Question 1

Q1: Explain trade credit and bank credit as sources of short-term finance for business enterprises.

Accepted Answer

Trade credit and bank credit are two important sources of short-term finance for business enterprises. Trade Credit Trade credit is the credit extended by one trader to another for the purchase of goods and services. It facilitates the purchase of supplies without immediate payment. It is a convenie...

Question 2

Q2: Discuss the sources from which a large industrial enterprise can raise capital for financing modernisation and expansion.

Accepted Answer

A large industrial enterprise requires significant long-term capital for financing modernisation and expansion. The following sources are suitable for this purpose: 1.  Issue of Equity Shares: This is the most important source of raising long-term capital. It represents ownership capital and is perm...

Question 3

Q3: What advantages does issue of debentures provide over the issue of equity shares?

Accepted Answer

From the perspective of a company, issuing debentures offers several advantages over the issue of equity shares:    No Dilution of Control: Debenture holders are creditors, not owners, and they do not have voting rights. Therefore, financing through debentures does not dilute the control of existing...

Question 4

Q4: State the merits and demerits of public deposits and retained earnings as methods of business finance.

Accepted Answer

Public Deposits Public deposits are the deposits raised by organisations directly from the public. They can meet both medium and short-term financial requirements.    Merits:     1.  Simple Procedure: The procedure for obtaining deposits is simpler and involves fewer restrictive conditions compared...

Question 5

Q1: Collect information about the companies that have issued debentures in recent years. Give suggestions to make debentures more popular.

Accepted Answer

This is a project-based activity that requires external research. Based on the chapter, here is a framework for approaching this task. Part 1: Collecting Information Students should research financial news websites and company reports to find Indian companies that have recently issued debentures. Th...

Question 6

Q2: Institutional financing has gained importance in recent years. In a scrapbook paste detailed information about various financial institutions that pro...

Accepted Answer

This is a scrapbook project requiring external research. The chapter provides a basis for understanding what to look for. Students should create a scrapbook focusing on financial institutions. The chapter categorises these into: 1.  Development Banks: These are established by central and state gover...

Question 7

Q3: On the basis of the sources discussed in the chapter, suggest suitable options to solve the financial problem of the restaurant owner.

Accepted Answer

The restaurant owner, Mr. Anil Singh, needs funds for expansion. His personal sources are insufficient. Based on the chapter, here are suitable options and their analysis: Mr. Singh's business is currently a small enterprise, likely a sole proprietorship. His options depend on the form of organisati...

Question 8

Q4: Prepare a comparative chart of all the sources of finance.

Accepted Answer

Question 9

Q1: What is business finance? Why do businesses need funds? Explain.

Accepted Answer

Business finance refers to the money required by a business to carry out its various activities. It is considered the lifeblood of any business because no business can function without adequate funds. Businesses need funds for the following reasons:    Fixed Capital Requirements: To start a business...

Question 10

Q2: List sources of raising long-term and short-term finance.

Accepted Answer

Based on the time period, the sources of business finance can be classified as long-term and short-term. Sources of Long-term Finance (for a period exceeding 5 years):    Issue of Equity Shares    Issue of Preference Shares    Issue of Debentures    Retained Earnings    Long-term borrowings and loan...

Question 11

Q3: What is the difference between internal and external sources of raising funds? Explain.

Accepted Answer

The difference between internal and external sources of raising funds is based on whether the funds are generated from within the business or from outside sources.    Internal Sources of Funds: These are the funds that are generated from within the business. Examples include accelerating the collect...

Question 12

Q4: What preferential rights are enjoyed by preference shareholders. Explain.

Accepted Answer

Preference shareholders enjoy a preferential position over equity shareholders in two specific ways: 1.  Preferential Right to Dividend: They have the right to receive a dividend at a fixed rate out of the net profits of the company before any dividend is declared for the equity shareholders. This e...

Question 13

Q5: Name any three special financial institutions and state their objectives.

Accepted Answer

The chapter discusses various international agencies and development banks that function as special financial institutions to finance trade and business. Three such institutions mentioned in the text are: 1.  International Finance Corporation (IFC) 2.  EXIM Bank (Export-Import Bank) 3.  Asian Develo...

Question 14

Q6: What is the difference between GDR and ADR? Explain.

Accepted Answer

Both Global Depository Receipts (GDRs) and American Depository Receipts (ADRs) are financial instruments used by companies to raise funds from international capital markets. However, there is a key difference between them:    Global Depository Receipts (GDR): A GDR is a depository receipt denominate...

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