Category: Management Notes

Nominal Interest rate refers to the interest rate without the adjustment of inflation. It is basically the rate “as stated”, “as advertised” and so on which does not take inflation, compounding effect of interest, tax or any fees in the account.

It is also known as Annualized Percent Rate. This is the interest compounded or calculated once in a year.

Mathematically, it can be calculated using the below formula is represented as below

Nominal interest rate formula = [(1 + Real interest rate) * (1 + Inflation rate)] – 1

• Real Interest Rate is the interest rate that takes inflation, compounding effect and other charges into account.
• Inflation is the most important factor that impacts the nominal interest rate. It increases with inflation and decreases with deflation.

Applications

It is widely used in banks to describe interest on various loans.

It is widely used in the investment field to suggest investors for various investment avenues present in the market.

For example, Car loan available at 10% of interest rate. This face an interest rate of 10% is the nominal rate. It does not take fees or other charges in an account.

Bond available at 8% is a coupon rate as it does not consider current inflation. This face interest of 8% is the nominal rate.

Force of interest refers to a nominal interest rate or a discount rate compounded infinite number of times (or continuously) per time period.

Consider a nominal interest rate(or even a discount rate) compounded half-yearly and another rate compounded quarterly, another rate compounded monthly, compounded weekly, compounded daily, compounded every second and so on until you can imagine an interest rate that is compounded every smallest fraction of a second(continuously). This interest rate compounded continuously is the force of interest.

If i^p  is the interest rate compounded p times a year, then the limit of i^(p)  as p tends to infinity, would be the force of interest.

Mathematically:

Present value, also known as discounted value, is a financial calculation that measures the worth of a future amount of money or stream of payments in today’s dollars adjusted for interest and inflation. In other words, it compares the buying power of one future dollar to purchasing power of one today

It’s an indication of whether the money an investor receives today can earn a return in the future. PV is widely used in finance in the stock valuation, bond pricing, and financial modeling.

Investors calculate the present value of a firm’s expected cash flows to decide if the stock is worth investing in today. The firm’s expected cash flows are discounted at a discount rate that is actually the expected return. The discount rate is inversely correlated to the future cash flows. The higher the discount rate, the lower the present value of the expected cash flows.

Use of Present Value Formula

The Present Value formula has a broad range of uses and may be applied to various areas of finance including corporate finance, banking finance, and investment finance. Apart from the various areas of finance that present value analysis is used, the formula is also used as a component of other financial formulas.

The effective annual interest rate is the interest rate that is actually earned or paid on an investment, loan or other financial product due to the result of compounding over a given time period. It is also called the effective interest rate, the effective rate or the annual equivalent rate.

Nominal Rate of discount

Nominal interest rate refers to the interest rate before taking inflation into account. Nominal can also refer to the advertised or stated interest rate on a loan, without taking into account any fees or compounding of interest.

Nominal interest rates exist in contrast to real interest rates and effective interest rates. Real interest rates tend to be important to investors and lenders, while effective rates are significant for borrowers as well as investors and lenders.

Unlike the nominal rate, the real interest rate takes the inflation rate into account. The equation that links nominal and real interest rates can be approximated as nominal rate = real interest rate + inflation rate, or nominal rate – inflation rate = real rate.

To avoid purchasing power erosion through inflation, investors consider the real interest rate, rather than the nominal rate. One way to estimate the real rate of return in the United States is to observe the interest rates on Treasury Inflation-Protected Securities (TIPS). The difference between the yield on a Treasury bond and the yield on TIPS of the same maturity provides an estimate of inflation expectations in the economy.

Social structure denotes the network of social relationship. The social relationship is created among the individuals when they interact with each other according to their statuses in accordance with the patterns of society. In a social structure, individuals having common object organize themselves into associations.

Social structure is an abstract phenomenon. It denotes external aspects of society. Each society has a pattern of organization, which has structures that result from association of individuals with one another. It may be a group, institution, an association, community, or an organization all of which are parts of social structure through which it functions.

Features of Indian Social System

The following are the important features of social structure of Indian society:

1. Complex Society

Indian society is characterized as a pluralistic society because it possesses complex social order. It suffers from multitude of ethnic, linguistic, religious and caste divisions.

2. Rural Society

About 70% of the Indian people live in villages. Indian villages continue to be underdeveloped. Even rural areas suffer from lack of infrastructural facilities. The gains of industrialization and technological breakthrough which once enjoyed by urban areas not yet reached the rural areas. Only now our Government has started giving due importance to the objective of rural development.

3. Economically Backward Country

India has made considerable progress in the fields of agriculture and industrialization. But still it continues to be an economically backward country. Even now it remains 64th poorest nation in the world. Major part of our population continues to live below the poverty line.

4. illiteracy

Illiteracy and ignorance among the people of India is another important feature of the social system in India. About 60% of the population continues to be illiterate in India. Illiteracy creates many social problems. Concerted Governmental action and strong social support are needed in removing the rate of illiteracy.

5. Diversified Languages

Diversity in languages is another feature of the social environment in India. The Constitution of India recognizes 22 languages as the major languages, which are spoken by 87% of the population. Of them Hindi is spoken by 31% of the population. Linguistic diversity and love and affection of people towards their regional languages have made the Government to reorganize Indian states on the basis of languages. Hence, language has emerged as a key factor of social and political climate in India.

6. Racial Diversity

As already stated, people belong to different races such as Aryan, Dravidian, and Mongolian. inhabit India. People in the Eastern States, have affinity with Mongolian race. Hence the racial Inter-mixing has taken place to a limited extent in India.

Even though the principle of unity in diversity is accepted diversities are many times allowed to dominate the objective of unity. The Constitution provides for secularism. But racial factor plays major role in real operation of socio-political processes in India.

7. Caste

Caste has been the predominant feature of Indian social system. The Constitution, has taken a great step towards the dilution of caste and casteism. Caste and Casteism have been playing important factor in Social, Economic, Cultural and Political life in India. As caste system has deep historical roots, it cannot be abolished.

8. Existence of Communalism

The existence of communalism in the society is another feature of Indian social system. It constitutes a big danger to the unity and integrity of the nation.

9. Regionalism

People belonging to a particular region consider those who belong to other regions as outsiders. Diversities in Caste, religion, language and culture have contributed to forces of regionalism. Channelizing “Regionalism” and make it to contribute to nationalism is one of the difficult tasks before the Indian socio-political system.

10. Tradition

In India, both tradition and modernity exist side by side. Tradition is clearly affected by modern trends and pressures.

11. Lack of Free Movement

There is increased gap between the elites and the masses. There is no free movement among different linguistic groups, castes etc. This problem is clearly reflected between high and low castes, literates and illiterates, urbanites and ruralites etc.

Thus the social structure of Indian society is characterized by religious, regional, linguistic, communal and caste diversities. All these factors determine the environment of Indian social structure, social system and political system. All institutions are in a position to continuously adjusting themselves to a changing society, though there still exists many conflicts between them. The Socio-political system is maintained stable despite these constraints.

The influence of various social institutions forms informal regulations in the business enabling environment. A society assigns acceptable roles and activities for individuals based on a combination of norms regarding their gender, race or ethnicity, religion and class. These assigned roles or activities greatly affect how individuals participate in a market system.

Gender

Gender refers to the socially constructed roles, behaviors, activities and attributes that a given society considers appropriate for men and women. Frequently gender-based social rules create or reinforce differences in power that get played out in markets, value chains and economic activities, restricting women’s access, options and bargaining power.

Gender as a social construct within different societies will have different effects on women and men operating in various value chains. The nature of the product, the season (surplus or scarcity), distance to reach consumer markets, and the size of the market are all factors affecting who does what and when. Susan Johnson’s study on the role of social regulation includes many examples from published literature of the role of gender relations in regulating labor markets, grain markets, credit markets and others (e.g., coir) as well as access to and control over land. Typically, these gender norms are expressed through informal (and formal) rules that lead to discriminatory property and inheritance laws, for example, different access to resources, and to restrictions on the tasks or places of work that women may occupy.

Access to Land

In Cameroon, women have restricted access to agricultural land because of customary laws derived from ethnic traditions which only give women rights to access the land through their husband or father’s lineage. Women are forbidden to plant permanent trees on both kinship and rented land which excludes them from marketing cash crops like coffee, cocoa, rubber and oil palm. Women who do trade in these crops are forced to pay bribes and face gender violence as a result of collusion between transport drivers, government officers and armed police at the numerous tax check points on main roads. Similarly, in the rice market in Guinea the activities which involve high levels of technology—such as husking and transport—are usually controlled by men because they have the money to purchase the equipment, and using equipment is considered to be a ‘man’s job.’ These activities are also remunerated with higher wages. The gender construct therefore contributes to the impoverishment of women who cannot access technology to participate in higher-value markets.

Mobility

Women are often concentrated in small-scale trading and petty retail operations with products that require a rapid turnover. In West Africa, women occupy particular markets that sell highly perishable vegetables and fruit, staple foods and cooked foods that can be prepared in the home. Women are confined to petty trading instead of moving into wholesaling because of their lack of mobility which restricts their ability to gather information about the market, make the required contacts and earn sufficient income to guarantee loans for further financing.

In many places, informal rules assign women responsibility for ensuring basic survival of household: for example, through the production of staple food crops and economic activities that generate small, reliable flows of income to ensure the day-to-day household needs are met. These (socially entrenched) responsibilities affect women’s mobility, limit their bargaining positions, and may make it impractical to attend to commercial activities as fully as they wish. In many agricultural societies there are norms regarding control of land by men or women, and in some places norms regarding women’s obligation to work for their husbands. These norms limit women’s incentives to do something different since such changes carry significant risk. More insidiously, in some cultures gender-based social norms are revealed in (self-enforcing) ideologies of subordination which discourage women from believing in their own capabilities or having ambitions as entrepreneurs.

Upgrading

Women in rural households can be instrumental in value chain upgrading. However, gendered patterns in generating, allocating, controlling, and spending household income makes it difficult for women to accumulate lump sums required for upgrading. Gendered patterns in money management also limit the benefits that accrue to women, and thus their incentives to upgrade. This in turn affects their access to and use of new technologies. Social norms further determine how women are able to build the social and commercial networks and relationships necessary to adapt to changing market conditions and/or new markets.

Race and Ethnicity

Ethnicity is a social construct that refers to the inclusion in a sub-cultural group on the basis of origin, language, religion, race or cultural traditions different from the dominant society. Ethnic group customs and traditions govern relationships in social networks and have a key influence on socio-economic life. In most labor markets, social networks—including those based on ethnicity—play a key role. Details about employers, employees and jobs usually flow through the social networks that people have for non-economic reasons. Prospective employers and employees can learn about opportunities through their personal contacts which they trust along ethnic lines. Using social contacts and networks already in place reduces the costs that can incur from searching for the right job or the right person for the job. Ethnicity provides a strong network advantage through connections that are familial and ancestral.

Distinct ethnic groups are found producing specific goods or involved in a specific trade or product. This then influences hiring practices along ethnic lines which maintains the traditional occupations. For example, in Indonesia close family and friendship networks are frequently used by MSEs to access additional labor. In some cases, MSE operators not only hire friends when there is more work than the MSE operator can handle, but even when there is not enough work, they feel obliged to hire their friends although this reduces their profits considerably. Social position and reputation are more important than profitability. In other situations, MSE operators only hire from their villages far away because they trust their kin rather than “outsiders” who are readily available and may have more experience and skills. When ethnicity excludes “others” from outside the ethnic group, despite their availability and higher skill levels, this can have a tremendously negative impact on competitiveness and employment, particularly urban employment in densely populated areas.

In Afghanistan, the grape/raisin value chain operates through personal, familial, ethnic and historical relationships. Businesses must negotiate a maze of bribes, taxes and government requirements that increase transaction costs. However, businesses with the right connections due to their ethnicity and family ties are able to sidestep many of these costs and risks and gain access to land and capital. Small businesses and potential new investors without such ethnic and political influence face significant and sometimes insurmountable barriers to entry. These informal regulations that are established through the social norms and codes of conduct restrict competition and participation in the development of value chains, and ultimately, consolidate the market benefits in the hands of the already wealthy and powerful.

Religion and Caste

Religion underpins and provides the belief rationale for many informal regulations. Interpretation of religious beliefs in fatalistic terms can indicate a tendency to limit social mobility, individualism and entrepreneurialism. Although highly context-specific, fate-based beliefs tend to devalue efforts to influence outcomes through investments in technology or changes to production and marketing practices. In Liberia, ACDI/VOCA’s ACE project learned that beneficiaries who were quick to adopt new practices and who began to accumulate wealth were accused of witchcraft. Community members appeared to feel threatened by the pace of change. In response, the project initiated activities to show that incremental practices were required to increase on-farm productivity. By increasing the flow of information concerning the physical cause and effect and by helping community members to take a stepwise approach to upgrading, ACE sought to lessen the negative reaction to individuals’ success.

Barbara Harriss-White’s studies in India found that religion can supply a collective identity which in turn provides indispensable conditions for capital accumulation. “In India, religious affiliation can govern the creation and protection of rent, the acquisition of skills and contacts, the rationing of finance, the establishment and defense of collective reputation, the circulation of information, the norms that regulate the inheritance and management of property and those that prescribe the subordination of women”. In addition, Harriss-White found that religious groups provided insurance and last-resort social security. Jains, for example, were often wealthy local merchants, moneylenders and pawnbrokers who had indirect power over the local rural economy through webs of credit. The Muslim traders of Pallavaram on the other hand were limited in their economic growth because of lack of access to finance. Outside of a religious grouping, money was lent but not borrowed (other than from commercial banks). Transactions between religious groupings were been observed to be more exploitive than within religious groupings.

The caste system describes a stratification in which social classes or subclasses of traditional Hindu society are separated by distinctions of hereditary rank, profession or wealth. Caste is the class stratification of religious groups. Different castes engage in different productive activities according to their historical connections. Skills are passed on through apprenticeships which are gained through social networks based on kin, caste and locality. Caste is least flexible where social disadvantage is most entrenched and poverty is more profound. It makes for compartmentalized labor markets with non-competing groups whose options are severely constrained. Lower levels of technology are relegated to lower castes—for instance the dalits have to carry heavy loads on their heads—wheelbarrows are not available to them. Workers themselves may enforce caste stratification to protect their place in the labor market.

Caste is an evolving institution that can change if economic opportunity is available. For example, in West Bengal the poorer the worker, the less choice he will have in participating in the labor market. Yet the social ranking can shift if the household acquires more land and does not have to hire out, since hiring out labor is considered demeaning and associated with lower social ranking.

Low social status (especially when encoded in ‘caste’ relationships) can be a major obstacle to dialogue. In an example from Sri Lanka, traditional producers of cane and bamboo products were cut off from access to a critical material from natural rain forests—a softwood called Enipeththa. The producers were victims of well-intentioned but unnecessarily draconian blanket ban on extracting forest produce. Because they belong to a low-status caste, the producers were unable to get forest authorities to listen to their arguments for a more pragmatic sustainably-managed approach, which would have conservation advantages by reducing damaging illicit harvesting. Practical Action assisted producers to overcome this constraint by organizing collective efforts by producers, forest authorities, police and other stakeholders such as the national Craft Council to analyse the issue, negotiate and devise a solution.

India is one of the most populated countries in the world, officially referred to as the Republic of India. It is located in Southeast Asia, and by area is actually the seventh largest country, occupied by well over 1 billion people. On one side is the Indian Ocean, and on the others are the Arabian Sea with the Bay of Bengal to the southeast. It is bordered by many different countries included Burma, Nepal, and China, and shares the maritime border with Indonesia and Thailand. Within this country is a very unique and vast culture, one that extends thousands of years in the past. This was the original home of what is called the Indus Valley civilization, a culture that is thought to have originated 30,000 years ago

The culture of India refers collectively to the thousands of distinct and unique cultures of all religions and communities present in India. India’s languages, religions, dance, music, architecture, food and customs differ from place to place within the country. Indian culture, often labeled as an amalgamation of several cultures, spans across the Indian subcontinent and has been influenced by a history that is several millennia old. Many elements of India’s diverse cultures, such as Indian religions, philosophy, cuisine, languages, dance, music and movies have a profound impact across the Indosphere, Greater India and the world.

Indian-origin religions Hinduism, Jainism, Buddhism, and Sikhism, all of which are based on the concept of dharma and karma. Ahimsa, a philosophy of nonviolence, is an important aspect of native Indian faiths whose most well known proponent was Mahatma Gandhi who through civil disobedience brought India together against the British Raj and this philosophy further inspired Martin Luther King, Jr. during the American civil rights movement. Foreign-origin religion, including Abrahamic religions, such as Judaism, Christianity and Islam, are also present in India, as well as Zoroastrianism and Bahá’í Faith both escaping persecution by Islam have also found shelter in India over the centuries.

India has 29 states with different culture and the second most populated country in the world. The Indian culture, often labeled as an amalgamation of several various cultures, spans across the Indian subcontinent and has been influenced and shaped by a history that is several thousand years old. Throughout the history of India, Indian culture has been heavily influenced by Dharmic religions. They have been credited with shaping much of Indian philosophy, literature, architecture, art and music. Greater India was the historical extent of Indian culture beyond the Indian subcontinent. This particularly concerns the spread of Hinduism, Buddhism, architecture, administration and writing system from India to other parts of Asia through the Silk Road by the travellers and maritime traders during the early centuries of the Common Era. To the west, Greater India overlaps with Greater Persia in the Hindu Kush and Pamir Mountains. Over the centuries, there has been significant fusion of cultures between Buddhists, Hindus, Muslims, Jains, Sikhs and various tribal populations in India.

India is the birthplace of Hinduism, Buddhism, Jainism, Sikhism, and other religions. They are collectively known as Indian religions. Indian religions are a major form of world religions along with Abrahamic ones. Today, Hinduism and Buddhism are the world’s third and fourth-largest religions respectively, with over 2 billion followers altogether, and possibly as many as 2.5 or 2.6 billion followers. Followers of Indian religions – Hindus, Sikhs, Jains and Buddhists make up around 80–82% population of India.

India is one of the most religiously and ethnically diverse nations in the world, with some of the most deeply religious societies and cultures. Religion plays a central and definitive role in the life of many of its people. Although India is a secular Hindu-majority country, it has a large Muslim population. Except for Jammu and Kashmir, Punjab, Meghalaya, Nagaland, Mizoram and Lakshadweep, Hindus form the predominant population in all 28 states and 9 union territories. Muslims are present throughout India, with large populations in Uttar Pradesh, Bihar, Maharashtra, Kerala, Telangana, Andhra Pradesh, West Bengal and Assam; while only Jammu and Kashmir and Lakshadweep have majority Muslim populations. Sikhs and Christians are other significant minorities of India.

According to the 2011 census, 79.8% of the population of India practice Hinduism. Islam (14.2%), Christianity (2.3%), Sikhism (1.7%), Buddhism (0.7%) and Jainism (0.4%) are the other major religions followed by the people of India. Many tribal religions, such as Sarnaism, are found in India, though these have been affected by major religions such as Hinduism, Buddhism, Islam and Christianity. Jainism, Zoroastrianism, Judaism, and the Bahá’í Faith are also influential but their numbers are smaller. Atheism and agnostics also have visible influence in India, along with a self-ascribed tolerance to other faiths. According to a study conducted by the Pew Research Centre, India will have world’s largest populations of Hindus and Muslims by 2050. India is expected to have about 311 million Muslims making up around 19–20% of the population and yet about 1.3 billion Hindus are projected to live in India comprising around 76% of the population.

Atheism and agnosticism have a long history in India and flourished within Śramaṇa movement. The Cārvāka school originated in India around the 6th century BCE. It is one of the earliest form of materialistic and atheistic movement in ancient India. Sramana, Buddhism, Jainism, Ājīvika and some schools of Hinduism consider atheism to be valid and reject the concept of creator deity, ritualism and superstitions. India has produced some notable atheist politicians and social reformers. According to the 2012 WIN-Gallup Global Index of Religion and Atheism report, 81% of Indians were religious, 13% were not religious, 3% were convinced atheists, and 3% were unsure or did not respond.

Where It All Began

According to historians, this culture began many millennia ago, evidenced by Mesolithic rock art that has been found. Neolithic settlements appeared in western Pakistan and other locations, but the interesting period of time was when it transitioned into the Iron Age. It was during this time, just prior to 500 BCE, that the Vedas were actually written. This is written documentation about the Indian history and culture depicting a civilization made up of warriors, traders, and priests. There may have been political organizations at that time as well, and traces of irrigation tanks used for agriculture. It is also during this time that an individual by the name of Siddhartha Gautama began to spread the message of what would later be known as Buddhism.

Medieval Culture in India

It was over 1000 years later that culturally diverse city in India began to transition into the creation of temples ruled by kings. Although there were many rulers, there was no one particular empire that was in full control of the entire region. It was also then that the caste system began to be more prominent, and also diversify. It was based on the religion of Hinduism, and was a way of ranking people not only in life, but in regard to what position they had achieved in life through the process of reincarnation. It is from all of this that modern India began to develop, creating traditions based upon philosophy, family, and marriage.

Indian Philosophy and Family Concepts

There are many traditions that still remain in India, although they were founded centuries ago. Traditions involving what are called Yoga, Vedanta and many others, along with different religious practices which include Buddhism. The structure of family and marriage usually required family members to spend most of their lives together. The oldest male would be the head of the household, and make all of the important decisions and rules, ideas that still persist today. Arranged marriages are still a very prominent part of Indian culture, although it is outdated in modern times. There is a very low rate of divorce in comparison to places like the United States, with most of the divorces in India being initiated by women. There are many wedding rituals which include dance, music, and extensive decorations which may include costumes that people wear. It is taken very seriously, and may continue to do so into the future despite Western cultures influence on their society.

Indian Cuisine and Clothing

Another part of Indian history and culture that continues to remain, despite originating centuries ago, is the use of particular types of food which are almost always spicy, usually consisting of rice, bread, and milk based desserts. Clothing in India, especially for women, has remained very consistent. There is a definite discouragement of women wearing clothing that show very much skin. The clothing that they wear is very unique, decorated with jewelry and bangles, something that is identifiable with this culture in particular.

Much of the Indian history and culture of the past has been recorded on parchment that was written in the Sanskrit language. Despite the difference in characters, and the way that it is written, it shares many similarities in structure to classical languages in Europe, specifically in regard to vocabulary and grammar. It is a culture that continues to grow, one that is populated by diverse and unique individuals. It is a waste where the origins of mankind can be traced back, and is continuing to evolve in part due to the influence of Western culture. Those that study Indian culture and history find it to be one of the most unique and colorful of all ancient civilizations that are studied. It continues to be of great interest from traditions passed down through generations, to the writings of the Vedas, and will also continue to write what will soon become history through the accomplishments of this unique people.