Derivative is a product whose value is derived from underlying assets, index or reference rate.
Examples of underlying assets: – Equity, commodity and Forex.
Users of Derivatives: –
Individual Investors.
Dealers
Institutional investor.
Corporation
Cash Vs Derivative Market
Cash
Derivative
Tangible assets are traded.
Contract based on tangible or intangibles.
Can purchase even one share.
Minimum lots are fixed
Risky
Risk is limited
for investment
for hedging, speculation
Requirestrading account with depository participants
requires future trading account.
Purchase shares of the company and get ownership.
does not happen as in cash market.
Difference between Forward and Future Contract
Sr. No
Forward
Future
1.
A forward contract is an agreement between two parties [buyer & a seller] that obligates the seller to deliver a specified asset of specified quality and quantity to the buyer on a specified date at a specified place and buyer as well, in turn, to pay a pre negotiated price at the time of delivery.
A future contract is an agreement between two parties in which both parties agree to buy and sell a particular underlying financial instrument [stock, bond or currency] or commodity [gold or natural gas] at a predetermined price at a future date.
2.
Example: -A and B agree to do a trade in 50 tolas of gold on 31.12.2023 at 15000/tola [forward price] here the buyer A is in long position and the seller B is in short position.
Example: – Buyer A and B enter into a 2500 kgs Corn future contract at 4 per kg.
3.
Forward contracts are traded on personal telephonic basis or otherwise.
Future contracts are traded in a competitive arena.
4.
Forward contracts have no standard size.
Future contracts are standardized in terms of quantity or amount.
5.
Forward contracts are traded in an over the counter market.
Future contracts are traded on exchanges with a physical location.
Meaning of National Income: – Value of all final goods and services that are produced by residents in the country within an accounting year.
Example: – Value of final goods such as mobile, LED + value of final services such has telecom, health, insurance.
Note:- National income shows the performance of our economy and growth of our nation.
Circular flow of National Income
Mainly, the business sector and household sector play a vital role in the flow of national income.
The business sectorproduces goods and services by using the factors of production i.e., land, labour, capital and entrepreneurship.
Thereafter, provides these goods and services to the household sector for consumption.
Household sector receives the factor payment in the form of rent, wages, interest and profit and spend on consumption and investment.
Again payment for consumption goes to business sector.
Different Concepts of National Income
Gross Domestic Product (GDP) or GDPMP : -GDP is the value of final goods and servicesproduced within the domestic territory of a country during an accounting year.
GDPMP : – Value of final goods + value of final services [value = market price].
GDPMP : -GNPMP – Net Factor Income from Abroad [NFIA].
NFIA :- NFIA is the differencebetween the aggregate amount that a country’s citizen and company earn from abroad– aggregate amount that foreign citizens and overseas companies earn in that country.
In other words: – factor income earned by domestic factors of production from abroad – factor income earned by factors of production of abroad.
Note: – The basis of difference between gross and net is depreciation or consumption of fixed capital.
Note: -The basis of difference between market price and factor cost is net indirect taxes [indirect taxes – subsidies].
Gross National product or GNPMP :- GNP is the market value of all finalgoods and servicesproduced within the domestic territory of a country by normal residents during an accounting yearincluding net factor income from abroad (NFIA).
GNPMP : – GDPMP+ Net factor Income from Abroad
Note: – If Net Factor Income from Abroad (NFIA) is positive, then GNPMP will be greater than GDPMP
Net National Product at Market Prices or NNPMP : -NNPMP is the net market value of all finalgoods and servicesproduced within the domestic territory of a country by normal residents during an accounting yearincluding net factor income from abroad (NFIA) excludingdepreciation.
In other words,
NNPMP : – GNPMP–Depreciation
NNPMP : – NDPMP+ Net factor Income from Abroad (NFIA).
NNPMP : – GDPMP+ Net factor Income from Abroad (NFIA) – Depreciation
Further,
Net Domestic Product at Factor Cost or NDPFC : – NDPFC is the net market value of all finalgoods and servicesproduced within the domestic territory of a country by normal residents during an accounting yearexcluding net factor income from abroad (NFIA) and depreciation.
or It is sum of domestic factor incomes excluding depreciation.
NDPFC= GDPMP – Net Indirect taxes – Depreciation
NDPFC= NDPMP – Net Indirect taxes
Net National Product at Factor Cost or NNPFC : –
NNPFC is the net market value of all finalgoods and servicesproduced within the domestic territory of a country by normal residents during an accounting year.
or It is sum of domestic factor income and net factor income from abroad .
NNPFC = National Income = factor income earned in domestic territory + NFIA
In addition to,
Note: – Per Capita Income : – National income/total population
Note: – Personal Income = income earned by factor of production or income received by household sector.
Further,
Methods of Measuring National Income: –
Value Added Method or Product method: – Under this method, we calculate the aggregate annual value of goods and services.
In other words, Value addition means net contribution made by enterprise
Value addition : – value of production of the enterprise – value of intermediate goods used by the enterprise.
Example: –
Particular
Farmer
Baker
Total production
200
400
Intermediate goods used
0
100
Value added
200
300
Furthermore, all the producing enterprises fall under 3 main category i.e., primary sector, secondary sector, service sector.
In addition,
2. Income Method : – production sector makes payment to factors for their services. National income is the sum total of factor incomes .
production unit pays rent for land, wages and salaried for labour, interest for capital and lastly, profit for entrepreneurship.
3. Expenditure Method: – National income is the aggregate final expenditure in an economy during an accounting year.
Enterprise can make final expenditure on the following accounts: –
final consumption expenditure on the goods and services produced.
final investment expenditure
expenditure that the government makes on the final goods and services produced.
exportrevenues that enterprise earns by selling its goods and services abroad.
It is important to note that the comparison between commerce and science depends on individual interests, skills, and career goals. Both fields offer unique opportunities and have their own advantages. Here are a few reasons why some individuals may consider commerce to be a better fit for them:
Business and Financial Skills: Commerce education focuses on developing business acumen, financial literacy, and managerial skills. It equips individuals with knowledge in areas such as accounting, finance, marketing, and economics, which are highly valued in the business world.
Career Opportunities: Commerce graduates often have a wide range of job opportunities in various industries, including finance, banking, consulting, marketing, human resources, and entrepreneurship. The business world offers a diverse array of roles and the potential for career growth.
Practical and Applicable Knowledge: Commerce education emphasizes practical skills and real-world applications. Students learn about business operations, financial management, and decision-making processes, which can be directly applied in professional settings.
Potential for Higher Salaries: Commerce graduates, particularly those in finance, accounting, and consulting, have the potential to earn higher salaries compared to some science fields. This is due to the demand for specialized business skills and the financial nature of many commerce-related roles.
However, it is essential to recognize that science also has its own merits and advantages. Science education fosters critical thinking, problem-solving, and analytical skills. It opens doors to careers in research, healthcare, technology, environmental science, and other scientific fields. Science-driven advancements contribute to innovations and discoveries that shape our world.
Ultimately, the choice between commerce and science depends on an individual’s interests, strengths, and long-term career aspirations. It is important to consider personal preferences, aptitude, and passion when deciding which path to pursue.
How e-commerce has provided new opportunities for small businesses and entrepreneurs to reach a global market and compete with established brands?
E-commerce has undoubtedly opened up new avenues and opportunities for small businesses and entrepreneurs to expand their reach and compete on a global scale. Here’s an exploration of how e-commerce has empowered small businesses and entrepreneurs:-
Global Market Access: E-commerce eliminates geographical barriers and allows small businesses to tap into a global customer base. Through online platforms, entrepreneurs can showcase their products or services to potential customers worldwide, overcoming the limitations of physical stores and local markets. This expanded reach offers immense growth potential and exposure to diverse audiences.
Lower Entry Barriers: Traditional retail often involves high upfront costs, such as setting up a physical store, inventory management, and overhead expenses. E-commerce significantly lowers these barriers to entry. Setting up an online store is relatively more affordable, requiring minimal investment in comparison. This affordability enables small businesses and entrepreneurs to establish an online presence quickly and start selling their products or services with reduced financial risks.
Cost-Effective Marketing: Digital marketing channels associated with e-commerce, such as social media advertising, search engine optimization (SEO), and email marketing, are generally more cost-effective than traditional marketing methods. Small businesses and entrepreneurs can leverage these tools to reach a wider audience, drive traffic to their online stores, and build brand awareness without breaking the bank. Strategic marketing campaigns can effectively position small businesses alongside established brands and help them gain recognition.
Level Playing Field: E-commerce provides a level playing field for small businesses and entrepreneurs to compete with established brands. Online platforms give equal visibility to all sellers, regardless of their size or brand recognition. This means that a small business with a well-designed website, quality products, and a compelling value proposition can attract customers and compete with larger competitors based on the merits of their offerings rather than sheer financial resources.
Niche Targeting: E-commerce enables small businesses to target specific niches and cater to specialized customer segments. By focusing on unique products or services that cater to specific interests or needs, small businesses can differentiate themselves from larger competitors. E-commerce platforms facilitate niche targeting by providing tools for precise audience segmentation, allowing businesses to tailor their offerings and marketing efforts to a specific group of customers.
Flexibility and Scalability: E-commerce offers flexibility and scalability to small businesses and entrepreneurs. Online platforms allow them to easily update product catalogs, adjust pricing, and experiment with different marketing strategies in real-time. Additionally, as their businesses grow, e-commerce platforms provide the necessary infrastructure to scale operations seamlessly, whether it’s managing increased order volumes, expanding product lines, or streamlining logistics.
Direct Customer Engagement: E-commerce facilitates direct engagement and interaction with customers. Through features like live chat, email support, or social media interactions, small businesses and entrepreneurs can build relationships with their customers, address queries, and gather feedback. This direct engagement fosters customer loyalty, trust, and repeat business, creating a competitive advantage over larger brands that may struggle to offer the same personalized attention.
In last, E–commerce has revolutionized the playing field for small businesses and entrepreneurs, providing them with the tools and opportunities to compete globally. With a well-executed online strategy, a focus on quality products or services, and a customer-centric approach, small businesses can establish their presence, reach a wide audience, and thrive in the competitive e-commerce landscape.
Changing Consumer Behavior:-With the rise of e-commerce, consumer preferences and shopping habits have undergone significant shifts. Several factors have contributed to this transformation, including convenience, price comparison, and personalized experiences.
Let’s explore these in more detail:-
Convenience: E-commerce offers unparalleled convenience to consumers. They can shop anytime, anywhere, without the limitations of physical store hours. Online platforms allow customers to browse through a wide range of products, place orders with a few clicks, and have them delivered to their doorstep. This convenience factor has revolutionized the way people shop, eliminating the need for travel, parking, and long queues.
Price Comparison: E-commerce has facilitated easy price comparison for consumers. With a few searches and clicks, shoppers can compare prices of products across different online retailers. This transparency empowers consumers to find the best deals and discounts, ensuring that they get value for their money. Price comparison websites and browser extensions have further simplified this process, making it effortless to find the most cost-effective options.
Wider Product Selection: E-commerce platforms offer an extensive selection of products compared to physical stores. Consumers can explore a vast array of choices across various categories and brands, all in one place. This wider product selection allows shoppers to find specific items, discover new products, and access niche or specialized goods that may not be readily available in local stores.
Personalized Experiences: E-commerce has enabled personalized shopping experiences tailored to individual preferences. Online retailers leverage data analytics and customer profiling to understand consumer behavior and provide personalized recommendations and offers. Features such as “Recommended for You” or “Customers who bought this also bought” provide shoppers with targeted suggestions, enhancing their overall shopping experience.
Personalized Experiences: E-commerce has enabled personalized shopping experiences tailored to individual preferences. Online retailers leverage data analytics and customer profiling to understand consumer behavior and provide personalized recommendations and offers. Features such as “Recommended for You” or “Customers who bought this also bought” provide shoppers with targeted suggestions, enhancing their overall shopping.
Social Influences: The rise of social media has greatly influenced consumer shopping habits. People often seek recommendations from their social networks or influencers they follow before making a purchase. Social media platforms provide a space for product discovery, user-generated content, and discussions, enabling consumers to gather opinions and insights before committing to a purchase.
Seamless Multi-channel Experience: Consumers now expect a seamless experience across multiple channels. E-commerce retailers often integrate their online platforms with physical stores, offering options like click-and-collect (BOPIS) or returning online purchases in-store. This integrated approach provides flexibility to consumers, allowing them to choose the most convenient channels for browsing, purchasing, and receiving products.
These shifts in consumer preferences and shopping habits have significantly shaped the e-commerce landscape. Businesses that understand and adapt to these changes can better cater to consumer needs, foster customer loyalty, and stay competitive in the ever-evolving e-commerce market.
E-commerce Growth:- The exponential growth of e-commerce in recent years has been a remarkable phenomenon, transforming the way people shop and conduct business.
Here are some key statistics and trends that highlight the magnitude of this growth:-
Global E-commerce Sales: According to Statista, global e-commerce sales reached $4.28 trillion in 2020 and are projected to surpass $6.38 trillion by 2024.
Mobile Commerce: The proliferation of smartphones has fueled the growth of mobile commerce (m-commerce). Statista reported that in 2020, mobile e-commerce accounted for 67.2% of total e-commerce sales worldwide.
E-commerce Penetration: E-commerce penetration, defined as the percentage of online shoppers in a given market, has been steadily increasing. In 2020, the global average e-commerce penetration was around 21.3%, indicating substantial room for further growth.
Cross-border E-commerce: Cross-border e-commerce refers to online shopping across international borders. It has gained significant traction, with consumers increasingly purchasing products from overseas retailers. A report by eShopWorld stated that cross-border e-commerce is projected to reach $627 billion by 2022.
Marketplaces and Aggregators: Online marketplaces such as Amazon, Alibaba, eBay, and Flipkart have played a crucial role in driving e-commerce growth. These platforms connect buyers and sellers, offering a wide range of products and services. They provide convenience, competitive pricing, and a trusted shopping environment.
Omnichannel Retailing: Omnichannel retailing is the integration of online and offline channels, providing a seamless shopping experience for consumers. Businesses that adopt an omnichannel approach, such as offering buy-online-pick-up-in-store (BOPIS) options, have witnessed increased customer satisfaction and sales.
Social Commerce: Social media platforms have increasingly become influential in driving e-commerce. Social commerce leverages the power of social networks, allowing users to discover and purchase products directly from social media platforms. This trend is expected to continue growing as platforms like Instagram and Facebook expand their e-commerce capabilities.
Emerging Technologies: Technological advancements like artificial intelligence, machine learning, augmented reality, and virtual reality are reshaping the e-commerce landscape. These technologies enhance personalization, customer engagement, and provide immersive shopping experiences.
Sustainability and Ethical Shopping: Consumers are increasingly prioritizing sustainability and ethical practices in their purchase decisions. E-commerce businesses that embrace sustainable practices and transparent supply chains have gained a competitive edge.
The exponential growth of e-commerce in recent years is driven by factors such as convenience, accessibility, wider product selection, competitive pricing, and advancements in technology. As this trend continues, businesses must adapt to the evolving landscape and leverage digital strategies to stay competitive in the e-commerce market.
It is a process by which black or illegal money are converted into white or legal money.
For prevention of such type of activities, Prevention of Money Laundering Act, 2002 has been introduced.
This Act prevents money laundering & provide confiscation of property derived from or involved in money laundering and matters connected therewith.
There are various methods through which black money is made. Some of them are as follows:-
Cash deposited in Swiss Bank A/c
Buy a land and sell for legal profit.
Booking of false incomes.
Hawala
Bribery and corruption.
Kidnapping and extortion.
Stages/Process
Placement:-
This is the initial stage, in this stage, blackmoney is injected into the financial system. Here, launderer purchases and sells of investment instruments by decomposing money.
Layering :-
In this stage, after injecting the money into financial system, the launderer channelizes the funds or spread over various transactions in different countries and through various bank accounts at various banks across many countries.
Integration :-
after completion of above two stages, here, funds re-enter the legitimate economy, the launderer tries to remove the original connection with crime by which it can be used as clean money.
Note:- Hawala
Under hawala system, money is transferred via a network of hawalaagents or hawaladars [here, money transfer without money movement].
Example:- Mr. Ram in country X wants to transfer some money to Mr. Shyam in country Y.
Steps to be followed:-
Mr. Ram gives money that is to be transferred to the hawala broker in country X.
The hawala agent accept the money from Mr. Ram and calls another hawala agent in country Y.
The broker gives the money to Mr. Shyam in country Y in currency of that country.
Password is shared among each other for completion of Transaction.
Factoring is one type of financial service in which the business enterprise sells its trade receivables to another party at a discount to meet its working capital requirements.
Parties involved in Factoring:-
The Seller [Client] who sells the goods on credit and raise invoice.
The another party i.e. outside agency called factor.
The buyer who buys the goods.
Note:- Client, customers and factor.
Important Points:-
Seller sells the book debts to outside agency to meet its working capital requirement.
The factor pays the amount after deducting some amount [called commission] to seller.
The factor receives the full bills’ amount from customer.
In India, factoring service are provided by the following bank subsidiaries:-
Canbank Factors Ltd.
SBI Global Factors Ltd.
Sequence of activities in factoring:-
Client [seller] sells the goods to customers on the basis of order.
Client deliver the goods to customer with invoice.
Client assigns the invoice to factor for payment of invoice at discount.
The factor makes payment after deducting discount [commission] to client.
The factor recovers the invoice amount from buyer after expiration of credit period and buyer makes payment to factor.
Capital and Revenue Receipts and Difference between Capital and Revenue Receipts
Capital Receipts:- Capital receipts are those receipts which are obtained by an entity in other than normal course of business.
Examples:-
Receipts from sale of fixed assets.
Issue of fresh shares.
Sale of Investment.
Capital contribution etc.
Revenue Receipts:- Revenue receipts are those receipts which are obtained in normal course of business.
Examples:-
Receipts from sale of goods and services.
Interest/fees received in the normal course of business.
Revenue earned by any waste or scrap material etc.
Recovery from bad debts.
Difference between Capital and Revenue Receipts
Basis
Capital Receipts
Revenue Receipts
Meaning
Receipts which are obtained in other than normal course of business.
Receipts which are obtained in normal course of business.
Nature
Non-recurring.
Recurring.
Recognition
Recognize as not income.
Recognize as income.
Affect the operating profit
No.
Yes.
Result
creates liability.
doesn’t create liability.
Course of business
Other than normal or regular
Normal or regular.
Reflection
In Balance Sheet.
Income Statement.
Examples
Receipts from sale of fixed assets, Issue of fresh shares, Sale of Investment. Capital contribution etc.
Receipts from sale of goods and services, Interest/fees received in the normal course of business, Revenue earned by any waste or scrap material etc. Recovery from bad debts.
Difference between Cost Control and Cost Reduction
To maximize the profit is the main concern of any business enterprise that is only possible by decreasing the cost.
Cost Control:- Cost control is the regulation of the cost by setting up the targets whereby actual cost is compared with predetermined cost i.e. standard cost.
Cost Reduction:- Cost reduction is the real and permanent reduction in cost of product or service. This is continuous effort to reduce cost through savings in cost of manufacture, administration and selling and distribution.
Basis
Cost Control
Cost Reduction
Meaning
It is a technique where actual cost is compared with predetermined cost i.e. target or standard cost.
It is a technique where continuouseffort is made to reduce the cost of product.
Nature
Cost control is of a temporary nature.
Cost reduction is of permanent and real nature.
Emphasis
Cost control emphasizes on present and past behaviour of cost.
Cost reduction emphasizes on present and future cost.
Control
Control is possible through compliance with standards.
Cost is control through examination includes analysis and challenges.