HS-2 BUSINESS QUESTIONS AND ANSWERS

 

UNIT-1

NATURE AND PURPOSE OF BUSINESS

 

SHORT ANSWER TYPE QUESTIONS

Q.1. What are types of Human activities?

Ans:- There are two types of human activities:

        i.            Economic activities.

      ii.            Non-Economic activities.

Q.2. Name the Economic activity in which specialized knowledge required?

Ans:- Profession.

Q.3. What reward businessmen gets for bearing the risk.

Ans:- Profits

Q.4. Name the occupation in which people work for other and get remuneration in return?

Ans:- Employment.

Q.5. What type of industry fishing?

Ans:- Primary industries.

Q.6. What type of industries of banking?

Ans:- Tertiary industry.

Q.7. Name the one features of business?

Ans:- Profits earning.

Q.8. State the role of profits in the business?

Ans:- Survival, Expansion and growth.

Q.9.Define risk?

Ans:- Probability or chances of incurring loss is called risk?

Q.10. why do businessmen earn profit?

Ans:- Businessmen earn profit for:

          (i) survival (ii) Growth

 

Long answer type question:-

Q.1: What is Economics Activity? With example? What are the types of Economics activity?

Ans: Economics Activity: Activities which are under taken by people with the object of earning money are known as economics activities. These activities are concerned with production, exchange and distribution of goods and services.

     Production of goods in a factory, practicing as a doctor, lawyer are the example of economics activities.

The economics activities can be divided into three categories:

          I.            Business: Business refers to those activities which are connected with the production, purchase, sale with the main objectives of earning profit.

        II.            Profession: Profession refers to the activities which required special knowledge and skill to be applied by an individual in his work to earn a living. For example, doctors are professional who are in medical profession and governed by the medical council of India.

      III.            Employment: Employment refers to activities in which individual works regularly for another person and get remunerated in return. For example, working in office, working in shop.

Q.2: What do you mean by Non-Economics Activities?

Ans: The activities which are undertaken by an individual with a motive of getting psychology satisfaction are known as non-economics activities. For examples, going to temple, charity, social services.

 

Q No 3: What are the differences between Economics and Non Economics activities?

Ans: The following are the main different between Economic and Non-Economic activities:-

 

Points of Difference	Economics Activity	Non Economics Activity
Motive	These activities are undertaken with the motive of earning money and creation of wealth.	These activities are under taken with the motive of social welfare or psychology satisfaction.
Purpose	The purpose of economic activity is creation of wealth.	The purpose of non economic activity is psychological satisfaction.
Expectation	Income is expected from these activities.	Income is not expected from these activities.
Outcome	The outcome of economic activities production of goods and services.	The outcome of non economic activity is mental satisfaction of person who undertaken them
Examples	Business, professing, employment.	Family-oriented activities, religious, social services.

 

Q.4: Define Business? What are the characteristics/nature/feature of Business?

Ans:  Following are the main feature of business:

1.      An economic activity: Business is considered as economic activities as it is undertaken with the objective of earning money and livelihood.

2.      Dealing in goods or services on a regular basis: Another important feature of business is that it must sell or exchange goods or services on a regular basis. Buying or selling goods or services once or twice is not business.

3.      Customer satisfaction:- The one of the main characteristics of every business enterprises is customer satisfaction. The customer is the king of market. Business enterprise believes in satisfying the customer by providing quality of product at a reasonable price.

4.      Profit earning: The main purpose of business is earning profit. No businessman can survive without earning sufficient profit if the profit motive is missing in a transaction then it can’t be considered as business transaction.

5.      Uncertainty of risk: Another Important feature of business is the presence of risk factor in the transaction. There is always a possibility of losses it is not certain that a businessman will always earn adequate profit.

Q.5: What are the objectives of Business?

Ans:     There are three objectives of business:

1.      Economic Objective: As business is an economic activity so the most important objective of business are economic objective. The following are included under economic objective:

A.     Survival: The basic purpose of every organization is to survive and exist in the competition market for a long period of time and it is possible only when it is able to cover its cost and earn profit.

B.      Profit: The most important objectives of every organization is earning adequate amount of profit. Profit is essential for survival, growth, and expansion of business. Profit is the reward given to businessmen for bearing risk.

C.      Growth: Business organization must grow and expand their activities. The source of any organization is measured by the growth rate and growth is measured in term of sales, number of branches, number of product, number of employees etc.

2.      Social objectives: Social objective deals with commitment of business towards the society. Business is an integral part of society. It makes use of resource of society and    earns profit by selling its products or services to members of society. No businessman can be successful in the long run by ignoring the interest of the society. The social object of a business are:

A.     Supply of Desired Quality of Product: Customers prefer to buy the product only when they are of satisfactory quality and are available at a reasonable price.

B.      Avoidance of Unfair Trade Practice: Unfair trade practices include black marketing, adulteration, hoarding, overcharging etc. The businessman adopts policies to avoid these practices for earning in long term.

C.      Employment Generation: The businessman must create employment opportunities and help in overcoming this basic problem of developing countries.

D.     Social Service: The large business houses undertake various projects of social services such as running charitable dispensaries, schools, hospitals etc.

3.      Human or Individual Objectives: Human or individual objectives are related to employees of the organization. To get maximum from employees and keep the employees motivated, the business must take care of their employees by pursuing the individual objectives. The common individual objectives are:

A.     Providing good working conditions.

B.      Payment of competitive and satisfactory wages and salaries.

C.      Personal growth and development of employee by imparting training to employees and keep updating their knowledge.

D.     Peer recognition and respect by encouraging employees to take initiative and participating in decision-making.

E.      Providing special benefits such as housing facility, medical facility, free education of children etc.

Q.9:  Discuss the role of profit in the business?

Ans:  Business is an economic activity. So earning profit is the main objective of every business. A businessman earns profit for various reasons. These reasons are

        i.            Survival: A business and businessman can’t survive for a long time without earning adequate profit. Profit is a source of income for a businessman which becomes his means of livelihood.

      ii.            Expansion and Growth: The business is expanded only when it is earning sufficient amount of profit. When profit is large, a part of it can always be reinvested for expansion or diversification of production and other operations of the business.

    iii.            Symbol of Efficiency or Index of Performance: Profits indicate whether a business is being managed efficiently or not. Higher profits indicate the efficiency of management and lower profits indicate inefficiency of management.

    iv.            Reward for bearing the risk:- Profit is considered as a price or reward paid to a businessman for bearing the risk. Businessman invests money in the business only with the hope of earning profits.

      v.            Helps to gain reputation:- A profit earning company always has a better reputation in the market as compared to companies which are running in loss. The rate of earning profit helps in creating a goodwill of the company in the market.

Q.7: What are the classifications of business activities?

 Ans: Business activities can be classified as:

        i.            Industry

      ii.            Commerce.

Q.8: What do you mean by Industry and what are its types?

Ans: Industry refers to an activity which convert raw material into useful products. Industry included activity related to production and processing.

       The term industry is also use to refer to a group of firms producing similar or related goods.

 

Industry can be classified into two broad categories:

        i.            Primary Industry and

      ii.            Secondary Industry.

    iii.            Tertiary industry or service industry

Q.9. What do you mean by primary industry and what are the types of primary industry?

Ans:- Primary industry includes all those industry which are concerned with extraction of resources and reproduction of living species.

These industries can further be classified into two categories:

        i.            Extractive industries:- Extractive industries are those which involve extraction of something from natural resources such as minerals from earth, fish from rivers and seas, timber from forest etc.

      ii.            Genetic industry:- The industries involved in the activities of rearing and breeding of living organisms i.e. birds, plants, animals etc. are known as genetic industries.

Q.10. What is secondary industry? What are the types of secondary industry?           

Ans:- The secondary industry makes use of products which are extracted and produced by primary industry as their raw material are produce finished products.

There are three kinds of Secondary industry:-

        i.            Manufacturing industries.

      ii.            Construction industry

 

Q.11. What is Tertiary industry? What are the services provided by tertiary industry?

Ans:- Tertiary industry is concerned with providing services which facilitate a smooth flow of goods and services. This industry provides services which support the activities of primary and secondary industry.

The following are the services provided by tertiary industry:-

        i.            Transport:- it facilitates movement of goods from one place to another.

      ii.            Banking:- provides credit facility to industries and trading firms.

    iii.            Insurance:- Provides coverage from various types of risks.

    iv.            Warehousing:- provides storage place for gods produced by primary and secondary industry.

 

Q.12. What do you mean by Manufacturing industry? What are its types?

Ans:-Manufacturing Industries:- Manufacturing industry are engaged in the transforming of raw material into finished goods. These industries create form utility by changing the form of raw martial into finished products. For example:- Sugarcane converted into sugar, cotton into cloth etc.

 

Manufacturing industry is of the following types:-

        i.            Analytical industries:-In Analytical industry the basic raw material is broken into different parts to produce finished products.

      ii.            Synthetic industry:- In synthetic industry two or more material are mixed to manufacture some new product.

    iii.            Processing industry:- in processing industry the raw material is processed through various stages of production.

    iv.            Assembly industry:- In assembly industry the various finished products are combined to produce a new finished product.

 

Q.13. What do you mean by commerce? Discuss the function or role of commerce?

Ans:- Commerce refers to all those activities which help directly or indirectly in the distribution of goods to the ultimate’s consumer. There will be no use of producing goods unless and until these goods reach the ultimate consumer. Goods are produced at one place and consumers are scattered at different places.

The following are the role and Function of Commerce:-

1.      Help in Removing the Hindrance of persons:- Traders helps in exchange of goods or services from the producer to consumer and helps removing the Hindrance between producers and consumers.

2.      Helps in Removing the Hindrance of place:- Goods are produced at one place whereas consumers are scattered in different corners of the country. There is a place gap between the producers and consumers. The transport segment of commerce helps in removing the place gap.

3.      Helps in Removing the Hindrance of Time:- Some goods are produces in a particular season only but are demanded throughout the year. But some goods produced throughout the year but are demanded in a particular season. So there is a time gap between the production and consumption. The goods need to be kept safe and fresh during this time gap. Warehousing segment of commerce helps in removing the problem.

4.       Helps in removing the hindrance of exchange:-  The goods and services produced by the manufacturing are sold to buy in exchange of money. The banks help the buyers and the sellers in making and collecting payments.

5.      Helps in removing the hindrance of risk:- There are different types of risks which a businessman has to face. The insurance branch of commerce helps in removing the hindrance of risk by providing protection and compensation to the insured.

6.      Helps in removing the hindrance of Knowledge:- Generally the consumer and buyer are unaware about the new goods produced by the manufacturer. The advertisement branch of commerce helps in removing the hindrance of knowledge by spreading the awareness about the new products and their utility.

 

Q.14.What is trade? What are the different types of trade?

Ans:- Trade is a internal part of commerce. If refers to buying and selling of goods and services. The trade segment of commerce brings together the manufacturer and the consumer.

Trade can classify into two types:-

        i.            Internal trade.

      ii.            External trade.

 

Q.15. Define Internal trade? What are its types?

Ans:- Internal trade refers to buying and selling of goods or services within the geographical boundaries of a country. It is also known as home trade.

There are two types of Internal trade:-

(a)   Wholesale trade.   (b) Retail trade.

 

Q.16. Define external trade? What are its types?

Ans:- External trade refers to buying and selling of goods and services beyond the geographical limits of the country. It is also known as trade between two or more countries.

There are following types of external trade:-

        i.            Export trade:- It refers to sale of goods to foreign country.

      ii.            Import trade:- It refers to buying of gods from foreign country.

    iii.            Entrepot:- It refers to import of goods for the purpose of export.

 

Q.17. What is business risk? Discuss the Nature of business risk?

Ans:- Business risk refers to the chances of losses or in a inadequate profits due to uncertainties or unexpected events, which are beyond control. In simple words, we can say business risk means chance of incurring losses or less profit than expected.

The natures of business risk are as follows:-

1.      Business risk arises due to uncertainties:- Uncertainties mean when you are not sure of what is going to happen in future. In business there is always risk involved.

2.      Risk is an essential part of every business:- risk is an important characteristic of business no businessman can avoid risk.

3.      Profits is the reward for bearing the risk:- Businessmen earn profit because they are bearing risk. “No risk no gain”. Larger the risk more is the profits.

4.      Degree of risk depends upon the nature and size of business:- The degree of risk depends upon the types of business. A business operating at large scale bears more risk as compared to small-scale business.

 

Q.18. Discuss the causes of business risk?

Ans:- The following are the main causes of business risk:-

1.      Natural causes:- Human being have no control over the natural causes. Natural causes like, heavy rain, earthquake, fire, etc. affect a business and can result in heavy losses.

2.      Human causes:- Human causes are also very important causes of business risk. These causes includes dishonesty, carelessness and strike etc. The dishonesty of employees can bring can bring heavy losses for business.

3.      Economic causes:- Economic causes are related to a chance of loss due to change in marker condition. There can be price fluctuation in the market, there can be change in fashion, taste and demands of customers.

4.      Physical causes:- All the causes which result in damage of assets are considered as physical causes, for example, Use of old technology, mechanical defects may also result in damage of assets such as bursting of boiler, accident to employees etc.

 

UNIT-2

FORMS OF BUSINESS ORGANISATION

 

Short Question and Answer (1/2 Marks)

Q.1. Name the head of joint Hindu family business?

Ans:- ‘Karta’

Q.2. Name an enterprise started by two or more parties?

Ans:- partnership.

Q.3. Name the form of organization found only in India?

Ans:- Joint Hindu Family or Hindu Undivided Family.

Q.4. Who is the real owner of joint stock company?

Ans:- Shareholders.

Q.5. List two merits of Sole proprietorship.

Ans:- (i) Single ownership (ii) Easy to form.

Q.6. What is the minimum number of persons required to form a cooperative society?        

Ans:- Ten (10)

Q.7. Is the registration of partnership is compulsory?

Ans:- No.

Q.8. Rahul is the only owner of his Shop. Name the form of business organization.       

Ans:- Sole proprietorship.

Q.9. Name the process by which a joint stock company is registered.

Ans:- Incorporation.

Q.10. What is the basic document prepared in partnership?

Ans:- Partnership Deed.

Q.11 What can be the maximum number of partners is partnership business?

Ans:- Twenty On other business but 10 in banking.

Q.12. What type of company which can invite the public to subscribe for the shares or debentures.

Ans:- Public.

13. Which document is called the constitution of the company?

Ans:- Memorandum of Association.

Q.14. What do you mean by Goodwill?                             

Ans:- Goodwill: Goodwill is the value of arising from the reputation of a firm. A long-term assets categories as an intangible assets.

Q.15. What is unlimited liability?               

Ans:- When the existence or continuation of business is not affected by the coming and going of members.

Q.16. How many minimum and maximum number of members in a Private Company?

Ans:- In private company Minimum number of members is 2 and the maximum number of member is restricted to 200, As per Companies act 2013.

Q.17. How many minimum and maximum number of members in a Public Company?

Ans:- In Public Company Minimum number of members is 7 and there is no limit for maximum numbers of member.

Q.18. What is the minimum and maximum number of members in a partnership business?

Ans:- As per Companies act2013 the minimum number of member in case of partnership firm is at least two and maximum member should not more than 100.

Q.19. What do you mean by Memorandum of Association (MOA)?

Ans:- The memorandum of association is the principal document of a company . It is considered as the charter of the company .It contains the powers and objectives  of  the company .It also describes the scope of operations of the company.

Q.20. What is AOA?

Ans:- Articles of association rules and regulation regarding the management of a company’s internal affairs. It defines the powers, duties and right of managers, officers and the board of directors. Generally all the companies prepare their own articles of association, and then they can select any one article of association given in table F of the companies act.

Q.21. What is prospectus?

Ans:- A public limited company , limited by shares , must issue the prospectus if it wants to make an appeal to the public to subscribe to its shares or debentures . According to the companies act, 1956, “A prospectus is any document (including any notice, circular, advertisement or other documents) that invites deposits or offers from public for the subscription or purchase of any shares or debentures of a body corporate.

Long Answer type Question:-

Q.1. What is sole proprietorship? What are its features?

Ans:- A business owned, managed and controlled by a single individual is known as a sole proprietorship organization.

         According to J.L. Hansen, “Sole trader business is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk and for the management of business.

The following are the main Features of sole proprietorship:-

1.      Single ownership:- The sole proprietorship firm is owned by a single individual only. All the capital is supplied by the single individual from his own wealth or from borrowed fund.

2.      Individual risk earning:- In sole proprietorship firm whole risk is borne by a single individual only.

3.      One man control:- The proprietor is the sole owner of the firm and has full control over it. The ownership and management lies in the hands of one person only.

4.      Small size:- The sole proprietorship firms operate on a very small scale. As all the funds are arranged by one person, total management and control lies with one person only.

5.      Freedom of Operation:- In sole proprietorship firm there is minimum government regulation. No legal formalities are required to start, manage and dissolve sole trader business.

 

Q.2. What are the advantages and disadvantages of sole proprietorship firm?

Ans:- The merits of sole proprietorship are as follows:-

1.      Easy to form and dissolve:- A sole proprietorship organization is easy to form. No legal formalities are involved in setting up this type of organization.  

2.      Direct incentive:- In sole proprietorship firm there is direct relation between the efforts and reward which means if proprietor puts extra efforts then profit increases and proprietor gets extra income.

3.      Flexibility:- In sole proprietorship firm all the decision are taken by the proprietor himself. He is not supposed to consult any one and waste time.

4.      Sole Beneficiary of profits:- All the profit earned by the sole proprietorship firm belong only to the proprietor himself.

5.      Independent control:- Total control of sole proprietorship firm lies in the hands of the proprietor only. He enjoys complete freedom of action.

The followings are demerits of sole proprietorship firm:-

1.      Limited resources:- In sole proprietorship firm finance is supplied by the proprietor himself from his wealth or from borrowings.

2.      Unlimited liability:- The sole proprietor is personally liable for all the debts. In case of heavy losses the proprietor will not only lose all his business assets but he may have to sell his personal property to pay back his debts.

3.      Limited managerial skill:- In sole proprietorship firm all the activities are performed by a single individual. A single individual cannot be expert in all the field.

4.      Limited scope for expansion:- Due to limitation of capital and management the sole proprietorship business cannot be expanded to very large size. It is a suitable form for small-scale operations only.

5.      Limited life of a business:- The survival and continuity of sole proprietorship firm depends upon one person only. If the proprietor falls ill or becomes insolvent then the business may come to an end.

Q.3. Define Hindu undivided family? State the features of Hindu undivided family?

Ans:- The business carried out by the male member of a Hindu undivided family is known as joint Hindu family business.

The following are the main features of HUF

1.      Member by Birth:-  A person automatically becomes a member in joint Hindu family by taking birth in that family. There is no need for any agreement.

2.      Number of member:- In joint Hindu family business minimum must be two members and maximum there is no limit.

3.      Minor also a member:- In partnership firm, minor cannot become a partner. But in HUF business a child become a member by birth.

4.      Rights:- All the member of joint Hindu family business have to right to inspect the account.

5.      Registration:- it is not compulsory for joint Hindu family business to get registration certificate as it is governed by the law act.

6.      Management by Karta:- The joint Hindu family business is managed and controlled by the senior most male member of the family who is called Karta.

 

Q.4. What is Partnership? What are the features of partnership?

Ans:- Partnership is an association of two or more persons, who agree to carry on a business jointly and share the profit and losses.

       According to, L.H. Haney “ The relationship between persons, who agree to carry on a business in common with a view to private gain.”

 

The features of partnership firm are explained below:-

1.      Membership:- There must be minimum two members to form the partnership firm. Maximum there can be 20 members. In case of banking business maximum members can be only ten.

2.      Agreement:- There must be an agreement between the partners to form a partnership can be oral or written. The document containing the agreement of partners is known as partnership Deed.

3.      Profit Sharing:- The partners of the partnership firm share the profit of the firm in the ratio specified in the agreement. In case no ratio is specified in the agreement them the profit is divided equally among all the members.

4.      Registration:- According to partnership Act 1932, it is not compulsory for a partnership firm to get itself registered. However the partnership prefers to get the partnership firm registered because there are certain advantages of registered.

5.      Time period:- The partnership firm continues till all the partners desire to continue it legally it comes to an end at the retirement or death of any one partner.

Q.5. What are the Merits and Demerits of Partnership? Explain?

Ans:- The following are the main Advantages of partnership:-

1.      Easy to form:- It is very easy to form a partnership firm, as no legal formalities are required to be completed. Even registration of partnership firm is not compulsory according to partnership act.

2.      Risk bearing:- In sole proprietorship firm only one person has to bear the risk whereas in partnership firm all the partners share the risk in the same ratio as they share the profit.

3.      Division of work:- In partnership the partners can divide the work according to their skill and knowledge.

4.      Relationship between reward and work:- The partners try to put more labour to earn more and more profits. There is a direct relationship between reward and work. The more they work, the more will be benefitted.

5.      More Scope for Expansion:- Compared to sole proprietorship firm, there is more scope for the expansion and growth of the firm. The partners can arrange larger funds from their own wealth as well as from their borrowings.

 

The followings are the main demerits/disadvantages of partnership:-

1.      Unlimited Liability:- The liability of all the partners is unlimited. In case of losses the partners will not only lose their business property but creditors can claim over their personal property also to get their accounts settled.

2.      Conflicts:- The partners in partnership firm come from different backgrounds, different families, therefore, they may have differences of opinion. If partners adopt a rigid attitude then it may lead to conflict among the partners.

3.      Lack of public Confidence:- The public has less trust and faith in partnership firm because the account and annual reports of partnership firm are not published. So people do not have trust in their dealings.

4.      Time consuming:- All important decisions are taken by the consent of partners so decision making process becomes time consuming.

Q.6. What are the different types of partners?

Ans:-The followings are the types of partners are as follows:-

                    i.            Active partner:- An active partner is one who takes actives part in the day-to-day working of the business. The activates partners is participates in the management.

                  ii.            Sleeping partner or Dormant Partner:- A sleeping Partner is the one, who contributes capital, shares profits and contributes to the losses of the business, but does not takes part in the working of the concern.

                iii.            Partner in profit:- A person may become a partner for sharing the profits only, he contributes capital and is also liable to third parties like other partners.

                iv.            Secret partner:- The position of a secret partner lies between active and sleeping partner. His membership of the firm kept secret from outsider.

                  v.            Nominal partner:- A nominal partner is one who lend his name to the firm. He does not contribute by capital nor does he share profits of the business. He is known as partners to the third parties.

                vi.            Partner by holding out:- The partner who does not call himself as a partner in the firm but who does not object when others call him as a parents in the firm.

Q.7. What are the different types of partnership?

Ans:- The following are the types/Kinds of Partnership:

1.      Partnership at will:- This type of partnership is formed for indefinite period are known as partnership at will. The partnership continues up to the time the partners want it and will come to an end if they decide to dissolve it.

2.      Fixed period partnership:- The partnership is formed for a specific period of time, say 2 years, 4 years, etc. the partnership will come to a end at the expiry of the specified period.

3.      Particular partnership:- When the partnership is started for a particular work then it is called particular partnership.

4.      General partnership:- in this type of partnership the liability of members is unlimited. It means that personal properties of partners can be used to meet liabilities of the business if assets are not able to pay the business liabilities.

5.      Limited partnership:- In limited partnership, the liability of at least one partner is limited while liability of other partners is unlimited. The partners with limited liability are called special partners. While those with unlimited liability are called general or active partners.

Q.8. What is partnership deed? Mention its contents.    2007, 10, 15

Ans:- Partnership deed: The document containing the terms and conditions of the partnership agreement is known as partnership deed. It a stamped paper on which the rules, regulations, and terms and constitution of partnership are written.

The common contents of Partnership Deed:-

a)      Name of the firm

b)      Names and address of partners

c)      Nature and scope of business

d)      Place of business

e)      Rights, duties and liabilities of partners

f)       Capital contribution by each the partners.

g)      Profit Sharing ratio of the partners.

h)      Duration of partnership

i)        salary and Commission of partners.

j)        The rate of interest payable to partners on their capital

k)      The rate of interest to be paid by the partners on amount withdrawn by them.

Q.9. What is the procedure for registration of the partnership firm?                

Ans: Procedure for Registration:- A partnership firm can be registered anytime, that is at the time of formation or later on whenever partners desire to get it registered. The application should contain the following information:

(i) The name of the firm

(ii) The principal place of business of the firm.

(iii) The name of any other place where firm will be carrying on the business.

(iv) Date of admission of the partners in the firm.

(v) Names and permanent addresses of all the partners.

 (vi) Duration of partnership firm, if any.

The application must be signed by all partners. A small amount of registra­tion fee is also deposited along with the application. If the registrar is satisfied with the authenticity of the information he will issue a certificate of registration.

Q.10.  What are the consequences of non-registration of a Partnership?                     

Ans: An unregistered partnership firm suffers from the fol­lowing limitations:

a)      A partner of an unregistered firm cannot file a case against the partnership firm.

b)     The unregistered firm cannot file a case against any of the partners.

c)      A partner of an unregistered firm cannot file a case against any other partner of the unregistered firm.

d)     An unregistered firm cannot file a suit against any third party or outsider for recovery of claim.

Q.11.What is Cooperative Society? What are its features? What are its merits and demerits?          

Ans:- A co-operative society is a voluntary association person who join together for mutual help. The aim cooperative organization is not to earn profit but service to the members. A minimum ten (10) members are required to form a cooperative society. The registration of these societies is compulsory and capital is contributed by member4 in the form of share capital. The society can also raise loans from banks.

The followings are the Salient features of cooperative societies

                    i.            Voluntary Association:- The cooperative society is voluntary association f persons. Any person can join the cooperative society of he/she common interest.

                  ii.            Equal voting right:- the cooperative societies work with democratic principal of “one man-one vote”.

                iii.            Service motive:- The main motive of cooperative society is to provide service to its members and not to earn profit.

                iv.            Separate legal entity:- It is compulsory for a cooperative society to get itself registered under the cooperative societies act.

                  v.            Distribution of surplus:- the profit of cooperative society is not distributed in the ratio of capital contributed by each member but it is distributed according to dealings of members with the society.

The Advantages of Cooperative Society are:-

                    i.            Easy to form:- The formation of a cooperative society is very simple process. Only ten adults member having common interest are required to form it.

                  ii.            Continuity:- The cooperative society has a separate legal existence. Te death, insolvency or incapacity of any member does not affect the existence of society.

                iii.            Limited liability:- The liability of members of cooperative organization is limited to the extent of their capital contribution in the cooperative organization.

                iv.            Support from government:- Cooperatives exemplify the democratic process. Government helps society by providing low interest rates, tax concessions, exemption from registration or some other expenses.

                  v.            Open membership:- Any 0person having common interest can become the member of cooperative organization. There is no restriction nr the basis of caste, religion.

The Main disadvantages/Demerits/Limitation of Cooperative society are:

                    i.            Limited Capital:- The Co-operative societies are generally formed by the economically weaker section of the society. The members can invest only a limited capital.

                  ii.            Inefficiency in Management:- The cooperative organization is managed by the member only. He is not professional expert and experienced so, there is lack of efficiency in management.

                iii.            Conflicts among the member:- The members are from different section of society. They may have different of opinion and if any member follows rigid attitude it can led to conflict and disputes among the members.

                iv.            Lack of Motivation:- In cooperative organization there is no direct link between the efforts and reward. Hence members are not to put their best efforts. There is no incentive working efficiently.

                  v.            Excessive government control:- By providing various concessions to the societies government keeps a control over their work.  The day to day interference by the government affects the freedom of societies and has negative effects on their working.

Q.12. What are Different types of Cooperative Societies?

Ans:-  Different Types of co-operatives Society:-

                    i.            Consumers’ cooperative societies.

                  ii.            Cooperative Credit societies.

                iii.            Cooperative Farming societies.

                 iv.            Producer’s cooperative societies.

                   v.            Cooperative Marketing societies.

                 vi.            Cooperative Housing societies.

Q.13. What is Joint Stock Company? Discuss the main features of JSC?

Ans:- A joint stock company is an artificial person having separate  legal existence, perpetual succession and common seal.

         According to Justice Lindley, “Joint Stock Company is meant as an association of many persons who contribute money or money worth to a common stock and employ it for some common purpose.

The following are the main features of joint stock company:-

1.      Separate legal existence:- A company has a separate legal entity .A company can carry on business in its own name it can buy and sell assets in its own name.

2.      Artificial person:-  A company does not have a physical body like a natural human being. Its is an artificial person created by law.

3.      Registration:-It is legally compulsory for a companies act. 1956 without registration no company  can come into existence.

4.      common seal:- Being an artificial person the company cannot sign. Therefore there is need for common seal with its name engraved on it.

5.      Transferability of shares :-The capital of the company is divided into shares . The shares of the company are freely transferable by its members.

6.      Separation of ownership and control:- The company form of business is owned by the shareholders. These shareholders elect their representatives who are called directors of the company.

7.      Limited liability:- The liability of members of the company is limited to the extent of their share capital contribution in the company.

Q.13.What are the merits and demerits of joint stock company?

Ans:- The followings are the main advantages of joint stock company:-

1.      Large amount of capital:- The biggest advantage of company form of business is that it can collect a large amount of capital by issuing of shares to general public.

2.      Limited liability:- The liability of members of the company is limited to the extent of their share capital contribution in the company.

3.      Growth and expansion:- In company form of business there is more scope for growth and expansion. The company has large financial resources and their rate of profit is also high.

4.      Public confidence:- General public has more trust and confidence in company as compared to partnership.

5.      Transferable of shares:- The shares of a public company are freely transferable.

The followings are the main limitation of company:-

1.      Lack of motivation:- Company is mot managed by owners but it is managed by the professional managers. These managers get salary for their services so there is no direct relation between the efforts and reward.

2.      Delay in Decision:- In company organization all the important decisions are taken in the board meeting or after consulting various persons. So, there is delay in taking decision.

3.      Conflicts in interest:- In company various group of people are involved such as shareholders, debenture holders, employees etc. so there is conflicts among the members.

4.      Numerous regulation:- A large number of rules and regulations are framed for the working of the companies. The companies will have to follow rules even for their internal working.

Q.15. Define prospectus? Discuss the factors that determine choice of form of organization?

Ans:- According to section 2(36) of the companies act, “A prospectus means, any document described or issued as prospectus and includes any notice, circular, advertisement or other document inviting deposits from public or purchase of any share in or debenture of a body corporate.

The following factors that determine choice of form of organization:-

1.      Nature of business:- The type of business activities is the most important factor for selecting the form of business. if the business requires personal attention and direct contact, sole proprietorship  partnership preferred.

2.      Degree of control:- if the business desires complete ad independent control over the business, then he has to prefer sole proprietorship firm.

3.      Legal formalities:- If businessman want to avoid legal formalities and prefer easy formation then the most suitable form is sole proprietorship and partnership.

4.      Continuity of business:- If the business is to be continuity indefinitely then company form of organization will be better.

5.      Limited liability:- If the entrepreneur is ready to bear all the risks of a business he may go for sole-proprietorship where liability is unlimited. In case he wants that business risk should he shared with others, partnership and company forms will be suitable.

Q.16. Discuss are various mode of dissolution of a Partnership Firm? Explain them briefly.   

Ans:- The followings are the Modes of dissolution of a Partnership Firm:-

1.      Dissolution by consent of all the parties:- A partnership firm may be dissolved with the consent off all the partners at any point of time during its life.

2.      Mutual Agreement:- A firm may be dissolved with the consent of all the partners or in accordance with contract between them.

3.      Compulsory Dissolution:- A firm is compulsorily dissolved by insolvency of all the partners or all but one as insolvent or by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in partnership.

4.      Dissolution in case of Partnership at Will:- In case of partnership at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The firm is dissolved from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice to all other partners.

5.      Dissolution with the intervention of the court:-  

The court may dissolve a firm on he followings ground:-

        i.            Partner becoming unsound mind:- if any partner becoming of unsound mind then court may dissolve the firm in any ground.

      ii.            when a partner transfers the whole of  his/her interest in the firm to a third party;

    iii.            When the Prospect of the business has gone down substantially.

    iv.            When a partner becomes permanently incapable of performing his/her duties as a partner;

Q.17. What are the different between partnership and company?

Ans:- The followings are the main different between partnership and company:-

Basis of different	Partnership	Company
Meaning	Partnership is a relation between persons who have agreed to share the profits of the business carried on by all or any of them acting for all.	It is a separate legal entity distinct from its members.
Relevant act	It is governed by the Indian partnership act.	It governed by the companies’ act 2013.
Minimum member	Minimum members Two.	Private company- 2 Public Company- 7
Liability	Liability of partners is unlimited.	Liability of shareholders of company limited by shares us limited.
property	Property belongs to the partners.	Property belongs to the company.

 

UNIT-3

PRIVATE, PUBLIC AND GLOBAL ENBTERPEISES

Very-short answer types question:-

Q.1. Which form of public sector organisation is suitable for sensitive industries?

Ans:- Departmental form.

Q.2. What is the central control in case of MNCs?

Ans:- Headquarter in home country.

Q.3. which form of public sector organisation is established by a statute?

Ans:- Public corporation.

Q.4. Has departmental form of organisation a separate legal entity?

Ans:- No, it is a part of a government department.

Q.5. What is the minimum percentage of shares government should own in a company to be called a government company?

Ans:- Minimum 51%.                                   

Q.6. What are the types of Public sector enterprises?

Ans:- There are three types of PSEs:-

(i)                 Departmental undertaking

(ii)               Public corporation or statutory corporation.

(iii)             Government Company.

 

Long-Answer types questions:-

Q.1. What is departmental undertakings? What are its features?

Ans:- The department undertaking is considered as one of the departments of government. It has no separate existence then government .It function under the overall control of one minister of department of government.

       For example, Railways, Defence, post and telegraph, broadcasting, telephone service etc.

The followings are the main features of department undertakings:-

1.      They operate under the overall control of one of one of the minister of central or state government.

2.      They are a part of government only , there is no separate entity.

3.      They are financed from the annual budgets of government,

4.      They are under the direct control of departmental head , who is accountable to the concerned minister .

Q.2. What are the Advantages and Disadvantages of departmental undertakings?

Ans:- A Departmental undertakings has the following advantages:

1.      Easy formation:-  It is very easy to form a departmental undertaking as no registration is compulsory.

2.      Effective control:- The control on departmental undertakings is very effective as it is direct and centralised.

3.      Optimum Utilisation of Funds:- There is proper utilisation of funds  as financial matters are subject to ministerial sanction, budget, accounting, and audit control.

4.      Accountability:- There is direct parliamentary control. The performance of departmental undertakings can be discussed in parliament. So there is public accountability.

5.      Public Revenue:- The revenue of departmental undertaking is deposited in the treasury of the government. So these undertakings help to increase the government revenue.

6.      Secrecy:- The activities, performance of the departmental undertakings can be highly secret, as government can avoid disclosure on the plea of public interest. Due to secrecy only the most sensitive area i.e defence is operating as a departmental undertaking.

The disadvantages of departmental undertakings are:-

1.      Inflexibility:-The departmental undertakings works under strict parliamentary control there is too much interference of minister and top officials.

2.      Lack of motivation:- The departmental undertakings have no power to utilise their revenue as these are deposited in the treasury there is no incentive to maximise profit. So employees are not motivated to perform to their best ability.

3.      Lack of financial autonomy:-  The departmental undertakings cannot plan long term investment projects. it has no independence or freedom of utilising funds in its own way.

4.       Inefficient management: - The departmental undertakings are managed by the government officials. These officials are overburdened with the paper work.

Q.3.What is public corporation?

Ans:- A statutory corporation is a body corporate formed by a special act of parliament or by the central or state legislature. It is fully financed by the government. Its powers, objects, limitations etc. are also deciding by the Act of legislature.

For example, Indian airlines, air India, state bank of India life insurance corporation of India. Food Corporation of India, oil and natural gas Corporation etc.

Q.4.What are the features of public corporation?

Ans:-  The main characteristic of public corporation are:-

        i.            It is created by an act of parliament or central of state legislature.

      ii.            The powers objectives and limitations of public corporation are defined in the act only.

    iii.            Control operates under total control of central or state government.

     iv.            It is a separate legal entity it gets incorporated automatically when act is passed in the parliament.

       v.            It is managed by the board of directors who are nominated by the government.

     vi.            The main motive of public corporation is service to general public.

Q.5.What are the advantages  And Disadvantages of public corporation?

Ans:- The main advantages of public corporation are:

1.      Administrative Autonomy:- A Public corporation is able to manage its affairs with independence and flexibility.

2.      Quick decision:- A public corporation is relatively free from red tapism, as there is less file work and less formalities to be completed before taking decision .

3.      Service motive:- The activities of public corporation are discussed in parliament. This ensures protection of public interest.

4.      Efficient staff:- The public corporations can have their own rules and regulation regarding remuneration and recruitment of employees.

5.       Professional management:- Its board of directors consists of business experts and also the representatives of various groups such as labour consumers nominated by the government.

The main disadvantages of public corporation:-

1.      Lack of initiative:- Public corporations do not have to face any competition and are not guided by profit motive so the employees do not take initiative to increase the profit and reduce loss.

2.      Rigid structure:- The objects and powers of public corporation are defined by the act and these can be amended only by amending the statute or the act. Amending the act is a time consuming and complicated task.

3.      Unfair practise:- The governing board of public corporation may indulge in unfair practices. It may change unduly high price to cover up inefficiency.

Q.6. What is Government Company? What are the features of government company of BHEL?

Ans:-Government Company means any company in which at least 51 per cent of the paid-up share capital is held by the central or state government or partly by central or state government. The government companies are governed and ruled by the provision of companies Act, 1956.

 The following are the main features of Government company BHEL:-

1.      Registration: - The government company gets incorporated under the companies Act, 1956.

2.      Ownership:- The government company is wholly or partly owned by the government.

3.      Management:-The government company is managed by board of directors who are nominated by the government and other shareholders.

4.      Separate legal entity:- The government company has a separate legal existence.

5.      Ministerial control:- A government company is subject to ministerial control. The concerned ministry makes appointments of directors.

6.      Financial autonomy:-The government company enjoys borrowing powers. Can raise capital by issue of various securities.

7.      Efficient staff:- The recruitment and remuneration of employees of government company is independently decided by the government company itself.

8.      Accountability:- The government companies are accountable to the ministry or the department concerned. Its annual report is presented and discussed in the parliament or state assembly.

Q.7. What are the advantages and disadvantages of government company?

Ans:- The followings are the main advantages of government companies:-

1.      Greater flexibility:- The government company is managed, financed and audited any other private sector company. It can therefore secure greater flexibility, freedom of operation and quickness of action in running the enterprise.

2.      Efficient staff:- The government companies can have their own rules and regulations regarding the recruitment and remuneration of employees. They can appoint professional and specialised people by offering better services and salary.

3.      Administrative autonomy:- The government company is relatively free form government and political interference. Suitable changes can be introduced whenever needed within the provisions of companies Act.

4.      Collaboration:- The government companies can avail and accommodate managerial skill technical know-how or expertise of the private enterprise by conveniently collaborating with it.

The Disadvantages/Drawbacks of government companies are:-

1.      Autonomy on paper only:- The freedom and flexibility offered to government company is true theoretically only. In actual practice the government, being the major shareholder dictates the terms and get the things done in its own way.

2.      Political interference:-  The government companies are treated as the personal property of ministers. The interference of ministers is frequent.

3.      Board packed with government representative:- The Board of directors in government companies is appointed by the government. So these directors always try to please the government rather than improving efficiency of the government company.

Q.8. What is multinational companies? What are the features of multinational companies?

Ans:-  Multinational consists of two different words ‘multi’ and ‘national’. Multi means many and national means countries or nations. So multinational companies means a company which operates in many countries. Such a company which operates in many countries.

      For example:- Coca-Cola, Nike, Reebok, Sony, LG etc.

According to Niel H.Jacoby, “A multinational corporation owns and manages business in two or more countries.

The main features of multinational companies are:

1.      Giant size:- The assets and sales of multinational companies are quite large these companies operate on large scale.

2.       International operations:- A multinational corporation operates in more then one country it has its branches, factories, offices in several countries.

3.      Centralised control:-The branches of multinational companies spread in different countries are controlled and managed from the headquarters located in home country.

4.      International market:- A multinational corporation has access to international markets. It is able to sell its products in different countries.

5.      Oligopolistic powers:- Oligopoly means power in the hands of few companies only. Due to their giant size the multinational companies occupy a dominating position in the market they also take over other firms to acquire huge power.

Q.9. What is Joint ventures? What are the features of joint venture?

Ans:- When two or more firm join together to establish a new enterprise then it is known as joint ventures. The two firms contribute capital and participate in management of enterprise. In simple words, Joint venture is a partnership between two firms.

  For example:- Maruti company of India and Suzuki company of Japan together to form Maruti Suzuki India Ltd.

 The main features of Joint ventures are:-

1.      Reduces competition :- When two companies join together it result in reducing the completion as instead of wasting resources in competition they will strengthen their organisation.

2.      Reduces risk:- High risk involved in new and innovative ventures can be reduced when two companies join together to share the risk.

3.      Advanced technology:- By joining hands with foreign company Indian companies can get the benefit advanced technology.

4.       Large capital:- In joint venture two companies together contribute capital, as a result large capital can be arranged without much difficulty.

5.       Reduction in cost:- When two firms join together then they can operate on a large scale and get benefit of economies of scale and hence reduce cost of production and marketing.

6.       Partnership between two and more company:- In joint venture two firms join together these two firms can be both from public sector, both from private sector, one public and one private.

Q.10. What is public private partnership? What are the features of PPP?

Ans:- Public private partnership described a government service or private business venture, Which is funded and operated through a partnership of government and one or more private sector companies.

The followings are the main features of Public pricate partnership-:-

        i.            Contract between public sector and private party.

      ii.            Cost of using service.

    iii.            Provision of capital subsidy.

     iv.            Sharing of Revenue.      

Q.11. Discuss a brief note on Changing role of public sector?

Ans:-Performance of the Public Sector enterprise is not remarkable but then also government cannot ignore the development of public sector enterprises because these enterprises help to overcome the social problem of poverty, unemployment, etc. So the government of India has introduced four major reforms in public sector in its new economic policy of 1991. in the Industrial Policy 1991, introduced the following reforms in the public sector.

        i.            Reduction in the number of industries reserved for public sector.

      ii.            Disinvestment of shares of a select ser of public sector enterprises.

    iii.            Policy regarding sick units to be the same as that for the private sector.

     iv.            Memorandum of understanding.

Q.12.What are the difference between Public sector and private sector?

Ans:- The followings are the main different between public and private sector:-

Points of difference	Private sector	Public sector
Formation	The formation of private sector enterprises involves a long process.	The public c sector enterprises can be formed in a short time just by government de4cision.
Objective	The private sector enterprises work with the main objective of earning profit.	The public sector enterprises work with the main motive of providing servic3w to public.
Capital	In the private sector enterprises are managed and controlled by board of directors who are professional and experts.	Public sector enterprises are managed and controlled by board of directors who generally are representatives of government
Freedom of operation	There is more freedom of operation in private sector enterprises.	There is less freedom in public sector enterprises due to political interference.
Accountable	The private sector enterpris3es are not directly accountable to general public.	They public sector enterprises are accountable to general public as their of performance is discussed in the parliament.

 

CHAPTER-4 

BUSINESS SERVICES

Q.1.What is service sector? What are its features?

Ans:-service sector includes commercial firms engaged in baking, communication, transport, insurance, warehousing etc. The service sector constitutes the basic infrastructure which is a most for smooth flow of business activities. In the recent past, the role of service sector in the India economy in growing faster than agriculture and industry.

         The basic features are:

1.      Intangible:- Service are intangible, i.e., these cannot be seen or touched. We ca only feel service or one can only experience then. We cannot find out the quality of service before taking it.

2.      Lake of Homogeneity or inconsistency:- Service has to be performing each time according to the demands and expectation of each customer. Same service may be provided differently by different service providers.

3.      Inventory (loss):- The main feature of service is that services are consumed at the same time, when they are produced. So there no need to maintain inventory or stocks of service.

4.      Non-transferability or Inseparability:- The service cannot be separated from the provider of services. These are produced and consumed at the same place only.

5.      Customers’ participations or Involvement. To experience a service the participation of the customers is essential. For example, telephone companies provide telephone service but to use this service customer has to make or receive the call.

Q.2. Mention the classifications of services?

Ans:- services can be broadly categories into three types:

                        i.            Business services

                      ii.            Social services

                    iii.            Personal services

Q.3. What is business services?

Ans:-Business services are those services which are used by business enterprise to carry on business activities more smoothly, for example, banking, insurance, transportation, warehousing, communications etc.

Q.4. what is banking services? What are type of accounts?

Ans:- A Bank is an institution which attracts money on deposits for the purpose of being lent to industry or trade . Bank is buyer and seller of money. A bank earns margin of profit by lending money which it borrows.

According to Indian Banking Act, 1949 banking means, “Accepting deposits of money from the public for the purpose of leading or investments”.

Types of accounts are:-

1.      Saving and deposit account:- A person can open a saving deposit account by depositing a small sum of money . He can withdraw money from his account whenever needed and can deposit whenever surplus is available. Deposit is issued a cheque book and passbook.

2.      Current Deposit account:- Current deposit accounts are opened by businessmen. The account holder can deposit can deposit and withdraw money whenever desired. Withdrawals are always made by cheque. Overdraft and credit limit facility is availed in this account. No interest paid in this account.

3.      Recurring deposit account:- A depositor can deposit a fixed amount say  100 every month for a fixed period . The amount together with interest is repaid on maturity. The rate of interest on recurring deposit is higher than that on saving account.

4.      Fixed deposit account:- A fixed deposit account is repayable after the expiry of the specified period. The period may vary from six months to five years. Longer the periods of deposit, higher is the rate of interest.

5.      Multiple option deposit account:- This account offers multiple options to depositors. This account cans be combinations with saving account or current account.                

Q.5. Discuss the important Services provided by Banks?

Ans-

1.      Bank draft:- This is a cheque drawn by one bank against funds deposited into its account at another bank, authorizing the second bank to make payment to individual whose name is written on the draft.

2.      Banker’s cheque:- This is a document which instructs a bank to pay a certain sum to a third party. Such a orders are normally acknowledged by bank which provides a guarantee that payment will made.

3.      Real time gross settlement:- RTGs are funds transfer system where transfer of money or securities takes place from one bank to another on a real time and on gross basis.

4.      Automatic teller machine:- Automatic teller machine which can do a teller jobs twenty four hours a day at less than half the cost of human tellers.

5.      Debit card:- It is a facility offered to accounts holders to make payment up to the amount of credit balance in their accounts.

6.      Credit card:- Credit card is like a bank account without having balance in it. It enables the card holders to have overdraft facility up to a fixed limit depending upon the creditworthiness of the party.

Q.6. What are the different types of advances?

Ans:- The followings are the different types of advances are:-

1.      Overdraft:- Under this arrangement a customer having current account is allow to withdraw ore than the balance in his account. He can overdraw up to a specific limit and for an agreed period.

2.      Cash credit:- Under this arrangement the borrower is allowed to withdraw up to certain limit against security.

3.      Short/medium/Long term loan:- A loan is limp sun advance repayable on expiry of a specified period. It may be secured or unsecured.

Q.7.What is insurance service? What are the principles of insurance?

Ans:- Insurance is a contract between the insurer and insured in which insurer agrees to make good the loss of insured on happening of an event in consideration of a regular payment called premium. This agreement or contract is in writing and is known insurance policy.

Ans:-The basic principles of insurance are:

1.      Principle of utmost good faith:- According to this principle, insurance is a contract based on faith. The insured and insure must disclose all the material facts to each other and both the parties should not hide any fact related to insurance policy from each other.

2.      Principle of insurable interest:- A According to this principle, the insured must have an insurable interest in the subject matter of insurance policy. Without interest taking an insurance policy of a gamble and fraudulent activity and law does not permit it.

3.      Principle of indemnity:- According to this principle, insurance is not a contract of making profit. The purpose of Insurance is to bring back the same financial position as he was before the loss.

4.      Principle of Contribution:- The principle of contribution is corollary of the principle of indemnity. According to this principle, if a person has taken more than one insurance policy for the same subject matter than insurers will contribute the amount of loss and compensate him for the actual amount of loss.

5.      Principle of subrogation:- According to this principle, after paying the compensation, the insurer steps into the shoes of the insured.

6.      Principle of cause proximal. According to this principle, the cause or reason for the loss must be related to the subject matter of the insurance contract. If loss is due to same other cause then the insurer can deny to pay the compensation.

 

Q.8.  what are the types of insurance ?

Ans:- (1) Life insurance (2) Fire insurance (3) Marine insurance (4)  Health insurance.

 

Q.9.What Different between Whole life and Endowment life?

Ans:- The followings are the different between whole life assurance and Endowment life policy:-

Point of different		Whole life assurance	Endowment policies
1.	Period of maturity	There is no maturity period as it payable only on the death of the person.	It has a maturity period. the compensation is paid at the death or on expiry of a specific period whichever comes earlier.
2.	Rate of premium	Rate of premium is low.	Rate of premium is comparatively high.
3.	Period of premium	Premium is paid throughout the life.	Premium is paid for a fixed period.
4.	Nature of policy	It is traditional form of policy and it does not encourage saving.	It is modem form of policy and it boosts up saving to get financial support at old age.
5.	Payment	The sum assured is paid always to the legal heirs or to the nominees after the death of the assured.	The sum assured is paid to assured himself if he survives till the period of policy and to his legal heirs in case he dies before the maturity period of policy.

 

Q. 10. What is fire insurance? What are the kinds of fire insurance?

Ans:-The different kind of fire insurance:-

1.      Specific policy:- Under this policy insurer agrees to make good the loss or damage by fire to the property insured up to the amount of the sum specified against that particular property in the policy.

2.      Double insurance:- when more than one policy is taken to cover the same risk then it is known as Double insurance

3.      Reinsurance:- under this the insurer enters into another contract of insurance with another insurer for the whole or a part of risk covered by first insurer.

 11. Different between reinsurance and double insurance?

Double insurance		Re-insurance
1.	The insured insures the same risk with more than one insurer.	The insurer insures his risk in full or in part with reinsurer.
2.	The insured can claim the compensating from all the insurers but the amount of actual loss.	The insured cannot claim compensation from reinsurer.

Ans:- The followings are difference between reinsurance and double insurance?

Q.12. What is marine insurance? What are the types of marine?

Ans:-Marine insurance can be defined as an arrangement under which the insurer undertake to indemnify the insured in manner and to the extent thereby agreed against marine losses. Marine risks are the perils of sea e.g., storm, collision, capture, etc.

        The different types of marine insurance policies are:

1.      Cargo Insurance. This form of marine insurance includes the cargo or the goods contained in the ship and the personal belongings of the crew and passengers.

2.      Hull Insurance. Under this the whole ship is insured. It covers the insurance of the vessel and its equipments i.e. furniture, fitting, tools, machinery, fuel , engine , stores etc .

3.      Freight insurance. Such insurance provides protection against the loss of freight. In the money cases the owner of the goods pays the freight only when goods.

Q.13. What is health insurance? What are its types?

Ans:- Health insurance provides for the payment of medical expense in case of illness of the insured person and his family .

  It provides the following types of converge:

        i.            Basic Medical Expenses. It covers the expenses of hospitalization and doctors services.

      ii.            Major Medical expenses. It covers the cost of catastrophic illness.

    iii.            Long-term Hospitalizations. It covers nursing home charges for elderly people.

    iv.            Medical supplement. It fills gaps in Medicare programmers of social security.

      v.            Disability income, It replaces the income lost by the insured while the insured while the insured is unable to work.

Q14. What are the main services offered by post office?

Ans:- The mail services provided by post office:-

1.      Parcel post:- It is a services of postal dept. for sending parcels though the post across the country as well as outside the country.

2.      Speed post:- It is a service to send the mail as fast as possible. In this, the post office providers time bound delivery of mail, letters and other documents.

3.      Courier services:- Courier service is provided by private post offices for providing desk-to-desk services. They are faster and more reliable.

4.      Other services:- Apart from these, many other services are provided by post offices such as:

a.      International money transfer.

b.      E-bill post facility etc.

Q.15. What are the difference between life insurance and general insurance?

Ans:- The followings are the difference between Life and general insurance:-

S.No	life insurance	General insurance
1.	Life insurance is contract of guarantee.	General insurance such as fire, marine insurance are the contracts of indemnity.
2.	In life insurance there is no coverage of partial loss.	In case of fire and marine insurance partial protection is also offered.
3.	In life insurance the premium once fixed cannot be altered.	In general insurance the premium may be altered at the time of renewal of the policy.
4.	The assured can surrender a life insurance policy before its maturity.	In case of fire and marine policy insured cannot surrender his policy.
5.	The time period for life insurance is much longer, generally it is 15-20 years.	The time period for fire and marine insurance is generally short, i.e. one year.

Q.16. Different between reinsurance and double insurance?

Ans:-

Double insurance		Re-insurance
1.	The insured insures the same risk with more than one insurer.	The insurer insures his risk in full or in part with reinsurer.
2.	The insured can claim the compensating from all the insurers but the amount of actual loss.	The insured cannot claim compensation from reinsurer.

 

 

 

 Q.17.What are different between Insurance and assurance?

Ans:-

Insurance	Assurance
1.In contract of insurance the insured must suffer a damage or loss , to claim the compensation.	In contract of assurance the sum assured is bound to be paid whether insured suffers f loss or not
2.The term insurance is used when risk is uncertain , it may or may not happen.	The term assurance is used when risk is certain and it is bound to happen.
3.In Insurance the compensations is paid only on happening of an event.	In assurance the compensation is paid whether the event happens or not.
4.For example , fire insurance ,  marine insurance	For example , life insurance.

 

Q.18. What are the different between Service and goods?

Ans:- The followings are the different between service and goods:-

Point of difference	Service	Goods
1.Intangible	Service are intangible.	Goods are tangible.
2.Inventory	No requirement to maintain inventory.	Inventory must be maintained.
3.Nature	It is an activity or process e.g. watching a movie.	It is a physical object, e.g. Car, Tv, etc.
4.Transfer of ownership.	Ownership cannot be transferred.	Ownership can be transferred.

 

UNIT-5

EMERGING MODES OF BUSIENSS

Short Answer Question (1 marks)

Q.1. Give the full form of VIRUS?

Ans:- Vital information under seize.

Q.2. What is meant by mode of business?

Ans:- Mode of business means manner of conducting.

Q.3. What is the popular name of debit and credit card?

Ans:- Plastic card.

Q.4. What is meant by encryption?

Ans:- Encryption means converting the message in to a code so that unauthorised person may not understand it.

Q.5. Name the service3 in which a firm gets its tasks done by another firm?

Ans:- BPO.

Q.6. What is ‘e’ Stand for in e-commerce?

Ans:- Electronic.

Q.7. Which is the common modes of payment under e-commerce?

Ans:- Credit card.

Q.8. Name any two ways and means to restrict e-commerce crime?

Ans:- i. Special crime cell.

         Ii. Digital signature.

Q.9. Name the two emerging modes of business?

Ans:- i. E-business

         ii. BPO (Business process outsourcing)

Q.10. Which two parties interact in B2C transaction?

Ans:- Business and customer with each other in B2C transaction.

 

Long Answer types Question

Q.1. What is E-business? What are the scope of E-Business?

Ans:- E-Business refers to “carrying on business activities through internet ‘’ Business activities comprise of industry, commerce and trade. So e-commerce means conduct of industry, trade and commerce activities through commerce.

The followings are the Scope of e- business:-

1.      B2B commerce:- Transaction taking place between business units are known as B2B transaction. These may involve:

a.      Creation of utilities.

b.      Collaboration.

c.       Inviting tenders

2.      B2C Commerce:- The transaction taking place between business units and customers are known as B2C transaction. B2C enables the businessman to remain in touch with his customers on round-the-clock basis.

B2C transaction may involve:

a.      Selling and Distribution.

b.      After sale service.

3.      C2C Commerce:- The transaction taking place between customers and customers are known as C2C. In this set- up business firm i.e. seller is also customer and buyer is also customer.

              C2C transaction may involve.

a.      Selling used books, clothes etc.

b.      Selling antique items.

4.      Intra B-Commerce:- This refers to transaction between the parties or persons who mare the part of one firm only. It is transaction within the firm that is why it is called intrafirm generally, a firm has to deal with is suppliers, customers, employees etc. Those are called intra B-commerce interaction.

              Intra B- commerce transaction may involve:

a.      Interaction between any two departments of one firm.

b.      Communication of important information in the whole organisation.

Q.2. What are the difference between E-business V/S E-Commerce?

Ans:- E-commerce deals exclusively in distribution of goods and service. Whereas e-business involves production sale, distribution, after sale, inter firm and intra firm business transaction such as accounting management etc.

Q.3. What are the important or Benefits of E- business?

Ans:- The followings are the main benefits of E-business:-

1.      Easy to form and lower investment is required:- It is very easy to start e-business .The benefits of internet technology are that with little investment and more contacts one can do better in the business.

2.      Convenience:- With the help of e-business shopping can be done conveniently sitting at home. Millions of people exchange information in the world through e-commerce.

3.      Speed:- Through e-business information can be exchanged and buying and selling can be done just with click of a mouse. This benefit is more in case of products like software’s, movies, music, books etc.

4.      Global reach:- Thorough e-business the businessman can reach each and every human being on this planet who has access to internet. There is on limitation of geographical area. The goods can be traded in the whole world where there is access to internet

5.       Cost saving:- Trading through e-business is more economical as compared to other trading because in e-commerce the businessmen are not required to own a showroom for display of their goods. No middlemen are required.

6.      Movement towards a paperless society:- Use of internet has reduced the dependence on paperwork and red tape.

Q.4. What is online transaction? What are the phases or steps of online transaction?

Ans:- E-business refers to shopping through internet or online. Online opens up the whole world as one shop. With a simple click of a computer mouse you can order any commodity from any part of the world.

           Due to online transactions e-commerce has created a new and large space in which buyer and seller can exchange information and also enter into business dealings.

There are four phases or steps of doing business in e-business or online:

1.      Registration:- Before online shopping one has to register with the online vendor by filling up a registration form. In this form you have to give a password to protect your account otherwise anyone can log in your account.

2.      Placing an order. In online transaction the order can be placed by picking and dropping the items in the shopping cart. Shopping cart is an online record of what you have picked up while browsing online. After being sure of what you want to buy then check out from shopping cart and choose your payment option.

3.      Payment mechanism. In an online purchase payment is made through:

a)      Cash on delivery.

b)      Through cheque.

c)      Net banking transfer.

d)      Credit or debit card.

e)      Digital cash.

Q.5. What are the requirement for the implementation of E-business?

Ans:- The resources required for successful implementation of e-commerce are:-

1.      Computer hardware:- The business enterprise must get a computer with proper speed and technology before starting e-commerce trading. The computer must have the capacity to handle a big volume of business.

2.      Technically qualified staff:- Under e-commerce all the business transactions are carried through internet. To carry out trading the businessmen must have well qualified and capable workforce who are able to handle internet easily. They must be trained to handle inquires etc.

3.      Computerised system of receiving payment:- For the success of e-commerce, the business enterprise needs to develop an efficient system of receiving payment for the goods sold for this, the businessmen have to make arrangement with commercial banks credit card agencies.

4.      Well-designed website. The firms develop a comprehensive website to communicate effectively with the customers and business partners. The website should be designed beautifully by using hyperlinks, graphs and other attractive pictures.

5.      Telecommunication facilities. E-business will succeed only if adequate telephone lines and internet facilities are available and there is no interruption in these services. The prompt internet facility should be made available to the common man at a reasonable price otherwise it will remain confined to rich people only.

Q.6. What is BPO(Business process outsourcing)? What are the advantages & disadvantages of BPO?

Ans:- BPO refers to getting a business task accomplished through an outside agency. Initially only a few companies in United States adopted the practice of outsourcing by assigning the routine jobs to outside agencies so that company could concentrate on critical issues without wasting time on routine work.

The Advantages of BPO:-

1.      Concentration on core competence:- By outsourcing the routine tasks the companies can concentrate on more crucial matters.

2.      Reduction in cost:- The outsourcing agencies perform the task for different companies so client companies get benefits of economics of economics of scale; generally they save 10 to 20% cost.

3.      Help to avoid labour problem:- The outsourcing service reduce the needs for employing more number of employees as the outsourcing agencies take up the responsibilities of performing routine jobs.

4.      Benefits of latest development:- The outsourcer maintains world class information technology infrastructure. The outsourcer acts as a consultant for that particular function and performs that function in a specialised way or in a better way. The client company can get the benefits of latest technology.

Outsourcing suffers from following problems:-

1.      Confidentiality:- In outsourcing the parent company shares its secret with the outsourcing company and if outsourcing company does not maintain confidential information then there can be a problem for the parent company.

2.      Sweat shopping:- The firms which outsource their work prefer to outsource the work which requires doing skill.

3.      Protest in home country:- When companies outsource their activities along with the work they are indirectly outsourcing even the employment opportunities to another country. As a result there can be resentment among the people of home country, particularly if home country is suffering from problem of unemployment.

4.      Ethical concerns:- Generally companies outsource the activities because in the outsourcing country labour is cheap. By doing so indirectly they are encouraging unethical behaviour of low wage payment, child labour etc.

Q.7. What is KPO (Knowledge process outsourcing)? What are its features?

Ans:- In KPO business, firms get knowledge related and information related work done from an outside firms. This involves high value work carried by highly skilled staff. KPO firms, in addition to providing expertise and expertise and consultancy service, often take many low level decision also.

The followings are the main features of KPO:-

1.      Main difference between BPO and KPO is that KPO usually focussed on knowledge intensive business processes that require significant expertise.

2.      The main aim of KPO is to create value for client value for client by providing business expertise rather than process expertise.

3.      KPO involves advanced analytical thinking, technical skill and decisive judgement based on experience.

4.      KPO increases efficiency and result in cost saving.

5.      Common service included in KPO are:-

a)      Research services- Investment research, business research, market research etc.

b)      Legal process.

Q.8. Write short note on smart card?

Ans:- Smart card is a small plastic card embedded with a memory chip and often a microprocessor and a battery used for information, storage, management and authentication.

              It looks like and also works like a credit card but it is not having magnetic strips on its back. A smart card is more secure then a magnetic strip card.

Q.9. Write- short note on ATM?

Ans:- Automated Teller machine(ATM). The person who makes payments and accepts deposits in bank is known as Teller the ATM refers to mechanical and automatic Teller which can do a Teller job twenty- four hours a day at less than half the cost of human tellers.

Q.10. What are the different between E-Business and traditional business?

Ans:- The followings are the different between E-business and Traditional business:-

Basis of difference	E-Business	Traditional Business
Formation	Easy to form	Difficult to form
Personal touch	No personal touch	Personal touch us present specially in sole proprietorship and partnership
Setting up cost	Low Price	High price
Operating cost	Low price	High price
Physical examination of goods	Not possible	Possible
Risk involved	High risk as there is no direct contact between the parties	Low risk involved

 

Q.11. Describe the data storage and transactional risk of E-Business? How to overcome these problem?

Ans:- The common data storage risk are:-

1.      Virus (Vital information under seize):- Some of the computer viruses are deadly. They clean up all the information stored in the computer memory.

2.      Hacking:- Hacking refers to unauthorised entry into a website. Hackers often destroy the data and information which causes huge losses to the owner because it would interrupt the business.

This problem cab be solve by:-

                                i.            Setting up special crime cell

                              ii.            Encryption

                            iii.            Digital signature.

 

 The Transactional risk of online are:-

1.      Default on order taking/Giving:- seller may deny that customer ever placed the order.

2.      Default on delivery:- sometimes goods may be delivered at wrong address or goods other than order may also be delivered.

3.      Default on payment:- Sometimes the seller does not get the payment for the goods supplied whereas the customer claims that the payment was made.

             This problem cab be solve by:-

                            i.            Credit card Authentication.

                          ii.            Credit card Authorization

                        iii.            Settlement

 

CHAPTER-6

SOCIAL RESPONSIBOLITIES OF BUSINESS AND BUSINESS THICS

SHORT ANSWER TYPES QUESTION:-

Q.1. Define social responsibility?

Ans:- Social responsibility refers to obligation of business towards society.

Q.2. Name the concept which is concerned with what is right and what sis wrong?

Ans:- Ethics.

Q.3. An enterprise must provide good working conditions. Towards which group is it showing its responsibility?

Ans:- Employee.

Q.4. What is the relation between ethics and moral value?

Ans:- High moral values lead to higher ethics.

Q.5. Do business people have skill to tackle social problem?

Ans:- No

Q.6. When enterprises behave as good citizen, towards which group are they showing their responsibility?

Ans:- Government and community.

Q.7. Which groups expects that the companies must provide good quality and unadulterated goods and services as their social responsibility?

Ans. Consumer group.

Q.8. Define pollution?

Ans:- Injection of harmful substance into environment is called pollution.

 

LONG-ANSWER TYPES QUESTION:

Q.1. What is concept of social responsibility?

Ans:- social responsibility is the obligation of businessmen toward the society. They should recognise and understand the aspirations of society in which they carry on their business. The business cannot exist in isolation.

               According to, “a Social responsibility refers to the obligations of businessmen to purse those policies, to make those decisions, or to follow those lines of action, which are desirable in terms of the objectives and value of our society.”

Q.2. What is the main advantage for social responsibility?

Ans:-   The main advantages of social responsibilities:-

1.      Self interest: - In the long run, businessmen gain by performing social responsibilities. In present-day environment, the expectation of public from business has change Business is the creation of society and makes use of resources of society and if business fails to satisfy the valuable needs of society.

2.      Better Environment for business:-  Social responsibility creates better environment for business operations as social responsibility improves quality of life, results in raising standard of living, so business will get better community to conduct business.

3.      Public image:- A business can improve its image in public by assuming social responsibilities satisfied employees ,workers, customers and suppliers contribute in success of business. The people develop faith and trust in the business assuming its social responsibilities.

4.      Avoidance of government interference:- Government intervention is costly to businessmen and restricts their flexibility and freedom of making decisions.

5.      Social power:- A business firm has considerable social power. It directly affects the rate of economic growth, employment opportunities, distribution of income etc.

Q.3. What disadvantages of social responsibility of social responsibility?

Ans:-  The followings are the Disadvantages of social responsibilities:-

1.      Threat of public regular:- Government is expected to perform for the welfare of state so they have to take care of all the welfare of state so they have to talk care of all the sections of society.

2.      Pressure of labour movements:- Nowadays even labour in our country is getting organised and they are far more educated. Labour movements also force the business enterprises to take care of welfare of labour and reward them for their efficiency.

3.      Impact of consumer consciousness:- Development of mass media, education has made consumers aware of their rights. In present-day market, the customer is considered as a king. So even business organisations have started following customer-oriented policies.

4.      Development of social standard for business:- Today business is no longer an institute to mint money only. According to new social standards, business as an economic activity is not only for earning profit but it should also fulfil its social obligations.

5.      Development of business education:- Educated and professional businessmen prefer to perform social obligation. Educated persons as consumers, investors, employees or owners have become more sensitive towards social issues.

Q.4. What are the Responsibilities of business towards different group of section or society?

Ans:- Responsibilities towards consumers include:-

        i.            Production of safe items by maintaining quality standards.

      ii.             To ensure regular supply of goods and services.

    iii.             Being truthful in advertising.

    iv.             To follow fair trade practices.

      v.            To handle consumer complaints and grievances quickly.

Responsibilities towards Employees:-

        i.            Providing fair compensation and benefits.

      ii.            Providing good and safe working conditions.

    iii.             Providing opportunities for personal growth and development.

    iv.            To develop a sense of belongingness.

      v.            To provide incentives and services like housing, medical, insurance, retirement benefits.

Responsibilities towards the owners/shareholders/investors:-

        i.            To ensure safety of investment.

      ii.            To ensure fair and regular return on investment.

    iii.            To give complete information regarding the financial position of the business.

    iv.            To give them opportunities to participate in decision-making.

 Responsibilities towards the government:-       

        i.            To abide by rules, regulations and laws.

      ii.            To pay taxes and duties on time.

    iii.            To help in solving social problems.

    iv.             To cooperate in planning, investigation and administrative activities of the government.

Responsibilities towards the community:-

        i.            To protect the environment from all types of pollution.

      ii.            To provide more employment opportunities.

    iii.            To promote national integration.

    iv.             To help the weaker section of the society.

Responsibilities towards suppliers:-

        i.            To ensure regular payment to the suppliers.

      ii.            To adopt fair dealings with the suppliers.

    iii.            To protect and assist small-scale suppliers by placing orders with them.

    iv.            To guide and assist the suppliers in improving quality of their products.

Q.5.  What are the major cause of environmental pollution ?

Ans:- Environment pollution arises due to the followings causes:-

1.      Air pollution:- Air pollution refers to injection of harmful substances in the atmosphere which result in lowering the quality of air we breathe in.

2.      Water pollution:- Water pollution refers to the dumping of chemical and other wastes in river. Lakes, etc. Generally the factories located near the rivers, streams dump their waste into river, lakes, streams etc.

3.      Land pollution:- Land pollution refers to dumping of toxic waste in the land which affects the fertility of land and makes it unfit for agriculture.

Q.6. What are the need/reason for pollution control?

Ans:- The followings are the needs/reason for pollution control:-

1.      To ensure safety: - Due to environmental to environmental pollution and smock the visibility is reducing. Due to poor visibility there are more chances of accidents of automobiles on highways and poor visibility can be hazardous for the landing and taking off the aeroplanes.

2.      Economic losses:- Air pollution is blackening the buildings, water pollution is affecting the sea life and land pollution is affecting the fertility of land. All these are bringing heavy economic losses for the country.

3.      To maintain the Natural Beauty:- The pollution is having direct impact on the natural beauty. The natural beauty consists of mountains, river, trees, land etc. The pollution is affecting all these.

4.      To ensure healthy life:-  Pollution control is must to ensure healthy life of people. Pollution is the root cause of many diseases.  Air pollution is the main cause of heart  and lung diseases and cancer.

5.      To lead a comfortable life:- Pollution is creating nuisance and inconvenience. Polluted rivers become unfit for swimming or fishing. Air pollution causes eye irritation or coughing and breathing problems. Pollution control is required to reduce inconvenience so that people can lead a comfortable and healthy life.

Q.7. Discuss the ways and means of pollution control?

Ans:- The followings way to control the pollution control:-

1.      Environmental evaluation:- As the major cause of pollution are industries, so first approach adopted by the government is environmental evaluation of an industrial activity before it is undertaken. All the effects of that industry are examined. All the industries are supposed to submit to the government an environmental impact statement before setting up the industry.

2.      Pollution control standards:- The government has set certain pollution standard. These standards fix limit for maximum allowable level of pollution.

3.      Regulations:- The government is regulating the activities of various industries by licensing policy. The industries have to take licence from the government before setting up and they also have to take permission from government agencies for discharging their waste in rivers or dumping the waste in land.

4.      Ban:- Under this the government has banned the use of certain substances and things which are hazardous. For example, dumping of toxic substance is banned, use of polythene is banned in shimla, smoking at public places is banned, vehicles without pollution check certificates are banned etc.

Q.8. What is the role of business in environmental protection? Or What steps can an enterprise take to protect the environment from the dangers of pollution?

Ans:-  The businessman should take following steps to control; and che4k environment pollution:-

        i.            Making use of eco-friendly techniques production.

      ii.            Recycling industrial waste.

    iii.            Treating the waste through technologies before discharging them into water or dumping in the land.

    iv.            Abiding by the bye-laws and policies framed by the government.

      v.            Making use of eco-marks by producing eco-friendly products.

Q.9. What is Business ethics? What are the elements of business ethics?

Ans:-  Business ethics is also known as corporate ethics is a form of applies ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment they help those businesses maintain a better connection with their stakeholders.

             Ethics defines what is right and what is wrong. It involves critical analysis of human act to determine whether these are right and wrong.

The followings are the elements of business ethics:-                     

1.      Top management commitment:- Top management has a very important role to guide the entire organisation towards ethical behavior. The CEO and other top level managers must be openly and strongly committed towards ethical conducts and guide people working at middle and low level to follows ethical behavior.

2.      Publication of a ‘’Code’’:- Generally ethical organisation defines a code of conduct and set of ethics for all employees in the organisation. These principles are defined in written document called code.

3.      Establishment of compliance mechanism:- To make sure that actual decision match with a firm’s ethical standards, suitable mechanism should be established e.g. corporate ethics in training, recruitment, selection etc.

4.      Involving employees at all levels:- While making ethical programmes and policies employees must be involved because these have to be discussed by them and we can examine their attitude towards policies. 

5.      Measurable results:- Although it is very difficult to measure the ethical result but it must be verifies and audited that how far work is being carries on according to ethical standards. From time to time the top level must meet the employee to set the future pan of action.

 

UNIT-7

SOURCES OF BUSINESS FINANCE

Short-questions

Q.1. Name the first public financial institution set up in India.

Ans:- Industrial Finance Corporation of India.

Q.2. Write the full form of IDBI and SIDBI.

Ans:- IDBI: Industrial Development Bank of India.

         SIDBI: Small Industries Development Bank of India

Q.3. What is the source of raising the Public Deposits?

Ans:- The Public.

 Q.4. What is equity shareholders called?

Ans:- Owners of the company.

Q.5. In Which year IDBI was established?  

Ans:- 1964

Q.6. What is the maturity period of Commercial Papers?

Ans:- The maturity period of commercial paper ranges from 90-364 days.

Q.7. Funds required for purchasing current assets comes under which head?

Ans:- Working capital Requirement

Q.8. What is convertible debentures.

Ans:- Convertible debentures are when the debenture holders get the right to convert equity shares into debentures at the time of issue of debenture.

Q.9. What do the debentures represent?

Ans:- Borrowed Capital of the company.

Q.10. What is a commercial paper?

Ans:- Commercial paper also called CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year. It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India for the first time in 1990.

Q.11. Define fixed capital.

Ans: Fixed capital is capital or money that we invest in fixed assets. In other words, money that we invest in assets of a durable nature. These are assets that we repeatedly use over a long period.

Q.12. What is meant by working Capital?

Ans:- Working Capital is required for day to day operations of the business. Working Capital = Current Assets - Current Liabilities

 

LONG-ANSWER TYPE QUESTION:

Q.1. What is business finance?

Ans: - Business finance refers to capital funds and credit funds invested in the business. Financing means making money available when it is needed. Business finance may be defined as, planning, raising, managing and controlling all the money used or capital funds of any kind used in connection with business.

                        According to B.O. Wheeler, “finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and overall objectives of business enterprise.”

Q.2. What are the sources of finance?

Ans:- There are two sources of finance these are as follows:-

        i.            Owner’s fund

      ii.            Borrowed fund

Q.3. What is owner’s fund? What are the features of owner’s fund?

Ans:- Owners fund refers to the funds contributed by owners as well as the accumulated profit of the company. This fund remains with the company and it has no liability to return this fund. For example, equity shares.

The main features of owner’s fund are as follows:-

        i.            Source of permanent capital: - the owner’s fund remains permanently invested in the business. It is not refundable like loan or borrowed fund. A large part of owner’s fund is used for acquiring fixed assets.

      ii.            Provision of risk capital: - the owner’s fund is also known as the risk capital of the business, as the return on this capital depends upon the rate of earning of the company. In case company is incurring loss then it is not compulsory to pay any return on owner’s fund.

    iii.            No security required: - no secured has to be offered against ownership capital.

    iv.            Sources of owner’s fund: - the owner’s fund compress of share capital, retained earnings (accumulated profit).

Q.4. What is borrowed fund? What are its features?

Ans:- Borrowed fund refers to the borrowing of the firm. It includes all funds available by way of loans or credit. The money one has received from another party with agreement that it will be repaid.

The features of borrowed fund are as follows:-

        i.            Fixed time:-The borrowed fund is raised by business firms for specified periods. These funds may be raised for short-term, medium-term or long-term.

      ii.            Security: - Generally firms can get borrowed funds against the securities of assets banks and financial institutions offers loans on different terms against the security of assets.

    iii.            Regular payment of interest: - It is a legal compulsion on business firms to pay a regular amount of interest on borrowed fund. The principal amount also has to be paid within a fixed time period.

    iv.            Control: - The borrowed fund security holders do not get the right to control and manage the activities of the business firm. They have the right to sue the firm in case there is default in payment of interest or repayment of loan amount.

      v.            Sources of borrowed fund: - Sources of borrowed fund are debentures, loan from commercial banks, loan from financial institutions, public deposits, intercorporate deposits trade credit etc.

Q.5. What are equity shares? What are its features?

Ans: - Share means a share in the share capital of a company and includes stock. Equity share is a common security issued under permanent or owner’s fund capital. Equity shares are the most important source of raising long term capital. The equity shares are those shares which do not carry any special or preferential rights in the payment of annual dividend or repayment of capital.

   The main features of equity shares are as follows:-

        i.            Primary risk bearers: - The equity shareholders are the primary risk bearers of the company.

      ii.            Claim over residual income: - The equity shareholders have claim over the left-over income of the company only. They get share in the income left after satisfying the claims of all creditors, outsiders and preference shareholders.

    iii.            Basis for loans: - Equity share capital is the basis on which loans can be raised. The amount of equity share capital adds to the credibility of the company.

    iv.            Control: - Equity shareholders have control over the activities of the company. The equity shareholders have voting rights.

      v.            Higher profit: - The rate of interest for debenture holders and the rate of dividend for preference shareholders are fixed.

Q.6. What are the advantage and disadvantage of equity shares?

Ans: - The advantage of equity share are as follows:-

        i.            Permanent capital: - Equity shareholders provide the permanent funds of a company. There is no fixed commitment to return the money or pay a fixed rate of dividend.

      ii.            No charge on fixed assets: - For issue of equity shares, a company is not required to mortgage its assets. The assets remain free for borrowing loans.

    iii.            High credit standing:- The amount of equity shares in the capital structure determines the creditworthiness of a company. A company with more equity share capital enjoy higher creditworthiness.

    iv.            Huge funds: - By issue of equity shares a company can raise a huge amount of funds because the denomination of equity share is very small. People from all income groups can invest in equity share capital.

The disadvantage of equity shares are as follows:-

        i.            Risk of fluctuating return: - Equity shareholders sink and swim with the company. At the time of adversity equity shareholders have to suffer loss and get no return or very low return.

      ii.            Inflexibility (cannot be returned):- Equity share is a permanent source of capital. It cannot be returned even when it is lying idle.

    iii.            Legal formalities: - A company has to complete too many legal formalities and has to take many permissions before issue of equity shares to the general public.

    iv.            Issue depends on market conditions: - The issue of equity share capital depends upon market conditions. Equity shares are risky securities so these are demanded during boom period only.

Q.7. What is preference shares (owner’s fund-long-term finance)? What are its features?

Ans: - Preference shares are those shares which get preference over equity shares in respect to:-

        i.            The payment of dividend

      ii.            The repayment of investment amount during winding up.

 

The features of preference shares are as follows:-

        i.            Fixed rate of dividend: - Preference shareholders get a fixed rate of dividend before paying dividend to equity shareholders.

      ii.            No security: - Companies do not offer any security against preference shares. The preference share capital is a part of the owners fund capital.

    iii.            Voting rights: - The preference shareholders do not get voting rights under general conditions.

    iv.            Hybrid security: - Preference shares are called hybrid securities, as these shares have the features of equity shares as well as features of debentures.

 

Q.8. What are the types of preference shares?

Ans: - The types of preference shares are as follows:-

        i.            Cumulative preference shares: - The preferences shares on which dividend get accumulated are known as cumulative preference shares. Preference shares get dividend whenever company is earning profit.

      ii.            Non-cumulative preference shares: - The preference shares on which dividend does not get accumulated is known as non-cumulative preference shares. These shareholders get dividend only for those years when the company is earning profit.

    iii.            Participating preference shares: - The preference shares which get share in the surplus profit of the company are known as participating preference shares.

    iv.            Non-participating preference shares: - The preference shares which get a fixed rate of dividend only are known as non-participating preference shares.

      v.            Redeemable preference shares:- The preference shares which are redeemed on expiry of a fixed period of time are known as redeemable preference shares

    vi.            Irredeemable preference shares: - The preference shares which are not redeemed during the lifetime of a company are known as irredeemable preference shares.

  vii.            Convertible preference shares: - The preference shares which get converted into equity shares on expiry of a fixed period of time are known as convertible preference shares.

viii.            Non-convertible preference shares:-The preference share which do not get converted into equity shares, are known as non-convertible preference shares.

Q.9. What are the advantage and disadvantage of preference shares?

Ans: - The advantage of preference shares are as follows:-

        i.            Help to collect large amount of funds: - The preference shares help to collect a huge amount o9f fund because cautious investors and financial institutions prefer to invest in preference shares of a company.

      ii.            No fixed liability: - Dividend to preference shareholders is paid only when the company is earning profit. During loss period, there is no fixed liability to pay dividend as in the case of loans and borrowings.

    iii.            No interference: - The preference shareholders do not carry any voting rights. The presence of preference shares does not diffuse the control of equity shareholders.

    iv.            No charge on assets: - Preference shares are not issued against any security. The assets of the company remain free to be offered as security for loans and borrowings.

      v.            Variety: - A company can issue different types of preference shares according to the need of the investors and interest of the company.

The disadvantage of preference shares are as follows:-

        i.            Fluctuating and low return: - The preference shareholders get return only when a company is earning profit. The return on preference shares is generally low and lesser than the rate of interest on loan.

      ii.            Dividend is not treated as an expense: - The dividend paid to preference shareholders by the company is not treated as an expense. It is not deducted from the income of the company before calculating income tax.

    iii.            No voting rights: - The preference shareholders generally do not carry voting rights. These shareholders have no say in the management.

    iv.            Fixed obligation: - The rate of dividend paid to preference shareholders is fixed. During time of low profit also a company has to pay a fixed rate of dividend to its preference shareholders.

Q.10. What are the difference between equity shares and preference shares?

Ans: - The difference between equity shares and preference shares are as follows:-

SI NO	Point of difference	Equity shares	Preference shares
1	Face value	The face value of equity share is generally low.	The face value of preference share is generally high.
2	Dividend	The dividend is paid to equity shareholders after paying dividend to all shares.	Preference shareholders get fixed rate of dividend before equity shareholders.
3	Voting rights	Equity shareholders get all the voting rights in a company.	Preference shareholders do not get voting right. They get voting right when dividend is not paid for two years.
4	Refund of capital	At the time of winding up the equity shareholders are refunded only after preference shares are paid	At the time of winding up preference share get priority over equity shares for refund of capital.
5	Risk	The equity shareholders are the primary risk bearers of the company.	The risk involved in preference shares is relatively less.

Q.10. What is retained profit? What are its features?

Ans: - retained profits are also known as ploughing back of profit, retained earnings, self-financing or internal financing, reserves or surplus. Retained earnings refer to undistributed profits after payment of dividend and taxes.

The features of retained profit are as follows:-

        i.            Cushion of security: - The retained earnings are considered as a cushion of security because they provide support in times of adversity, when a company finds it difficult to arrange finances from any other sources.

      ii.            Funds for new and innovative projects: - The retained earnings are a common source of fund s for financing risky and innovative projects.

    iii.            Medium and long-term finance: - retained profit is considered as an ownership fund. It serves the purpose of medium and long term finance.

    iv.            Conversion into ownership fund: - the surplus retained earnings can be converted into share capital by issue of bonus shares. In issue of bonus shares, there is no outflow of cash.

Q.12. What are the advantage and disadvantage of retained earnings?

Ans: - The advantage of retained earnings are as follows:-

        i.            No cost: - Raising of retained earnings and its use do not involve any cost to be incurred as there are no expenses on prospectus, advertising etc.

      ii.            No fixed liability: - There is no fixed commitment to pay dividend or interest on this source of fund as retained profits are a company’s own money.

    iii.            No interference: - With retained earning there is no increase in the number of shareholders. Retained earnings involve no risk of dilution of control.

    iv.            No security: - Unlike debentures, no charge is created against the assets. The company is free to use its assets for raising loans in future.

      v.            Goodwill: - Retained earnings add to financial strength and improved credibility of the company.

 

The disadvantage of retained earnings is as follows:-

        i.            Careless use: - the retained earnings are available easily at no cost. The management of the company may not always use the retained earnings in the best interest of the shareholders.

      ii.            Dissatisfaction among shareholders: - large retained earnings may cause dissatisfaction among the equity shareholders.

    iii.            Over-capitalization:- large amount of retained earnings result in issue of bonus shares to equity shareholders. Frequent capitalisation of reserves may result in overcapitalization.

    iv.            Imbalanced growth: - when surplus profits are not distributed in the form of dividend it results in use of profits by the same industry for its further growth and expansion.

 

Q.12. What are Global depositors receipts (GDR), (owner fund-long term)?

Ans:- Global depository receipts are issued against issue of equity shares in the global market. These are indirect equity offerings. The equity shares issued against GDR are held by an international bank called depository. Companies issue dividend notices, reports etc. regarding these shares to a bank only. Thses sares are called depository shares.

The main features of GDR are as follows:-

        i.            Capital collected from the issue of GDR is in foreign currency.

      ii.            The issue price of GDR is fixed on the basis of investor’s response.

    iii.            No voting rights are given to holder of GDR.

    iv.            GDRs are easily transferable at the stock exchange.

      v.            The first Indian company to issue GDRs was reliance industries. It sold 150 million worth of GDRs in 1992.

Q.13. What is American depository receipt (ADR)?

Ans:- An ADR is just like a GDR except that it can be issued to a citizen of USA only and it can be listed in the US stock exchange. An ADR is an American dollar-denominated instrument. Any American bank functioning as a depository can issue ADR.

Q.14. What are public deposits? What are its features? What are its advantages and disadvantages?

Ans:- Public deposits refers to unsecured deposits invited from the public. A company wishing to invite public deposits places an advertisement in newspapers. Any member of the public can fill up the prescribed form ad deposit money with the company.

The main features of public deposits are as follows:-

        i.            Unsecured: - Companies mortgage no assets against the public deposits raised from general public.

      ii.            Finance of working capital: - The amount raised from public deposits is generally used by the company for meeting the requirements of working capital.

    iii.            Time period: - public deposits can be invited by companies for a period of six months to three years.

    iv.            Simple procedure to Raise: - Public deposits are simple to raise. A company simply has to place an advertisement in the news paper. Any member of the public can deposit money with the company by filling a prescribed form.

      v.            Repayment: - A company which has public deposits is required to set aside 10 percent of the deposits maturing by the end of the year.

Q.15. What are the advantage and disadvantage of public deposits?

Ans:-The advantage of public deposits are as follows:-

        i.            Simple procedure: - The procedure for obtaining public deposits is much simpler than equity and debenture issue.

      ii.            Economical: - Obtaining public deposits involves very less cost. Companies don’t need to spend on prospectus and underwriter’s commission.

    iii.            No security: - Public deposits are unsecured so the assets of the company are free to be used as mortgage in future.

    iv.            Reduction in tax liability: - Interest paid on public deposits is deducted from the total income of the company. Hence it helps in bringing down the tax liability.

      v.            Flexibility: - Public deposits can be repaid when they are not required. Therefore public deposits introduce flexibility in the financial structure of the company.

The disadvantage of public deposits is as follows:-

        i.            Limited amount: - the amount of funds that can be raised by way of public deposits is limited, because of legal restrictions.

      ii.            Uncertainty: - public deposits are an uncertain and unreliable source of finance. During depression period the depositors may not respond.

    iii.            Suitable for short-term finance: - a company cannot depend upon public deposits for a long-term financing requirement as the maturity period of public deposits is between six months to three years.

    iv.            Hindrance to growth of capital market: - public deposits hamper the growth of a healthy capital market in the country.

Q.15. What is debentures bond? What are its features? What are the advantage and disadvantage of debentures?

Ans:- Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long-term debt capital. Debentures are called creditorship securities because debenture holders are called creditors of a company.

                     Definition of a debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not.

The main features of debentures bond are as follows:-

        i.            Borrowed fund: - debentures are part of borrowed fund capital as debenture-holders are considered as the creditors of the company.

      ii.            Fixed rate of interest: - the interest on debentures is paid at a fixed rate.

    iii.            Security: - most of the time debentures are issued against the charge of some fixed assets of the company.

    iv.            Redeemable: - debentures are always redeemed or paid back on expiry of a fixed period of time.

      v.            No voting rights: - debenture holders have no say in the management as they are never granted voting rights in the company.

The advantages of debentures are as follows:-

        i.            Low cost: - the cost of raising debentures is less than the cost of raising preference shares or equity shares. It is a cheaper source of finance.

      ii.            No dilution of control: - debenture holders do not get any voting rights. They are not allowed to participate in decision-making so debenture financing does not result in dilution of control of equity shareholders.

    iii.            Low rate of interest: - the earning rate of the company by utilizing debenture fund is much higher than the rate of interest offered to debenture holders.

    iv.            Flexibility: - a company can repay the funds raised through debentures when it does not require it any more.

The disadvantage of debentures is as follows:-

        i.            Fixed obligation: - payment of interest is a fixed commitment of the organisation whether it is earning profit or not.

      ii.            Reduction in credibility: - financial institutions and lenders hesitate to lend funds in the companies having more of debentures.

    iii.            Charge on assets: - usually debentures are issued against securities of fixed assets. During the time of depression, if a company is unable to pay the regular amount of interest and finds it difficult to pay the repay the amount, in this situation the debenture-holders can have claim over the assets of the company.

    iv.            No voting rights: - the debenture-holders are not allowed to vote in the management of the company.

Q.15. What are the difference between shares and debentures?

Ans: - The difference between shares and debentures are as follows:-

SI no	Point of difference	Shares	Debentures
1	Nature	Shares are considered as a part of owner’s fund	Debentures are part of borrowed fund
2	Status	Shareholders are known as owners of the company.	Debenture holders are known as creditors of the company.
3	Voting rights	Shareholders get voting rights	Debenture holders do not get voting rights
4	Control	The control of the company lies in the hand of equity shareholders	Debenture holders have no control over the affairs of the company
5	Risk	Shareholders are the primary risk bearers of the company	There is minimum risk in case of debentures

Q.16. What is commercial bank? What are its merits and demerits of commercial bank?

Ans: - Commercial bank generally takes deposit from the public and give them advances to needy borrower.

The advantage or merits of commercial banks are as follows:-

        i.            Banks provide funds to firms as and when required.

      ii.            The banks keep the information of borrower confidential and the business can maintain its secrecy.

    iii.            No formalities of issue of prospectus etc. are required. So it is very easy and economical source of funds.

    iv.            It is a very flexible source as loan amount can be increased as well as decreased.

The Demerits or Disadvantages of commercial banks are as follows:-

        i.            Funds are generally available for a short period.

      ii.            Banks make detailed investigation of the companies’ affairs and financial structure before issue of loan.

    iii.            In some cases, banks may put restrictions and difficult terms and conditions.

 

Q.17. What is the difference between public deposits and loan from commercial banks?

Ans: - The difference between public deposit and loan from commercial banks are as follows:-

Sl no	Basis	Public deposits	Loan from commercial banks
1	Security	No security required	Banks loan generally require security.
2	Governed by	Public deposits are governed by the provisions of companies Act.	Banks loans are governed by rules and regulations of RBI.
3	Rate of interest	Rate of interest of public deposits is comparatively low.	Rate of interest of loans from commercial bank is comparatively higher.
4	Period	Public deposits are available for a period of up to 3 years.	Bank deposits are available for short and medium  term.
5	Secrecy	There is no secrecy.	Secrecy about bank loan can be maintained.

 

Q.18. Explain the factors to be kept in mind before selecting a source of finance?

Ans: - The factors to be kept in mind before selecting a source of finance are as follows:-

        i.            Financial capacity of the firm: - If the firm is financially sound then it may prefer borrowed fund as it will be able to repay the borrowed fund and can easily pay the interest amount.

      ii.            Form of business organisation: - Sole proprietorship firm and partnership firm cannot raise fund by issue of shares or debentures.

    iii.            Time period: - Another factor which helps in deciding the source of funds is the duration for which the firm requires funds as for a short period trade credit, factoring, short-term loans etc.

    iv.            Risk involved: - Owners fund securities involve no risk whereas borrowed fund securities are risky securities. If a business firm can bear the risk then only it should go for borrowed fund otherwise it should prefer owner’s fund securities.

      v.            Control: - Equity shareholders are considered as the real owners of the business as they have complete control over the business.

UNIT-8

Small business

SHORT-ANSWER TYPES QUESTION:

Q.1. Name any two institutions specially set up to promote small-scale enterprises.

Ans: - National small industries corporation (NSIC) and District industries centre (DIC)

Q.2. Give full form of NSIC.

Ans: - National small industries corporation.

Q.3. Give full form of DIC.

Ans: - District industrial centre.

Q.4. What is the investment limit for SSI?

Ans: - Rs 10 crore.

Q.5. Give the full form of NABARD. In which year NABARD Was established?

Ans:- National bank for agricultural and rural development. It was established in 1982.

Q.6. Give any two problems faced by SSI.

Ans: - Lack of adequate funds and outdated technology.

Q.7. Name the institution which was set up in 1955 to promote the growth of SSI.

Ans: - NSIC.

Q.8. Give any two characteristics of SSI.

Ans: - Personal touch and dominance of labour.

Q.9. Mention Any two units included in SSI category.

                                     i.            SSI

                                   ii.            Ancillary units

                                 iii.            Tiny units

                                 iv.            Cottage industries

Q.10. State any two external causes of sickness in small scale industry.

Ans: - Delayed payment and shortage of capital

LONG-ANSWER TYPE QUESTION:-

Q.1. What is small business? What are the characteristics/features of small scale industry?

Ans: - Small scale enterprises occupy special places as there is scarcity of capital and abundance of labour and small-scale enterprises use labour-intensive or capital-saving techniques.

          The characteristics/features of small scale industry are as follows:-

1.      Personal character: - a small-scale unit is generally owned by a single entrepreneur or partnership, so personal character is the main features of this enterprise.

2.      Independent management: - small-scale enterprises are generally managed by the owners only so there is the advantage of direct motivation, personal care, secrecy, flexibility etc.

3.      Dominance of labour: - small-scale enterprises generally use labour-intensive techniques. These units do not prefer mechanised methods of production.

4.      Limited investment: - a small-scale enterprise requires less capital investment because it does not employ highly mechanised means of production.

5.      Located in rural and semi-urban areas: - most of the small-scale enterprises are located in rural or semi-urban areas due to easy availability of labour.

Q.2. What is the role of small business in rural India?

Ans: - The role of small business in rural India are as follows:-

1.      Employment: - small-scale industries are labour-intensive so they provide additional employment to men and women.

2.      Improves economic condition: - by providing employment opportunities, the small scale industries provide more income to people living in rural areas, which improves economic conditions in villages.

3.      Promotion of artistic and creative sense: - small business set up in rural area provides scope for the promotion of artistic achievement and creativity that has been suppressed in rural areas.

4.      Rural development: - small-scale industry set up in rural areas leads to their development which may result in rural reconstruction, sustained growth and removal of regional disparity.

5.      Mobilisation of local resources: - small-scale industries facilitate mobilisation and utilisation of local resources which might otherwise remain unutilised.

Q.3. What measures has the government taken to solve the problem of finance and marketing in small-scale sector?

Ans: - (i) Institutional support

           (ii) Incentives offered by the government to SSI

1.      Institutional support:-

a.      National small industries corporation (NSIC):- this was set up in 1955 with a view to promoting and fostering the growth of SSI in the country. its main focus was on:-

                                                              i.      To supply indigenous and imported machines in easy instalments

                                                            ii.      To procure and supply imported raw materials.

                                                          iii.      To export products of SSI.

                                                           iv.      To provide advisory and mentoring services.

b.      The district industries centres (DICS):- the DIC programme was started on May 1, 1978 to provide assistance to small-scale industries at the district level.

Q.4. What are the incentives provided by government for industries in backward and hilly area?

Or

How do the small scale industries contribute for the socio-economic development of India?

Ans: - The incentives provided by government for industries in backward and hilly area are as follows:-

                                 i.            To provide employment opportunities in all the areas.

                               ii.            To develop local skills and resources

                             iii.            To restrict the migration of people to urban areas.

                              iv.            Availability of land in these areas at concessional rates.

                                v.            Location of public sector projects in backward areas.

                              vi.            Establishment of industrial estates in backward areas.

                            vii.            Development of infrastructure facilities such as transport, banking, power supply etc.

                          viii.            Offering tax concessions to units located in backward areas.

 

Q.5. what are the main features of cottage industries?

Ans:- The features of cottage industries are as follows :

1. Simple equipments :- Simple equipments are used in the production of goods.
2. Indigenous technology :- Indigenous technology is used for producing goods.
3. Individuals :- The industries are organized by individuals having private resources.
4. Investment:- Small amount of capital is invested in the production.
5. Simple products:- Production of simple products in their own premises.
6. Family labour:- Cottage industries use family labour and locally available talent.

 

UNIT-9

Internal trade

Q.1. What do you mean by internal trade?

Ans:- Internal trade means when buying and selling of goods and services takes place within the geographical limits of a country.

Q.2. Who is itinerants?

Ans:- Retailers who have no fixed place of sale are called Itinerants.

Q.3. Give one example of chain store?

Ans:- Bata

Q.4. What is “breaking the bulk” in wholesale trade?

Ans:- It is a function of wholesale and it means subdivision.

Q.5. Give any two services of retailer to the customer?

Ans:- (i) wide variety of goods (ii) after sale services.

Q.6. What is meant by retail trade?

Ans:- Retail trade means selling in small quantities to the final consumer.

Q.7. In which type of shop used goods are bought and sold?

Ans:- second-hand goods shop

Q.8. which type of shops goods with little defects are sold?

Ans:- second’s shop.

Q.9. What is the meaning of wholesale trade?

Ans:- Wholesale trade refers to the trade in which goods are sold in purchase and sold in large quantity.

Q.10. What is Vending Machine?

Ans:- A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. LONG-ANSWER QUESTION

Q.1. What do you mean by internal trade? Write its features?

Ans: - Trade refers to buying and selling of goods and services for earning profit. When buying and selling of goods and services takes place within the geographical limits of a country, it is known as internal trade. Internal trade is also known as home trade or internal trade.

The features of internal trade are as follows:-

        i.            The buying and selling of goods and services takes place within a country.

      ii.            The payments are made and received in the home currency only.

    iii.            There are no or very few formalities to be completed by the traders.

     iv.            Various local modes of transport can be used for transfer of goods and services.

Q.2. What are the types of internal trade?

Ans: - There are two types of internal trade these are as follows:-

ü  Wholesale trade.

ü  Retail trade.

Q.3. What do you mean by wholesale trade? Write its features?

Ans: - Wholesale trade refers to the trade in which goods are sold in large quantities. The person who carries on wholesale trade is known as wholesaler. Wholesaler buys the goods directly from the manufacturer in bulk and sells them in small lots to the retailer. A wholesaler acts as a middleman between the manufacturer and the retailer.

            The features of wholesale trade are as follows:-

        i.            Wholesaler acts as a link between producer and retailer.

      ii.            Wholesaler deals with large quantities of goods.

    iii.            Wholesaler invests large amounts of capital in maintaining stock of goods.

     iv.            Generally the margin of profit of wholesaler is low.

       v.            Wholesaler is the first intermediary in the distribution chain.

Q.4. Explain the services of a wholesaler to a producer and retailer?

Ans: - wholesaler renders the following services to the manufacturer:-

a.      Economies of scale: - economies of scale refer to benefits of operating at a large scale. Wholesalers help the manufacturers to avail the benefits of large-scale operations as they buy goods in large quantity.

b.      Sales promotion: - wholesalers employ a sales force to reach retailers located in far corners of the country.

c.       Market information: - the wholesaler provides information regarding the preferences and expectations of the customers to the manufacturer. He also collects information regarding the products of competitors, price of their product etc.

d.      Storage: - wholesalers provide facility of storage of goods by buying the goods in bulk. They relieve the manufacturer from maintaining the stock of goods.

e.      Price stability: - by maintaining a large stock of goods, the wholesaler can regulate the supply of goods.

Wholesaler renders the following services to retailers:-

a.      Variety: - retailers need to keep a wide variety of goods to meet the requirements of various customers. Wholesalers provide them a wide variety of goods in one line of products.

b.      Regular supply: - wholesaler maintains a large stock of goods. Therefore whenever a retailer requires goods, these can be immediately supplied from the warehouse.

c.       Financing: - wholesaler sells goods to retailers on credit. Therefore retailers need not maintain large working capital. They can make payment after receiving the payment from the customers.

d.      Risk bearing: - wholesaler bears the risk of change in demand, risk of damage in transit, risk of theft or spoilage in warehouse etc. Retailers are relieved from all such risks as wholesaler bears these risks for retailers.

e.      Information about new products:-wholesaler has direct link with the manufacturers so he comes to know about the latest technology used by the manufacturer and also about the new products produced.

Q.5. What do you mean by retail trade? Write its features?

Ans: - Retail trade is the last link in the distribution chain. Retail trade refers to sale of goods in small lots to the final customers. A retailer buys goods from a wholesaler and sells them to the consumer. A retailer may be defined as a dealer in goods and services who purchases from a manufacturer or wholesaler and sells to the ultimate consumers.

The features of retail trade are as follows:-

        i.            Retailer is the last link in the distribution chain.

      ii.            Retailer sells the goods or services directly to consumers.

    iii.            Retailer deals with a variety of products.

    iv.            Retailer buys and sells a small quantity of goods.

      v.            Retailer is generally located in residential areas.

    vi.            Retailer acts as a middleman between wholesaler and customers.

Q.6. Explain the services of retailers to consumers and manufacturer?

Ans:- Retailers provide the following services to consumers:-

a.      Ready or quick supply:-a retailer makes available to the customers all types of commodities. Consumers can conveniently buy the required products at one place.

b.      Wide variety: - a retailer offers a wide variety of different types of products only under one roof. He also provides different brands of the same product so that consumers can buy the product of their choice.

c.       Guiding consumers: - a retailer assists consumers in selecting the goods. In many large retail showrooms, salesmen are appointed who guide the customers in selection by explaining the features and use of different products.

d.      Home delivery: - some retailers make arrangement for supply of goods at the customer’s doorstep without any extra charges.

e.      Convenient location: - retail stores are located in residential areas as well as in the main market. The customer can easily approach a retail showroom for buying the goods.

A retailer provides the following services to wholesalers and manufacturers:-

a.      Ready market: - retailers provide a ready market for the goods of the wholesaler or manufacturer. They connect the wholesaler and customers and act as the last link for distribution of goods.

b.      Providing information: - retailers provide information to the wholesaler or manufacturer regarding the taste, expectations and demand of the customers.

c.       Risk bearing: - a retailer shares risks with the manufacturer and wholesaler by keeping stock of their goods.

d.      Distribution of goods to distant places: - retailers relieve the wholesalers and manufacturers from the burden of collecting and supplying small orders to widely scattered customers. Retailers help in distribution of goods to distant parts of the country.

Q.7. Discuss the classification of retailers?

Ans: - The classification of retailers are as follows:-

a.      Size: - retailers differ in size from small stores to big departmental store. Some customers prefer to visit large retail houses to get a wide variety under one roof whereas some prefer small shops in their local area.

b.      Product mix: - another criterion for the classification of a retail store is the types and variety of products kept at retail showroom. The stores keeping a wide range of different lines of products are called general stores or departmental stores.

c.       Pricing: - some retailers sell goods at fixed price, some permit bargaining. Some stores located in the market charge a high price as they add a big profit margin to cover the cost of maintaining showroom whereas some stores located in residential areas charge a very nominal price.

d.      Service level: - there are many retail stores which offer additional services such as assistance to customers,  free home delivery, credit facility etc. Whereas some stores go for self-service and no assistance is available.

e.      Form of ownership: - some retail shops operate as sole proprietorship firm, some as partnership firm. The large departmental stores or multiple shops prefer to operate as a company form of business.

Q.8. What are the types of retail trade?

Ans:- The types of retail trade are as follows:-

ü  Itinerant retailers.

ü  Fixed shop retailers.

Q.9. What do you mean by itinerants? What are its types?

Ans:- Itinerants refers to retailers who have no fixed place of sale. They move from one place to another in search of customers.

The types of itinerants are as follows:-

a.      Hawkers and pedlars: - hawkers and pedlars move from street to street in search of customers. A hawker carries the goods on wheeled carts or on the back of animals and a pedlar carries the goods on his own head or back.

b.      Periodic market traders: - these traders sell their goods on fixed days in different market places. Their weekly markets are fixed. For examples, Monday market in Karol Bagh, Thursday market in Kingsway camp, Wednesday market in Rohini etc.

c.       Traders: - these retailers display their articles on busy street corners, pavements, bus-stands etc.

d.      Cheap jacks: - they display their goods in hired shops or in tents for a temporary period in different localities.

Q.10. What is fixed shops retailer?

Ans:- The retailers having fixed place of sale are known as fixed shop retailers. These retailers have shops in the market place or residential localities. They do not move from one place to another in search of customers. Customers come to their shops in search of products.

Fixed shop retailers can be further classified into two categories:-

A.      Small-scale fixed retail shops

B.      Large-scale fixed retail shops.

(A) Small-scale fixed retailer:- Small scale retailers are the  most common form of retailers. These shops are found in every corner of most cities. They are mostly situated in localities to fulfill the needs of people residing in local areas. Small scale fixed shop are of the followings types:

                                      i.            General stores:- General stores are small shops located in residential areas.

                                    ii.            Single line stores:- Single line stores are small shops which deal with one line of products.

                                  iii.            Specialty stores:- These stores deal in a particular type of product under one product line only.

                                  iv.            Street shops:- These shops are situated at street crossings or main road or on corner of colonies. They are also known as street stalls.

                                    v.            Second-hand goods shops:- These shops deal with second hand goods or used articles such as books, furniture etc.

                                  vi.            Seconds shops:- These are the sops to sell goods which are not produced according to the required specification. These goods always have some defects in them.

             (B) Large-scale retailers: - large-scale retailers deal in a large stock of goods and purchase goods in bulk. The features of large-scale are as follows:-

                                   i.            They require a huge investment.

                                 ii.            They have large size showrooms to sell goods.

                               iii.            They are generally located at a central place or in shopping centres

                               iv.            A large number of customers visit these showrooms.

Q.11. What are the types of Large-scale retailers?

Ans:- The most common types of large-scale retailers:-

a.      Departmental stores.

b.      Multiple shops or chain stores.

c.       Mail order retailing.

d.      Consumer cooperative stores.

e.      Super markets.

Q.12. What do you mean by departmental stores? Write its features?

Ans:- A departmental store is a large retail showroom having a number of departments under one roof, each department specializing in one line of product. Each of the departments is like a separate shop with centralized purchasing, selling and accounting.

The features of departmental stores are as follows:-

        i.            Large size: - a departmental stores is a large retail showroom requiring a large capital investment.

      ii.            Wide range: - a departmental store deals with a wide range of products from low priced to very expensive goods. Different varieties of goods are available in different departments.

    iii.            Departmentally organized: - the store is departmentally organized. Goods offered for sale are classified and each department specializes in one line of product.

    iv.            Elimination of middlemen: - departmental stores buy goods in large quantities. They buy the goods directly from manufacturers hence eliminating the middlemen.

      v.            Advertising: - the departmental stores advertise on a large scale to attract customers from far and wide.

Q.13. What are the advantage and disadvantage of departmental stores?

Ans:- The Advantage of departmental stores are as follows:-

a.      Convenient shopping: - departmental stores offer a large variety of goods catering to the needs of household articles and for all the members of a family.

b.      Central location: - the departmental stores are located at central places so that more and more people can approach these stores easily.

c.       Economies of scale: - departmental stores operate at a large scale so they can easily avail the benefits of large-scale operations.

d.      Elimination of middleman: - a departmental store buys goods directly from manufacturers and sells them to the ultimate consumer so it leads to the elimination of middlemen and their profit margin.

e.      Advertising: - a departmental store can advertise on a large scale as they have large financial resources. The sales promotion and advertisements result in increase of their sales.

The Disadvantage of departmental store is as follows:-

a.      High operating cost: - the operating cost of departmental stores is very high. They have to spend a huge amount of funds on advertising, window display, decoration of showroom, provision of facilities etc.

b.      Lack of personal attention: - due to the large-scale of operation the owner or proprietor of a departmental store cannot pay adequate personal attention to the customer.

c.       High price:-due to high operating costs, the prices charged in a departmental store are higher than the prices in small shops.

d.      Not located in residential colonies: - a departmental store is generally situated at a distance from residential areas. Many people do not like to travel a long distance to reach centrally located departmental stores.

e.      Huge capital: - to set up a departmental store huge capital has to be invested. The cost of establishment as well as operating costs is too high. Only a few businessmen can afford and run departmental store.

Q.14. What are multiple shops/chain stores? Write its features?

Ans:- Multiple shops refer to a number of identical retail shops located in different parts of the city. These shops are owned and controlled by a single organization. These chain stores may be established by manufacturers or traders. In USA, these shops are known as chain stores but these are popular as multiple shops in Europe. For examples: - Bata stores, DCM stores, etc.

The features of chain/shop store are as follows:-

a.      Large size: - chain stores operate on a large scale. A huge investment is required to set up identical shops in different parts of the city.

b.      Specialised in on line: - generally chain stores specialize in one line of product and variety of that line only is available at all the shops located in different areas. For example:- Bata specialises in shoes, DCM in cloth etc.

c.       Centralised purchasing: - the goods for all the chain stores are purchased by the head office to maintain the uniformity in products sold at different retail showrooms.

d.      Decentralised sale: - each chain store has its independent sales as these stores are located in different parts of the city and country.

e.      Quality: - the chain stores deal in standardized and branded products. The quality is assured to customers in chain stores.

Q.15. What are the difference between departmental store and chain store?

Ans: - The difference between departmental store and chain store are as follows:-

 

Sl no	Point of difference	Departmental store	Chain store
1	Variety	Departmental stores keep a wide variety of products to satisfy the requirement of all the customers	Chain stores are specialised in only one line of product. They deal with limited range only.
2	Credit/cash basis	Departmental stores offer both cash and credit facilities to their regular customers.	Chain stores sell goods only on cash basis
3	Location	Departmental stores are centrally located in big cities.	Chain stores are located in different localities.
4	Risk	There is greater risk in departmental stores	The risk gets spread over all the stores located in different areas
5	Types of customers	It attracts customers belonging to the higher income group	They attract customers from all income groups.
6	Services	Departmental stores offer various services like post office, restaurant, etc	Chain stores do not offer such services

 

Q.16.What is mail order retailing? Write its features?

Ans:- Mail order retailing sellers contact the potential buyers through advertisements and mail publicity, i.e. by sending circulars, catalogues, price lists, samples, booklets etc. The customers are required to place their orders by post.

The features of mail order retailing are as follows:-

        i.            A detailed mailing list containing names and addresses of the potential customers is maintained by the mail order house.

      ii.            The seller sends circulars, catalogues etc. To customers by post.

    iii.            The customers also place order by selecting the goods from the catalogue by post.

     iv.            Generally only standardized items are bought and sold through mail order houses as inspection of goods is not possible.

       v.            Payment is received through V.P.P or registered post

Q.17.What is the advantage and disadvantage of mail order retailing?

Ans: - The advantage of mail order retailing are as follows:-

        i.            Limited capital: - in mail order retailing, the retailer need not maintain show-room or a shop.

      ii.            Convenience: - shopping becomes very easy and convenient through mail order. The customer can make purchases from his own house.

    iii.            Wide market: - the seller can reach a large number of customers located in different parts of the country by sending catalogues, lists etc.

     iv.            No bad debts: - in mail order retailing goods are sent through VPP so goods are delivered only on receiving payment. So there are very few chances of bad debts.

       v.            Elimination of middlemen: - under manufacturing type and departmental type of mail order houses the middlemen can be avoided and cost of products can be reduced.

 

The disadvantage of mail order retailing are as follows:-

        i.            No personal contact: - there is no face-to-face contact or interaction between buyer and seller. So many customers do not have confidence in this type of trading.

      ii.            No personal inspection: - the buyers do not have the opportunity of inspecting the goods physically. Without physical inspection the customers hesitate to place orders.

    iii.            Suitable for educated customers only: - mail order houses can approach only those customers who can read and write. In India, where a large number of people are uneducated, there is limited scope for mail order retailing.

     iv.            Postal delay: - the mail order retailing has great dependence on the postal department. There are chances of undue delay, spoilage of goods in transit.

       v.            Heavy advertising cost: - in mail order retailing, demand can be created only by advertisements: they have to spend a huge amount of funds on advertisement.

Q.18. What is chamber of commerce and industry? Write its function?

Ans: - Chambers of commerce and industry are voluntary and non-profit making organisations for all types of businessmen operating in a particular territory for the protection of interest of businessmen in general and that territory in particular. In simple words, we can say, a chamber of commerce is representative body of businessmen.

The functions of chamber of commerce and industry are as follows:-

        i.            Representing business community: - the chamber of commerce acts as a representative of the business community in front of the government, other communities and conferences.

      ii.            Acting as spokesman: - the chamber of commerce acts as a spokesman by giving suggestions to amend and alter legislation in favour of businessmen.

    iii.            Settling disputes: - the chamber of commerce tries to settle disputes among various industrialists and traders.

    iv.            Setting code of conduct: - the chamber of commerce sets up ethics related to the code of conduct of businessmen by standardising and improving trade practically.

      v.            Providing facilities for education and research: - the chamber of commerce keeps members informed of the latest developments in the field of business.

    vi.            Arranging seminars etc:- the chamber of commerce arranges lectures, conferences, seminars etc. For exchanging views between members.

Q.19. What is the role of chamber of commerce?

Ans: - The role of chamber of commerce are as follows:-

        i.            Transportation: - federation of Indian chamber of commerce helps in interstate movement of goods. FICCI helps in registration of vehicles, constructions of highways etc.

      ii.            Sales tax and value added tax (VAT):- the chamber of commerce suggests policies to government to harmonies the sales tax and VAT structure of different states.

    iii.            Laws to check weights and measures: - the chamber of commerce suggests various policies and laws related to check the manipulation in weights and measures and duplicate brand names. This is necessary to protect the interest of the customer.

    iv.            Helps in marketing: - the chamber of commerce helps the farming cooperatives to market their product. FICCI plays an important role in marketing of agro products.

      v.            Excise duty: - along with uniform sales tax and VAT, FICCI tries to have central excise duty for all the states. Excise duty affects the pricing of commodities.

Q.19. What is Automatic vending machine? What are the merits and demerits of Automatic vending machine?

Ans:- A vending machine is a new form of direct retailing. It is a machine operated by coins or tokens. The buyer inserts a coin or token in the machine and receives a specific quantity of product form the machine. Large scale retailing is possible through vending machine by placing the machine at a convenient location such as petrol pumps, railways stations, airports etc.

The following s is the merits of vending machine:-

        i.            Buying round the clock is possible.

      ii.            The customer gets fresh supply of goods with uniform weight and quality.

    iii.            No requirement of salesmen.

The following is the demerits of vending machine:-

        i.            Initial investment to install the machine is quite high.

      ii.            Machine requires regular repair and maintenance.

    iii.            Coins of exact shape and size are required to operate the machine.

 

UNIT-10

International business

Short-Answer Question

Q.1. What is the main objectives of World trade organization?

Ans:- To frame rules and regulation of trade between different nations.

Q.2. What is the Full form of EPZ and SEZ?

Ans:- EPZ:- Export processing Zone.

          SEZ:- Special economic Zone.

Q.3. Name the most important document of Export?

Ans:- Bill of Lading

Q.4. Name the most important document of import?

Ans:- Bill of entry.

Q.5. Define mate’s receipts?

Ans:- A receipts issued by the commanding officer of the ship when the cargo is loaded on the ship is known as a mate’s receipts.

Q.6. What does TRIPS deal with?

Ans:- It deals with setting up of protection standards of seven intellectual properties.

Q.7. What is entrepot trade?

Ans:- When goods are imported with a view to re-export them, it is known as entrepot trade.

 

LONG ANSWER QUESTION

Q.1.What is International business? Explain the nature of external trade/international business?

Ans: - international business refers to buying and selling of goods or services beyond the geographical limits of a country. It is also called trade between two countries.

International/External trade is of three types:-

        i.            Export: - it refers to selling goods or services to foreign countries.

      ii.            Import: - it refers to buying goods or services from foreign countries.

    iii.            Entrepot (re-export):- it refers to import of goods not for consumption in home country but for exporting them to another country.

The Nature of external trade/internal business are as follows:-

        i.            Involvement of two countries: - in international business, minimum two countries are involved. Buying and selling across the borders of the country can also be termed as external trade.

      ii.            Payment in foreign currency: - each country has its own currency. Payment for imported goods is made in foreign currency and payment for export is also received in foreign currency.

Q.2. What are the problems of internal business?

Ans: - The problems of international business are as follows:-

        i.            Legal procedures: - Import or export of goods involves a lengthy and complicated procedure. Prior permission of the government has to be obtained before exporting or importing goods or services.

      ii.            Restrictions: - The international business is not as free as internal trade. In case of several items export or import license has to be obtained.

    iii.            High risk: - The risk involved in international business is much higher than in internal trade. Due to long distances there is risk of damage of goods in transit.

    iv.            Different languages: - Different languages are spoken and written in different countries. Traders must appoint someone who can read and understand the foreign language to read the price list, terms and conditions of trade etc.

      v.            Arrangement of foreign currency: - For making payment of import, importer has to arrange foreign currency which involves lengthy procedure.

Q.3. What are the difference between internal trade and external trade?

Ans: - The difference between internal trade and external trade are as follows:-

 

Sl no	Point of difference	Internal trade	External trade
1	Meaning	Internal trade refers to buying and selling of goods within the geographical limits of a country.	External trade refers to buying and selling of goods beyond the geographical limits of a country.
2	Countries involved	Only one country is involved.	Minimum two countries are involved
3	Risk	Less degree of risk is involved	High degree of risk is involved.
4	Currency used	Payments are made and received in home currency only	Payments are made and received in foreign currency only
5	Made of payment	Payments are made by cash or cheque	Payments are made through bill of exchange or through banks.
6	Legal rules and regulations	National laws, rules and regulations are applicable	International rules and regulations are applicable
7	Made of transport	It used road, railway mode of transport.	It uses sea transport and air transport.

 

Q.4. Distinguish between International business v/s domestic business?

Ans: - The keys areas, in respect of which domestic and international business differ from each other are as follows:-

        i.            Nationality of buyers and sellers: - in case of domestic business, both buyers and sellers are of the same nationality whereas in case of international business both are of different nations and nationality.

      ii.            Nationalities of other stakeholders: - In case of domestic business, all stakeholders belong to one country and share common language, values, behavioral pattern etc. Whereas in case of international business, it is more complex as they have different values, aspirations etc.

    iii.            Mobility of factors of production: - The mobility of factors of production is generally more in case of domestic firm as compared to international business.

    iv.            Customer heterogeneity across markets: - due to socio-cultural differences, background differs in their tastes, fashion, language etc. There is lot of variation in the demand pattern. For example:- Indian people use right hand driven car whereas American people drive left hand fitted steering, brakes etc.

      v.            Political system and risk: - political factors such as type of government, political its ideology etc. Have great impact on business operations. Firms dealing with intern, trade need to make special efforts to understand the political environment of importer or exporter country also.

Q.5. What are the benefits of international business? Or what is the need for international business?

Ans: - The benefits of international business are as follows:-

Benefits to Nations:-

                     i.            Earning of foreign exchange: - international business helps a country to earn foreign exchange which can be used to import capital goods, technology, petroleum products, fertilizers etc.

                   ii.            More efficient use of resources: - every country has some or the other natural resources. For example:- a country may possess mineral resources, labour resources, technological capabilities, water resources etc.

                 iii.            Improving growth prospects and employment potential: - external trade boosts up the economic growth of a country as the firms of developing countries increase their production capacity to supply goods in foreign countries.

                 iv.            Increases standard of living: - in the absence of international trade, it would not have been possible for the world community to use the goods and services produced in other countries. The people living in development and underdeveloped countries can use these products and increase their standard of living.

Benefits to firm:-

                     i.            Prospects for higher profit: - generally international business is more profitable than domestic business. When the prices in domestic market are low then firms can sell at high price in international market in the countries where prices are high.

                   ii.            Increased capacity utilisation: - companies involved in external trade increase their production capacity. With increase in production capacity these firms can get benefits of large production or economies of scale and reduce the cost of production.

                 iii.            Prospects for growth: - when the demand for the products starts becoming saturated in domestic countries then such firms can enhance their business by approaching international market. This is the main motivation for many MNCs at developed countries to enter in the markets of developing countries.

                 iv.            Way out from intense competition in the domestic market: - high competitive domestic market drives many companies to go international in search of markets for their products. This helps them to grow and expand.

                   v.            Improved business vision: - the vision to become international comes from the urge to grow. Companies get strategic and technical advantages by going international. Many companies are including it as their main objective and strategy.

Q.6. What are the steps involved in export procedure?

Ans: - The steps involved in export procedure are as follows:-

        i.            Receipt of order or indent: - in case the prospective buyer is satisfied with the information given in the proforma invoice, then he places an order for the goods to be despatched. This order is known as “indent”.

      ii.            Assessing importer’s creditworthiness and securing guarantee for payment: - after receiving the order and before manufacturing the goods the exporter enquires about the creditworthiness of the importer to get payment security.

    iii.            Obtaining export license: - according to the customs law, a firm must acquire an export license before exporting goods.

    iv.            Obtaining pre-shipment finance: - pre-shipment finance is a finance which the exporter needs to procure raw materials, other components, processing and packaging of goods and transportation of goods to the port for shipment.

      v.            Production and procurement of goods: - after sending the confirmation to the importer, the exporter starts manufacturing the product according to the specification.

    vi.            Pre-shipment inspection: - quality plays a very important role in external trade. Exporters have to follow international quality standards. The goods are produced strictly according to the quality specifications of buyers.

  vii.            Excise clearance: - the exported goods are generally exempted from the excise duty and if duty is already paid then it is refunded back to the exporter.

viii.            Obtaining certificate of origin:- some importing countries provide tariff concession of goods coming from a particular country. To avail of such benefits the importer may ask the exporter to send a “certificate of origin”.

     ix.            Reservation of shipping space: - the exporting firms apply to a shipping company for booking a shipping space. On accepting this application the shipping company issues a shipping order. A shipping order is an instruction to the captain of the ship to receive the specified goods on board after custom clearance.

       x.            Packing and forwarding: - the goods are then properly packed and marked with necessary details such as name and address of the importer, gross and net weight, port of shipment and destination etc.

     xi.            Insurance of goods: - the exporter then gets the goods insured with an insurance company to protect against the risks of loss or damage of goods due to sea perils.

   xii.            Custom clearance: - to obtain the custom clearance the exporter prepares the shipping bill. A shipping bill contains the details about the goods such as the port where the goods are to be discharged, the country of final destination, exporters name and address etc.

Q.7. What are the steps involved in import procedure?

Ans: - The steps involved import procedure are as follows:-

        i.            Procurement of import license: - these are certain goods which can be imported freely but for some there is a necessity to obtain import license. For this, the importer can get information from EXIM (export import policy).

      ii.            Obtaining foreign exchange: - in India, all foreign exchange transactions are regulated by exchange control department of reserve bank of India. Every importer must obtain the sanction of foreign exchange for this.

    iii.            Placing order or indent: - after obtaining the license and sanction of foreign exchange, the importer places an import order or indent to supply the specific products.

    iv.            Obtaining letter of credit: - letter of credit is issued by the importer’s bank in favour of the exporter. In this letter, the bank undertakes guarantee for making payment on behalf of the importer.

      v.            Arranging for finance: - the importer should make in advance the arrangement for payment. Advance arrangement is due to avoid high penalties to be paid on imported goods lying unclear at the port.

    vi.            Receipt of shipment advice: - after loading the goods on the vessel, the exporter dispatches the shipment advice to the importer. This advice contains information regarding shipment such as invoice number, bill of loading or airways bill number, number date and name of vessel through which the goods are coming etc.

  vii.            Retirements of import documents: - after shipment of goods. The exporter submits various important documents to his banker. Generally these documents are letter of credit, bill of loading, packing list, certificate of origin, marine insurance, bill of exchange etc.

viii.            Arrival of goods: - goods are shipped by the exporter as per the specifications of the importer. When goods reach the importer’s country then the captain of the ship informs the dock officer and instructs him to receive the goods and record the details about the goods on the document called import general manifest.

     ix.            The custom clearance: - the custom officer examines the bill of entry carefully and assesses the custom duty to be paid by the importer and after assessing the duty amount, the bill of entry is given to the appraiser officer who does the inspection of goods and verifies the details given in bill of entry.

Q.9. Define airway bill?

Ans: - This document is the same as bill of loading with only one difference that is issued by airway company and not by shipping company.

Q.10. What is certificate of inspection?

Ans: - This certificate is issued by the export inspection agency. This certifies that the export consignment has been inspected as per the specification of quality control and inspection act.

Q.11. What is certificate of origin?

Ans: - This certificate is issued by the chamber of commerce  or by export promotion council or by a government department. This document certifies that the goods to be exported are originally from the home country only or exporter’s country only.

Q.12. What is bill of exchange?

Ans: - This is a document relating to the payment for the goods supplied. According to negotiable instruments act, “a bill of exchange is an instrument in writing containing an unconditional order signed by the maker, directing a certain person to pay a certain amount of money only to or the order of a person or to the bearer of the instrument.” In case of external trade, the exporter draws a bill of exchange on the importer asking him to make payment to the specified bank.

Q.13. What is world trade organization? Write its nature?

Ans: - The world trade organization is the only global international organization which deals with the rules and regulations of trade between different nations. It was established on 1^st Jan 1955.

The nature of world trade organization is as follows:-

        i.            WTO deals with the sales of trade between nations at global level.

      ii.            It contains contracts signed by governments to bind the governments to keep their trade policies within agreed limits.

    iii.            It operates with a purpose of liberalizing trade and free flow of goods and services in the international market.

    iv.            WTO settles disputes through some neutral procedure.

      v.            Its main function is to ensure that trade flows as smoothly and freely as possible.

Q.14. What are the benefits of world trade organization or role of world trade organization?

Ans: - The benefits of world trade organization are as follows:-

        i.            Promotes international peace.

      ii.            Settles disputes among member nations

    iii.            Makes international trade very smooth by framing common rules and regulations

    iv.            Helps in economic growth of developing countries by giving them preferential treatment.

      v.            Free trade helps in providing quality products and improving standard of living of people.

Q.15. Write the agreements of world trade organisation?

Ans: - The agreement of world trade organisation are as follows:-

        i.            General agreements on tariffs and trade (GATT):- GATT came into existence on 1^st Jan. 1948 and remained in force till December 1994. In 1994, GATT was modified. It was liberalized and it also included certain special agreements involved to deal with specific no tariff barriers.

      ii.            Agreement on textile and clothing (ATC):- under ATC, the developed countries agreed to remove quota restrictions during a period of ten years starting from 1995. Earlier, developed countries were having restrictions on export and import of textiles.

    iii.            Agreement on agriculture: - this agreement was made to ensure free and fair trade in agriculture. Earlier, agriculture trade suffered from certain drawbacks as it was highly distorted due to the use of subsidies by some of the developed countries.

    iv.            General agreement on trade in services (GATS):- services are the acts on performances which cannot be seen or touched. GATS enforced all the rules which were applicable on trade in goods and on trade in services also.

      v.            Agreement on trade related of intellectual property rights (TRIPS):- intellectual property means information such as idea, invention, creative expression etc.