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Aspects of Contract and Negligence for Business

Aspects of Contract and Negligence for Business. Introduction: Contract and negligence are two of the most important components of business law needed to build and execute relationship with different parties. A business is always in need of creating and maintaining relationship with internal and external parties for making sales products and services to the customers, appointing employees for organization or purchasing saleable products and manufacturing materials from suppliers. So it is usually thought that a business following terms and elements of contract law can become efficiently successful so as to build secured and good relationship with availing deserving rights. Negligence is a common issue faced in the business during operation. Harms or damages caused by negligence can be brought under a frame to negotiate claims of parties involved. Victims facing harms because of negligence of one party are entitled to make claim on the loss due to harms or damages by showing relevance to elements and terms of negligence. Task 1 1.1 Explanation of Importance of elements required for forming a valid contract: A contract to be valid needs to have some elements. Absence of those elements makes a contract invalid due to its significance between the parties of contract. Following elements are considered as essential ones: Legal relation motive: Parties having involvement in the contract should have legalized intention for making contract. Illegal intention of any party can turn a contract into an invalid one. Offer: Offer is intention of doing something. Unconditional acceptance of the offer by other person in the contract is essential. Acceptance: Offer made by a party must be accepted by the other party to whom the offer is made. Acceptance of offer can be in oral or in writing preferring the convenient one. Consideration: Defined in terms of contract law, consideration is detriment of a person making the promise or benefit generated for other party of the contract. Both types of consideration should be measured in economic. Capacity: people not reaching the age of 18 and not mentally ordered are not entitled to form contract and be party of contract. Expressed or implied terms of a contract: Generally, the parties of a contract should have the agreement on the terms of contract. Contracts with terms which are not expressly mentioned in contract are called implied contract. Genuine consent of Parties: There can’t be any kind of forces physically or mentally on any party of the contract in making the formation of contract. They will freely show the consent to contract. Discharge of contract: A contract with validity can be discharged by the ways of mutual agreement, contractual parties’ performance and breach of frustration. 1.2 Discussion on Impact of different types of contract: Different types of contract have different extent of impact on the terms, objectives and parties of a contract. Types contract with impact on parties of contract have been discussed below: Written contracts: A written contract are formally signed by parties in written description with maintaining the assumption that all terms of agreement among contract parties are mentioned in the contract document without regarding verbal agreement (Wilson Huhn, 2002). These terms of the contract must easily be understood by them when present to them. There is also an assumption that terms of contract have been read and agreed to. Verbal contracts: Stronger level of trust among the parties is required in this contract and it can’t be used as proof against any written contract. Verbal agreement support following ways: 1. Conduct other party both before and after the agreement, 2. Specific actions of the other party, 3. Past dealings with the other party. But in following its impact may not be positive: 1. The value of transaction is remarkably high, 2. The presentation of a substantial document may raise more questions and uncertainty in the mind of parties (Eliott and Quinn, 2011). Executed contract: Executed contract is such a contract in which both parties of the contract have completed their specified obligations and responsibilities maintaining terms of the contract. This sort of contract is easier to form and transparent to perform undoubtedly. Executor contract: When parties of the contract are still to perform their own obligations and duties, it is called executor contract. This contract remains incomplete because of not performing some of its obligations by any or both of the parties. Parties of the contract need to have proper assumption over future incidents. 1.3 Terms of contract with reference to their meaning and effect: Following terms are used in the formation of contract and these terms have different meaning and extent of effect on contract: Circumstances: Circumstances are the indication that is essential to assume the discussion with the assigned deal. A dislocate associated with station may capacitate detriment result. Expressed contract: When parties of contract mention terms of the contract either in verbal or in written during the formation of the contract, it is called expressed contract. A definite written or oral offer is made with the expectation of acceptance in a manner that explicitly expresses consent to the terms. Implied contract: Although contracts implied in fact and in law are known as implied contracts, a real implied contract consists of some obligations which arise from mutual agreement and intention of making promise without expressing it in words. A contract in implied nature depends on substances for its existence (Lunney and Oilphant, 2010) . So, an implied contract requires the act or conduct of a party before coming it into effect. Therefore, a contract with implied terms is not expressed by the parties but rather suggested from facts and circumstance referring to a mutual agreement. Task 2 2.1 Application of the elements of a contract in different business situations: Law contract provides the guidance to make the agreement and to make compensation if agreement is violated by any parties. With following business scenarios, application of the elements of contract has been discussed: Scenario 1 It was really a matter of disappointment for Miss Kaur not finding fountain pen available coming back to the antique as shop assistant Harry had made the promise of selling the pen to any other customer willing to buy it before her return. Moreover, to return to that antique shop she had to bear additional travel expenditure. They made the contract with offer and acceptance and this contract has been discharged on making a mutual agreement. Shop assistant should have informed Miss Kaur before selling the pen to another customer. Therefore, from view point of contract law, she can utilize the option of taking legal actions against the shop for claiming her travel expenditure used to return to the shop. Scenario 2 To make renovations to the building of Charles, Murphy made a contract which was modified to increase the amount of renovation fee despite an unexpected argument between them. But Charles did not the pay increased amount to Murphy as per modified contract putting an argument that it was over the original contractual price. In such situation, Murphy has the option of showing the writings which were used to increase the price of renovation and agreement sent by Charles. Additionally, the witness of modified contract can be asked to be present to enforce Charles to fulfill the promise for making extra payment. Murphy is legally supported to sue against Charles for receiving that additional payment through following terms and elements of contract properly. Scenario 3 At the time of starting career as self employed builder, Mia kept tow requests of his brother and his friend with the condition of fixing and getting payment from them. But after getting service from Mia, both of them showed reluctance to make payment the agreed money with showing an excuse that they took the service of Mia for making getting the scope of gaining more experience on related job. As the contract was formed verbally, there was the risk of such sorts of avoidance. As he had congenial relationship with both of them due to be his friend and brother, he did think of making a written contract for security. Mia can force these two service receivers to make full payment through reminding description of contract formation and can search witness for the legality of claiming payments. 2.2 Application of Law on terms in different contracts: Elements and terms of UK contract do not have difference from that of general contract. As a standard form contract, a business deal between transporting companies, LSA Logistics Ltd. made a contract with a manufacturing company to distribute its products with following expressed and implied terms: Expressed terms: Charging £250 per day for a single vehicle Transport Company will carry its products Five days in a week. Additional per day beyond selected days will be charged at £300. LSA Logistics will distribute only the products of that company etc. Implied terms: LSA Logistics will follow allowed time for distributing manufacturer’s products. LSA Logistics will not carry any illegal products. LSA will not carry beyond standard weight in its vehicle. LSA Logistics will distribute products in agreed areas etc. Both of the parties signed on a document in this contract supporting exclusion clauses. Maintaining relevance to this term, LSA searched the way of breach of contract as the manufacturer was not fulfilling the elements and terms of contract. Manufacturer was forcing LSA to carry products beyond specified and standard weight and distributing products specified limit. Among different types of exclusion clauses, LSA followed true exclusion clause to breach the contract by firstly recognizing it and making excusing liability for this breach. This is a standard contract which has been breached following the agreed exclusion clause. 2.3 Evaluation of the effect of different terms in contracts: Scenario 4 X and Y made a written contract which contained some expressed terms. As Miss Y agreed to take dress smartly always during staying at office and not to wear trousers under any circumstances, she was supposed to wear dress smartly on 1st and 2nd June. Moreover, as research assistant Miss Y will work not considering hours to complete necessary tasks or assignments. But she has not been to complete the task within given time. For violating those mentioned terms, X became angry and upset and also got humiliated. For such sorts of depression, she had to take medical treatment. From this scenario, it is reflected that violation of terms of contract can lead to unexpected consequences to any party of the contract. Task 3 3.1 Contrast liability in tort with contractual liability: Both of the liabilities are on the basis for failure to observe a duty imposed by law. One of them is by agreement and the other one is by duty of acting and performing in a reasonable manner. A contract is formed by making agreement to be entered into by two or more parties. if one of the involved party fails to perform regarding contract terms, then that party is thought to incur contractual liability (K.L. Hall, 1989),. This kind of liability is created if two or more than parties intend few things to each other. When default on the agreement is happened by any of the parties that is termed as breach of contract. Tort is a common mistake arising due to the failure of one party in performing one’s duty to have acted in reasonable manner so that no harms happen to others. Tort is termed as breach of some duties independent of contract which gives rise to a civil contract. Although most of the torts happening in the breach of contract are negligence but few others are intentional. (Clarke, 2010) defined that tortuous liability arises due to the breach of a duty primarily determined by law; such duty should be to person and its breach can be recognized by the action for making compensation. Few differences between contract and tort are given below: A tort is usually consent but a contract is founded on the consent of parties. Privities are essential in tort but it is important implied in contract. A arises from violation in performing responsibility but a breach of contract happens through infringement of a right. Motive is considered with giving special emphasis in tort but it does relevance to the breach of contract. 3.2 Nature of Liability of negligence: Negligence in liability is defined as the failure to exercise the level of care for ensuring safety of another and this level of care a person would reasonably exercise under normal circumstances. This area of tort law known as negligence involves harms which is caused due to carelessness of a party. According to Jay M. Feinman (2010), the negligence concept requires people exercising care when they act by taking potential harm into account that they might cause harm to other people. But laws of intentional torts allow an applicant to sue for the harm or loss caused by defendants either in accident or in careless. For that reason, tort of negligence is defined as a failure to behave with level of care that someone of ordinary prudence would have exercised under the identical situation (Schrader, 1987). 3.3 Vicarious Liability in a Business: Vicarious liability arises from a situation when one party becomes responsible due to unlawful actions of a third party. Moreover, the liable party also becomes responsible for his own share of liability. The liability comes into existence if one party has the possibility to become responsible for a third party and does show willingness to carry out the respective responsibility and exercising control (Eliott and Quinn, 2011). A Vicarious liability can happen in a business in following way: Unlawful and outlawed actions such as harassment or discrimination in workplace of an employee make his employer liable. Even though employer himself did not have involvement in committing unlawful action, he carries the liability as he is considered to take the responsibility to prevent or limit any kind of unlawful actions performed by its employees. In this case, the employer is assumed to have the capacity to avoid vicarious liability with taking proper exercise so as to prevent such unlawful behavior. Task 4 4.1 Application of tort of negligence and defenses in different business situations: Scenario 5 Causing damage to the wharf by oil spilling from UK ship in Sydney harbor makes it legitimate to sue against chatters of the ship. For the possibility of facing such damage, taking required safety measures signals that there was the proximate cause in the event of this accident. Besides, the ship did not exercise reasonable standard care during taking oil from harbor. Again, in the tort of negligence, there must be actual injury to the party who sued. For this reason, fire from spilled oil on water caused damage wharf. So, owners of wharf should take action of suing against chatters of ship by following requires procedures and terms. Scenario 6 Bell who was serving in vehicle maintenance by Shell lost sight of good eye due to flowing chip metal into his eye. Though the risk of losing sight of eye was little but protective measures should have been taken. Unfortunately, the duty of protection was not followed here. Carefulness by Shell in maintaining reasonable care was not standard enough and this has leaded to blinding bell. 4.2 Application of the elements of vicarious liability in different business situations: Alf employed as warden in Safe Care Home Ltd was accused of sexual abusing boys made a matter of disappointment for this company. As he was employed by that company, any kind of outlawed actions by Alf should have been countered by his employer. Though Safe Care Home Ltd proceeded to take advice on this issue as whether this company is vicariously liable for the torts, but trial of sue will go against this company for not verifying Alf’s manner and ethics. Mr. Khan sued against AB and Song Garage Ltd and its employee, Amos Bridge for disrespect and being hit by attendant Amos. AB and Sons Garage ltd has been liable vicariously in this case for the unlawful actions in its working place though it didn’t directly engaged in this actions. Being a customer, Mr. Khan logically expected good manner from attendant but situation and manner was unexpectedly opposite. So in this case sued by Mr. Khan, AB and Sons Garage Ltd can be considered as vicariously liable for attendant Amos. Conclusion: Contract along with its aspects have been described in the study. As the important aspects of contract, elements and terms of contracts are encompassed with making required explanation. Moreover, to clarify on contract, its different types have been discussed by bringing their definition and impact on the formation and execution of contract. For gaining proper understanding, several business scenarios have been answered with explanation and relevant advice. Negligence is an important issue of contract law and this issue arises from context of liability due to causing harm to any party of business. For suggestion to the victims of harm generated from negligence, the given business scenarios have been solved. References: Elliott C., Quinn F., (2011), Contract Law, London, Longman Richards P., 2011, Law of Contract. Lunney M., Oliphant K., (2010) Tort Law: Text and Materials Fourth Edition, New York: Oxford University Press. Clarke P., (2010) A Straightforward Guide To Contract Law, Brighton: Straightforward Elliott C., Quinn F., (2011), Contract Law, London, Longman Richards P., 2011, Law of Contract, Poole J., (2003); Casebook on Contract Law Sixth edition, Oxford: Oxford University Press. Wilson Huhn (2002), 5 Types of Legal Argument, Mumbai University. D. Schrader (1987), ‘The Corporation and Profits’ 6 Journal of Business Ethics. K.L. Hall (1989), The Magic Mirror : Law in American History, New York, OUP. Aspects of Contract and Negligence for Business

health care competition

health care competition. I don’t know how to handle this Health & Medical question and need guidance.

Competition is a driving force in business. Respond to the following questions regarding competition and competition in the healthcare industry:

From an economics perspective, what is a competitive market?
Based on your definition and understanding of economic competition, is the healthcare industry a competitive market? Why or why not?
Provide one example of a recent merger or acquisition between healthcare providers, healthcare providers and insurers or pharmacy benefit providers and insurers.
What are the issues influencing these decisions on acquisition?
What is the role of the government in regulating these business transactions?

health care competition

Finance 310 Investments Portfolio Part 2

custom writing service Finance 310 Investments Portfolio Part 2. I need an explanation for this Business question to help me study.

I have a second part for the project, that you completed for me, so the same stocks you used in part one are needed for part two of the project. The Point of the Project
You are a portfolio manager, and you are trying to put together a portfolio that is designed to beat the market (represented here by the S&P 500 index). To do this you will first pick ten stocks, and then you will figure out how much of each of them to buy, using monthly data from the last five years to make your decisions. You have 100 million dollars to play with and you will pick stocks before the start of trading on August 8th.
You will decide if you have beaten the S&P 500 by looking at the performance of your portfolio over the period August 8th–November 8th.To do this you will compare the risk-adjusted returns of your portfolio with the risk-adjusted return of the S&P. The project has three parts.

Project Part II
We are now going to find the optimal portfolio of risky stocks using historical information. You need to answer the following questions:

(1.5 points) How did your stocks perform over the past five years? How volatile were your stocks?
(1.5 points) How did the market do over the past 5 years? How volatile was the market?
(2 points) Calculate the correlation matrix between all the stocks over the past five-years. Are any of the correlations high (above .6) or low (below 0.1)? What does this tell you?
(2.5 points) Find your optimal portfolio using five years of historical information. What are the optimal portfolio weights?
(2.5 points) Graph the minimum variance frontier.
(2 points) Do your portfolio weights seem reasonable? Would you feel comfortable recommending this investment portfolio to a client?
(1.5 points) Why does it make sense to use historical information (returns, standard deviations and covariances) as inputs to portfolio theory? Also give at least one argument against using historical information.
(2.5 points) What is your optimal portfolio if you do not allow short sales? Use historical inputs. Are the weights more reasonable? Would you restrict short sales? Why or why not? Graph the MVF in this case. How does it compare to #5? Why?
(2 points) You are an investor with an ‘ethical agenda.’ Eliminate two stocks from your portfolio. Explain why you found these companies to be ‘bad’ or ‘objectionable.’ What is the optimal portfolio now? Use historical information. How does this portfolio compare? What is the cost to you as an investor?

P.(2 points) Presentation (i.e., see the next page).
Make a title page that includes your name and section number and anything else you deem helpful. You should hand in a hard-copy at the beginning of class. Include answers to all the questions and any supporting material you think is helpful. Make it presentable to a “client,” or a prospective employer. It should be user friendly, concise, well-written, neat and convincing. Print only the relevant parts of the spreadsheet. The answers should be brief, but convincing. Make it easy to find your answers. Include supporting material in the appendix. Practice good printing etiquette. Write well. The assignment should be maximum eight pages (including any appendix, but excluding the title page). Longer is not always better.
Finance 310 Investments Portfolio Part 2

WEEK 9 Essay

Companies often project their corporate values on their suppliers through a supplier code of conduct or similarly named requirements. Writing these requirements can be arduous and require the input of multiple stakeholders. What is the supplier code of conduct for your selected company? If you were asked to create this code for your company, discuss how you would assemble a team or committee to write it. How would the committee work? Who would be included on the committee? Be sure to respond to at least one of your classmates’ posts.

Analyzing Various Types Of Debt Instruments Existing Finance Essay

INTRODUCTION First chapter describes the basis behind doing this study. Then, it examines the objectives of this study and some limitations of the study. PURPOSE OF THE STUDY The purpose of this study is to analyze various types of Debt instruments existing. It aims to develop an understanding of the growth of the topic. It also includes the impact of these instruments on the country and on various companies. OBJECTIVES OF THE STUDY The main objectives of this paper are – To conduct a study on the requirement of debt instruments To understand why debts instruments are important To analyze these instruments LIMITATIONS OF STUDY Due to lack of information available the graphs and the statistics shown are of previous years (2007-2008) As the data was gathered from secondary sources, the authority of the data could not be tested. Another problem was knowledge constraint and this report is an attempt to gather as much of relevant data as possible. However, every effort was made to ensure that these do not in any way adversely affect the results of the study. INTRODUCTION The debt markets today are a major source of financing than the banking system. It is any market situation where debt instruments are traded. It establishes a planned environment where the debts are traded amongst the interested parties. The debt markets are known by other names based on the types of instruments are traded. For example when municipal or corporate bond are traded, debt market is called bond market whereas if notes or securities or mortgages are traded market is called credit market. The debt market is three times larger than stock/equity market. The debt markets are categorized into two other markets called money market and capital market. Money market is a subsection of the fixed income market. It specializes in short-term debts with the maturity of one-year. Capital markets specialize in long-term debts. It is a market in which financial instruments are traded by the institutions and individuals. Institutions or organizations in either private or public sectors sell securities to raise funds in these markets. Both these terms are mistakenly applied. In capital market assets (including equities) are taken into consideration and they are amortized over the period of time. Money market is more of debts which are readily sold at price predictable within short time. But it is very difficult to distinguish between money and non-money based on one year maturity line. Some of the debt instruments are traded Over-the-counter and not through exchanges. They are traded in an electronic network market where the brokers or dealers act as mediators. Money markets are not accessible by small investors except through MFs. Corporate associates or groups or even individual investors may participate in the debt market. There may be very little difference between how corporate associates or an individual participate depending on the regulations of the government. The interest rates are the price of the money which increases with the increase in the demand to borrow money. The debt market is influenced by credit-worthiness of the borrower, term-to-maturity, security for loan and many other factors. But government also tries to regulate the interest rates to stimulate the economies with complete focus on inflation. The main advantage of debt market is the degree of risk associated with the investment opportunity is very low. For the investors who avoid participating in the riskier ventures in which there is less or smaller returns favors bonds and similar investments. A significant amount of money is earned even of returns are not high in the debt market. WHAT ARE DEBT INSTRUMENTS? For every individual financial planning is an important task. For the preservation of principal amount the investors should distribute a major portion of their investments in debt instruments. A debt instrument is an electronic obligation or any paper that permits an issuing party to raise funds by assuring it to pay back a lender in accordance with the terms and conditions of a contract. The predetermined conditions which are mentioned in the contract are the periodicity and rate of interest and the date of the repayments of the principal amount. Debt instruments are an easier way for participants and markets transfer the rights of debt obligations from one party to another. Debt obligation transferability increases liquidity and gives creditors a means of trading debt obligations on the market. Without debt instruments acting as a means to facilitate trading, debt is an obligation from one party to another. When a debt instrument is used as a medium to facilitate debt trading, debt obligations can be moved from one party to another quickly and efficiently. In Indian Securities market, the term “bond” is used for debt instrument given by Central and state government and the term “debenture” is used for the instruments issued by private sectors. OBJECTIVE OF DEBT INSTRUMENT Preservation of principal amount and getting modest returns is the main objective of the debt funds. Investors look for both short-term and long-term investments. There are many instruments available in the market so one can choose easily any or mix of instruments according to its requirements. FEATURES OF DEBT INSTRUMENTS The features of the instruments are: Safety of the principal amount Guaranteed returns for the investors. Some of these instruments also qualify for tax rebates under Section 80C. Currently 8-9% interest per annum are quoted for medium to long-term deposits whereas it is 6-7% returns for short-term deposits Nowadays, many banks provide funds sweep-in /sweep-out facility where a balance beyond a certain limit automatically gets converted into a fixed deposit and banks pay the fixed deposit interest on it. This can be an option for a short-term horizon. There are three main features of debt instruments Maturity Coupon Principal Maturity Maturity refers to the date on which the bond matures. It is the date on which the borrower agrees to repay the principal amount. Term-to-maturity refers to the number of years remaining for the bond to mature. It changes every day from the date of the issue to the maturity of the bond. It is also called the tenure or term of the bond. Coupon Coupon Rate refers to the periodic payment of interest made by the issuer of the bond to the lender of the bond. Coupons are declared either by stating the number (example: 8%) or with a benchmark rate (example: MIBOR 0.5%). It is usually represented as a percentage of the face value or the par value of the bond. Principal It is the amount which is borrowed. It is the face or the par value of the bond. The product of the coupon rate and principal is the coupon. For example a GS CG2008 11.40% bond refers to a Central Government bond maturing in the year 2008, and paying a coupon of 11.40%. Since Central Government bonds have a face value of Rs.100, and normally pay coupon semi-annually, this bond will pay Rs. 5.70 as six- monthly coupon, until maturity, when the bond will be redeemed. The term to maturity of a bond can be calculated on any date, as the distance between such a date and the date of maturity. It is also called the term or the tenor of the bond. For instance, on February 17, 2004, the term to maturity of the bond maturing on May 23, 2008 will be 4.27 years. The general day count convention in bond market is 30/360European which assumes total 360 days in a year and 30 days in a month. There is no rigid classification of bonds on the basis of their term to maturity. Generally bonds with tenors of 1-5 years are called short-term bonds; bonds with tenors ranging from 4 to 10 years are medium term bonds and above 10 years are long term bonds. In India, the Central Government has issued up to 30 year bonds. CHARACTERISTICS OF DEBT INSTRUMENTS The primary characteristics of debt instruments are: Issuance of an instrument is easy Any company with or without past track record can issue these instruments Rate of interest are fixed or floating Fixed commitments are imposed on servicing Debt instruments may be flexible in the period of repayment or nature of interest but they impose fixed commitments on servicing or business. Failure to do servicing of these instruments would be termed as default with adverse effects on the company’s standing in the financial sector. Risk is low Investors in such instruments being creditors of the company have priority over equity and preference shareholders in receiving return (in the form of interest) in such instruments. These carries priority claim on the assets of the firm (if secured) in the event of bankruptcy. TYPES OF DEBT INSTRUMENTS There are various debt instruments. The debt instruments can be categorized into long-term and short-term debt depending on the time for which the amount has been raised or the repayment period. The debt instruments are mentioned as follows: C:UsersdellDesktopdebtinst.bmp Long term Debt Long-term debts are mainly bonds and debentures with the tenure greater than one year. Debentures A debenture is an instrument of debt executed by the company acknowledging its obligation to repay the sum at a specified rate and also carrying an interest. Company can raise loan capital from debentures A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital. The main characteristics of debentures are: Fixed interest instrument with changeable period of maturity May or may not be listed on stock exchange, if listed they should be rated by any of the credit rating agencies chosen by SEBI Can be either offered for subscription or privately placed A debenture redemption reserve has to be maintained when offered for subscription The period of maturity varies from 3 to 10 years and may also be more for projects having high gestation period Types of debentures Various types of debentures are as follows: Non convertible debentures (NCD) Fully convertible debentures (FCD) Partially convertible debentures (PCD) NCDs are those in which total amount if instrument in redeemed by the lender whereas FCDs are those in which the whole value of the instrument is converted into equity. The conversion price is given when the instrument is borrowed. PCDs are those in which part of the instrument is redeemed and part of it is converted into equity. Conversion price is the price of each equity share received by converting the par or face value of the debenture. The number of equity shares exchangeable per unit of the convertible security i.e. debentures is called the conversion ratio. The period of time after which the debenture is converted into equity is called the conversion period. The convertible instruments are generally used to stem the sudden outflow of the capital at the time of maturity of the instrument causing temporary liquidity problems. Alternately, the company has to raise funds from a different source or issue fresh instruments to tide over and also has to bear the transaction costs in the process. Debentures might be either callable or puttable. Callable debenture is a debenture in which the issuing company has the option of redeeming the security before the specified redemption date at a pre-determined price. Similarly, a puttable security is a security where the holder of the instrument has the option of getting it redeemed before maturity. Bonds A bond is a debt security in which authorized borrower or issuer owes the lender or the holder a debt and is obliged to repay the principal amount and interest at maturity. It is a loan in the form of securities having varying terminologies: The issuer is equivalent to the borrower, the bond holder to the lender, and the coupon to the interest. It enables the issuer to finance long-term investments with external funds. Bonds and stocks are both securities, but the major difference between the two is that stock-holders are the owners of the company (i.e., they have an equity stake), whereas bond-holders are lenders to the issuing company. Another difference is that bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas stocks may be outstanding indefinitely. An exception is a consol bond, is a perpetuity bond (i.e., bond with no maturity). There may be many types of bonds- such as infrastructure, regular income, deep discounts or tax savings. These are instruments having fixed interest rate and a definite period of maturity. The main difference between bonds and debentures is that debenture is secured and bond is not. Hence bonds have higher rate of interest than debentures. There are many kinds of bonds available such as: Floating rate or fixed rate bonds High yield bonds Subordinated bonds Perpetual bonds Asset-backed securities Bearer bond Zero Coupon bonds Registered bond Inflation linked bonds Book entry bonds Municipal bonds War bond Lottery bond Medium term loan These are loans extended for a period of 2 to 5 years. The purposes for which these loans are issued are: Short gestation projects: The short gestation projects could be for purchase of balancing equipment, for incremental expansion of capacity. Refinancing of loans in case of very long projects where the repayment of the term loans might occur prior to sufficient cash flows being generated by the project. For meeting any other medium term shortfall in funding arising out of an acquisition or bulleted repayment of a large loan, etc The methods for issuing medium term loans are similar to those required for project finance. In case of meeting a medium term mismatches not linked to a project or equipment, the financing decision would be on the basis of a cash flow analysis indicating the need for such medium term funding and an analysis of overall profitability and financial to the business to provide lender comfort. Other than these aspects, the procedures for availing Medium Term loans follows the requirements sought by the lenders in case of Project financing/ long term lending. Public Deposits These are those deposits that are achieved by many small and large firms from the public. The public deposits are issued mainly to finance the working capital requirements of the firm. The rate of interest offered varies with time period of the public deposits. The rate of interest which is mostly offered by the companies on the deposits made on one year is 8-9%, for two year deposits rate is 9-10% and for three years rate offered is 10-11%. For public deposits there are some rules which the companies have to follow according to Companies Amendment Rules 1978: 3 years is the maximum period of maturity for public deposits whereas 6 months is minimum period For NBFC 5 years is the maximum period of maturity The companies need to disclose the information regarding the financial position and performance 10% of the deposits need to be kept aside by the companies every year by 30th April by the companies having public deposits. This will mature by 31st March next year. Advantages enjoyed by companies Simple and Easy process in gaining public deposit No restrictive agreement Reasonable cost incurred after tax No collateral Disadvantages Very limited funds raised Short period of maturity Advantages enjoyed by investors Higher rate of interest Shorter maturity period Disadvantages No tax exemption No collateral Short-term debts The debts which are raised for less than one year are short-term debts. These are categorized into market instruments and financial assistance granted by NBFC, Commercial Banks and Term Lending Institutions focusing on the short term needs of a business. Commercial Paper These are unsecured promissory notes. These are issued by those companies having high credit ratings. The maturity of CPs is 1 to 270 days. They are issued at face value and redeemed at face value. CPs can be issued by companies, which have a minimum networth of Rs.4 crores and needs a mandatory credit rating of minimum A2 (ICRA), P2 (Crisil), D2 (Duff