month and third in far month duration) Example If Trading in NIFTY Starts from January 2002 then following chart gives us the beginning and expiry date of the contract. Contract/Month Expiry/Settlement January 2002 January 28th February 2002 February 20th March 2002 March 19th After January 28th, the first trading day will be on January 29th. Contract/Month Expiry/Settlement February 2002 February 24th March 2002 March 30th April 2002 April 20th To trade futures in NSE, traders have to open an account with a future brokerage firm known as Future Commission Merchant (FCM). FCM records the trades, monitors them and advice t Evaluating Derivatives Market in India Evaluating Derivatives Market in India Introduction to Derivatives Market The emergence of the market for derivative products, most notably forwards, futures and options, can be traced back to the willingness of risk-averse economic agents to guard themselves against uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As instruments of risk management, these generally do not influence the fluctuations in the underlying asset prices. However, by locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors. Derivative products initially emerged, as hedging devices against fluctuations in commodity prices and commodity-linked derivatives remained the sole form of such products for almost three hundred years. The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for about two-thirds of total transactions in derivative products. In recent years, the market for financial derivatives has grown tremendously both in terms of variety of instruments available, their complexity and also turnover. In the class of equity derivatives, futures and options on stock indices have gained more popularity than on individual stocks, especially among institutional investors, who are major users of index-linked derivatives. Even small investors find these useful due to high correlation of the popular indices with various portfolios and ease of use. The lower costs associated with index derivatives vies-versa derivative products based on individual securities is another reason for their growing use. The following factors have been driving the growth of financial derivatives: Increased volatility in asset prices in financial markets, Increased integration of national financial markets with the international markets, Marked improvement in communication facilities and sharp decline in their costs, SCOPE OF THE STUDY The study is limited to â€Å"Derivatives with special reference to futures and option in the Indian context and the Networth Stock Broking Ltd., data for this study is from 27-DEC -2007 to 31-JAN- 2008 which represent sample for the study. The study cant be said as totally perfect. This study is only a humble attempt at evaluating derivatives market in Indian context. The study is not based on the international perspective of derivatives markets, which exists in NASDAQ, CBOT etc. HYPOTHESIS The Market data that has been used to see whether the Break Even Point (BEP) calculated can be used has an indicator to the investor to maximize the returns on its investment. OBJECTIVES OF THE STUDY 1. To understand the concept of derivatives in a more appropriate way. 2. To study various trends in derivative market. 3. To understand the scope and growth of derivatives in India. 4. To study the role of derivatives in Indian financial market 5. To study in detail the role of the future and options. METHODOLOGY 1. Data Collection : For this study the date collected is of secondary nature, The data of the Nifty index have been collected from â€Å"Economic Times† and internet. The data collected for January contract and the date consist from period 27th December, 2007 to 31st January, 2008. 2. Analysis: The analysis consist of the tabulation of the data assessing the profitability positions of the futures buyer and seller and also option holder and the option writer, representing the data with s and making the interpretation using data. TIME PERIOD Data collected for analyzing this study is from 27-DEC 2007 to 31-JAN-2008. Time taken to complete this project is 45 days LIMITATIONS OF THE STUDY The study is conducted in short period, due to which the study may not be detailed in all aspect. Lack of time on performing the project in detail study. Unavailability of software package which will help in calculation Lack of software knowledge to determine the correct future estimations. The data collected is completely restricted to 31st January, 2008; hence this analysis cannot be taken universal. CHAPTER II INTRODUCTION TO CAPITAL MARKET COMPANY PROFILE Introduction To Indian Capital Market Indias financial market began its transformation path in the early 1990s. The banking sector witnessed sweeping changes, including the elimination of interest rate controls, reductions in reserve and liquidity requirements and an overhaul in priority sector lending. Persistent efforts by the Reserve Bank of India (RBI) to put in place effective supervision and prudential norms since then have lifted the country closer to global standards. Around the same time, Indias capital markets also began to stage extensive changes. The Securities and Exchange Board of India (SEBI) was established in 1992 with a mandate to protect investors and improvements into the microstructure of capital markets, while the repeal of the Controller of Capital Issues (CCI) in the same year removed the administrative controls over the pricing of new equity issues. Indias financial markets also began to embrace technology. Competition in the markets increased with the establishment of the National Stock Exchange (NSE) in 1994, leading to a significant rise in the volume of transactions and to the emergence of new important instruments in financial intermediation. For over a century, Indias capital markets, which consist primarily of debt and equity markets, have increasingly played a significant role in mobilizing funds to meet public and private entities financing requirements. The advent of exchange-traded derivative instruments in 2000, such as options and futures, has enabled investors to better hedge their positions and reduce risks. In total, Indias debt and equity markets were equivalent to 130% of GDP at the end of 2005. This is an impressive stride, coming from just 75% in 1995, suggesting issuers growing confidence in market based financing. However, the size of the countrys capital markets relative to the United States, Malaysias and South Koreas remains low, implying a strong catch-up process for India. While some form of financial derivatives trading in India dates back to the 1870s, exchange traded derivative instruments started only in 2000. Then, stock index futures, with the Sensex 30 and the SP CNX Nifty indices as the underlying, began trading at the BSE and NSE. Since their inception, the basket of instruments has expanded and now features individual stock futures, and options for stock index and individual stocks. NATIONAL STOCK EXCHANGE (NSE) The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. NSE Mission 1. NSEs mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: 2. Establishing a nation-wide trading facility for equities, debt instruments and hybrids, 3. Ensuring equal access to investors all over the country through an appropriate communication network, 4. Providing a fair, efficient and transparent securities market to investors using electronic trading systems, 5. Enabling shorter settlement cycles and book entry settlements systems, and 6. Meeting the current international standards of securities markets. The standards set by NSE in terms of market practices and technologies have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. Its that force which is guiding the industry towards new horizons and greater opportunities. Equity shares By investing in shares, investors basically buy the ownership right to the company. When the company makes profits, shareholders receive their share of the profits in the form of dividends. In addition, when company performs well and the future expectation from the company is very high, the price of the companys shares goes up in the market. This allows shareholders to sell shares at a profit, leading to capital gains. Investors can invest in shares either through primary market offerings or in the secondary market. The primary market has shown abnormal returns to investors who subscribed for the public issue and were allotted shares. Stock Exchange: In a stock exchange a person who wishes to sell his security is called a seller, and a person who is willing to buy the particular stock is called as the buyer. The rate of stock depends on the simple law of demand and supply. If the demand of shares of company x is greater than its supply then its price of its security increases. In Online Exchange the trading is done on a computer network. The sellers and buyers log on to the network and propose their bids. The system is designed in such ways that at any given instance, the buyers/sellers are bidding at the best prices. The transaction cycle for purchasing and selling shares online is depicted below: TRANSACTION CYCLE Role of Clearing House The clearing house of the exchange interposes itself between the buyer(the long position) and the seller (the short position).this mean clearing house becomes seller to buyer and the buyer to seller. Because the clearing house is obliged to perform on its side of each contract, it is the only party that can hurt if any trader fail to fulfill his obligation. The clearing house protects its interest by imposing margin requirements on traders. Ever since its inception in 1993, Networth Stock Broking Limited (NSBL) has sought to provide premium financial services and information, so that the power of investment is vested with the client. We equip those who invest with us to make intelligent investment decisions, providing them with the flexibility to either tap into our extensive knowledge and expertise, or make their own decisions. NSBL made its debut in to the financial world by servicing Institutional clients, and proved its high scalability of operations by growing exponentially over a short period of time. Now, powered by a top-notch research team and a network of experts, we provide an array of retail broking services across the globe spanning India, Middle East, Europe and America. Currently, we are a Depository participant at Central Depository Services India (CDSL) and aim to become one at National Securities Depository (NSDL) by the end of this quarter. Our strong support, technology-driven operations and busines s units of research, distribution and advisory coalesce to provide you with a one-stop solution to cater to all your broking and investment needs. Our customers have been participating in the booming commodities markets with our membership at Multi Commodity Exchange of India (MCX) and National Commodity Derivatives Exchange (NCDEX) through Networth Stock.Com Ltd. NSBL is a member of theNational Stock Exchange of India Ltd (NSE) andthe Bombay Stock Exchange Ltd (BSE)on the Capital Market and Derivatives (Futures Options) segment. It is also a listed company at theBSE. Corporate Overview †¢ Networth is a listed entity on the BSE since 1994 †¢ The company is professionally managed with experience of over a decade in broking and advisory services †¢ Networth is a member of BSE, NSE, MCX, NCDEX, AMFI, CDSL †¢ Current network in Southern and Western India with 107 branches and franchise. Presence in major metros and cities †¢ Empanelled with prominent domestic Mutual Funds, Insurance Companies, Banks, Financial Institutions and Foreign Financial Institutions. †¢ Strong experienced professional team †¢ 20000+ strong and growing client base †¢ Average daily broking turnover of around INR 1 billion †¢ AUM with Investment Advisory Services of around INR 3 billion Products and services Portfolio v Retail and institutional broking v Research for institutional and retail clients v Distribution of financial products v Corporate finance v Net trading v Depository services v Commodities Broking Infrastructure †¢ A corporate office and 3 divisional offices in CBD of Mumbai which houses state-of-the-art dealing room, research wing management and back offices. †¢ All of 107 branches and franchisees are fully wired and connected to hub at corporate office at Mumbai. Add on branches also will be wired and connected to central hub †¢ Web enabled connectivity and software in place for net trading. †¢ 60 operative IDs for dealing room †¢ State of the Art accounting and billing system, on line risk management system in place with 100% redundancy back up. †¢ In house technology back up team to ensure un-interrupted connectivity. Online Trading There is nothing more exhilarating, more daring and more rewarding than making the right trade at the right time. Welcome to our Internet trading platform which brings you a world class experience of online trading. Clicknetworth is a software application suite that offers comprehensive facilities so users can watch Market Prices while they trade. The application is highly integrated which enables the user to place orders in live environment. The user screen is fully customizable by the user to display information based upon his/her own preferences Trading Platform Networth offers advanced and convenient online trading facility with N-easy and N-swift which are completely safe and secure. N-easy: A Powerful and user friendly browser based platform ideally suited for Investors N-swift: An Advanced EXE based application suite that is ideally suited for Traders Features:- * Clients can trade in NSE Cash, NSE FO and BSE Cash. * Single screen order / trade entry as you can add NSE-Cash, Derivative BSE scripts in the same Market Watch. * Features such as Lock the Screen, TOP 20 by Most Active Volume, Value, Gainers, Losers, Market Movement and more will help you customise your trading platform according to your specific focus. * Facility for Online Funds Transfer. Your credit limit increases instantaneously on completion of a successful transfer. Total holdings with NSBL and NSBL CDSL DP (POA) can be viewed and delivery sale can also be made. * Needless to mention other standard features as Real-Time market data, live order status, Real time position updates etc. CHAPTER III REVIEW OF LITERATURE DEFINATION OF DERIVATIVE Derivative is a product whose value is derived from the value of one or more basic variables, called bases (underlying asset, index, or reference rate), in a contractual manner. There are two types of derivatives that are trades on NSE; namely Futures and Options. The underlying asset can be equity, forex, commodity or any other asset. For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the â€Å"underlying†. In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines â€Å"equity derivative† to include A security derived from a debt instrument, share, loan whether secured or unsecured, risk instrument or contract for differences or any other form of security. A contract, which derives its value from the prices, or index of prices, of underlying securities.The key to understanding derivatives is the notion of a premium. Some derivatives are compared to insurance. Just as you pay an insurance company a premium in order to obtain some protection against a specific event, there are derivative products that have a payoff contingent upon the occurrence of some event for which you must pay a premium in advance. Example: When one buys a cash instrument, for example 100 shares of ABC Inc., the payoff is linear (disregarding the impact of dividends). If we buy the shares at Rs50 and the price appreciates to Rs75, we have made Rs2500 on a mark-to-market basis. If we buy the shares at Rs50 and the price depreciates to Rs25, we have lost Rs2500 on a mark-to-market basis. Instead of buying the shares in the cash market, we could have bought a 1 month call option on ABC stock with a strike price of Rs50, giving us the right but not the obligation to purchase ABC stock at Rs50 in 1 months time. Instead of immediately paying Rs5000 and receiving the stock, we might pay Rs700 today for this right. If ABC goes to Rs75 in 1 months time, we can exercise the option, buy the stock at the strike price and sell the stock in the open market, locking in a net profit of Rs1800. If the ABC stock price goes to Rs25, we have only lost the premium of Rs700. If ABC trades as high as Rs100 after we have bought the option but before it expires, we can sell the option in the market for a price of Rs5300. Classification of Derivatives Types of Derivatives The most commonly used derivatives contracts in NSE are ,FUTURES and OPTIONS which we shall discuss in detail later. Here we take a brief look at various derivatives contracts that have come to be used. Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at todays pre-agreed price. Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts. Options: Options are of two types calls and puts. Calls give the buyer the right but not the obligation to buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a given price on or before a given date. Swaps: Swaps are private agreements between two parties to exchange cash flows in the future according to a prearranged formula. They can be regarded as portfolios of forward contracts. Warrants: Options generally have lives of upto one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-the-counter. LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having a maturity of upto three years. Baskets: Basket options are options on portfolios of underlying assets. The underlying asset is usually a moving average or a basket of assets. Equity index options are a form of basket options. Participants and Functions v Hedgers face risk associated with the price of an asset. They use futures or options markets to reduce or eliminate this risk. v Speculators wish to bet on future movements in the price of an asset. Futures and options contracts can give them an extra leverage; that is, they can increase both the potential gains and potential losses in a speculative venture. v Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit. The derivative market performs a number of economic functions. First, prices in an organized derivatives market reflect the perception of market participants about the future and lead the prices of underlying to the perceived future level. The prices of derivatives converge with the prices of the underlying at the expiration of derivative contract. Thus derivatives help in discovery of future as well as current prices. Second, the derivatives market helps to transfer risks from those who have them but may not like them to those who have appetite for them. Third, derivatives, due to their inherent nature, are linked to the underlying cash markets. With the introduction of derivatives, the underlying market witnesses higher trading volumes because of participation by more players who would not otherwise participate for lack of an arrangement to transfer risk. Fourth, speculative trades shift to a more controlled environment of derivatives market. In the absence of an organized derivati ves market, speculators trade in the underlying cash markets. Margining, monitoring and surveillance of the activities of various participants become extremely difficult in these kind of mixed markets. Fifth, an important incidental benefit that flows from derivatives trading is that it acts as a catalyst for new entrepreneurial activity. The derivatives have a history of attracting many bright, creative, well-educated people with an entrepreneurial attitude. They often energize others to create new businesses, new products and new employment opportunities, the benefit of which are immense. Sixth, derivatives markets help increase savings and investment in the long run. Transfer of risk enables market participants to expand their volume of activity. Derivatives thus promote economic development to the extent the later depends on the rate of savings and investment. The first stock index futures contract was traded at Kansas City Board of Trade. Currently the most popular index futures contract in the world is based on SP 500 index, traded on Chicago Mercantile Exchange. During the mid eighties, financial futures became the most active derivative instruments generating volumes many times more than the commodity futures. Index futures, futures on T-bills and Euro-Dollar futures are the three most popular futures contracts traded today. Other popular international exchanges that trade derivatives are LIFFE in England, DTB in Germany, SGX in Singapore, TIFFE in Japan, MATIF in France, etc. Indian Derivatives Market Starting from a controlled economy, India has moved towards a world where prices fluctuate every day. The introduction of risk management instruments in India gained momentum in the last few years due to liberalisation process and Reserve Bank of Indias (RBI) efforts in creating currency forward market. Derivatives are an integral part of liberalisation process to manage risk. NSE gauging the market requirements initiated the process of setting up derivative markets in India. In July 1999, derivatives trading commenced in India CHRONOLOGY OF INSTRUMENTS 1991 Liberalisation process initiated 14-Dec-1995 NSE asked SEBI for permission to trade index futures. 18-Nov-1996 SEBI setup L.C.Gupta Committee to draft a policy framework for index futures. 11-May-1998 L.C.Gupta Committee submitted report. 7-July-1999 RBI gave permission for OTC forward rate agreements (FRAs) and interest rate swaps. 24-May-2000 SIMEX chose Nifty for trading futures and options on an Indian index. 25-May-2000 SEBI gave permission to NSE and BSE to do index futures trading. 9-June-2000 Trading of BSE Sensex futures commenced at BSE. 12-June-2000 Trading of Nifty futures commenced at NSE. 25-Sep-2000 Nifty futures trading commenced at SGX. 2-June-2001 Individual Stock Options Derivatives SWAPS A contract between two parties, referred to as counter parties, to exchange two streams of payments for agreed period of time. The payments, commonly called legs or sides, are calculated based on the underlying notional using applicable rates. Swaps contracts also include other provisional specified by the counter parties. Swaps are not debt instrument to raise capital, but a tool used for financial management. Swaps are arranged in many different currencies and different periods of time. US$ swaps are most common followed by Japanese yen, sterling and Deutsche marks. The length of past swaps transacted has ranged from 2 to 25 years. Swaps Pricing: There are four major components of a swap price. v Benchmark price v Liquidity (availability of counter parties to offset the swap). v Transaction cost v Credit risk Benchmark Price:Swap rates are based on a series of benchmark instruments. They may be quoted as a spread over the yield on these benchmark instruments or on an absolute interest rate basis. In the Indian markets the common benchmarks are MIBOR, 14, 91, 182 364 day T-bills, CP rates and PLR rates. Liquidity: which is function of supply and demand, plays an important role in swaps pricing? This is also affected by the swap duration. It may be difficult to have counter parties for long duration swaps, specially so in India Transaction costs include the cost of hedging a swap. Transaction cost: Say in case of a bank, which has a floating obligation of 91 days T. Bill. Now in order to hedge the bank would go long on a 91 day T. Bill. For doing so the bank must obtain funds. The transaction cost would thus involve such a difference. Yield on 91 day T. Bill 9.5% Cost of fund (e.g.- Repo rate) 10% The transaction cost in this case would involve 0.5% Credit risk: Credit risk must also be built into the swap pricing. Based upon the credit rating of the counterparty a spread would have to be incorporated. Say for e.g. it would be 0.5% for an AAA rating. Introduction to Futures Future contract is the simplest of all financial assets. A future contract is just an agreement between two parties to buy and sell an asset at a fixed price in the future. Futures markets were originally designed to solve the problems of forward markets. Future contracts are managed through an organized future exchange Future contracts are a type of derivative security because the value of the contract is derived from an underlying instrument. The exchange specifies standard features of future contract to facilitate liquidity in the futures contracts. The net value of a future contract is zero because future contract represents a zero sum game between a buyer and a seller. Future contracts are standardized to facilitate convenience in trading and price reporting. A futures contract may be offset before maturity by taking opposite position which means that future trading can be closed by entering into equal into an equal and opposite transaction. Future contract must specify at least five terms of the contract and they are: 1) The identity of the underlying commodity or financial instrument. 2) The future contract size. 3) The future maturity date. 4) The delivery or settlement procedure. 5) The future price. TYPES OF FUTURES A commodity future is a future contract in a commodity like cocoa, aluminum etc. A financial future is a futures contract in a financial instrument like Treasury bill, currency or stock index. Futures contracts are: v Futures contracts are organized/ standardized contracts, which are traded on the exchanges. v These contracts, being standardized and traded on the exchanges are very liquid in nature. v In futures market, clearing corporation/ house provides the settlement guarantee. v Every futures contract is a forward contract traded on exchange and clearing corporation/house provides the settlement guarantee for trades. v Are of standard quantity; standard quality (in case of commodities). Have standard delivery time and place. What Does Future Trading Apply to Indian Stocks? Future trading is a type of investments which involves speculating on the prices of securities in the future. Securities traded in future contract can be a stock (Reliance India Limited, TISCO, etc), Stock Index (NSE Nifty Index), commodity (Gold, Silver, Agricultural Products, etc) Unlike stocks and bonds, when we involve in future trading then we do not buy or own anything but we speculate the future direction of the price in the security we are trading. Suppose we speculate on Stock Index (NSE Nifty index). If we speculate that the future price of Stock Index can go up in the future then we would buy a future contract. If we speculate that the future price of Stock Index can go down then we would sell a future contract. Futures Trading accounts A future exchange allows only exchange members to trade on the exchange floor. There are various things to know about future trading accounts. The first thing is that a margin is always required. A margin is the amount of money that we put up to control a future contract. http://www.tradingpicks.com/futures.htm How to Trade in SP CNX NIFTY Futures? http://www.nse-india.com/content/press/futidx_invguide.pdf Trading on CNX Nifty futures is just like trading in other security. Before buying or selling we use to predict the direction of the market and based on that prediction we buy or sell the index. A profit is made when the closing price on the expiration day is higher than the value at which we had bought the index. If we had predicted a bearish market, and had sold the index then we make a profit. Trading cycle for SP CNX Nifty Futures The trading cycle for SP CNX Nifty future contracts is 3 months. On the trading day a new contract is introduced. This contract will be introduced for three month duration. As a result there will be 3 contracts available for trading in the market ( i.e., first contract is in near month, second in mid month and third in far month duration) Example If Trading in NIFTY Starts from January 2002 then following chart gives us the beginning and expiry date of the contract. Contract/Month Expiry/Settlement January 2002 January 28th February 2002 February 20th March 2002 March 19th After January 28th, the first trading day will be on January 29th. Contract/Month Expiry/Settlement February 2002 February 24th March 2002 March 30th April 2002 April 20th To trade futures in NSE, traders have to open an account with a future brokerage firm known as Future Commission Merchant (FCM). FCM records the trades, monitors them and advice t