{"id":44988,"date":"2024-02-19T05:07:22","date_gmt":"2024-02-18T23:37:22","guid":{"rendered":"https:\/\/www.aplustopper.com\/?p=44988"},"modified":"2024-02-19T11:10:46","modified_gmt":"2024-02-19T05:40:46","slug":"plus-one-business-studies-chapter-wise-questions-answers-chapter-8","status":"publish","type":"post","link":"https:\/\/www.aplustopper.com\/plus-one-business-studies-chapter-wise-questions-answers-chapter-8\/","title":{"rendered":"Plus One Business Studies Chapter Wise Questions and Answers Chapter 8 Sources of Business Finance"},"content":{"rendered":"

Kerala Plus One Business Studies Chapter Wise Questions and Answers Chapter 8 Sources of Business Finance<\/h2>\n

Plus One Sources of Business Finance One Mark Questions and Answers<\/h3>\n

Question 1.
\nEquity shareholders are called
\n(a) Owners of the company
\n(b) Partners of the company
\n(c) Executive of the company
\n(d) Guardians of the company
\nAnswer:
\n(a) Owners of the company<\/p>\n

Question 2.
\nFund required for purchasing current assets is an example of __________
\nAnswer:
\nWorking capital<\/p>\n

Question 3.
\nUnder the lease agreement, the lessee get the rights to __________
\nAnswer:
\nUse the asset for a specified period.<\/p>\n

Question 4.
\nUnder the factoring agreement, the factor
\nAnswer:
\nCollects the client\u2019s debt or account receivables.<\/p>\n

Question 5.
\nInternal sources of capital are those that are
\nAnswer:
\ngenerated within the business.<\/p>\n

Question 6.
\nPreference shares abd equity shares are called ____________ securities.
\nAnswer:
\nOwnership Securities<\/p>\n

Question 7.
\nEquity shareholders are called
\n(a) Owners of the company
\n(b) Partners of the company
\n(c) Executives of the company
\n(d) Guardians of the company
\nAnswer:
\n(a) Owners of the company<\/p>\n

Question 8.
\nEquity share capital is called ________ capital
\nAnswer:
\nRisk<\/p>\n

Question 9.
\nWhich of the following is not a characteristic of equity shares?
\n(a) Voting rights
\n(b) Ownership security
\n(c) Fixed rate of return
\n(d) Residual owners
\nAnswer:
\n(c) Fixed rate of return<\/p>\n

Question 10.
\nWhich source is called a permanent source of capital?
\nAnswer:
\nEquity Share Capital<\/p>\n

Question 11.
\n__________ shareholders have the right to control the company.
\nAnswer:
\nEquity Shareholders<\/p>\n

Question 12.
\nWhich source is called a permanent source of capital?
\nAnswer:
\nEquity Share Capital<\/p>\n

Question 13.
\nSumesh an NRI is interested to invest in companies, but he is not ready to take up more risk. Which type of security he should buy?
\nAnswer:
\nPreference shares.<\/p>\n

Question 14.
\n_________ shareholders have the right to get dividend at a fixed rate .
\nAnswer:
\nPreference shareholders<\/p>\n

Question 15.
\nThis source of finance is called \u2018internal source of financing\u2019 and \u2018self financing\u2019. Identify the source of finance and mention its three merits.
\nAnswer:
\nPloughing back of profit<\/p>\n

Question 16.
\nRetained earnings are parts of __________ capital.
\nAnswer:
\nOwnership Capital<\/p>\n

Question 17.
\nEmployment of corporate savings use of accumulated saving in the business in the form of reserves is called
\nAnswer:
\nPloughing back of profits<\/p>\n

Question 18.
\n___________ are the cheapest source of finance.
\nAnswer:
\nRetained earnings<\/p>\n

Question 19.
\n___________ are called creditorship securities
\nAnswer:
\nDebentures<\/p>\n

Question 20.
\nDebentures which are secured by a charge on the assets of the company are called _________
\nAnswer:
\nSecured debentures<\/p>\n

Question 21.
\nDebentures which can be converted in equity shares are called _________
\nAnswer:
\nConvertable debentures<\/p>\n

Question 22.
\nDebenture issued without the name of owner is __________ debenture.
\nAnswer:
\nUnregistered or naked<\/p>\n

Question 23.
\nWhich of the following is not a characterstics features of debentures?
\n(a) Ownership security
\n(b) Generally secured
\n(c) Participate in the surplus profit
\n(d) Guarantee of returms
\nAnswer:
\n(c) Participate in the surplus profit<\/p>\n

Question 24.
\nAn Indian Company can now raise funds not only from India but also through foreign equity participation. How is it possible?
\nAnswer:<\/p>\n

    \n
  1. GDRs<\/li>\n
  2. ADRs<\/li>\n
  3. FDI<\/li>\n<\/ol>\n

    Question 25.
    \nExpand the term GDR
    \nAnswer:
    \nGlobal Depositors Receipts.<\/p>\n

    Question 26.
    \nExpand the term ADR
    \nAnswer:
    \nAmerican Depository Receipt<\/p>\n

    Question 27.
    \nADRs are issued in
    \n(a) Canada
    \n(b) China
    \n(c) India
    \n(d) USA
    \nAnswer:
    \n(d) USA<\/p>\n

    Question 28.
    \nIdentify the type of financial services that belonged to each cash to explain its features.<\/p>\n

      \n
    1. Acquired machinery for a monthly rental basis from an outside agency.<\/li>\n
    2. Gives the right for collecting their accounts receivable to a specialised agency.<\/li>\n
    3. An organization which collects and pools funds from the public and invests in securities.<\/li>\n<\/ol>\n

      Answer:<\/p>\n

        \n
      1. Leasing<\/li>\n
      2. Factoring<\/li>\n
      3. Mutual fund<\/li>\n<\/ol>\n

        Question 29.
        \nA company decided to raise its funds by selling its account receivables to an agency. Which type of financial service is maintaining here.
        \nAnswer:
        \nFactoring<\/p>\n

        Question 30.
        \nI render specialized services to companies in the collection of their accounts receivables.
        \nAnswer:
        \nFactoring<\/p>\n

        Question 31.
        \nState the appropriate term to denote the arrangement of acquiring the right to use an asset without actually owning it.
        \nAnswer:
        \nLeasing<\/p>\n

        Plus One Sources of Business Finance Two Mark Questions and Answers<\/h3>\n

        Question 1.
        \nWhat is business finance? Why do businesses need funds? Explain. (2)
        \nAnswer:
        \nNature of Business Finance:<\/p>\n

        1. Fixed capital requirements:
        \nIn order to start a business funds are needed to purchase fixed assets like land and building, plant and machinery. This is called fixed capital requirement.<\/p>\n

        2. Working Capital requirements:
        \nA business needs funds for its day to day operation. This is known as working Capital requirements. Working capital is required for purchase of raw materials, to pay salaries, wages, rent and taxes.<\/p>\n

        Question 2.
        \nThese are shares which carry preferential rights over the equity shares. Being a commerce student, identify this type of share. And state its 2 preferential rights. (2)
        \nAnswer:
        \nPreference shares.
        \nTheir preferential rights are:<\/p>\n

          \n
        1. The right to get a fixed rate of divided<\/li>\n
        2. The right to claim repayment of capital in the event of winding up of the company.<\/li>\n<\/ol>\n

          Question 3.
          \nMatch the following<\/p>\n

            \n
          1. Equity share – Fixed percentage of interest<\/li>\n
          2. Debenture – International source of finance<\/li>\n
          3. Preference share – Real owner<\/li>\n
          4. American depository – No voting right receipt<\/li>\n<\/ol>\n

            Answer:<\/p>\n

              \n
            1. Equity share – Real owner<\/li>\n
            2. Debenture – Fixed percentage of interest<\/li>\n
            3. Preference share – No voting right<\/li>\n
            4. American depository receipt – International source of finance<\/li>\n<\/ol>\n

              Question 4.
              \nAn Indian company can expand not only through the fund in India but also from foreign equity participation. How is it possible? (2)
              \nAnswer:
              \nFDI. It refers to direct subscription to the equity capital of an Indian company by a multinational corporation. It includes Establishment of a new enterprise in a foreign.<\/p>\n

              Plus One Sources of Business Finance Three Mark Questions and Answers<\/h3>\n

              Question 1.
              \nAn Indian company can now raise funds not only from India, but also through foreign equity participation. How is it possible? Explain
              \nAnswer:
              \nGDR: Global Depository Receipts are issued by an Indian company to an intermediary abroad called an Overseas Depository Bank. They are issued and traded in European capital market.<\/p>\n

              ADR: American Depository receipts are issued and traded in U.S.A.<\/p>\n

              Question 2.
              \nList sources of raising long-term and short-term finance. (3)
              \nAnswer:
              \nLong Term Sources:
              \nThe amount of funds required by a business for more than five years is called long-term finance. Generally this type
              \nof finance is required for the purchase of fixed assets like land and building, plant and machinery furniture, etc. It include sources such as shares and debentures, long-term borrowings and loans from financial institutions.<\/p>\n

              Short Term Sources:
              \nShort-term funds are those which are required for a period not exceeding one year. These sources include Trade credit, loans from commercial banks and commercial papers etc. Short-term finance is used for financing of current assets such as accounts receivable and inventories.<\/p>\n

              Question 3.
              \nName any three special financial institutions and state their objectives. (3)
              \nAnswer:
              \nFinancial Institutions:
              \nThe state and central government have established many financial institutions to provide finance to companies. These institutions aim at promoting the industrial development of a country, these are also called \u2018development Bank\u2019. These are IFCI, ICICI, IDBI and LIC, UTI.<\/p>\n

              This source of financing is considered suitable when large funds for longer duration are required for expansion, reorganisation and modernisation of an enterprise.
              \nMerits:<\/p>\n

                \n
              1. Financial Institution provide long term finance which is not provided by Commercial Bank<\/li>\n
              2. These institutions provide financial, managerial and technical advice and consultancy to business firms.<\/li>\n
              3. It increases the goodwill of the borrowing company in the capital market.<\/li>\n
              4. As repayment of loan can be made in easy installments, it does not prove to be much of a burden on the business.<\/li>\n
              5. The funds are made available even during periods of depression, when other sources of finance are not available.<\/li>\n<\/ol>\n

                Limitations:<\/p>\n

                  \n
                1. The procedure for granting loan is time consuming due to rigid criteria and many formalities.<\/li>\n
                2. Financial Institution place restrictions on the powers of the borrowing company.<\/li>\n
                3. Financial institutions may have their nominees on the Board of Directors of the borrowing company thereby restricting the autonomy of the company.<\/li>\n<\/ol>\n

                  Question 4.
                  \nWhile presenting a seminar paper on different sources of business finance, your friend Vineeth, pointed out that \u201cownership capital is the risk capital of the business”. Can you explain why it is called risk capital? (3)
                  \nAnswer:
                  \nEquity shareholders are the real owners of the company. Equity shareholders will get their dividend only after dividend is paid to preference shareholders. They can claim back their capital only on winding up after discharging all other liabilities of the company. So we can say that ownership capital is the risk capital of the business.<\/p>\n

                  Question 5.
                  \n\u201cADR & GDR serves the same purpose whenever shares are issued abroad by Indian companies\u201d. Then why can\u2019t we call them by the same name? (3)
                  \nAnswer:
                  \nThe important differences between ADR and GDR are:<\/p>\n\n\n\n\n\n\n\n
                  ADR<\/td>\nGDR<\/td>\n<\/tr>\n
                  They are issued and traded in USA<\/td>\nThey are issued and traded in European capital market<\/td>\n<\/tr>\n
                  Both individual and institutional investors can make investment<\/td>\nOnly institutional investors can invest<\/td>\n<\/tr>\n
                  It can be converted into shares and shares into ADR<\/td>\nOnce converted into shares, it cannot be converted back.<\/td>\n<\/tr>\n
                  Legal and accounting costs are high<\/td>\nLegal and accounting costs are comparatively less<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

                  Plus One Sources of Business Finance Four Mark Questions and Answers<\/h3>\n

                  Question 1.
                  \nWhat is the difference between internal and external sources of raising funds?
                  \nAnswer:<\/p>\n\n\n\n\n\n\n\n
                  Internal sources<\/td>\nExternal Sources<\/td>\n<\/tr>\n
                  Funds are generated from within the organisation<\/td>\nFunds are generated from outside the organization<\/td>\n<\/tr>\n
                  Fulfill limited needs of the business<\/td>\nFulfill long term needs f the business<\/td>\n<\/tr>\n
                  It is not costly<\/td>\nIt is costly as compared to internal sources of fund<\/td>\n<\/tr>\n
                  No need to mortgage the assets of the company to obtain fund from internal sources<\/td>\nNeed to mortgage the assets of the company to obtain fund from internal sources<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

                  Question 2.
                  \nWhat is the difference between GDR and ADR? (4)
                  \nAnswer:<\/p>\n\n\n\n\n\n\n\n
                  ADR<\/td>\nGDR<\/td>\n<\/tr>\n
                  They issued and traded in USA<\/td>\nThey issued and traded in European capital market<\/td>\n<\/tr>\n
                  Both individual and institutional investors can make investment<\/td>\nOnly institutional investors can make investment<\/td>\n<\/tr>\n
                  It can be converted into shares and shares into ADR<\/td>\nOnce converted into shares, it cannot be converted back<\/td>\n<\/tr>\n
                  Legal and accounting costs are high<\/td>\nLegal and accounting costs are less<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

                  Question 3.
                  \nDiscuss the financial instruments used in international financing. (4)
                  \nAnswer:
                  \nInternational Financing:<\/p>\n

                  1. Commercial Banks:
                  \nCommercial banks all over the world extend foreign currency loans for business purposes. Standard chartered is a major source of foreign currency loan to the Indian industry.<\/p>\n

                  2. International Agencies and Development Banks:
                  \nA number of international agencies and development banks provide long and medium-term loans and grants to promote the development of economically backward areas in the world. Eg. International Finance Corporation (IFC), EXIM Bank and Asian Development Bank.<\/p>\n

                  3. International Capital Markets:<\/p>\n

                  a. Global Depository Receipts (GDR\u2019s):
                  \nUnder GDR, shares of the company are first converted into depository receipts by international banks. These depository receipts are denominated in US dollars. Then these depository receipts are offered for sale globally through foreign stock exchanges. GDR is a negotiable instrument and can be traded freely like any other security.<\/p>\n

                  The holder of GDRs are entitled for dividends just like shareholders. But they do not enjoy the voting rights. Many Indian companies like ICICI, Wipro etc. have raised foreign capital through issue of GDRs.
                  \nFeature of GDR:<\/p>\n