Class XI BUSINESS STUDIES

CHAPTER -1 BUSINESS TRADE AND COMMERCE

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Give an example of activity which is economic in one side and noneconomic on other side.

OR

State different type of economic activities

OR

Name the economic activity in which specialized knowledge is required.

Answer

Example of economic activity is Cricket Academy and non-economic on the other side is coaching his
own son for cricket

Or

Different type of economic activities are Business, Profession and Employment

Or

Profession is the economic activity in which specialized knowledge is required

Question 2

A person sells his domestic furniture at a profit, will it be considered a business? Explain the
characteristic of business which is being stressed upon.

OR

Mr Sonu sold his washing machine & refrigerator on Quikr as he was shifting base to London. Is this a
business activity?

Answer

No, It is not considered as business. Business involves dealings in goods or services on a regular basis.
One single transaction of sale or purchase, therefore, does not constitute business.
Question 3

Why is the insurance known as a tertiary industry?

OR

Which industries provide support services to other industries?

Answer

Insurance is support service to the primary and secondary services.

Tertiary industries are concerned with providing support services to primary and secondary industries as
well as activities relating to trade. These industries provide service facilities.

Hence insurance is known as Tertiary industry

Question 4

What type of industry is fishing?

OR

What type of industry are poultry farms and plant nurseries?

OR

Which one of the broad categories of industries covers oil refinery and sugar mills?

Answer

Fishing-Primary Industry

Poultry Farm and Plant nurseries-Primary Industry

Oil Refinery and sugar mills- Secondary Industry

Question 5

Categories the following into business, profession and employment.

(i) A farmer

(ii) An advocate

(iii) A clerk

(iv) A hawker selling toys for children

(v) A doctor

(vi) A person working in scooter repair shop on roadside

Answer

(i) A Farmer-Business

(ii) An advocate- Profession

(iii) A clerk- Employment

(iv) A hawker selling toys for children-Business

(v) A doctor- Profession

(vi) A person working in scooter repair shop on roadside- Employment

Question 6

ABC Ltd. Inventing a new machinery to curb its production problem. Which objective it is trying to
achieve?

Answer

Company is trying to achieve Innovation objective. Innovation can be defined as a distinctive manner of
thinking that brings about more efficient solutions to modern issues

Question 7

What reward does the businessman get for bearing risks?

Answer

Businessman undertakes risk in business activities because of the reward of earning profit

Question 8

Name the occupation in which people work for others and get remunerated in return.

a. Business

b. Profession

c. Employment

d. None of the above

Answer

Employment.

Employment refers to the condition of having paid work

VERY SHORT AND SHORT ANSWER QUESTIONS (3 OR 4 MARKS)

Question 1

What are the causes for the possibility of inadequate profits due to uncertainties or unexpected
events?

OR

No business is risk free in the light of this statement, explain the concept of business risk and it’s any
three causes.

Answer

Business Risks refers to possibility of inadequate profits or even losses due to uncertainties or
unexpected events.

The causes of Business Risks are:

Natural causes Human Causes Economic Cause Other Causes

•little control over •unexpected events, •demand for goods, •unforeseen events,
natural calamities, like dishonesty, competition, price, like political
like flood, carelessness or collection of dues disturbances,
earthquake, negligence of from customers, mechanical failures,
lightning, heavy employees, change of such as the bursting
rains, famine, etc. stoppage of work technology or of boiler,
due to power method of fluctuations in
failure, strikes, production exchange rates, etc.
riots, management
inefficiency,

Question 2

Compare between Business, profession & Employment on the basis of the following:

a) Capital Investment

b) Risk

c) Transfer of interest
 Answer

Basic Business Profession Employment

Capital Capital investment required Limited capital needed for No capital Required
investment as per size and nature of establishment
business
Risk Profits are uncertain and Fee is generally regular and Fixed and regular pay; no or
irregular; risk is present certain; some risk little risk
Transfer of Transfer possible with some Not possible Not possible
interest formalities

Question 3

What is business risk?

Answer

Business Risk refers to possibility of inadequate profits or even losses due to uncertainties or
unexpected events.

Nature of Business Risk

 It arises due to uncertainties and unexpected events

 It is essential part of business
 Degree of risk taken depends on the nature and size of business
 Profit is reward for risk taking

Question 4

Explain any four objectives of business

Answer

Objectives of Business are as follows:

1. Earning Profits: Business has to earn reasonable profit so as to sustain its growth and survive in the
market

2. Market Standing: Business should have a better position in the market in relation to its competitors

3. Innovation: Business should come up with new ideas, inventions and new methods for sustainable
growth and survival

4. Productivity: Productivity is ascertained by comparing the value of output with the value of input.
Business must work efficiently and effectively so as to enhance its productivity.
 Question 5

Define commerce, why is it of great importance in modern life?

Answer

According to James Stephenson, ’Commerce is an organized system for exchange of goods between
members of the industrial world’

Importance of Commerce are as follows:

1. Commerce tries to satisfy increasing human wants

2. Commerce links producers and consumers

3. It creates employment opportunities

4. It helps in expansion of aids to trade

5. It helps in the growth of industrial development

6. It increases the standard of living

7. It encourages International trade

8. It helps during emergencies like flood, earthquake etc by making available essential requirement and
relief to affected areas

Question 6

Distinguish between primary & secondary industry Give examples.

Answer

Primary Secondary

• Activities which are concerned with the • These industries process materials to produce
extraction and production of natural resources goods for final consumption or for further
and reproduction and development of processing by other industrial units.
livingorganisms, plants, etc • Divided as follows
• Divided as follows: • Manufacturing Industries: engaged in
• Extractive Industries: extract or draw producing goods through processing of raw
products from natural sources materials and, thus, creating form utilities
• Genetic Industries: engaged in breeding • Construction Industries:involved in the
plants and animals for their use in further construction of buildings, dams, bridges,
reproduction roads as well as tunnels and canals
• Examples: Fishing, Mining etc • Examples: Sugar mill, Oil Refinery
Question 7

“Business is an institution organized to provide goods and services under the incentive of private
gain.” Discuss.

OR

Define business. Explain the characteristics of business (any three)

Answer

According to B.O.Wheeler, ‘Business is an institution organized and operated to provide goods and
services under the incentive of private gain’

Business refers to occupation in which people engage in activities of purchase, production or sale of
goods and services with a view to earn profit

Earning
Profits

Production
Business or Purchase
Risk of goods for
sale
Characteristics
of Business
Sale or
Uncertainity Exchange of
of Return goods or
services

Regular
basis

Characteristics of Business are:

1. Sale or exchange of goods and services

• Business involves transfer or exchange of goods and services for value.
• Cooking food at home for the family is not business but cooking food and selling it to
others in a restaurant is business.

2. Dealings in goods and services on a regular basis

• Business involves dealings in goods or services on a regular basis.
 • One single transaction of sale or purchase, therefore, does not constitute business

3. Profit earning
• No business can survive for long without profit.
• That is why, businessmen make all possible efforts to maximise profits, by increasing the
volume of sales or reducing costs.

Question 8

Write difference among industry, commerce and trade on any five basis.

Answer

Basis Trade Commerce Industry

Meaning Trade is that branch of Commerce comprises Industry is concerned
commerce which deals of all those activities with raising producing
with exchange or which are concerned processing or
transfer of goods and with the distribution of fabrication of goods
services goods and services so and services
they may reach the
consumers with a
minimum of
inconvenience
Origin prevalence of barter continuous continuous
system development of trade development of trade
and industries and industries
Involves Purchase and Sale Trade and Aids to Trade and Aids to
Trade Trade
Capital requirement Small Little Large
Risk Moderate Low High

Question 9 “Commerce comprises of trade and all the services that make trade possible.” Discuss.

Answer

Commerce is the fundamental action that takes place in every transaction involving money and/or trade

Commerce is classified as Trade and Auxiliaries to Trade

Trade means buying and selling of goods and services

Auxiliaries to trade means service which facilitates or assist trade

 Facilitate transfer of
goods from one place
to another
Transportation and
Communication
Communication
facilitate exchange of
information

Trade Provide finance to

acquire assets, raw
Banking and Finance
material and other
Commerce expenses

Auxiliaries to Trade Protects against risks

Insurance like fire, theft, loss or
damage etc

Overcome the problem

of storage and
Warehousing
facilitates availability of
goods when needed

Advertising Promoting sales

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

What provides the necessary link between producers & consumers with all those activities which are
necessary for maintaining a free flow of goods & services? Discuss all those activities.

OR

In business activities, there are some activities that are involved in the removal of

hindrances in process of exchange i.e. from the producer to the consumer Identify them.

Also classify the activities which help in removing the following hindrances:

(i)Hindrance of place

(ii)Hindrance of risk

(iii)Hindrance of time

(iv)Hindrance of finance

(v)Hindrance of information
OR

Tea is mainly produced in Assam, while cotton in Gujrat & Maharastra but they are required for
consumption in different parts of the country. How can this hindrance of place be removed? Also
under what business activity will it be categorised.

OR

Commerce is the sum total of activities that remove hindrances in the free flow of goods from
producers to consumers. Explain.

OR

How do trader remove the hindrance of person?

Answer

Commerce refers to all those activities which are concerned with the transfer of goods and services
from the producers to the consumers. It embraces all those activities which are necessary for
maintaining a free flow of goods and services. The functions of commerce are as follows.

Hindrance of
Through Trade
person
Hindrance of Through
Place Transportation
Removal of

Through
Hindrance of Time
Warehousing
Through
Hindrance of Risk
Insurance
Hindrance of Through Banking
Finance and Finance
Hinndrance of Through
Information Advertising

1. Removing the hindrance of person by marking goods available to consumers from the producers.
through trade.

2. Transportation removes hindrance of place by moving goods from the place of production to the
markets for sale.

3. Storage and warehousing activities remove the hindrance of time by facilitating holding of stock of
goods to be sold as and when required.
4. Insurance removes hindrance of risk of loss or damage of goods due to theft, fire, accidents etc.

5. Banking removes hindrance of finance-by providing funds to a businessman for acquiring assets,
purchasing raw materials and meeting other expenses.

6. Advertising removes hindrance of information-by informing consumers about the goods and services
available in the market.

Question 2

Starters of a new business are largely responsible for the success of the business they undertake
various functions. Discuss the basic factors which influence the starter functions.

OR

Explain any six factors that are important to be considered while starting a business.

Answer
 Selection of line
business
decide nature and type of business according to the possibility of earning profit

demand for the proposed product is likely to be good over time and he/she can arrange the
Size of the firm necessary capital for business, he/she will start the operation at a large scale. If the market
conditions are uncertain and risks are high, a small size business would be better choice.

Choice of form of The choice of the suitable form of ownership will depend on such factors as the line of business,
ownership capital requirements, liability of owners, division of profit, legal formalities, continuity of
business,

Location of business
enterprise Availability of raw materials and labour; power supply and services, like banking, transportation,
communication, warehousing, etc., are important factors while making a choice of location.

Financing the
proposition
providing the necessary capital for starting, as well as, for continuing the proposed business.

Physical facilities machines and equipment, building and supportive services is an important factor to be
considered at the start of the business.

Plant layout
, the entrepreneur should draw a layout plan showing the arrangement of these facilities.

Competent and
committed worked Every enterprise needs competent and committed workforce to perform various activities so
force that physical and financial resources are converted into desired outputs

Tax planning number of tax laws in the country and they influence almost every aspect of the functioning of
modern business

Launching the
enterprise
, the entrepreneur can go ahead with actual launching of the enterprise

Question 3

Profit maximization cannot be the sole objective of a business. Explain.

OR
“Profit is not an objective but a requirement of business.” Do you agree with the statement? Support
your answers with reasons

OR

“Overemphasis on objective to earn profit may exploit the business”. What does a business should do
to enable itself to bring the balance?

Answer

Business is established for the purpose of earning profit. Profit plays a very important role in business
for survival, growth, expansion but profit maximization is not the sole objective of business

Business is an integral part of society. It makes use of resources of society. It earns profit by selling its
products or services to members of society. So it becomes obligatory on the part of the businessman to
do something for the society.

The important social objective of business are as follows:

1. Quality goods and services at Fair Price: The first social objective of business is to provide better
quality product at reasonable rice and in proper quantity on continuous basis to consumers

2. Avoidance of Anti-Social and Unfair trade practices: Anti-Social practices include hoarding, black
marketing and adulteration. Making false claims in advertisements to mislead and exploit people is an
example of unfair trade practice. Business should not indulge in such practices.

3. Generation of Employment: Now a days, employment is the biggest problem of society. Business
should provide employment to more and more people living in the country.

4. Employee Welfare: Employees are a valuable asset and they make significant contributions towards
the success of business. Another social objective of business, therefore, is to ensure welfare of
employees by providing good working conditions, fair wages and facilities such as housing, medical and
entertainment etc. such welfare facilities help to improve physical and mental health of employees.

5. Community service: Business should contribute something to the society where it is established and
operated Library, dispensary, educational institutions etc. are certain contributions which a business can
make and help in the development of community.

Question 4

‘Kodak Pics’ is an advertisement agency initiated by Rahul, Sushmita & Prema. They have called a
meeting to discuss the below given points

(i) Increase the profit margin by 20% in july.

(ii) Aiming bigger share in the market.

(ii) Making use of better lenses & improved techniques.

(iv)Making best use of cameramen, finance etc. employed by the business

(v) Improve efficiency in functioning of business.

(a)Which aspects of business objectives are being referred to here?

(b)Also develop each point to be discussed in the meeting by classifying the objective.

Answer

a) Economic objectives of the business are emphasized in the above points

b) Increase the profit margin by 20% in July: Profit earning objective is emphasized. Profitability refers
to profit in relation to capital investment. Profit earning is important for business survival and growth

Aiming bigger share in the market: Market standing objective is emphasized. Market standing refers
to the position of an enterprise in relation to its competitors. A business enterprise must aim at
standing on stronger footing in terms of offering competitive products to its customers and serving
them to their satisfaction.

Making use of better lenses & improved techniques: Innovation objective is emphasized. Innovation
is the introduction of new ideas or methods in the way something is done or made. There are two
kinds of innovation in every business i.e., (i) innovation in product or services; and (ii) innovation in
various skills and activities needed to supply products and services

Making best use of cameramen, finance etc. employed by the business: Physical and Financial
resources objective is emphasized. Any business requires physical resources, like plants, machines,
offices, etc., and financial resources, i.e., funds to be able to produce and supply goods and services to
its customers. The business enterprise must aim at acquiring these resources according to their
requirements and use them efficiently

Improve efficiency in functioning of business: Productivity objective is emphasized. Productivity is

ascertained by comparing the value of output with the value of inputs. It is used as a measure of
efficiency. In order to ensure continuous survival and progress, every enterprise must aim at greater
productivity through the best use of available resources

Question 5

JawaharLal prepares ‘Ghujiya’ for customers during Holi season every year. He prepared more
‘Ghujiya’ than he could sell this year. He employed women and children also and paid them less salary
manufacturing on the packages. This way he generated profit for himself.

(a)Do you think he is fulfilling all the objectives of business?

(b) If not which aspects of this objective are not being fulfilled?

(c)Write any two values lacking in JawaharLal.

Answer

a) No, he is not fulfilling all the objectives of the business. Business is concentrating on the objective of
profit earning. Business is an integral part of society. It makes use of resources of society. It earns profit
by selling its products or services to members of society. So it becomes obligatory on the part of the
businessman to do something for the society.

b) Social objectives of business are not fulfilled. Business has two aspect of objectives. One is economic
which means profit earning, productivity, innovation, market standing etc. Other aspect is social
objective which consist of Quality goods, avoid unfair trade practices, employee welfare, community
service, generation of employment etc.

c) Two values lacking in Jawaharlal are as follows:

1. Ethical practices: Jawarharlal has appointed women and children for manufacturing to generate
profit. This behavior is unethical as Child labour is unethical practice in India. Business should not
indulge in unfair, unethical trade practices. Anti-Social practices include hoarding, black marketing and
adulteration. Making false claims in advertisements to mislead and exploit people is an example of
unfair trade practice

2. Employee welfare: Employees are a valuable asset and they make significant contributions towards
the success of business. Objective of business is to ensure welfare of employees by providing good
working conditions, fair wages and facilities such as housing, medical and entertainment etc. such
welfare facilities help to improve physical and mental health of employees. Jawaharlal paid less wages to
manufacture ghujiya. Fair wages are not paid so, employee welfare objective is not met.

Question 6

Different situations in different business are being elaborated below:

(i)Raghunath Gorkha had a match stick factory in Nepal which got distructed by the recent
earthquake.

(ii)Mr Arya, a senior manager in a telecom company shared confidential information about the
company with a competitor which led to huge losses for the company.

(iii)Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to
heavy losses for the company.

(iv) Type writers becoming redundant is being referred to in all the above cases?

(a)Which characteristic of business is being referred to in all the above cases

(b)How can you classify the different cases based on this characteristic?

[Hint: Business Risks - Causes]

Answer

a) Risk bearing characteristic of business is referred to in all above cases. All business activities carry
some elements of risk because future is uncertain and business has no control over several factors like,
strikes, fire, theft, change in consumer taste etc. Every business invests money with the objective of
earning profit but the amount of profit earned may very also there is always a possibility of losses.
 b) (i)Raghunath Gorkha had a match stick factory in Nepal which got distructed by the recent
earthquake:

It is classified as Natural Causes of Business risks. Human beings have little control over natural
calamities like flood, earthquake, famine etc. They result in heavy losses of life, property & income in
business.

(ii)Mr Arya, a senior manager in a telecom company shared confidential information about the company
with a competitor which led to huge losses for the company:

It is classified as Human Causes of Business Risks. Human causes include such unexpected events like
dishonesty, carelessness or negligence of employees, strikes, riots, management ineffeciency etc. Here
he shared confidential information with competitor which led to huge losses

(iii)Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to
heavy losses for the company:

It is classified as Human Causes of Business Risks. It include unexpected events, like dishonesty,
carelessness or negligence of employees, stoppage of work due to power failure, strikes, riots,
management inefficiency etc which leads to heavy losses to company.

(iv) Type writers becoming redundant:

It is classified as Economic causes of business riskes. They are related to a chance of loss due to change
in market condition e.g., fluctuations in demand and prices, competition, change in technology etc.
Typewriter became redundant is change in technology which leads to loss in company.

Question 7

Dr. Sanvi is an orthopedic surgeon in AIIMS Hospital and Dr Maruti, her friend is a Pediatrician who
has set his own clinic. Dr Maruti’s wife, Ms. Aditi operates her Cosmetic store. Compare &differentiate
the nature of tasks undertaken by them.

Answer

Dr. Sanvi , an orthopedic surgeon in AIIMS Hospital is on employment whereas Dr Maruti , pediatrician
having own clinic is following his profession and his wife Aditi owns Cosmetic store which is a business.

Difference in the nature of tasks undertaken by them are given below:

Basic Business Profession Employment

Mode of Entrepreneur’s decision and Membership of a Appointment letter and
establishment other legal formalities, if professional body and service agreement
necessary certificate of practice
Nature of Provision of goods and Rendering of personalised, Performing work as per
work services to the public expert services service contract or rules of
service
Qualification No minimum qualification is Qualifications, expertise Qualification and training
necessary and training in specific field as prescribed by the
as prescribed by the employer
professional body is a must
Reward or Profit earned Professional fee Salary or wages
return
Capital Capital investment required Limited capital needed for No capital Required
investment as per size and nature of establishment
business
Risk Profits are uncertain and Fee is generally regular and Fixed and regular pay; no or
irregular; risk is present certain; some risk little risk
Transfer of Transfer possible with some Not possible Not possible
interest formalities
Code of No code of conduct is Professional code of Norms of behaviour laid
conduct prescribed conduct is to be Followed down by the employer are
to be followed
Example Shop, factory Legal, medical profession, Jobs in banks, insurance
Chartered accountancy companies, government
departments

Question 8

Zainab, Shelly &Ravina are friends. They have just completed a fashion designing course. They wish to
start a business together. They have Rs.10,00,000 savings put together and are planning to take a
bank loan of additional _ 10 lakhs. They have found a prime location in KarolBagh where they can set
their boutique. They decide that they will initially not take very big orders. Based on this information,
quote the lines associated with factors affecting the decision to start a business and classify them.

Answer

1. Selection of line of Business: They selected to start a boutique in Karol Bagh

2. Size of Firm : They wanted to start business on small scale. Therefore the risk factor is less and capital
requirement can also be met.

3. Choice of form of ownership: The choice of the suitable form of ownership will depend on such
factors as the line of business, capital requirements, liability of owners, division of profit, legal
formalities, continuity of business etc. Here choice of form of ownership is partnership. They have to
decide about the liability, division pf profit. They need to sign partnership deed

4. Location: Choice of location should be done based on the availability of raw material and labour,
transportation and communication. Karol Bagh is the prime location as well as wholesale market. So, the
choice of place is correct.

5. Finance: As they are bringing Rs 10 lac into business and taking an equal amount of loan to run the
business.
6. Physical Facilities: They need to buy machine, equipment to start the business.

7. Layout: They need to draw a layout plan showing the arrangement of the facilities, so, as to have
efficient use of resources

8. Competent Workforrce: They need to have competent and committed workforce to perform the
activities so that desired output is achieved.

9. Tax Planning: There are number of Tax laws which need to be taken into consideration before starting
a business.

10. Start up: Now after taken into consideration the above point and checking the feasiability of the
project, they can start with the launch of the boutique.
 Class XI BUSINESS STUDIES

CHAPTER -2 FORMS OF BUSINESS ORGANISATION

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Who elects B.O.D of Joint Stock Company?

Answer

The Board of Director of Joint Stock Company is elected by shareholders

Question 2

In which form of business profits are not shared?

Answer

In a sole proprietorship all profits, losses, assets and liabilities are the direct and sole responsibility of
the owner

Question 3

Where a business act as an artificial person what act as an official signature

Answer

The common seal with the name of the company engraved on it, is used as a substitute of its signature

Question 4

Write the names of systems which govern membership in Joint Hindu Family business

Answer

There are two Schools of Hindu Laws which govern the Hindu Undivided Family(HUF):
1. Mitakshara Law
The Mitakshara Law applies tothe whole of India except Bengal and Assam.

2. Dayabhaga Law
Dayabhaga Law applies to the communities like Bengalis and Assamese living in the States of Bengal and
Assam and other parts of the world.
Question 5

Enumerate the two conditions necessary for formation of Joint Hindu Family business

Answer

1. Atleast two member in the family

2. Ancestral property to be inherited by them

Question 6

What is the minimum no. of persons required to form a co-operative society

Answer

The minimum number of persons required to form a Co-operative is ten (10).

Question 7

Explain the meaning of unlimited liability.

Answer

Unlimited liability refers to Indefinite extent of liability to pay a firm's debts or obligations, extending
beyond the investments of the firm's owner(s), partners, or shareholder(s) to their personal assets. This
extent of liability is assumed in an unlimited liability company such as a sole-proprietorship or a general
partnership.

Question 8

Identify a company which has no restriction of on transfer of shares

Answer

Public company has no restriction of on transfer of shares

Question 9

Name two types of business in which sole proprietorship is very suitable.

Answer

Tutorial classes, Small Cell phone repair shop is very suitable examples of business for sole
proprietorship
Question 10

Write the name of form of business organisation found only in India

Answer

Joint Hindu family form of business is the form of business which is only found in india

Question 11

Name the person who manages a Joint Hindu Family business

Answer

Karta is the person who manages a Joint Hindu family business

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Partners in affirm has different roles and liabilities, Identify and explain the type of partner in a firm
from the given examples:

a) Rama is a partner in a business who has no actual interest in business trade or its profits but she is
Paid fee by the firm for lending its name to firm.

b) In Ram Hari & co. Ltd, Ram & Hari declare Gopal as a partner with knowing that Gopal remain silent
then Gopal will be liable to third parties for any loss.

c) What type of partner is Geeta if she only contribute capital, shar profit and loss if any?

d) What type of patner is Giri in Ram Hari & co. Where he is an outsider but represent himself as a
partner.

Answer

a) Rama is a partner in a business who has no actual interest in business trade or its profits but she is
Paid fee by the firm for lending its name to firm- Nominal Partner

b) In Ram Hari & co. Ltd, Ram & Hari declare Gopal as a partner with knowing that Gopal remain silent
then Gopal will be liable to third parties for any loss- Partner by holding out

c) What type of partner is Geeta if she only contribute capital, shar profit and loss if any- Sleeping
Partner

d) What type of patner is Giri in Ram Hari & co. Where he is an outsider but represent himself as a
partner-Partner by Estoppel
Question 2

Explain the forms: sole proprietorship, H.U.F & Joint stock company on the basis of following points:
Liability, members & Continuity

Answer

Basis Sole Proprietorship HUF Joint Stock Company

Liability Unlimited Liability Karta has unlimited The liability of the
liability, his personal members is limited to
property is used to the extent of the
repay the debts. capital contributed by
Liability of co- them in a company.
parceners is limited to The members can be
their share and their asked to contribute to
risk is well defined and the loss only to the
precise extent of the unpaid
amount of share held
by them
Member Owner is the member Atleast two member in In Public company-
family is required to Minimum 7 and
form Joint hindu family maximum is unlimited
business. Membership and In Private company
is attained at the time Minimum 2 and
of birth Maximum is 200
Continuity Death, insanity, Operation of business It will only cease to
imprisonment, physical are not terminated and exist when a specific
ailment, bankruptcy continuity of business procedure for its
affects the business is not at stake closure, called winding
and can lead to its up, is completed.
closure Members may come
and members may go,
but the company
continues to exist

Question 3

Explain the concept of mutual agency in partnership with suitable example

Answer

Mutual agency is the legal relationship between partners in a partnership where each partner has
authorization powers and the ability enter the partnership into business contracts. In other words, each
partner in the partnership is an agent in the business and the authority to make business decisions that
commit or bind the partnership, as a whole, to a business agreement with a third party or entity.
For example, a partner of a grocery store who purchases a delivery truck creates a binding contract in
the name of the partnership even if the partnership agreement denies this authority. On the other hand,
if a partner in a law firm purchased a snowmobile for the partnership, such as act would not be binding
on the partnership. The purchase is clearly outside the scope of partnership business.

Question 4

What is meant by partner by estoppel

OR

Mr. Singh is in ‘lighting’ business for the post 15 years. To help his friend, Mr Yadav, a beginner he
projected himself as a partner before Mohd. Abdul, a whole sale dealer of fancy lights. Mohd. Abdul
gave Mr. Yadav the stock without asking for payment and gave him credit limit of one month.

Will Mr. Singh be liable to Md. Abdul if Mr. Yadav does not pay him on time ?

Classify Mr. Singh’s role here along with an explanation

Answer

Partner by Estoppel refers to Legally binding partnership that may arise where, in fact, no formal
partnership agreement is in effect. A person who by conduct or words represents, or allows him/herself
to be represented, as a partner in a firm is liable for the credit or loans obtained by firm on the basis of
such representation. Also called presumption of partnership.

The partner does not contribute to capital nor does he participate in management but his liability is
unlimited

Question 5

What is secret partner

Answer

Secret Partner is A person or partner who is not disclosed in a venture or enterprise. He contributes to
the capital. He participates in the management but secretly. He also shares the profits and losses of
business. His liability is unlimited as others.

Question 6

Write a short note on producer co-operative society

Answer

Producer’s Cooperative Societies is set up to protect the interest of small producer. The members
comprise of producers desirous of procuring inputs for production of goods to meet the demands of
consumers. Profits are distributed on the basis of their contributions to the total pool of goods produced
or sold by the society.

Question 7

Explain a co-operative organisation in democratic setup.

Answer

The cooperative society is a voluntary association of persons, who join together with the motive of
welfare of the members. The principle of ‘one man one vote’ governs the cooperative society. Each
member is entitled to equal voting rights. Thus, cooperative society is run on democratic principles.

Question 8

Shiv, Anandi & John were partners John died in a car accident Both Shiv & Anandi decided to admit his
son Ryan who was 16 years old as partner. Can they do so? Justify.

Answer

Yes they can admit Ryan as partner to benefits of partnership firm with mutual consent of partners.

A minor is a person who has not attained the age of 18 years. Since a minor is not capable of enlarging
into a valid agreement. He cannot become partner of a firm. However a minor can be admitted to the
benefits of an existing partnership firm with the mutual consent of all other partners. He cannot be
asked to bear the losses. His liability will be limited to the extent of the capital contributed by him. He
will not be eligible to take an active part in the management of the firm.

Question 9

Differentiate between private co. and public company

Answer

Basis for Comparison Public Company Private Company

Meaning A company which is owned A company which is owned
and traded publicly and traded privately
Minimum member 7 2
Maximum Member Unlimited 200
Minimum Director 3 2
Suffix Limited Private Limited
Start of Business After receiving certificate of After receiving certificate of
incorporation and certificate incorporation
of commencement of
business
Statutory Meeting Compulsory Optional
 Issue of Prospectus/ Obligatory Not required
Statement in lieu of
Prospectus
Public Subscription Allowed Not allowed
Quorum at AGM 5 members must present in 2 members must present in
person person
Transfer of shares Free Restricted

Question 10

Akriti, Sonam & Supreeti were friends who started a partnership business. They did not get their firm
registered as it was optional. Soon, Sonam & Supreeti started having conflicts. Sonam wanted to
approach a lawyer. If you were a lawyer than how would you guide her ?

OR

Mangal, Sazia & Suqhbeer Singh wish to start a business in partnership. They want to make a
partnership deed, Suggest what aspects of the deed should be included in it ?

Answer

Partnership refers to the relation between persons who have agreed to share the profit of the business
carried on by all or any one of them acting for all. Although registration of firm is optional, in order to
avoid conflicts between partners partnership deed can be prepared.

The written agreement which specifies the terms and conditions that govern the partnership is called
the partnership deed.

The partnership deed generally includes the following aspect:

• Name of firm
• Nature of business and location of business
• Duration of business
• Investment made by each partner
• Distribution of profits and losses
• Duties and obligations of the partners
• Salaries and withdrawals of the partners
• Terms governing admission, retirement and expulsion of a partner
• Interest on capital and interest on drawings
• Procedure for dissolution of the firm
• Preparation of accounts and their auditing
• Method of solving disputes

Question 11

Explain limitations of Joint Stock Company

Answer

Limitations are as follows

• The formation of a company requires greater time, effort and extensive knowledge of legal
requirements and the procedures involved

• Separation of ownership and management leads to lack of effort as well as personal

involvement on the part of the officers of a company

• Information of company is provided to Registrar of companies time to time and hence

information is available to general public

• The functioning of a company is subject to many legal provisions and compulsions. This reduces
the freedom of operations of a company and takes away a lot of time, effort and money

• Communication as well as approval of various proposals to Top, middle and lower level
management may cause delays not only in taking decisions but also in acting upon them.

• Board of Directors are representatives of the shareholders who are the owners. The owners
have minimal influence in terms of controlling or running the business

• Various demands pose problems in managing the company as it often becomes difficult to
satisfy such diverse interest

Question 12

Which form of business is suitable for following types of business and why ?

(a) Beauty Parlour

(b) Coaching Centre for science students

(c) Hotel

(d) Shopping mall

(e) Restaurant

(f) Small repair business

Answer

(a) Beauty Parlour- Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

(b) Coaching Centre for science students- Partnership.

Simple and inexpensive to create and operate Partners report their share of profit or loss on their
personal tax returns
(c) Hotel-Joint Stock Companies.

The main feature of LLCs and corporations that attracts small businesses is the limit they provide on
their owners' personal liability for business debts and court judgments against the business. Another
factor might be income taxes: You can set up an LLC or a corporation in a way that lets you enjoy more
favorable tax rates. In addition, an LLC or corporation may be able to provide a range of fringe benefits
to employees (including the owners) and deduct the cost as a business expense.

(d) Shopping mall-Joint Stock Companies.

Owners have limited personal liability for business debts

(e) Restaurant-Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

(f) Small repair business- Sole Proprietorship.

Simple and inexpensive to create and operate. Owner reports profit or loss on his or her personal tax
return

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

In what type of business, individuals associate voluntarily for profit, having capital dividend into
transferable shares, the ownership of which is the condition of membership? Explain with features

Answer

A Joint stock company is a Voluntarily association of persons formed for carrying out business activities
for profit and has a legal status independent of its members, having capital divided into transferable
shares. A company can be described as an artificial person having a separate legal entity, perpetual
succession and a common seal

The shareholders are the owners of the company while the Board of Directors is the chief managing
body elected by the shareholders

The capital of the company is divided into smaller parts called ‘shares’ which can be transferred freely
from one shareholder to another person (except in a private company).

Features of Joint Stock Company are as follows:

• A company is an artificial person. It is creation of law and exists independent of its members

• A company acquires a seperate legal identity. The law does not recognise the business and
owners to be one and the same.
 • The formation of a company is a time consuming, expensive and complicated process.
Incorporation of companies is compulsory

• It will only cease to exist when a specific procedure for its closure, called winding up, is
completed. Members may come and members may go, but the company continues to exist.

• The management and control of the affairs of the company is undertaken by the Board of
Directors, which appoints the top management for running of business

• A company may or may not have a common seal.

• The risk of losses in a company is borne by all the share holders.

Question 2

If registration is optional, why do partnership firms willingly go through this legal formality? Explain
the reason with procedure to get them registered.

Answer

It is optional for partnership firm to get registered. But to avoid conflicts between partners it is
preferred to have a written agreement.

The consequences of non-registration of a firm are as follows:

(a) A partner of an unregistered firm cannot file a suit against the firm or other partners,

(b) The firm cannot file a suit against third parties, and

(c) The firm cannot file a case against the partners.

The written agreement which specifies the terms and conditions that govern the partnership is called
the partnership deed.

The partnership deed generally includes the following aspect:

• Name of firm
• Nature of business and location of business
• Duration of business
• Investment made by each partner
• Distribution of profits and losses
• Duties and obligations of the partners
• Salaries and withdrawals of the partners
• Terms governing admission, retirement and expulsion of a partner
• Interest on capital and interest on drawings
• Procedure for dissolution of the firm
• Preparation of accounts and their auditing
• Method of solving disputes
Procedure for firm registration:

1. Submission of application in the prescribed form to the Registrar of firms. The application should
contain the following particulars:

• Name of the firm

• Location of the firm
• Names of other places where the firm carries on business
• The date when each partner joined the firm
• Names and addresses of the partners
• Duration of partnership

This application should be signed by all the partners.

2. Deposit of required fees with the Registrar of Firms.

3. The Registrar after approval will make an entry in the register of firms and will subsequently issue a
certificate of registration.

Question 3

Who have equal ownership right over the property of an ancestor? Highlight with its essential
characteristics

Answer

Joint Hindu Family is a form of organisation wherein the business is owned and carried by the members
of the Hindu Undivided Family (HUF). The basis of membership in the business is birth in a particular
family and three successive generations can be members. The business is controlled by the head of the
family who is the eldest member and is called karta.

Members of Joint Hindu Family Business have equal ownership right over the property of an ancestor
and they are known as co-parceners.

Characteristics of Joint Hindu Family Business are as follows:

• Business does not require any agreement as membership is by birth.

• There should be at least two members in the family and ancestral property to be inherited by
them

• The liability of all members except the karta is limited to their share of co-parcenery property of
the business. The karta has unlimited liability.

• Karta controls the family business and his decision are binding to all

• Business continues even after the death of karta, next eldest becomes karta

• Minors are also member of the business

Question 4

Why cooperative forms of organisation are formed? Explain various types of cooperative societies

Answer

The cooperative society is a voluntary association of persons, who join together with the motive of
welfare of the members. They are driven by the need to protect their economic interests in the face of
possible exploitation at the hands of middlemen obsessed with the desire to earn greater profits. The
process of setting up a cooperative society is simple enough and at the most what is required is the
consent of at least ten adult persons to form a society. The capital of a society is raised from its
members through issue of shares. The society acquires a distinct legal identity after its registration

Types of Cooperative Societies

• Consumer’s Cooperative Societies

 It is formed to protect the interests of consumers
 Society aims at eliminating middlemen to achieve economy in operations
 It purchases goods in bulk directly from the wholesalers and sells goods to the
members
 Profits are distributed on the basis of either their capital contributions to the
society or purchases made by individual members.

• Producer’s Cooperative Societies

 It is set up to protect the interest of small producer
 The members comprise of producers desirous of procuring inputs for production
of goods to meet the demands of consumers
 Profits are distributed on the basis of their contributions to the total pool of
goods produced or sold by the society.

• Marketing Cooperative Societies

 It is established to help small producers in selling their products.
 The members consist of producers who wish to obtain reasonable prices for
their output
 It pools the output of individual members and performs marketing functions like
transportation, warehousing, packaging, etc., to sell the output at the best
possible price.
 Profits are distributed according to each member’s contribution

• Farmer’s Cooperative Societies

 It is formed to protect the interests of farmers by providing better inputs at a
reasonable cost
 The members comprise farmers who wish to jointly take up farming activities
 The aim is to gain the benefits of large scale farming and increase the
productivity.
 Improves the yield and returns to the farmers, but also solves the problems
associated with the farming on fragmented land holdings
 • Credit Cooperative Societies
 It is established for providing easy credit on reasonable terms to the members.
 The members comprise of persons who seek financial help in the form of loans.
 The aim of such societies is to protect the members from the exploitation of
lenders who charge high rates of interest on loans.

• Cooperative Housing Societies

 It is established to help people with limited income to construct houses at
reasonable costs.
 The members of these societies consist of people who are desirous of procuring
residential accommodation at lower costs.
 The aim is to solve the housing problems of the members by constructing
houses and giving the option of paying in instalments

Question 5

Dhirubhai Chaurasiya operates a textile business. His family is joint and has a lot of ancestoral
property. All the 15 family members are a part of this business. He is the eldest male member in the
family so he heads the business. He is liable to all the creditors of the business as he is the decision
maker. Dhirubhai’s grandson has just born a few days ago and he is also the member of the business.

(a) Which form of business is being undertaken by Dhirubhai Chaurasiya ?

(b) Identify the features of this form of business based on the information given.

(c) Textile business is part of which type of industry according to you ?

Answer

a) Joint Hindu Family form of Business is undertaken by Dhirubhai Chaurasiya

b) Characteristics of Joint Hindu Family Business based on above information are as follows:

• Business does not require any agreement as membership is by birth as Dhirubhair grandson who
is just born is member by birth

• There should be at least two members in the family and ancestral property to be inherited by
them as 15 family member are part of business and have lot of ancestral property

• The liability of all members except the karta is limited to their share of co-parcenery property of
the business. The karta has unlimited liability as he is the decision maker he is liable to all
creditors of business

• Karta controls the family business and his decision are binding to all as he is the eldest male
member and he heads the business

• Minors are also member of the business as his grandson who is just born is member of business.
Question 6

'Reva Chemicals' is a partnership firm. Sona and Mona one two partners in this firm. It is recorded in
the Partnership Deed that Sona's liability is unlimited, whereas Mona's is limited. Sona wants to set up
the Anti-Pollution plant in his factory, but Mona does not let him do so. Almost all the transactions of
this firm are done through the internet. The firm Sells its goods to other Business units only. The firm
gets its Research and Development work done by another firm, who is a specialist of such work.
i. Describe the type of partnership.
ii. ldentify the two values being overlooked.
iii. Name the type-business being done by the firm

Answer

i. It is a limited partnership where the liability of at least one partner is unlimited whereas the rest may
have limited liability. The limited partners do not enjoy the right of management and their acts do not
bind the firm or the other partners. Registration of such partnership is compulsory.

ii. The two values which are overlooked are:

• Violation of government rules

• Social responsibility clause is not fulfilled

iii. It is a Business to Business Commerce. B2B e-commerce (also written as e-Commerce, eCommerce or
similar variants), short for business-to-business, electronic commerce, is selling products or services
between businesses through the internet via an online sales portal. In general, it is used to improve
efficiency for companies. Instead of processing orders manually – by telephone or e-mail – with e-
commerce orders can be processed digitally.

Question 7

Ravi, Pradeep, Satyender and Dharmender are partners in a partnership firm. Ravi and Satyender take
active part in the operation of business whereas Pradeep has contributed in Capital but do not take part
in day to day activities of the business. Dharmender is a nominal partner. All four make partnership for
a specified time period and also make written agreement to govern the partnership but they does not
get the firm registered.
a. What is meant by nominal partner?
b. Which type of partnership is there between the partners in above?
c. What is written agreement between the partners called?
d. What type of partners Pradeep and Ravi are?
e. Give two merits of getting firm registered.

Answer

a) Nominal Partner is a Partner who allows the use of his/her name by a firm. He does not contribute to
capital nor he participate in the management. He generally does not share profit/losses and have
unlimited liability
b) General Partnership is there between the partners. In general partnership the liability of partners is
unlimited and joint. The partners enjoy the right to participate in the management of the firm and their
acts are binding on each other as well as on the firm

c) Written agreement between the partners is called partnership deed. The written agreement which
specifies the terms and conditions that govern the partnership is called the partnership deed.

d) Ravi is active partner. Active partner are those Partners who take actual part in carrying out business
of the firm on behalf of other partners. They contribute capital and takes part in the management. He
shares the profit and loss of the partnership. His liability is unlimited.

Pradeep is sleeping partner. Sleeping partner are those Partners who do not take part in day to day
activities of business. They contribute capital and does not takes part in the management. He shares the
profit and loss of the partnership. His liability is unlimited.

e) Two merits of getting firm registered are as follows:

• A partner of an unregistered firm cannot file a suit against the firm or other partners
• The firm cannot file a suit against third parties

Question 8

Explain different types of Partnership on the basis of duration and liability?

Answer

Types of Partnership are as follows:

On the basis of duration On the basis of Liablity

Partnership at will General Partnership

•It can continue as long as the partners •The liability of partners is unlimited and
want and is terminated when any partner joint.
gives a notice of withdrawal from •The partners enjoy the right to
partnership to the firm participate in the management of the firm
and their acts are binding on each other
as well as on the firm

Particular Partnership Limited Partnership

•Partnership formed for the •the liability of at least one partner is
accomplishment of a particular project unlimited whereas the rest may have
say construction of a building or an limited liability
activity to be carried on for a specified •The limited partners do not enjoy the
time period right of management and their acts do
not bind the firm or the other partners.
•Registration of such partnership is
compulsory.
 Class XI BUSINESS STUDIES

CHAPTER -3 Private, Public and Global Enterprises

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Name the type of business enterprise which operates in more than one country

Answer

Multinational company may be defined of a company that has business operations in several countries
by having its factories, branches or offices in those countries. But is has its headquarter in one country in
which it is incorporated. Examples :- PHILIPS, Coca Cola etc.

Question 2

State different types of public sector enterprises

Answer

Different types of Public sector enterprises are :

1. Departmental undertaking

2. Statutory Corporation

3. Government Companies

Question 3

It is a public sector enterprise in which Govt. holds at least 51% share. Name the company

OR

How much paid up capital should be at least held by a government company?

Answer

According to the section 2(45) of the Companies Act 2013, a government company means any company
in which not less than 51 per cent of the paid up capital is held by the central government, or by any
state government or partly by Central government and partly by one or more State governments and
includes a company which is a subsidiary of a government company.
Question 4

Which type of business enterprise would emerge when two business firms agree to join together to
achieve a common purpose and mutual benefit

Answer

When two businesses agree to join together for a common purpose and mutual benefit, it gives rise to a
joint venture. Joint venture is the pooling of resources and expertise by two or more businesses, to
achieve a particular goal.

Question 5

Mention any two objective of public sector enterprises

Answer

1. To prevent the growth of monopoly and concentration of economic power in a few private hands.

2. To achieve rapid economic development through industrial growth in accordance with the
development plans

Question 6

Which form of public sector bought into existence by a special act of the parliament?

Answer

Statutory corporations are public enterprises brought into existence by a Special Act of the Parliament.
The Act defines its powers and functions, rules and regulations governing its employees and its
relationship with government departments. They have the power of the government and considerable
amount of operating flexibility of private enterprises

Question 8

Which committee was formed to reconstruct the sick public units?

Answer

All public sector units were referred to the Board of Industrial and Financial Reconstruction to decide
whether a sick unit was to be restructured or closed down. The Board has reconsidered revival and
rehabilitation schemes for some cases and winding up for a number of units.
VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Explain any three features of Public Private Partnership

Answer

Features:

• The public partners in PPP are Government entities, i.e., ministries, government departments,
municipalities or stateowned enterprises. The private partners can be local or foreign
(international) and include businesses or investors with technical or financial expertise relevant
to the project
• The government’s contribution to PPP is in the form of capital for investment and transfer of
assets that support the partnership in addition to social responsibility, environmental awareness
and local knowledge.
• The private sector’s role in the partnership is to make use of its expertise in operations,
managing tasks and innovation to run the business efficiently.

Question 2

How does the govt. maintain regional balance in the country

Answer

• The government is responsible for developing all regions and states in a balanced way and
removing regional disparties.

• Attention would be paid to those regions which were lagging behind and public sector industries
were deliberately set up

• Four major steel plants were set up in the backward areas to accelerate economic development,
provide employment to the workforce and develop ancilliary industries

Question 3

Identify the form of public sector enterprise in the following cases:

(a) This is the oldest and traditional form of public enterprise.

(b) Special act of the parliament brings this public enterprise into existence.

(c) Minimum 51% of the paid up capital is held by Government

Answer

(a) This is the oldest and traditional form of public enterprise- Departmental Undertaking
 • These enterprises are established as departments of the ministry and are considered part or an
extension of the ministry itself
• They act through the officers of the Government and its employees are Government employees.
• These undertakings may be under the central or the state government and the rules of
central/state government are applicable
• Examples of these undertakings are railways and post and telegraph department

(b) Special act of the parliament brings this public enterprise into existence- Statutory Corporations

• Statutory corporations are public enterprises brought into existence by a Special Act of the
Parliament
• The Act defines its powers and functions, rules and regulations governing its employees and its
relationship with government departments.
• They have the power of the government and considerable amount of operating flexibility of
private enterprises

(c) Minimum 51% of the paid up capital is held by Government- Government Company

• According to the section 2(45) of the Companies Act 2013, a government company means any
company in which not less than 51 per cent of the paid up capital is held by the central
government, or by any state government or partly by Central government and partly by one or
more State governments and includes a company which is a subsidiary of a government
company.
• There are certain provisions which are applicable to the appointment/retirement of directors
and other managerial personnel
• The shares of the company are purchased in the name of the President of India.
• Since the government is the major shareholder and exercises control over the management of
these companies, they are known as government companies

Question 4

Explain differences between Departmental undertakings and Statutory Corporation

Answer

Point of Distinction Departmental Undertaking Statutory Corporation

1. Status Does not have a separate legal entity. It is a Separate entity.
2. Establishment It is established by a Ministry. It is established by a Special Act
of Parliament.
3. Funds Funds are Provided annually by budget It can raise its own resources.
appropriation.
4. Authority to Rests in the hands of the Minister and Parliament has the authority to
control the concemed Ministry control the affairs.
5. Management Managed by government officials and Managed by the Board of
the ministry. Directors
6. Power to borrow Does not have borrowing power. Possesses borrowing power.
Question 5

Discuss some features of MNC’s which distinguish MNC’s from public sector co. and public sector
enterprises

Answer

• Huge capital resources:

 They possess huge financial resources and the ability to raise funds from
different sources.
 They are able to tap funds from various sources.
 They may issue equity shares, debentures or bonds to the public.
 They are also in a position to borrow from financial institutions and
international banks.
 They enjoy credibility in the capital market

• Foreign collaboration:
 They enter into agreements with Indian companies pertaining to the sale of
technology, production of goods, use of brand names for the final products, etc.
 They may collaborate with companies in the public and private sector.
 There are usually various restrictive clauses in the agreement relating to
transfer of technology, pricing, dividend payments, tight control by foreign
technicians, etc.
 foreign collaborations have given rise to the growth of monopolies and
concentration of power in few hands

• Advanced technology:
 These enterprises possess technological superiorities in their methods of
production.
 They are able to conform to international standards and quality specifications.
 This leads to industrial progress of the country in which such corporations
operate since they are able to optimally exploit local resources and raw
materials

• Product innovation:
 These enterprises are characterised by having highly sophisticated research and
development departments engaged in the task of developing new products and
superior designs of existing products.
 Qualitative research requires huge investment which only global enterprises can
afford

Question 6

Write three important steps of forming a joint venture

Answer
Three important steps of forming a joint venture are as follows:

1.Two parties, (individuals or companies), incorporate a company in India. Business of one party is
transferred to the company and as consideration for such transfer, shares are issued by the company
and subscribed by that party. The other party subscribes for the shares in cash.

2.The above two parties subscribe to the shares of the joint venture company in agreed proportion, in
cash, and start a new business.

3.Promoter shareholder of an existing Indian company and a third party, who/which may be
individual/company, one of them non-resident or both residents, collaborate to jointly carry on the
business of that company and its shares are taken by the said third party through payment in cash.

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Define Joint Venture and explain its major benefits

Answer

Joint Venture

• When two businesses agree to join together for a common purpose and mutual benefit, it gives
rise to a joint venture.
• Joint venture is the pooling of resources and expertise by two or more businesses, to achieve a
particular goal.
• The risks and rewards of the business are also shared. The reasons behind the joint venture
often include business expansion, development of new products or moving into new markets,
particularly in another country
• Examples of Joint Ventures are AVI Oil India Pvt. Ltd., Green Gas Ltd etc
• A joint venture must be based on a memorandum of understanding signed by both the parties,
highlighting the basis of a joint venture agreement.
• Negotiations and terms must take into account the cultural and legal background of the parties.
• The joint venture agreement must also state that all necessary governmental approvals and
licences will be obtained within a specified period

Benefits are as follows:

• Teaming up adds to existing resources and capacity enabling the joint venture company to grow
and expand more quickly and efficiently
• When a business enters into a joint venture with a partner from another country, it opens up a
vast growing market
• They have Access to Advance technology. Advanced techniques of production leading to
superior quality products saves a lot of time, energy and investment as they do not have to
develop their own technology.
 • Joint ventures allow business to come up with something new and creative for the same market.
Especially foreign partners can come up with innovative products because of new ideas and
technology
• International corporations invest in India, they benefit immensely due to the lower cost of
production. They are able to get quality products for their global requirements
• One of the parties benefits from the other’s goodwill which has already been established in the
market.

Question 2

It is a public enterprise established under Indian Companies Act and conducts business in competition
with companies in private sector.

(a) Identify the type of public enterprise.

(b) What is the minimum investment Govt. has to make in such companies.

(c) In whose name shares of this type of company are purchased.

(d) Explain any two advantages and limitations of such companies.

Answer

a) It is a Government Company. According to the section 2(45) of the Companies Act 2013, a
government company means any company in which not less than 51 per cent of the paid up capital is
held by the central government, or by any state government or partly by Central government and partly
by one or more State governments and includes a company which is a subsidiary of a government
company

b) Minimum investment of 51% of paid up capital is to be made by central government, or by any state
government or partly by Central government and partly by one or more State governments and includes
a company which is a subsidiary of a government company

c) The shares of the company are purchased in the name of the President of India.

d) Advantages are as follows:

• It has a separate legal entity, apart from the Government;

• It enjoys autonomy in all management decisions and takes actions according to business
prudence

Limitations are as follows:

• The Government is the only shareholder in some of the companies, the provisions of the
Companies Act does not have much relevance

• It evades constitutional responsibility, which a company financed by the government should

have
Question 3

Explain merits and three limitations of Departmental undertaking

Answer

Merits:

• It facilitates the Parliament to exercise effective control over their operations high degree of
public accountability

• The revenue earned by the enterprise goes directly to the treasury and hence is a source of
income for the Government

• Where national security is concerned, this form is most suitable since it is under the direct
control and supervision of the concerned Ministry

Limitations:

• No flexibility, which is essential for the smooth operation of business

• The employees or heads of departments of such undertakings are not allowed to take
independent decisions, without the approval of the ministry concerned

• The bureaucrat’s over-cautious and conservative approval does not allow them to take risky
ventures

• No action can be taken unless it goes through the proper channels of authority

• Lot of political interference through the ministry

• These organisations are usually insensitive to consumer needs and do not provide adequate
services to them

Question 4

Write the main features of multinational companies

Answer

Features:

• Huge capital resources:

 They possess huge financial resources and the ability to raise funds from
different sources.
 They are able to tap funds from various sources.
 They may issue equity shares, debentures or bonds to the public.
 They are also in a position to borrow from financial institutions and
international banks.
  They enjoy credibility in the capital market

• Foreign collaboration:
 They enter into agreements with Indian companies pertaining to the sale of
technology, production of goods, use of brand names for the final products, etc.
 They may collaborate with companies in the public and private sector.
 There are usually various restrictive clauses in the agreement relating to
transfer of technology, pricing, dividend payments, tight control by foreign
technicians, etc.
 foreign collaborations have given rise to the growth of monopolies and
concentration of power in few hands

• Advanced technology:
 These enterprises possess technological superiorities in their methods of
production.
 They are able to conform to international standards and quality specifications.
 This leads to industrial progress of the country in which such corporations
operate since they are able to optimally exploit local resources and raw
materials

• Product innovation:
 These enterprises are characterised by having highly sophisticated research and
development departments engaged in the task of developing new products and
superior designs of existing products.
 Qualitative research requires huge investment which only global enterprises can
afford

• Marketing strategies:
 They use aggressive marketing strategies in order to increase their sales in a
short period.
 They posses a more reliable and up-to-date market information system.
 They already have carved out a place for themselves in the global market, and
their brands are well-known, selling their products is not a problem.

• Expansion of market territory:

 Their operations and activities extend beyond the physical boundaries of their
own countries.
 Their international image also builds up and their market territory expands
enabling them to become international brands.
 They operate through a network of subsidiaries, branches and affiliates in host
countries. Due to their giant size they occupy a dominant position in the market.

• Centralised control:
 They have their headquaters in their home country and exercise control over all
branches and subsidiaries.
  This control is limited to the broad policy framework of the parent company.
 There is no interference in day to day operations

Question 5

Which public sector act through the officers of the government & its employees are government
employee? Discuss some of its features.

Answer

Departmental Undertakings

• These enterprises are established as departments of the ministry and are considered part or an
extension of the ministry itself
• They act through the officers of the Government and its employees are Government employees.
• These undertakings may be under the central or the state government and the rules of
central/state government are applicable
• Examples of these undertakings are railways and post and telegraph department

Features:

• The funding of these enterprises come directly from the Government Treasury and are an
annual appropriation from the budget of the Government

• Subject to accounting and audit controls applicable to other Government activities

• The employees of the enterprise are Government servants and their recruitment and conditions
of service are the same under government

• It is a major subdivision of the Government department and is subject to direct control of the
ministry

• They are accountable to the ministry

Question 6

What was the role of public sector before 1991?

Answer

 Indian economy consists of both privately owned and government owned business enterprises
 The private sector consists of business owned by individuals or a group of individuals
 The public sector consists of various organisations owned and managed by the government.
These organisations may either be partly or wholly owned by the central or state government.
They may also be a part of the ministry or come into existence by a Special Act of the Parliament
 In the Industrial Policy Resolution 1948, the Government of India had specified the approach
towards development of the industrial sector.
  The Industrial Policy Resolution, 1956 had also laid down certain objectives for the public sector
to follow so as to accelerate the rate of growth and industrialization
 The 1991 industrial policy was radically different from all the earlier policies where the
government was deliberating disinvestment of public sector and allowing greater freedom to
the private sector.
 At the same time, foreign direct investment was invited from business houses outside India.
 Thus, public sector units, private sector enterprises and global enterprises coexisting in the
Indian economy.

Question 7

Describe the industrial policy 1991, towards the public sector

Answer

Four major reforms in the public sector in its new industrial policy in 1991were made:

• In the 1956 resolution on Industrial policy, 17 industries were reserved for the public
sector. In 1991, only 8 industries were reserved for the public sector, they were
restricted to atomic energy, arms and communication, mining, and railways. In 2001,
only three industries were reserved exclusively for the public sector. These are atomic
energy, arms and rail transport

• Disinvestment involves the sale of the equity shares to the private sector and the public.
The objective was to raise resources and encourage wider participation of the general
public and workers in the ownership of these enterprises

• All public sector units were referred to the Board of Industrial and Financial
Reconstruction to decide whether a sick unit was to be restructured or closed down.
The Board has reconsidered revival and rehabilitation schemes for some cases and
winding up for a number of units.

• Improvement of performance through a MoU system by which managements are to be

granted greater autonomy but held accountable for specified results. Under this system,
public sector units were given clear targets and operational autonomy for achieving
those targets

Question 8

What are the benefits available for two businesses agree to join together for a common purpose and
mutual benefit?

Answer

Joint Ventures
 • When two businesses agree to join together for a common purpose and mutual benefit, it gives
rise to a joint venture.
• Joint venture is the pooling of resources and expertise by two or more businesses, to achieve a
particular goal.
• The risks and rewards of the business are also shared. The reasons behind the joint venture
often include business expansion, development of new products or moving into new markets,
particularly in another country
• Examples of Joint Ventures are AVI Oil India Pvt. Ltd., Green Gas Ltd etc
• A joint venture must be based on a memorandum of understanding signed by both the parties,
highlighting the basis of a joint venture agreement.
• Negotiations and terms must take into account the cultural and legal background of the parties.
• The joint venture agreement must also state that all necessary governmental approvals and
licences will be obtained within a specified period

Joint Ventures

Equity-Based Contractual

Cooperation
Limited Liability
Company Partnership Agreement/
Partnership
Strategic Alliance

Benefits:

• Teaming up adds to existing resources and capacity enabling the joint venture company to grow
and expand more quickly and efficiently
• When a business enters into a joint venture with a partner from another country, it opens up a
vast growing market
• They have Access to Advance technology. Advanced techniques of production leading to
superior quality products saves a lot of time, energy and investment as they do not have to
develop their own technology.
• Joint ventures allow business to come up with something new and creative for the same market.
Especially foreign partners can come up with innovative products because of new ideas and
technology
• International corporations invest in India, they benefit immensely due to the lower cost of
production. They are able to get quality products for their global requirements
• One of the parties benefits from the other’s goodwill which has already been established in the
market.
 Class XI BUSINESS STUDIES

CHAPTER -4 BUSINESS SERVICES

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

State the five I’s of services?

Answer

Nature of services are Intangibility, Inconsistency, Inseparability, Inventory and Involvement

Question 2

What is meaning of Banking?

Answer

A banking company in India is the one which transacts the business of banking which means accepting,
for the purpose of lending and investment of deposits of money from the public, repayable on demand
or otherwise and withdrawable by cheques, draft, order or otherwise. In simple terms, a bank accepts
money on deposits, repayable on demand and also earns a margin of profit by lending money

Question 3

It is the prime responsibility of the insured to take reasonable steps to minimize loss/damage to the
insured property. Name the principle of insurance

Answer

Mitigation principle of Insurance says as the owner of an insurance policy, you have an obligation to take
necessary steps to minimize the loss of your insured property. The law doesn't allow you to be negligent
or irresponsible just because you know you're insured.

Question 4

Define Insurance

Answer

Insurance is thus a device by which the loss likely to be caused by an uncertain event is spread over a
number of persons who are exposed to it and who prepare to insure themselves against such an event.
It is a contract or agreement under which one party agrees in return for a consideration to pay an
agreed amount of money to another party to make a loss, damage or injury to something of value in
which the insured has a pecuniary interest as a result of some uncertain event.

Question 5

Rahul’s father wants to save Rs. 100,000 so that he can gift the money to Rahul on his graduation day.
Which type of deposit should he open with bank?

Answer

Fixed Deposit should be opened with bank. Fixed accounts are time deposits with higher rate of interest
as compared to the savings accounts.

Question 6

Name two companies that offer DTH service in our country?

Answer

Airtel, Tatasky offers DTH services in our country

Question 7

A company insures its stock against fire for Rs. 15 Lakh. A fire broke down and the total stock was lost.
At the time of fire there was stock worth Rs. 25 Lakh. What is the value of compensation company
would be entitled to?

Answer

The contract of fire insurance is a contract of strict indemnity. The insured can, in the event of loss,
recover the actual amount of loss from the insurer. This is subject to the maximum amount for which
the subject matter is insured. So, maximum amount of Rs, 15 lakh is the value of compensation.

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Mr. Satish gets his house insured against fire of Rs. 20 Lakh with insurer A and for Rs. 10 Lakh with
insurer B. A loss of Rs. 3 Lakh occurred.

(1) How much compensation can be claimed from A and B separately and Why?

(2) Name the principle of Insurance in the above case.

Answer
1. According to this principle, the insured can claim the compensation only to the extent of actual loss
either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer
can claim proportionate claim from the other insurers

A=20Lakh*3Lakh/30Lakh

A=2 Lakh

B=10Lakh*3Lakh/30Lakh

B=1Lakh

2. Principle of Contribution is followed. It applies to all contracts of indemnity, if the insured has taken
out more than one policy on the same subject matter.

The right of contribution arises when:

(a) There are different policies which related to the same subject matters;

(b) The policies cover the same period which caused the loss;

(c) All the policies are in force at the time of loss; and

(d) One of the insurer has paid to the insured more than his share of loss.

Question 2

Explain the function of Insurance

Answer

Certainty Protection Risk Sharing Capital

•Insurance removes •Protection from •The loss is shared by Formation
these uncertainties probable chances of all the persons •Accumulated funds
and the assured loss. exposed to it. of the insurer
receives payment of •Insurance cannot •The share is received by way of
loss. stop the happening obtained from every premium payments
• The insurer charges of a risk or event but insured member by made by the insured
premium for can compensate for way of premiums. are invested in
providing the losses arising out of various income
certainity it. generating schemes
Question 3

Explain the Difference between Goods and services based on its nature

Answer

Basis Services Goods

Intangibility Intangible e.g., doctor Tangible e.g., medicine
treatment
Inconsistency Different customers having Different customers getting
different standardised demands fulfilled.
demands e.g., mobile services e.g., mobile phones
Inseparability Simultaneous production and Separation of production and
consumption. e.g., eating consumption. e.g., purchasing
ice-cream in a restaurant ice cream from a store
Inventory Cannot be kept in stock. e.g., Can be kept in stock. e.g., train
experience of a train journey journey ticket
Involvement Participation of customers at Involvement at the time of
the delivery not possible. e.g.,
time of service delivery. e.g., manufacturing a vehicle
self-service in a fast food joint

Question 4

Name the principle of insurance for each of the following statements:

(a)The insured is expected to disclose all the important facts related to the property insured.

(b) Insured must have some economic interest in the subject matter of Insurance contract.

(c) To claim for insurance the insured must take reasonable steps to minimize the loss.

(d) Insured is entitled to recover the loss suffered by him, up to the limit of policy amount

Answer

(a)The insured is expected to disclose all the important facts related to the property insured- Utmost
Good Faith

(b) Insured must have some economic interest in the subject matter of Insurance contract-Insurable
Interest

(c) To claim for insurance the insured must take reasonable steps to minimize the loss- Mitigation

(d) Insured is entitled to recover the loss suffered by him, up to the limit of policy amount- Indemnity
Question 5

Explain the types of Life Insurance Policies?

Answer

Types of Life Insurance Policies:

 Whole Life Policy: In this kind of policy, the amount payable to the insured will not be paid
before the death of the assured. The sum then becomes payable only to the beneficiaries
or heir of the deceased.
 Endowment Life Assurance Policy: The insurer undertakes to pay a specified sum when
the insured attains a particular age or on his death whichever is earlier. The sum is
payable to his legal heir/s or nominee named therein in case of death of the assured.
Otherwise, the sum will be paid to the assured after a fixed period
 Joint Life Policy: This policy is taken up by two or more persons. The premium is paid
jointly or by either of them in instalments or lump sum assured sum or policy money is
payable upon the death of any one person to the other survivor or survivors
 Annuity Policy: The assured sum or policy money is payable after the assured attains a
certain age in monthly, quarterly, half yearly or annual instalments
 Children’s Endowment Policy: This policy is taken by a person for his/ her children to
meet the expenses of their education or marriage. The agreement states that a certain
sum will be paid by the insurer when the children attain a particular age

Question 6

Explain electronic banking and state its three benefits?

Answer

Online banking also known as internet banking, e-banking, or virtual banking, is an electronic payment
system that enables customers of a bank or other financial institution to conduct a range of financial
transactions through the financial institution's website. Internet banking is a term used to describe the
process whereby a client executes banking transactions via electronic means. This type of banking uses
the internet as the chief medium of delivery by which banking activities are executed

Benefits are as follows:

1. E-banking facilitates digital payments and promotes transparency in financial statements

2. Banks that offer internet banking are open for business transactions anywhere a client might be
as long as there is internet connection (Apart from periods of website maintenance)
3. E-banking helps in reducing the operational costs of banking services. Better quality services can
be ensured at low cost.

Question 7

Explain the Functions of Warehousing?

Answer

Functions of Warehousing

1. Consolidation:

The warehouse receives and consolidates, materials/goods from different production plants and
dispatches the same to a particular customer on a single transportation shipment.

2. Break the bulk:

The warehouse performs the function of dividing the bulk quantity of goods received from the
production plants into smaller quantities. These smaller quantities are then transported according to the
requirements of clients to their places of business.

3. Stock piling:

The next function of warehousing is the seasonal storage of goods to select businesses. Goods or raw
materials, which are not required immediately for sale or manufacturing, are stored in warehouses.
They are made available to business depending on customers’ demand

4. Value added services:

Certain value added services are also provided by the warehouses, such as in transit mixing, packaging
and labelling. Goods sometimes need to be opened and repackaged and labelled again at the time of
inspection by prospective buyers

5. Price stablisation:

By adjusting the supply of goods with the demand situation, warehousing performs the function of
stabilizing prices. Thus, prices are controlled when supply is increasing and demand is slack and vice
versa

6. Financing:

Warehouse owners advance money to the owners on security of goods and further supply goods on
credit terms to customers

Question 8

Explain the three important insurance involved in Marine Insurance?

Answer

A marine insurance contract is an agreement whereby the insurer undertakes to indemnify the insured
in the manner and to the extent thereby agreed against marine losses. Marine insurance provides
protection against loss by marine perils or perils of the sea. Three Things involved:

• Ship or hull insurance: Since the ship is exposed to many dangers at sea, the insurance
policy is for indemnifying the insured for losses caused by damage to the ship.
• Cargo insurance: The cargo while being transported by ship is subject to many risks
 • Freight insurance: If the cargo does not reach the destination due to damage or loss in
transit, the shipping company is not paid freight charges

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Describe briefly Types of warehouses?

Answer

Private Bonded Government Cooperative

Public Warehouse
Warehouse Warehouse Warehouse Warehouse
•Private •Public •Bonded •These •Some marketing
warehouses are warehouses can warehouses are warehouses are cooperative
operated, owned be used for licensed by the fully owned and societies or
or leased by a storage of goods government to managed by the agricultural
company handling by traders, accept imported government. cooperative
their own goods, manufacturers or goods prior to •The government socities have set
such as retail any member of payment of tax manages them up their own
chain stores or the public after and customs duty. through warehouses for
multi-brand multi- the payment of a •These are goods organisations set members of their
product storage fee or which are up in the public cooperative
companies. charges. imported from sector society
•The benefit of •The government other countries.
private regulates the Importers are not
warehousing operation of permitted to
includes control, these warehouses remove goods
flexibility, and by issuing licences from the docks or
other benefits like •Benefits include the airport till
improved dealer flexibility in the custom duty is
relations. number of paid
locations, no fixed
cost and
capability of
offering value
added services,
like packaging and
labelling.

Question 2

A factory owner gets his stock of goods insured but he hide the fact that the electricity board has
issued him statutory warning letter to get his factory. Wiring changed later on, the factory catches fire
due to short-circuit which principle is violated in the case. Explain.
Answer

Fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to
make good any loss or damage caused by fire during a specified period upto the amount specified in the
policy. Normally, the fire insurance policy is for a period of one year after which it is to be renewed from
time to time A claim for loss by fire must satisfy the two following conditions:

(i) There must be actual loss; and

(ii) Fire must be accidental and nonintentional

The contract of fire insurance is a contract of strict indemnity. The insured can, in the event of loss,
recover the actual amount of loss from the insurer. This is subject to the maximum amount for which
the subject matter is insured. The insurer is liable to compensate only when fire is the proximate cause
of damage or loss

The factory catches fire due to violation of principle of utmost good faith. The factory owner hided the
information that electricity board has issued statutory warning letter.

Insurance contracts also require that both parties act with the utmost good faith. This means that both
parties must accurately and fully disclose all material information. This not only ensures fairness, but
also helps insurance companies accurately price premiums for insurance applicants. Insurance policies
can be declared null and void if an applicant made a misrepresentation of material fact that was relied
on by the insurance company.

Question 3

Write notes on RTGS system and NEFT. Also state the difference between them.

Answer

NEFT refers to National Electronic Funds Transfer. It is an online system for transferring funds from one
financial institution to another within India (usually banks). The system was launched in November 2005,
and was set to inherit every bank that was assigned to the SEFT clearing system. It was made mandatory
by the RBI for all banks on the SEFT system to migrate to NEFT by mid December 2005. As such, SEFT
was discontinued as of January 2006. The RBI welcomed banks that were full members of the RTGS to
join the NEFT system.

RTGS is an acronym that stands for Real Time Gross Settlement. RTGS is a funds transfer system where
money is moved from one bank to another in ‘real-time’, and on gross basis. When using the banking
method, RTGS is the fastest possible way to transfer money. ‘Real-time’ means that the payment
transaction isn’t subject to any waiting period. The transaction will be completed as soon as the
processing is done, and gross settlement means that the money transfer is completed on a one to one
basis without clustering with another transaction. The transaction is treated as final and irrevocable as
the money transfer occurs in the books of the RBI (Reserve Bank of India). This system is maintained by
the RBI, and is available during working days for a given number of hours. Banks using RTGS need to
have Core banking to be able to initiate RTGS transactions.
Difference between RTGS and NEFT:

1. RTGS is Real Time Gross Settlement, while NEFT is National Electronic Funds Transfer.
2. RTGS completes transactions in real-time, and is therefore faster than NEFT, which completes
transactions in cycles.
3. RTGS is gross settlement, where a transfer is completed on a one-to-one basis, while NEFT is on a
Deferred Net Basis, where transfers are bundled and deferred for a specific time.
4. RTGS is a high value transfer system, handling funds worth Rs 100,000 and above, while NEFT
transfers smaller amounts below Rs 100,000.

Question 4

Divya Garments Ltd. has a loan of Rs. 10,00,000 to pay. They are short of funds so they are trying to
find means to arrange funds. Their manager suggested to claim from insurance company against stock
lost due to fire in the ware house. He actually meant that they can put their warehouse on fire and
claim from Insurance company against stock insured. They will use the claim money to pay loan.

(a) Will the company receive claim if the surveyer from company comes to know the seal cause of
fire?

(b) Which values did company ignore while planning to arrange money from false claim?

(c) Explain three elements of fire insurance

Answer

a) No the company will not receive claim if surveyor come to know the real cause of fire and the
contract will become null and void.

b) Principle of Utmost good faith is ignored while planning to arrange money from false claim. Insurance
contracts also require that both parties act with the utmost good faith. This means that both parties
must accurately and fully disclose all material information. This not only ensures fairness, but also helps
insurance companies accurately price premiums for insurance applicants. Insurance policies can be
declared null and void if an applicant made a misrepresentation of material fact that was relied on by
the insurance company.

c) Three elements of fire insurance are :

 The insured must have insurable interest in the subject matter of the insurance. Without
insurable interest the contract of insurance is void
 The insured should be truthful and honest (Utmost Good Faith) in giving information to the
insurance company regarding the subject matter of the insurance
 The contract of fire insurance is a contract of strict indemnity. The insured can, in the event of
loss, recover the actual amount of loss from the insurer. This is subject to the maximum
amount for which the subject matter is insured
Question 5

Write a detailed note on various facilities offered by Indian Postal Department and different types of
telecom services offered?

Answer

Indian post and telegraph department provides various postal services across India. Through their
regional and divisional level arrangements the various facilities provided by postal department are
broadly categorised into:

o Financial facilities: These facilities are provided through the post office’s savings
schemes like Public Provident Fund (PPF), Kisan Vikas Patra, and National Saving
Certificate
o Mail facilities: Mail services consist of parcel facilities that is transmission of articles
from one place to another; registration facility to provide security f the transmitted
articles and insurance facility to provide insurance cover for all risks in the course of
transmission by post
o Allied Facilities: Greeting post, media post, International money transfer, speed post,
passport facilities, e-bill

Different types of Telecom services are as follows:

 Cellular mobile services: These are all types of mobile telecom services including voice
and non-voice messages, data services and PCO services utilising any type of network
equipment within their service area.
 Fixed line services: These are all types of fixed services including voice and non-voice
messages and data services to establish linkages for long distance traffic. These utilise
any type of network equipment primarily connected through fiber optic cables
 Cable services: These are linkages and switched services within a licensed area of
operation to operate media services, which are essentially one-way entertainment
related services.
 VSAT services: VSAT (Very Small Aperture Terminal) is a satellite-based communications
service. It offers businesses and government agencies a highly flexible and reliable
communication solution in both urban and rural areas.
 DTH services: DTH (Direct to Home) is again a satellite-based media services provided by
cellular companies. One can receive media services directly through a satellite with the
help of a small dish antenna and a set top box.

Question 6

State Six Difference Between Life Insurance, Fire Insurance and Marine Insurance?

Answer

BASIS LIFE INSURANCE FIRE INSURANCE MARINE INSURANCE

 SUBJECT MATTER The subject matter of The subject matter The subject matter
insurance is human is any physical is a ship, cargo or
life. property or assets. freight
ELEMENT Life Insurance has the Fire insurance has Marine insurance
elements of protection only the element of has only the
and investment or protection and not element of
both. the element of protection
investment.
INSURABLE Insurable interest Insurable interest Insurable interest
INTEREST must be present at the on the subject must be present at
time of effecting the matter must be the time when
policy but need not be present both at the claim falls due or
necessary at the time time of effecting at the time of loss
when the claim falls policy as well as only
due. when the claim
falls due.
DURATION Life insurance policy Fire insurance Marine insurance
. usually exceeds a year policy usually does policy is for one or
and is taken for longer not exceed a year. period of voyage or
periods ranging from mixed
5 to 30 years or
whole life
INDEMNITY Life insurance is not Fire insurance is a Marine insurance
based on the principle contract of is a contract of
of indemnity. The indemnity. The indemnity. The
sum assured is paid insured can claim insured can claim
either on the only the actual the market value of
happening of certain amount of loss the ship and cost
event or on maturity from the insurer. of goods destroyed
of the policy. The loss due to the at sea and the loss
fire is indemnified will be
subject to the indemnified
maximum limit of
the policy amount.
LOSS Loss is not Loss is Loss is
MEASUREMENT measurable. measurable. measurable

Question 7

Explain in detail the principles of Insurance?

Answer
 • Insurance contracts also require that both parties act with the utmost
good faith. This means that both parties must accurately and fully
disclose all material information. This not only ensures fairness, but also
Utmost Good Faith helps insurance companies accurately price premiums for insurance
applicants. Insurance policies can be declared null and void if an
applicant made a misrepresentation of material fact that was relied on
by the insurance company.

• The insurable interest principle requires that the owner of a particular

insurance policy have an ownership interest in the particular subject
Insurable Interest
matter of the insurance policy. The absence of an insurable interest can
make the insurance policy in question null and void.

• The principle of indemnity ensures that an insurance contract protects

you from and compensates you for any damage, loss, or injury. The
purpose of an insurance contract is to make you "whole" in the event of
Indemnity
a loss, not to allow you to make a profit. Thus, the amount of your
compensation for a loss is directly related to the amount of loss that you
actually suffered.

• The principle of proximate cause, or nearest cause, comes into play when
more than one event or bad actor causes an accident or injury. The
Proximate Cause
insurance principle of proximate cause dictates that nearest or closest
cause should be taken into consideration to decide the liability.

• Subrogation means that one party stands in for another. In the insurance
context, subrogation will arise if you are injured by a negligent third
party, and your insurance company reimburses you for your damages.
Subrogation Under the principle of subrogation, your insurance company can stand in
your shoes and recover the pay-out from the negligent party. The goal of
this principle is to encourage responsibility and accountability by holding
negligent parties responsible for injuries they cause.

• Principle of Contribution is a corollary of the principle of indemnity. It

applies to all contracts of indemnity, if the insured has taken out more
than one policy on the same subject matter. According to this principle,
Contribution the insured can claim the compensation only to the extent of actual loss
either from all insurers or from any one insurer. If one insurer pays full
compensation then that insurer can claim proportionate claim from the
other insurers.

• As the owner of an insurance policy, you have an obligation to take

necessary steps to minimize the loss of your insured property. The law
Mitigation
doesn't allow you to be negligent or irresponsible just because you know
you're insured
 Class XI BUSINESS STUDIES

CHAPTER -5 EMERGING MODES OF BUSINESS

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

What does ‘e’ stand for in e-business?

Answer

‘e’ stands for electronic in e-business. The conduct of industry, trade and commerce using the computer
networks is defined as e-Business. e-business is a more elaborate term and comprises various business
transactions and functions conducted electronically, including the more popular gamut of transactions called ‘e-
commerce’

Question 2

What is ‘e’ commerce?

Answer

e-business is a more elaborate term and comprises various business transactions and functions conducted
electronically, including the more popular gamut of transactions called ‘e-commerce’. e-commerce covers a firm’s
interactions with its customers and suppliers over the internet. e-business includes not only e-commerce, but also
other electronically conducted business functions such as production, inventory management, product
development, accounting and finance and human resource management

Question 3

Jyoti wanted to sell her mobile phone but does not get any buyer. On her friends suggestion she posted the
mobile on sale on www.olx.com and found a buyer within two days. Name the type of e-business.

Answer

It is a form of C2C commerce. The business originates from the consumer and the ultimate destination is also
consumers. This type of commerce is best suited for dealing in goods for which there is no established market
mechanism. For example: ebay, quikr etc where consumers sell their goods and services to other consumers.
Another technology that has emerged to support C2C activities is that of the payment intermediary

Question 4

What is outsourcing?
Answer

It refers to a long-term contracting out generally the non-core and of late even some of the core activities to
captive or third-party specialists with a view to benefitting from their experience, expertise, efficiency and, even
investment.

Question 5

Ram stays in a hostel in USA and his parents stay in Mumbai. Ram’s birthday is in five days and his parents
wish to gift him a pair of branded shoes. How can they gift?

Answer

They can use the mode of C@C commerce where the business originates from the consumer and the ultimate
destination is also consumers This type of commerce is best suited for dealing in goods for which there is no
established market mechanism For example: ebay, quikr etc where consumers sell their goods and services to
other consumers. Another technology that has emerged to support C2C activities is that of the payment
intermediary. For example: PayPal. Instead of purchasing items directly from an unknown, untrusted seller; the
buyer can instead send the money to Pay Pal. From there, PayPal notifies the seller that they will hold the
money for them until the goods have been shipped and accepted by the buyer

Question 6

What do you mean by Intra B Commerce?

Answer

Intra B Commerce refers to business where parties involved in the electronic transactions are from within a
given business firm. It is largely due to use of intra-B commerce that today it has become possible for the firms
to go in for flexible manufacturing. Use of computer networks makes it possible for the marketing department
to interact constantly with the production department and get the customized products made as per the
requirements of the individual customer. For example: Virtual Private Network (VPN) technology would mean
that employees do not have to come to office. Instead, in a way the office goes to them and they can work from
wherever they are, and at their own speed and time convenience. Meetings can be held online via tele/ video
conferencing

Question 7

State an important feature of outsourcing?

Answer

Important feature is Interchangeable or Fungible Activities. Activities which are not differentiable can be
outsourced but unique activities can’t be outsourced.
Question 8

Briefly state the scope of business on the basis of business function ?

Answer

Scope of business on the basis of business function are production, finance, marketing and personnel
administration as well as managerial activities like planning, organising and controlling can be carried out over
computer networks

Question 9

Briefly state the scope of business on the basis of parties involved in electronic transaction?

Answer

Scope of business on the basis of parties involved in electronic transaction are B2B which is a firm’s interactions
with other businesses, B2C i.e., a firm’s interactions with its customers and Intra-B or a firm’s internal processes

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Distinguish between e-commerce and e-business

Answer

• The conduct of industry, trade and commerce using the computer networks is defined as e-Business
• e-business is a more elaborate term and comprises various business transactions and functions conducted
electronically, including the more popular gamut of transactions called ‘e-commerce’
• e-commerce covers a firm’s interactions with its customers and suppliers over the internet.
• e-business includes not only e-commerce, but also other electronically conducted business functions
such as production, inventory management, product development, accounting and finance and human
resource management

Question 2

What do you mean by –

(i) B2B Commerce (ii) B2C commerce.

(iii) Intra B-commerce (iv) C2C commerce

Answer
B2B Commerce

• Both the parties involved in e-commerce transactions are business firms, and, hence the name B2B, i.e.,
business-to business
• Creation of utilities or delivering value requires a business to interact with a number of other business
firms which may be suppliers or vendors of diverse inputs; or else they may be a part of the channel
through which a firm distributes its products to the consumers

B2C Commerce

• B2C (business-to-customers) transactions have business firms at one end and its customers on the other
end
• It entails a wide gamut of marketing activities such as identifying activities, promotion and sometimes
even delivery of products that are carried out online.
• It enables a business to be in touch with its customers on round-the-clock basis which helps in knowing
the customer satisfaction level.

Intra-B Commerce

• Parties involved in the electronic transactions are from within a given business firm.
• It is largely due to use of intra-B commerce that today it has become possible for the firms to go in for
flexible manufacturing. Use of computer networks makes it possible for the marketing department to
interact constantly with the production department and get the customized products made as per the
requirements of the individual customer

C2C Commerce

• The business originates from the consumer and the ultimate destination is also consumers
• This type of commerce is best suited for dealing in goods for which there is no established market
mechanism

Question 3

Explain briefly points in opposition with outsourcing?

OR

Explain any four limitations of electronic mode of doing business. Are these limitations severe enough to
restrict its scope? Give reasons for your answer.

Answer
 • Outsourcing depends on sharing a lot of vital information and
knowledge
Confidentiality
• It can harm the interest of the party that outsources its
processes and even has a risk of competitor firm gets started

• Outsource seek to lower their costs, they try to get maximum

benefit from the low-cost manpower
Sweat Shopping
• So, the firm that go in for outsourcing look for is the ‘doing’
skills rather than development of the ‘thinking’ skills.

• In order to cut cost outsources the work to some other

Ethical Concerns country where the work is done in an unethical way.
• For example work is accomplised by doing child labour

• In the course of contracting out manufacturing, marketing,

Research and Development or IT-based services, what is
Resentment in the ultimately contracted out is ‘employment’ or jobs.
home countries • This may cause resentment back in the home country if the
home country is suffering from the problem of
unemployment.

Question 4

State three benefits of e-business?

Answer

1. No Geographical Boundaries: Anyone can order anything from anywhere at anytime. On the one hand, it
allows the seller an access to the global market; on the other hand, it affords to the buyer a freedom to choose
products from almost any part of the world

2. Flexible Business Hours: Since the internet is always available. E-business breaks down the time barriers that
location-based businesses encounter

3. Speed And Efficiency: Online ordering systems can process payments and orders in real-time, usually faster,
more accurately and cheaper than human workers
Question 5

State three limitations of e-business?

Answer

1. Security issues: There are a lot of people who scam through online business. Also, it is easier for hackers to get
your financial details. It has a few security and integrity issues. This also causes distrust among potential
customers

2.Delivery time: The delivery of the products takes time. This lag time often discourages customers. However, e-
businesses are trying to resolve such issues by promising very limited delivery times. For example, Amazon now
assures one-day delivery

3. Lack of Personal Touch: One can touch or feel the product. So it is difficult for the consumers to check the
quality of a product. In the traditional model, we have contact with the salesperson. This lends it a touch of
humanity and credibility. It also builds trust with the customer. An e-Business model will always miss out on
such attributes

Question 6

In details explain the features of outsourcing?

Answer

Features of Outsourcing

1. Interchangeable or Fungible Activities: Activities which are not differentiable can be outsourced but
unique activities can’t be outsourced.

2. Requiring Explicit knowledge which is Formal and Codifiable: An IT programmer’s job can be
outsourced but not that of a CEO, because CEO’s job involves managerial, technical and human relations
skills.

3. Activity is Measurable: You cannot outsource what you cannot measure.

4. Activity is not interconnected to other jobs: A job which is fungible, specialised, and measurable may
not be outsourced, if it is connected to other critical activities within the organisation. Inter-
connectedness may be pooled, sequential and mutual.
LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Elaborate the steps involved in online trading

Answer

Process of Online Trading

Registrattion Payment
Placing an order
Mechanism

 Registration:
 Registration means that you have an ‘account’ with the online vendor.
 Among various details that need to be filled in is a ‘password’ as the sections relating to
your ‘account’, and ‘shopping cart’ are password protected

 Placing an order:
 You can pick and drop the items in the shopping cart.
 Shopping cart is an online record of what you have picked up while browsing the online
store
 After being sure of what you want to buy, you can ‘checkout’

 Payment Mechanism:
 Purchases through online shopping may be done in a number of ways:
• Cash-on Delivery: Payment for the goods ordered online may be made in cash
at the time of physical delivery of goods.
• Cheque: The online vendor may arrange for the pickup of the cheque from the
customer’s end. Upon realisation, the delivery of goods may be made.
• Net-banking Transfer: Modern banks provide to their customers the facility of
electronic transfer of funds over the Internet using Immediate Payment Services
(IMPS), NEFT and RTGS
• Credit or Debit Cards: Credit card allows its holder to make purchase on credit.
The amount due from the card holder to the online seller is assumed by the card
issuing bank, who later transfers the amount involved in the transaction to the
credit of the seller. Debit card allows its holder to make purchases through it to
the extent of the amount lying in the corresponding account. The moment any
transaction is made, the amount due as payment is deducted electronically from
the card.
• Digital Cash: This type of currency has no real physical properties, but offers the
ability to use real currency in an electronic format. Like e-wallets , PayTm etc
Question 2

Explain Nature and need for outsourcing service

OR

Why are e-business and outsourcing referred to as the energing modes of business? Discuss the facts
responsible for the growing importance of these trends?

Answer

Nature of Outsourcing

1. Interchangeable or Fungible Activities: Activities which are not differentiable can be outsourced but
unique activities can’t be outsourced.

2. Requiring Explicit knowledge which is Formal and Codifiable: An IT programmer’s job can be
outsourced but not that of a CEO, because CEO’s job involves managerial, technical and human relations
skills.

3. Activity is Measurable: You cannot outsource what you cannot measure.

4. Activity is not interconnected to other jobs: A job which is fungible, specialised, and measurable may
not be outsourced, if it is connected to other critical activities within the organisation. Inter-
connectedness may be pooled, sequential and mutual.
 Need for outsourcing

Growth through Fillip to economic

Quest of Excellence Cost Reduction
Alliance development

•Business firms are •Outsourcing •Division of labour •To the extent you •Outsourcing, more
realising the enables the firms to and specialisation, can avail of the so offshore
usefulness of pursue excellence besides improving services of others, outsourcing,
focusing on just a in two ways. One, quality, reduces your investment stimulates
few areas where they excel cost too requirements are entrepreneurship,
they have distinct themselves in the •This happens due reduced, others employment and
capability or core activities that they to the economies of have invested in exports in the host
competence, and can do the best by large scale accruing those activities for countries (i.e., the
contracting out the virtue of limited to the outsourcing you countries from
rest of the activities focus. partners as they •Therefore, you can where outsourcing
to their outsourcing •And, they excel by deliver the same expand rapidly as is done).
partners extending their service to a number the same amount
•Delimiting the capabilities through of organisations. of investible funds
scope of business contracting out the •Differences in result in creation of
enables them to remaining activities prices of factors of a large number of
focus their to those who excel production across businesses.
attention and in performing the countries are •Outsourcing
resources on select them. also a factor facilitates
activities for better contributing to cost interorganisational
efficiency and reduction knowledge sharing
effectiveness. and collaborative
learning

Question 3

www.olx.in, www.quicker.com etc are examples of websites used to conduct business. Dipti’s sofa set got
spoiled in rain. Her friend suggested that she should change the fabric so that it looks new and put it for sale
on www.olx.com Dipti followed her friend’s advice and got her sofa repaired so that it looks better and
uploaded nicely clicked pictures on www.olx.com in without disclosing the fact that it was damaged from
inside. She found a customer and sold it for Rs. 9,000. After one week the buyer found the real state of sofa
set and called Dipti but she did not answer any of the call.

(i) Name the type of business in above case.

(ii) Which values did Dipti ignore while selling her sofa set?

(iii) Explain two advantages and disadvantages of e-commerce

Answer

i. C2C Commerce business

ii. Dipti gave false information about the product. Due to lack of personal touch one cannot feel the product
before buying. They will not be able to check for any default.it lacks credibility

iii. Advantages of e-commerce

1. No Geographical Boundaries: Anyone can order anything from anywhere at anytime. On the one hand, it
allows the seller an access to the global market; on the other hand, it affords to the buyer a freedom to choose
products from almost any part of the world.

2. Flexible business hours: Since the internet is always available. E-business breaks down the time barriers that
location-based businesses encounter

Disadvantages of e-commerce

1. Security issues: There are a lot of people who scam through online business. Also, it is easier for hackers to get
your financial details. It has a few security and integrity issues. This also causes distrust among potential
customers

2.Delivery time: The delivery of the products takes time. This lag time often discourages customers. However, e-
businesses are trying to resolve such issues by promising very limited delivery times. For example, Amazon now
assures one-day delivery

Question 4

Explain briefly benefits of e-business.

Answer

1. Easy to set up: we can set up an online business even by sitting at home if we have the required software, a
device, and the internet.

2. Cheaper than traditional business: The cost taken to set up an e-business is cheaper. Also, the transaction cost
is effectively less.

3. No Geographical Boundaries: Anyone can order anything from anywhere at anytime. On the one hand, it
allows the seller an access to the global market; on the other hand, it affords to the buyer a freedom to choose
products from almost any part of the world.

4. Flexible business hours: Since the internet is always available. E-business breaks down the time barriers that
location-based businesses encounter

5. Speed and Efficiency: Online ordering systems can process payments and orders in real-time, usually faster,
more accurately and cheaper than human workers

6. Movement towards paperless society: Use of internet has considerably reduced dependence on paperwork In
fact, e-commerce tools are effecting the administrative reforms aimed at speeding up the process of granting
permissions, approvals and licences
 Question 5

Difference Between e-Business and Traditional Business

Answer

BASIS TRADITIONAL BUSINESS E-BUSINESS

EASE OF FORMATION Difficult Simple
PHYSICAL PRESENCE Required Not required
LOCATIONAL REQUIREMENTS Proximity to the source of raw None
materials or the market for the
products
COST OF SETTING UP High Low as no requirement of
physical facilities
OPERATING COST High due to fixed charges Low as a result of reliance
associated with investment in on network of
procurement and storage, relationships rather than
production, marketing and ownership of resources
distribution facilities
NATURE OF CONTACT WITH Indirect through intermediaries Direct
THE
SUPPLIERS AND THE
CUSTOMERS
NATURE OF INTERNAL Hierarchical - from top level Non-hierarchical,
COMMUNICATION management to middle level allowing direct vertical,
management to lower level horizontal and diagonal
management to operatives communication
RESPONSE TIME FOR MEETING Long Instantaneous
CUSTOMERS'/INTERNAL
REQUIREMENTS
SHAPE OF THE Vertical/tall, due to hierarchy or Horizontal/flat due to
ORGANISATIONAL chain of command directness of command
STRUCTURE and communication

BUSINESS PROCESSES AND Sequential precedencesuccession Simultaneous

LENGTH OF THE CYCLE relationship, i.e., (concurrence) different
purchase - production/operation processes. Business
- marketing - sales. The, process cycle is,
business process cycle is, therefore, shorter
therefore, longer
OPPORTUNITY FOR Much more Less
INTERPERSONAL
TOUCH
OPPORTUNITY FOR PHYSICAL Much more Less. However, for
PRE-SAMPLING OF THE digitable products such
PRODUCTS an opportunity is
 tremendous. You can presample
music, books,
journals, software,
videos, etc.
EASE OF GOING GLOBAL Less Much, as cyber space is
truly without boundaries
GOVERNMENT PATRONAGE Shrinking Much, as IT sector is
among the topmost
priorities of the
government
NATURE OF HUMAN CAPITAL Semi-skilled and even Technically and
unskilled manpower needed. professionally qualified
personnel needed
TRANSACTION RISK Low due to arm's length High due to the distance
transactions and face-to-face and anonymity of the
contact. parties

Question 6

Explain risks involved in e-business in detail?

Answer

 Transaction Risks:
 Seller denies that the customer ever placed the order or the customer denies that he
ever placed the order. This may be referred to as ‘default on order taking/giving
 The intended delivery does not take place, goods are delivered at wrong address, or
goods other than ordered may be delivered. This may be regarded as ‘default on
delivery’.
 Seller does not get the payment for the goods supplied whereas the customer claims
that the payment was made. This may be referred to as ‘default on payment’.
 Thus, in e-business risk may arise for the seller or the buyer on account of default on
order taking/giving, delivery as well as payment

 Data storage and transmission risks:

 Data stored in the systems and en-route is exposed to a number of risks. Vital
information may be stolen or modified to pursue some selfish motives or simply for fun/
adventure
 Installing and timely updating anti-virus programmes and scanning the files and disks
with them provides protection to your data files, folders and systems from virus attacks.
 Data may be intercepted in the course of transmission. For this, one may use
cryptography. It refers to the art of protecting information by transforming it
(encrypting it) into an unreadable format called ‘cyphertext’. Only those who possess a
secret key can decipher (or decrypt) the message into ‘plaintext’
 Risks of threat to intellectual property and privacy:
 Once the information is available over the internet, it moves out of the private domain.
It then becomes difficult to protect it from being copied.
 Data furnished in the course of online transactions may be supplied to others who may
start dumping a host of advertising and promotional literature into your e-mail box.
 Class XI BUSINESS STUDIES

CHAPTER -6 Social Responsibilities of Business and Business Ethics

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Define social responsibility of a business?

Answer

Social responsibility is an ethical framework and suggests that an entity, be it an organization or individual, has
an obligation to act for the benefit of society at large. Social responsibility is a duty every individual has to
perform so as to maintain a balance between the economy and the ecosystems

Question 2

Write two examples of business ethics?

Answer

Two examples of business ethics are law abiding and trustworthiness

Question 3

State two effects of noise pollution?

Answer

Two effects of noise pollution are loss of hearing, malfunctioning of the heart

Question 4

What is environmental pollution?

Answer

The environment is defined as the totality of man’s surroundings — both natural and man-made. These
surroundings are also in the nature of resources, that are useful for human life. The resources may also be
called natural resources like land, water, air, fauna and flora and raw materials; or manmade resources such as
cultural heritage, socio-economic institutions and the people. Pollution— the injection of harmful substances
into the environment is, in fact, largely the result of industrial production.

Question 5

‘Company has social responsibility towards shareholders or owners’ how?

Answer

Organisation must also provide the shareholders with regular, accurate and full information about its working
as well as schemes of future growth. Business enterprise has the responsibility to provide a fair return to the
shareholders or owners.

Question 6

What do you mean by Discretionary responsibility?

Answer

It is the responsibility of the company management to safeguard the capital investment by avoiding speculative
activity and undertaking only healthy business ventures which give good returns on investment. For example:
providing charitable contribution etc.

Question 7

Explain how labour movement has helped company to fulfill its social responsibility?

Answer

Labour movement for extracting gains for the working class throughout the world has become very powerful.
This has forced business enterprises to pay due regard to the welfare of workers instead of following a policy of
‘hire and fire' policy

Question 8

‘Social responsibility is burden n consumer’ Describe the statement?

Answer

Social responsibilities like pollution control and environmental protection are very costly and often require
huge financial investments. Businessmen simply shift this burden of social responsibility by charging higher
prices from the consumers instead of bearing it themselves

Question 9

‘To avoid government regulation, businessmen follow the concept of social responsibility’ .How much this
statement is true?

Answer

Government regulations are undesirable because they limit freedom. It is believed that businessmen can avoid
the problem of government regulations by voluntarily assuming social responsibilities, which helps to reduce
the need for new laws. For example, Central Pollution Control Board takes care of issues related to
environmental pollution
Question 10

Why social responsibility is emphasized? State one need for social responsibility?

Answer

Social responsibility is a duty every individual has to perform so as to maintain a balance between the economy
and the ecosystems

A socially responsible company can create a company's image and build its brand. By projecting a positive
image, a company can make a name for itself for not only being financially profitable, but socially conscious as
well.

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Why is business responsible for Environment Protection?

Answer

The environment is defined as the totality of man’s surroundings — both natural and man-made. These
surroundings are also in the nature of resources, that are useful for human life. The resources may also be
called natural resources like land, water, air, fauna and flora and raw materials; or manmade resources such as
cultural heritage, socio-economic institutions and the people

Pollution— the injection of harmful substances into the environment is, in fact, largely the result of industrial
production. Pollution changes the physical, chemical and biological characteristics of air, land and water.
Pollution exists because the environment can absorb only a limited amount of pollutants and wastes. Some
hazardous wastes or toxic by-products and chemicals are termed as hazardous pollutants because they have
toxic characteristics that the environment can not assimilate. Pollution thus causes risks to environmental
quality, human health and damage to natural and man-made resources.

A definite commitment by top management of the enterprise to create, maintain and develop work culture for
environmental protection and pollution prevention will help.

Question 2

Enumerate any three responsibilities of business towards employees.

Answer

Three responsibility of business towards employees are as follows:

• The right kind of working conditions to be given so that it can win the cooperation of employees.

• The enterprise must respect the democratic rights of the employees to form unions.

• The employee must also be ensured of a fair wage and a fair deal from the management
 Question 3

Why should a business assume social responsibility?

Answer

Improving Company's Helping company stand

Engaging Customer Retaining Top Talent
Brand out of competition
•A socially responsible •A social responsibility •Many employees want •When companies are
company can create a policy can impact the to feel like they're part involved in the
company's image and buying decisions of something bigger. community, they stand
build its brand. of customers. Social responsibility out from
•By projecting a positive •Some customers are empowers employees the competition.
image, a company can willing to pay more for to Building relationships
make a name for a product if they know leverage the corporate with customers and
itself for not only being a portion of resources at their their neighborhoods
financially profitable, the profit is going to disposal to do good helps improve the
but socially conscious worthy cause brand's image.
as well.

Question 4

Explain the major cause of environmental pollution

Answer

Air pollution Water pollution Land pollution Noise pollution

•It is mainly due to •Water becomes •Dumping of toxic •Noise caused by the
carbon monoxide polluted primarily from wastes on land causes running of factories and
emitted by automobiles chemical and waste land pollution. vehicles is not merely a
which contributes to air dumping •This damages the source of annoyance
pollution. •Water pollution has led quality of land making it but is also a serious
•Similarly, smoke and to the death of several unfit for agriculture or health hazard.
other chemicals from animals and posed a plantation •Noise pollution can be
manufacturing plants serious threat to human responsible for many
pollute the air. life diseases like loss of
•Resultant air pollution hearing, malfunctioning
has created a hole in of the heart and mental
the ozone layer leading disorder.
to dangerous warming
of the earth

Question 5
Define business ethics and explain its significance?

Answer

Ethics is concerned with what is right and what is wrong in human behaviour judged on the basis of a standard
form of conduct/behavior of individuals, as approved by society in a particular field of activity. Business ethics
concerns itself with the relationship between business objectives, practices, and techniques and the good of
society. Business ethics refer to the socially determined moral principles which should govern business
activities. Ethical business is good business. Ethical business behaviour improves public image, earns people’s
confidence and trust, and leads to greater success.

Business Ethics is important due to the following points:

1. It create a company's image and build its brand

2. It impact the buying decisions of customers

3. Employee feel like they are part of ethical and good firm

4. It helps having a edge in competitive market.

Question 6

LMN Ltd. is filing its income tax returns on time. They are also updating their shareholders about their
projects and provide for return to them. Towards which interest group are they fulfilling their responsibility?
Which values are being followed by the Co.?

Answer

They are fulfilling their responsibility towards shareholders and owners and towards the government.
Organisation must also provide the shareholders with regular, accurate and full information about its working
as well as schemes of future growth. Business enterprise has the responsibility to provide a fair return to the
shareholders or owners. An enterprise must respect the laws of the country and pay taxes regularly and
honestly.

Values followed by company are as follows:

1. Legal Responsibility: Every business has a responsibility to operate within the laws of the land a law abiding
enterprise is a socially responsible enterprise as well.

2. Ethical Responsibility: Behaviour that is expected by society but not codified in law.There is an element of
voluntary action in performing this responsibility

Question 7

ABC Ltd. deals in health drinks. It is found that there are components of pesticides in their drinks. Mention
which 2 kinds of responsibilities and 2 values are missing from this approach

Answer

Two Kinds of Responsibility are as follows:

1. Ethical Responsibility: Behaviour that is expected by society but not codified in law. There is an element of
voluntary action in performing this responsibility

2. Legal Responsibility: Every business has a responsibility to operate within the laws of the land. A law abiding
enterprise is a socially responsible enterprise aswell

Two Kinds of values are as follows:

1. Social Value: A firm and its image stands to gain maximum profits in the long run when it has its highest goal
as ‘service to society'. It is in its own interest if a firm fulfills its social responsibility. The public image of any
firm would also be improved when it support social goals which is missing in the company.

2. Professional value: The ethics of profession bind managers to social values and growing concern for society.
A society with fewer problems provides better environment for a firm to conduct its business. Lack of
professionalism creates more problems

Question 8

XYZ Co. is providing facilities for their female staff like day care centre for kids and work from home facility.
By doing this they are following social responsibilities towards which interest group? Also, what values are
they presenting

Answer

They are following social responsibility towards the staff. the right kind of working conditions to be given so
that it can win the cooperation of staff. The enterprise must respect the democratic rights of the staff to form
unions. The staff must also be ensured of a fair wage and a fair deal from the management.

They are following below values:

 Economic values Legal values Ethical values Discretionary values

• Business • Every business has • Behaviour that is • It is the

Enterprise's a responsibility to expected by responsibility of
primary social operate within the society but not the company
responsibility is laws of the land codified in law management to
economic i.e., • a law abiding • There is an safeguard the
produce goods enterprise is a element of capital investment
and services that socially voluntary action in by avoiding
society wants and responsible performing this speculative
sell them at a enterprise aswell responsibility. activity and
profit. undertaking only
healthy business
ventures which
give good returns
on investment
• For example:
providing
charitable
contribution etc.

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Explain the forces which are responsible for increasing concern of business enterprise towards social
responsibility

Answer
Protect the To get the support of employees, it has become necessary for organisations to discharge
interests of responsibility towards their employees.
stakeholders Consumer does not buy what is offered to him. He buys what he wants. Consumer
sovereignty has, thus, forced firms to assume social responsiveness towards them
Fulfilling social obligations is beneficial for long-run survival of the firms

Long-run survival A firm and its image stands to gain maximum profits in the long run when it has its highest
goal as ‘service to society'
It is in its own interest if a firm fulfills its social responsibility.

The public image of any firm would also be improved when it support social goals

Self-enlightenment With increase in the level of education and understanding of businesses that they are the
creations of society, they are motivated to work for the cause of social good.
Managers create public expectations by voluntarily setting and following standards of
moral and social responsibility.
Rather than legislative interference being the cause of social responsibility, firms assume
social responsibility on their own.
Avoids government Government regulations are undesirable because they limit freedom.
regulation
It is believed that businessmen can avoid the problem of government regulations by
voluntarily assuming social responsibilities, which helps to reduce the need for new laws
For example, Central Pollution Control Board takes care of issues related to environmental
pollution
Resources Business organisations have enormous resources which can be partly used for solving social
problems.
Businesses are the creation of society and must work in the best interest of society, both
economically and socially.
It can help society to tackle its problems better, given the huge financial and human
resources at its disposal
Professionalisation Management is moving towards professionalism which is contributing to social orientation
and Better of business
environment The ethics of profession bind managers to social values and growing concern for society

A society with fewer problems provides better environment for a firm to conduct its
business
Holding business Social problems have either been created or perpetuated by business enterprises
responsible for themselves
social problems
It is the moral obligation of business to get involved in solving these problems, instead of
merely expecting that other social agencies will deal with them

Converting Business with its history of converting risky situations into profitable deals, can not only
problems into solve social problems but it can also make them effectively useful by accepting the
opportunities challenge.
 Question 2

It is in the interest of business to fulfill its social responsibilities towards different interest groups. Explain?

Answer

Responsibility towards Responsibility towards

Responsibility towards Responsibility towards
the shareholders or the government and
the workers the consumers
owners community
•organisation must also •the right kind of •Supply of right quality •An enterprise must
provide the working conditions to and quantity of goods respect the laws of the
shareholders with be given so that it can and services to country and pay taxes
regular, accurate and win the cooperation of consumers at regularly and honestly.
full information about workers. reasonable prices •It must behave as a
its working as well as •The enterprise must constitutes the good citizen and act
schemes of future respect the democratic responsibility of an according to the well
growth. rights of the workers to enterprise toward its accepted values of the
•business enterprise has form unions. customers. society.
the responsibility to •The worker must also •The enterprise must
provide a fair return to be ensured of a fair take proper precaution
the shareholders or wage and a fair deal against adulteration,
owners from the management poor quality, lack of
desired service and
courtesy to customers,
misleading and
dishonest advertising,
and so on.

Question 3

MNO Ltd., a renowned computer follows the vision of “reaching new heights with its people on its side”. It
not only provides quality products but also provides various facilities to its employees for 5 years of service.
It also provides computer skills to youth in remote areas for free.

(a) What according to you are the business ethics of the company?

(b) It is fulfilling its social responsibilities towards which interest groups?

Answer

a) Ethics is concerned with what is right and what is wrong in human behaviour judged on the basis of a
standard form of conduct/behavior of individuals, as approved by society in a particular field of activity.
Business ethics concerns itself with the relationship between business objectives, practices, and techniques and
the good of society. Business ethics refer to the socially determined moral principles which should govern
business activities. Ethical business is good business. Ethical business behaviour improves public image, earns
people’s confidence and trust, and leads to greater success

Here the company it provides quality products to society with various facilities to its employees and society in
remote area

b) It is fulfilling social responsibility towards:

 Responsibility towards the Responsibility towards the
employees consumers
• the right kind of working • Supply of right quality and
conditions to be given so that it quantity of goods and services to
can win the cooperation of consumers at reasonable prices
employees. constitutes the responsibility of
• The enterprise must respect the an enterprise toward its
democratic rights of the customers.
emplloyees to form unions. • The enterprise must take proper
• The employees must also be precaution against adulteration,
ensured of a fair wage and a fair poor quality, lack of desired
deal from the management service and courtesy to
customers, misleading and
dishonest advertising, and so on.

Question 4

There is a group discussion taking place in class XI regarding social responsibility of business’ Ravi feels that a
business should be socially responsible towards the society it exists in while shama is against it as basic
objective of a business is to earn project. Whom do you think, you will favour? Write points with respect to
you opinion

Answer

I will favour Ravi. Social responsibility is important for the success of the business.
Protect the To get the support of employees, it has become necessary for organisations to discharge
interests of responsibility towards their employees.
stakeholders Consumer does not buy what is offered to him. He buys what he wants. Consumer
sovereignty has, thus, forced firms to assume social responsiveness towards them
Fulfilling social obligations is beneficial for long-run survival of the firms

Long-run survival A firm and its image stands to gain maximum profits in the long run when it has its highest
goal as ‘service to society'
It is in its own interest if a firm fulfills its social responsibility.

The public image of any firm would also be improved when it support social goals

Self-enlightenment With increase in the level of education and understanding of businesses that they are the
creations of society, they are motivated to work for the cause of social good.
Managers create public expectations by voluntarily setting and following standards of moral
and social responsibility.
Rather than legislative interference being the cause of social responsibility, firms assume
social responsibility on their own.
Avoids government Government regulations are undesirable because they limit freedom.
regulation
It is believed that businessmen can avoid the problem of government regulations by
voluntarily assuming social responsibilities, which helps to reduce the need for new laws
For example, Central Pollution Control Board takes care of issues related to environmental
pollution
Resources Business organisations have enormous resources which can be partly used for solving social
problems.
Businesses are the creation of society and must work in the best interest of society, both
economically and socially.
It can help society to tackle its problems better, given the huge financial and human
resources at its disposal
Professionalisation Management is moving towards professionalism which is contributing to social orientation of
and Better business
environment The ethics of profession bind managers to social values and growing concern for society

A society with fewer problems provides better environment for a firm to conduct its business

Holding business Social problems have either been created or perpetuated by business enterprises themselves
responsible for
social problems
It is the moral obligation of business to get involved in solving these problems, instead of
merely expecting that other social agencies will deal with them

Converting Business with its history of converting risky situations into profitable deals, can not only solve
problems into social problems but it can also make them effectively useful by accepting the challenge.
opportunities
Question 5

State the factors against social responsibility?

Answer

Violation of profit Business exists only for profit maximisation. Therefore, any talk of social responsibility
maximisation is against this objective
objective
Business can best fulfill its social responsibility if it maximises profits through
increased efficiency and reduced costs.
Burden on Social responsibilities like pollution control and environmental protection are very
consumers costly and often require huge financial investments
Businessmen simply shift this burden of social responsibility by charging higher prices
from the consumers instead of bearing it themselves
Lack of social skills Businessmen do not have the necessary understanding and training to solve social
problems
Social problems should be solved by other specialised agencies

Lack of broad public Public in general does not like business involvement or interference in social
support programmes.
Therefore, business cannot operate successfully because of lack of public confidence
and cooperation in solving social problems

Question 6

Describe the role of social responsibility in todays era?

Answer
Threat of public where business institutions operate in a socially irresponsible manner, action is
regulation taken to regulate them for safeguarding people’s interest.

This threat of public regulation is one important reason due to which business
enterprise feels concerned with social responsibility.

Pressure of labour labour movement for extracting gains for the working class throughout the
movement world has become very powerful.

This has forced business enterprises to pay due regard to the welfare of
workers instead of following a policy of ‘hire and fire' policy

Impact of Development of education and mass media and increasing competition in the
consumer market have made the consumer conscious of his right and power in
consciousness determining market forces
Now, customer is the king and business have started following customer
oriented approach

Development of New social standards consider economic activity of business enterprises as

social standard for legitimate but with the condition that they must also serve social needs.
business
No business can be done in isolation from society

Development of Development of business education with its rich content of social responsibility
business has made more and more people aware of the social purpose of business
education

Relationship Business enterprises have started realising the fact that social interest and
between social business interest are not contradictory. Instead, these are complementary to
interest and each other.
business interest long-term benefit of business lies in serving the society well

Development of Professional management education in universities and specialised

professional, management institutes have created a separate class of professional managers
managerial class
Professional managers are more interested in satisfying a multiplicity of
interest groups in society for running their enterprises successfully than merely
following profit goals
Question 7

What is the need to control pollution and how business should contribute in environmental protection?

Answer

Need for Pollution Control

1. Reduction of health hazards:

There is increasing evidence that many diseases like cancer, heart attacks and lung complications are caused by
pollutants in the environment.

2. Reduced risk of liability:

It is possible that an enterprise is held liable to pay compensation to people affected by the toxicity of gaseous,
liquid and solid wastes it has released into the environment. Business must install pollution control devices in
its premises to reduce the risk of liability.

3. Cost savings:

Cost savings are particularly noticeable when improper production technology results in greater wastes which
leads to higher cost of waste disposal and cost of cleaning the plants.

4. Improved public image:

A firm that promotes the cause for environment will be able to enjoy a good reputation and will be perceived
as a socially responsible enterprise

5. Other social benefits:

Pollution control results in many other benefits like clearer visibility, cleaner buildings, better quality of life, and
the availability of natural products in a purer form

Role of Business in Environment Protection

1. A definite commitment by top management of the enterprise to create, maintain and develop work culture
for environmental protection and pollution prevention.

2. Ensuring that commitment to environmental protection is shared throughout the enterprise by all divisions
and employees.

3. Developing clear-cut policies and programmes for purchasing good quality raw materials, employing superior
technology, using scientific techniques of disposal and treatment of wastes and developing employee skills for
the purpose of pollution control.

4. Complying with the laws and regulations enacted by the Government for prevention of pollution.

5. Participation in government programmes relating to management of hazardous substances, clearing up of

polluted rivers, plantation of trees, and checking deforestation.

6. Periodical assessment of pollution control programmes in terms of costs and benefits so as to increase the
progress with respect to environmental protection.

7. Arranging educational workshops and training materials to share technical information and experience with
suppliers, dealers and customers to get them actively involved in pollution control programmes.
 Class XI BUSINESS STUDIES

CHAPTER -7 Formation of a Company

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

State the three stages in the formation of a company?

Answer

Three stages in the formation of a company :

1. Promotion

2. Incorporation

3. Subscription of capital

Question 2

What do you mean by Formation of the company?

Answer

Formation of a company is a complex activity involving completion of legal formalities and procedures.
Involves three distinct stages, which are Promotion; Incorporation and Subscription of capital. Private
company as against the public limited company is prohibited to raise funds from public, it does not need
to issue a prospectus and complete the formality of minimum subscription

Question 3

Who is the first directors of the company?

Answer

Promoters have to decide about the members who will be signing the Memorandum of Association of
the proposed company. People signing memorandum are also the first Directors of the Company

Question 4

When a company is said to be born??

Answer
A company is legally born on the date printed on the Certificate of Incorporation. It becomes a legal
entity with perpetual succession on such date. It becomes entitled to enter into valid contracts. The
Certificate of Incorporation is a conclusive evidence of the regularity of the incorporation of a company

Question 5

In a public company how many members must sign Memorandum of association?

Answer

Atleast seven members must sign the memorandum of association.

Question 6

In a private company how many members must sign Memorandum of association?

Answer

For a private company the signatures of two members are sufficient

Question 7

Explain technical feasibility?

Answer

Technical feasibility refers to analysis of an idea which may be good but technically not possible to
execute. It may be so because the required raw material or technology is not easily available

Question 8

Explain Financial feasibility?

Answer

Every business activity requires funds. The promoters have to estimate the fund requirements for the
identified business opportunity. If not able to arrange funds, then project needs to be given up

Question 9

Explain Economic feasibility?

Answer

Project is technically viable and financially feasible but the chance of it being profitable is very little.
VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

‘Promoter enjoys a fiduciary position with the company’ Explain?

Answer

• Promoters of a company enjoy a fiduciary position with the company, which they must not
misuse.
• They can make a profit only if it is disclosed but must not make any secret profits.
• In the event of a non-disclosure, the company can rescind the contract and recover the
purchase price paid to the promoters.
• It can also claim damages for the loss suffered due to the non-disclosure of material
information.
• Promoters are not legally entitled to claim the expenses incurred in the promotion of the
company. However, the company may choose to reimburse them for the pre incorporation
expenses.
• The company may also remunerate the promoters for their efforts by paying a lump sum
amount or a commission on the purchase price of property purchased through them or on the
shares sold.
• The company may also allot them shares or debentures or give them an option to purchase the
securities at a future date

Question 2

List down the documents needed for registration for incorporation.

Answer

o The Memorandum of Association duly stamped, signed and witnessed. In case of a

public company, at least seven members must sign it. For a private company however
the signatures of two members are sufficient
o The Articles of Association duly stamped and witnessed as in case of the Memorandum
o Written consent of the proposed directors to act as directors and an undertaking to
purchase qualification shares.
o The agreement, if any, with the proposed Managing Director, Manager or whole-time
director.
o A copy of the Registrar’s letter approving the name of the company.
o A statutory declaration affirming that all legal requirements for registration have been
complied with. This must be duly signed.
o A notice about the exact address of the registered office may also be submitted along
with these documents
o Documentary evidence of payment of registration fees.
Question 3

Define Promoter?

Answer

According to Section 69, a promoter means a person

(a) Who has been named as such in a prospectus or is identified by the company in the annual return
referred to in section 92; or

(b) Who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or

(c) In accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act. However, it is provided that nothing in this subclause shall apply to a person who is
acting merely in a professional capacity.

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Explain the process of capital subscription?

Answer

The following steps are required for raising funds from the public:

1. SEBI Approval:
• SEBI (Securities and Exchange Board of India) which is the regulatory authority in our
country has issued guidelines for the disclosure of information and investor protection.
• A public company inviting funds from the general public must make adequate disclosure
of all relevant information and must not conceal any material information from the
potential investors.
2. Filing of Prospectus:
• A copy of the prospectus or statement in lieu of prospectus is filed with the Registrar of
Companies.
• A prospectus is ‘any document described or issued as a prospectus including any notice,
circular, advertisement or other document inviting deposits from the public or inviting
offers from the public for the subscription or purchase of any securities of, a body
corporate’.
3. Appointment of Bankers, Brokers, Underwriters:
• Raising funds from the public is a stupendous task. The application money is to be
received by the bankers of the company.
• The brokers try to sell the shares by distributing the forms and encouraging the public to
apply for the shares. Underwriters undertake to buy the shares if these are not
subscribed by the public
4. Minimum Subscription:
 In order to prevent companies from commencing business with inadequate resources, it
•
has been provided that the company must receive applications for a certain minimum
number of shares before going ahead with the allotment of shares. According to the
Companies Act, this is called the ‘minimum subscription’.
• Applications received for the shares are for an amount less than 90 per cent of the issue
size, the allotment cannot be made and the application money received must be
returned to the applicants.
5. Application to Stock Exchange:
• An application is made to at least one stock exchange for permission to deal in its shares
or debentures.
• If such permission is not granted before the expiry of ten weeks from the date of closure
of subscription list, the allotment shall become void and all money received from the
applicants will have to be returned to them within 8 days
6. Allotment of Shares:
• Till the time shares are allotted, application money received should remain in a separate
bank account and must not be used by the company.
• In case the number of shares allotted is less than the number applied for, or where no
shares are allotted to the applicant, the excess application money, if any, is to be
returned to applicants or adjusted towards allotment money due from them.
• Allotment letters are issued to the successful allottees. ‘Return of allotment’, signed by
a director or secretary is filed with the Registrar of Companies within 30 days of
allotment

Question 2

Distinguish between Memorandum of Association and article of association on the basis of objective,
position, relationship, validity and necessity?

Answer

BASIS OF MEMORANDUM OF ASSOCIATION ARTICLE OF ASSOCIATION

DIFFERENCE
OBJECTIVES Memorandum of Association defines Articles of Association are
the objects for which rules of internal management of the
the company is formed. company. They indicate
how the objectives of the
company are to be achieved
POSITION This is the main document This is a subsidiary document and is
of the company and is subordinate to both the
subordinate to the Memorandum of
Companies Act. Association and the Companies Act.
RELATIONSHIP Memorandum of Association Articles define the relationship of the
defines the relationship of members and the
the company with outsiders. company
 VALIDITY Acts beyond the Acts which are beyond Articles can
Memorandum of Association are be ratified by members, provided
invalid and cannot be the they do not violate the
ratified even by a unanimous Memorandum
vote of the members.
NECESSITY Every company has to file a It is not compulsory for a public ltd.
Memorandum of Association. company to file
Articles of Association. It
may adopt Table F of The
Companies Act, 2013

Question 3

Jindal and his brothers wanted to start a new business of steel. To start up a business what
documents are required to be submitted by them to the registrar of companies?

Answer
 •It defines the objectives of the company.
•No company can legally undertake activities that are not contained in its MoA
•MoA contains following clauses:
•Name Clause: contains the name of the company which has already been approved
by the Registrar of Companies
•Registered office clause: contains the name of the state,in which the registered office
of the company is proposed to be situated. Exact address is not required but the
same must be notified to the Registrar within thirty days of the incorporation of the
Memorandum company.
of Association •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
•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. The authorised share capital of the
proposed company along with its division into the number of shares having a fixed
face value is specified

•They are the rules regarding internal management of a company.

•These rules are subsidiary to the Memorandum of Association and hence, should not
Articles of contradict or exceed anything stated in the Memorandum of Association
Association •According to section 2(5) of The Companies Act, 2013, ‘articles’ means the article of
association of a company as originally framed or as altered from time to time or applied
in pursuance of any previous company law or of this Act

Consent of •Apart from the Memorandum and Articles of Association, a written consent of each
Proposed person named as a director is required confirming that they agree to act in that capacity
Directors and undertake to buy and pay for qualification shares

•The agreement which the company enters with individual as Director or a whole time
Agreement Director or Manager is another document which is required to be submitted to the
Registrar for getting the company registered under the Act

Statutory •A declaration stating that all the legal requirements pertaining to registration have
been complied with is to be submitted to the Registrar with the above mentioned
Declaration documents for getting the company registered under the law.

Receipt of •Necessary fees has to be paid for the registration of the company.
Payment of fee •The amount of such fees shall depend on the authorised share capital of the company
Question 4

Mr. Mohan conceived an idea to start a garment business. He consulted a Company secretary to get
the detail. Company secretary helped listing down Mr. Mohan’s function in the process of starting up
the business. Explain briefly the function of promoter?

Answer

1. Identification of 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.
• Opportunity is then analysed for its technical and economic feasibility.

2. Feasibility studies
• It may not be feasible or profitable to convert all identified business opportunities into
real projects. The promoters, therefore, undertake detailed feasibility studies
• the following feasibility studies may be undertaken:
o Technical feasibility: 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
o Financial feasibility: Every business activity requires funds. The promoters have
to estimate the fund requirements for the identified business opportunity. If not
able to arrange funds, then project needs to be given up
o Economic feasibility: Project is technically viable and financially feasible but the
chance of it being profitable is very little.

3. 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
• Proposed name is not accepted but some alternate name may be approved.
• Three names in order of their priority are given in the application to the Registrar of
Companies

4. 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.
• People signing memorandum are also the first Directors of the Company.
• Their written consent to act as Directors and to take up the qualification shares in the
company is necessary.

5. 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

6. Preparation of necessary documents:

• The promoter takes up steps to prepare certain legal documents, which have to be
submitted under the law, to the Registrar of the Companies for getting the company
registered.
• These documents are Memorandum of Association, Articles of Association and Consent
of Directors.
 Class XI BUSINESS STUDIES

CHAPTER -8 Sources of Business Finance

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

What do you mean by ploughing back of profits?

Answer

A portion of the net earnings may be retained in the business for use in the future is known as retained
earnings. It is a source of internal financing or selffinancing or ‘ploughing back of profits

Question 2

Differ between ADR & GDR.

Answer

The local currency shares of a company are delivered to the depository bank. The depository bank issues
depository receipts against these shares. Such depository receipts denominated in US dollars are known
as Global Depository Receipts (GDR). The depository receipts issued by a company in the USA are known
as American Depository Receipts. 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.

Question 3

State the difference between lessor and lessee with the help of an example

Answer

The owner of the assets is called the ‘lessor’ while the party that uses the assets is known as the ‘lessee’.
For example: Amul Diary Ltd purchased machinery from Jindal and Co. on hire purchase basis for which
he paid lease rentals of Rs 200000. Here Amul Diary Ltd is lessee and Jindal and Co. is Lesor

Question 4

What type of share capital is also called ‘’Risk Capital”

Answer

Equity share capital is also called as Risk Capital

Question 5

Name the return given to debenture holders for using their funds?

Answer

Fixed rate of Interest is given to debenture holders for using their funds.

Question 6

Name the one unique feature of ‘’Retained Earnings’’ which is not available in any other source of
finance?

Answer

It is a source of self-financing and does not involve any explicit cost. A portion of the net earnings may
be retained in the business for use in the future is known as retained earnings

Question 7

What is the similarity between ADR and Public Deposits?

Answer

In both ADR and Public deposit, Depositor do not have voting rights, the control of the company is not
diluted.

Question 8

Which term is concerned with the acquisition and conservation of capital funds in meeting the
financial needs of a business enterprise

Answer

Retained earnnings is concerned with acquisition and conservation of capital funds in meeting the
financial needs

Question 9

Name the organization which have been set up by the central as well as State governments to provide
medium term and long term loans to business sector

Answer

Developmental Banks provides medium term and long term loans to business sector

Question 10
Write any one similarity between Equity share capital and Preference share capital.

Answer

They are part of owner’s fund

Question 11

Write the names of 2 Indian companies that offer Factoring services.

Answer

Two names of Indian Companies offering factoring services are SBI Factors and Commercial Services
Ltd., Canbank Factors Ltd.,

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

What prefential rights are enjoyed by preference shareholders?

Answer

The preference shareholders enjoy a preferential position over equity shareholders in two ways:

1. receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is
declared for equity shareholders;

2. receiving their capital after the claims of the company’s creditors have been settled, at the time of
liquidation

Question 2

What factors influence the working capital need in a business? write any three

Answer

1. Cost:
There are two types of cost viz., the cost of procurement of funds and cost of utilising the funds.
Both these costs should be taken into account while deciding about the source of funds.

2. Financial strength and stability of operations:

In the choice of source of funds business should be in a sound financial position so as to be
able to repay the principal amount and interest on the borrowed amount. When the earnings of
the organisation are not stable, fixed charged funds should be carefully selected as these add to
the financial burden
 3. Form of organisation and legal status:
A partnership firm, for example, cannot raise money by issue of equity shares as these can be
issued only by a joint stock company

Question 3

Define Share and write any two advantages of it.

Answer

Equity shares represent the ownership of a company and thus the capital raised by issue of such shares
is known as ownership capital or owner’s funds. They are referred to as ‘residual owners’. They enjoy
the reward as well as bear the risk of ownership. Their liability is limited to capital contributed. They
have right to participate in the management

Advantages:

• Equity capital serves as permanent capital as it is to be repaid only at the time of liquidation of a
company

• Equity capital provides credit worthiness to the company and confidence to prospective loan
providers

Question 4

Write any two differences between share and debentures.

Answer

1. Shares are referred to as owner’s fund whereas Debentures are borrowed fund

2. Shares carry return on the investments whereas in case of debentures a fixed rate of interest is paid
by the company

Question 5

Write any three limitations of equity share capital.

Answer

• Investors who want steady income may not prefer equity shares as equity shares get fluctuating
returns

• The cost of equity shares is generally more as compared to the cost of raising funds through
other sources

• Issue of additional equity shares dilutes the voting power, and earnings of existing equity
shareholders
Question 6

Write any three advantages of Retained Earnings

Answer

• It does not involve any explicit cost in the form of interest, dividend or floatation cost

• It has greater degree of operational freedom and flexibility

• It enhances the capacity of the business to absorb unexpected losses

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Explain trade credit and Factoring as a source of finance for a business enterprise.

Answer

Trade Credit: 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. It is short-term
financing source. It is granted to those customers who have reasonable amount of financial standing and
goodwill. Terms of trade credit may vary from one industry to another and from one person to another.
A firm may also offer different credit terms to different customers

Advantages

• It is a convenient and continuous source of funds

• It is readily available in case the credit worthiness of the customers is known to the seller

• It helps in promoting the sales of an organisation

• It does not create any charge on the assets of the firm while providing funds.

Disadvantages

• It may induce a firm to indulge in overtrading, which may add to the risks of the firm

• Only limited amount of funds can be generated through it

• It is a costly source of funds as compared to most other sources

Factoring: Factoring is a financial service under which the ‘factor’ renders various services which
includes: Discounting of bills (with or without recourse) and collection of the client’s debts. Under this,
the receivables on account of sale of goods or services are sold to the factor at a certain discount. There
are two methods of factoring—recourse and non-recourse. Under recourse factoring, the client is not
protected against the risk of bad debts. On the other hand, the factor assumes the entire credit risk
under non-recourse factoring Providing information about credit worthiness of prospective client’s etc.,
Factors hold large amounts of information about the trading histories of the firms
Advantages

• Cheaper than financing through other means such as bank credit

• Factoring as a source of funds is flexible and ensures a definite pattern of cash inflows from
credit sales. It provides security for a debt

• It does not create any charge on the assets of the firm

• The client can concentrate on other functional areas of business as the responsibility of credit
control is shouldered by the factor

Disadvantages

• This source is expensive when the invoices are numerous and smaller in amount

• The advance finance provided by the factor firm is generally available at a higher interest cost

• The factor is a third party to the customer who may not feel comfortable while dealing with it

Question 2

Discuss the various international sources from where the funds can be generated.

Answer

There are various avenues for organisations to raise funds internationally. Various international sources
from where funds may be generated include

• Commercial Banks:
Commercial banks all over the world extend foreign currency loans for business purposes. The
types of loans and services provided by banks vary from country to country.
• International Agencies and Development Banks:
A number of international agencies and development banks have emerged over the years to
finance international trade and business. These bodies provide long and medium-term loans and
grants to promote the development of economically backward areas in the world.
• International Capital Markets:
o Global Depository Receipts (GDR’s):
The local currency shares of a company are delivered to the depository bank. The
depository bank issues depository receipts against these shares. Such depository
receipts denominated in US dollars are known as Global Depository Receipts (GDR). The
holders of GDRs do not carry any voting rights but only dividends and capital
appreciation.
o American Depository Receipts (ADRs):
The depository receipts issued by a company in the USA are known as American
Depository Receipts. 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.
o Indian Depository Receipt (IDRs):
 An Indian Depository Receipt is a financial instrument denominated in Indian Rupees in
the form of a Depository Receipt. It is created by an Indian Depository to enable a
foreign company to raise funds from the Indian securities market. According to SEBI
guidelines, IDRs are issued to Indian residents in the same way as domestic shares are
issued. The issuer company makes a public offer in India, and residents can bid in exactly
the same format and method as they bid for Indian shares.
o Foreign Currency Convertible Bonds (FCCBs):
Foreign currency convertible bonds are equity linked debt securities that are to be
converted into equity or depository receipts after a specific period. Thus, a holder of
FCCB has the option of either converting them into equity shares at a predetermined
price or exchange rate, or retaining the bonds. They carry a fixed interest rate which is
lower than the rate of any other similar nonconvertible debt instrument. FCCB’s are
listed and traded in foreign stock exchanges

Question 3

From which source a firm can raise long term funds as loan when not provided by commercial bank?
Discuss its merits.

Answer

The government has established a number of financial institutions all over the country to provide
finance to business organisations. They provide both owned capital and loan capital for long and
medium term requirements and supplement the traditional financial agencies like commercial banks
These are also called ‘development banks

Merits are listed as below:

• Financial institutions provide longterm finance, which are not provided by commercial banks

• Many of these institutions provide financial, managerial and technical advice and consultancy to
business firms

• Obtaining loan from financial institutions increases the goodwill of the borrowing company in
the capital market

• As repayment of loan can be made in easy instalments, it does not prove to be much of a
burden on the business

• The funds are made available even during periods of depression, when other sources of finance
are not available

Question 4

What do you mean by owners fund? When it is not suitable?

Answer
Owner’s funds means funds that are provided by the owners of an enterprise, which may be a sole
trader or partners or shareholders of a company. Issue of equity shares and retained earnings are the
two important sources from where owner’s funds can be obtained.

When it is not suitable depends on the following factors:

1. Cost:
There are two types of cost viz., the cost of procurement of funds and cost of utilising the funds.
Both these costs should be taken into account while deciding about the source of funds.

2. Financial strength and stability of operations:

In the choice of source of funds business should be in a sound financial position so as to be
able to repay the principal amount and interest on the borrowed amount. When the earnings of
the organisation are not stable, fixed charged funds should be carefully selected as these add to
the financial burden

3. Form of organisation and legal status:

A partnership firm, for example, cannot raise money by issue of equity shares as these can
be issued only by a joint stock company

4. Purpose and time period:

Business should plan according to the time period for which the funds are required. A short-
term need for example can be met through borrowing funds at low rate of interest through
trade credit, commercial paper, etc. For long term finance, sources such as issue of shares and
debentures are more appropriate. Similarly, the purpose for which funds are required need
to be considered so that the source is matched with the use

5. Risk profile:
Business should evaluate each of the source of finance in terms of the risk involved For example,
there is a least risk in equity as the share capital has to be repaid only at the time of winding up
A loan on the other hand, has a repayment schedule for both the principal and the interest
which is to be paid irrespective of the firm earning a profit or incurring a loss.

6. Control:
Issue of equity shares may mean dilution of the control. Thus, business firm should choose a
source keeping in mind the extent to which they are willing to share their control over business.

7. Effect on credit worthiness:

Issue of secured debentures may affect the interest of unsecured creditors of the company and
may adversely affect their willingness to extend further loans as credit to the company.

8. Flexibility and ease:

Restrictive provisions, detailed investigation and documentation may be the reason that a
business organisations may not prefer it, if other options are readily available.
 9. Tax benefits:

Non taxable instrument will be preferred over tax deductible. For example, while the dividend
on preference shares is not tax deductible interest paid on debentures and loan is tax deductible
and may, therefore, be preferred by organisations seeking tax advantage

So, it is not suitable in case of partnership form of organization, short term need , business wants to take
challenge risk, no dilution of control etc.

Question 5

Write main advantages and disadvantages of Public Deposits.

Answer

Advantages

• 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

• Public deposits do not usually create any charge on the assets of the company

• As the depositors do not have voting rights, the control of the company is not diluted

Disadvantages

• 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

Question 6

Comment on the following sources of International finance

(i) I.D.R.

(ii) F.C.C.B

Answer

(i) IDR: Indian Depository Receipt (IDRs):

An Indian Depository Receipt is a financial instrument denominated in Indian Rupees in the form of a
Depository Receipt. It is created by an Indian Depository to enable a foreign company to raise funds
from the Indian securities market. According to SEBI guidelines, IDRs are issued to Indian residents in the
same way as domestic shares are issued. The issuer company makes a public offer in India, and residents
can bid in exactly the same format and method as they bid for Indian shares.

(ii)FCCB: Foreign Currency Convertible Bonds (FCCBs):

Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity
or depository receipts after a specific period. Thus, a holder of FCCB has the option of either converting
them into equity shares at a predetermined price or exchange rate, or retaining the bonds. They carry a
fixed interest rate which is lower than the rate of any other similar nonconvertible debt instrument.
FCCB’s are listed and traded in foreign stock exchanges

Question 7

‘’Ojas Auto Ltd. ‘’ is a very well known auto company in the industry having more of equity share
capital than long term debt in its capital structure. It is willing to expand and establish new unit in the
backward region and want to train the tribal women in skill Development to empower them. It has a
huge amount of cash reserve of Rs. 1000 crores.

(a) what is the status of capital structure of the above company.

(b) According to you, which source of finance should be used by the company in establishing new
units? Give any two reasons in support of your answer.

(c) What values does the company exhibit in the above case?

Answer

(a) The capital structure of the compny is sound as it is having more of equity share capital than long
term debt in its capital structure and huge amount of cash reserve

(b) I think Retained earnings i.e. the self financing method should be used in establishing new unit. A
portion of the net earnings may be retained in the business for use in the future is known as retained
earnings. It is a source of internal financing or selffinancing or ‘ploughing back of profits. Reason for
supporting Retained earnings are as follows:

• It is a permanent source of funds

• It does not involve any explicit cost in the form of interest, dividend or floatation cost

• It has greater degree of operational freedom and flexibility as there is no dilution of control

• It enhances the capacity of the business to absorb unexpected losses by optimum utilization of
resources

• It may lead to increase in the market price of the equity shares of a company

(c)Company exhibit the following value:

• Balanced Regional Development: The company is willing to expand and establish new unit in the
backward region and contributes in regional development
 • Women Enpowerment: The company wants to train the tribal women in skill Development to
empower them

Question 8

‘’Avika Ltd.’’ company, an IT giant company registered in India want to top the huge amount of
resources for its growth and expansion from U.S.A.for long term needs. IT also needs money for a
period of less then 3 years to meet its medium cum short term needs. The company is following the
practice of educating and giving employment to under privileged youth.50% of its office electricity is
generated through solar power.

(a) Which two sources of finance should be used by the company to meet its requirement. Write any
two characteristics of each source.

(b) What values does the company exhibit in above case?

[Hints- ADR and Public Deposits, Employment Generation, Concern for environment]

Answer

(a)The company can meet its requirement through ADR and Public Deposits.

• Public Deposits: The deposits that are raised by organisations directly from the public are known
as public deposits. While the depositors get higher interest rate than that offered by banks, the
cost of deposits to the company is less than the cost of borrowings from banks. It is Regulated
by RBI. Companies generally invite public deposits for a period upto three years

• ADR: The local currency shares of a company are delivered to the depository bank. The
depository bank issues depository receipts against these shares. The depository receipts issued
by a company in the USA are known as American Depository Receipts. The holders of ADRs do
not carry any voting rights

(b) The company exhibits the following values:

• Social Responsibility towards the environment: The company is generating 50% of its office
electricity through solar power. Hereby conserving resources.

• Generation of Employment: The company is following the practice of educating and giving
employment to under privileged youth and thereby generating employment opportunities for
youth
 Class XI BUSINESS STUDIES

CHAPTER -9 Small Business

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Which type of Industry uses family labour and local available talent while running the business?

Answer

Cottage industries uses labour and local available talent while running the business

Question 2

A micro small scale industry has investment of Rs. 24 lakhs and engaged in manufacturing business.
Now, it wants to increase its investment byRs. 4 Lakhs. what type of small Business will it become and
what is the maximum investment limit in such cases?

Answer

It will become small type of small business and can invest upto 5crore

Question 3

Which type of enterprise is owned, controlled and managed by a woman or a group of women holding
share capital not less than 51%?

Answer

Question 4

Name areas where SSLs feel threatened from global enterprises

Answer

It is difficult to withstand the quality standards, technological skills, financial creditworthiness,

managerial and marketing capabilities

Question 5

Name any 2 merits of SSLs in the export trade of India.

Answer
 • Small industries are best suited for customised production. i.e. designing the product as per the
tastes/ preferences/needs of individual customers
• Small industries have inherent strength of adaptability and a personal touch and therefore
maintain good personal relations with both customers and employees.

Question 6

What different parameters are used to measure the size of service business?

Answer

In the case of enterprises engaged in providing or rendering of services there are three types of
enterprises:

Micro enterprise: investment in equipment does not exceed ten lakh rupees.

Small enterprise: investment in equipment is more than ten lakh rupees but does not exceed two crore
rupees.

Medium enterprise: investment in equipment is more than two crore rupees but does not exceed five
crore rupees

Question 7

What different parameters are used to measure the size of manufacturing business?

Answer

In the case of enterprises engaged in the manufacture or production of goods pertaining to any
industries specified in the first schedule to the Industries (Development and Regulation) Act, 1951, there
are three types of enterprises:

Micro enterprise: investment in plant and machinery does not exceed twenty-five lakh rupees

Small enterprise: investment in plant and machinery is more than twenty-five lakh rupees but does not
exceed five crore rupees

Medium enterprise: investment in plant and machinery is more than five crore rupees but does not
exceed ten crores rupees.

Question 8

State any feature of cottage industries.

Answer

Cottage industries are characterised by certain features like the following:

 these are organised by individuals, with private resources;
 normally use family labour and locally available talent;
  the equipment used is simple;
 capital investment is small;
 produce simple products, normally in their own premises;
 production of goods using indigenous technology

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Write the objective of Marketing Assistance scheme?

Answer

 To enhance marketing capabilities and competitiveness of the MSMEs.

 To showcase the competencies of MSMEs
 To update MSMEs about the prevalent market scenario and its impact on their activities.
 To facilitate the formation of consortia of MSMEs for marketing of their products and services.
 To provide platform to MSMEs for interaction with large institutional buyers.
 To disseminate/propagate various programmes of the Government.
 To enrich the marketing skills of the micro, small and medium entrepreneurs

Question 2

What is the aim of NSIC.

Answer

National Small Industries Corporation (NSIC) aims at providing:

♦ Supply indigenous and imported machines on easy hire-purchase terms.

♦ Procure, supply and distribute indigenous and imported raw materials.
♦ Export the products of small business units and develop exportworthiness.
♦ Mentoring and advisory services

Question 3

Write any two objectives of establishment of NABARD.

Answer

♦ It has been adopting a multi-pronged, multi-purpose strategy for the promotion of rural
business enterprises in the country.
♦ Apart from agriculture, it supports small industries, cottage and village industries, and rural
artisans using credit and non-credit approaches.
 ♦ It offers counselling and consultancy services and organizes training and development
programmes for rural entrepreneurs

Question 4

Write any three problems of small business in India

Answer

 Finance:
• Many of the units in the small sector lack the credit worthiness required to raise as
capital from the capital markets.
• They are exploited by the money lenders
• These units frequently suffer from lack of adequate working capital, either due to
delayed payment of dues to them or locking up of their capital in unsold stocks

 Raw Material:
• If the required materials are not available, they have to compromise on the quality or
have to pay a high price to get good quality materials
• They cannot afford to take the risk of buying in bulk as they have no facilities to store
the materials

 Managerial Skills
• Promoted and operated by a single person, who may not possess all the managerial
skills required to run the business
• They may not find enough time to take care of all functional activities. At the same time
they are not in a position to afford professional managers

Question 5

Define the role of small business in the following area:

a) Variety of products c) Industry output & export

b) Balance development d) customization

Answer

a) Variety of products: Small industries in our country supply an enormous variety of products which
include mass consumption goods, readymade garments, hosiery goods, stationery items, soaps and
detergents, domestic utensils, handlooms, handicrafts etc

b) Industry output & export: Small industries in India account for 95 per cent of the industrial units in the
country. They contribute almost 40 per cent of the gross industrial value added and 45 per cent of the
total exports (direct and indirect exports) from India.
c) Balance development: The contribution of small industries to the balanced regional development of
our country. Promotion of small scale industries and rural industrialization has been considered by the
Government of India as a powerful instrument for realising the twin objectives of ‘accelerated industrial
growth and creating additional productive employment potential in rural and backward areas

d) Customization: Small industries are best suited for customised production. i.e. designing the product
as per the tastes/ preferences/needs of individual customers

Question 6

On the basis of capital contribution identify the type of SSI from the following:

a) Capital contribution on plant and machinery is Rs. 9 lakh.

b) Capital contribution on plant and machinery is Rs. 7.5crore

c) Capital contribution on plant and machinery is Rs. 2650000/-

Answer

a) Capital contribution on plant and machinery is Rs. 9 lakh is a Micro enterprise specified in the first
schedule to the Industries (Development and Regulation) Act, 1951

b) Capital contribution on plant and machinery is Rs. 75000/- is a Medium enterprise specified in the
first schedule to the Industries (Development and Regulation) Act, 1951

c) Capital contribution on plant and machinery is Rs. 2650000/- is a Small enterprise specified in the first
schedule to the Industries (Development and Regulation) Act, 1951

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

What are the incentives given by Govt. to the Industries set up in hurry, backward and rural areas

Answer

Incentives given by the govt to the industries set up in hurry, backward and rural area are as follows:

 Land:
Every state offers developed plots for setting up of industries. The terms and
conditions may vary. Some states don’t charge rent in the initial years, while
some allow payment in instalments.
 Power:
Power is supplied at a concessional rate of 50 per cent, while some states
exempt such units from payment in the initial years.
 Water:
 Water is supplied on a no-profit, no-loss basis or with 50 per cent concession or
exemption from water charges for a period of 5 years.
 Sales Tax:
In all union territories, industries are exempted from sales tax, while some
states extend exemption for 5 years period.
 Octroi:
Most states have abolished octroi.
 Raw materials:
Units located in backward areas get preferential treatment in the matter of
allotment of scarce raw materials like cement, iron and steel etc.
 Finance:
Subsidy of 10-15 per cent is given for building capital assets. Loans are also
offered at concessional rates.
 Industrial estates:
Some states encourage setting up of industrial estates in backward areas.
 Tax holiday:
Exemption from paying taxes for 5 or 10 years is given to industries established
in backward, hilly and tribal areas

Question 2

Preet food Industries set up food and beverages processing plant in the rural area of Haryana and
opted for labour intensive technique due to easy availability of labour and to provide employment to
local people. Board of director decided to invest 50 lakhs to acquire plant & machinery, Rs. 1 crore to
buy land, Rs. 20 Lakhs to buy raw material and Rs. 20lakhs to maintain day to day expenses.

(a) Name the Act of Industries which is applicable to the above industry.

(b) which category of part (a) will the above industry came?

(c) State the investment limit in this category.

(d) what value have been followed by the above company.

[Hints:-MSMED Act, 2006, Small Scale Industry, Rs. 5 crores, Employment Generation, Balanced
Regional Development, concern for social

Answer

a) The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 addresses these issues
relating to definition, credit, marketing and technology upgradation. Medium scale enterprises and
service related enterprises also come under the purview of this Act. The MSMED Act, 2006 came into
force w.e.f., October, 2006. Accordingly, enterprises are classified into two major categories viz.,
manufacturing and services

b) It is a small scale industry

c) In the case of enterprises engaged in the manufacture or production of goods pertaining to any
industries specified in the first schedule to the Industries (Development and Regulation) Act, 1951, Small
enterprise: investment in plant and machinery is more than twenty-five lakh rupees but does not exceed
five crore rupees

d)Values followed by the company are as follows:

1. Employment generation: The company opted for labour intensive technique due to easy availability of
labour and to provide employment to local people

2. Balanced Regional Development: The company set up food and beverages processing plant in the
rural area of Haryana thereby helping in balanced regional development

3. Concern for society: The company opted for labour intensive technique thereby showing concern
towards the society

Question 3

Board of Directors of ‘’Bio Pure water Ltd.’’ decides to set up its first unit in the hilly area of Himachal
Pradesh Company requires Rs. 3 crores for it and Rs. 50 Lakhs for working capital. The company has
earned marked15% of its profit for Educational and Health needs of its employees and their family
members.

(a) The above company comes under which category as per MSMEDAct 2006.

(b) Write any one commercial reason for setting up of unit in the hilly region.

(c) According to you, what are the options available to the company for meeting its long term and
short term needs.

(d) what are the values promoted by the company.

[Hints: Small scale Industry, Cheap price of Land and Labour, Equity share Capital and Loans from
Bank, Balanced Regional Development, Motivation to employees, Employment Ganeration and
upliftment of rural areas]

Answer

a) It comes under small scale industry. In the case of enterprises engaged in the manufacture or
production of goods pertaining to any industries specified in the first schedule to the Industries
(Development and Regulation) Act, 1951, Small enterprise: investment in plant and machinery is more
than twenty-five lakh rupees but does not exceed five crore rupees

b) The Board of Director decides to set up its first unit in hilly area of Himachal Pradesh because of
cheap price of land and labour

c) The company for meeting its long term and short term needs should opted for equity source of fund
and by loans from bank

d) Values promoted by the company are as follows:

1. Balance Regional Development: The company set up its first unit in hilly area of Himachal Pradesh,
thereby helping development of the region

2. Motivation to employees: The company by providing educational and health needs of its employees
and their family members , motivates the employees

3. Generation of employment: The company set up its first unit in hilly area of Himachal Pradesh
because of cheap price of land and labour , thereby increasing the employment opportunity

4. Upliftment of rural area: The company has earned marked15% of its profit for Educational and Health
needs of its employees and their family members of hilly region which in turn improves the standard of
living and achieves upliftment of the rural area

Question 4

Expain in detail the problems faced by the small business?

Answer

 Finance:
• Many of the units in the small sector lack the credit worthiness required to raise as
capital from the capital markets.
• They are exploited by the money lenders
• These units frequently suffer from lack of adequate working capital, either due to
delayed payment of dues to them or locking up of their capital in unsold stocks

 Raw Material:
• If the required materials are not available, they have to compromise on the quality or
have to pay a high price to get good quality materials
• They cannot afford to take the risk of buying in bulk as they have no facilities to store
the materials

 Managerial Skills
• Promoted and operated by a single person, who may not possess all the managerial
skills required to run the business
• They may not find enough time to take care of all functional activities. At the same time
they are not in a position to afford professional managers

 Labour
• They cannot afford to pay higher salaries to the employees, which affects employee
willingness to work hard and produce more
• Unskilled workers join for low remuneration but training them is a time consuming
process

 Marketing
 • These organisations have to depend excessively on middlemen, who at times exploit
them by paying low price and delayed payments
• They lack the necessary infrastructure for direct marketing

 Quality
• They concentrate on cutting the cost and keeping the prices low.
• They do not have adequate resources to invest in quality research and maintain the
standards of the industry, nor do they have the expertise to upgrade technology

 Capacity Utilisation
• They have to operate below full capacity due to which their operating costs tend to
increase.
• Gradually this leads to sickness and closure of the business.

 Technology
• Use of outdated technology is often stated as serious lacunae in the case of small
industries, resulting in low productivity and uneconomical production.

 Sickness
• The causes of sickness are both internal and external.
• Internal problems include lack of skilled and trained labour and managerial and
marketing skills.
• Some of the external problems include delayed payment, shortage of working capital,
inadequate loans and lack of demand for their products.

 Global Competition
• Competition is not only from medium and large industries, but also from multinational
companies which are giants in terms of their size and business volumes
• It is difficult to withstand the quality standards, technological skills, financial
creditworthiness, managerial and marketing capabilities
• There is limited access to markets of developed countries due to the stringent
requirements of quality certification like ISO 9000

Question 5

SSI’s are at distinct disadvantage as compared to LSI’s. Discuss some important areas of SSI which
need support

Answer

SSi’s are at distinct disadvantage as compared to LSI’s. Competition is not only from medium and large
industries, but also from multinational companies which are giants in terms of their size and business
volumes. It is difficult to withstand the quality standards, technological skills, financial creditworthiness,
managerial and marketing capabilities. There is limited access to markets of developed countries due to
the stringent requirements of quality certification like ISO 9000. These organisations have to depend
excessively on middlemen, who at times exploit them by paying low price and delayed payments. They
lack the necessary infrastructure for direct marketing

They need marketing support which can be done by following ways:

 Organising International Technology Exhibitions in Foreign Countries by NSIC and Participation in

International Exhibitions/Trade Fairs
 facilitate them in exploring new business opportunities in emerging and developing markets
 helps in promoting trade, establishing joint ventures, technology transfers, marketing
arrangements and image building of Indian MSMEs in foreign countries
 participation of Indian MSMEs in the select international exhibitions and trade fairs.
 Participation in such events exposes MSMEs to international practices

 Organising Domestic Exhibitions and Participation in Exhibitions/Trade Fairs in India

 help the MSMEs in enhancing their marketing avenues by way of capturing new markets
 expanding existing markets

 Support for Co-sponsoring of Exhibitions Organised by other Organisation and industry

Associations/Agencies
 This support would be in the form of co-sponsoring of the event by NSIC. In order to apply for
co-sponsoring of an event by NSIC, the applicant organisation/agency must fulfill the centre
criteria/conditions

 Buyer-Seller Meets
 Participation in these programmes enables MSMEs to know the requirements of bulk buyers on
the one hand and help the bulk buyers to know the capabilities of MSMEs for their purchases.

 Intensive Campaigns and Marketing Promotion Events

 To disseminate information about the various schemes for the benefit of the micro, small and
medium enterprises.
 They are also facilitated to enrich their knowledge regarding latest developments, quality
standards etc. and improve the marketing potential of their products and services.

 Other Support Activities

 Development of Display Centres, show windows and hoarding etc., for promoting products and
services of MSMEs.
 Printing of Literature, Brochures and Product-specific catalogues and CDs etc., and preparation
of short films for disseminating information.
 Development of website/portal for facilitating the marketing of MSME products and services
 Development and dissemination of Advertising and Publicity material about various
programs/schemes for MSME sectors and events.
 Preparation and Upgradation of MSME Manufacturers/ Suppliers/ Exporters Directory.
 Documentation of the success stories of MSMEs.
  Conducting studies to explore and assess new markets/ businesses and product ranges for both
domestic and international markets.
 Hosting international delegations and networking events

Question 6

Write notes on the following:

a) NABARD

b) SFURTI

c) RSBDC

d) DIC’S

e) SIDBI

f) NCEUS

Answer

a) National Bank for Agriculture and Rural Development (NABARD): It has been adopting a multi-
pronged, multi-purpose strategy for the promotion of rural business enterprises in the country. Apart
from agriculture, it supports small industries, cottage and village industries, and rural artisans using
credit and non-credit approaches. It offers counselling and consultancy services and organizes training
and development programmes for rural entrepreneurs

b) Scheme of Fund for Regeneration of Traditional Industries (SFURTI): To develop clusters of traditional
industries in various parts of the country. To build innovative and traditional skills, improve technologies
and encourage public-private partnerships, develop market intelligence etc., to make them competitive,
profitable and sustainable. To create sustained employment opportunities in traditional industries.

c) The Rural Small Business Development Centre (RSBDC): It aims at providing management and
technical support to current and prospective micro and small entrepreneurs in rural areas. RSBDC has
organized several programmes on rural entrepreneurship, skill upgradation workshops, mobile clinics
and trainers training programmes, awareness and counselling camps

d) The District Industries Centers (DICs): Provides all the services and support facilities to the
entrepreneurs for setting up small and village industries. Identification of suitable schemes, preparation
of feasibility reports, arranging for credit, machinery and equipment, provision of raw materials and
other extension services are the main activities undertaken by these centers.

e) Small Industries Development Bank of India (SIDBI): It is set up as an apex bank to provide
direct/indirect financial assistance under different schemes, to meet credit needs of small business
organisations. It coordinate the functions of other institutions in similar activities

f) The National Commission for Enterprises in the Unorganised Sector (NCEUS): To recommend
measures considered necessary for improving the productivity of small enterprises in the informal
sector. To generate more employment opportunities on a sustainable basis, particularly in the rural
areas. To enhance the competitiveness of the sector in the emerging global environment. To develop
linkages of the sector with other institutions in the areas of credit, raw materials, infrastructure,
technology upgradation, marketing and formulation of suitable arrangements for skill development.
 Class XI BUSINESS STUDIES

CHAPTER -10 Internal Trade

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

Differentiate between street trader and street shops

Answer

Street traders: Retailers who are commonly found at places where huge floating population gathers, for
example, near railway stations and bus stands, and sell consumer items of common use, such as
stationery items, eatables, readymade garments, newspapers and magazines

Street stall holders: They attract floating customers and deal mainly in goods of cheap variety like
hosiery products, toys, cigarettes, soft drinks, etc. They get their supplies from local suppliers as well as
wholesalers. The total area covered by a stall is very limited and, therefore, they handle goods on a very
small scale.

Question 2

What do you mean by a Cheap jack type of retail trade?

Answer

Retailers who have independent shops of a temporary nature in a business locality. They keep on
changing their business from one locality to another, depending upon the potentiality of the area. They
deal in consumer items as well as services such as repair of watches, shoes, buckets etc.

Question 3

State any two advantages of supermarkets

Answer

• Keep a wide variety of goods of different designs, colour, etc., which enables the buyers to make
better selection

• Sales are made on cash basis, there are no bad debts

Question 4

Define Internal Trade

Answer

Buying and selling of goods and services within the boundaries of a nation are referred to as internal
trade. Characteristic of Internal Trade are Buying and selling takes place in home country, there
payment made or received in-home country with few formalities to be fulfilled by traders.

Question 5

List the two broad categories of trade.

Answer

Internal trade can be classified into two broad categories : (i) wholesale trade (ii) retail trade

Question 6

Which shops deal in specific line products

Answer

Speciality shops

Instead of selling a variety of products of different types, these retail stores specialise in the sale of a
specific line of product. The speciality shops are generally located in a central place where a large
number of customers can be attracted, and they provide a wide choice to the customers in the selection
of goods

Question 7

Give two examples of chain stores

Answer

Walmart and Body shop are two examples of chain stores

Question 8

Mail order Houses provide a lot of convenience to the customers, yet they are not very popular, why?
Give one reason.

Answer

Mail order Houses provide a lot of convenience to the customers, yet they are not very popular because
it requires heavy expenditure on promotion of products
Question 9

What are Vending Machines? Which type of goods are suitable for vending machines?

Answer

Coin operated vending machines are proving useful in selling several products such as hot beverages
platform tickets, milk, soft drinks, chocolates, newspaper, etc., in many countries. Vending machines can
be useful for selling pre-packed brands of low priced products which have high turnover and which are
uniform in size and weight. However, the initial cost of installing a vending machine and the expenditure
on regular maintenance and repair are quite high

Question 10

Distinguish between a wholesaler and retailer. Give only one point of difference

Answer

Wholesaler is one who sell goods to retailers and other merchants, and/or to industrial, institutional and
commercial users but who do not sell in significant amount to ultimate consumers

A retailer is a business enterprise that is engaged in the sale of goods and services directly to the
ultimate consumers

Question 11

Sandeep& Sons, Delhi orders pearl jewellery from Nasir Bros, Hydrabad.They enter into a contract and
makes certain that the payment will be made only on receiving the goods at Delhi in their Shop.
Identify the term of trade in the above example.

Answer

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Discuss services of retailer to manufacturer and wholesaler.

Answer
 Help in distribution Provide help in the distribution of their products by making these available
to the final consumers, who may be scattered over a large geographic area.
of goods They thus provide place utility
By undertaking personal selling efforts, the retailers relieve the producers of
Personal selling this activity and greatly help them in the process of actualising the sale of
the products

Enabling large-scale
Enables them to operate on, at relatively large scale, and thereby fully
operations concentrate on their other activities

Collecting market Retailers serve as an important source of collecting market information

about the tastes, preferences and attitudes of customers which is useful in
information taking important marketing decision
Manufacturers and distributors have to carry on various promotional
Help in promotion activities in order to increase the sale of their products. Retailers participate
in these activities and promotes sales of products

Question 2

Identify the type of itinerant trader from the following:

a) Traders who open their shop on fixed day.

b) Petty retailer who have temporary independent shops.

c) Traders commonly found in populated area.

Answer

a) Traders who open their shop on fixed day:

Market traders: The small retailers who open their shops at different places on fixed days or dates. They
are mainly catering to lower-income group of customers and deal in low-priced consumer items of daily
use

b) Petty retailer who have temporary independent shops:

Cheap jacks: Retailers who have independent shops of a temporary nature in a business locality. They
keep on changing their business from one locality to another, depending upon the potentiality of the
area. They deal in consumer items as well as services such as repair of watches, shoes, buckets etc.

c) Traders commonly found in populated area:

Street traders: Retailers who are commonly found at places where huge floating population gathers, for
example, near railway stations and bus stands, and sell consumer items of common use, such as
stationery items, eatables, readymade garments, newspapers and magazines
Question 3

Jyoti has shifted residence in a new settlement colony. There are no retail shops nearby. What
difficulties will Jyoti face in above case?

Answer

Difficulties faced by Jyoti in above cases are listed below:

1. She will not enjoy the benefit of regular availability of products as and when needed.

2. She will not get updated of the new products launched in the market.

3. She will face inconvenience because for each and every thing she need to go far

4. She will not get wide variety of choice of product under one roof

5. She will not enjoy the benefit of after sale services like home delivery.

6. She will not enjoy the facility of credit

Question 4

Identify the types of retailers in the following statements:

(a) Rohan displays his goods on bus-stands or pavements.

(b) Mangal sells goods from one street to another, from one locality to another.

(c) Rajkumar sells only school uniforms.

(d) Deepanshu deals only in second hand books.

Answer

(a) Rohan displays his goods on bus-stands or pavements:

Street traders: Retailers who are commonly found at places where huge floating population gathers, for
example, near railway stations and bus stands, and sell consumer items of common use, such as
stationery items, eatables, readymade garments, newspapers and magazines

(b) Mangal sells goods from one street to another, from one locality to another:

Peddlers and hawkers: They are small producers or petty traders who carry the products on a bicycle, a
hand cart, a cycle-rickshaw or on their heads, and move from place to place to sell their merchandise at
the doorstep of the customers. They generally deal in non-standardised and low-value products

(c) Rajkumar sells only school uniforms:

Speciality shops: Instead of selling a variety of products of different types, these retail stores specialise
in the sale of a specific line of product. The speciality shops are generally located in a central place
where a large number of customers can be attracted, and they provide a wide choice to the customers
in the selection of goods
(d) Deepanshu deals only in second hand books:

Second-hand goods shop: These shops deal in second-hand or used goods, like books, clothes,
automobiles, furniture and other household goods. The shops, selling second-hand goods may be
located at street crossings or in busy streets in the form of a stall having very little structure — a table or
a temporary platform to display the books or may have reasonably good infrastructure, as in the case of
those selling furniture or used cars or scooters or motorcycles

Question 5

A manufacturing Co. manufacturing cloth open shops at different locations in India. He sells goods on
cash only. The shops have identical decorations. The prices of goods are fixed. In this way they
eliminate unnecessary middleman thus benefiting the consumers.

(a) Identify the type of shop referred to.

(b) Elaborate characteristics of such shops

Answer

(a) This is a Chain store or Multiple shop. Chain stores are A number of shops with similar appearance
are established in localities, spread over different parts of the country. These different shops normally
deal in standardised and branded consumer products, which have rapid sales turnover. These shops are
run by the same organisation and have identical merchandising strategies, with identical products and
displays

(b) Characteristics of Chain Stores are as follows:

• These shops are located in fairly populous localities, where sufficient number of customers can
be approached

• Centralised at the head office, from where the goods are despatched to each of these shops

• Shop is under the direct supervision of a Branch Manager, who is held responsible for its day to-
day management

• Controlled by the head office, which is concerned with formulating the policies and getting them
implemented

• The prices of goods in such shops are fixed and all sales are made on cash basis

Question 6

Vishal buys goods in larger quantities and sells them to small businessmen.

(a) Which type of trader in Vishal?

(b) State services to Consumer of this type of trade.

Answer

(a) Vishal is a Retail trader. A retailer is a business enterprise that is engaged in the sale of goods and
services directly to the ultimate consumers. The retailer normally buys goods in large quantities from
the wholesalers and sells them in small quantities to the ultimate consumers. Arranges for proper
storage of goods, sells the goods in small quantities, bears business risks, grades the products, collects
market information, extends credit to the buyers and promotes the sale of products through displays,
participation in various schemes, etc. The retails represents the final stage in the distribution where
goods are transferred from the hands of the manufacturers or wholesalers to the final consumers or
users

(b)

Regular availability Maintain regular availability of various products produced by different

manufacturers. This enables the buyers to buy products as and when
of products needed

New products Arranging for effective display of products and through their personal selling
efforts, retailers provide important information about the arrival, special
information features, etc., of new products to the customers

Convenience in They sell goods in small quantities and are situated very near to the
residential areas and remain open for long hours. This offers great
buying convenience to the customers in buying products of their requirements.

Wide selection Keep stock of a variety of products of different manufacturers. This enables
the consumers to make their choice out of a wide selection of goods

After-sales services Provides after-sales services in the form of home delivery, supply of spare
parts and attending to customers

Provide credit
Provide credit facilities to their regular buyers. This enables the latter to
facilities increase their level of consumption

Question 7

Mention differences between departmental store and multiple shops.

Answer

BASIS DEPARTMENTAL STORES MULTIPLE SHOPS

LOCATION Central Place Where Large customer
approach
RANGE OF PRODUCTS Wide range of products Specified range of products
SERVICES OFFERED Maximum service to customer Limited service to customer
PRICING No uniform pricing policy Uniform pricing policy
 CLASS OF CUSTOMER Cater to High income group Cater to different types of
customers
CREDIT FACILITY Credit facility is availed Only Cash basis
FLEXIBILITY Flexibility in respect to line of Not much scope of flexibility
goods marketed

Question 8

Explain the features of Departmental store

Answer

• Provide maximum service to higher class of customers for whom price is of secondary
importance

• Located at a central place in the heart of a city, which caters to a large number of customers.

• As the size of these stores is very large, they are generally formed as a joint stock company
managed by a board of directors

• A departmental store combines both the functions of retailing as well as warehousing

• They have centralised purchasing arrangements and sales are decentralised in different
departments

Question 9

Enumerate the limitation of Multiple shops

Answer

• They do not sell products of other manufacturers. In that way the consumers get only a limited
choice of goods

• looking up to the head office for guidance on all matters, and takes away the initiative from
them to use their creative skills to satisfy the customers

• Lack of initiative in the employees sometimes leads to indifference and lack of personal touch in
them.

• The management may have to sustain huge losses because of large stocks lying unsold at the
central depot

Question 10

Explain two features, merits and limitations of super market

Answer
Features

• Generally carries a complete line of food items and groceries, in addition to non-food
convenience goods

• Different products as per their requirements under one roof

Merits

• Sales are made on cash basis, there are no bad debts

• Benefits of large scale buying and selling because of which its operating costs are lower

Limitations

• No credit facilities restricts the purchasing power of buyers

• The principle of selfservice is followed therefore, do not get any personal attention

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

Discuss the services of a wholesaler to the manufacturer and retailer.

Answer

Services to Manufacturers
 • Wholesalers collect small orders from a number of retailers and pass on
Facilitating large scale
the pool of such orders to the manufacturers and make purchases in bulk
production
quantities

• The wholesale merchants deal in goods in their own name, take delivery of
the goods and keep the goods purchased in large lots in their warehouses.
Bearing risk
• They bear variety of risks such as the risk of fall in prices, theft, pilferage,
spoilage, fire, etc

• They generally make cash payment for the goods purchased by them. To
that extent, the manufacturers need not block their capital in the stocks.
Financial assistance
• Sometimes they also advance money to the producers for bulk orders
placed by them

• As the wholesalers are in direct contact with the retailers, they are in a
position to advice the manufacturers about various aspects including
Expert advice
customer’s tastes and preferences, market conditions, competitive
activities and the features preferred by the buyers.

• Relieves the manufacturers from many of the marketing activities and

Help in marketing enable them to concentrate on the production activity
function • Wholesalers take care of the distribution of goods to a number of retailers
who, in turn, sell these goods to a large number of customers spread

• Facilitate continuity by purchasing the goods as and when these are

Facilitate production
produced and storing them till the time these are demanded by retailers or
continuity
consumers

• Wholesalers take delivery of goods when these are produced in factory

Storage and keep them in their godowns/warehouses
• They thus provide time utility.

Services to Retailers
 • Retailers have to maintain adequate stock of varied commodities so that
they can offer variety to their customers
Availability of goods
• Relieves the retailers of the work of collecting goods from several
producers and keeping big inventory of the same

• The wholesalers perform various marketing functions and provide

support to the retailers
Marketing support
• The retailers are benefitted as it helps them in increasing the demand for
various new products

• The wholesalers generally extend credit facilities to their regular

customers.
Grant of credit
• This enables the retailers to manage their business with relatively small
amount of working capital

• The wholesalers specialise in one line of products and know the pulse of
Specialised knowledge the market.
• They pass on the benefit of their specialised knowledge to the retailers
• Able to purchase merchandise in smaller quantities, retailers are in a
Risk sharing position to avoid the risk of storage, pilferage, obsolescence, reduction in
prices and demand fluctuations

Question 2

Why are consumer cooperative stores considered to be less expensive? What are their relative
advantages over other large scale retailer?

Answer

A consumer cooperative store is an organisation owned, managed and controlled by consumers

themselves. The objective of such stores is to reduce the number of middlemen who increase the cost of
produce, and thereby provide service to the members. The cooperative stores generally buy in large
quantity, directly from manufacturers or wholesalers and sell them to the consumers at reasonable
prices. The profits earned by consumer cooperative stores during a year are utilised for declaring bonus
to members and for strengthening the general reserves and general welfare funds or similar funds for
social and educational benefits of the members. This is why consumer cooperative stores considered to
be less expensive

Advantages of Consumer cooperative stores over large scale retailers are as below:

• Easy to form a consumer cooperative society

• The liability of the members in a cooperative store is limited to the extent of the capital
contributed by them
 • It has democratic management. Each member has one vote, irrespective of the number of
shares held by him/her

• Elimination of middlemen results in lower prices for the consumer goods to the members

• The consumer cooperative stores normally sell goods on cash basis

• The consumer cooperative stores are generally opened at convenient public places where the
members and others can easily buy the product

Question 3

Discuss the features of fixed shop retailers? Explain different types of fixed shop small retailers?

Answer

Retail shops who maintain permanent establishment to sell their merchandise are called as fixed shop
retailers. They, therefore, do not move from place to place to serve their customers

Characteristics:

• Greater resources and operate on a relatively large scale

• Deal in different products, including consumer durables as well as nondurables
• Greater credibility in the minds of customers

Types of Fixed Shop Small Retailers

• General stores
These shops carry stock of a variety of products required to satisfy the day-to-day needs of the
consumers residing in nearby localities. They remain open for long hours at convenient timings
and often provide credit facilities to some of their regular customers

• Speciality shops
Instead of selling a variety of products of different types, these retail stores specialise in the sale
of a specific line of product. The speciality shops are generally located in a central place where a
large number of customers can be attracted, and they provide a wide choice to the customers in
the selection of goods

• Street stall holders

They attract floating customers and deal mainly in goods of cheap variety like hosiery products,
toys, cigarettes, soft drinks, etc. They get their supplies from local suppliers as well as
wholesalers. The total area covered by a stall is very limited and, therefore, they handle goods
on a very small scale.

• Second-hand goods shop

These shops deal in second-hand or used goods, like books, clothes, automobiles, furniture and
other household goods. The shops, selling second-hand goods may be located at street crossings
or in busy streets in the form of a stall having very little structure — a table or a temporary
 platform to display the books or may have reasonably good infrastructure, as in the case of
those selling furniture or used cars or scooters or motorcycles

Question 4

Discuss the features of Mail order houses? State their merits and limitations?

Answer

• Mail order houses are the retail outlets that sell their merchandise through mail.
• There is generally no direct personal contact between the buyers and the sellers in this type of
trading.
• For obtaining orders, potential customers are approached through advertisements in
newspapers or magazines, circulars, catalogues, samples and bills, and price lists sent to them
by post
• On receiving the orders, the items are carefully scrutinised with respect to the specifications
asked for by the buyers and are complied with through the post office
• There can be different alternatives for receiving payments.
o First, the customers may be asked to make full payment in advance.
o Second, the goods may be sent by Value Payable Post (VPP). Under this arrangement,
the goods are sent through post and are delivered to the customers only on making full
payment for the same.
o Third, the goods may be sent through a bank, which is instructed to deliver the articles
to the customers. In this arrangement there is no risk of bad debt
• Only the goods that can be (i) graded and standardised, (ii) easily transported at low cost, (iii)
have ready demand in the market, (iv) are available in large quantity throughout the year, (v)
involve least possible competition in the market and (vi) can be described through pictures etc.,
are suitable for this type of trading
 Merits Limitations

• It can be started with relatively low amount • There is no personal contact between the
of capital buyers and the sellers under the system of
• Unnecessary middlemen between the mail order selling, there are greater
buyers and sellers are eliminated. possibilities of misunderstanding and
• They do not extend credit facilities to the mistrust
customers, there are no chances of any bad • There is heavy expenditure on promotion of
debt the products
• Wide scope for business as a large number • There is absence of after sales services
of people throughout the country can be which is so important for the satisfaction of
served through mail. the customer
• Goods are delivered at the doorstep of the • They do not provide credit facilities
customers • Greater possibility of abuse to dishonest
traders to cheat the customers by making
false claims about the products or not
honouring the commitments
• Depends heavily on the availability of
efficient postal services at a place

Question 5

Uma a village girl comes to Delhi to visit her relatives. She goes with her cousin to a shop, which is
centrally located. She becomes astonished byte varieties of goods which are sold

here.

(a) Identify this type of shop.

(b) Quoting lines from the above paragraph describe two characteristics of the shop.

(c) Explain advantages of such shops.

Answer

(a) A departmental store is a large establishment offering a wide variety of products, classified into well
defined departments, aimed at satisfying practically every customer’s need under one roof. It has a
number of departments, each one confining its activities to one kind of product

(b) Characteristics of Departmental Stores are as follows:

1. Located at a central place in the heart of a city, which caters to a large number of customers.

2. Offering large variety of goods under one roof

(c)Advantages of Departmental Stores are as follows:

• As located at central places, they attract a large number of customers

 • Offering large variety of goods under one roof

• Aims at providing maximum services to the customers

• Organised at a very large scale, the benefits of large scale operations, particularly, in respect of
purchase of goods are available to them

• Considerable amount of money on advertising and other promotional activities, which help in
boosting their sales

Question 6

Nirmala orders a mixer on the basis of an advertisement in a newspaper specifying the features,
price, delivery terms. It specified that the terms of payment will be VPP only.

(i) Identify this type of retail business.

(ii) Explain two advantages and two limitations of them.

Answer

(i) Mail order houses are the retail outlets that sell their merchandise through mail. There is generally no
direct personal contact between the buyers and the sellers in this type of trading. For obtaining orders,
potential customers are approached through advertisements in newspapers or magazines, circulars,
catalogues, samples and bills, and price lists sent to them by post. On receiving the orders, the items are
carefully scrutinised with respect to the specifications asked for by the buyers and are complied with
through the post office. The goods may be sent by Value Payable Post (VPP). Under this arrangement,
the goods are sent through post and are delivered to the customers only on making full payment for the
same.

(ii) Advantages:

• It can be started with relatively low amount of capital

• Unnecessary middlemen between the buyers and sellers are eliminated.

Disadvantages:

• There is no personal contact between the buyers and the sellers under the system of mail order
selling, there are greater possibilities of misunderstanding and mistrust

• Depends heavily on the availability of efficient postal services at a place

Question 7

A London based manufacturing co. manufacturing washing machines wish to add 2 new products in
India namely AC’s ad Refrigerators. Out of a lot of 10 applicants the co. chose two wholesale firms
(headed by females) whose proposals were very competitive and attractive. The wholesaler firm of
AC’s hired the services of a (differently able retailer) Hari at competitive prices to sell AC’s in Delhi,
Hari informs his wholesalerfirm’s head that the consumers of Delhi wish that their houses are cold
when they reach their homes in the scrotching heat of Delhi.

(a)Explain three services rendered by retailers to wholesalers or manufacturers.

(b) Identify two values which are being adhered to in the above paragraph

Answer

(a) Three services rendered by retailer to wholesalers or manufacturers are as follows:

Help in Provide help in the distribution of their products by making

distribution of these available to the final consumers, who may be scattered
goods over a large geographic area. They thus provide place utility

By undertaking personal selling efforts, the retailers relieve the

Personal selling producers of this activity and greatly help them in the process of
actualising the sale of the products

Enabling large-
scale operations Enables them to operate on, at relatively large scale, and
thereby fully concentrate on their other activities

(b) Values which are being adhered to aare:

1. Women Empowerment: The company chose two wholesale firms (headed by females) whose
proposals were very competitive and attractive which helped in the empowerment of women.

2. Social Concern: The wholesaler firm of AC’s hired the services of a (differently able retailer) Hari

Question 8

Briefly explain the role of commerce in promoting internal trade?

Answer
Interstate The Chambers of Commerce and Industry help in many activities
movement of concerning inter state movement of goods which include registration of
goods
vehicles, surface transport policies, construction of highways and roads

Octroi and other These are collected on the goods and from people entering the state or
local levies the municipal limits. The Chambers of Commerce try to ensure that their
imposition is not at the cost of smooth transportation and local trade

Harmonisation of The sales tax is an important part of the state revenue. A rational
sales tax structure structure of the sales tax and its uniform rates across states, are
and Value Added
Tax
important for promoting a balance in trade

Marketing of agro Streamlining of local subsidies and marketing policies of organisations

products and selling agro products are some of the areas where the Chambers of
related issues
Commerce and Industry can really intervene and interact with concerned
agencies like farming cooperatives

Weights and Laws relating to weights and measures and protection of brands are
Measures and necessary to protect the interest of the consumers as well as the traders.
prevention of
duplication brands
These need to be enforced strictly

Excise duty Central excise is the chief source of the government revenue levied across
states by the central government. The excise policy plays an important
role in pricing mechanism

Promoting sound The Chambers of Commerce and Industry hold discussions with
infrastructure government agencies for investments into infrastructure projects

Labour legislation A simple and flexible labour legislation is helpful in running industries
maximising production and generating employment. The Chambers of
Commerce and Industry and the government are constantly interacting
on issues with government
 Class XI BUSINESS STUDIES

CHAPTER -11 International Trade

IMPORTANT QUESTIONS

MULTIPLE CHOICE QUESTIONS (1 MARKS)

Question 1

By using which mode of entry, does the domestic manufacturer give the right to use its trademark to a
manufacturer in a foreign country for a fee?

Answer

Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or
technology to another firm in a foreign country for a fee called royalty

Question 2

Name the term when two businesses mutually agree to share each other trade secrets and
technology?

Answer

There is mutual exchange of knowledge, technology and/or patents between the firms which is known
as cross-licensing

Question 3

Write a common point between licensing and franchising?

Answer

A common point between licensing and franchising is to make use of the licensor’s/ franchiser’s
copyrights, patents and brand names

Question 4

Whose objective was to reconstruct the war defeated and under develop countries?

Answer

The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank,
was result of the Bretton Woods Conference. The main objectives were to aid the task of reconstruction
of the war-affected economies of Europe and assist in the development of the underdeveloped nations
of the world
Question 5

State any two necessary documents require in connection with an import transaction

Answer

Commercial invoice, bill of lading/airway bill are documents required in connection with an import
transasction

Question 6

What is a shipping bill?

Answer

Shipping bill is the main document on the basis of which the customs office gives the permission for
export

Question 7

What is IEC number?

Answer

IEC Number is Import Export Code Number which is obtained from the Directorate General Foreign
Trade (DGFT) or Regional Import Export Licensing Authority. It is a pre requisite to obtain export license

Question 8

XYZ Co. (USA) acquires another Co. R. Ltd. situated at Geneva by investing100% in its equity. What will
be the R. Ltd. Co. called?

Answer

R ltd will be called wholly owned subsidiary of XYZ Co. Wholly owned subsidiary is an entry mode of
international business is preferred by companies which want to exercise full control over their overseas
operations

Question 9

Identify the mode of entry into an international business when an Indian Company enters into a
contract with local manufacturers in foreign countries to get certain components as per its
specifications

Answer
Contract Manufacturing is a type of international business where a firm enters into a contract with one
or a few local manufacturers in foreign countries to get certain components or goods produced as per its
specifications

Question 10

Name the document containing guarantee of a bank to honour drafts drawn on it by an exporter’s
bank

Answer

A letter of credit is a guarantee issued by the importer’s bank that it will honour payment up to a certain
amount of export bills to the bank of the exporter

Question 11

Who is C&F agent?

Answer

C&F Agent is Clearing and forwarding agent who is engaged in providing services, directly or indirectly,
concerned with clearing and forwarding operations in any manner to any other person and includes a
consignment agent. The C&F agent surrenders the mates receipt to the shipping company for
computation of freight.

VERY SHORT AND SHORT ANSWER QUESTIONS (2 OR 3 MARKS)

Question 1

Differentiate between the contract manufacturing and setting up wholly owned production subsidiary
abroad

Answer

Basis Contract Manufacturing Wholly owned production

subsidiary
Meaning Type of international business This entry mode of international
where a firm enters into a business is preferred by
contract with one or a few local companies which want to
manufacturers in foreign exercise full control over their
countries to get certain overseas operations
components or goods produced
as per its specifications
 Control Local manufacturers loses his Exercise full control over its
control over the manufacturing operations
process because goods are
produced strictly as per the
terms and specifications

Investment and Risk No investment, no investment It is not suitable for small and
risk medium size firms which do not
have enough funds with them
to invest abroad. And has to
bear the entire losses resulting
from failure of its foreign
operations

Question 2

It is not just a sale of trademark for a fee; also it abides the purchaser to follow strictly the rules of
serving. Which mode of entry is this? Discuss any two limitations of it.

Answer

Licensing is a contractual arrangement in which one firm grants access to its patents, trade secrets or
technology to another firm in a foreign country for a fee called royalty. There is mutual exchange of
knowledge, technology and/or patents between the firms which is known as cross-licensing. Franchising
applies to service business. Franchisers usually set strict rules and regulations as to how the franchisees
should operate while running their business

Limitations:

• There is a danger that the licensee can start marketing an identical product under a slightly
different brand name

• If not maintained properly, trade secrets can get divulged to others in the foreign markets

• Conflicts over maintenance of accounts, payment of royalty and non-adherence to norms

relating to production of quality products

Question 3

What is the objective of WTO? What are its benefits?

Answer

Objectives of WTO are as follows:

• To ensure reduction of tariffs and other trade barriers imposed by different countries;
 • To engage in such activities which improve the standards of living, create employment, increase
income and effective demand and facilitate higher production and trade;

• To facilitate the optimal use of the world’s resources for sustainable development

• To promote an integrated, more viable and durable trading system.

Benefits of WTO are as follows:

• Helps promote international peace and facilitates international business.

• All disputes between member nations are settled with mutual consultations.

• Rules make international trade and relations very smooth and predictable.

• Free trade improves the living standard of the people by increasing the income level.

• Free trade provides ample scope of getting varieties of qualitative products.

• Economic growth has been fastened because of free trade.

• The system encourages good government.

• WTO helps fostering growth of developing countries

Question 4

Write note on Bill of lading, Bills of entry, Shipping advice.

Answer

Bill of Lading: It is a detailed list of a ship’s cargo in the form of a receipt given by the master of the ship
to the person consigning the goods.

Bill of Entry: declaration by an importer or exporter of the exact nature, precise quantity and value of
goods that have been landed or being shipped out. It is prepared by a qualified custom clerk or broker, it
is examined by the custom authorities for its accuracy and conformity with the tariff and regulation.

Shipping advice: It is a commercial document which is issued by the exporter, who is the beneficiary of
the letter of credit, in order to give shipment details to the importer who is the applicant of the letter of
credit.

Question 5

Give difference between Internal trade and International trade

Answer

BASIS INTERNATIONAL BUSINESS DOMESTIC BUSINESS

NATIONALITY OF BUYERS AND Buyers and sellers come from Buyers and
SELLERS different
 countries sellers are from the same
country
NATIONALITY OF OTHER Belong from various countries Belong to one country and
STAKEHOLDERS and hence have wider set of hence consistency in their value
values and aspirations system and behaviour
MOBILITY OF FACTORS OF Mobility with various Free mobility
PRODUCTION restrictions
CUSTOMER HETEROGENEITY Difference in taste and Difference in taste and
ACROSS preference complicate the task preference doesnot complicate
MARKETS of designing product in the task of designing product in
international market domestic market
DIFFERENCES IN BUSINESS The differences in The differences in
SYSTEMS business systems and practices business systems and practices
AND PRACTICES are are
considerably much more among considerably less within a
different countries country
POLITICAL SYSTEM AND RISKS Political environment differs Predict the impact of political
from one environment on
country to another. Special business operations
efforts are needed
BUSINESS REGULATIONS AND Business laws, Business laws,
POLICIES regulations and economic regulations and economic
policies differ among different policies are
countries more or less uniformly
applicable within a country

CURRENCY USED IN BUSINESS The price of No such problem is faced as

TRANSACTIONS one currency expressed in only home currency is used
relation to
that of another country’s
currency,
keeps on fluctuating.

Question 6

State the reasons to have international business?

Answer

• Countries cannot produce equally well or cheaply all that they need. This is because of the
unequal distribution of natural resources among them or differences in their productivity levels
• Labour productivity and production costs differ among nations due to various socio-economic,
geographical and political reasons
 • Principle of territorial division of labour is applicable at the international level too. Most
developing countries which are labour abundant, for instance, specialise in producing and
exporting garments
• Firms too engage in international business to import what is available at lower prices in other
countries, and export goods to other countries where they can fetch better prices for their
products

Question 7

China is a major producer of electronic goods at very low cost as compared to India. Discuss the
benefits that India will derive if it enters into a trade agreement with China for electronic goods.

Answer

Benefits to India if it enters into trade agreement with china are as follows:

1. International business with China will help India to earn foreign exchange which it can later use for
meeting its imports of other goods

2. Exporting and flourishing in International trade with China will help in improving growth prospects
and created opportunities for employment of people

3. Due to International business with China, people in world community are able to consume and enjoy
a higher standard of living

Question 8

List the formalities involved in getting an export license

Answer

Pre-requisites for getting an export licence:

1. Opening a bank account in any bank authorised by the Reserve Bank of India
2. Obtaining Import Export Code (IEC) number from the Directorate General Foreign Trade (DGFT)
or Regional Import Export Licensing Authority. For obtaining the IEC number, a firm has to apply
to the Director General for Foreign Trade (DGFT) with documents such as exporter/importer
profile, bank receipt for requisite fee, certificate from the banker on the prescribed form, two
copies of photographs attested by the banker, details of the non-resident interest and
declaration about the applicant’s non association with caution listed firms
3. Registering with appropriate export promotion council.
4. Registering with Export Credit and Guarantee Corporation (ECGC) in order to safeguard against
risks of non payments
5. It is obligatory for every exporter to get registered with the appropriate export promotion
council
 6. Registration with the ECGC is necessary in order to protect overseas payments from political and
commercial risks

Question 9

Explain the following documents used in International trade:

(i) Mate’s Receipt.

(ii) Letter of credit

(iii) Certificate of origin

Answer

(i) Mate’s Receipt: A mate receipt is a receipt issued by the commanding officer of the ship when the
cargo is loaded on board, and contains the information about the name of the vessel, berth, date of
shipment, descripton of packages, marks and numbers, condition of the cargo at the time of receipt on
board the ship, etc. The port superintendent, on receipt of port dues, hands over the mate’s receipt to
the C&F agent.

(ii) Letter of credit: A letter of credit is a guarantee issued by the importer’s bank that it will honour
payment up to a certain amount of export bills to the bank of the exporter. To minimise such risks, most
exporters demand a letter of credit from the importer.

iii) Certificate of origin: The certificate of origin acts as a proof that the goods have actually been
manufactured in the country from where the export is taking place. This certificate can be obtained
from the trade consulate located in the exporter’s country. For availing trade concessions and other
benefits, the importer may ask the exporter to send a certificate of origin.

Question 10

List the codal formalities to obtain IEC No.

Answer

For obtaining the IEC number, a firm has to apply to the Director General for Foreign Trade (DGFT) with
documents such as

1. exporter/importer profile

2. bank receipt for requisite fee

3. certificate from the banker on the prescribed form

4. two copies of photographs attested by the banker

5.details of the non-resident interest

6. declaration about the applicant’s non-association with caution listed firms

LONG ANSWER QUESTIONS (5 OR 6 MARKS)

Question 1

What is WTO. Write its objectives and Functions?

Answer

One of the key achievements of GATT negotiations was the decision to set up a permanent institution
for looking after the promotion of free and fair trade amongst nations. The GATT was transformed into
World Trade Organization (WTO) with effect from 1 January 1995. Headquarters of the WTO are
situated at Geneva, Switzerland. It governs trade not only in goods, but also in services and intellectual
property rights. The WTO is a permanent organisation created by an international treaty ratified by the
governments and legislatures of member states. It is, moreover, a member-driven rule-based
organisation in the sense that all the decisions are taken by the member governments on the basis of a
general consensus. India is a founding member of WTO

Objectives Functions

• To ensure reduction of tariffs and other • Encouraging its member countries to

trade barriers imposed by different come forward to WTO in mitigating their
countries; grievances
• To engage in such activities which • Laying down a commonly accepted code
improve the standards of living, create of conduct with a view to reducing trade
employment, increase income and barriers, including tariffs and eliminating
effective demand and facilitate higher discriminations in international trade
production and trade; relations
• To facilitate the optimal use of the • Acting as a dispute settlement body
world’s resources for sustainable • Ensuring that all rules regulations
development prescribed in the Act are duly followed
• To promote an integrated, more viable • Holding consultations to bring better
and durable trading system. understanding and cooperation in global
economic policy making
• Supervising on a regular basis the
operations of the revised Agreements
and Ministerial declarations relating to
goods, services and Trade Related
Intellectual Property Rights (TRIPS)
Question 2

In what ways exporting/importing is better than setting up wholly owned subsideries abroad.

Answer

Exporting refers to sending of goods and services from the home country to a foreign country.

Importing is purchase of foreign products and bringing them into one’s home country

There are Two ways of exporting and Importing

1. direct exporting/importing, a firm itself approaches the overseas buyers/ suppliers and looks after all
the formalities related to exporting/ importing activities including those related to shipment and
financing of goods and services

2. Indirect exporting/ importing, on the other hand, is one where the firm’s participation in the
export/import operations is minimum, and most of the tasks relating to export/import of the goods are
carried out by some middle men

Wholly owned subsidiary is entry mode of international business which is preferred by companies who
want to exercise full control over their overseas operations. It can be established in 2 ways:

• Setting up a new firm altogether to start operations in a foreign country

• Acquiring an established firm in the foreign country and using that firm to manufacture and/or
promote its products in the host nation

Exporting is better than setting up wholly owned subsidiaries abroad because of the following:

• Exporting is the easiest way of gaining entry into international markets as compared with wholly
owned subsidiaries

• Business firms are not required to invest that much time and money in exporting whereas in
case of wholly owned subsidiaries, small and medium firms which do not have enough funds
with them to invest abroad

• Since exporting/importing does not require much of investment in foreign countries, exposure
to foreign investment risks is nil or much lower. In case of wholly owned subsidiaries they are
subject to higher political risks and has to bear the entire losses resulting from failure of its
foreign operations

Question 3

ABS Garment Company has received an order to export 2000 men’s trouser to XYZ Imports Ltd.
located in Australia. Discuss the procedure that abs would need to go through for executing the
export order.

Answer

ABS should follow the export procedure given below:

Export Procedure

1. Receipt of enquiry and sending quotations

• Exporters can be informed of such an enquiry even by way of advertisement in the press
put in by the importer.
• The exporter sends a reply to the enquiry in the form of a quotation referred to as
proforma invoice.
• The proforma invoice contains information about the price at which the exporter is
ready to sell the goods and also provides information about the quality, grade, size,
weight, mode of delivery, type of packing and payment terms

2. Receipt of order or indent

• Export price and other terms and conditions acceptable, it places an order for the goods
to be despatched.
• This order, also known as indent, contains a description of the goods ordered, prices to
&&be paid, delivery terms, packing and marking details and delivery instructions

3. Assessing the importer’s creditworthiness and securing a guarantee for payments

• Exporter makes enquiry about the creditworthiness of the importer
• To minimise such risks, most exporters demand a letter of credit from the importer.
• A letter of credit is a guarantee issued by the importer’s bank that it will honour
payment up to a certain amount of export bills to the bank of the exporter

4. Obtaining export licence

• Export of goods in India is subject to custom laws which demand that the export firm
must have an export licence before it proceeds with exports
• Pre-requisites for getting an export licence:
o Opening a bank account in any bank authorised by the Reserve Bank of India
o Obtaining Import Export Code (IEC) number from the Directorate General
Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
o Registering with appropriate export promotion council.
o Registering with Export Credit and Guarantee Corporation (ECGC) in order to
safeguard against risks of non payments
• For obtaining the IEC number, a firm has to apply to the Director General for Foreign
Trade (DGFT) with documents such as exporter/importer profile, bank receipt for
requisite fee, certificate from the banker on the prescribed form, two copies of
photographs attested by the banker, details of the non-resident interest and declaration
about the applicant’s non association with caution listed firms.
• It is obligatory for every exporter to get registered with the appropriate export
promotion council
• Registration with the ECGC is necessary in order to protect overseas payments from
political and commercial risks

5. Obtaining pre-shipment finance

 • Exporter approaches his banker for obtaining pre-shipment finance to undertake export
production.
• Pre-shipment finance is the finance that the exporter needs for procuring raw materials
and other components, processing and packing of goods and transportation of goods to
the port of shipment.

6. Production or procurement of goods

• Exporter proceeds to get the goods ready as per the specifications of the importer.
Either the firm itself goes in for producing the goods or else it buys from the market

7. Pre-shipment Inspection
• Compulsory inspection of certain products by a competent agency as designated by the
government
• The government has passed Export Quality Control and Inspection Act, 1963 for this
purpose and has authorised some agencies to act as inspection agencies
• The pre-shipment inspection report is required to be submitted along with other export
documents at the time of exports
• Inspection is not compulsory in case the goods are being exported by star trading
houses, trading houses, export houses, industrial units setup in export processing
zones/special economic zones (EPZs/SEZs) and 100 per cent export oriented units (EOUs

8. Excise clearance
• Excise duty is payable on the materials used in manufacturing goods. The exporter,
therefore, has to apply to the concerned Excise Commissioner in the region with an
invoice. If the Excise Commissioner is satisfied, he may issue the excise Clearance
• The refund of excise duty is known as duty drawback.
• This scheme of duty drawback is presently administered by the Directorate of Drawback
under the Ministry of Finance which is responsible for fixing the rates of drawback for
different products

9. Obtaining certificate of origin

• For availing trade concessions and other benefits, the importer may ask the exporter to
send a certificate of origin.
• The certificate of origin acts as a proof that the goods have actually been manufactured
in the country from where the export is taking place.
• This certificate can be obtained from the trade consulate located in the exporter’s
country

10. Reservation of shipping space

• The exporting firm applies to the shipping company for provision of shipping space.
• It has to specify the types of goods to be exported, probable date of shipment and the
port of destination.
• On acceptance of application for shipping, the shipping company issues a shipping order
11. Packing and forwarding
• The goods are then properly packed and marked with necessary details such as name
and address of the importer, gross and net weight, port of shipment and destination,
country of origin, etc.
• The exporter then makes necessary arrangement for transportation of goods to the
port.
• On loading goods into the railway wagon, the railway authorities issue a ‘railway receipt’
which serves as a title to the goods.
• The exporter endorses the railway receipt in favour of his agent to enable him to take
delivery of goods at the port of shipment

12. Insurance of goods

• Goods are insured with an insurance company y to protect against the risks of loss or
damage of the goods due to the perils of the sea during the transit

13. Customs clearance

• The goods must be cleared from the customs before these can be loaded on the ship.
• For obtaining customs clearance, the exporter prepares the shipping bill.
• Shipping bill is the main document on the basis of which the customs office gives the
permission for export
• Five copies of the shipping bill along with the following documents are then submitted
to the Customs Appraiser at the Customs House:
o Export Contract or Export Order
o Letter of Credit
o Commercial Invoice
o Certificate of Origin
o Certificate of Inspection
o Marine Insurance Policy
• After submission of these documents, the Superintendent of the concerned port trust is
approached for obtaining the carting order. Carting order is the instruction to the staff
at the gate of the port to permit the entry of the cargo inside the dock

14. Obtaining mates receipt

• A mate receipt is a receipt issued by the commanding officer of the ship when the cargo
is loaded on board, and contains the information about the name of the vessel, berth,
date of shipment, descripton of packages, marks and numbers, condition of the cargo at
the time of receipt on board the ship, etc.
• The port superintendent, on receipt of port dues, hands over the mate’s receipt to the
C&F agent.

15. Payment of freight and issuance of bill of lading

• The C&F agent surrenders the mates receipt to the shipping company for computation
of freight.
 • After receipt of the freight, the shipping company issues a bill of lading which serves as
an evidence that the shipping company has accepted the goods for carrying to the
designated destination.
• In the case the goods are being sent by air, this document is referred to as airway bill.

16. Preparation of invoice

• The invoice states the quantity of goods sent and the amount to be paid by the
importer. The C&F agent gets it duly attested by the customs.

17. Securing payment

• The importer needs various documents to claim the title of goods on their arrival at
his/her country and getting them customs cleared.
• The documents that are needed in this connection include certified copy of invoice, bill
of lading, packing list, insurance policy, certificate of origin and letter of credit
• Submission of the relevant documents to the bank for the purpose of getting the
payment from the bank is called ‘negotiation of the documents’
• On receiving the bill of exchange, the importer releases the payment in case of sight
draft or accepts the usance draft for making payment on maturity of the bill of
exchange. The exporter’s bank receives the payment through the importer’s bank and is
credited to the exporter’s account
• The exporter can get immediate payment from his/ her bank on the submission of
documents by signing a letter of indemnity
• Having received the payment for exports, the exporter needs to get a bank certificate of
payment

Question 4

What is World Bank? Discuss the various objectives and role of its affiliated agencies

Answer

The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank,
was result of the Bretton Woods Conference.

• The main objectives were to aid the task of reconstruction of the war-affected economies of
Europe and assist in the development of the underdeveloped nations of the world
• Having achieved success in accomplishing, turned its attention to the development of
underdeveloped nations, It realized that by investing more and more in these countries,
especially in social sectors like health and education; it could bring about the needed social and
economic transformation of the developing countries
• International Development Association (IDA) was formed with objective to provide loans on
concessional terms and conditions to those countries whose per capita incomes are below a
critical level
 • IDA, thus, provides interest-free long-term loans to the poor nations. IBRD also provides loans
but these carry interest charged on commercial basis
• The World Bank is a group of five international organisations responsible for providing finance
to different countries.

Question 5

What is IMF? Write its objective and functions

Answer

The major idea underlying the setting up of the IMF is to evolve an orderly international monetary
system, i.e., facilitating system of international payments and adjustments in exchange rates among
national currencies

Objectives Functions

• To promote international monetary • Acting as a short-term credit institution

cooperation through a permanent • Providing machinery for the orderly
institution, adjustment of exchange rates
• To facilitate expansion of balanced • Acting as a reservoir of the currencies of
growth of international trade and to all the member countries
contribute promotion and maintenance • Acting as a lending institution of foreign
of high level of employmet currency and current transaction
• To promote exchange stability with a • Determining the value of a country’s
view to maintain orderly exchange currency and altering it
arrangements among member countries
• Providing machinery for international
• To assist in the establishment of a consultations
multilateral system of payments in
respect of current transactions between
members.

Question 6

What incentives and schemes are provided by government for country export?

Answer

Foreign Trade Promotion Measures and Schemes

1. Duty drawback scheme

 • Duties paid on export goods are, therefore, refunded to exporters on production of
proof of exports of these goods to the concerned authorities. Such refunds are called
duty draw backs.
• Some major duty draw backs include refund of excise duties paid on goods meant for
exports, refund of customs duties paid on raw materials and machines imported for
export production. The latter is also called customs drawback

2. Export manufacturing under bond scheme

• This facility entitles firms to produce goods without payment of excise and other duties.
• The firms desirous of availing such facility have to give an undertaking (i.e., bond) that
they are manufacturing goods for export purposes

3. Exemption from payment of sales taxes

• Goods meant for export purposes are not subject to sales tax
• This benefit of exemption from income tax is available only to 100 per cent Export
Oriented Units (100 per cent EOUs) and units set up in Export Processing Zones
(EPZs)/Special Economic Zones (SEZs) for select years

4. Advance licence scheme

• Exporter is allowed duty free supply of domestic as well as imported inputs required for
the manufacture of export goods.
• As such the exporter is not required to pay customs duty on goods imported for use in
the manufacture of export goods.
• The advance licences are available to both the types of exporters—those who export on
a regular basis and also to those who export on an adhoc basis

5. Export Promotion Capital Goods Scheme (EPCG)

• Allows export firms to import capital goods at negligible or lower rates of customs
duties subject to actual user condition and fulfilment of specified export obligations
• This scheme is especially beneficial to the industrial units interested in modernisation
and upgradation of their existing plant and machinery.

6. Scheme of recognising export firms as export house, trading house and superstar trading house
• With an objective to promote established exporters and assist them in marketing their
products in international markets, the government grants the status of Export House
• This status is granted to a firm on its achieving a prescribed average export of
performance in past select years. Besides attaining a minimum of past average export
performance, such export firms have to also fulfill other conditions as laid down in the
import-export policy

7. Export of Services
• Objective is to boost the export of services
• These houses are recognized on the basis of the export performance of the service
providers.
 • They are referred to as Service Export House, International Service Export House,
International Star Service Export House

8. Export finance
• Exporters require finance for the manufacture of goods
• Two types of export finances are made available to the exporters by authorised banks.
• They are termed as pre-shipment finance or packaging credit and postshipment finance.
• Under the preshipment finance, finance is provided to an exporter for financing the
purchase, processing, manufacturing or packaging of goods for export purpose.
• Under the post-shipment finance scheme, finance is provided to the exporter from the
date of extending the credit after the shipment of goods to the export country

9. Export Processing Zones (EPZs)

• Export Processing Zones are industrial estates, which form enclaves from the Domestic
Tariff Areas (DTA).
• These are usually situated near seaports or airports.
• They are intended to provide an internationally competitive duty free environment for
export production at low cost
• Recently the EPZs have been converted to Special Economic Zones (SEZs) which are
more advanced form of export processing zones. These SEZs are free from all rules and
regulations governing imports and exports

10. 100 per cent Export Oriented Units (100 per cent EOUs)
• EOUs have been established with a view to generating additional production capacity
for exports by providing an appropriate policy framework, flexibility of operations and
incentives
• It adopts the same production regime, but offers a wider option in location

Question 7

Identify the documents highlighted in the following statements:

(i) This document is issued by the commanding officer of the ship to the exporter after cargo is loaded
on the ship.

(ii) This document is prepared by shipping company to acknowledge the receipt of goods on ship and
gives an undertaking to carry them to port of destination.

(iii) This document is the most appropriate and secure method of payment to settle international
transactions.

(iv)On the basis of this document, customs office grants permission for the export.

(v) This document in prepared by the importer and it shows the details of goods imported

(vi)On the basis of this document imported goods are unloaded from the carrier. (import manifest)
Answer

(i) This document is issued by the commanding officer of the ship to the exporter after cargo is loaded
on the ship: Mate’s Receipt. A mate receipt is a receipt issued by the commanding officer of the ship
when the cargo is loaded on board, and contains the information about the name of the vessel, berth,
date of shipment, descripton of packages, marks and numbers, condition of the cargo at the time of
receipt on board the ship, etc.

(ii) This document is prepared by shipping company to acknowledge the receipt of goods on ship and
gives an undertaking to carry them to port of destination: Bill of lading. After receipt of the freight, the
shipping company issues a bill of lading which serves as an evidence that the shipping company has
accepted the goods for carrying to the designated destination

(iii) This document is the most appropriate and secure method of payment to settle international
transactions: Bill of exchange. On receiving the bill of exchange, the importer releases the payment in
case of sight draft or accepts the usance draft for making payment on maturity of the bill of exchange.
The exporter’s bank receives the payment through the importer’s bank and is credited to the exporter’s
account. The exporter can get immediate payment from his/ her bank on the submission of documents
by signing a letter of indemnity

(iv)On the basis of this document, customs office grants permission for the export: Shipping bill is the
main document on the basis of which the customs office gives the permission for export

(v) This document in prepared by the importer and it shows the details of goods imported: The import
order contains information about the price, quantity size, grade and quality of goods ordered and the
instructions relating to packing, shipping, ports of shipment and destination, delivery schedule,
insurance and mode of payment

(vi)On the basis of this document imported goods are unloaded from the carrier: import manifest. He
provides the document called import general manifest. Import general manifest is a document that
contains the details of the imported goods

Question 8

Mr. Manchanda is a business man in Gurgoan he manufactures scooters. His son after doing an MBA
in USA returns to India and suggests that they should set up a fully owned factory in Bangkok for
supplying to customers in South East Area and Middle East. Mr. Manchanda however does not agree
to his proposal and wants to set this unit in South India.They are having a debate in this. In your
opinion with whom you agree. Give reasons for support of your answer.

Answer

I would agree to set up a wholly owned factory i.e. wholloy owned subsidiary in Bangkok for supplying
customers in South East area and Middle East area.

Wholly owned subsidiary is the entry mode of international business is preferred by companies which
want to exercise full control over their overseas operations. It can be established in 2 ways:
1. Setting up a new firm altogether to start operations in a foreign country

2. Acquiring an established firm in the foreign country and using that firm to manufacture and/or
promote its products in the host nation

This helps us to Exercise full control over its operations. And we are not required to disclose technology
or trade secrets to others.

International Business benefits firm by the following ways:

1. When the domestic prices are lower, business firms can earn more profits by selling their products in
countries where prices are high

2. Making use of surplus production capacities and thereby improving the profitability of operations

3. When Demand in home country gets saturated, the company can think of growth prospects in
developing countries

4. When competition in the domestic market is very intense, internationalisation seems to be the only
way to achieve significant growth

5. The vision to become international comes from the urge to grow, the need to become more
competitive, the need to diversify and to gain strategic advantages of internationalisation