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Managing a Business/MBA (FM) Assignment


Dear Sir,

Please help me to solve below questions.
1.   India is especially worrisome regarding regulatory responsibility of credit ratings. It is mandatory for listed firms, commercial banks and mutual fund companies to invest only in rating companies. So we certainly have to get serious about rating the raters. Can the credit information business be fundamentally reengineered, so that credit rating agents pass the market test and complete to obtain subscription revenues from investors? Justify your stand.    
2.   If you are a Merchant banker, what issues would you consider before accepting a public issue proposal of a company? Critically examine the issues.    
3.   Stock exchanges in India have not served their purpose. Do you agree? Validate your arguments.
4.   Insurance Regulatory and Development Authority (IRDA) has its prime objective to protect the interest of policy holders. What regulations have been evolved to attain this objective?

1)India is especially worrisome regarding regulatory responsibility of credit ratings.It is mandatory for listed firms, commercial banks  and mutual fund companies to invest only in rating companies. so we are certainly have to get serious about rating the raters. can the credit information business be fundamentally re-engineered, so that credit rating agents pass the market test and complete to obtain subscription revenues from the investors? Justify your stand.
Absolutely yes. And indeed rating agencies are constantly subject to scrutiny, evaluation and questioning by investors, media and regulators. Since ratings are opinions, it is important that markets are convinced about their robustness before acting on them. Rating agencies therefore publish extensive data on rating default and transition statistics, and metrics on predictive capability of ratings vis-à-vis macro-economic and corporate performance. CRISIL regularly holds investor discussion forums where its methodologies and views are hotly debated by about 100 analysts present at each such event.
How should raters be evaluated? Firstly, through a long-term record demonstrating that higher ratings are consistently more stable and have a lower probability of default than lower ones. Adherence to clearly stated and widely disseminated criteria is another parameter. The governance and business practices are critical in evaluating their independence. Some of these include: multi-layer decision-making processes, dedicated criteria and quality assurance teams, prohibition of analysts’ involvement in fee decisions, and analyst compensation not linked to assigned ratings. India’s rating industry scores well on these counts. There is a two-decade history of credible and robust default statistics. Since credibility is its bedrock, the rating industry has proactively and suo motu provided its report card to the market.
The issuer-pays model is much debated, but would investors paying work? When a rating is assigned, the investor is generally not known. Issuers have to commission ratings and provide them to a range of potential investors who then decide whether to invest. And if investors paid, only paying investors would get access to ratings. Markets should not underestimate the huge benefits of the public disclosure of ratings — today all ratings and rating changes are available to the entire market free of charge, as they are widely disseminated.
Rating agencies are the most independent providers of credit opinions compared to other potential opinion providers — borrowers, lenders, investment bankers or brokers. Ratings have a vital role to play in India’s credit markets. The Indian rating agencies proactively alerted the market to the impending risks in the NBFC sector in the 1990s, well before the crisis precipitated. The contingent liabilities of state government guarantees as a risk factor were first highlighted by CRISIL. The potential problem in the collective investment plantation schemes was nipped in the bud by rating agency alerts. The recent actions by CRISIL highlighting the heightened risks associated with leverage in corporate balance sheets to fund their global expansion were keenly appreciated by the market. Not surprisingly, Indian investors’ acceptance of ratings preceded regulatory recognition. Even today, investors demand ratings in areas which go well beyond those where regulations make them mandatory.

2.If you are a merchant banker,what issues would you consider before accepting a public issue proposal of a company?critically examine the issues.
Role of merchant banker in a primary market issue management
Merchant banker is the intermediary appointed by companies in the primary market issue. It has to look atthe entire issue management and work as the Manager to the Public Issue.Principal steps that Merchant bankers have to perform in a bringing up a Public issue are as follows :
Vetting of Prospects:
The prospectus is a document to communicate information about the company andthe proposed security issue to the investing public. The draft prospectus containing the disclosures has to be vetted by SEBI before a public issue is made.
Appointment of Underwriters:
An underwriter agrees to subscribe to a given number of shares in theevent the public do not subscribe to them. The underwriter, in essence, stands guarantee for publicsubscription in consideration for the underwriting commission.
Appointment of bankers:
The bankers to the issue collect money on behalf of the company from theapplicants.
Appointment of Registrars:
The registrars to issue perform a series of tasks from the time thesubscription is closed to the time the allotment is made.
Appointment of Brokers and Principal Brokers:
The brokers to the issue facilitate its subscription. Filingof the Prospectus with the Registrar of Companies
Printing and dispatch of prospectus and application form:
After the prospectus is filed with theRegistrar of Companies, the company should print the prospectus and the application form.
Filing of Initial Listing Application:
Within ten days of filing the prospectus, the initial listingapplication must be made to the concerned stock exchanges, along with the initial listing fees.
Promotion of the Issue:
The promotional campaign typically commences with the filing of the prospectus with the Registrar of Companies and ends with the release of the statutory announcement of the issue.
Statutory Announcement:
The statutory announcement of the issue must be made after seeking theapproval of the lead stock exchange. This must be published at least ten days before the opening of thesubscription list.

Collection of Applications:
The statutory announcement (as well as the prospectus) specifies when thesubscription would open when it would close, and the banks where the applications can be made.
Processing of Applications:
The application forms received by the bankers are transmitted to theregistrars to the issue for processing.
Establishing the Liability Underwriters:
If the issue is undersubscribed, the liability of the underwritershas to be established.
Allotment of Shares:
If the issue is under-subscribed or just fully subscribed, the company may allotshares applied for by the applicants after securing the formal approval of the concerned stock exchanges(s)
Listing of the Issue:
The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee.
Costs of Public Issue
: The cost of public issue is normally between 8 and 12 per cent depending on thesize of the issue and the level of marketing effort. The important expenses incurred for a public issue areUnderwriting Expenses, Brokerage, Fees to the Managers of the Issue, Fees for Registrars to the Issue,Printing Expenses, Postage Expenses, Advertising and Publicity Expenses, Listing fees, Stamp duty. Inaddition to the above procedural matter, the most important issue relates to the pricing of the issue. Themerchant banker has to see that the issue is priced properly.

3.stock exchanges in india have not served their you agree?validate your arguments.
Important functions of stock exchange
Important functional  contribution   of stock exchange are as follows:
(1) Providing Liquidity and Marketability to Existing Securities:
Stock exchange is a market place where previously issued securities are traded. Various types of securities are traded here on regular basis.
Whenever required, an investor can invest his money through this market into securities and can reconvert this investment into cash. Availability of ready market for sale and purchase of securities increases their marketability and enhances liquidity.
(2) Pricing of Securities:
A stock exchange provides platform to deal in securities. The forces of demand and supply work freely in the stock exchange. In this way, prices of securities are determined.
(3) Safety of Transactions:
Stock exchanges are organised markets. They fully protect the interest of investors. Each stock exchange has its own laws and bye-laws. Each member of stock exchange has to follow them and if any member is found violating them, his membership is cancelled.
For instance, if any broker working in stock exchange charges more commission than stipulated from any investor or misleads him in any other way, then the management committee of the stock exchange can fine the broker and even his membership can be cancelled.
(4) Contributes to Economic Growth:
A stock exchange provides liquidity to securities. This gives the investor a double benefit-first, the benefit of the change in the market price of securities can be taken advantage of, and secondly, in case of need for money they can be sold at the existing market price at any time.
These advantages provided by the share market encourage the people to invest their money in securities. In this way, people’s money gets invested in industries and economic development becomes possible.
(5) Spreading Equity Cult:
Share market collects every type of information (more particularly about their economic condition) in respect of the listed companies. Generally, this information is published or in case of need anybody can get it from the stock exchange free of any cost.
In this way, the stock exchange guides the investors by providing various types of information. Consequently, the number of shareholders in companies is increasing continuously. Thus, the stock exchanges are playing a vital role in ensuring wider share ownership.
(6) Providing Scope for Speculation:
When securities are purchased with a view to getting profit as a result of change in their market price, it is called speculation. It is allowed or permitted under the provisions of the relevant Act. It is accepted that in order to provide liquidity to securities, some scope for speculation must be allowed. The share market provides this facility.
Exchange/Secondary Market are listed below:
1. Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country.

Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the economic conditions of a country.
2. Pricing of Securities:
The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and government can impose taxes on value of securities.
3. Safety of Transactions:
In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety of dealing through stock exchange.
4. Contributes to Economic Growth:
In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.
5. Spreading of Equity Cult:
Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by educating public about investment.
6. Providing Scope for Speculation:
To ensure liquidity and demand of supply of securities the stock exchange permits healthy speculation of securities.
7. Liquidity:
The main function of stock market is to provide ready market for sale and purchase of securities. The presence of stock exchange market gives assurance to investors that their investment can be converted into cash whenever they want. The investors can invest in long term investment projects without any hesitation, as because of stock exchange they can convert long term investment into short term and medium term.
8. Better Allocation of Capital:
The shares of profit making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh capital from stock market. The general public hesitates to invest in securities of loss making companies. So stock exchange facilitates allocation of investor’s fund to profitable channels.
9. Promotes the Habits of Savings and Investment:
The stock market offers attractive opportunities of investment in various securities. These attractive opportunities encourage people to save more and invest in securities of corporate sector rather than investing in unproductive assets such as gold, silver, etc.


Market Capitalization
Listed Securities

Eligibility Criteria for New companies (IPOs)
Paid Up capital: Not less than 10 Crores
Market Capitalisation: Not less than 25 Crores
At least three years track record:
The company has not been referred to the Board for Industrial and Financial
Reconstruction (BIFR).
The networth of the company has not been wiped out by the accumulated losses
resulting in a negative networth.
The company has not received any winding up petition accepted by a court.
‘Promoters’ mean one or more persons with a minimum 3 years’ experience of each of
them in the same line of business and shall be holding at least 20% of the post issue
equity share capital individually or severally

No disciplinary action by other stock exchanges and regulatory authorities in past three years.
LACK  OF PROPER Criteria for Listing
The number of shareholders:
In case where the number of shares to be listed is less than 10 thousand units; 800
In case where the number of shares to be listed is 10 thousand units or more but less
than 20 thousand units; 1,000 persons,
In case where the number of shares to be listed is 20 thousand units or more; 1,200
Number of years since incorporation:
3 years or more have elapsed by the last day of a business year immediately prior to the
day of listing application
NO Basic Listing Requirements for Equities
Profit attributable to shareholders: At least HK$50 million in the last three financial
Market Capitalisation: At least HK$200 million at the time of listing
Revenue: At least HK$500 million for the most recent audited financial year
Cashflow: Positive cashflow from operating activities of at least HK$100 million in aggregate for the three preceding financial years
Circuit filters
Stock Markets have the dubious reputation of crashing without a warning taking with the
savings of numerous investors. A stock market crash is a sudden dramatic decline of stock
prices across a significant cross-section of a market. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles such as the
dot-com bubble.
Qualitatively, the comparison showed that Indian stock exchange has the governance
system and an efficient mechanism in place to be a world class institute, specially the
requirements of Clause 49 promulgated by SEBI and the advanced trading and settlement mechanism of NSE, respectively.

However, unfortunately our implementation of the same remains a problem area with almost 15-20% of the listed companies yet to align their operations as required under the law.

Moreover, there are also issues regarding the extent to which the sophisticated systems of
the stock exchanges (NSE, BSE) are utilized in terms of the volume and frequency of
transactions and the range of instruments traded. The commodity segment, derivatives and
such other segments are yet to see activities like the equity segment of the market. The
reasons that can be attributed to this is the fact that it has been only 5 years (derivatives
started in 2000) that the various segments, apart from equity and debt, have started operating
and hence it is reasonably nascent compared to its global counterparts. It would, therefore,
not be unjustified to say that the system is still evolving and it would take some time not only
to attain efficiency of operation, but also to generate increased interest and awareness about
the various other segments of the market. Then only can we expect the operations to match its
global counterparts in terms of volumes, frequency and variety of instruments traded.
One more reason that can be attributed for the lag between a global benchmark like NYSE
and BSE or NSE can be the fact that, in our country, listing of foreign companies are still not
allowed on the lines of ADRs or GDRs. This can be due to lack of depth and breadth of the

Again, as this study points out, the listing criteria differ in terms of size as well as
their disclosure norms. This implies that the depth of the market judged by the total
capitalization is less for the Indian markets compared to its counterparts. Moreover, the
disclosure norms affect the governance aspect as also the information availability.
Innovative financial instruments like CAT Bonds, or dealing in Junk Bonds as a cheap
source of finance or sophisticated derivative instruments are yet to catch up in our country.
This is partly because of the regulations that are gradually being eased out and also due to the risk appetite of the investors in this country. The opening up of the economy and its subsequent impact on the financial sector has only started barely in the last six years and, hence, the ‘teething problems’ of initial skepticism, lack of awareness and interest exist, besides cautious approach towards bringing about changes with keenly monitored impact of those changes.
If we go to the specifics, then we find that the Clause 49, our counterpart of the famed
Sarbannes-Oxley Act of USA, has brought us to the global standards. But, because of the early
©Great Lakes Herald – April 2007 Volume 1, Issue 1 by Great Lakes Institute of Management, Chennai
stages (only a year), the implementation is causing a hindrance in attaining the requisite level
with regard to governance. Again the risk management system in our country is very elaborate
and the mechanism in place is very efficient as also effective. It actually matches the level of a
well established benchmark like NYSE. However, the only difference is in terms of risk appetite
of the investors which causes the level and operation of ‘circuit breakers’ to vary.
However, Indian stock market is very much at the same pedestal and, in fact, better than
most of its Asian counterparts especially the emerging economies. Indian system enjoys
creditability even when compared with a stock exchange like Nikkei (Japan).
If we look at the efficiency of trading captured by the ‘trading and settlement’ mechanism,
then we have found that the Indian mechanism is faster than the NYSE and at par with the best
in the world. In fact, it is one of the fastest.
One problem area that came out as a possible barrier in the path of Indian stock exchanges
attaining global level is the fact that India has a very low rank in terms of market capitalization
(ranked 14th). All other stock exchanges that we used in our study rank above Indian stock
exchange. This is in spite of the fact that Indian stock exchanges have the highest number of
companies listed (around 9000) and BSE accounting for almost 75%. Therefore, volume-wise,
Indian market is still pretty small.
One more aspect that we have tried to look at in this study is the extent of influence the
various stock markets cast on each other, specifically the impact of other stock exchanges on
their Indian counterpart. In order to understand, we divided our study period in parts based on
certain events that had economic implications. Here, we found the results validating popular
belief that the markets in general and Indian market in particular became more integrated with
other global exchanges from 2002-03. This can very well be seen since the South Asian crisis of
the mid-late nineties barely affected us, particularly because we were insulated due to
government policies and were just making the transition. However, in the later time periods,
the influence of other stock markets increased on BSE or NSE but at a very low - almost
insignificant - level. At the time of crucial 9/11, NYSE had started to exert its influence on us
but at lower levels and, though the economic downturn impacted, it did not last long. The
increased trend of Indian companies going for ADR and GDR issues has also contributed as a
channel for information transfer between the exchanges where the

4.Insurance regulatory and development authority(IRDA)has its prime objective to protect the interest of policy holders.what regulations have been evolved to attain this objective


The IRDA (Insurance Regulatory and Development Authority) is the national regulatory body for Insurance industry (both Life and Non-Life Insurance Companies) under the auspices of Government of India, situated at Hyderabad. IRDA was established by an act enacted in Indian Parliament known as IRDA Act 1999 and was amended in 2002 to incorporate some emerging requirements as well as to overcome some deficiencies in the entire process. The mission of IRDA as stated in the act is as follows:-

a) To protect the interests of the policyholders

b) To promote, regulate and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto

c) Conduction of insurance bussinesses across India in an ethical manner.

Full force and maximum utility of various institutions like Advisory Committee and self-regulatory organizations are not yet realized in India as the regulator seems to be in a long-learning mode. Due to over delegations, it is the individual incumbents that decide the pace and extent of utilization of prudential and statutory bodies.

Research on insurance sector is limited to opinion being sought through legacy channels. The Indian market mulls and patiently awaits the revision of insurance act alongwith establishment meaningfully functioning regulatory bodies that are devoid of excess delegation and subjective localization of development agencies. Unlike other Indian administrative Regulatory Bodies which are highly proactive, IRDA is perceived as a silent regulator with activities confined to its local existence.

The Insurance Regulatory and Development Authority(IRDA) was constituted to regulate and develop insurance business in India. As a key part of its role, it is responsible to protect the rights of policyholders. In order to create awareness about IRDA, it's role, duties and responsibilities are stated here under:
• IRDA provides a certificate of registration to a life insurance company.
• IRDA is responsible for the renewal, modification, withdrawal, suspension or cancellation of this certificate of registration.
• IRDA frames regulations on protection of policyholders' interests.
• It offers policyholders the right to voice their complaints against insurers or insurance companies.
• The IRDA has set up the grievance redressal cell to take up the complaints of the policyholder.
• It specifies the requisite qualifications, code of conduct and practical training for intermediaries or insurance intermediaries and agents.
• It specifies the code of conduct for surveyors and loss assessors;
• It promotes efficiency in the conduct of insurance businesses;
• It promotes and regulates activities of professional organisations connected with life insurance;
• It levies fees and other charges to carry out the purposes of the IRDA Act;
• It can call for information from, undertake the inspection of, conduct enquiries and investigations including the auditing of insurers, intermediaries, insurance intermediaries and other organisations connected with the business of life insurance;
• It specifies the form and manner in which books of account should be maintained and statements of accounts should be rendered by insurers and other insurance intermediaries;
• It regulates the investment of funds by insurance companies;
• It regulates the maintenance of margins of solvency;
• It adjudicates disputes between insurers and intermediaries or insurance intermediaries;
• It specifies the percentage of premium income of the insurer to finance schemes for the promotion and regulation of certain specified professional organisations;
• It specifies the percentage of life insurance business to be undertaken by an insurer in the rural or social sector; and
• It exercises any other powers as may be prescribed

To regulate, promote and ensure orderly growth of the insurance business and re-insurance business.
Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration.
To Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance.
To Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents and Specifying the code of conduct for surveyors and loss assessors.

To Control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938)
To Regulating investment of funds by insurance companies, regulating maintenance of margin of solvency, adjudication of disputes between insurers and intermediaries or insurance intermediaries Specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organizations referred to in clause 2.6 and

Specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector

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