Chapter 4 Business Services NCERT SOLUTION CLASS 11 Business Studies/ EDUGROWN NOTES

Short Answer Type Question:

Q.1 Define services and goods.

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:

1. 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

2. 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.

3. 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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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:

1. Consolidation: Warehouse receives and consolidates goods from different production stations and dispatches it to customer on a single transportation shipment.
2. Break the Bulk: Warehouse breaks the bulk received according to the requirements of the client.
3. Stock Piling: The next function of warehousing is the seasonal storage of goods to select business.

Secondary Functions of a Warehouse

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.