THE ADVANTAGES AND DISADVANTAGES OF SMALL SCALE PRODUCTION/OPERATIONS

THE ADVANTAGES AND DISADVANTAGES OF SMALL SCALE PRODUCTION/OPERATIONS

There are many kinds of merits and demerits of the small scale production, such as:

(a) Advantages of Small Scale Production:

The following are the merits of small scale production:

1. Close Supervision:

The small producer can himself supervise the minutest details of the business.

Nobody is allowed to spoil machinery or waste materials. The master’s eye is everywhere. There can be no fraud or idleness. He will exercise utmost economy to achieve the aim of maximum profits.

2. Nature of Demand:

The small producer has an advantage over the large producer, when the demand is either small or is constantly changing. He has thus a sphere of his own where he has an advantage over the large scale producer.

3. More Employment:

In the face of large scale unemployment existing in the country, the development of cottage and small scale industries is of great help to create more employment opportunities. Small scale production is more labour-intensive i.e., there is more use of labour than machinery. Thus, many unemployed persons are employed in the newly developed small scale industries.

4. Need of small Capital:

The small scale production can be started with small capital. Where there is shortage of capital, the small scale industries are of great advantage for the development of industries.

5. Direct Relation between the Workers and the Employers:

In small scale production less workers are employed. Therefore, a close relationship exists between the employer and the workers. Because of this close relationship, the employer can look after the well-being of his employees and employees, too, consider their work as their own and the work goes on smoothly without any disputes between the two parties.

6. Direct Relation between the Customers and the Producers:

The small scale producers generally cater to the local demand. Hence, they remain in touch with their customers. A small producer personally knows his customers. Therefore, he can produce goods according to the taste and fashion of each individual customer.

7. Easy Management:

The management of small business is easy and economical. Simple accounts and a few persons can manage the job well.

8. Freedom of Work:

There is complete freedom of work in a small business organisation. Workers are more or less self-sufficient. They are not dependent on the capitalists and carry on their jobs freely.

9. External Economies:

The small scale production secures all kinds of external economies, which are available to large units also. These economies are: better transport, electricity, and communication facilities; banking and insurance services; technical workers, etc.

10. No Evils of Large Scale Production:

The small scale production cannot fall victim to the evils of the large scale production i.e., evils of the factory system, overcrowding, etc.

11. Other Advantages:

In the small scale production, there are some important advantages over the large scale production:

(i) Whenever demand changes, the supply can be adjusted accordingly.

(ii) There are less possibilities of strike and lockouts and no moral degradation of the workers is feared.

(iii) There are no dangers of monopolistic institutions.

(b) Disadvantages of Small Scale Production:

The following are the demerits of small scale production:

1. High Cost of Production:

The cost of production per unit increases because there is a high cost of labour, a very little scope for division of labour and lesser use of machinery.

2. Wastage of By-products:

In the small scale production, it is not possible to make economic use of the by-products, as in the large scale production. By-products of the small producers generally go waste.

3. Less Use of Machines:

In the small scale production, there is less scope for the use of machines. As a result, these firms cannot take advantages of the use of the machinery.

4. Lack of Division of Labour:

In the small scale industries, the size of production is small, and there is lack of division of labour and less profits to the entrepreneurs.

5. Difficulty in Getting Loans:

It cannot enjoy the financial economies. Funds are either not available and if available, they have to pay higher rate of interest.

6. Difficult to Face Economic Crisis:

Because of the limited resources and financial weakness, the small scale producers cannot face economic crisis. The producers do not have the capacity to bear losses for long. In fact, under a small economic crisis, many small factories are closed down.

7. Costly Raw Materials:

In the small scale production, raw materials are purchased in small quantities which are available to the small producer at higher prices.

8. Lack of Standardised Goods:

The quality of goods is not standardised or upto the mark in the small scale production. It is difficult to sell goods because of their low standard and inferior quality.

9. Old Techniques:

In the small scale industries, the production is undertaken with the help of old techniques or old and obsolete machines. It is not within their capacity to bear the risk of installing new machinery.

10. Lack of Research:

The small scale industries have limited means at their disposal. They cannot spend much on research in the field of science and technology. In this way, the small scale industries are a hurdle in the way of technical research and, industrial development.

11. Difficult to Face Competition with Large Scale Producers:

If some large scale producers enter the market, the small producers find it difficult to compete with them. The small producers perish at the hands of the large scale producers.

CAUSES OF BUSINESS COMBINATION

Causes of combinations

The causes of combinations are as follows 1. Destructive Competition: destructive competition may result into the stoppage of many firms. In order to remove the fear created by strong competition, the competing firms arrive at some sort of understanding to regulate prices and eliminate overproduction. In other words, combination may be created as a means of furthering self interest by common action.  2. Economies of Large Scale: A large number of economies are achieved if a business is carried on a large scale. These economies relate to production, management, financing and marketing. Small business units may combine together to reap the benefits of large scale operations and organisation. This will reduce the cost of production and increase the profits of the business.  3. Joint Stock Enterprise: The evolution of company form of organisation has also facilitated the combination of various units by acquiring shares of various companies to control their affairs. The companies under the common control through the system of inter-locking directorship can be easily combined to get many benefits of combination. 4. Control of Market: Combinations are created to secure steady market. Sometimes, combinations are created to control the entire market and create a monopoly which is detrimental to the interest of the consumers. By controlling the market, they can sell their products at higher prices and earn huge profits. 5. Individual Ability: According to Shield, ' ' Great organising ability, strategic genius, or personal ambition on the part of one or a number of men may account in part for the rise of certain business combinations. The scarcity of business talent became one of the causes of centralisation of power in a few hands, endowed with business insight, business talent and business courage.' ' Many a time, business combination a are created due to the initiative and organising ability of an individual or a number of individuals.  6. Lust for power: Some businessmen have a lust for economic power which can be satisfied by creating industrial empires. Desires to bring up industrial regime lies at the back of many combinations. Individual ambition of becoming the pioneer member or coordinator of a huge combine is also on of the factors favoring combination.  7. Business Cycles: In uncontrolled economies, there are trade cycles. During books, firms expand to take advantage of rising demand, and during depressions, inefficient and weak firms find it difficult to survive because of lower demand. Business ups and downs generally lead to business combinations. Particularly in industries, where huge capital is employed and where demand is subject to cyclical changes, combinations occur as a revulsion against risk of burdensome overhead cost, glut, low turnover and lower process during depression.  8. Protective tariffs: Protective tariffs are used to encourage home industries. When the Government imposes import duty on certain items, the home manufacturers of such items are encouraged to form combination to develop their business and exploit the domestic market fully. Sometimes, national level combinations are formed to provide a united front to perpetuate protection.  9. Government Pressure: The Government policy may compel the weaker units to amalgamate with the stronger units so as to improve the overall efficiency of the industry. Even the Government may take over the sick units and combine them to form a viable unit and introduce rationalization in it.  10. Miscellaneous Factors:  (a) Dearth of managerial talents may lead to managerial integration of business units. Many companies have common directors which in fact means their common control.  (b) If an enterprise wants to be self sufficient, it may combine with other units. Vertical integration is the result of desire for self-sufficiency. Under this, various units producing the related raw materials and semi-finished products are combined together so that they produce the finished products at economical prices. (c) Growth of transport an communication has increased the intensity of completion not only in the national market but also in the international market. This has resulted in the formation of multinational enterprises having subsidiaries in different countries.  (d) Sometimes, firms in an industry join to avail of the benefits of patent rights of one firm.  Haney has divided the above factors or forces into three categories which are as follows:  (i) Driving or impelling forces consisting of cut-throat competition and decrease in the opportunity for speculative gains (ii) Beckoning forces which include opportunity for profits, protective tariffs and gains of over capitalization (iii) Facilitating forces comprising of joint stock enterprises and other forces.

Advantages And Disadvantages Of Business Combination

Advantages And Disadvantages Of Business Combination

The main objective of business combination is to eliminate cut-throat competition and secure theadvantages of large scale production. Following are the advantages of business combination.

1. Competition between and among the companies will be eliminated.

2. Amount of capital can be increased by combining business.

3. Establishment and management cost can be reduced.

4. Benefits of large scale production can be secured.

5. Operating cost can be reduced by avoiding duplication.

6. Research and development facilities are increased.

7. Monopoly in the market can be achieved.

8. Bulk purchase of materials at reduced price is possible.

9. Stability of the price of goods is maintained.

Following are the disadvantages of business combination

1. Business combination brings monopoly in the market, which may be harmful for the society.

2. The identity of the old company finishes.

3. Goodwill of the old companies decrease.

4. Management of the company becomes difficult.

5. Business combination may result in over-capitalization

EASY NOTES N BUSINESS COMBINATIONS

Discuss the various Types or Kinds of Business combination

Types of Business Combination :-
It has following four types :

1. Vertical Combination.
2. Horizontal Combination.
3. Circular Combination.
4. Diagonal Combination.

1. Vertical Business Combination :-
When various departments large industrial units combine together under single management is called vertical combination. Under this combination from purchasing of raw material to selling of product all the stages are linked up by the units.For examp0le, all the business units engaged in publishing books can make vertical combination as under :


Objectives or Advantages of Vertical Business Combination :-
1. To minimize the cost per unit.
2. To eliminate competition.
3. To hire the services of experts.
4. To supply the goods at lowest price.
5. To avoid over production.
6. To use improved methods of production.
7. To achieve the benefits of large scale.
8. To find proper market for their product.
9. To supervise the management.
10. To reduce the middleman commission.
11. To earn maximum profit.

2. Horizontal Business Combination :-
It is also voluntary association which two or more than two similar nature business units combined them selves under the one management, it is called horizontal combination. For example, if four tea industrial units are at the same stage of production. The are engaged in same activity. They sell wholesale. They sell the product in the same market. Their combination will be called horizontal combination.


Objectives or Advantages of Horizontal Business Combination :-
1. To minimize the Cost per unit.
2. To eliminate competition.
3. To hire the services of experts.
4. To supply the goods at lowest price.
5. To avoid over production.
6. To use improved methods of production.
7. To achieve the benefits of large scale.
8. To find proper market for their product.
9. To supervise the management.
10. To reduce the middleman commission.
11. To earn maximum profit.


3. Circular or Mixed Business Combination :-
When different types of business units combine themselves under the one management it is called circular combination.

Example :- If a cloth industry combining with shoes industry and sugar industry is an example of mixed combination.
Objects :- The main object of mixed combination is to secure the benefits of administrative ability through common management.


4. Diagonal Business Combination :-
When two or more than two business units performs subsidiary services, if they combine themselves under the main industry it is called diagonal combination.

Example :- If designing and tailoring business units are combined with the garments industry it is called diagonal combination.


Objects :- The main object and advantage f this combination is that it makes the business unit very large and self sufficient.

Business Combination

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Meaning and definition of Business Combination

A business combination is essentially an event or transaction where an acquirer acquires control of either one or over one business. Further, a business can be defined as a set of integrated assets and activities which are capable of being managed and conducted with an intention of offering a return to the investing members or other participants, owners and members.  Generally, business combinationsrefer to transactions in which one company gains control, or at least controlling interest, in another company. A business combination can be aptly defined as amalgamation of the assets of two or more business entities for their consolidation as a single entity under single ownership. A business combination can be managed easily through the way of a voluntary acquisition, a merger, or a hostile takeover. In many cases, a preferred means of managing a business combination might be acquiring a controlling amount of stock.

IFRS 3 Business Combinations is about accounting at a time when the acquirer successfully acquires control of a particular business (for example, merger or acquisition). It is these kinds of business combinations that are recognized by utilizing the ‘acquisition method’ that usually requires liabilities and assets that are assumed for measurement on the basis of fair value on the date of acquisition.

A very common approach to business combinations is merger. As per this particular model, two entities operating in similar area combines their assets with an intention to set up a new entity, which is very strong and efficient in handling competition than would they could have accomplished on their own. Such a merger enables a the newly formed entity in retaining existing customers whereas it also gets an opportunity to position itself in a manner that it is able to acquire new customers.

The IFRS 3 new version was issued in the month of January in 2008 after revision and is applicable to business combinations that occur in an organization’s first annual year beginning after or on 1^st of July 2009.

TYPES OF BUSINESS COMBINATIONS

Types of Business Combinations

Types of Combinations:
Horizontal Combination : It is also known as parallel or trade unit integration. It is
affected by units engaged in manufacturing similar products or rendering similar services .It involves the brining together of competing firms under single ownership and management. For instance, if two or more sugar mills are combined under the same management, it will be a case of horizontal combination. Tata Iron and steel Ltd and associated cement company are the illustrations of horizontal combination.
The benefit of horizontal combination is as follows;
(i) It eliminates wasteful inter-firm completion in the same line of industry.
(ii) It helps in achieving economies of large scale production and distribution.
(iii) It can control supply of the product and market prices.
Horizontal combination may lead to the point of view of following evils:
(i) It creates monopoly which is harmful form the point of view of the customers.
(ii) There may be restriction of output and exploitation of customers.
(iii) It give rise to concentration of economic power

Vertical Combination : It is also known as sequence or industry or process
integration. It arises as a result of integration of those business enterprises which are engaged in different stage of production of a product. In other words, it implies combination under single control of enterprises in different stages of manufacturing the product. The aim of vertical integration is to gain self-sufficiency as regards raw materials and distribution of finished products. Two or more business units engaged in successive stages of production, or producing articles leading to the same final product, may combine together and mange all stages of production and the distribution of the final product. For example, in cotton textile industry, there may be a combination of units engaged in successive stages of cloth manufacturing. Such as spinning, weaving, bleaching and finishing of cloth. Vertical combination may result from backward or forward integration. Manufacturers at successive stages in production may integrate backward up to the sources of raw materials or they may expand through forward integration to retail selling of the finished product. Thus, the basic objective of vertical combination is either to secure an assured supply of raw materials and other requirements or to create steady market for the products manufactured. The former objective is fulfilled by backward integration and the latter is realized by forward integration.

The advantages of vertical integration are as follows:
(i) It reduces the dependence on other enterprises in the industry and helps in achieving
self-sufficiency.
(ii) It eliminates the intermediate profits and thus reduces the cost of production.
(iii)There is steady production as a result of regular supply of raw materials and regular
sales.
(iv) Products of higher quality can be obtained because of the control be achieved.
(v) Economies in storage, transport and handling of materials may be achieved.

Vertical integration may leads to the following evils:
(i) It does not eliminate competition as in case of horizontal integrations.
(ii) The size of the business may grow and it may bring grow and it may bring inflexibility of operations.
(iii) Since its processes are interdependent, a slight interruption in one process may dislocate the entire production system.
(iv) It gives rise to concentration of economic power.

Lateral Combination : It refers to the integration of business units producing and
selling different but allied products. The lateral combination may be either convergent or
divergent. Convergent lateral combination arises when firms producing different products but supplying to a common user join with him. For example, brick manufacturer, stone supplier, cement supplier, and wood supplier may integrate with a construction company; Divergent lateral combination represents combination of one supplier of a common raw material with different users. The example of divergent lateral integration is provided by a flourmill supplying flour to a number of units like bakery, confectionary, and hotel. The main benefit of lateral integration is that both the supply of raw materials and availability and existence of demand are ensured to the new combination. Benefits of centralized control of various units are achieved. Under divergent integration, markets are diversified and risks are scattered.

Diagonal Combination : It means integration of a main activity or process with
ancillary activities and services. For instance, a newspaper company may integrate with
transport company to ensure quick deliver of the newspaper to different parts of the country or an automobile plant may combine with a power generating unit. Thus, diversification of activities is diagonal. The purpose of diagonal integration is to ensure smooth and timely availability of ancillary services which are essential for the continuous working of the main units.

Circular Combination : When there is integration of business units which remotely
connoted with one another in their production and sales, furculum integration is achieved.
The remote connection may be found between products requiring similar manufacturing
processes or using the same marketing or trade channels. Circular combination or created to build up big industrial empires. Business house of Tata’s, Birla’s and D.C.M. are the
illustrations in this regard. For instance, the D.C.M. group controls the units engaged in
textiles, chemicals, fertilizers, sugar, electronic goods, business machines, etc.

Associations: The term association is meant for voluntary union of traders for the
purpose of safeguarding the interest of all the members therein. Broadly speaking, association may be classified into two types namely trade associations and chambers of commerce.

Trade Associations: A trade association may be defined as an association of business
units engaged in a particular trade or industry, or a group of closely related trades. It is a
voluntary and non-profit organization of business units which are competitors. They are
formed for the promotion of the economic interest of their members. In fact, the trade
association is a combination of businessmen, engaged in a particular line of business for the promotion of their common interest, growth of friendly relations and exchange of news and views pertaining to their business activities. The name of the association is usually after natural of the business conducted by the members. The members include businessmen engaged in the same line of business in a particulars region. Some of the associations a t the all India level are: All India Manufacturers Organisation, All India Organisation of Employers, All India Marketing Association, Indian Jute Mills Association, Indian Sugar Mills Association, Indian Paper Mills Association, etc.
Trade associations at the regional level include: Bombay Mill Owners Association, Bombay Printing Press Owners Association, Ahmedabad Cotton Mill Owners Association, etc.

The trade associations perform the following functions:-

Chambers of Commerce : A chamber of commerce may be defined as an association
of businessmen which works for the benefit of its members in a particulars territory it serves. Their aim is to protect the general commercial interest of the members. Chambers of commerce is found all over the differed in their composition and character. For instance in India and England, a chamber of commerce is a voluntary association of businessmen to further their commercial interest. But in France it is a semi-official body comprising of a fixed number of representatives of the Government and the business community. The chambers of commerce perform the following functions:-
(i) They collect and disseminate important on traffic routes, trade conditions, potential
markets, etc.
(ii) They maintain statistical bureaus for providing classified information to the members.
(iii)They act as the spokesmen of the business community be commenting on government
polices affecting business or in connecting with an existing piece of legislation that obstructs business.
(iv) They make representations to the government on proposed legislations concerning some spheres of business or in connection with an existing piece of legislation that obstructs business.
(v) They arrange for the settlement of disputes arising out of trade or industry by means of
arbitration.
(vi) They introduce standard trade practices to be followed by their members.
(vii)They organise industrial fairs and exhibitions to further the interest of the business
community.
(viii) They provide & forum of exchanging views to the members by holding conference and seminars.

Distinction Between Trade Association and Chambers Commerce : Trade
Associations and Chambers of Commerce differ in regard to the following points:-
(i) A trade association is formed by those engaged in the same trade or line of
business whereas a Chamber of Commerce is an association of businessmen and /or business units from a particular region belonging to different trades.
(ii) The members of trade association are competitors whereas the members of a
Chamber of Commerce are both competitors and non-competitors.
(iii) A trade association is engaged in protecting the interest of the particular trade but
a Chamber of Commerce is engaged in the general commercial interest of the members
engaged in different trades.

STOCK EXCHANGES MEANING, FUNCTIONS, OBJECTIVES, SERVICES

MEANING OF STOCK EXCHANGE

A stock exchange is a highly organsied financial market where shares, debentures and bonds can be bought or sold. Its main function is to create a link between the buyers and sellers of securities so that investments can change hands in the quickest, cheapest and fairest manner.

It is an organised market where second hand securities are bought and sold for investment and speculation. The securities traded on a stock exchange consist of shares, debentures and bonds issued by companies, corporations and Government bodies to the public.

Under the Securities Contract (Regulation) Act, 1956, the term stock exchange has been defined as "an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities."

Thus, a stock exchange is a market where dealings in the listed securities are made by the members of the exchange on their own behalf or on behalf of others.

It is an association of persons organised to provide facilities for the purchase and sale of listed securities. Listed securities are those shares, debentures, bonds, etc. which are included in the trading list of a recognized stock exchange.

In order to get its securities listed, a company has to make an application to the concerned stock exchange and comply with the prescribed formalities and rules. The stock exchange should be differentiated from the produce exchange which is an organised market in commodities.

FEATURES OF STOCK EXCHANGE

The main features of a stock exchange are as follows:

(a) An organisation in the form of an association or a company.

(b) A governing board to supervise and regulate activities.

(c) A framework of rules and regulations.

(d) A common meeting place for buyers and sellers, and

(e) Brokers to serve as a link between the buyers and sellers.

FUNCTIONS OF STOCK EXCHANGE

1. Ready market:

A stock exchange provides a ready and regular market where investors can easily buy and sell securities. It provides a common meeting place where people can convert their money into securities and securities into money.

Buying and selling of securities is confined to one particular place and the investors are saved the trouble of going to different places to buy or sell securities.

2. Price determination:

A stock exchange helps in determining the prices for various secu­rities. Continuous purchase and sale of securities on a stock exchange lead to the appraisal of their prices. Regular dealings reduce wide fluctuations in prices.

The prices at which dealings take place are recorded as quotations. These quotations are published in newspapers. The investors can know the market value of their securities from these quotations.

3. Protection of investors:

A stock exchange functions strictly according to established rules and regulations. These rules and regulations provide a check on overtrading in securities and manipulation of prices. The Government, too; exercises supervision and control over a stock exchange.

The managements of companies whose securities are listed have to submit reports to the stock exchange authorities. In this way, a stock exchange serves as a caretaker of investors' money. Investors can buy and sell securities with confidence and without fear of being exploited.

4. Capital Formation:

A stock exchange induces people to save and invest in securities by holding out prospects of increased earnings and capital appreciation.

There is regular publicity of its operations which encourages saving and investment. People know that when they need money, they can easily sell their securities in a stock exchange.

Therefore, they are more willing to invest their savings in securities. Thus, a stock exchange serves as an instrument of capital formation by mobilising public savings.

5. Channel for investment:

A stock exchange channelizes the investible funds in more productive industries. A company with better performance and prospects has no difficulty in raising its capital.

A stock exchange informs investors which way the investment wind is blowing. By directing the flow of capital into worthwhile projects, it gives an impetus to the economic development of the country.

6. Economic Barometer:

A stock exchange serves as a reliable barometer of a country's economic situation. It reflects changes taking place in the country's economy. Price trends on stock exchange indicate trade cycles i.e. boom, recession, depression, recovery, etc.

7. Regulation of company management:

Stock exchanges frame their rules and regula­tions. Any company which wants to get its securities listed has to submit to these rules and regulations. Thus, stock exchanges exercise a healthy influence on the working and management of companies.

8. Clearing House of information:

A stock exchange is a medium of useful business infor­mation. Many stock exchanges publish directories which provide data on the corporate sector. Such information is very useful in business forecasting and general business trends.

In the words of late Shri. C.D. Deshmukh, "the economic services which a well constituted and efficiently run securities market can render to a country with a large private sector, operating under the normal incentives and impulses of private enterprise are considerable.

In the first place, it is only an organised securities market which can provide sufficient marketability and price continuity for shares so necessary for the needs of investors.

Secondly, it is only such a market that can provide a reasonable measure of safety and fair dealing in the buying and selling of securities.

Thirdly, through the interplay of demand for and supply of securities, a properly organised stock exchange assists in a reasonably correct evaluation of securities in terms of their real worth.

Lastly, through such evaluation of securities, the stock exchange helps in the orderly flow of savings as between different types of competitive investments."

SERVICES OF STOCK EXCHANGE

A stock exchange renders valuable services to the corporate sector, investors and the com­munity.

Services to corporate sector

1. Wider market:

A stock exchange serves as a sales counter for new securities. A new company finds it easier to sell its securities if they are listed on a stock exchange. Securities purchased and sold on a stock exchange cover a wide market.

Therefore, a company can raise a large amount of capital from different types of investors.

2. Prestige:

Investors know that a stock exchange makes a close scrutiny of company before listing its securities. Therefore, they have greater faith in such a company. Listing adds to the goodwill and credit-standing of a company.

3. High share prices:

Listed securities enjoy greater demand; therefore, their market value is higher. This is profitable for a company engaged in bargains concerning amalgamation, absorp­tion, etc. In fact, the corporate sector could not have attained its present position in the absence of stock exchanges.

4. Price stability:

Stock exchange helps to minimise fluctuations in the prices of securities through the forces of demand and supply. It provides facilities for investment and speculation in company shares and debentures.

Services to Investors

1. Liquidity of investment:

A stock exchange provides a ready market where securities can easily be converted into cash. Easy marketability makes investment in securities liquid.

2. Safety:

A stock exchange ensures safe and fair dealings in securities. This is because the management of a stock exchange exercises supervision and control over the activities of dealers in securities. Transactions are carried out under the prescribed rules and regulations.

3. Loan Facility:

The securities dealt in on a stock exchange are negotiable. They can be used as a collateral security for raising loans.

4. Publicity:

Price quotations on a stock exchange are reported in newspapers. An investor can find out the market Value of his securities. From price trends, he can make a rational choice among securities. It becomes easier for him to decide when to sell his securities or to invest his surplus money in securities.

5. Investment guide:

Investors can decide about purchase and sale of securities on the basis of stock exchange quotations. A stock exchange, therefore, serves as a friend and guide to inves­tors.

6. Better Bargains:

On a stock exchange, investors buy and sell securities through profes­sionals. With the advice and help of these professionals, even a lay investor can make profitable investments.

7. Less Risk:

A stock exchange does not list any security unless it is satisfied about its worth. Such security before listing creates a sense of confidence among investors. They have no fear of risk while trading in listed securities.

Services to the Community

1. Capital formation:

Stock exchanges promote the habit of saving and investment among people. They help to mobilise public savings which may otherwise remain idle and thereby facilitate the process of economic development in the country.

2. Channel for profitable investment:

On a stock exchange, securities are under constant and close evaluation by the professional operators. Such continuous assessment of the worth of securities helps investors in deciding which securities to buy and which to sell.

In this way, a stock exchange makes a rational allocation of investible funds among different projects. The country's financial resources are channelized into productive investments.

3. Public finance:

In a developing country like India, the Government requires a large amount of money for various schemes of socio-economic development. Government agencies can sell bonds more easily through stock exchanges.

4. Economic Mirror:

Stock exchanges faithfully reflect the economic, social and political conditions in the country. This is because every major change in such conditions has an effect on share prices. That is why a stock exchange is known as the pulse of the company.