Business Trade And Commerce, Study notes of Business

Download Business Trade And Commerce and more Study notes Business in PDF only on Docsity! Business Trade and Commerce HISTORY OF TRADE AND COMMERCE ❖ Indigenous banking system in Indian Subcontinent • Metals as Money: Initially, the metals were used as money due to the high durability and divisibility. • Use of Hundi and Chitti: Hundi and Chitti were financial instruments which were used for carrying out trade and credit transactions during the Medieval period in India. A Hundi is primarily an unconditional contract or order which warrantees a monetary payment which can be transferred by valid negotiation. • Development of banks: With the use of currency and letter of credit, the Indian banking system started lending money and financing the domestic and foreign trade in India. Along with this, the development of banking system also encouraged people to deposit precious metals with the lending authorities such as bankers, Seths, etc. • Agriculture and livelihood opportunities: In the Indian subcontinent, agriculture and the domestication of animals were important sources of livelihood. Along with this, people also relied on other sources of earning a livelihood such as weaving cotton, dyeing fabrics, making clay pots, etc. • Role of Intermediaries: The intermediaries and other institutions such as Jagat Seths, played an important role in the promotion of trade, commerce and banking in India. • Credit transactions: With the development of credit facilities and availability of loans and advances, the commercial activities and operations enhanced and the Indian subcontinent started enjoying the benefits from a favourable balance of trade. • Evolvement of indigenous banking: The indigenous banking system not only benefitted the manufacturers or traders by facilitating trade but they also helped those merchants with additional funds who were looking for expansion and development. Later on, with the evolvement of commercial and industrial banks, the banking system also started providing both short term and long term loans to finance the agricultural projects in India. ❖ Different types of Hundi used by traders a. Dhani-jog: This type of Hundi is payable to any person without putting any liability over the person who receives the payment. The broader function of Hundi is Darshani. b. Sah-jog: This type of Hundi is payable to a specific person, especially someone who is deemed as respectable while putting a liability over the person who receives the payment. The broader function of Hundi is Darshani. c. Firman-jog: This type of Hundi is payable on order. The broader function of Hundi is Darshani. d. Dekhan-har: This type of Hundi is payable to the presenter or the bearer. The broader function of Hundi is Darshani. e. Dhani-jog: This type of Hundi is payable to a person (called Dhani, who purchases it) without putting any liability over who receives the payment. However, the payment is done over a fixed time period. The broader function of Hundi is Muddati. f. Firman-jog: This type of Hundi payable to order following a fixed term. The broader function of Hundi is Muddati. g. Jokhmi: This type of Hundi is drawn against dispatched goods. Herein, in case the goods are lost during the transit, then the drawer bears all the costs without putting any liability on the Drawee. The broader function of Hundi is Muddati. ❖ Intermediaries: • Middlemen who promotes trade • Provide security to the manufacturers by assuming risks involved • Comprise of commission agents, brokers and distributors ❖ Transport • Roads: Important for inland trade and trade over land. Trade routes were structurally wide and suitable for speed and safety • Maritime: Malabar Coast, Calicut and Pulicat are major emporiums that were used to trade various items including spices, pepper, diamonds, pearls and cotton, etc. from India. ❖ Different communities dominated Indian trade • Punjabi & Multani merchants: Handled business in the northern region • Bhats: Managed trade in the states of Gujarat and Rajasthan • Mahajan: These were traders in western India • Chatt: These were important traders from the South • Nagarseth: In urban centres, such as Ahmedabad the Mahajan community collectively represented by their chief called Nagarseth • Other urban groups: Included professional classes, such as hakim and vaid (physician), wakil (Lawyer), pundit or mulla (teachers), painters, musicians, calligraphers, etc. ❖ Merchant Corporations • Derived power and prestige from guilds formed to protect interests of traders • Had their own rules of membership and professional code of conduct • Trade and industry taxes (like Octroi, custom duty, tariffs and ferry tax) were major source of revenue • Guild chief dealt with kings and tax collectors and settled the market toll on behalf of others • Guild merchants acted as custodians of religious interests • Various commercial activities enabled the merchants to gain power in the society ❖ Major Trade Centres • Pataliputra: Patna, a commercial town as well as a major centre for export of stones. • Peshawar: Important centre for exporting wool and importing horses. Contributed in commercial transactions between India,China and Rome. • Taxila: Major land route between India and Central Asia and a city of financial and commercial banks. • Indraprastha: Commercial junction where routes leading to the east, west, south and • A person engaged in a business deals with the trading of goods or services on a regular basis. • The sole motive of carrying out a business is to earn profit. ➢ Features of Business i. Economic activity: As a business is carried out with the sole objective of earning profit, it is characterised as an economic activity. ii. Procurement of raw materials : Business involves procurement of raw materials and semi-finished goods, which are then processed into final goods. These final goods are then sold to the end consumers at higher prices. (It must be noted that the resale of goods and services on a regular basis also constitutes a business.) iii. Profit motive: Earning profit is the sole and the most important objective of all business activities. iv. Exchange of goods and services: Business basically involves an exchange of goods and services for money. v. Regular basis: The exchange of goods and services (as mentioned in the point above) is done on a regular basis. A single or only a few transactions of exchange do not constitute a business. vi. Business risk: Every business, irrespective of its size (large or small) and the types of goods it deals in, faces business risks (in the form of loss). vii. Customer satisfaction: Besides the profit motive, a business also aims at satisfying consumers’ wants. A business must produce goods and services considering consumers’ needs. ❖ Role of Profit in Business Earning adequate profit (excess of income over costs incurred) is the sole motive of any business. Without sufficient profits it would not be possible for a business to sustain itself for a long time. Profit forms the source of reinvestment in a business and thus enables the growth of the business. The following diagram depicts the role of profit in a business. i. Source of income: To every businessman, profit from the business forms the source of income and livelihood. ii. Source of finance for future growth: A part of the profits earned is reinvested by the businessman into the business to facilitate its growth. iii. Indicator of efficiency: Profits earned by a business can be considered an indicator of the efficiency or performance of the business. In other words, higher profits indicate greater success of a business and vice versa. iv. Enhances the business’s standing in the market: Over a period of time, if a business earns sufficient profits, it gains market standing and reputation in the public eye. v. Reward for risk taking: Profit is said to be the reward or compensation for the risks taken in the business. vi. Return to investors: As a business earns profits, it gains reputation and goodwill in the market; this, in turn, increases the market price of its shares. In this way, profits also increase the return for the investors. ➢ Can profit be the sole motive of a business? Although conventionally a business is carried-out with the sole aim of earning profit, however, now-a-days, with the growing diversities, business has expanded its definition in terms of its objectives. It is no more limited to just earning profits but has grown beyond that. Therefore, a business needs to have multiple objectives. ❖ Multiple Objectives of Business Business objectives are the results that every business aims at achieving. The following diagram depicts various objectives of a business. Following are the multiple objectives of a business: i. Innovation: Business calls for developing new and sophisticated techniques by incorporating new thoughts and ideas so as to meet the growing demands of consumers; it is a never-ending process. ii. Profit maximisation: Earning maximum possible profit is the basic motive of every business. iii. Market share: Every business enterprise aims at capturing maximum market share. iv. Workers’ performance and their attitude: The productivity and profitability of a business are dependent on its workers’ performance and their attitude. In this regard, ii. Code of conduct: Every profession follows an ethical code of conduct as prescribed by the concerned professional associations. iii. Limited capital investment: Practising a profession requires limited capital investment. iv. Professional association: Every profession is associated with a professional association/body that provides guidelines for the behaviour/code of conduct of the members. v. Restricted entry: Entry in a profession is restricted through some requirements such as possession of a specific degree, knowledge of a specialised skill and membership of some professional association. vi. Service motto: Every professional aims at giving prime importance to client servicing. ❖ Employment In this type of economic activity, individuals are hired by an organisation to work on a regular basis and are paid in exchange of their services. ➢ Features of Employment Following are some of the basic features of employment: i. Easy commencement: Employment commences as soon as the appointment letter and the service agreement is signed by the employee. ii. No capital required: No capital is required to enter into a service or employment. iii. Code of conduct: It is mandatory for every employee to follow the rules and regulations prescribed by the employer of the company. iv. No job transfer: Employment cannot be transferred from one person to another or from one organisation to another. v. Performance: An employee needs to perform the tasks and duties assigned by the employer. vi. Wages: Employees are given wages or salaries by the employer as remuneration for their services. ❖ Comparison between Business, Profession and Employment Basis of Difference Business Profession Employment Commencement Can be started by an entrepreneur depending on his or her decision to do so Can be practiced only after successful completion of a (professional) degree or a certificate course. Commences as soon as the appointment letter and the service agreement is signed by the employer and the employee. Investment required It varies as per the size and nature of the business. Limited Nil Risk involved The degree of risk involved depends on the nature of goods produced dealt in by the business and the scale of business operations. Comparatively low Nil Transfer of ownership It is possible and subjected to the fulfilment of certain legal formalities. Ownership cannot be transferred, as the professional himself/herself procures the required degree and skills. Ownership cannot be transferred. Reward or remuneration Profit Fees Wages/salary Code of conduct A business does not require a code of conduct. The code of conduct is prescribed by professional associations. The code of conduct is prescribed in the form of terms and conditions laid down by the organisation. Qualification No minimum qualification is required. Prescribed professional qualification is required. It depends upon the nature of the job. ❖ Classification of Business Activities Business activities can be classified into two broad categories: industry and commerce. ❖ Industry ➢ Definition: Industry refers to those economic activities wherein raw materials are processed and converted into final products. During the process, value addition to the raw materials takes place. The final products have the higher value compared to the raw materials. ➢ Classification of Industries Industries are further classified into three categories: primary, secondary and tertiary. Trade can further be classified into two categories: external trade and internal trade. ➢ External trade The trade that takes place between two or more countries is known as external trade. Following are the various forms of external trade: i. Import trade: It refers to the purchase of goods and services from foreign countries in order to consume them in the native country. ii. Export trade: It refers to the selling of goods and services from the native country to the foreign countries. iii. Entrepot trade: It involves importing goods from a foreign country with the purpose of exporting them to another country at a higher price. ➢ Internal trade The trade that takes place within the boundaries of a country is known as internal trade. Following are the two forms of internal trade: i. Wholesale trade: It refers to the buying and selling of goods in large quantities for the purpose of resale or intermediate usage. These goods are purchased in bulk from the manufacturers and are later sold to retailers in relatively small quantities. ii. Retail trade: It refers to the buying of goods and services in relatively less quantities unlike that practised in the wholesale trade. These goods and services are then sold directly to the customers. ❖ Auxiliaries to trade ➢ Definition: It comprises all trade-related activities that facilitate the exchange of goods and services. ➢ Types of Auxiliaries to Trade Following are the various types of auxiliaries to trade: i. Banking and finance: An efficient banking facility ensures easy and ready availability of cheap credit to businessmen and traders. ii. Advertising: Advertisements enable businessmen to reach to a large number of potential buyers. This helps them in increasing their sales. iii. Warehousing: It refers to storing or preserving goods until they are sold for final consumption. It helps businesses to store goods and facilitates the availability of goods when required. iv. Insurance: It acts as a shield against various business risks. By paying a nominal premium at regular intervals, the loss suffered by a business (in case of any accident or mishap) can be recovered from the concerned insurance company. v. Transportation: It widens the geographical boundaries of a business and enables the sale and purchase of goods across different regions. ❖ Business Risks Definition: Business risk refers to the possibility that the business may fail to earn sufficient profits or incurs losses due to certain unforeseen circumstances which are beyond its control. ➢ Types of Business Risks Business risks can be classified in two broad categories: speculative business risk and pure business risk. i. Speculative business risk: It refers to an equal chance of earning profits and incurring losses. It arises because of changes in external forces. ii. Pure business risk: It refers to the chance of incurring either only losses or no loss at all. ❖ Nature of Business Risks Following are some features of a business risk: i. Part and parcel of business: Risk is an essential feature of every business. Every business, irrespective of its size and nature, faces a certain amount of risk. ii. Result of unforeseen circumstances: Risk usually emerges because of unforeseen circumstances. These uncertainties may occur in the following forms: a. Human uncertainties such as strikes and thefts b. Business uncertainties such as price change and changes in the government policies c. Natural uncertainties such as earthquake and floods d. Other uncertainties such as political disturbances and fluctuations in the exchange rate iii. Directly related to profit: Profit is directly related to risk as profit is said to be the reward for undertaking risks. Higher risk → Higher profits iv. Degree of risk: The degree of the risk involved varies from business to business depending upon the nature of the business and the size of its operations. ❖ Causes of Business Risks