Answer: Buying and selling of goods and services within the boundaries of a nation are referred to as internal trade. Purchases of goods from a local shop, a mall or an exhibition are all examples of internal trade.No custom duty or import duty is levied on these goods and services. It can be classified into two broad categories: wholesale trade and retailing trade.
Q.2 Specify the characteristics of fixed shop retailers.
Answer: The characteristics of fixed shop retailers are: → They have greater resources and operate at a relatively large scale as compared with the itinerant traders. → These retailers deal in different products, including consumer durables as well as non-durables. → They have greater credibility in the minds of customers. → They are in a position to provide greater services to the customers such as home delivery, repairs, credit facilities etc.
Q.3 What purpose is served by wholesalers providing warehousing facilities? Answer: Two purpose is served by wholesalers providing warehousing facilities in following ways: → Wholesalers reduces the burden of manufacturers of providing for storage facilities for the finished products. Warehousing by wholesalers also relieves the retailers of the work of collecting goods from several producers and keeping big inventory of the same for maintaining adequate stock of varied commodities for the customers. Q.4 How does market information provided by the wholesalers benefit the manufacturers? Answer: As the wholesalers are in direct contact with the retailers, they provide information and advice the manufacturers about various aspects including customer’s tastes and p.references, market conditions, competitive activities and the features preferred by the buyers. This information helps manufacturers to cater to the changing needs of consumers.
Q.5 How does the wholesaler help the manufacturer in availing the economies of scale?
Answer: Wholesalers collect small orders from a number of retailers and pass on the pool of such orders to the manufacturers and make purchases in bulk quantities. This enables the producers to undertake production on a large scale and take advantage of the economies of scale.
Q.6 Distinguish between single line stores and speciality stores. Can you identify such stores in your locality?
Answer:
Single-line stores
Speciality stores
These are small shops that deal in only one product for example, garments or electronics.
These stores deal only in a particular type of product from a selected product line for example, men’s clothing.
These stores offer a wide variety of the product.
These stores generally sell all the brands of the product in which they specialise.
For example: If a store that deals in garments will have a wide variety of clothes in all sizes for men, women and children.
For example, if a store specializes in men’s clothing, then it will have all the brands of men’s garments.
On the basis of these features, we can identify the different types of stores in a locality whether they are single-line stores or speciality stores.
Q.7 How would you differentiate between street traders and street shops?
Answer:
Street traders
Street shops
Small retailers who generally sell low-priced consumer items on streets.
Shops situated on street sides or main roads.
Do not have permanent shops.
These stores generally sell all the brands of the product in which they specialise.
Stationery items, eatables, newspapers, etc.
Clothes, shoes, grocery items, bakery items, etc.
Q.8 Explain the services offered by wholesalers to manufacturers.
Answer: The services offered by wholesalers to manufacturers are:
→ Facilitating large scale production: Wholesalers purchase goods in bulk from manufacturers and sell them to retailers in small quantities for further resale. This enables the producers to undertake production on a large scale.
→ Bearing risk: The wholesalers deal in goods in their own name, take delivery of the goods and keep them in their warehouses bearing risks of fall in prices, theft, spoilage, fire, etc. → Financial assistance: The wholesalers provide financial assistance to the manufacturers in the sense that they generally make cash payment for the goods purchased by them.
→ Expert advice: Wholesalers can advice the manufacturers about various aspects like customer’s tastes and preferences, market conditions, competitive activities and the features preferred by the buyers as they are in touch with retailers. → Help in marketing function: The wholesalers take care of the distribution of goods to a number ofretailers who, in turn, sell these goods to a large number of customers spread over a large geographical area. → Facilitate production continuity: The wholesalers facilitate continuity of production activity throughout the year by purchasing the goods as and when these are produced. → Storage: Wholesalers take delivery of goods when these are produced in factory and keep them in their godowns/warehouses.
Q.9 What are the services offered by retailers to wholesalers and consumers? Answer: The services offered by retailers to wholesalers are: → Help in distribution of goods → Personal Selling → Enabling large scale operations → Collecting market information → Help in promotion of goods and services The services offered by retailers to consumers are:→ Regular availability of products → New product information → Convenience of buying → Trade selection → After sales service → Credit facilities
Long Answer Type Question:
Q.1 Itinerant traders have been an integral part of internal trade in India. Analyse the reasons for their survival in spite of competition from large scale retailers. Answer: Itinerant traders are retailers who do not have a fixed place of operation. That is, they do not have a shop from where they sell their products. They are also known as mobile traders as they keep moving from place to place in order to sell their products. They are generally found on street sides, and they shift their place of operation in search of more customers. They usually sell low-priced and non-standard goods. The reasons that itinerant traders survive in spite of the tough competition from large-scale retailers can be attributed to the following factors:
It is very easy to set up a small scale retail shop. One person with limited funds himself can start business. He need not associate other persons and no formalities are necessary.
A small scale retail shop can be located anywhere. It can provide goods of daily use near the place of consumers. They are not required to travel to big markets.
The small scale retailer knows his customers. He can attend to them personally and cater to their individual tastes and needs. Such personalised service is not available in large scale retail stores.
Small scale retailers cater to the masses that have limited income and can afford to buy small quantity. In India majority of the population is poor.
It is easy to manage and control a small sale retail shop. The owner himself is the manager. He has direct motivation to work hard and increase the efficiency of business. He takes personal interest in his business organisations.
Small amount of capital is required to start a small retail shop. People with small amount of funds can start retail business on a small scale.
Q.2 Discuss the features of a departmental store. How are they different from multiple shops or chain stores? Answer: Departmental stores are basically large, fixed establishments that deal in a wide variety of products. The following points highlight the features of a departmental store:
Central locations: Department stores are generally located in central areas so as to attract a large number of customers.
Defined hierarchy: The management in departmental stores follows the same hierarchy that is generally followed in any joint stock company. That is, the top management consists of a board of directors, with the managing director, the general manager and the department managers under it in that order.
Absence of middlemen: Departmental stores purchase goods directly from manufacturers and sell them to customers. Thus, they eliminate the role of middlemen.
Centralised purchase with decentralised sales: In a departmental store, the purchases from manufacturers are handled by a single division that follows a centralised purchase policy. On the other hand, the sales are handled by the respective sections of the departmental store, which follow a decentralised policy for sales. Differences between Departmental stores and Multiple shops
Q.3 Why are consumers cooperative stores considered to be less expensive? What are its relative advantages over other large scale retailers? Answer: Consumer cooperative stores are formed by groups of consumers to provide goods at reasonable prices to members of consumer societies. In such societies, the role of middlemen is eliminated as these societies purchase goods from manufacturers or wholesalers directly and sell them to society members at reasonable rates. As consumer cooperative stores do not aim at profit-making, the prices of goods offered by them are much lower than the prices of goods at retail shops. Compared with large-scale retailers, the capital requirement for starting a consumer cooperative society is very low. Thus, consumer cooperative stores do not require much investment, and the goods sold by them are priced lower. The following are some advantages that consumer cooperative stores have over large- scale retailers:
Democratic management: Consumer cooperative stores are democratic organisations as they are managed and controlled by elected managing committees of consumer societies. The members of managing committees are elected by the members of consumer societies on the principle of ‘one member, one vote’.
Limited liability: The liability of the members of consumer cooperative societies is limited to the amount of shares held by them. Thus, in case a society’s liabilities increase beyond the assets, the members will not be liable to repay the debts using their personal assets.
Low price of goods: As the goods offered by consumer cooperatives are directly purchased from manufacturers and wholesalers, the role of middlemen is eliminated. Therefore, consumer societies are able to sell goods at lower prices.
ANSWER: Micro-enterprises are ones with a capital investment of less than Rs. 1 crore, and turnover less than Rs. 5 crore.
Q.2 What is a cottage industry?
ANSWER: A cottage industry is a small-scale, decentralised manufacturing enterprise that is frequently run from a house rather than a dedicated facility. The amount of capital necessary to start a cottage industry, as well as the number of people employed, characterise cottage industries.
Q.3 What is meant by Village and Khadi Industry?
ANSWER: Village Industries are the Industries located in rural areas with investment in fixed assets as per the rules of central government.
Khadi Industries those industries which weave handlooms from materials like cotton, wool, sik yarn etc or weave handlooms from the mixture of any two or all of these yarns.
Hence, Khadi and Village Industries are those that are based in rural areas and have a fixed capital Investment per artisan (weaver) of less than a hundred thousand rupees. The Government of India has the authority to amend the Fixed Capital Investment anytime it sees fit.
Q.4 Give any two characteristics of entrepreneurship development.
ANSWER: To operate a successful firm, every entrepreneur needs to have the following abilities.
Effective Time Management
Visualizing Aim and Success
Proper Listening and Communication
Seeking Help When Needed
Q.5 What is MSME?
ANSWER: The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 was adopted by the Indian government, and it defines micro, small and medium enterprises as follows:
Micro-enterprises are ones with a capital investment of less than Rs. 1 crore, and turnover less than Rs. 5 crore
A small enterprise are ones with a capital investment of less than Rs. 10 crore, and turnover less than Rs. 50 crore
Medium enterprise business are ones with a capital investment of less than Rs. 50 crore, and turnover less than Rs. 250 crore
Q.6 State the meaning of entrepreneurship?
ANSWER: These are persons or a group of individuals who exploit a business opportunity by bringing a new product or process to market, or by significantly enhancing an existing good, service, or method of production.
Q.7 MSME and Entrepreneurship are connected. Do you agree? Give two reasons.
Ans: Yes, MSME and Entrepreneurship are connected to each other.
Reasons:
MSMEs offer banks funding assistance. They encourage the growth of entrepreneurship as well as the upgrading of skills by establishing specialised training institutes. MSMEs are known for the provision of genuine assistance in gaining entry to domestic and international markets.8. MSME and Entrepreneurship are connected. Do you agree? Give two reasons.
Long Answer Type Question:
Q.1 How do small scale industries contribute to the socio-economic development of India? Answer: Small-scale industries (SSIs) play an important role in ensuring the progress of developing countries such as India. The following points highlight their contribution.
Market Share: SSIs make up 95 per cent of the industrial units in India. They contribute about 40 percent of the ‘gross industrial value added’ and 45 per cent of India’s total exports.
Regional Balance: SSIs produce simple products and use basic technology. In addition, these industries do not require heavy capital investment, and therefore, they can be set up by anyone anywhere across the country. Small units not only benefit the particular region where it is established but also help reduce the regional disparities in industrial development among different regions of a country.
Employment Generation: As SSIs use labour-intensive production techniques, they have a greater employment generation potential than large industries. Moreover, the skills required to perform jobs in SSIs are usually not very specific, which further increases their scope for generating employment.
Wide range of Products: Small scale units produce a large variety of consumer products, such as stationery items, safety matches, handicrafts, vegetables and processed food. Besides, SSIs also produce a few items by using technology, such as calculators, televisions and engineering goods.
Customized Goods: Small industrial units adapt perfectly to specific needs of consumers. As SSIs use simple and highly flexible production techniques, they can provide their customers with goods best suited to the customers tastes and preferences.
Q.2 Describe the role of small business in rural India? Answer: The following are some of the major roles played by small scale businesses in rural India.
They generate employment opportunities: Cottage and rural industries play a significant role in providing employment opportunities, particularly to people in rural areas. This proves to be a boon especially for the economically weaker sections of the rural society.
They enable equitable income distribution: The capital requirements of small- scale businesses are low, mainly because of their use of labour-intensive production techniques, and this encourages entrepreneurs to start units on a small scale. Small- scale businesses are, therefore, set up all over the country. Many of them providing employment opportunities to people in rural areas. This triggers the redistribution of wealth and income, and enables the equitable distribution of income in rural areas.
They help to accelerate growth: Small-scale businesses have been considered as a major propeller for the acceleration of economic growth and as an employment generator, particularly in the rural and backward areas of India.
They mitigate disguised unemployment and alleviate poverty: Small-scale businesses use labour-intensive production techniques, and are, therefore, able to provide employment to the excess/surplus rural labour. Thus, small-scale businesses remove disguised unemployment from the agriculture sector and at the same time provide livelihood to the rural people. Hence, they contribute to alleviating rural poverty.
They facilitate rural development and reduce migration from rural to urban areas: It is well known that a large number of people migrate from rural to urban areas in search of better employment opportunities and improved living standards. Small-scale businesses help reduce this migration by providing employment opportunities to rural people in their own regions. By doing so, small units also help mitigate the excessive pressure on urban infrastructure.
Q.3 Discuss the problems faced by small scale industries. Answer: Major problems faced by the small scale industries are: (1) Finance (2) Raw material (3) Idle capacity (4) Technology (5) Marketing (6) Infrastructure (7) Under Utilization of Capacity (8) Project Planning. Small scale industries play a vital role in the economic development of our country. This sector can stimulate economic activity and is entrusted with the responsibility of realising various objectives i.e., generation of more employment opportunities with less investment, reducing regional imbalances etc. Small scale industries are not in a position to play their role effectively due to various constraints. The various constraints, the various problems faced by small scale industries are as under:
Finance: Finance is one of the most important problems confronting small scale industries. Finance is the life blood of an organisation and no organisation can function properly in the absence of adequate funds. The scarcity of capital and inadequate availability of credit facilities are the major causes of this problem. Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic base, have lower credit worthiness. Neither they are having their own resources nor are others prepared to lend them. Entrepreneurs are forced to borrow money from money lenders at exorbitant rate of interest and this upsets all their calculations. After nationalisation, banks have started financing this sector. These enterprises are still struggling with the problem of inadequate availability of high cost funds. These enterprises are promoting various social objectives and in order to facilitate them working adequate credit on easier terms and conditions must be provided to them.
Raw Material: Small scale industries normally tap local sources for meeting raw material requirements. These units have to face numerous problems like availability of inadequate quantity, poor quality and even supply of raw material is not on regular basis. All these factors adversely affect the functioning of these units. Large scale units, because of more resources, normally comer whatever raw material is available in the open market. Small scale units are thus forced to purchase the same raw material from the open market at very high prices. It will lead to increase in the cost of production thereby making their functioning unavailable.
Idle Capacity: There is under utilization of installed capacity to the extent of 40 to 50 per cent in case of small scale industries. Various causes of this under utilization are shortage of raw material problem associated with funds and even availability of power. Small scale units are not fully equipped to overcome all these problems as is the case with the rivals in the large scale sector.
Technology: Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack requisite resources to update or modernise their plant and machinery Due to obsolete methods of production, they are confronted with the problems of less production in inferior quality and that too at higher cost. They are in no position to compete with their better equipped rivals operating modem large scale units.
Marketing: These small scale units are also exposed to marketing problems. They are not in a position to get first hand information about the market i.e., about the competition, taste, liking, disliking of the consumers and prevalent fashion. With the result they are not in a position to upgrade their products keeping in mind market requirements. They are producing less of inferior quality and that too at higher costs. Therefore, in competition with better equipped large scale units they are placed in a relatively disadvantageous position. In order to safeguard the interests of small scale enterprises the Government of India has reserved certain items for exclusive production in the small scale sector. Various government agencies like Trade Fair Authority of India, State Trading Corporation and the National Small Industries Corporation are extending helping hand to small scale sector in selling its products both in the domestic and export markets.
Infrastructure: Infrastructure aspects adversely affect the functioning of small scale units. There is inadequate availability of transportation, communication, power and other facilities in the backward areas. Entrepreneurs are faced with the problem of getting power connections and even when they are lucky enough to get these they are exposed to unscheduled long power cuts. Inadequate and inappropriate transportation and communication network will make the working of various units all the more difficult. All these factors are going to adversely affect the quantity, quality and production schedule of the enterprises operating in these areas. Thus their operations will become uneconomical and unviable.
Under Utilization of Capacity: Most of the small-scale units are working below full potentials or there is gross under utilization of capacities. Large scale units are working for 24 hours a day i.e., in three shifts of 8 hours each and are thus making best possible use of their machinery and equipment’s. On the other hand, small scale units are making only 40 to 50 percent use of their installed capacities. Various reasons attributed to this gross under utilization of capacities are problems of finance, raw material, power and underdeveloped markets for their products
Project Planning: Another important problem faced by small scale entrepreneurs is poor project planning. These entrepreneurs do not attach much significance to viability studies i.e., both technical and economical and plunge into entrepreneurial activity out of mere enthusiasm and excitement. They do not bother to study the demand aspect, marketing problems, and sources of raw materials and even availability of proper infrastructure before starting their enterprises. Project feasibility analysis covering all these aspects in addition to technical and financial viability of the projects, is not at all given due weight age. Inexperienced and incomplete documents which invariably results in delays in completing promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and incompetent entrepreneurs do not fully understand project details. Moreover, due to limited financial resources they cannot afford to avail services of project consultants. This results in poor project planning and execution.
Skilled Manpower: A small scale unit located in a remote backward area may not have problem with respect to unskilled workers, but skilled workers are not available there. Firstly, skilled workers may be reluctant to work in these areas and secondly, the enterprise may not afford to pay the wages and other facilities demanded by these workers. Besides non-availability of entrepreneurs are confronted with various other problems like absenteeism, high labour turnover indiscipline, strike etc. These labour related problems result in lower productivity, deterioration of quality, increase in wastages, and rise in other overhead costs and finally adverse impact on the profitability of these small scale units.
Managerial: Managerial inadequacies pose another serious problem for small scale emits. Modem business demands vision, knowledge, skill, aptitude and whole hearted devotion. Competence of the entrepreneur is vital for the success of any venture. An entrepreneur is a pivot around whom the entire enterprise revolves. Many small scale units have turned sick due to lack of managerial competence on the part of entrepreneurs. An entrepreneur who is required to undergo training and counseling for developing his managerial skills will add to the problems of entrepreneurs. Of course, increase in number of units, production, employment and exports of small- scale industries over the years are considered essential for the economic growth and development of the country. It is encouraging to mention that the small-scale enterprises accounts for 35% of the gross value of the output in the manufacturing sector, about 80% of the total industrial employment and about 40% of total export of the country.
Q.4 What measures have the Government taken to solve the problem of finance and marketing in the small scale sector? Answer: Indian Government created two ministries to promote and develop small scale industries:
Ministry of Small Scale Industries. Ministry of Small Scale Industries designs policies, programmes and schemes to promote small scale industries. Small Industries Development Organization (SIDO) is responsible for implementing and monitoring of various policies and progammes formulated by the ministry.
Ministry of Agro and Rural Industries is a nodal agency for coordination and development of village and khadi industries, tiny and micro enterprises in urban as well as rural areas. Its policies are implemented through Khadi and Village Industries Commission (KVIC), Handicrafts Board, Coir Board etc.
The small-scale sector has played a major role in employment generation, regional development and export promotion in India. The Government of India has realized that a lot more can be achieved if the two major bottlenecks that affect the further development of SSIs—inadequate funds and inefficient market penetration—are removed. In pursuit of this objective, the government has established the following agencies.
National Bank for Agriculture and Rural Development (NABARD): It was established in 1982 with the main objective of promoting rural development and integrating the efforts in this direction. This agency is an apex banking body that governs the operations particularly of the rural and ‘Gramm’ banks. The main focus of NABARD is to provide cheap and easy credit facility to small, cottage and rural industries.
Small Industries Development Bank of India (SIDBI): It was set up to provide direct and indirect financial assistance under different schemes. It caters to the credit and finance requirements of small-scale enterprises.
World Association for Small and Medium Enterprises (WASME): It is an international non-governmental organisation that addresses the problems of small and medium-scale enterprises. It has set up an ‘International Committee for Rural Industrialisation’ with the aim of designing a model for the growth and development of rural industries.
The National Commission for Enterprises in the Unorganised Sector (NCEUS): It was formed in September 2004 with the objective of improving the efficiency and enhancing the global competitiveness of small scale industries. It focuses on addressing the problems faced by small enterprises, particularly in the unorganised/informal sector.
Various Development and Employment Generation Programmes: Besides establishing the organisations mentioned above, the government has launched various programmes for rural development. Among the important programmes are the Prime Minister’s Rozgar Yojana (PMRY), Integrated Rural Development Programme (IRDP) and Training of Rural Youth for Self-Employment (TRYSEM). These programmes are aimed at generating greater employment opportunities, developing rural areas and making the rural people self-reliant.
Q.5 What are the incentives provided by the government for industries in backward and hilly areas? Answer: It is quite lucrative and feasible for entrepreneurs to establish industries in metropolitan and other developed cities. However, because of numerous factors such as irregular power supply, poor transport and absence of banking facilities, it is extremely difficult for them to set up industries in backward, hilly and tribal areas. As a result, there exists acute regional disparities in development between these areas and the big cities in the country. The Government of India has been making efforts to remove the regional imbalances in development by providing incentives for setting up industries in rural areas. The following are among the incentives offered.
Land: It is a basic requirement for setting up a business unit. In order to encourage the establishment of industries in backward areas, the government provides land plots at concessional rates, especially to industrialists in backward regions. This makes setting-up industries cheaper.
Power: Power is an essential requirement for the functioning of business enterprises. However, its supply is highly irregular in some parts of India. Therefore, in order to facilitate the setting up of industries in these areas, electricity is supplied at a discounted rate of 50 per cent. In addition, some states exempt such units from any payment during the initial years of operation.
Banking and finance: Due to the poor banking facilities, industries set up in the backward areas face the problem of inadequate credit and finance. As a solution, the government provides loans at a concessional rate and offers subsidies of 10 to 15 per cent for the accumulation of capital assets.
Raw Materials: Resources such as cement, iron and steel are of prime importance for industries. Since these resources are scarce, the government provides them on priority basis to industries located in backward areas.
Tax Exemption: In order to attract entrepreneurs to set up industries in the backward areas, different state governments grant tax exemption to the industries. Thus, the industries are exempted from paying taxes for 5 to 10 years.
Q.1 What is business finance? Why do businesses need funds? Explain
ANSWER: Finance is the life blood of a business and the money required to run the business is known as business finance.
Business needs finance for three reasons mainly:
To purchase plant and machinery, land, buildings and other fixed assets (Fixed capital requirements).
Smooth functioning of day to day operations of the business (Working capital requirements)
Expansion, growth and diversification.
Q.2 List sources of raising long-term and short-term finance.
ANSWER: Long-term financial resources are:
Equity Shares
Retained earnings
Preference shares
Debentures
Loans from financial institutions
Loans from Banks
Short-term financing sources are:
Trade credit
Factoring
Banks
Commercial papers
Q.3 What is the difference between internal and external sources of raising funds? Explain.
ANSWER:The difference between internal and external sources of raising funds are as follows:
S.No.
Basis of Comparison
Internal Source
External Source
1
Meaning
Funds generated from within the organization are known as internal sources.
Funds generated from sources outside the organisation are called external sources
2
Needs
Only short term or limited needs could be fulfilled by this source.
Large amounts of money requirements are fulfilled through external sources.
3
Security
No security required
Security required by way of collateral assets
4.
Cost
Less expensive
These are more expensive sources than internal sources of financing.
5.
Examples
Ploughing back of profit, Disposing surplus inventory, etc.
Borrowings from commercial banks, Acceptance of Public deposits, Raising debentures etc.
Q.4 What preferential rights are enjoyed by preference shareholders. Explain.
ANSWER:Preference shareholders have the following preferred rights:
Preference in Dividend: They receive dividends at a fixed rate, and dividends on these shares are paid before dividends on equity shares.
Preference in Repayment: When a corporation closes, preference shares are paid out first, followed by equity shares.
Excess Profits: Preference shares have the right to partake in any excess profits that remain after equity shares have been paid.
Preference in case of dissolution: They have the preference over equity shareholders in the share capital refund in the event of company dissolution.
Q.5 Name any three special financial institutions and state their objectives.
ANSWER:The three institutions are:
Unit Trust of India or UTI: It was established under Unit Trust of India Act, 1963 in 1964. The purpose of the establishment of the UTI was supposed to combine savings and monetization of investment in profitable businesses.
The Industrial Finance Corporation of India or IFCI: It was established in 1948, under Industrial Finance Corporation Act, 1948. Its purpose was to assist in balanced regional development, encouraging entrepreneurs to enter emerging sectors, and to contribute to management education development.
State Financial Corporation (SFC): SFC’s fulfils the long term, and medium term finance needs of industries which are beyond the scope of IFCI. It covers public limited, private limited, partnership firms as well, thus its scope is broader than IFCI.
Q.6 What is the difference between GDR and ADR? Explain.
ANSWER:the difference between GDR and ADR is:
Basis
GDR
ADR
Meaning
A GDR is a negotiable instrument or an instrument that can be traded freely in various foreign capital markets.
This instrument is like a regular stock which is purchased and sold in American markets.
Stands for
Global Depository Receipt
American Depository Receipt
Issued by
These are issued by Indian enterprises in order to raise capital from foreign investors.
It is issued by American businesses and can be traded on American stock exchanges. Only American citizens are eligible to receive it.
Traded on
It is traded on foreign stock exchanges.
Only be traded in US stock exchanges.
Q.7 Explain trade credit and bank credit as sources of short-term finance for business enterprises.
ANSWER: Trade Credit
It refers to the extension and provision of credit by one one trader to another for the purchase of goods and services, or other supplies without on the spot payment..
This is generally used by organizations as short term financing. The terms of trade credit may vary from person to person based on past records and from industry to industry based on industry norms.
Merits
A continuous and a convenient source of funds.
It is readily available if credit worthiness is known to the seller.
It helps in increasing the inventory levels in case of increase in sales volume.
While providing funds, It does not create a charge on assets of the firm .
Limitations
There can be chances of over-trading.
Fulfils only limited financial needs.
Costly in comparison to few other sources.
Bank Credit
A loan provided by a bank to a business firm is known as bank credit. The bank’s interest rate on the loan is usually determined by the current interest rate in the economy. To secure the loan, the borrower must mortgage assets with the bank.
Advantages
Secrecy of business is maintained.
An easier source of finance as formalities of issuing of prospectus and underwriting is not required.
Bank credit gives the borrower flexibility because the amount of the loan can be increased or decreased depending on the borrower’s business demands.
Disadvantages
Generally, the funds are available for a short period of time and renewal becomes a difficult process and is uncertain.
The company may have to keep assets as security as the banks ask for security assets before issuing such loans.
Sometimes, the terms and conditions imposed by the banks are quite difficult.
Banks’ terms are frequently highly restrictive; for example, a bank that has provided a loan may limit the borrower’s ability to sell commodities mortgaged to it.
Q.8 Discuss the sources from which a large industrial enterprise can raise capital for financing modernization and expansion.
ANSWER:The following are some long-term funding options:
Equity shares: These shares represent a company’s ownership capital. These shareholders are known as equity shareholders, and they have a say in the management and benefit from higher returns when profits are higher. They are also known as the company’s owners, or residual owners because payments to them are provided only after external debts or claims have been paid.
Retained earnings: Before paying out dividends to shareholders, companies often keep a portion of their income. These undistributed profits are referred to as retained earnings since the money is kept for future use.
Preference shares: As the name suggests, these shareholders are the ones who hold a preferential position in respect to getting a fixed rate of dividend before any dividend for the equity shareholders, and receiving the capital at the time of liquidation just after the payment to the creditors of the company.
Debentures: Debentures are long-term debt capital raising financial instruments employed by companies. They signify that a corporation has borrowed a particular amount of money, which it will eventually repay to the holders of debentures. They have a predetermined rate of return and a stipulated time for debt payback. Debenture holders are called the creditors of the company.
Bank and other financial institution loans: Businesses can borrow funds from banks and financial institutions for a certain period of time in exchange for a defined periodic payment known as interest. The repayment period for such a loan is predetermined and announced at the time of loan approval.
Long Answer Type Question:
Q.1 Explain trade credit and bank credit as sources of short-term finance for business enterprises.
ANSWER: Trade credit is the credit extended by one trader to another for the purchase of goods and services. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is commonly used by business organisations as a source of short-term financing. It is granted to those customers who have reasonable amount of financial standing and goodwill.
• Merits of trade credit as a source of short-term finance: → Trade credit helps a company to finance the accumulation of inventories for meeting future increase in sales. → As the trade creditors do not have any rights over the assets of the company, it can mortgage its assets to raise money from other sources.
• Demerits of bank credit as a source of short-term finance:https://704a05148f9ca4a81fff005e88b98af1.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html→ It is difficult to increase the loan. → The terms imposed by banks are often very restrictive as example, the bank that has granted a loan may restrict the sale of goods mortgaged to it by the borrower.
Q.2 Discuss the sources from which a large industrial enterprise can raise capital for financing modernisation and expansion.
ANSWER: Industrial Finance Corporation of India (IFCI): It was established in July 1948 as a statutory corporation under the Industrial Finance Corporation Act, 1948. Its objectives include assistance towards balanced regional development and encouraging new entrepreneurs to enter into the priority sectors of the economy. IFCI has also contributed to the development of management education in the country.
→ Industrial Credit and Investment Corporation of India (ICICI): This was established in 1955 as a public limited company under the Companies Act. ICICI assists the creation, expansion and modernisation of industrial enterprises exclusively in the private sector. The corporation has also encouraged the participation of foreign capital in the country.
→ Industrial Development Bank of India (IDBI): It was established in 1964 under the Industrial Development Bank of India Act, 1964 with an objective to coordinate the activities of other financial institutions including commercial banks. The bank performs three types of functions, namely, assistance to other financial institutions, direct assistance to industrial concerns, and promotion and coordination of financial-technical services.
→ Unit Trust of India (UTI): It was established by the Government of India in 1964 under the Unit Trust of India Act, 1963. The basic objective of UTI is to mobilise the community’s savings and channelise them into productive ventures. For this purpose, it sanctions direct assistance to industrial concerns, invests in their shares and debentures, and participates with other financial institutions.
→ Industrial Investment Bank of India Ltd.: It was initially set up as a primary agency for rehabilitation of sick units and was known as Industrial Reconstruction Corporation of India. It was reconstituted and renamed as the Industrial Reconstruction Bank of India in 1985 and again in 1997 its name was changed to Industrial Investment Bank of India. The Bank assists sick units in the reorganisation of their share capital, improvement in management system, and provision of finance at liberal terms.
→ Life Insurance Corporation of India (LIC): LIC was set up in 1956 under the LIC Act, 1956 after nationalising 245 existing insurance companies. It mobilises the community’s savings in the form of insurance premia and makes it available to industrial concerns, both public as well as private, in the form of direct loans and underwriting of and subscription to shares and debentures.
Q.3 What advantages does issue of debentures provide over the issue of equity shares?
ANSWER: Debentures are long term debts by which a company can raise funds which bear a fixed rate of interest. The debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money, which it promises to repay at a future date.
The advantage of issue of debentures over the issue of equity shares are:
→ The issue of equity shares means dilution of ownership of a firm while debentures holders do not have any rights in the company. They do not enjoy voting rights or any kind of ownership in the firm. They are only entitled to a fixed amount as payment.
→ For issuing shares a company has to incur huge costs. Also, it has to pay dividends to its shareholders, which are not tax deductible while a company receives tax deductions on the interest paid to its debenture holders. Therefore, issuing debentures is advantageous for a firm in terms of low costs.
→ Debentures carry a fixed rate of return which means that irrespective of the profit earned, the company has to pay only a fixed interest to its debenture holders while a company that issues shares has to pay dividends to the shareholders, which varies with the profit i.e., the higher the profit, the higher will be the dividends.
Q.4 State the merits and demerits of public deposits and retained earnings as methods of business finance.
ANSWER: Public Deposits The deposits that are raised by organisations directly from the public are known as public deposits. Rates of interest offered on public deposits are usually higher than that offered on bank deposits. Any person who is interested in depositing money in an organisation can do so by filling up a prescribed form. The organisation in return issues a deposit receipt as acknowledgment of the debt.
• Merits of Public deposits are:
→ The procedure of obtaining deposits is simple and does not contain restrictive conditions as are generally there in a loan agreement → Cost of public deposits is generally lower than the cost of borrowings from banks and financial institutions → Public deposits do not usually create any charge on the assets of the company. The assets can be used as security for raising loans from other sources → As the depositors do not have voting rights, the control of the company is not diluted.
• Demerits of Public deposits are: → New companies generally find it difficult to raise funds through public deposits → It is an unreliable source of finance as the public may not respond when the company needs money → Collection of public deposits may prove difficult, particularly when the size of deposits required is large.
Retained earnings Business enterprise keep a portion of the net earnings may be retained in the business for use in the future. This is known as retained earnings. It is a source of internal financing or self- financing or ‘ploughing back of profits’.
• Merits of Retained earnings are: → Retained earnings is a permanent source of funds available to an organisation → It does not involve any explicit cost in the form of interest, dividend or floatation cost → As the funds are generated internally, there is a greater degree of operational freedom and flexibility → It enhances the capacity of thebusiness to absorb unexpected losses; → It may lead to increase in the market price of the equity shares of a company.
• Demerits of Retained earnings are: → Excessive ploughing back may cause dissatisfaction amongst the shareholders as they would get lower dividends; → It is an uncertain source of funds as the profits of business are fluctuating; → The opportunity cost associated with these funds is not recognised by many firms. This may lead to sub-optimal use of the funds.
Q.5 Discuss the financial instruments used in international financing.
ANSWER: The financial instruments used in international financing are: → Global Depository Receipts (GDRs): These are receipts issued by depository banks against the shares of a company. Such depository receipts denominated in US dollars are known as Global Depository Receipts (GDR). GDR is a negotiable instrument and can be traded freely like any other security. In the Indian context, a GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency and is listed and traded on a foreign stock exchange.
→ American Depository Receipts (ADR’s): The depository receipts issued by a company in the USA are known as American Depository Receipts. ADRs are bought and sold in American markets like regular stocks. It is similar to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.
→ Foreign Currency Convertible Bonds (FCCBs): These bonds are debt securities that are convertible into equity shares or depository receipts after a specific period of time. The terms and prices of such conversions are generally specified in advance. The return on such securities is pre-fixed and lower than the return on non-convertible securities.
Q.6 What is a commercial paper? What are its advantages and limitations.
ANSWER: Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to other business firms, insurance companies, pension funds and banks. The amount raised by CP is generally very large. As the debt is totally unsecured, the firms having good credit rating can issue the CP. Its regulation comes under the purview of the Reserve Bank of India.
• Advantages of Commercial paper are: → A commercial paper is sold on an unsecured basis and does not contain any restrictive conditions; → As it is a freely transferable instrument, it has high liquidity; → It provides more funds compared to other sources. Generally, the cost of CP to the issuing firm is lower than the cost of commercial bank loans; → A commercial paper provides a continuous source of funds. This is because their maturity can be tailored to suit the requirements of the issuing firm. Further, maturing commercial paper can be repaid by selling new commercial paper; → Companies can park their excess funds in commercial paper thereby earning some good return on the same.
• Limitations of Commercial paper are: → Only financially sound and highly rated firms can raise money through commercial papers. New and moderately rated firms are not in a position to raise funds by this method. → The size of money that can be raised through commercial paper is limited to the excess liquidity available with the suppliers of funds at a particular time; → Commercial paper is an impersonal method of financing. As such if a firm is not in a position to redeem its paper due to financial difficulties, extending the maturity of a CP is not possible.
Q.1 Name the stages in the formation of a company.
ANSWER:The different stages in the formation of company are:
Promotion
Incorporation
Subscription of capital
Commencement of Business
Q.2 List the documents required for the incorporation of a company.
ANSWER: The documents needed for registration for incorporation.
Memorandum of Association: The Memorandum of Association duly stamped, signed, and witnessed. In the case of a public business, it must be signed by at least seven members. For a private business, however, two members’ signatures are sufficient.
Articles of Association: As with the Memorandum, the Articles of Association must be legally stamped and witnessed. This is also a very important document for the company that describes the way through which the objectives of MOA could be achieved.
Director’s Approval: The prospective directors’ written approval to serve as directors, as well as an agreement to purchase qualification shares. The proposed Managing Director, Manager, or whole-time director’s agreement, if any also needed.
List of Directors: The names, addresses and all the details of the persons who have agreed to become and work as directors are provided.
Registrar’s Letter: A copy of the Registrar’s letter approving the name of the company.
Statutory Declaration: A statutory declaration attesting to the fact that all registration requirements have been met. This must be duly signed.
Documentary Evidence: Documentary evidence of payment of registration fees.
Prospectus: If a company wants to raise money from the public, prospectus is also needed.
Q.3 What is a prospectus? Is it necessary for every company to file a prospectus?
ANSWER:A prospectus is a company’s announcement or invitation to the general public to subscribe for or acquire the company’s shares or debentures. The initial public offering (IPO) is the process through which a public business can raise the money it requires.
It is not necessary for every company to file a prospectus, as a private business does not need to submit a prospectus since it is barred from collecting capital from the public. A prospectus is only necessary for a firm that needs to obtain cash from the general public by issuing shares or debentures.
Q.4 Briefly explain the term ‘Return of Allotment’.
ANSWER:Return of Allotment is a statement in which the names, addresses, the number of shares allotted to the shareholders is mentioned. It is signed by a director or secretary and is filed with the Registrar of Companies(ROC) within 30 days of allotment. It shows that the company has received the minimum subscription.
Q.5 At which stage in the formation of a company does it interact with SEBI?
ANSWER:A company interacts with SEBI (Securities and Exchange Board of India) in the third stage of formation of the company, that is Capital Subscription, as SEBI clearance is required to raise funds from the public. The company is supposed to abide by the rules and guidelines provided by SEBI so as to protect the investors’ interests. Thus, it is necessary for the company to get SEBI’s approval before proceeding with capital subscription.
Q.6 What is meant by the term ‘Promotion’? Discuss the legal position of promoters with respect to a company promoted by them.
ANSWER:Promotion is the preliminary step in the formation of a company. Promotion of company means taking all the necessary steps to incorporate a company as per the provision of the Company Act,2013. The persons undertaking the task of promotion are called Promoters. A promoter can be an individual, a partner, a company, an association or a syndicate.
The legal position of promoters with respect to a company promoted by them are:
The promoters are neither the trustees nor the agents of the company that they are forming. Promoters are the ones who come up with the idea of starting a business.
They are expected to disclose profits, if any, made during the contracts executed by him on behalf of the company he promotes.
They are responsible for the preparation of various documents needed for the incorporation of a company
Promoters can be nominated as first directors of the company.
They are not supposed to make any secret profit while promoting a company.
A company may choose to allot shares to them in order to compensate for their services.
Long Answer type Question:
Q.1 what is meant by the term ‘promotion’? Discuss the legal position of promoters with respect to a company promoted by them.
Answer: Promotion is the first stage in the formation of a company. It involves conceiving a business opportunity and taking an initiative to form a company so that practical shape can be given to exploiting the available business opportunity. Thus, it begins with somebody having discovered a potential business opportunity. Any person or a group of persons or even a company may have discovered an opportunity. If such a person or a group of persons or a company proceeds to form a company, then, they are said to be the promoters of the company. The legal position of promoters with respect to a company promoted by them are: → The promoters are neither the trustees nor the agents of the company that they are forming. This is because the company does not exist as a legal entity before its incorporation. → They cannot make any secret profits by making deals on behalf of the company. → They are legally liable for any untrue statement filed in the prospectus of the company. → The promoters cannot claim the expenses incurred by them during the promotion of the company. → The company may or may not indemnify the promoters for the payments made before its incorporation. The company may choose to allot shares to them in order to compensate for their services.
Q.2 Explain the steps taken by promoters in the promotion of a company.
Answer: Promoter is a person who undertakes to form a company with reference to a given project and to set it going and who takes the necessary steps to accomplish that purpose. The steps taken by promoters in the promotion of a company are:
→ Identification of business opportunity: The first and foremost activity of a promoter is to identify a business opportunity. The opportunity may be in respect of producing a new product or service or making some product available through a different channel or any other opportunity having an investment potential.
→ Feasibility studies: All the identified business opportunities may not be feasible or profitable as real projects. The promoters, therefore, undertake detailed feasibility studies to investigate all aspects of the business they intend to start with the help of charted accountants, engineers, accountant, etc.. Various types of feasibility includes:• Technical feasibility: Sometimes an idea may be good but technically not possible to execute. It may be so because the required raw material or technology is not easily available. Therefore, the technical feasibility of the idea has to be considered before proceeding further. • Financial feasibility:Every business activity requires funds. The promoters have to estimate thefund requirements for the identified business opportunity. If the project cannot be financed within the fund available then idea may have to be dropped.• Economic feasibility: Sometimes it so happens that a project is technically viable and financially feasible but the chance of it being profitable is very little. So, the idea will have to given up.
→ Name approval: The promoters have to select a name for it and submit, an application to the registrar of companies of the state in which the registered office of the company is to be situated, for its approval. The proposed name may be approved if it is not considered undesirable. In such cases the proposed name is not accepted but some alternate name may be approved. Therefore, three names, in order of their priority are given in the application to the Registrar of Companies.
→ Fixing up Signatories to the Memorandum of Association: Promoters have to decide about the members who will be signing the Memorandum of Association of the proposed company. Generally, who sign the MoA become the first directors of the company.
→ Appointment of professionals: Certain professionals such as mercantile bankers, auditors etc., are appointed by the promoters to assist them in the preparation of necessary documents which are required to be with the Registrar of Companies. The details of the number of shares allotted to each shareholder, along with his or her addresses for correspondence, are submitted to the registrar.
→ Preparation of necessary documents: The promoter takes up steps to prepare certain legal documents includes Memorandum of Association, Articles of Association and Consent of Directors, which have to be submitted under the law, to the Registrar of the Companies for getting the company registered.
Q.3 What is ‘Memorandum of Association’? Briefly explain its clauses.
Answer: Memorandum of Association is the most important document as it defines the objectives of the company. No company can legally undertake activities that are not contained in its Memorandum of Association. The Memorandum of Association contains different clauses, which are:
→ The name clause: This clause contains the name of the company with which the company will be known, which has already been approved by the Registrar of Companies.
→ Registered office clause: This clause contains the name of the state, in which the registered office of the company is proposed to be situated.
→ Objects clause: It defines the purpose for which the company is formed. A company is not legally entitled to undertake an activity, which is beyond the objects stated in this clause. It can be divided into two types: • The main objects: The main objects for which the company is formed are listed in this sub-clause. • Other objects: Objects not included in the main objects could be stated in this sub-clause.
→ Liability clause: This clause limits the liability of the members to the amount unpaid on the shares owned by them.
→ Capital clause: This clause specifies the maximum capital which the company will be authorised to raise through the issue of shares.
→ Association clause: In this clause, the signatories to the Memorandum of Association state their intention to be associated with the company and also give their consent to purchase qualification shares.
Q.4 Distinguish between ‘Memorandum of Association’ and ‘Articles of Association.’
Answer:
Basis of difference
Memorandum of Association (MoA)
Articles of Association (AoA)
Objective
The MoA defines the character of a company and the scope of its activities.
The AoA defines the rules and regulation of the company.
Position
It is the main document of a company which is subordinate to the Companies Act.
It is the subsidiary document of a company which is subordinate to both MoA and the Companies Act.
Relationship
The MoA establishes the relation between the company and outsiders.
The AoA defines the relation of the company with its members.
Alteration
Altering the MoA requires the approval of a statutory authority.
The AOA can be easily altered by passing a resolution.
Ratification
Acts beyond MoA cannot be ratified.
Acts beyond the AoA can be ratified by the members if they do not violate the MoA.
Necessity
It is a necessary document.
It is a secondary document.
Q.5 What is the effect of conclusiveness of the ‘Certificates of Incorporation’ and ‘Commencement of Business’?
Answer: Effect of Certificates of Incorporation: → A company becomes a legal entity with perpetual succession on the date printed on the Certificate of Incorporation. After conclusiveness of the certificate of incorporation, the company becomes entitled to enter into valid contracts.
→ The Certificate of Incorporation is a conclusive evidence of the regularity of the incorporation and legal existence of a company even if there is any flaw in its registration process.
→ A company can immediately commence its business once its certificate of incorporation is issued. Thus, the certificate of incorporation is conclusive evidence of the existence of a company. As a result, the birth of the company cannot be questioned if it has the certificate of incorporation.
Effect of Certificate of Commencement of Business
→ The certificate of commencement of business is issued by the registrar of companies when all the documents submitted by the company are found satisfactory.
→ The commencement of business certificate acts as definite proof for the company that it has the legal right to do business.
→ The formation of a public company is completed once it is granted the certificate of commencement of business. Thus, the business activities of the company cannot be questioned as it is legally allowed to start its business after getting the certificate.
Q.6 Is it necessary for a public company to get its share listed on a stock exchange? What happens if a public company going for a public issue fails to apply for a stock exchange for permission to deal in its securities or fails to get such permission?
Answer: Yes, it is mandatory for every public company to be listed on a stock exchange. The public company is required to send an application to at least one stock exchange to get registered. Once it is listed, the company is allowed to offer its shares in order to become public. However, initially the company may offer only a small percentage of its shares to the public. If a public company going for a public issue fails to apply to a stock exchange for permission to deal in its securities or fails to get such permission before the expiry of ten weeks from the date of closure of subscription list, the allotment of shares done by the company shall become void and all money received from the applicants will have to be returned to them within eight days.
Q.1 What do you understand by social responsibility of business? How is it different from legal responsibility?
ANSWER: Social responsibility is an ethical paradigm that implies that an entity, whether an organization or an individual, has a responsibility to behave in the best interests of society as a whole. Every individual has a responsibility to fulfill in order to maintain a balance between the economy and the ecosystems.
Difference between Social and Legal Responsibility is:
Basis
Legal Responsibility
Social Responsibility
Scope
Under any law, act, or constitution, legal responsibility is required. It is comparatively a narrower term.
Social responsibility is a broad term that refers to a company’s obligation to society and the environment.
Obligation
Legal responsibility is obligatory.
Social responsibility is voluntary.
Legal action
Legal action can be taken against those who do not uphold their legal obligations.
There are no penalties for organisations that do not uphold their social responsibilities.
Q.2 What is environment? What is environmental pollution?
ANSWER: The whole of man’s surroundings, both natural and manmade is characterised as the environment. These surroundings also include resources that are beneficial to human life.
Environmental Pollution is when there are undesirable changes in the surrounding that have harmful effects on plants and animals. Pollution alters the physical, chemical, and biological properties of the atmosphere, land, and water. Because the environment can only absorb a certain quantity of pollutants and wastes, pollution exists.
Q.3 What is business ethics? Mention the basic elements of business ethics?
ANSWER: Ethics is concerned with determining what is acceptable and wrong in human behaviour based on a standard form of individual conduct/behaviour as approved by society in a particular sector of activity. The relationship between company objectives, procedures, and processes and the good of society is the subject of business ethics.
Elements of business ethics are:
Top management’s commitment,
Publication of code
Establishment of compliance mechanism,
Involving employees at all levels
Measuring results.
Q.4 Briefly explain
(a) Air pollution
ANSWER: Air pollution is the pollution in the air which isprimarily due to carbon monoxide emitted by automobiles, as well as smoke and other chemicals emitted by manufacturing industries. As a result of the pollution, a hole in the ozone layer has formed, causing severe global warming.
(b) Water pollution
ANSWER: Chemicals, industrial waste, and trash dumping are the main sources of pollution in water. It has killed a number of animals and poses a severe threat to human life.
(c) Land pollution.
ANSWER: Land contamination occurs when toxic wastes are dumped on it. This degrades the land’s quality, rendering it unsuited for agriculture or planting.
Q.5 What are the major areas of social responsibility of business?
ANSWER: Social responsibility is an ethical paradigm that implies that an entity, whether an organization or an individual, has a responsibility to behave in the best interests of society as a whole. Every individual has a responsibility to fulfil in order to maintain a balance between the economy and the ecosystems.
The major areas of social responsibility of business include the following:
Economic Responsibility
The primary social obligation of a business enterprise is the economic responsibility, i.e., to produce things and services that society desires and sell them for a profit.
Legal Responsibility
Every business has a legal obligation to follow the rules of the land. A business who abides to the laws and regulations of the country, is also a socially responsponsible business.
Ethical Responsibility
Described as socially acceptable behaviour that is not codified in legislation. This job requires some volunteer participation.
Discretionary Responsibility
It is the responsibility of the company to protect the capital investment by avoiding speculative activity and engaging in only healthy business initiatives that provide good returns on investment, such as charities, donations etc.
Q.6 State the meaning of Corporate Social Responsibility as per the Companies Act 2013.
ANSWER: CSR is a self-regulatory company model that strives to contribute to social goals, such as volunteering or ethically-oriented actions. It establishes a company’s social responsibility and accountability. This accountability is towards itself, its stakeholders (i.e., the people who have an interest in the life of a corporation including shareholders, creditors, consumers, competitors, workers, government and society at large).
Long answer Type Question:
Q.1 Build up arguments for and against social responsibilities. Answer:Arguments for Social Responsibility:
Justification for Existence and Growth: Although the main motive of any business is profit but the prosperity and growth of business is not possible without a continuous service to the society. Therefore, it is justified for a business to assume social responsibility.
Avoidance of Government Regulation: Businessmen can avoid the problem of government regulations by assuming social responsibilities voluntarily which helps to reduce the need for new laws.
Maintenance of Society: Those people who do not get a return for their hardships get indulged in anti-legal activities. Therefore, it is advisable for business enterprises to assume their social responsibilities.
Long Term Interest of the Firm: If consumers, workers, shareholders, government officials feel that they are not getting what they deserve, they start to withdraw their hands from business. It may prove more expensive for an enterprise.
Availability of Resources with Business: A business enterprise has effective human and financial resources to solve many of the social problems.
Converting Problems into Opportunities: Business can make risky situations useful by using their efficiency.
Better Environment for Doing Business: Business system should do something to meet needs before it is confronted with a situation when its own survival is endangered.
Holding Business responsible for Social Problems: Environmental pollution, unsafe workplaces, corruption in public institutions and discriminatory practices in employment are some of the problems which have caused due to business enterprises.
Arguments against Social Responsibility:
Violation of Profit Maximization: As per this argument, business enterprises claim that our objective is profit maximization. Business can reduce its cost and raise profits and then only it can meet its social responsibility.
Lack of Social Skills: Business enterprises neither have skill nor experience to solve all types of social problems. Therefore, it should be handled by specialized agencies.
Burden on Consumers: Many of the social responsibilities cost a lot and its burden falls on consumers only.
Lack of Broad Public Support: Business cannot operate successfully because of lack of cooperation and confidence on behalf of public to business enterprises.
Q.2 Discuss the forces which are responsible for increasing concern of business enterprises towards social responsibility. Answer: The following are the forces which are responsible for increasing the concern of business enterprises for social responsibility.
Threat of Public Regulation: The government is meant to safeguard the interests of society. Thus, in case the government feels that a business enterprise is behaving in a manner that is not socially desirable, then it can regulate the operations of that enterprise accordingly.
Pressure of Labour Movement: The increase in capital mobility over time has increased the pressure on business enterprises to pay attention to the welfare of workers, by providing them with healthy working conditions along with good remuneration.
Impact of Consumer Consciousness: As consumers today are aware of their rights and responsibilities, they take their decisions more rationally. Thus, business enterprises are made to work more efficiently and produce better products at reasonable rates to satisfy their customers.
Development of Social Standards: Business enterprises are not merely profit-making entities. For their long-term growth and existence, they require fulfilling the new standards of social welfare.
Development of Business Education: The spread of education over time has made consumers, investors, employees and owners aware of social problems, thereby making them more sensitive to social issues.
Relationship Between Social Interest and Business Interest: No business enterprise can work in isolation from society. Thus, there should be a balance between business interests and social interests, such that the business can grow by doing the maximum good to society.
Development of a Professional Managerial Class: Every business professional pursues the goal of profit maximization. But today’s professional managers make efforts to satisfy the interests of all members of society.
Q.3 ‘Business is essentially, a social institution and not merely a profit making activity.’ Explain. Answer: The primary objective of any business enterprise is profit maximization. This is because profit acts as a measure of success and at the same time is the main source of income for an enterprise. Also, profits are often used to finance the expansion projects of a business enterprise. However, it is argued that business enterprises are not merely profit-making entities. They are considered as social institutions, too, as they are created by society. As every business makes use of society’s resources in terms of human and physical capital, it cannot work in isolation from society. Its operations are affected by social problems such as unemployment and poverty. Thus, a need arises to create a balance between the business interests and social interests of a business enterprise, such that it can grow by doing the maximum good to society. Hence, we can say that a business enterprise is a social institution and not merely a profit-making entity. In this regard, the following are some of the responsibilities that must be fulfilled by an enterprise:
Paying taxes on time.
Paying fair wages to employees.
Supplying quality products at reasonable prices to customers.
Cooperating with the government in solving social problems, such as unemployment, poverty and illiteracy.
A business has some responsibility towards:
Shareholders or investors who contribute funds for business.
Employees and others that make up its personnel.
Consumers or customers who consume and/or use its outputs (products and/or services).
Government and local administrative bodies that regulate its commercial activities in their jurisdictions.
Members of a local community who are either directly or indirectly influenced by its activities in their area.
Surrounding environment of a location from where it operates.
The general public that makes up a big part of society.
Q.4 Why do the enterprises need to adopt pollution control measures? Answer: Pollution control is necessary for preserving and improving the quality of environmental resources. As business activities such as production, transportation, distribution, storage and consumption are often assumed to cause the maximum destruction to society’s resources, a need arises for adopting pollution control measures. Following are some of the reasons why business enterprises need to adopt pollution control measures,
Reduced health hazards: Pollutants in the environment cause diseases such as cancers and respiratory problems. Thus, pollution control measures will not only help in reducing the incidence of diseases but also help people enjoy a good and healthy life.
Reduced risk of liability: Enterprises are often held responsible for polluting the environment and are asked to compensate. Pollution control helps in reducing the risk of such liabilities.
Cost savings: Efficient pollution control mechanisms help in reducing the cost of waste disposal and the cost of cleaning up production plants. This in turn helps firms to reduce their costs.
Improved public image: An increase in the education level has made people more aware about environmental problems. As a result, they have started realising the need to protect the environment. Thus, business enterprises which adopt pollution control measures enjoy a good reputation in the society.
Other social benefits: Pollution control helps a firm to enjoy various other benefits such as cleaner surroundings, better quality of life for its employees as well as owners and increased availability of good quality resources.
Q.5 What steps can an enterprise take to protect the environment from the dangers of pollution? Answer: Various business activities such as production, transportation and consumption of goods oftenVarious business activities such as production, transportation and consumption of goods often result in over exploitation of natural resources. Thus, it is the responsibility of every business enterprise to control discharge of pollutants into the environment. The following steps can be taken by the business enterprises to control pollution.
Control by top managers: The top management of every organisation should be committed to creating, developing and maintaining a work culture conducive to environmental protection and pollution prevention.
Control by employees: Employees at all the levels of an organisation should be committed to keeping the environment clean and protected.
Better technology: Enterprises should employ good and superior technologies of production and use scientific techniques for waste disposal. This will ensure environmental protection and pollution control.
Follow rules: Enterprises must conform to the rules and regulations enacted by the government for the prevention of environmental pollution.
Increased awareness: By conducting workshops and training programmes, business enterprises must make an effort to spread awareness among its employees of the need to conserve the environment.
Assessment programmes: An efficient mechanism for the periodic assessment of pollution control programmes may also be adopted, in order to weigh their costs and benefits.
Q.6 Explain the various elements of business ethics. Answer: Business ethics can be defined as the code of conduct that a business must follow, such that it takes up only those activities that are desirable from the viewpoint of society. The purpose of business ethics is to guide managers and other employees in an organisation in performing their jobs in a manner that is socially acceptable. Business ethics should be followed in the day-to-day working of a business enterprise. The following are some of the elements of business ethics.
Commitment by top management: Top-level officers, such as the CEO’s and other higher level managers, must sincerely follow the ethical code of conduct. They should also guide other employees in their organisation in adopting the code.
Publication of a code: An enterprise must clearly define the ethical code of conduct to be followed in the organisation. The code should include quality standards for work, laws governing production and employee’s health and safety standards.
Establishment of compliance mechanism: In addition to setting performance standards, an enterprise must also devise a mechanism through which it can measure the actions of individual employees. This should be done in order to confirm whether the ethical standards are being met.
Involvement of employees at all levels: The successful implementation of ethical standards depends to a large extent on the involvement of employees at different levels. This is because it is the employees who actually implement the ethical codes.
Measurement of results: Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to monitor compliance. Also, it must take serious action against any unethical behaviour in the organisation.
Q.1 State any three differences between e- business and traditional business.
ANSWER: The differences between e-business and traditional business are:
Basis of difference
Traditional business
e-Business
Ease in formation
The process of formation is complicated by the various requirements that must be completed.
It’s a lot easier to get started.
Internal communication
Communication is structured in a hierarchical manner (from top to bottom)
Follows a communication framework that isn’t hierarchical (no defined structure).
Start-up cost
High startup costs
Start-up costs are quite cheap (as physical facilities are not required).
Market access
The physical domain is the only domain that may be accessed.
Access is relatively broad and unrestricted.
Q.2. How does outsourcing represent a new mode of business?
ANSWER: Outsourcing has changed the way businesses were done traditionally, these are growing each day, and have a great future ahead as well. Outsourcing is an innovative concept which has raised the value of the businesses, facilitated more convenience, and added more efficiency in business activities such as procurement, production, marketing etc. This is why it is called an emerging mode of business.
The factors responsible for the growing importance of outsourcing are:
Assist in making high-quality products more affordable
Facilitate innovation and technology development
Accelerate the business process
Assist in making high-quality products more affordable
Q.3 Describe briefly any two applications of e- business.
ANSWER: The two applications of e-business are:
A. B2B Commerce
Because both parties involved in e-commerce transactions are businesses, the term B2B (business-to-business) was coined.
A business must engage with a number of other businesses in order to create utility or deliver value. These businesses may be suppliers or vendors of various inputs, or they may be part of the distribution channel through which a company distributes its items to clients.
Example Turtle.com
B. B2C Commerce
Business-to-customer (B2C) interactions involve business organizations on one hand and their customers on the other.
It encompasses a wide range of internet marketing operations such as identifying activities, promoting them, and occasionally even delivering items.
It enables a business to be in touch with its customers on round-the-clock basis which helps in knowing the customer satisfaction level.
Few examples are Amazon, Walmart etc.
Q.4 What are the ethical concerns involved in outsourcing?
ANSWER: Outsourcing has also raised some ethical concerns. The major ethical issue are:
Employment: Taking away employment opportunities from one’s own country, when the function is outsourced to a company from another country.
Child labour: Children and women are employed in factories as a result of outsourcing, and working conditions are unsanitary and even dangerous. Due to strict regulations against the employment of child labour in industrialised nations, the corporations are unable to do so.
Discrimination: Similarly there exists wage-discrimination on the basis of sex of the worker. Workers are exploited by giving less than minimum wages and hence women are paid lower wages.
Confidentiality: Confidentiality issues are there, as outsourcing necessitates the exchange of a great deal of critical information and knowledge. It can harm the interest of the party that outsources its processes and even has a risk of competitor firms getting information about that company.
Q.5 Describe briefly the data storage and transmission risks in e-business.
ANSWER: Data storage and transmission risks:
Data in the systems and on the way is vulnerable to a variety of threats.
Important data may be stolen or altered for nefarious purposes or merely for fun/adventure
Antivirus softwares installed and updated on a regular basis prove useful in scanning files and discs, protecting data files, folders, and systems against virus attacks.
Data could be intercepted during transmission. Cryptography can be used for this. It refers to the process of encrypting data and transforming it to cyphertext, an unreadable format. Only those with a secret key may decipher (or decrypt) the message into ‘plaintext.’
Q.6 Why are e-business and outsourcing referred to as the emerging modes of business? Discuss the factors responsible for the growing importance of these trends.
ANSWER: E-business and outsourcing have changed the way businesses were done traditionally, these are growing each day, and have a great future ahead as well. E-businesses and outsourcing are innovative concepts which have raised the value of the businesses, facilitated more convenience, and added more efficiency in business activities such as procurement, production, marketing etc. This is why they are called as emerging modes of businesses:
The factors responsible for the growing importance of outsourcing and e business:
They assist in making high-quality products more affordable: The demand for high-quality, custom-made products has risen, and e-commerce and outsourcing are playing an increasingly important role in supplying consumers with what they want at a fair price. E-business and outsourcing assist in achieving the goal of excellence by enabling the manufacture and supply of high-quality products.
Facilitate innovation and technology development: Every firm needs to innovate and develop new ideas and products in order to stay competitive. E-business and outsourcing have emerged as a boon for producers in this setting, as they allow for the ongoing development of company strategies and new technology.
They accelerate the business process: As customer demands expand, it has become important to facilitate trade from anywhere and at any time. E-commerce and outsourcing help to speed up the purchasing and selling procedure around the clock.
They lay the path for efficient after-sales support: It is critical for any firm to cater to its clients’ demands. Customers benefit from e-commerce and outsourcing because they can get rapid and effective post-sale services.
Q.7 Elaborate the steps involved in on-line trading.
ANSWER: The steps are:
Registration ⇒ Placing an order ⇒ Payment mechanism
Step 1: Registration:
When you register with an online retailer, you create an ‘account’, by filling up the registration form.
A “password” must be entered among the numerous details since the areas relating to an individual’s “account” and “shopping basket” are password protected.
Step 2: Placing an order:
You can add products to the shopping cart by dragging and dropping them.
A shopping cart is an online record of what an individual has added to his cart while visiting an online store.
Once you’ve decided what you want to buy, you may ‘checkout.’
Step 3: Payment Mechanism:
Purchases through online shopping may be done in a number of ways.
Cash-on-Delivery: Payment for things ordered online can be made in cash when the goods are delivered physically.
Cheque: The online merchant may arrange for the customer’s cheque to be picked up. After realisation, product delivery may be attempted.
Net-banking Transfer: Modern banks provide to their customers the facility of electronic transfer of funds over the Internet using Immediate Payment Service (IMPS), NEFT and RTGS.
Credit or Debit Cards: The holders of credit cards can enjoy making purchases on credit. The amount owed by the cardholder to the online seller is assumed by the card issuing bank, which then transfers the transaction’s amount to the seller’s credit. A debit card permits the holder to make purchases up to the amount of money in the linked account. The moment a transaction is made, the amount due as payment is deducted electronically from the card.
Digital Cash: This type of currency has no physical qualities, but it allows you to utilise real money in an electronic format, such as through e-wallets or PayTm.
Q.8 Evaluate the need for outsourcing and discuss its limitations.
ANSWER: Outsourcing is the process of contracting some business functions to external agencies.
Need for outsourcing:
A. Delimiting the scope of business:
Business firms are realising the usefulness of focusing on just a few areas where they have distinct capabilities or core competence, and contracting out the rest of the activities to their outsourcing partners.
By restricting the scope of their business, they may concentrate their attention and resources on a few key tasks, improving efficiency and effectiveness.
B. Quest of excellence:
In two ways, outsourcing allows the company to strive for excellence. One, due to their narrow focus, individuals excel in the activities that they can do best.
They also succeed by increasing their capabilities by outsourcing out the remaining tasks to people who excel at them.
C. Cost reduction:
Division of labour and specialisation improve quality while also lowering costs.
This occurs when outsourcing partners benefit from economies of scale by providing the same service to multiple organisations.
Cost reduction is also aided by differences in the prices of various production inputs across countries.
D. Growth through Alliance:
To the extent one can avail of the services of the others, the investment requirements are reduced.
As a result, a company can grow quickly because the same quantity of investible funds creates a big number of firms.
Inter-organizational information sharing and collaborative learning are facilitated by outsourcing.
F. Economic development:
Outsourcing, more offshore outsourcing stimulates entrepreneurship, employment and exports in the host counties (i.e., the countries from where outsourcing is done).
Limitations of Outsourcing Are:
A. Confidentiality
Outsourcing necessitates the exchange of a great deal of critical information and knowledge.
It can harm the interest of the party that outsources its processes and even has a risk of competitor firms getting information about that company.
B. Sweat shopping
Outsourcing aims to reduce expenses by maximising the use of low-cost labour.
So, the firms that go in for outsourcing look for the ‘doing’ skills rather than development of the ‘thinking’ skills.
C. Ethical concerns
In order to cut the cost, the companies outsource the work to some other country where the work is done in an unethical way.
For example work is accomplised by doing child labour.
D. Resentment in the home countries
In the course of contracting out manufacturing, marketing, research and development or IT based services, what is ultimately contracted out is ’employment’ or jobs from one country to another.
This may cause resentment back in the home country if the home country is suffering from the problem of unemployment.
Q.9 Discuss the salient aspects of B2C commerce.
ANSWER: The transactions under ‘B2C commerce’ are between a business firm and its customers.
The salient aspects of B2C commerce are:
Includes: It includes promotion, product information, reviews about the product / services and delivery of the product at the doorstep.
Cost of product: The cost of product and services is kept low through this method and the speed of transaction is also faster.
Customisation: It has enabled businesses to produce products with customised characteristics to meet the needs of their customers. It also offers clients the ease of delivery and payment.
Customer Feedback: The B2C e-commerce model allows a company to stay in contact with its consumers by conducting online demand surveys.
Customer service: Customers can also utilise call centres set up by businesses to make toll-free calls to ask questions or file complaints 24 hours a day, 7 days a week, at no cost to them. B2C companies include Amazon, Walmart, and others.
Q.10 Discuss the limitations of electronic mode of doing business. Are these limitations severe enough to restrict its scope? Give reasons for your answer.
ANSWER: The various limitations of electronic mode of business are:
I. Lack of personal touch:
Unlike traditional business, you cannot touch and feel the product. So it is difficult for the consumers to check the quality of the product, until the order has been delivered.
Traditional businesses have contact with the salesperson in the traditional way, and there is a sense of humanity and trustworthiness as a result of this. It also fosters customer confidence. Such characteristics will always be absent from an e-business paradigm.
II. Delivery time:
The delivery of the products takes time in e-business. This lag time often discourages customers.
However, these days, e-businesses are trying to resolve such issues by promising very limited time. For exampleAmazon now guarantees delivery within one day.
III. Security issues:
Many people are capable of conducting online business. Additionally, hackers have an easier time obtaining one’s financial information. It has a few concerns with security and integrity. This creates scepticism among potential clients.
IV. Technology capability and competency of e-business participants are required:
E-business necessitates a high level of computer literacy among the parties involved. This obligation can also be blamed for the so-called digital divide.
The term “digital divide” refers to the separation of society based on one’s familiarity or lack thereof with digital technologies.
V. Ethical fallouts:
Companies utilise an ‘electronic eye’ to keep track of your computer files, email account, and internet visits, among other things, so as to gain knowledge about your interests, preferences etc. It’s unethical in a number of ways
Despite the limitations, the scope of e- business is quite vast which helps in overcoming the limitations. In India, nowadays many businesses are becoming aware of the advantage of e-business and are incorporating this into their strategies. Almost all types of business functions such as production, finance and marketing as well as managerial activities like planning, organizing can be carried out over computer network. Various business and payments apps popularly used in E-business transactions. Hence, despite the limitations, the scope of e-business cannot be restricted
Long Answer Type Question:
Q.1 Why are E-business and outsourcing referred to as the emerging modes of business? Discuss the factors responsible for the growing importance of these trends. Answer: E-business and outsourcing are referred to as emerging modes of business. Prefix ‘emerging’ puts emphasis on the fact that these businesses are in the process of development. These changes are happening here and now, and, that these changes are likely to continue. In fact, three changes are taking place most strongly:
Digitizaton: The conversion of text, sound, images, video and other content into a series of ones and zeroes that can be transmitted electronically.
Outsourcing: Contracting out non core activities to outside firms.
Internationalisation and globalisation: More and more foreign companies are entering into India and sending Ashia and Indian companies becoming MNCs. Therefore, E-business and outsourcing referred to as the emerging modes of business.
Following factors are responsible for the growing importance of these trends:
Improvement in Information Technology: With the improvement in information technology and emergence of internet the process of outsourcing and e-business is on an expansionary path.
More and More Interactive Websites: Websites are becoming more and more interactive. It is removing the problem of ‘low touch’.
Improvement in Communication Technology: Communication technology is continually evolving and increasing the speed and quality of communication through internet.
Diffusion of E-Commerce in all nooks and corners of the country: In order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects. It is also growing importance of these trends.
Global Competitive Pressures for higher quality products: Due to adoption of new economic policy of 1991 in India, there has been an increase in competitive pressure from giant sized MNCs and global enterprises.
Ever Demanding Consumers: There is increasing demands from consumers for high quality products at minimum cost. Therefore, e-business and outsourcing are being chosen as newer options. But e-business and outsourcing are not emerging out of compulsion but also out of choice because of its benefits to consumers as well as producers.
Q.2 Elaborate the steps involved in online trading. Answer: Operationally, following steps are involved in online trading:
Registration: First step in online trading is registration with the online trader by filling up a registration form. With registration buyer has opened an account with online trader. A password is created for the account which protects account and shopping cart which can be misused otherwise.
Placing an Order: An account holder can drop the items in the shopping cart. Shopping cart is an online record of what a person has picked up while browsing the online store. Once being sure of what a person wants to buy, one can check out and choose his payment options.
Payment Mechanism: In online trading payment may be made in any of the following ways:
Cash On Delivery: Under this, the payment for goods ordered online may be made in cash at the time of physical delivery of the goods.
Cheque: Another option is that the online vendor may arrange for the pickup of the cheque from the customer’s end. Upon realization, goods may be delivered.
Net Banking Transfer: These days banks provide facility to the customers for electronic transfer of funds using internet. Therefore, a buyer can also make use of net banking money transfer to pay for the goods ordered.
Credit or Debit Cards: These are also called plastic money. These cards are most popularly used in payment for online transactions. To accept credit card as an online payment type, the seller first needs a secure means of collecting credit card information from its customer. Payments through credit cards can be processed either manually, or through online authorization system like SSL Certificate.
Digital Cash: It is a kind of electronic currency which exists only in cyberspace. It has no real physical properties, but offers the ability to use real currency.in an electronic format. For this, the buyer has to deposit cash in bank account which issues equivalent digital cash to the person which can be used for online trading. It is more secure than credit or debit cards.
Q.3 Evaluate the need for outsourcing and discuss its limitations. Answer: Outsourcing has emerged as a way of doing business due to global competitive pressures for higher quality products at lower costs, ever-demanding customers and emerging technologies. Need for outsourcing can be understood from the benefits which are given below:
Focusing of Attention: Business firms are realizing the importance of focusing on core areas where they have distinct ability and core competence and contracting out the rest of the activities to their outsourcing partners. A business organization needs to decide its core areas and non-core areas. Once they outsource non-core areas, they can focus their attention on selected activities. It will increase efficiency and effectiveness.
Quest for Excellence: Outsourcing enables the firms to attain excellence in two ways: (a) By focusing on activities selected, their excellence in those activities increases. (b) They excel by extending their capabilities through contracting out the remaining activities to them who excel in them.
Cost Reduction: In the age of globalization, cost reduction is of vital importance to survive in the market. Division of labour not only enhances quality but also reduces cost. For example, India is preferred as an outsourcing destination because of cost factors.
Growth through alliance: When some activities are outsourced then these alliance partners invest for the outsourced activities. Business can be expanded by same amount of investible funds as now these funds are to be invested in limited number of activities.
Fillip to Economic Development: Outsourcing stimulates entrepreneurship, employment and exports in the host countries. For example, in India there has been remarkable growth in entrepreneurship, employment and exports that today India is an undisputed leader in software development and IT enable services.
But outsourcing is not an unmixed blessing. It has its own limitations. Some of which are discussed below:
Confidentiality: When a business opts for outsourcing, it has to share a lot of vital information and knowledge. This information may be leaked by the outsourcing partner. It may be against the outsourcing firm. It is also possible that the outsourcing partner starts a business of same line after getting such information.
Ethical Concerns: Many a time, outsourcing makes use of child labour and violates labour laws to reduce costs. They also discriminate in wages on the basis of sex.
Sweat Shopping: A firm which goes in for outsourcing actually transfers ‘doing’ skills rather than ‘thinking’ skills. Therefore, they do not create skilled manpower in developing countries but just take maximum benefit of low cost labour by transferring non intellectual tasks.
Resentment in their Home Countries: Outsourcing is being disliked by people in developed countries because the jobs which they could get are being transferred to developing countries through outsourcing. The problem is still more severe if there is problem of unemployment in home country of outsourcing firm.
Q.4 Discuss the salient aspects of B2C commerce. Answer: In this, both the parties involved are business firms and therefore, it has been named as B2B i.e., business to business. Historically, the term e-commerce originally meant for facilitation of B2B transactions using Electronic Data Interchange (EDI) technology to send and receive commercial documents like purchase orders and invoices. Salient aspects of B2B Commerce:
Need: Creation of utility requires a business to contact with a number of other businesses which
May be suppliers
May act as channel of distribution.
Different middlemen in different locations;
Changing production as per specifications of the customer.
Benefits:
It strengthens and improves the distribution system of a firm. For example, each consignment of goods from a warehouse and the stock in hand can be monitored and replenishments and reinforcements can be set in motion as and when needed.
A customer’s specifications can be routed through the dealers to the factory so that there may be customized production.
B2B E-commerce expedites the movement of information and documents.
It also expedites money transfers.
Example: The manufacture of an automobile requires assembly of a large number of components which in turn are being manufactured elsewhere. To reduce dependence on a single vendor, the automobile factory cultivates more than one vendor for each of the components. A network of computers is used for placement of orders, controlling production and delivery of components and making payments.
Q.5 Discuss the limitations of electronic mode of doing business. Are these limitations severe enough to restrict its scope? Give reasons for your answer. Answer: The limitations of electronic mode of doing business are given below:
Low personal Touch: It lacks the warmth of interpersonal interactions. Therefore, such products which need personal touch like beauty products, garments, fashion accessories etc. can’t be traded through e-business.
Mismatch between order giving/taking speed and order fulfillment speed: Sometimes websites take a long time to open which may frustrate the user. Even after giving or taking order, it takes enough time to give physical delivery of goods. It also plays on the patience of the customer.
Knowledge of technology is must: For e-commerce both the parties need fairly high degree of familiarity with the world of computers. It divides the society into two parts i.e; one who are familiar with digital technology and other who are not.
Increased risk due to parties being unknown to each other: When two parties are involved in e-business, they are unaware of personal identities of each other. They do not even know the locations of the parties involved. It makes e-business risky. There may also be problems of virus and hacking.
People Resistance: People are resistant to change their ways and adopt new technology. Change is perceived as a source of stress and insecurity by many.
Ethical Concerns: These days companies use an electronic eye to keep track of the websites being used by employees, computer files that they use, their e-mal accounts etc. It is not ethical.
But in spite of these limitations, e-business is the way. No, these limitations are not severe enough to restrict its scope.
Improvement in Information Technology: With the improvement in information technology and emergence of internet the process of outsourcing and e-business is on an expansionary path. Anti virus and improved security measures are increasing to make e-business more secure and safer option.
More and more Interactive Websites: Websites are becoming more and more interactive. It is removing the problem of ‘low personal touch’.
Improvement in Communication Technology: Communication technology is continually evolving and increasing the speed and quality of communication through internet so that customer does not get frustrated in processing the order.
Diffusion of E-Commerce in all nooks and corners of the country: An order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects. It is increasing the number of people acquainted with digital technology. We can conclude that e-business will continue to stay and reshape the businesses, governance and economies.
ANSWER: Services are intangible activities that need face-to-face interaction between the customer (service purchaser) and the service provider (service seller) at the moment of delivery. There is no requirement that the services entail the manufacture or sale of products. The following two categories are used to categorise services.
Business Services: Banking, insurance, and warehousing are examples of business services.
Professional Services: Legal services, medical counselling, and tax consulting are examples of professional services.
The phrase ‘goods,’ in contrast to services, refers to actual and tangible things whose ownership is passed to the customer as soon as the product is purchased. Examples of goods are, plants and machinery etc..
Q.2 What is e-banking? What are the advantages of e-banking?
ANSWER: banking is the use of an electronic medium to execute different banking activities such as money transfers, account checks, and loan applications. Commercial banks provide these services to make it simple for its account holders to perform financial transactions online from any location and at any time.
The following are some of the benefits of e-banking.
Availability 24×7: E-banking is available 24 hours a day, 365 days a year. At any moment, a client can log into his or her own bank account and execute financial activities online. Customers benefit from increased flexibility and comfort because they do not have to visit their banks in person.
Convenient Access: Transactions may be done on mobile phones and PCs as needed.
E-banking Decreases Bank Workload: E-banking reduces bank workload by allowing a substantial part of tasks to be performed electronically.
Q.3 Write a note on various telecom services available for enhancing business.
ANSWER:The many sorts of telecom services that enable a firm to carry out its activities efficiently are listed below.
Cellular Mobile Service: This includes voice and non-voice transmission, as well as data transmission.
Radio Paging Service: This is a one-way communication system that sends out information in the form of a tone, numeric, or alphanumeric message.
Fixed-Line Service: This type of service entails the installation of fibre optic cables across the nation for the transmission of data, including voice and non-voice communications.
Cable Service: This service transmits media-related information to a designated operational region for which a licence has been obtained. The information flow is one-way with this sort of telecom service.
VSAT Service: VSAT stands for “Very Small Aperture Terminal” and refers to a satellite-based communication service that allows information to be sent to far-flung and remote locations. As a result, businesses benefit from a broader reach and greater flexibility.
DTH Service: DTH stands for Direct-To-Home, and it is a form of telecommunications service provided by DTH providers. Customers receive TV channels through satellites from the corporations. Customers may watch several channels by connecting their television to a tiny dish antenna and a set-top box.
Q.4. Explain briefly the principles of insurance with suitable examples.
ANSWER:The following are the specific principles of a legal insurance contract:
Absolute Good Faith: Both the insurer and the insured must believe in each other and the contract they have signed. For example, if Rahul has a heart condition, he should tell his insurance firm about it while purchasing a life insurance policy.
Insurable Interest: The insurable interest requires that the owner of a particular insurance policy has an insurable interest in the subject matter of the insurance policy. For example, a wife having insurable interest in her husband’s life due to financial dependency, a person’s interest in his property etc.
Principle of Indemnity: The goal of an insurance contract, according to the indemnity principle, is to restore the insured to the same financial position as before the loss. to he or she For example, if a person loses Rs. 1 lakh in a fire, the insurance company will only accept a claim up to Rs. 1 lakh and not more.
Principle of Proximate Cause: The proximate cause insurance principle states that the nearest or closest cause should be considered, and the insurance company will compensate only for the causes that have been mentioned in the insurance contract, or any proximate causes, and not the remote causes of damage. For example, if a person is injured in a fire, this should be included in the contract so that the individual may collect the insurance benefits.
Principle of Subrogation: Once the compensation is paid, the insurer gains ownership of the damaged item, preventing the insured from profiting from the sale of the damaged property. For example, if a person receives Rs. 1 lakh for a damaged stock, the stock’s ownership will be transferred to the insurance company, and the person will no longer have control over the stock.
Principle of Contribution: If an individual purchases many insurance policies for the same item, the insurers will pool their resources to reimburse the insured for the real loss. If a person A insures his or her home for Rs. 2 lakh with insurance B and Rs. 1 lakh with another insurer, say C, then in the event of a loss of Rs. 90,000, insurer B and insurer C will pay A Rs. 90,000 in total and no more.
Principle of Mitigation: The insured shall treat the insured thing with the same care as he or she would if the insurance were not present. For example, if a person obtains fire insurance, he or she should take all reasonable steps to minimise property damage in the event of a fire, just as he or she would have done if the insurance had not been purchased.
Q.5 Explain warehousing and its functions.
ANSWER:Warehousing is the process of keeping things in a systematic and orderly way in order to preserve their worth and quality. Warehouses provide not only storage but also logistical services by locating the appropriate amount in the right place at the right time and at the right price.
Storage: Warehouses make it easier to store products and raw materials that aren’t needed right away for sale or manufacture, while also protecting them from rotting and damage.
Value-added Services: They provide producers with value-added services such as product grading, packaging, and labelling.
Financing: The warehouse receipt can be used as collateral to borrow money from banks or other financial organisations by the owner of the products or raw materials kept in the warehouse.
Break the Bulk: Warehouses are responsible for dividing large quantities of items received from manufacturing companies into smaller quantities. The small batches are then transported as per the requirements of customers.
Consolidation: The warehouses gather and consolidate material/goods from various manufacturing units before dispatching them to a specific consumer via a single transportation package.
Q.6 What are services? Explain their distinct characteristics?
ANSWER:Services are intangible economic activities that need face-to-face interaction between the customer and the service provider at the point of delivery. Services do not require the manufacture or sale of products and are mostly given to meet the needs of individuals.
Business services (such as banking, insurance, and warehousing) and professional services are the two types of services (including legal services, medical advice and tax consultancy).
The following are the types of services:
Intangible: Because services cannot be seen or touched, they are intangible. They can only be experienced. As a result, the quality of services cannot be determined prior to their use. As a result, it becomes critical for service providers to provide services that meet the needs of the individuals involved.
Inseparable: Simultaneous activity of production and consumption makes the production and consumption of services seem to be inseparable. Unlike products, which are manufactured today and sold later, services must be consumed immediately once they are made accessible.
Inconsistent: There are no defined standards for services; they must be delivered according to the demand and expectations of service consumers at any given moment. Due to the fact that each service user has distinct interests and preferences, the type and quality of services offered varies per user.
Engagement: At the moment of service delivery, the involvement of both the service user and the service provider is required. In a school, for example, the instructor and the pupils are actively involved in the exchange of knowledge-transfer services.
Inventory: Services cannot be held in inventory and sold at a later date. They must be made available when service users request them. This is due to the fact that if services are not utilised immediately, they lose their value.
Q.7 Explain the functions of commercial banks with an example of each.
ANSWER:Commercial banks are responsible for the following tasks:
Deposits: Banks accept and pay interest on a variety of public deposits, including savings account deposits, current account deposits, and fixed account deposits. They owe it to the depositor to refund the money placed by him or her.
Funds Lending: Banks provide loans and advances based on the total amount of money they have on hand. Overdrafts, reduced trade bills, cash or consumer credits, and other types of advances are available. Banks make a lot of money from the interest they charge on these loans.
Extending the Cheque Facility: Banks collect checks written on other banks, thus acting as a clearing house. Bearer cheques (encashable instantly at bank counters) and crossed checks (only deposited in the payees’ accounts) are the two most common forms of cheques.
Funds Remittance: Banks assist clients in moving funds from one location to another. Bank draughts and pay orders can be used to make these transfers, and there are no commission fees.
Provision of Ancillary Services: In addition to their core duties, banks offer services such as lockers, underwriting, and bill payment. They also handle things like purchasing and selling stocks and debentures on behalf of their clients.
Q.8 Write a detailed note on various facilities offered by the Indian Postal Department.
ANSWER:The Indian Postal Department offers the services listed below.
Financial Facilities:
Post offices provide a range of savings options to the general public.These facilities are provided through the post office’s savings schemes like:
Public Provident Fund (PPF)
Kisan Vikas Patra
National Saving Certificate (NSC)
Recurring Deposit Scheme
Fixed Deposit Scheme
Mail Facilities:
Mail services include:
Parcel Facilities: They make it easier to transport an item from one location to another.
Registration Services: These services ensure that the article being sent is secure.
Insurance Facilities: These cover the risks associated with postal transmission.
The following are some of the mail services supplied by banks:
Postcards: This is the least expensive method of mail delivery.
Letter: It is enclosed in an envelope and guarantees the confidentiality of the information communicated.
Registered Mail: Registered mail ensures that the mail sent to the recipient is delivered or returned to the sender if it is not.
Additional Services:
Greeting cards, media mail, international money transfers, speed mail, passport services, and e-billing services are also offered by these departments.
Q.9 Describe various types of insurance and examine the nature of risks protected by each type of insurance.
ANSWER:The following three forms of insurance are available:
Life Insurance:
It is a contract between the insurer and the insured in which the insurer promises to pay the insured a predetermined sum in the event of the insured’s death or the insurance contract’s maturity, whichever happens first.
That is, if the insured person dies before the contract’s maturity date, the promised sum is paid to his or her family. If the insured lives to the end of the contract’s term, he or she will be paid the agreed-upon amount.
The insured pays a certain amount to the insurer as a premium in exchange for this guarantee. Life’s uncertainties necessitate the purchase of a life insurance policy.
Risk Covered: Life insurance plans protect us against two sorts of risks:
Risk of dying too early
Risk of dying too late
Fire Insurance:
In exchange for the premium paid, the insurer guarantees to make good any loss or damage caused by fire over a specified period of time, up to the amount specified in the policy.
The fire insurance policy is usually for a year and must be renewed on a regular basis.
A claim for fire damage must meet the following two requirements:
There must be a monetary loss.
Fire must be unintended and accidental.
Marine Insurance:
A marine insurance contract is an arrangement in which the insurer agrees to indemnify the insured against maritime losses in the way and to the extent agreed upon.
Risk Covered: Marine insurance protects against losses caused by marine perils, often known as sea perils. There are three factors to consider:
Hull Insurance: Because the ship is exposed to several dangers at sea, this insurance policy is designed to compensate the insured for losses incurred as a result of ship damage.
Cargo Insurance: Cargo or the goods in the ship is exposed to numerous dangers while being transported by ship, this insurance covers the risk of voyage.
Freight Insurance: If the cargo is damaged or lost in transit, the shipping business is not reimbursed for the freight payments, hence to avoid this scenario, the shipping company takes up this insurance policy.
Q.10 Explain in detail the warehousing services.
ANSWER:Warehousing was once thought of as a static unit for keeping and storing goods in a scientific and systematic manner in order to preserve their original quality, value, and utility, but it is now thought of as a logistical service that makes the right quantity, at the right place, at the right time available. The following are the different warehousing services:
Storage: Warehouses make it easier to store products and raw materials that aren’t needed right away for sale or manufacture, while also protecting them from rotting and damage.
Value-Ddded Services: They provide producers with value-added services such as product grading, packaging, and labelling.
Financing: The warehouse receipt can be used as collateral to borrow money from banks or other financial organisations by the owner of the products or raw materials kept in the warehouse.
Break the Bulk: Warehouses are responsible for dividing large quantities of items received from manufacturing companies into smaller quantities. The smaller quantities are then transported according to the requirements of clients to their places of business
Consolidation: The warehouses gather and consolidate material/goods from various manufacturing units before dispatching them to a specific consumer via a single transportation package.
Stockpiling: The seasonal storing of commodities for certain businesses is the next role of warehousing. Raw materials, which are not required immediately for sale or manufacturing, are stored in warehouses. They are made available to enterprises according to the number of consumers they have.
Price Stabilisation: Warehousing provides the role of price stabilisation by adapting the supply of products to the demand condition.
Long Answer Type Question:
Q.1 What are services? Explain their distinct characteristics. Answer: A service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing desired change. According to Sir William B, “Service refers to social efforts which includes the Govt.to fight five giant evils – wants, disease, ignorance, squalor and illness in the society”. Characteristics of Services Service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing about a desired change in or on behalf of the recipient of the service. The term, service, is not limited to personal services like medical services, beauty parlors, legal services, etc. According to the marketing experts and management thinkers the concept of services is a wider one. The term services are defined in a number of ways but not a single one is universally accepted. The distinct characteristics of services are mentioned below:
Intangibility: Services are intangible. We cannot touch them, it is not a physical object. According to Carman and Uhl, a consumer feels that he has the right and opportunity to see, touch, hear, smell or taste the goods before they buy them. This is not applicable to services. The buyer does not have any opportunity to touch, smell, and taste the services. While selling or promoting a service one has to concentrate on the satisfaction and benefit a consumer can derive having spent on these services. For example: Railways sells a train ticket from A destination to B destination. Here it is the matter of consumer’s perception of services than smelling it or tasting it.
Inventory: Services too, are perishable like labour. Service has a high degree of perishability. Here the element of time assumes a significant position. There will be complete loss of labour. If labour stops working, it is a complete waste. It cannot be stored. Utilized or unutilized services are an economic waste. An unoccupied building, an unemployed person, credit unutilized, etc. are economic waste. Services have a high level of perishability.
Inseparability: Services are generally created or supplied simultaneously. They are inseparable. For example, the entertainment industry, health experts and other professionals create and offer their services at the same given time. Services and their providers are associated closely and thus, not separable. Donald Cowell states ‘Goods are produced, sold and then consumed whereas the services are sold and then produced and consumed’. Therefore inseparability is an important characteristic of services which proves challenging to service management industry.
Inconsistency: This character of services makes it difficult to set a standard for any service. The quality of services cannot be standardized. The price paid for a service may either be too high or too low as is seen in the case of the entertainment industry and sports. The same type of services cannot be sold to all the consumers even if they pay the same price. Consumers rate these services in different ways. This is due to the difference in perception of individuals at the level of providers and users. Heterogeneity “makes it difficult to establish standards for the output of service firm.
Involvement: In the sale of goods, after the completion of process, the goods are transferred in the name of the buyer and he becomes the owner of the goods. But in the case of services, we do not find this. The users have only an access to services. They cannot own the service. For example: a consumer can use personal care services or medical services or can use a hotel room or swimming pool. However, the ownership remains with the providers. According to Philip Kotler, “A service is an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything” From this it is clear that the ownership is not affected in the process of selling the services.
Q.2 Explain the functions of commercial banks with an example of each. Answer: The main functions of commercial banks are accepting deposits from the public and advancing them loans. However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads: 1. Accepting deposits; 2. Giving loans; 3. Overdraft; 4. Discounting of Bills of Exchange; 5. Investment of Funds; 6. Agency Functions.
Accepting Deposits: The most important function of commercial banks is to accept deposits from the public. Various sections of society, according to their needs and economic condition, deposit their savings with the banks. For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion. On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment. Therefore, keeping the needs and interests of various sections of society, banks formulate various deposit schemes. Generally, there are three types of deposits which are as follows: (i) Current Deposits: The depositors of such deposits can withdraw and deposit money whenever they desire. Since banks have to keep the deposited amount of such accounts in cash always, they carry either no interest or very low rate of interest. These deposits are called Demand Deposits because these can be demanded or withdrawn by the depositors at any time they want. Such deposit accounts are highly useful for traders and big business firms because they have to make payments and accept payments many times in a day. (ii) Fixed Deposits: These are the deposits which are deposited for a definite period of time. This period is generally not less than one year and, therefore, these are called as long term deposits. These deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called as time deposits. These deposits generally carry a higher rate of interest because banks can use these deposits for a definite time without having the fear of being withdrawn. (iii) Saving Deposits: In such deposits, money up to a certain limit can be deposited and withdrawn once or twice in a week. On such deposits, the rate of interest is very less. As is evident from the name of such deposits their main objective is to mobilise small savings in the form of deposits. These deposits are generally done by salaried people and the people who have fixed and less income.
Giving Loans: The second important function of Commercial Banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income. Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits out of loans. This is called as credit creation by Commercial Banks. Modern banks give mostly secured loans for productive purposes. In other words, at the time of advancing loans, they demand proper security or collateral. Generally, the value of security or collateral is equal to the amount of loan. This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan. At times, banks give loan on the basis of personal security also. Therefore, such loans are called unsecured loan. Banks generally give following types of loans and advances: (i) Cash Credit: In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories and other approved securities. Under this scheme, banks enter into an agreement with its customers to which money can be withdrawn many times during a year. Under this set lip banks open accounts of their customers and deposit the loan money. With this type of loan, credit is created. (ii) Demand Loans: These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable to interest with immediate effect. (iii) Short-term Loan: These loans may be given as personal loans, loans to finance working capital or as priority sector advances. These are made against some security and entire loan amount is transferred to the loan account of the borrower.
Over-Draft: Banks advance loans to its customer’s up to a certain amount through over-drafts, if there are no deposits in the current account. For this, banks demand a security from the customers and charge very high rate of interest.
Discounting of Bills of Exchange: This is the most prevalent and important method of advancing loans to the traders for short-term purposes. Under this system, banks advance loans to the traders and business firms by discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange before the time of their maturity.
Investment of Funds: The banks invest their surplus funds in three types of securities—Government securities, other approved securities and other securities. Government securities include both, central and state governments, such as treasury bills, national savings certificate etc. Other securities include securities of state associated bodies like electricity boards, housing boards, debentures of Land Development Banks, units of UTI, shares of Regional Rural banks etc.
Agency Functions: Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions. The important functions of these types are as follows:
Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers.
Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time.
Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income tax, interest etc. as per directions.
Banks purchase and sell securities, shares and debentures on behalf of their customers.
Banks arrange to send money from one place to another for the convenience of their customers.
Q.3 Write a detailed note on various facilities offered by Indian Postal Department. Answer: Indian Post and Telegraph Department provides various postal services all over India. India has been divided into 22 postal circles for this. There are 1,54,149 post offices in India. It has 5,64,701 letter boxes, which transmits 1575 crore mails every year. 5,01,716 villages have a public telephone and 26000 post offices are connected through the network. It links major 97 countries across the world. It provides speed post facility for over 1000 destinations in India Facilities of postal department are broadly divided into:
Financial Facilities: Post and Telegraph Department provides financial services using post office’s saving schemes like Public Provident Fund, Kisan Vikas Patra, National Saving Certificate, normal retail banking functions of monthly income schemes, recurring deposit account, savings account, time deposits and money order facility etc.
Mail Facilities: It consists of parcel facilities which consists of transmission of articles from one place to another which can be registered and insured. It also provides facilities for greeting post, (a range of delightful greeting card on all occasions) and Media Post (a way for Indian corporate to advertise their brands through aerograms, telegrams and letterboxes).
International Money Transfers: It enables money transfer from 185 countries in collaboration with Western Union Money Transfer.
Passport Facilities: It has joint hands with Ministry of External Affairs and accepts application for passport.
Speed Post: It has more than 1000 destinatiory in India. It covers 97 major countries of the world.
E-Bill Post: It is the latest addition in facilities by Indian Post whereby it collects bill payment across the counter for BSNL and Bharti Airtel.
Q.4 Describe various types of insurance and exercise the nature of risks protected by each type of insurance. Answer: There are many types of insurance. Some of them are shown with the help of diagram given below:
Q.5 Explain in detail the warehousing services. Answer:Primary warehousing services include the following:
Consolidation: Warehouse receives and consolidates goods from different production stations and dispatches it to customer on a single transportation shipment.
Break the Bulk: Warehouse breaks the bulk received according to the requirements of the client.
Stock Piling: The next function of warehousing is the seasonal storage of goods to select business.
Secondary Functions of a Warehouse
Protection of goods: A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature. It cuts down losses due to spoilage and wastage during storage.
Risk Bearing: Warehouses take over the risks incidental to storage of goods. Once goods are handed over to the ware housekeeper for storage, the responsibility of, these goods passes on to the ware housekeeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage etc., thus, it takes all precautions to prevent any mishap.
Financing: When goods are deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favour of the owner of the goods, which is called warehouse keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. So while the goods are in custody of the ware housekeeper, the businessmen can obtain loans from banks and other financial institutions keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period keeping their goods as security.
Processing: Certain commodities are not consumed in the form they are produced. Processing is required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners.
Grading and branding: On request warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale.
Q.1 Explain the concept of public sector and private sector?
ANSWER: The private sector refers to the portion of the economy that is owned and controlled by people or businesses for the sole purpose of profit. To put it another way, it refers to all organisations that are not directly owned or run by the government. The private sector employs a substantial percentage of the workforce in most free economies (where the government plays a little role).
The following are the many sorts of businesses that make up the private sector.
Partnership
Joint Hindu Family
Cooperative societies
Sole proprietorship
The public sector is made up of organisations that are owned and run directly by the government. Bharat Heavy Electricals Ltd, Oil India Ltd, and Life Insurance Corporation of India are examples of public sector enterprises that are partially or entirely controlled by the national or state government.
Q.2 State the various types of organisations in the private sector.
ANSWER: Commercial firms held by an individual or a group of individuals make up the private sector. Profitability is the primary goal of the private sector. Individual investments or shareholder contributions are used to raise funds.
It mostly consists of:
Sole Proprietorship: It is a type of business in which a single person owns the whole company. He is in charge of managing, controlling, and bearing all of the business’s risks.
Partnership: A partnership is described as a group of two or more people who agree to run a business together, share the profits, and share the risks.
Joint Hindu Family: This business is owned and operated by a Hindu Undivided Family that is regulated by Hindu Law.
Company: A company is an artificial person that exists only in the eyes of the law, has perpetual succession, and has its own legal entity and common seal. It is divided into two categories:
Private and
Public.
Multinational Corporations: Multinational corporations have operations in one or more countries other than their home country. Take, for example, Google.
Q.3 What are the different kinds of organisations that come under the public sector?
ANSWER: The public sector is made up of organisations that are owned and run directly by the government. These organisations are either completely or partially controlled by the government.
The many types of public sector organisations are listed below:
Departmental undertakings: These businesses are run as ministry divisions and are regarded as an extension of the ministry. These businesses might be run by the federal or state governments. Railways is an example under this.
Statutory corporations: Statutory companies are public corporations created by a Special Act of Parliament that establishes their powers and functions. It is a legislatively constituted, financially independent corporate entity that has unambiguous authority over a certain region or kind of business activity.
Government companies: A government company, according to the Companies Act of 1956, is one in which the Central Government, any State Government, or a combination of the Central Government and one or more State Governments owns at least 51 percent of the paid-up capital. These are just for the purpose of conducting business.
Q.4 List the name of some enterprises under the public sector and classify them.
ANSWER: Following are the lists of some enterprises under the public sector and their classifications:
Departmental undertakings: Posts and Telegraphs, Indian Railways
Government company: Bharat Heavy Electricals Ltd, Hindustan Machine Tools Ltd.
Statutory corporations: Food Corporation of India (FCI), Life Insurance Corporation of India (LIC).
Q.5 Why is the government company form of organisation preferred to other types in the public sector?
ANSWER: A government business must have at least 51 percent of its shares owned by either the federal or state government. The Indian Companies Act of 1956 gave birth to this business structure.
The following are the reasons why the government-company structure is chosen above alternative public-sector structures.
In all management activities and decision-making procedures, a government firm has complete autonomy.
It is not subjected to excessive intervention in its activities by the relevant department.
It is a separate entity from the government, i.e., a government corporation is not the same as the government.
It offers affordable prices for goods and services while also ensuring safe marketing practises.
Q.6 How does the government maintain a regional balance in the country?
ANSWER: The government maintains regional balance in the country by giving special attention to regions that are falling behind, and public sector companies have been purposefully established. This aids in the creation of job possibilities as well as the economic development and expansion of rural and underdeveloped areas. At the same time, the government works to limit the expansion of private-sector businesses in previously developed regions.
Q.7 State the meaning of public private partnership.
ANSWER: Public- private partnership refers to the long term involvement and the participation of the private sector in the government based projects, wherein both, the public and private sector share costs, risks, finances, tasks, obligations, and technology with each other. However, normally the technical skills, and finances of the private sector are taken advantage of in the PPPs.
In this, the public partners can be ministries and government departments, whereas the private sector can be business, or investors with technical expertise. Power generation, infrastructure, water, railways, hospitals, are some areas of PPPs.
Q.8 Describe the industrial policy 1991 , towards the public sector?
ANSWER: In terms of the public sector, the industrial policy of 1991 is as follows:
Reduction in the number of industries reserved for the public sector: 17 industries were set aside for the public sector in a 1956 resolution on industrial policy. In 1991, industrial policy decreased this number to eight. A review of the programme was conducted in 2001, and just three industries are currently designated for the public sector. Only atomic energy, weapons, and rail transportation are now considered public goods.
Disinvestment of shares of the selected public sector enterprises (PSEs): Disinvestment is the selling of equity shares to the private and public sectors. The goal was to collect funds and encourage broader involvement in the ownership of these businesses by the general public and workers. The government has decided to pull out of the industrial sector and cut its stake in all businesses. It was anticipated that this would result in improved management performance and budgetary discipline.
Policy Regarding Sick Units: The PSUs were to be treated as if they were private businesses. A sick PSU was sent to BIFR, which had to decide whether or not the PSU should be restarted. Workers at firms that had to close down felt a great deal of anger. The government, on the other hand, devised appropriate measures for the rehabilitation and financial recompense of those workers.
Memorandum of Understanding: New Memorandums of Understanding (MOUs) were signed between management and the ministries in question. These MOUs gave management more authority and set defined targets, allowing them to enhance performance.
Q.9 What was the role of the public sector before 1991 ?
ANSWER: The role of the public sector before 1991 are as followings:
Development of Infrastructure: Communication, transportation, energy supply, and financial infrastructure are all essential for industrial development. The private sector showed little interest in investing in heavy industries or developing them in any way since they lacked the qualified personnel and financial resources to build heavy industries quickly, as the economy demanded. As a result, only the public sector was capable of mobilising the massive sums of money necessary. As a result, this sector has been tasked with constructing infrastructure.
Maintaining Regional Balance: During the 1960s and 1970s, India had severe regional development inequalities. Some parts of the country were far more developed than others. The nation’s growth and development were hampered by regional inequalities. Public sector enterprises (PSEs) were established in backward and rural regions to achieve regional balance. These PSEs not only supplied jobs, but also aided the growth of supporting sectors in these regions, such as banking and transportation.
Economies of Scale: Natural gas and petroleum sectors, for example, profit from economies of scale (benefits derived from them are greater when operated on a large scale). The private sector was not large enough to operate these large-scale businesses in the years after independence since they required substantial capital expenditures. Small-scale operation of these industries was not an option since it would have resulted in Losses. As a result, the government was forced to create and run these businesses.
Import Substitution and Exports: One of the main goals of India’s economic planning was to achieve self-sufficiency. The goal was to limit imports while increasing exports at the same time. As a result, PSEs were formed to produce heavy machinery and engineering items in the country, limiting imports. Simultaneously, PSEs such as the Metals and Minerals Trading Corporation of India (MMITC) and the State Trading Corporation (STC) were created with the goal of increasing exports.
Check Over Concentration of Economic Power: The public sector keeps the private sector in check. Due to the concentration of wealth in a few hands in the private sector, only a few industrial firms were ready to engage in heavy industries. Inequalities in income arise as a result of this. As a result, the public sector is able to establish huge businesses that need significant investment, and the resulting revenue and benefits are shared among a large number of employees and workers.
Q.10Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
ANSWER: Because of the following factors, it is extremely difficult for public sector companies to compete with the private sector in terms of profits and efficiency:
Difference in Objective: A private company’s primary goal is to make a profit, whereas public sector companies’ primary goal is to provide social welfare, and thus they cannot be completely profit oriented.
Difference in Ownership: In public sector firms, the government is the single or primary shareholder. As a result, these firms’ management and administration are in the hands of the government, which may not implement economically effective policies owing to political concerns.
Management Differences: Public-sector firms are run and managed by government officials who may or may not have had professional training, whereas private-sector companies are run and managed by professionals. In the private sector, this leads to increased efficiency.
Operational Differences: The private sector operates in all areas with a reasonable return on investment, whereas the public sector mostly engages in the basic and public utility sectors, which have low returns.
Q.11 Why are global enterprises considered superior to other business organisations?
ANSWER: MNCs are regarded superior to other business organisations because they have:
Huge Capital Resources: MNCs have enormous capital resources since they can generate capital from all over the world. They may borrow from worldwide banks and a big number of investors who are prepared to invest in them for significant profits because of their goodwill.
International Collaborations: Multinational corporations (MNCs) typically join the market with the assistance of local private firms. This is mostly due to regulatory limitations put on them, as well as to capitalise on the Indian company’s brand image.
Product Innovation: Multinational businesses have fine-tuned their research and development centres for new product creation. This enables them to remain competitive and keep their big customer base.
Marketing Tactics: Global firms’ marketing strategies are considerably more successful than those of other companies. They employ aggressive marketing techniques to boost sales in a short amount of time. They have a more trustworthy and up-to-date market intelligence system, as well as more successful advertising and sales promotion tactics.
Market Expansion: Their operations and activities extend beyond the physical borders of their respective countries. Their worldwide image improves, and their market region increases, allowing them to establish themselves as global brands.
Centralised Control: They have a headquarters in their native nation and control all of its branches and subsidiaries. This control, however, is restricted to the parent company’s wide policy framework. There are no delays or disruptions in regular operations.
Q.12 What are the benefits of entering into joint ventures?
ANSWER: The following are some of the advantages of forming a joint venture:
Increased Resources and Capacity: In a joint venture, the separate businesses’ resources and operational capacities are combined. A joint venture has a stronger ability to extend and flourish than a single firm.
Access to New Markets and Distribution Networks: Forming a joint venture with a company in another location expands the market base for each of the companies involved.
Technology Access: A joint venture allows a firm to obtain new and current technology with less money, time, and effort than it would be possible for individual businesses to do so on their own.
Innovation: A joint venture, particularly one with a foreign partner, provides a company with fresh ideas and technology that aids in the development of new goods. In today’s complicated and competitive economy, these innovative tools help firms stay afloat.
Cheap Cost of Production: In comparison to other nations, India’s raw material and labour prices are quite low. As a result, multinational firms who form joint ventures with Indian companies gain greatly.
Established Brand Name: When two companies form a joint venture, one of them benefits from the goodwill of the other, which has already been established in the market.
Q.13 Make a list of Indian companies entering into joint ventures with foreign companies. Find out the apparent benefits derived out of such ventures.
ANSWER: The list of companies are:
Tata Sons and Singapore Airlines joint venture into Vistara
Bharti Enterprises (India) and French insurance major AXA, for the creation of Bharti AXA General Insurance Corporation Limited.
Hindustan Aeronautics Limited
Network 19 Media and investments
Brahmos Aerospace
Green Gas Ltd
Suntera Nigeria 205 Limited
Tata Global Beverages
Fratelli Wines
Mahindra-Renault Ltd
AirAsia India
The benefits derived from such ventures are:
Risk and cost spread.
Economies of scale
Access to new, improved, high-end technology.
Access to better, and innovative managerial practices.
Competitive advantage
Access to new markets.
Access to new distribution channels
Better utilization of resources that strengthen the firm.
The firm gets advantage from the goodwill and reputation of the other firm in the joint venture.
Better use of financial resources.
Higher profitability and market position due to higher efficiency, better technology, low costs.
Long Answer Type Question:
Q.1 Describe the Industrial Policy 1991, towards the public sector. Answer: Development of a country originates from industrial development. Industrially developed countries are also economically prosperous. The 2nd Five Year Plan also called the Mahalnobis Model lead to the promotion of heavy and key industries in India. The period 1950 onwards witnessed development of infrastructure, research and development, establishment of large scale along with many small scale industries, co-existence of public and private sector enterprises, growth of both consumer and capital goods industries. The industrial sector made a significant contribution to agriculture and trade. The industrial policy plays a key role in influencing the foreign trade policy, fiscal policy, the monetary policy, the economic policy of the country. Government of India declared its 1st Industrial Policy Resolution (IPR) in 1948. It divided the industries into four categories.
Industries that were to be state monopolies. These were limited to atomic energy, arms and ammunition and railways (3 in all).
Basic industries in which the state would have the exclusive right to new investment- 6 industries were included in this – iron and steel, shipbuilding, mineral oils, coal, aircraft production and telecommunication equipments.
Industries of national importance that the state might regulate and license in consultation with state government. 18 industries were placed in this category.
All other industries would be opened to the private sector without constraints. IPR 1948 remained in force till 1956. Two developments had taken place. One; the first plan which was initiated in 1951 was completed. Second, Parliament accepted the socialistic pattern of society. This led to IPR 1956.
Special features of IPR 1956 were as follows:
Specific and all-important roles assigned to the public sector – all industries were classified into 3 groups. These groups were called schedules A,B,C.
Schedule A – Exclusive responsibility of state. There were 17 industries in this.
Schedule B – Progressively state-owned – 12 industries.
Schedule C – Generally left to private sector. The state reserved the right to enter this if need be.
Protection to cottage and small scale industries.
Cautious approach towards foreign capital. IPR 1956 remained the basis of industrial policy till 1991.
Q.2 What was the role of the public sector before 1991? Answer: Before 1991, public sector was supposed to perform the following role in India:
Rapid Economic Development: It was required to make efforts so that the rate of economic development accelerates.
Provision of Infrastructure: Another expectation from public sector was to provide infrastructure in the form of better roads, more hospitals, more schools, better irrigation facilities etc.
Sound Industrial Base: We also needed public sector to develop a sound industrial base because Private Sector either did not have huge capital required for these or were not interested in this sector as they had a long gestation period.
Development of Backward Regions: Public sector also aimed at developing backward regions as it is necessary for the balanced development of a country. Private sector being profit minded does not take interest in investing in backward regions.
Generation of Surplus: Another expectation from public sector was to generate a surplus that could be used for investment in other sectors whereby the growth rate could be accelerated.
Creation of Employment Opportunities: Public sector also played its role in creating employment opportunities in organized sector so that poverty can be reduced and standard of living can be enhanced.
Control of Monopoly and Restrictive Trade Policies: Public sector also aimed at controlling monopoly and restrictive trade policies. Otherwise few private industrialists would have gained extreme economic power. It could be harmful for the nation as a whole.
Serving of Strategic National Interests: Public sector also plays its role in serving strategic national interests. They provide law and order, administrative services, police, defence, and many infrastructural facilities even when they are not given any profit as such in monetary terms.
Q.3 Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer. Answer: It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of profits due to following reasons:
Motive of public sector is not profit: Public sector works not for profit but for social welfare. It gives first priority to social welfare then it is almost impossible for it to compete with private sector enterprise on the basis of profit which mainly works for profit only.
Public sector takes care of strategic industries: Public sector invests in strategic areas even when these industries have low return generating capacity and long gestation period. These industries do not give monetary returns but if we consider their return in development of our economy otherwise their return is really high.
Public sector provides many facilities free of fast to the weaker section of society: We can’t expect a government hospital or a government school to generate profits. Many public sector undertakings provide many facilities for free or at a very low cost due to the benefits that it gives to other sectors of the society.
It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of efficiency due to following reasons:
Dependence on authorities for taking minor decisions: Public Sector undertakings follow a protocol for everything. It leads to delay in decision making and inefficiency in operations.
Job security: Workers of Public Sector enjoy job security. It reduces their performance as they know that in spite of bad performance there is no fear of losing job.
Red tapism and bureaucracy: In public sector undertakings there is red tapism and bureaucracy. It leads to inefficiency in operations.
Q.4 Why are global enterprises considered superior to other business organizations? Answer: Global enterprises are considered superior to other business organizations because it has following advantages which other business organizations may not have.
Huge capital resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
International operations: A MNC has production, marketing and other facilities in several countries.
Centralized control: MNCs have headquarters in their home countries from where they exercise their control over all branches and subsidiaries. It provides only broad policy, framework to them and there is no interference in their day to day operations.
Foreign collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country
Advanced technology: These organisations possess advanced and superior technology which enable them to provide world class products and services.
Product innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
Marketing strategies: MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.
Q.5 What are the benefits of entering into joint ventures? Answer: Benefits of joint ventures are as follows:
Greater resources and capacity: In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently.
Access to advanced technology: It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
Access to new markets and distribution network: A foreign company gains access to the vast Indian market by entering into a joint venture with Indian company. It can also take advantage of the well established distribution system of local firms.
Innovation: Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
Low cost of Production: Raw materials and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefited by the low cost of production.
Well known brand names: When one party has well-established brands and goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.
Q.1 For which of the following types of business do you think a sole proprietorship form of organisation would be more suitable and why?
Grocery store
Medical store
Legal consultancy
Craft centre
Internet cafe
Chartered accountancy firm
ANSWER: Sole proprietorship is a form of business wherein only a single person is the owner of the business. He is the only one who manages and controls the business. Thus, among the given alternatives, this form of business would be more suitable for a grocery store, medical store, craft centre and internet cafe. The reason for this is that these types of businesses would require less initial capital, limited managerial ability and minimal legal formalities. Apart from these, direct personal contact with consumers is required in all the mentioned businesses which is possible only under a sole proprietorship form of business.
Q.2 Explain the following terms in brief:
Perpetual succession
Common seal
Karta
Artificial person
ANSWER:
Perpetual succession: This is one of the features of a Joint Stock Company. It means that a company has a separate legal entity and is not influenced by the death, insolvency or retirement of its members. A company is created by law; thus, it can only be ended by law. The company ceases to exist only when the procedure of its closing called ‘winding up’ is completed.
Common seal: It is an official signature of the company. Because a company is an artificial entity, it acts through its Board of Directors and other officials. The document through which the company gets into an agreement needs to have a common seal; otherwise, it would not be legally binding on the company.
Karta: Karta, apart from being the senior-most member of the family, is also the head of the Hindu Undivided Family. He has the absolute decision-making authority over the business which gives him unlimited liability. It is only the karta who has the right to enter into a legal contract with others.
Artificial person: This term is used to refer to the company. This is because though it has its legal identity-rights, liabilities and functions, it is not a human being. Also, it is a person existing in the eyes of the law but is dependent on the Board of Directors and other members to get its work done.
Perpetual succession: This is one of the features of a Joint Stock Company. It means that a company has a separate legal entity and is not influenced by the death, insolvency or retirement of its members. A company is created by law; thus, it can only be ended by law. The company ceases to exist only when the procedure of its closing called ‘winding up’ is completed.
Common seal: It is an official signature of the company. Because a company is an artificial entity, it acts through its Board of Directors and other officials. The document through which the company gets into an agreement needs to have a common seal; otherwise, it would not be legally binding on the company.
Karta: Karta, apart from being the senior-most member of the family, is also the head of the Hindu Undivided Family. He has the absolute decision-making authority over the business which gives him unlimited liability. It is only the karta who has the right to enter into a legal contract with others.
Artificial person: This term is used to refer to the company. This is because though it has its legal identity-rights, liabilities and functions, it is not a human being. Also, it is a person existing in the eyes of the law but is dependent on the Board of Directors and other members to get its work done.
Q.3 Compare the status of a minor in a joint Hindu family business with that in a partnership firm.
ANSWER:
Minor
Joint Hindu Family
Partnership Firm
Can become a member right after his birth
Cannot be a partner in a partnership firm
Enjoys equal ownership over the inherited property just like the rest of the other members of the family
Can be admitted to the benefits of the partnership firm with the consent of all the other partners
Q.4 If registration is optional, why do partnership firms willingly go through the legal formality of getting themselves registered? Explain.
ANSWER:
Registration for a partnership firm is not necessary. However, firms still voluntarily apply for registration. This is because it is a definite proof of the firm’s existence, and if a firm does not get itself registered, then it can lose out on many benefits. In addition, some serious consequences it can face because of non-registration are
Inability to file a suit by the partner of an unregistered firm against another firm.
Inability to file a suit against a third party for the recovery of claims. However, suits can be filed against a non-registered firm by a registered firm for their claims.
Inability to file a suit against any of its co-partners.
Q.5 State the important privileges available to a private company.
ANSWER: Important privileges available to a private company over a public company:
• Number of members required: The number of members required for the formation of a private company is two, while it is seven for a public company.
• Number of directors required: A private firm requires at least two directors, but a public company needs a minimum of three directors.
• Commencement of business: Business can be started by a private company as soon as it receives its certificate of incorporation. A public company, on the other hand, needs a certificate of commencement for starting the business.
• Index of members: There is no compulsion to maintain the index of members for the private company. On the contrary, it is mandatory to maintain an index of members for a public company.
• Issuance of loans to directors: For a private company, loans can be issued to the directors without prior permission of the government. On the other hand, for a public company, loans can be issued to the directors only after taking the permission of the government.https://6ca32cef050f567274fa29b397f1d939.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.htmlQuestion SA 4
How does a cooperative society exemplify democracy and secularism? Explain. Solution SA 4
A cooperative society is a voluntary association of persons who have come together and work together for the welfare of its members. This society conducts its election in a democratic manner, i.e. it follows the principle of ‘one man, one vote’. Every member of the society is entitled to one vote irrespective of the capital invested by him/her or the number of shares he/she has. This prevents any kind of discrimination in the body. Also, members have the right to join or leave the society anytime without any compulsion.
Moreover, the membership of the society is open to all without any kind of discrimination on the basis of religion, caste or sex. This signifies the secular nature of a cooperative society.Question SA 5
What is meant by ‘partner by estoppel’? Explain. Solution SA 5
A person who by his initiative, words, conduct or behaviour gives others an impression that he is a partner of the firm is known as ‘partner by estoppel’. Such partners do not contribute any capital and do not participate in management activities. They are also not entitled to any kind of profits or losses incurred by the company. However, they can be held liable to any loans, debts or credits by the third party as they are considered partners by them. In these kinds of cases, assets of such partners can be used to clear debts.
Long Answer Type question:
Q.1 What do you understand by a sole proprietorship firm? Explain its merits and limitations. Answer: If entrepreneur starts sole proprietor form of business, then he has the following advantages. Advantages of Sole Proprietor Form of Business: 1. Easy formation: The formation of sole proprietorship business is very easy and simple. No legal formalities are involved for setting up the business except a license or permission in certain cases. The entrepreneur with initiative and certain amount of capital can set up such form of business. 2. Direct motivation: The entrepreneur owns all and risks all. The entire profit goes to his pocket. This motivates the proprietor to put his heart and soul in the business to earn more profit. Thus, the direct relationship between effort and reward motivates the entrepreneur to manage the business more efficiently and effectively. 3. Better control: The entrepreneur takes all decisions affecting the business. He chalks out the plan and executes the same. His eyes are on everything and everyone. There is no scope for laxity. This results in better control of the business and ultimately leads to efficiency. 4. Promptness in decision-making: When the decision is to be taken by one person, it is sure to be quick. Thus, the entrepreneur as sole proprietor can arrive at quick decisions concerning the business by which he can take the advantage of any better opportunities. 5. Secrecy: Each and every aspect of the business is looked after by the proprietor and the business secrets are known to him only. He has no legal obligation to publish his accounts. Thus, the maintenance of adequate secrecy leaves no scope to his competitors to be aware of the business secrets. 6. Flexibility in operations: The sole proprietorship business is undertaken on a small scale. If any change is required in business operations, it is easy and quick to bring the changes. 7. Scope for personal touch: There is scope for personal relationship with the entrepreneur and customers in sole proprietorship business. Since the scale of operations is small and the employees work under his direct supervision, the proprietor maintains a harmonious relationship with the employees. Similarly, the proprietor can know the tastes, likes and dislikes of the customers because of his personal rapport with the customers. 8. Free from Government control: Sole proprietorship is the least regulated form of business. Regulated laws are almost negligible in its formation, day-to-day operation and dissolution. Disadvantages of Sole Proprietor Form of Business: The sole proprietorship business is not free from criticism. It suffers from certain limitations and drawbacks, because of its very nature and scope of operations. These points may be duly taken care of while entrepreneur adopting this mode of business. 1. Limited resources: The financial resources of any small business as an individual is limited. He mainly finances from his own savings or borrows from financial institutions, friends and relatives as per his capacity. Thus, limited resource is the major drawback of this form of business. 2. Limited managerial capability: Modern business requires updated managerial skills in each and every sphere of activity. We cannot hope a single individual to possess all the managerial, talents necessary to carry on a business efficiently. The limited financial resources of the sole proprietorship is a hindrance to hire the services of managers with expertise in different areas, thereby the growth of the business. 3. Unlimited liability: Since the liability of the sole proprietor is unlimited, the private properties of the proprietor is also at risk. When the business fails, the private properties of the owner are utilized to pay off the business debts. Thus, the proprietor must have to look this aspect carefully. 4. Uncertainty of continuity: The continuity of the business is uncertain because the business may come to an end due to the incapacity or death of the proprietor. Even if at all the business passes on to the successor of the proprietor, it is unlikely that they may pose the business acumen like that of the proprietor. The discontinuance of the business is a social loss. 5. Not suitable for large-scale business: The limited financial resources, limited managerial capability of the proprietor, risk to the private property etc. makes the proprietorship business unsuitable for large-scale business. This system of business cannot afford for large-scale operation. 6. Difficult to maintain personal contact: Even though there is scope for personal touch in sole proprietorship business, it is unlikely to happen when the business is undertaken in different areas. It is not so easy on the part of the proprietor to have personal contact with customers and suppliers at the same time.
Q.2 Why is partnership considered by some to be a relatively unpopular form of business ownership? Explain the merits and limitations of partnership. Answer: Partnership is considered by some to be relatively unpopular form of business ownership because:
Uncertainty of duration: A partnership suffers from a possible limited span of life. Legally, a partnership firm must be dissolved on the retirement, death, bankruptcy, or lunacy of any partner or demanded by any partner. The probability of any one of these events occurring when the number of partners is much greater than in the case of a sole proprietor.
Risks of additional liability: It is true that like the sole proprietor, each partner has unlimited liability. But his liability may arise not only from his own acts but also from the acts and mistakes of co-partners over whom he has no control.
Lack of harmony: The old saying that “too many cooks spoil the broth” can be apt for a business partnership. Harmony may be difficult to achieve, especially when there are many partners. Lack of centralized authority and conflicts in policy can disrupt the organization.
Difficulty in withdrawing investment: Investment in a partnership can be simple, but its withdrawal may be difficult or costly when this aspect is considered from the point of view of individual partners. This is so because no partner can withdraw his interest from the firm without the consent of all partners.
Lack of public confidence: A partnership may suffer from lack of public confidence
Lack of public confidence: A partnership may suffer from lack of public confidence because, like that of a company there is no legal mechanism to enforce the registration of a partnership firm and the disclosure of its affairs.
Limited resources: A partnership is good as it can be started with limited capital. However, it becomes a handicap in the growth and expansion phases of the business. There is a limit beyond which it is almost impossible for partners to collect capital. This limit is generally up to the personal properties of the partners.
Unlimited liability: Unlimited liability discourages partners to undertake risky ventures, and therefore, their risk-taking initiative is very risky.
Merits of Partnership
It is easy to set up.
It has more capital, which can be brought into the business.
Partners brings new skills and ideas to a business.
Decision-making can be much easier with more brains to think about a problem.
Partners share responsibilities and duties of the business.
Division of labour is possible as partners may have different skills.
Limitations of Partnership
There is an unlimited liability: All the partners are responsible for the debts of the firm and if the business goes bankrupt, all the partners will have to clear the debts even if they have to sell off their personal belongings.
Disagreement among the partners can lead to problems for the business.
There is a limit to the capital invested. Because of the fact that maximum 20 members are allowed, the business may find it difficult to expand after a certain limit.
There is no continuity of existence. Partnership is dissolved if one of the partners die or resigns or becomes bankrupt.
Q.3 Discuss the characteristics, merits and limitations of the cooperative form of organization. Also describe briefly different types of cooperative societies. Answer: It is important to choose an appropriate form of organization as it will determine: 1. Extent of control; 2. Extent of liability; 3. Availability of resources; 4. Legal formalities. All these in turn will determine profits of the business. Different types of cooperative societies are explained below:
Producer’s cooperative societies: The producer’s cooperatives are established by the small producers. The members of the society produce goods in their houses or at common place. The raw materials, tools, money, etc. are provided to them by the society. The output is collected by the society and sold in the market at the wholesale rate. The profit is distributed among the members in proportion to the goods supplied by each member.
Consumer’s cooperative societies: Consumer’s cooperative societies are established to remove middlemen from the field of trade. These societies purchase foods at the wholesale prices and sell these goods to the members at cheaper rates than the market prices. However, the goods are sold to the non-members at the market rates. The profit, if any, is distributed among the members in the shape of bonus according to their purchase ratio.
Marketing cooperative societies: The marketing cooperative societies are formed by the small producers for the promotion of trade. The two main objectives of these societies are, to sell the good at reasonable prices by eliminating middlemen and to make there ready for the product of the member. These types of societies are formed by the small agriculturalist and artisans. These societies collect the products of its members and make its grading and keep them in warehouses and sell them in the market at whole sale rate when the market is ready for these products. The profit is distributed among the members according to the ratio of goods supplied by them.
Credit cooperative societies: These cooperative societies are formed for the financial help of the members. These societies provide loans to the members at low rate of interest. In rural areas these provide loans to the farmers for the purchase of seeds, fertilizers and cattle. In urban areas these societies provide loan to its members for the purchase of raw materials and tools.
Farming cooperative societies: These societies are formed by the small agriculturalist to get the benefits of large scale farming. These societies provide help to the farmer for the improve method of cultivations by providing large scale farming tools such as tractors, threshers and harvesters, etc.
Housing cooperative societies: These societies are formed for the procurement of land for the construction of houses on a homogeneous basis. These societies are formed by those members who are intended to construct their own home. These societies provide loan to the members for the construction of houses. These also purchase construction materials in bulk and provide this material to its member at cheaper rates.
Q.4 Distinguish between a Joint Hindu family business and partnership. Answer: Differences between Joint Hindu family systems and sole proprietorship are given below:
Regulating law: A partnership is governed by the provisions of the Indian Partnership Act, 1932. A Joint Hindu family business is governed by the principles of Hindu law.
Mode of creation: A partnership arises out of a contract, whereas a Joint Hindu family business arises by the operation of law and is not the result of a contract.
Admission of new members: In a partnership no new partner is admitted without the consent of all the partners, while in the case of a Joint Hindu family firm, a new member is admitted just by birth.
The position of families: In a partnership women can be full-fledged partners, while in a Joint Hindu family business membership is restricted to male members only. After the passage of the Hindu Succession Act, 1956, families get only co-sharer’s interest at the death of a coparcener and they do not become coparceners themselves.
Number of members: In partnership the maximum limit of partners is 10 for banking business and 20 for any other business, but there is no such maximum limit of members in the case of Joint Hindu Family business.
Liability of members: In partnership, the liability of the partners is joint and several as well as unlimited. In other words, each partner is personally and jointly liable to an unlimited extent and if partnership liabilities cannot be fully discharged out of the partnership property each partner’s separate personal property is liable for the debts of the firm.
In a Joint Hindu family business, only the ‘Karta’ is personally liable to an unlimited extent, i.e., his self-acquired or other separate property besides his share in the joint family property is liable, for debts contracted on behalf of the family business.
Q.5 Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organization. Why? Answer: Despite limitations of size and resources, many people continue to prefer sole proprietorship over other forms of organization because of following merits:
Easy to start and close: It can be easily started and closed without any legal formalities.
Quick decision making: As sole trader is not required to consult or inform anybody about his decisions.
Secrecy: He is not expected to share his business decisions and secrets with anybody.
Direct incentive: Direct relationship between efforts and reward provide incentive to the sole trader to work hard.
Personal touch: The sole trader can maintain personal contacts with his customers and employees.
Social utility: It provides employment to persons with limited money who are not interested to work under others. It prevents concentration of wealth in a few hands.
Q.6 What do you mean by incorporation of a company? What are the steps involved in corporation of a company? Answer: Incorporation of the company: It means registration of the company under Companies Act, 1956. The second stage involves the following steps:
Filling of documents: An application to the registrar for incorporation must be accompanied with following documents:
Memorandum of Association;
Articles of Association or statement in lieu of the prospectus (in case table A is adopted by public limited company);
Written consent of proposed directors;
Agreement (if any) with proposed managing director, manager, etc.;
Copy of registrar’s letter approving the company’s name;
Statutory declaration;
Notice of the exact address of the registered office.
Payment of fees: Along with the above documents, necessary fees is to be paid.
Certificate of incorporation: The registrar issues a certificate of incorporation after being satisfied. Certificate is a conclusive evidence of regularity of incorporation of a company irrespective of any deficiency in its registration.
Q.7 Explain different types of partners. Answer: Different types of partners are given below:
General/Active Partner: Such a partner takes active part in the management of the firm.
Sleeping of Dormant Partner: Although he does not take active part in the management of the firm, he invests money, shares profit and loss, has unlimited liability.
Secret Partner: He participates in business secretly without disclosing his association with the firm to general public. His liability is also unlimited.
Nominal Partner: Such a partner only gives his name and goodwill to the firm. He neither invests money nor takes profit. But his liability is unlimited.
Partner by Estoppels: He is the one who by his words or conduct gives impression to the outside world that he is a partner of the firm whereas actually he is not. His liability is unlimited towards the third party who has entered into dealing with firm on the basis of his pretension.
Partner by Holding out: He is the one who is falsely declared partner of the firm whereas actually he is not. And even after becoming aware of it, he does not deny it. His liability is unlimited towards the party who has dealt it with firm on the basis of this declaration.
Q.8 Explain meaning, features, merits and demerits of Sole Proprietorship. Answer: Sole Proprietorship means a business owned, financed and controlled by a single person who is recipient of all profits and bearer of all risks. It is suitable in areas of personalized services like beauty parlour, hair cutting saloons and small scale activities like retail shops. Features:
Single Ownership: It is wholly owned by one individual.
Control: Sole proprietor has full power of decision making.
No Separate legal entity: Business and businessman are not separate entities in the eyes of law.
Unlimited liability: The liability of owner is unlimited. In case the assets of business are not sufficient to meet its debts, the personal property of owner can be used for paying debts.
No legal formalities: No legal formalities are required to start, manage and dissolve such business organization.
Sole risk bearer and profit recipient: He bears the complete risk and there is nobody to share profit / loss with him.
Merits:
Easy to start and close: It can be easily started and closed without any legal formalities.
Quick decision making: As sole owner is not required to consult or inform anybody about his decisions.
Secrecy: He is not expected to share his business decisions and secrets with anybody.
Direct incentive: Direct relationship between efforts and reward provide incentive to the sole trader to work hard.
Personal touch: The sole trader can maintain personal contacts with his customers and employees.
Social utility: It provides employment to persons with limited money who are not interested to work under others. It prevents concentration of wealth in a few hands.
Limitations:
Limited financial resources: Funds are limited to the owner’s personal savings and his borrowing capacity.
Limited managerial ability: Sole trader can’t be good in all aspects of business and he can’t afford to employ experts also.
Unlimited liability: Unlimited liability of sole trader compels him to avoid risky and bold business decisions.
Uncertain life: Death, insolvency, lunacy or illness of a proprietor affects the business and can lead to its closure.
Limited scope for expansion: Due to limited capital and managerial skills, it cannot expand to a large scale.
Q.9 Explain meaning, features, merits and demerits of partnership firm. Answer: Partnership is a voluntary association of two or more persons who agree to carry on some business jointly and share its profits and losses. The partnership was evolved to overcome the shortcomings of sole proprietorship and Joint Hindu Family business. Features:
Two or more persons: There must be at least two persons to form a partnership. The maximum number of persons is 10 in banking business and 20 in non-banking business.
Agreement: It is an outcome of an agreement among partners which may be oral or in writing.
Lawful business: It can be formed only for the purpose of carrying on some lawful business.
Decision making and control: Every partner has a right to participate in management and decision making of the organization.
Unlimited liability: Partners have unlimited liability.
Mutual agency: Every partner is an implied agent of the other partners and of the firm. Every partner is liable for acts performed by other partners on behalf of the firm.
Lack of continuity: Firms existence is affected by the death, lunacy and insolvency of any of its partner. It suffers from lack of continuity.
Merits:
Ease of formation and closure: It can be easily formed. Only an agreement among the partners is required.
Larger financial resources: There are more funds as capital is contributed by number of partners.
Balanced decisions: As decisions are taken jointly by partners after consulting each other.
Sharing of risks: In it, risk gets distributed among partners which reduces anxiety, burden and stress on individual partner.
Secrecy: Secrecy can be easily maintained about business affairs as they are not required to publish their accounts or to file any report to the government.
Limitations:
Limited resources: There is a restriction on the number of partners and hence capital contributed by them is also limited.
Unlimited liability: The liability of partners is unlimited and they are liable individually as well as jointly. It may prove to be a big drawback for those partners who have greater personal wealth. They will have to repay the entire debt in case the other partners are unable to do so.
Lack of continuity: Partnership comes to an end with the death, retirement, insolvency or lunacy of any of its partners.
Lack of public confidence: Partnership firms are not required to publish their reports and accounts. Thus they lack public confidence.
Q.10 Explain meaning, features, merits and demerits of joint stock company. Answer: Joint stock company is a voluntary association of persons having a separate legal existence, perpetual succession and common seal. Its capital is divided into transferable shares. Features:
Separate legal existence: It is created by law and it is a distinct legal entity independent of its members. It can own property, enter into contracts, can file suits in its own name.
Perpetual existence: Death, insolvency and insanity or change of members has no effect on the life of a company. It can come to an end only through the prescribed legal procedure.
Limited Liability: The liability of every member is limited to the nominal value of the shares bought by him or to the amount, guaranteed by him.
Transferability of shares: Shares of public company are easily transferable. But there are certain restrictions on transfer of share of private company.
Common seal: It is the official signature of the company and it is affixed on all important documents of company.
Separation of ownership and control: Management of company is in the hands of elected representatives of shareholders known individually as director and collectively as board of directors.
Merits:
Limited liability: Limited liability of shareholders reduces the degree of risk borne by him.
Transfer of Interest: Easy transferability of shares increases the attractiveness of shares for investment.
Perpetual existence: Existence of a company is not affected by the death, insanity, insolvency of member or change of membership. Company can be liquidated only as per the provisions of companies Act.
Scope for expansion: A company can collect huge amount of capital from unlimited number of members who are ready to invest because of limited liability, easy transferability and chances of high return.
Professional management: A company can afford to employ highly qualified experts in different areas of business management.
Limitations:
Legal formalities: The procedure of formation of company is very long, time consuming, expensive and requires lot of legal formalities to be fulfilled.
Lack of secrecy: It is very difficult to maintain secrecy in case of public company, as company is required to publish and file its annual accounts and reports.
Lack of motivation: Divorce between ownership and control and absence of a direct link between efforts and reward lead to lack of personal interest and incentive.
Delay in decision making: Red tapism and bureaucracy do not permit quick decisions and prompt actions. There is little scope for personal initiative.
Oligarchic management: Company is said to be democratically managed but actually managed by a few people i.e., Board of Directors. Sometimes they take decisions keeping in mind their personal interests and benefit, ignoring the interests of Shareholders and company.
Q.11 Explain the meaning, features, merits and demerits of cooperative society. Answer: A cooperative society is a voluntary association of persons of moderate means, who unite together to protect and promote their common economic interests. Features:
Voluntary association: Everyone having a common interest is free to join a cooperative society and can also leave the society after giving proper notice.
Legal status: Its registration is compulsory and it gives it a separate identity.
Limited liability: The liability of the member is limited to the extent of their capital contribution in the society.
Democratic control: Management and control lies with the managing committee elected by the members by giving vote. Every member has one vote irrespective of the number of shares held by him.
Service motive: The main aim is to serve its members and not to maximize the profit.
State control: They have to abide by the rules and regulations framed by government for them.
Distribution of surplus: The profit is distributed on the basis of volume of business transacted by a member and not on the basis of capital contribution of members.
Merits:
Ease of formation: It can be started with minimum of 10 members. Registration is also easy as it requires very few legal formalities.
Limited liability: The liability of members is limited to the extent of their capital contribution.
Stable existence: Due to registration it is a separate legal entity and is not affected by death, lunacy or insolvency of any of its members.
Economy in operations: There is economy in operation due to elimination of middle man and voluntary services provided by its members.
Government support: Government provides support by giving loans at lower interest rates, subsidies and by charging less taxes.
Social utility: It promotes personal liberty, social justice and mutual cooperation. They help to prevent concentration of economic power in a few hands.
Limitations:
Shortage of capital: It suffers from shortage of capital as it is usually formed by people with limited means.
Inefficient management: Cooperative society is managed by elected members who may not be competent and experienced. Moreover it can’t afford to employ expert and experienced people at high salaries.
Lack of motivation: Members are not inclined to put their best efforts as there is no direct link between efforts and reward.
Lack of secrecy: Its affairs are openly discussed in its meeting which makes it difficult to maintain secrecy.
Excessive government control: It suffers from excessive rules and regulations of the government. It has to get its accounts audited by the auditor and has to submit a copy of its accounts to registrar.
Conflict among members: The members are from different sections of society with different view points. Sometimes when some members become rigid, the result is conflict.
Q.12 Explain different types of partners. Answer: The different kinds of partners that are found in partnership firms are as follows:
Active or managing partner: A person who takes active interest in the conduct and management of the business of the firm is known as active or managing partner. He carries on business on behalf of the other partners. If he wants to retire, he has to give a public notice of his retirement; otherwise he will continue to be liable for the acts of the firm.
Sleeping or dormant partner: A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the management of the business. Such a partner only contributes to the share capital of the firm, is bound by the activities of other partners, and shares the profits and losses of the business. A sleeping partner, unlike an active partner, is not required to give a public notice of his retirement. As such, he will not be liable to third parties for the acts done after his retirement.
Nominal or ostensible partner: A nominal partner is one who does not have any real interest in the business but lends his name to the firm, without any capital contributions, and doesn’t share the profits of the business. He also does not usually have a voice in the management of the business of the firm, but he is liable to outsiders as an actual partner.
Partner by estoppel or holding out: If a person, by his words or conduct, holds out to another that he is a partner, he will be stopped from denying that he is not a partner. The person who thus becomes liable to third parties to pay the debts of the firm is known as a holding out partner. There are two essential conditions for the principle of holding out : (a) The person to be held out must have made the representation, by words written or spoken or by conduct, that he was a partner ; and (b) The other party must prove that he had knowledge of the representation and acted on it, for instance, gave the credit.
Partner in profits only: When a partner agrees with the others that he would only share the profits of the firm and would not be liable for its losses, he will own as partner in profits only.
Minor as a partner: A partnership is created by an agreement. And if a partner is incapable of entering into a contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e., a person who has not attained the age of 18 years) cannot be one of the parties to the contract. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of partnership, with the consent of all partners. A minor partner is entitled to his share of profits and to have access to the accounts of the firm for purposes of inspection and copy. He, however, cannot file a suit against the partners of the firm for his share of profit and property as long as he remains with the firm. His liability in the firm will be limited to the extent of his share in the firm, and his private property cannot be attached by creditors. On his attaining majority, he has to decide within six months whether he will remain regular partner or withdraw himself from partnership. The choice in either case is to be intimated through a public notice, failing which he will be treated to have decided to continue as a partner, and he becomes personally liable like other partners for all the debts and obligations of the firm from the date of his admission to its benefits (and not from the date of his attaining the age of majority). He also becomes entitled to file a suit against other partners for his share of profit and property.
Other partners: In partnership firms, several other types of partners are also found, namely, secret partner who does not want to disclose his relationship with the firm to the general public. Outgoing partner, who retires voluntarily without causing dissolution of the firm, limited partner who is liable only up to the value of his capital contributions in the firm, and the like.
Q.1. List any five major commercial cities of ancient India?
ANSWER: Port towns, manufacturing towns, mercantile towns, the religious centre, and pilgrimage towns were all present. Their existence is a barometer of merchant communities’ and professional classes’ success. In ancient India, the following were the most important trade centres:
1. Pataliputra: Today, it is known as Patna. It was not just a commercial centre, but also a major stone export hub.
2. Peshawar: It was a major centre for the export of wool and the import of horses. In the first century A.D., it played a significant role in trade dealings between India, China, and Rome.
3. Taxila: It was a crucial crossroads on the important land route connecting India and Central Asia. It was also a financial and commercial banking centre. As a Buddhist learning centre, the city held a significant position. Here, the illustrious Taxila University blossomed.
4. Indraprastha: It was the royal road’s commercial intersection, where most east-west, south-south, and north-south routes intersected.
5. Mathura: It was a trading emporium, and the people here lived off it. Mathura and Broach were visited by many routes from South India.
Q.2. What is Hundi?
ANSWER: The hundi was a popular form of currency in the Indian subcontinent. It involved a contract that —
(i) guaranteed the payment of money, the unconditional promise or order
(ii) might be changed through proper negotiation.
As practiced by Indian merchant communities, the Hundi is as follows:
Name of Hundi
Broader Classification
Functions of Hundi
Dhani-jog
Darshani
There is no obligation for who receives payment if it is made to anyone.
Sah-jog
Darshani
Payable to a certain individual, someone who is ‘respectable.’ For who is responsible for who received payment.
Firman-jog
Darshani
Order a hundi and make it payment to the person who placed the order.
Dekhanhar
Darshani
Payable to the bearer or presenter
Dhani-jog
Muddati
Payable to anyone—no responsibility for who received payment, but payment over a set period.
Firman-jog
Muddati
Following a set term, a hundi is made payable to order.
Jokhmi
Muddati
Drawn in opposition to items that have been shipped. If things are lost in transit, the drawer or holder is responsible for the costs, and the Drawee is not responsible.
Q.3. List the major exports and imports in ancient India.
ANSWER: Ancient India’s major exports were spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals, and animal products—hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli, granites, turquoise and copper etc. Major Imports in ancient India were of horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper, lead, rubies, coral, glass, amber, etc.
Q.4. What were the different types of Hundi in use by traders in ancient times?
ANSWER:The different types of Hundi are given below:
Name of Hundi
Broader Classification
Functions of Hundi
Dhani-jog
Darshani
There is no obligation for who receives payment if it is made to anyone.
Sah-jog
Darshani
Payable to a certain individual, someone who is ‘respectable.’ For who is responsible for who received payment.
Firman-jog
Darshani
Order a hundi and make it payment to the person who placed the order.
Dekhanhar
Darshani
Payable to the bearer or presenter
Dhani-jog
Muddati
Payable to anyone—no responsibility for who received payment, but payment over a set period.
Firman-jog
Muddati
Following a set term, a hundi is made payable to order.
Jokhmi
Muddati
Drawn in opposition to items that have been shipped. If things are lost in transit, the drawer or holder is responsible for the costs, and the Drawee is not responsible.
Q.5. What do you understand by maritime trade?
ANSWER: Ancient periods saw a lot of travel by land and water. Both land and water were used to maintain trade. Maritime trade refers to trading that takes place over water. Another key aspect of the global commerce network was maritime trade. Muziris is located on the Malabar Coast, which has a long history of international marine trade dating back to the Roman Empire.
Pepper was highly prized throughout the Roman Empire, and it was dubbed “Black Gold.” For centuries, the battle to control the route for this trade has been a source of rivalry and conflict between numerous empires and trading powers. The desire for an alternative route to India for spices led to Columbus’ discovery of America in the late 15th century, as well as Vasco da Gama’s arrival on the Malabar coast in 1498.
Calicut was such a thriving marketplace that Chinese ships came to buy products from the Middle East, such as essential oil and myrrh (fragrant resin used in perfumes and medicines), as well as pepper, diamonds, pearls, and cotton from India. Pulicat was a prominent port on the Coromandel Coast in the 17th century. Pulicat’s primary export to Southeast Asia was textiles.
Q.6. State the different types of economic activities.
ANSWER: Economic activities are those that allow us to earn a living. A worker at a factory, a doctor in his clinic, a manager in an office, and a teacher teaching in a school, for example, are all involved in economic activities to support their families. Economic activities are further split into three categories: business, profession, and employment.
Q.7 Why is business considered as economic activity?
ANSWER: The word ‘business’ comes from the word ‘busy.’ As a result, doing business entails being busy. In a more precise meaning, business refers to an occupation in which people routinely engage in activities linked to the purchase, manufacture, and/or selling of goods and services with the goal of making money.
The activity could include the production or purchase of items for resale, as well as the exchange of goods or the provision of services to meet the needs of others. People in every culture engage in a variety of activities to meet their requirements. These activities can be divided into two categories – economic and non-economic.
Economic activities are those that allow us to earn a living, whereas noneconomic activities are those that are done out of love, sympathy, feeling, patriotism, and other emotions. A factory worker, a doctor working in a clinic, a manager working in an office, and a teacher teaching in a school, for example, are all performing their jobs to make a living and are thus involved in economic activity. A woman preparing meals for her family or a boy assisting an elderly man across the street, on the other hand, are engaging in non-economic tasks because they are doing it out of love or sympathy. Business, professions, and employment are the three types of economic activity.
Business is classified as an economic activity since it is carried out with the goal of making money or sustaining one’s living, rather than out of love, affection, pity, or any other emotion. It should be noted that this activity can be carried out on a small, individual basis (e.g., purchase and sale by a shopkeeper) or on a larger, more formal, and organised size (e.g., purchase and sale by a cooperative society or enterprise).
Q.8. State the meaning of business.
ANSWER:The word ‘business’ comes from the word ‘busy.’ As a result, doing business entails being busy. In a more precise meaning, business refers to an occupation in which people routinely engage in activities linked to the purchase, manufacture, and/or selling of goods and services with the goal of making money. The activity could include the production or purchase of items for resale, as well as the exchange of goods or the provision of services to meet the needs of others.
Q.9. How would you classify business activities?
ANSWER: Business activities can be divided into two categories: economic and non-economic.
Economic activities are those that allow us to earn a living, whereas non-economic activities are those that are done out of love, sympathy, feeling, patriotism, and other emotions. A factory worker, a doctor working in a clinic, a manager working in an office, and a teacher teaching in a school, for example, are all performing their jobs to make a living and are thus involved in economic activity. Business, professions, and employment are the three types of economic activity that can be classified. A woman preparing meals for her family or a boy assisting an elderly man in crossing the street, on the other hand, are engaging in non-economic tasks since they are doing it out of love or sympathy.
Q.10. What are the various types of industries?
ANSWER:The various types of industries are given below:
Primary
This category includes all activities involving the extraction and production of natural resources, as well as the reproduction and growth of living beings, plants, and other living things.
Secondary
These are concerned with the use of materials that have previously been extracted in their raw form. These businesses process such materials to create goods for end users or for further processing by other businesses.
Tertiary
These are responsible for providing support services to main and secondary industries, as well as trade-related operations.
Q.11. Explain any two business activities which auxiliaries to trade are.
ANSWER: The following are two business activities that are related to trade:
1. Transport and Communication: Most items are produced in specific locations. For example, tea is primarily produced in Assam; cotton is primarily produced in Gujarat and Maharashtra; jute is primarily produced in West Bengal and Odisha; sugar is primarily produced in Uttar Pradesh, Bihar, and Maharashtra, and so on. These items, on the other hand, are required for consumption in various sections of the country. Transport, whether by road, rail, or coastal ships, removes the geographical barrier. Transport supports the movement of raw materials to manufacturing facilities and completed goods from manufacturers to consumer locations. Along with transportation, communication facilities are required so that producers, traders, and consumers may share information with one another. As a result, mail services and telephone services can be considered auxiliaries to commercial activity.
2. Banking and Finance: Business activities cannot be carried out without finances are available for the acquisition of assets, the purchase of raw materials, and other costs. Businessmen can receive necessary funds from a bank. As a result, banking assists businesses in overcoming their financial challenges. Overdraft and cash credit facilities, loans, and advances are common ways for commercial banks to lend money. Banks also handle cheque collection, transmission of payments to other locations, and bill discounting on behalf of traders. Commercial banks assist exporters in collecting money from importers in international trade. Commercial Banks also assist company promoters in raising funds from the public.
Q.12. What is the role of profit in business?
ANSWER: A business’s starting point is an objective. Every firm has a set of goals that it strives to attain. The things that businesspeople seek in return for what they do are referred to as objectives. The widespread perception is that business is conducted solely for profit. Every business is stated to be an attempt by businesspeople to make more money than they have spent or invested, or, in other words, to make profit, which is the difference between revenue and cost. Although profit cannot be the sole goal of a firm, its significance cannot be overlooked.
Every firm is an endeavour to earn more money than it has invested, and profit is the difference between revenue and cost. Profit may be a critical corporate goal for a variety of reasons:
• It is a source of revenue for entrepreneurs.
• It can provide a source of funding for a company’s expansion needs.
• It denotes the smooth operation of a business
• It might be interpreted as society’s endorsement of business’s utility.
• It helps to establish a company’s reputation.
Q.13. What is business risk? What is its nature?
ANSWER:The term “business risks” refers to the probability of low profits or even losses because of unknowns or unforeseeable events. Demand for a particular product, for example, may fall due to changes in consumer tastes and preferences or more competition from other providers. Longer sales and profits derive from lower demand. In another scenario, a scarcity of raw materials on the market could drive up the price. The company that uses these raw materials will have to pay extra for them. As a result, production costs may rise, thereby lowering earnings. Speculative and pure risk are two forms of risk that businesses confront on a regular basis. Speculative hazards include both the potential for profit and the potential for loss. Speculative risks develop because of changes in market conditions, such as fluctuations in demand and supply, price adjustments, or changes in client fashion and tastes. Market conditions that are favourable are more likely to result in gains, while those that are unfavourable are more likely to result in losses. Pure risks only have two outcomes: loss or no loss. Pure dangers include the possibility of fire, theft, or strike. Its occurrence may cause loss, whereas their absence may explain the absence of loss rather than gain. The following are the types of business risks:
1. Uncertainty creates business risks.
2. Risk is a necessary component of any business.
3. The degree of risk is mostly determined by the nature and size of the firm.
4. Profit is the payoff for taking risks.
2. Peshawar: It was a major centre for the export of wool and the import of horses. In the first century A.D., it played a significant role in trade dealings between India, China, and Rome.
3. Taxila: It was a crucial crossroads on the important land route connecting India and Central Asia. It was also a financial and commercial banking centre. As a Buddhist learning centre, the city held a significant position. Here, the illustrious Taxila University blossomed.
4. Indraprastha: It was the royal road’s commercial intersection, where most east-west, south-south, and north-south routes intersected.
5. Mathura: It was a trading emporium, and the people here lived off it. Mathura and Broach were visited by many routes from South Indian.
Long Answers Questions
Q.1. Discuss the development of indigenous banking system in Indian subcontinent.
ANSWER:The term “business risks” refers to the probability of low profits or even losses because of unknowns or unforeseeable events. Demand for a particular product, for example, may fall due to changes in consumer tastes and preferences or more competition from other providers. Longer sales and profits derive from lower demand. In another scenario, a scarcity of raw materials on the market could drive up the price. The company that uses these raw materials will have to pay extra for them. As a result, production costs may rise, thereby lowering earnings. Speculative and pure risk are two forms of risk that businesses confront on a regular basis. Speculative hazards include both the potential for profit and the potential for loss. Speculative risks develop because of changes in market conditions, such as fluctuations in demand and supply, price adjustments, or changes in client fashion and tastes. Market conditions that are favourable are more likely to result in gains, while those that are unfavourable are more likely to result in losses. Pure risks only have two outcomes: loss or no loss. Pure dangers include the possibility of fire, theft, or strike. Its occurrence may cause loss, whereas their absence may explain the absence of loss rather than gain. The following are the types of business risks: In ancient times, trade and commerce played a critical part in establishing India as a prominent economic player. In the third millennium B.C., commercial centres such as Harappa and Mohenjodaro were created. The civilisation established trade relations with Mesopotamia, trading gold, silver, copper, colourful gemstones, beads, pearls, seashells, terracotta pots, and other items. Metals thus began to supplement other commodities as money as economic life advanced due to their durability and divisibility. The advent of metallic money and its use stimulated economic activities because money acted as a means of exchange. Hundi and Chitti documents were used to carry out transactions in which money was transmitted from one person to another. The hundi was a popular form of currency in the Indian subcontinent. There was a contract involved which
(i) guarantee the unconditional payment of money, commitment, or order
(ii) People began to deposit precious metals with lending individuals acting as bankers or Seths as banking developed, and money became a vehicle for providing producers with a way of manufacturing more things. Credit transactions and the availability of loans and advances made business operations easier. The Indian subcontinent reaped the benefits of a favourable trade balance, with exports outnumbering imports by huge margins, and the indigenous banking system providing additional capital funding for expansion and development to manufacturers, traders, and merchants. Agricultural banks provide both short- and long-term loans to finance agriculturists. Commercial and industrial banks later arose to finance trade and commerce.
Q.2. Define business. Describe its important characteristics.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The word ‘business’ comes from the word ‘busy.’ As a result, doing business entails being busy. In a more precise meaning, business refers to an occupation in which people routinely engage in activities linked to the purchase, manufacture, and/or selling of goods and services with the goal of making money. The activity could include the production or purchase of items for resale, as well as the exchange of goods or the provision of services to meet the needs of others.
• Production or procurement of goods and services: Business enterprises must either manufacture or buy commodities before they can be provided to the public for consumption. As a result, every commercial company either manufactures or purchases the goods it sells from producers to resell to consumers or users. Consumable commodities, such as sugar, ghee, pen, notebook, and so on, or capital goods, such as machinery, furniture, and so on, are examples of goods. Transportation, banking, energy, and other services are examples of services provided to consumers, businesses, and organizations.
• Sale or exchange of goods and services: Business involves the transfer or exchange of commodities and services for a monetary value, whether directly or indirectly. It cannot be deemed a business activity if things are created for personal consumption rather than for sale. Cooking food for the family at home is not a business but cooking meals at a restaurant and selling it to others is. As a result, one of the most important characteristics of a business is the sale or exchange of goods or services between the seller and the customer.
• Dealings in goods and services on a regular basis: Dealings in commodities or services on a regular basis are a part of business. As a result, a single sale or buy does not constitute a commercial transaction. It will not be deemed a business activity if a person sells his or her household radio set for a profit. However, if someone sells radio sets on a regular basis, whether through a shop or from his home, it will be considered a business activity.
• Profit earning: One of the primary goals of a business is to generate profit. Without profit, no company can last long. As a result, businesspeople make every attempt to maximize earnings, whether by boosting sales volume or cutting costs.
• Uncertainty of return: The lack of knowledge about the amount of money that the business will generate in a certain period is referred to as uncertainty of return. Every firm invests money to conduct its operations to make a profit. It’s not possible to predict how much money will be made. Furthermore, despite the best efforts put into the firm, there is always the chance of losses.
• Element of risk: The uncertainty associated with a loss exposure is known as risk. It is brought on by a negative or unfavourable occurrence. Changes in consumer taste as well as fashion, changes in production methods, workplace strikes or lockouts, increasing market competition, fire, theft, accidents, natural calamities, and so on are all risk factors. Risks are generally considered as an unavoidable part of doing business.
Q.3. Compare business with profession and employment.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The difference between business, profession and employment is given below:
Basic
Business
Profession
Employment
Mode of Establishment
If necessary, the decision of the entrepreneur and other legal formalities
Membership in a professional organisation and a practice certificate
Letter of appointment and service agreement
Nature of Work
supplying goods and services to the public
Personalized, competent services are provided.
Performing work in accordance with a service contract or service rules
Qualification
No minimum qualification is Necessary
Qualifications, expertise, and training in a particular field, as stipulated by the professional body, are required.
Employer-mandated qualifications and training are required.
Reward or Return
Earned profit
Fees for professionals
Wages or salary
Capital Investment
Capital investment is necessary based on the size and nature of the company.
Capital investment is necessary based on the size and nature of the company.
There is no capitalization required
Risk
Profits are unpredictable and sporadic, and there is a risk involved.
Fees are normally consistent and predictable; nonetheless, there is some risk.
Fixed and consistent pay; no or minimal risk
Transfer of Interest
With some formalities, a transfer is doable.
It is not possible.
It is not possible.
Code of Conduct
There is no established code of conduct.
It is necessary to adhere to a professional code of behaviour.
Employer-established standards of conduct must be followed.
Example
Shop, factory, etc
Legal, medical profession, Chartered accountancy, etc
Q.4. Define Industry. Explain various types of industries giving examples.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The term “industry” refers to economic operations that involve the conversion of raw materials into usable items.
In general, the term “industry” refers to tasks using mechanical devices and technical expertise. These include activities such as manufacturing and processing items, as well as animal breeding and raising. The term “industry” can also refer to groups of businesses that produce comparable or related commodities. Cotton textile industry, for example, refers to all production units that produce cotton textile goods.
Primary
This category includes all activities involving the extraction and production of natural resources, as well as the reproduction and growth of living beings, plants, and other living things. They are split into the following categories:
Extractive Industries: These businesses take items from natural sources and extract them. Extractive industries provide some essential raw materials, which are primarily geographical or natural environment goods. Manufacturing industries frequently transform these industries’ products into a variety of other valuable commodities. Farming, mining, lumbering, hunting, and fishing are all important extractive industries.
Genetic Industries: These businesses are in the business of raising plants and animals for use in reproduction. Genetic industries include seed and nursery enterprises, for example. Furthermore, the activities of cattle breeding farms, poultry farms, and fish hatcheries are all subject to genetic regulation.
Secondary
These are concerned with the use of materials that have previously been extracted in their raw form. These businesses process such materials to create goods for end users or for further processing by other businesses. Secondary industries can be further classified into the following categories:
Manufacturing Industries: These businesses produce things by processing raw materials and converting them into finished goods. Through the conversion of raw materials or partially finished materials in their manufacturing activities, they produce a variety of finished products that we consume or use.
Construction Industries: These businesses are involved in the construction of structures such as buildings, dams, bridges, roads, tunnels, and canals. In construction, engineering and architectural skills are crucial.
Tertiary
These are responsible for providing support services to main and secondary industries, as well as trade-related operations.
Service facilities are provided by these industries.
As business operations, these could be regarded part of commerce because they support trade as auxiliaries. Transportation, banking, insurance, warehousing, communication, packaging, and advertising are all included in this area.
Q.5. Describe the activities relating to commerce.
ANSWER: Business activities can be divided into two categories: economic and non-economic. : There are two sorts of commerce activities: (i) trade and (ii) trade auxiliaries. Trade is defined as the buying and selling of products. However, several activities are required to make the buying and sale of commodities easier.
• Trade
Trade is an important aspect of business. It is the act of selling, transferring, or exchanging goods. It aids in the distribution of items generated to consumers or users.
Trade can be divided into two categories: internal and external.
Internal, domestic, or home trade refers to the purchasing and selling of goods and services within a country’s geographical borders.
The exchange of products as well as services between individuals or organisations operating in two or more countries is known as external or foreign trade.
• Auxiliaries to Trade
Auxiliaries to trade are activities that are designed to help with trade. Auxiliaries are an important aspect of business in general and trade.
These actions aid in the removal of numerous roadblocks that develop in the manufacture and distribution of goods. Auxiliaries to trade are explored briefly below:
1. Transport and Communication:
Most items are produced in specific locations. Transport supports the movement of raw materials to manufacturing facilities and completed goods from manufacturers to consumer locations. Producers, traders, and consumers can communicate with one another through communication facilities.
2. Banking and Finance: Business activities cannot be carried out without finances available for the acquisition of assets, the purchase of raw materials, and other costs. Businessmen can receive necessary funds from a bank. As a result, banking assists businesses in overcoming their financial challenges. Overdraft and cash credit facilities, loans, and advances are common ways for commercial banks to lend money. Banks also handle cheque collection, transmission of payments to other locations, and bill discounting on behalf of traders.
3. Insurance: Business entails a variety of hazards. The factory structure, machinery, and furnishings, among other things, must be safeguarded from fire, theft, and other threats. Material and goods in storage or in transportation are at danger of being lost or damaged.
Employees must also be protected from the dangers of accidents and occupational hazards. All these situations are covered by insurance.
4. Warehousing: Typically, things are not sold or consumed just after they are manufactured. They are kept in stock so that they can be used as needed. To avoid loss or damage, certain arrangements must be established for the storage of items. Warehousing aids businesses in overcoming storage issues and ensuring that items are available when needed.
5. Advertising: Advertising is one of the most effective ways to promote the sale of things, especially consumer goods such as electronics and automobiles, as well as soaps and detergents. Producers and traders are essentially unable to contact each customer. As a result, information about the goods and services available, their features, price, and so on must reach potential purchasers to promote sales.
Q.6. Explain any five objectives of business.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The following are the business objectives:
1. Position on the market: The position of a company in the market in respect to its competitors is referred to as market standing. A company’s goal should be to establish a better position in terms of providing competitive products to customers and satisfying their needs.
2. Innovation: The introduction of new ideas or procedures into the way something is done or created is known as innovation. In any firm, there are two types of innovation.
(i) product or service innovation
(ii) product and service supply chain innovation in a variety of skills and activities. In a competitive environment, no firm can survive without innovation.
As a result, innovation becomes a critical goal.
3. Productivity: The value of output is compared to the value of inputs to determine productivity. It’s a metric for determining efficiency. To ensure long-term survival and success, every business must strive for increased productivity by making the best use of existing resources.
4. Physical and financial resources: Physical resources, such as plants, machinery, and offices, as well as financial resources, such as capital, are required for any firm to manufacture and sell goods and services to its consumers. The goal for the commercial enterprise should be to acquire these resources in accordance with their needs and to put them to good use.
5. Earning profits: Businesses run with a motive to earn profits on the capital which has been employed. If we talk about profitability, it refers to profit in relation to capital which is invested. A reasonable amount of profit for every business is must to earn so that its survival and growth can be ensured.
Q.7. Explain the concept of business risk and its causes.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The term “business risks” refers to the probability of low profits or even losses because of unknowns or unforeseeable events. Demand for a particular product, for example, may fall due to changes in consumer tastes and preferences or more competition from other providers. Longer sales and profits derive from lower demand. In another scenario, a scarcity of raw materials on the market could drive up the price. The company that uses these raw materials will have to pay extra for them. As a result, production costs may rise, thereby lowering earnings.
Speculative and pure risk are two forms of risk that businesses confront on a regular basis. Speculative risks develop because of changes in market conditions, such as fluctuations in demand and supply, price adjustments, or changes in client fashion and tastes. Market conditions that are favourable are more likely to result in gains, while those that are unfavourable are more likely to result in losses. Pure risks only have two outcomes: loss or no loss. Pure dangers include the possibility of fire, theft, or strike. Its occurrence may cause loss, whereas their absence may explain the absence of loss rather than gain. A multitude of factors contribute to business hazards, which are characterised as follows:
1. Natural causes: Natural disasters such as floods, earthquakes, lightning, torrential rainfall, starvation, and other natural calamities are beyond human control.
2. Human causes: Unexpected events such as employee dishonesty, carelessness or neglect, work halt due to power outages, strikes, riots, management ineptitude, and so on are examples of human causes.
3. Economic causes: These include concerns about demand for goods, competition, price, customer debt collection, changes in technology or production methods, and so on.
Financial issues, such as an increase in borrowing interest rates or the imposition of higher taxes, are also examples of these types of causes since they result in greater unanticipated operating or company costs.
4. Other causes: Unforeseen occurrences, such as political upheavals, technical problems, such as a boiler exploding, variations in exchange rates, and so on, can all result in business hazards.
Q.8. What factors are to be considered while starting a business? Explain.
ANSWER: Business activities can be divided into two categories: economic and non-economic. The following are some things to think about while beginning a business:
1. Line-of-business selection: The nature and sort of business to be undertaken are the first decisions that an entrepreneur must make. He or she will undoubtedly want to pursue that field of industry and commerce that offers the greatest potential for profit. The decision will be impacted by market customer requirements as well as the entrepreneur’s technical competence and enthusiasm in developing a specific product.
2. Size of the firm: Another crucial decision to make at the outset of a business is the size of the company or the scope of its operations.
Some elements favour a broad scale of activity, while others tend to limit it. If the entrepreneur is certain that demand for the planned product will be strong over time and that he or she can secure the necessary financing, the firm will be launched on a large scale. A small firm would be a better alternative if market circumstances are unpredictable, and risks are high.
3. Choice of ownership structure: The business organisation can be a sole proprietorship, a partnership, or a joint stock corporation in terms of ownership. Each kind has its own set of advantages and disadvantages. The appropriate form of ownership will be determined by considerations such as the line of business, capital requirements, owner liability, profit split, legal formalities, company continuity, and interest transferability, among others.
4. Business enterprise location: The location of the company’s headquarters is an important issue to consider while starting a firm. Any blunder in this area might result in expensive production costs, inconvenient access to the proper kind of production inputs, or a failure to provide the best possible service to clients. The availability of raw materials and labour, as well as power and services such as banking, transportation, communication, and warehousing, are all key considerations when choosing a location.
5. Obtaining funding for the proposal: Financing is concerned with supplying the necessary funds for the prospective business’s start-up and continuation. Capital is needed to invest in fixed assets such as land, buildings, machinery, and equipment, as well as current assets such as raw materials, books, debts, finished goods stock, and so on. Day-to-day expenses necessitate the use of capital.
(a) the capital requirement,
(b) the source from which the money will be raised, and
(c) the best strategies to use the capital in the company.
6. Physical facilities: The availability of physical facilities, such as machines and equipment, as well as a building and associated services, is a critical issue to consider when starting a firm. The nature and scale of the business, the availability of cash, and the manufacturing process will all influence this selection.
7. Plant layout: The entrepreneur should design a layout plan outlining the organisation of physical facilities once the need for them has been determined. The physical arrangement of machines and equipment required to make a product is referred to as layout.
8. A capable and dedicated workforce: Every business requires a skilled and dedicated personnel to carry out numerous tasks to convert physical and financial resources into desired outcomes.
Because no single entrepreneur can accomplish everything, he or she must determine the need for qualified and unskilled workers, as well as administrative personnel. Plans should also be created for how staff will be trained and motivated to perform at their highest levels.
9. Tax preparation: Tax planning has been vital in recent years due to the country’s numerous tax rules, which affect practically every facet of modern business operation. The tax liabilities under various tax regulations, as well as its impact on business actions, must be considered in advance by the business’s creator.
10. Starting the business: Following the above-mentioned decisions, the entrepreneur can proceed with the actual launching of the business, which includes mobilizing various resources, completing essential legal formalities, commencing the production process, and launching a sales promotion campaign.
