Risk and Return Analysis on Common Stock of Standard Chartered Bank Nepal Ltd and Nepal Investment Bank Ltd.

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Chapter I

Introduction

1.1 Background

Finance is the backbone of any organization. No organization can sustain and develop without finance. The organizations with the sound financial structure can compete and lead the market. Economic growth of the nation depends on the availability, mobilization and utilization of the financial resources. Financial institutions play the major role for economic development of any country. Financial sector primarily indicates the banking sector. So, there is a very much dependence on the banking sector for the overall economic development of any nation. Number of banks are increasing rapidly in recent years in Nepal. This is a good symptom for the development of economy in Nepal. This is a positive impact of the financial reform of the country.

Generally, a word bank indicates a commercial bank. Authors have defined in various aspects about bank. A modern bank performs number of functions; it has become very difficult to give a precise definition of a bank. Some of the important and commonly used definitions of a bank are given below.

“Ordinary banking business consists of changing cash for bank deposits and bank deposits for cash; transferring bank deposits from one person to corporation (one depositor) to another; giving bank deposits in exchange for bills of exchange, government bonds, secured or unsecured promises of businessmen to repay.”[1]

“A commercial bank is one which exchange money, deposits money, accepts deposits, grants loans and performs commercial banking functions and which is not a bank meant for cooperative, agriculture industry or for specific purpose.”[2]

“A commercial banker is a dealer in money and in substitutes for money, such as checks or bill of exchange. He also provides a variety of financial service.”[3]

“A commercial bank is essentially a dealer in money. It is a banking institution that accepts the demand and time deposits from business institutions and individuals and engages in both business and consumer lending.”[4]

“Finance is the branch, which looks after the money matter of the entire organization. Every organization needs a sound financial system to carry out its activities efficiently because each and every managerial decision -making is based on financial analysis. It involves acquisition, utilization, control and administration of funds needed for the business. Managerial finance is an interesting, exciting and dynamic area of study. Finance is concerned with the institution, markets and instrument involved in the efficient transfer of money between individual business organization and governments. The finance is concerned with the conversion of capital funds to meet the finance need of business organization. Financial management leads to the decision making most skillfully. Finance has become an important branch of economy for e.g. share market.

Even in the least developed country like Nepal, stock market has become one of the important parts the national economy. Stock market is the important part of the finance that encourages the development of the country’s financial sector. It is assumed that in he capitalistic economy expansion of stock market represents the development of the country’s financial sector and it speeds up the nation’s growth.

Capital market refers to the market for long-term debt and equity shares. It can be further divided into primary market and secondary market. Primary market is the market where the shares are offered to general public for the first time and in the secondary market the securities that have already been purchased by the public in primary market are traded again and again. Lord Keynes was the first person to express stock market as ‘a game of professional investment’. The main purpose is to win or to make lots of money. Success comes to those; treat it as a game to be played not for profit but also for enjoyment and sports. Stock...
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