KENDRIYA VIDYALAYA SANGATHAN

GURGAON REGION

STUDY MATERIAL – BUSINESS STUDIESFOR

CLASS – XI(2014-15)

PATRONMR. C. MANI

DEPUTY COMMISSIONER (GR)

ADVISORMR. B.L. MORODIA (GR)

MR. C. S. AZAD (GR)Mr. A.K. Sharma (GR)

COORDINATORMR. RAJENDRA SINGHPRINCIPAL KV SEC-5

DWARKA NEW DELHI

RESOURCE PERSONS

1. MRS. MANJU SHARMA (PGT COMM. K V GURGAON) 3. MRS. KAVITA SOOD (PGT COMM. K V GURGAON) 2. MRS. MAYA RATHI (PGT COMM. K V RAJOKARI) 4. MRS. PRASHILA SHOKEEN (K V SEC-5 DWARKA)

1

Preface

Dear Students,

Unprecedented popularity of study material of Business studies has proved its utility. Clear and easily

understable handy presentation of concepts and content and content has been found immensely

useful and teachers all like for preparation of CBSE Examination. KVS authorities and all the persons

associated with it deserve great appreciation.

Now, this year we have kept the nature of this material intact. It has been revised further for its

refinement and update.

Students will definitely find it greatly useful for their examination due to its unique features like:-

Simple and understandable way of presentation of terms and concepts.

Simplified illustration and diagrams to create picture-impact in the mind of learners.

Addition of more useful questions.

Sufficient practice material in a readymade style for all topics.

Thanks to all teachers for their invaluable efforts.

Dear students we believe that the study material will be highly beneficial and fruitful to enrich you.

And it will be a great help to score higher and better in the examination.

Best of Luck

2

S.NO PARTICULARS PAGE NO.

1

2

3

4

5

6

7

8

9

10

Name and purpose of Business

Forms of Business Organisastion

Public, Private and Global Enterprises

Business Services

Emerging Modes of Business

Social Responsibility of Business and Business Ethics

Sources of Business Finance

Small Business

Internal Trade

International Business

5

17

30

39

47

56

68

76

81

90

3

Index

DESIGN OF NEW QUESTION PAPER BUSINESS STUDIES

Typology of Qustions

Learning Outcomes

Testing skills

Very Short

Answer (VSA)

(1 Marks)

Short Answer - I (SA-I) (3

Marks)

Short Answer - II (SA-I)

(4 Marks)

Long Answer (LA)

(5 Marks

)

Essay Tupe

(6 Marks

)

Total Marks

% Weightag

e

Remembering (Knowledge based Simple recall Questions to know specific facts, terms concepts, principales, or theories, identify, define, or recite information

* Reasoning * Analytical Skills * Critical thinking 2 1 1 1 - 14 16%

Understanding (Comprehension - to be familiar with meaning and to understand conceptually interpret, compare, contrast, explain, paraphase information)

2 2 1 - 1 18 20%

Application (Use abstract information in concrete situation, to apply Knowledge to new situation, Use given content to interpret a situation. Provide an example, or solve a problem)

2 1 1 1 2 26 29%

High order Thinking Skills (Analysis & Synthesis- Classify, compare, contrast, or differiante between different piece of information; organize and /or integrate unique pieces of information from a variety of sources)

2 1 1 1 1 20

22

Evaluation and Multi-Discipliary - (Appraise, Judge, and /or ustify the value or worth of a decision or outcome, or to predict outcomes based on values)

1(1 (Value

based)1 - 12

13

TOTAL-1 Project (10 Marks) 10 8 x 1 = 86 x 3 = 18

5 x 4 = 204 x 5 = 20

4 x 6 = 24

90 (27) project (10)

100%

Estimated Time (in Minutes) 8 min27 min

30 min 40 min 60 min

165 min + 15 in for revision

4

CHAPTER 1

Nature and purpose of business

Types of human activities

Economic activities: activities which are undertaken by people with the object of earning money are known as economic activities.

5

TYPES OF ECONOMIC ACTIVITIES: 1 Business: Business refers to those economic activities which are connected with the production purchase sale or distribution of goods or services with the main objectives of earning profit.

2 Profession: profession refers to the activities which require special knowledge and skill to be applied by an individual in his work to earn a living.

3 Employment: employment refers to an activity in which an individual work regularly for another person and get remunerated in return.

Non-economic activities: The activities which are undertaken by an individual with a motive of getting psychological satisfaction are known as non-economic activities.

Difference between business profession and employment

Basis Business Profession Employment

6

Economic activities

Business Profession

EmploymenT

Trade

Industry

Banking

Warehousing

Insurance

Medical

Legal

Chartered accountancy

Manager

Foreman

Clerk

Sales person

Worker

1 Commencement Business may commence with the decision of entrepreneur.

It maycommences on completion of a degree course and by getting a certificate of practice.

Employment commences on joining duty by entering into a service agreement.

2 Risk In business there is always risk and uncertainty.

In profession there is little risk present.

In employment there is no risk involved.

3 Main objectives The main objective of business is to earn profit.

The main objective of profession is to provide service.

The main objective of employment is to earn income in the form of salary by satisfying the employee.

DIFFERENCE BETWEEN ECONOMIC AND NON-ECONOMIC ACTIVITIES

BASIS ECONOMIC ACTIVITIES NON-ECONOMIC ACTIVITIES

MOTIVE These activities are undertaken with an economic motive of earning money.

the activities are undertaken with the social or psychological motive

Outcome The outcome of this activity is production if goods and services.

The outcome of this activity is mental satisfaction of person who undertakes them.

CHARACTERISTICS OF BUSINESS

7

1.an economic activity: business is considered as an economic activity as it is undertaken with the objective or aim of earning money and livelihood and not for psychological satisfaction.2.productions of goods and services: Every business enterprise either produces goods or services for producers. Goods may consist of consumer or industrial goods and services may include transportation banking insurance etc. 3 .profit earning: The main purpose of business is earning profit. If the profit motive is missing in a transaction then it cannot be considered as a business transaction. 4.uncertainty of risk :Another important feature of business is the presence of risk factor in a transaction. There is always a possibility of losses.

BUSINESS AS AN ECONOMIC ACTIVITY

1.PROFIT Motive: The main motive of every business activity is to earn money in the form of profit and any activity which result in earning of money and creation of wealth is considered as an economic activity.2.creation of utility: Business activity results in creation of utilities. Businessmen create three types of utilities like; form utility, time utility and place utility.

3.Exchange of goods and services: Economic activity aim at earning money by exchange of goods and services similarly, business activities results in sale , distribution or exchange of goods and services for earning profit.

objectives of business1. Economic objective: As business is an economic activity so the most important objective of business are economic objective. It includes:(i)Survival: the basic purpose of any organization is to survive and exit in the competition market for a long period of time.(ii)Profit: the most important objective of every organization is earning adequate amount of profit.(iii)Growth: business organization must grow and expand their activities.2. Social objectives: it deals with commitment of business towards the society. It makes use of resources of society. it earns profit by selling its products or services to members of society. So it owes something to society. The social objectives of a business are:(I)Supply of desired quality of product: customer prefer to buy the products only when they are of satisfactory quality and are available at reasonable price.(ii)Avoidance of unfair trade practices: Anti-social or unfair trade practices include black marketing, adulteration, hoarding, overcharging etc. No society accepts these practices.(iii)Employment generation: Unemployment is a major problem for every society. The businessman must create employment opportunities and help in overcoming these basic problems of developing countries.(iv) Avoidance of pollution: Industrialization had led to major problems of pollution. The industries throw or drain their waste in lakes, river etc. which pollutes the water.

8

Human or individual objectives

These are related to employees of the organization. employees are valuable resources who contribute significantly to the success in business. The common human objectives are:(i) Providing good working conditions (ii) Payment of competitive and satisfactory wages and salaries(iii) Providing special benefits such as housing facility, medical facility, free education of children etc.

Role of profit in the business

1. Survival : A business and businessmen cannot survive for a long time without earning adequate profit. Profit is the source of income for businessmen which become his means of livelihood.2. Expansion and growth: the business is expanded only when it is earning sufficient amount of profit. When profit is large, a part of it can always be re-invested for expansion or diversification of production.3. Symbol of efficiency or an index of performance: profit indicates whether business is being managed efficiently or not. Profit acts as an index of performance of those who manage the business.

4. Reward for bearing the risk: profit is considered as a price or reward paid to businessmen for bearing the risk. Businessmen invest money in the business only with the hope of earning profit.5. Helps to gain reputation or goodwill: a profit earning company always has a better reputation in the market as compare to companies which are running in loss. The rate of earning profit helps in creating goodwill of the company in the market.

Classification of business activities

9

BUSINESS OBJECTIVES

ECONOMIC OBJECTIVES

SOCIAL OBJECTIVES

Earning of profits

Creation of customers

Innovation

Effective utilization of resources

Better quality goods

Fair trade practices

Generation of employment

Employees’ welfare

INDUSTRY: MEANING AND TYPESIndustry refers to an activity which converts raw material into useful products. Industry includes activities related to production and processing as well as activities related to rearing and reproduction of animals and other living species. Industry can be classified into two broad categories:1. PRIMARY INDUSTRY

It includes all those industries which are concerned with extraction of natural resources and reproduction of living species. these industries can further be classified into two categories:(i)Extractive industries. It refers to those industries which involve extraction of something from natural resources such as mineral from earth, fish from rivers and seas.(ii)Genetic industries. The industries involve in the activities of rearing and breeding of living organisms i.e. birds, plants, animal etc.

2. SECONDARY INDUSTRYThe industry makes use of products which are extracted and produce by primary industry as there raw material and produce finished products. there are two kinds of secondary industry:(i)Manufacturing industries: These industries are engaged in the process of conversion of raw material or semi-finished goods into finished goods. The manufacturing industries produce two types of goods:(a)Consumer Goods. The goods which can be directly consumed by the consumer are known as consumer goods like cloth, oil, soap, etc.(b)Industrial good. The goods which are produced for manufacturing consumer goods are known as industrial goods like machinery , equipment , tools etc. Manufacturing industries are of the following types:(a)Analytical industries. In this the basic raw material is broken into different parts to produce finished products.(b)Synthetic industry. In this two or more material are mixed to manufacture some new product.(c)Processing industry. In this the raw material is processed through various stages of production and then finished goods are manufactured.(d)Assembly industry. In this the various finished products are combined to produce a new finished.

3.CONSTRUCTION INDUSTRY These industries are concerned with a construction of buildings, dams, roads, etc. These industries use the products of manufacturing industries such as cement, iron, steel ,lime, etc.

TERTIARY OR SERVICE INDUSTRY

10

Tertiary industry is concerned with providing services which facilitate a smooth flow of goods and services. This industry helps in the activities of the primary and secondary industry. The various types of services provided by tertiary industry are:1. Transport- It facilitates movement of goods from one place to another.2. Banking-Provides credit facility to industries and trading firms.3. Insurance-Provides coverage from various types of risks.4. Warehousing-Provides storage place for goods produced by primary and secondary

industry.5. Advertising- Provides information to consumer.

COMMERCECommerce refers to all those activities which help directly or indirectly in the distribution of goods to the ultimate consumer.FUNCTIONS OF COMMERCE1. Helps in removing the hindrance of persons –Goods are produced by a group of persons

called producers .These goods are produced for another group of persons called consumers. There is no direct relation between producers and consumers. The trade segment of commerce creates a link between producers and consumers.

2. Helps in removing the hindrance of place -Goods are produce at one place whereas consumers are scattered in different corners of the country. There is a place gap between the producers and consumers. The transport segment of commerce helps in removing the place gap.

3. Helps in removing the hindrance of time - Some goods are produced in a particular season only but they are demanded throughout the year. So there is a time gap between the production and consumption. Warehousing segment of commerce helps in removing the problem of time gap.

4. Helps in removing the hindrance of exchange - the goods and services produces by the manufacturer are sold to buyer in exchange of money. The common medium of exchange is circulated by the making branch of commerce.

5. Helps in removing the hindrance of risk - there are different types of risks which A businessman has to face. The insurance branch of commerce helps in removing the hindrance of risk by providing protection and compensation to the insured.

6. Helps in removing the hindrance of knowledge - generally the consumers and buyers are unaware about the new goods produced by the manufacturer as there is no direct communication between the manufacturer and the ultimate consumer. The advertisement branch of commerce helps in removing the hindrance of knowledge.

Classification of commerceCommerce can be classified into two broad categories:(i)Trade: it is an integral part of commerce. It refers to buying and selling of goods and services. The trade segment of commerce brings together the manufacturer and the consumer. Trade can be classified into two types:(a)Internal trade: It refers to buying and selling of goods and services with in the geographical boundaries of the country. The internal trade can be of two types:

11

Wholesale trade. It refers to buying and selling of goods and services in a large quantity.

Retail trade. It refers to buying and selling of goods and services in small quantity.

(b)External trade. It refers to buying and selling of goods and services beyond the geographical limits of the country.

Export. It refers to sale of goods to a foreign country. Import. It refers to buying of goods from a foreign country. Entrepot. It refers to import of goods for the purpose of export.

Aids or auxiliaries to tradeActivities which help in smooth flow of goods and services in the market are known as auxiliaries. these are also referred as service sector. The common auxiliaries to trade are:1.Transport and communication. Transport refers to the movement of goods from one place to another. the production of goods takes place at one place whereas these are demanded in different parts of the country.2. Banking and finance. banks and financial institutions provide credit facility, loan etc. To provide finance for smooth flow of business activities. banks help the businessmen to overcome the problem of funds.3. Insurance. businessmen have to bear various types of risks. Insurance provide protection from some kinds of risk such as risk of loss due to fire, theft, accident etc.4.Warehousing. usually there is a time gap between the production and consumption of goods. goods are not consumed immediately when these are produced. 5.Advertising. practically it is impossible for a manufacturer and trade to contact each and every customer. Advertisement helps to overcome this problem.

Business riskBusiness risk refers to the probability of losses or inadequate profits due to uncertainties or unexpected events, which are beyond control.

nature of business risk1.Business risk arises due to uncertainties : Uncertainties means when you are not sure of what is going to happen in future. For example: - change in demand, government policy, technology etc.2.Risk is an essential part of every business: Risk is an important characteristic of business. No business can avoid risk although degree of risk may vary. Risk can be reduced but cannot be eliminated.3. Degree of risk depends upon the nature and size of business: The degree of risk depends upon the type of business. Similarly a business operating at large scale bears more risk as compare to small scale business houses.

4.Profit is the reward for bearing the risk: businessmen earn profit because they are bearing risk. An entrepreneur bears risk with the expectations of earning profit.

12

Causes of business risk1. Natural causes: Nature is an independent phenomenon and human being has no control over it. Natural calamities like earthquake, flood, famine etc. affect business a lot and can results in heavy losses.2. Human causes: these are related to a chance of loss due to human being or employee of the organization. The dishonesty of employees can bring heavy losses for business.3. Economic causes: These are related a chance of loss due to change in market condition. There can be price fluctuations in the market, there can be change in the fashion, taste , preferences and demand of customers.4. Physical causes: All the causes which results in damage of assets are considered as physical causes, for example: - change in technology may result in machinery being outdated, use of old technology, mechanical defects may also results in damage of assets.

Types of business riskThe business risk can be classified into two major categories:-(i)Insurable risk. The risks which can be recovered are insurable risk. The losses which can be made good, or losses for which company can get compensation from insurance company are called insurable risk.(ii) Non-insurable risk. The risk for which no protection is available is called non-insurable risk. Generally the economic risk and human risk are non-insurable risk.

Short answer type questions

Q1. There are activities which are carried out to earn economic gains/rewards. What are they called?

Ans- Economic activities

Q2. Business is guided by a motive. What is the motive known as?

Ans- Profit motive

Q3. How would you classify trade on the basis of geographical boundaries?

Ans- Internal trade and external trade

Q4. TATA Power is planting trees on roadside of several big cities. Name the objective TATA Power is engaged?

Ans- Social objective

Q5. What reward an entrepreneur get for risk bearing in business?

Ans- Profit

Q6. Explain the concept of business?

13

Ans- Business refers to all those activities which are concerned with the production and / or purchase and sell of goods and services with the purpose of selling them at a profit.

Q7. Explain any 3 characteristics of business?

Ans- i) Economic activities – As it is undertaken with the objective/aim of earning money.

ii) Production or procurement- Every business enterprise either produces or procures goods and services from producers.

iii) Dealing in goods and services – business must sell/ exchange goods and services on a regular bases.

Q8. There is clear-cut difference between business and profession. Identify 3 criteria on which they are different?

Ans-

Business Profession EmploymentMode of

establishmentIt is establish with the decision of the entrepreneur.

It is commenced on the completion of a degree course or certificate of practice.

Commences on joining duty by entering into service agreement.

Nature of work it involve production ,purchase and sales/exchange of goods and services.

It involve rendering of personalized services of specialized nature.

It involves performing of work as assigned by the employer.

motive Main objective is to earn profit

Main objective is to provide services .

Main objective is to earn income by satisfying the employer.

Q9. What are the various types of industries?

Ans- i) Primary industry ii) Secondary industry iii) Tertiary industry

Q10. How is transport important to trade?

Ans- Transport helps in removing the hindrance of place in the exchange of goods and services. It is very common that goods are produced at centers different from the center of consumption.

LONG ANSWER TYPE QUESTIONS

14

Q1. Give comparative features of business, profession and employment?

Hint- Comparison of business, profession and employment on the basis of mode of establishment, nature of worth, motive and qualification.

Q2. Explain the role of profit in business?

Hint- Factor of role of profit in business

(Explain all the factors)

Q3. Why should a business have multiple objectives? Briefly explain any 3 objectives?

Hint- Explain economic objectives, social objectives and personal objectives.

Q4.- Explain the nature and causes of business risk?

Hint- Business risk ( explain)

Causes-: ( Explain)

i) Natural causes

ii) Human causes

iii) Economic causes

iv) Physical causes

Q5. Define auxiliaries to trade. Explain any 5 activities which are auxiliaries to trade?

Hint- ( Explain)

i) Transport and communication

ii) Banking and finance

iii) Insurance

iv) Warehousing

v) Advertising

Q6. Discuss various obstacles in exchange of goods and services. How does commerce remove their obstacles?

Hint- Explain the hindrance of person, place, risk, time, financing and knowledge.

Q7. Explain any 5 characteristics of business?

Hint- (Explain)

15

i) economic activity

ii) Production or procurement of goods and services

iii) Dealing in goods and services on a regular basis

iv) Profit motive

v) Risk element

Q8. Explain the various types of industries?

Hint-: Explain

i) Primary industry ii) Secondary industry

HOTS QUESTIONS

Q1. Business is an economic activity. Do you agree? Why?

Hint- Yes, business is an economic activity because of the following reason:-

i) Profit motive ii) Risk element iii) Creation of utilities. Explain

Q2. Define service. Name the service which is related to the following cases:-

i)the service which helps in removing hindrance of knowledge.

ii)the service which helps in removing hindrance of place.

iii)the service which helps in removing in hindrance of time.

iv)the service which helps in removing hindrance of risk.

Q3. ‘’No business is risk free’’.In the light of this statement explain the concept of business risk and its causes?

Hint- Definition of business risk and explain its causes.

Q4. Why does every business enterprise aim at greater productivity? How can this objective be achieved.

Hint-every business enterprise aims at greater productivity to ensure continuous survival and growth.

This objective can be achieved by:

i) reducing wastages

ii) Making efficient use of machines and equipment’s, human resources, money etc.

Q5. Earning of profit is regarded as the main objective of business? Explain by giving any 4 reason?

16

Hint= Explain importance/need of profit.

Q6. Profit maximization cannot be the sole objective of business. Comment?

Hint- other objectives

i) Social objectives

ii) Personal objective

Q7. The structure of business is composed of both industries and commerce. Explain this statement?

Hint- i) tertiary industry

ii) Auxiliaries to trade. Explain

Q8. Is furniture making a manufacturing industry? Why?

Hint- Yes, because it converts raw materials or semi-finished products into finished products.

value based questions

Q1. The manager of petrol pump sells adulterated petrol and diesel to the customers. This has lead to defect in the working of engines of the vehicles of the customers and also it has created excessive pollution in the air. Is the manager’s conduct ethical? Why?

Q2. A factory emits a lot of smoke and pollutants while manufacturing plastic toys. It is overlooking the impact of its activities on the environment and is engaged in profit maximization?

i) What values are being overlooked by the factory owner?

ii) What steps should be taken by the factory owner to check pollution.

Q3. A company is disposing of water containing chemical in nearby canal. What values are violated by the company? What are the harmful effects of its action?

Q4. A cloth manufacturer distributes its defective product at free of cost (after getting them repaired from Nari Nike tan at lower cost) to orphanage. Which values are being attested in this solution?

Value points- i) fulfillment of social responsibility ii) Help to needy class of society iii) Employment to members of Nari Niketan iv) Full utilization of defective product after Improvement Q5. A factory established in a residential locality, uses machines creating heavy noise while running. Due to noise pollution students can’t study properly &residents can’t sleep/work properly. Which values are affected here?

Value points- i) noise pollution ii) Bad effects on the health of employees iii) Bad effects on the studies and health of Children.

CHAPTER 2

17

FORMS OF BUSINESS ORGANISATIONS

MEANING

A business enterprise is an organization which is engaged in some business or commercial activity. Every business enterprise is a separate and distinct unit of business.

Business enterprises may be classified into three broad categories:

1. Private sector enterprise2. Public sector enterprise 3. Joint sector enterprise

Private sector enterprise

The business enterprises which are owned, controlled and managed by private individuals are known as private sector enterprises.

Public sector enterprisesThe business enterprises which are owned, controlled and managed by the central and state government are known as public sector enterprises

Joint sector enterprisesThe business enterprises which owned, controlled and managed jointly by private enterprise and government

Forms of private sector enterprises -Sole proprietorship-Joint Hindu family business-Partnership-Co-operative society -Company

Sole proprietorshipA business owned, managed and controlled by a single individual is known as a sole proprietorship organization. Features

Single ownership: The sole proprietorship firm is owned by a single individual only

Individual risk bearing: In sole proprietorship firm whole risk is borne by a single individual only

18

FORMS OF ENTERPRISE

Sole Proprietorship

Joint Hindu family

Partnership firm

Cooperative society

Joint stock company

No separate legal entity: the sole proprietorship has no legal identity separate from that of its owner. Small size: The sole proprietorship firm operates on a very small scale

Merits of sole proprietorship

Easy to for, and dissolve: The sole proprietorship organization is easy to form Flexibility: In sole proprietorship firm all the decision are taken by the proprietorship himself

Sole beneficiary of profit: All the profit earned by the sole proprietorship firm belongs only to the proprietor himself

Secrecy: The sole proprietor is not expected to share his secrets with other

Demerits of sole proprietorship firm

Limited resources: In sole proprietorship firm finance is supplied by the proprietor himself from his wealth or from borrowings.

Unlimited liabilities: The sole proprietor is personally liable for the debts.

Limited scope for expansion: Due to limitation of capital and management the sole proprietorship business cannot be expanded to a very large size

Hindu undivided family

The business carried by the male member of a Hindu undivided family is known as joint Hindu family business.

Features

Membership by birth: A person automatically becomes a member in joint Hindu family by taking birth in that family.

Management: The joint Hindu family business is managed and controlled by the senior most member of the family who is called Karta

No. of members: In joint Hindu family business minimum must be two members and maximum there is no limit.

Liability: The liability of Karta is unlimited whereas liability of all other members of joint Hindu family business is limited up to there share in the business.

Partnership

Partnership is the relation between two or more persons who have agreed to share the profits of the business carried by all or any one of them acting for all.

Features

Membership: There must be minimum two members to form the partnership firm, Maximum there can be 20 members.

Agreement: There must be an agreement between the partners to form a partnership.

19

Profit sharing: The partners of a partnership firm share the profits of the firm in the ratio specified in the agreement.

Liability: The liability of all the members of a partnership firm is unlimited.

Merits of partnership

Easy to form: It is very easy to form a partnership firm, as no legal formalities are required to be completed.

Larger financial resources: In partnership firm all the partners contribute some amount of capital as a result the financial resources of partnership firm are larger than sole proprietorship firm or joint Hindu family business.

Risk sharing: In the partnership firm all the partners share the risk in the same ratio as they share the profit.

Demerits of partnership

Unlimited liability: The liability of all the partners is unlimited.

Non-transferability of shares: The partners are not permitted to transfer their share to any other person.

Conflicts: The partners in partnership firm come from different backgrounds, different families, therefore, they may have differences of opinion.

Types of partnership firms

Partnership at will: The partnership formed for an indefinite period is known as Partnership at will.

Fixed period partnership: The partnership formed for a specific period of time, say 3 years or 5 years etc.

Particular partnership: The partnership which is formed to carry on a particular venture is known as particular partnership

Types of partners:

Active partner: The active partner participates in the management of the firm. He contributes capital in the firm. His liability is unlimited.

Sleeping or dormant partner: The partner who does not participate in the management of the firm. He contributes capital and his liability is unlimited.

Secret partner: Secret partner is one whose association or relation with the firm is not known to outsiders. He contributes capital and he has unlimited liability.

Minor partner

The partner act 1932 does not permit a minor to become a partner in the partnership firm. The minor can only be admitted to the benefits of the existing firm. He does not contribute capital and does not participate in the management of the firm.

Formation of partnership firm

20

A partnership firm is formed when two or more persons enter into an agreement to form a partnership firm.

Partnership deed: The document containing the terms and conditions of the partnership between partners is known as partnership deed. This agreement can be oral or written. To avoid disputes in future it is always advisable to having written agreement. The common contents of partnership deed are:

1 Name of the firm:

2 Name and addresses of the partner:

3. Nature of business the firm will carry on:

4. Place of business:

Difference between partnership and sole proprietorship

Basis Partnership Sole proprietorship1 Governed by Partnership firm is governed by

partnership act, 1932There is no separate act governing sole proprietorship

2 Number of members

Minimum 2 or maximum 20 Only one member that is owner

3 Basis of formation

Agreement called partnership deed No agreement

4 risk Partners jointly bear the risk Only proprietor bear all the risk

Co-operative organization

A co-operative form of business is a different form of business enterprise. In this form the main motive is not earning profit but the main motive of cooperative society is mutual help.

Features

Voluntary association: The co-operative society is a voluntary association of persons. Any person can join the co-operative society if he/she has common interest.

Equal voting rights: The co-operative societies work with democratic principle of “one man one vote”. All the members get only one vote.

Service motive: The main motive of co-operative society is to provide services to its members and not to earn profit.

Merits of co-operative organization

Easy to from: The formation of co-operative society is very simple process. Only ten adults members having common interest can form it.

Limited liability: The liability of member of co-operative organization is limited the extent of their capital contribution in the co-operative organization.

21

Continuity: The co-operative society has a separate legal existence the co-operative society has a stable and continuous life and exists for a long period of time.

Demerits of co-operative organization

Limited capital: The co-operative organisation is formed by the people who have limited resources and there is no compulsion to contribute some minimum amount of capital to become a member

Inefficient management: They are inexperienced persons. The co-operative organisation cannot afford to pay high salary to professional and qualified people.

No motivation: In co-operative organisation there is no direct link between the efforts and reward

Types of co-operative organization

Consumer co-operative society

The society consist of consumers who join together to eliminate the middle man the consumer cooperative society purchase directly from manufacturer and sell them to the member at reasonable price.

Producer’s cooperative society

This society consist of small producer who individually find it difficult to procure the inputs and get machinery and latest technology

Cooperative marketing society

The cooperative market society consist of small producers who find it difficult to sell their products at profit the output of all the producers is brought together and sold at the best price

Cooperative credit society

It consist of people with limited means who find it difficult to arrange credit and loans .these societies provide financial assistance to its members and promote habits of saving among the members .

Cooperative farming society

These consists of small farmers who join together to avail the benefits of large-scale mechanized farming.

Cooperative `housing society

These societies purchase a big plot of land construct flats on that and sell these flats to its members on installment and easy terms

Joint stock company

The company form of organisation is considered to be most suitable for organizing business activities on a large scale. A joint stock company is an artificial person having separate legal existence, perpetual succession and common seal.

Features

22

Separate legal existence: The Company has a separate legal entity a company can carry on business in its own name.

Artificial person: A company does not have a physical body like a natural human being it is an artificial person created by law.

Registration: It legally compulsory for a company to get itself registered under the company act 1956

Merits of Joint Stock Company

Large amount of capital: The biggest advantage of company form of business is that it can collect a large amount of capital by issuing of shares to general public

Limited liability: The liability of member of the company is limited to the extent of their share capital contribution in the company

Stability: The company form of business enjoys perpetual succession. As it has separate existence, it is formed by law and can end by legal procedures of winding up only.

Demerits of joint stock company

Lack of motivation: Company is not managed by owners but it is managed by the professional managers, so there is lack of motivation.

Social evils: A company has larger financial resources at its disposal so, there are chances of wealth in the hands of few or monopolistic activities.

Conflicts in interest: In a company various group of people are involved such as shareholders, employees, directors, etc. So there is conflict of interest.

Types of company

Private company

According to the company’s Amendment Act 2000, a private company is one which has a minimum of two and maximum of 50 members excluding the employees.

Public company

A public company is one which has a minimum of 7 members and maximum no limit.

Formation of a joint stock company

The formation of a company involves the following stages

Promotion Incorporation Capital subscription stage Commencement of business

Promotion

Promotion stage includes all the steps right from conception of idea to starting the company till it is formed.

STEPS

23

1. Identification of business opportunity 2. Feasibility studies3. Name approval4. Fixing up signatories to memorandum of association 5. Appointment of professionals6. Preparation of necessary documents.

Incorporation stageIncorporation of a company is the second stage in the formation of a company. Incorporation refers to the registration of the company under companies act, 1956.Steps

1. Filling of necessary documents.2. Payment of fees 3. Reiteration4. Certificate of incorporation

Capital subscription stage

After getting the certificate of incorporation the private companies get formulated and can commence their business activities but a public limited company has to perform a third stage a get the certificate of commencement.

Steps

1. SEBI approval.2. Prospectus or a statement in lieu of prospectus

3. Minimum subscription

4. Application to stock exchange

5. Allotment of shares.

Commencement of business

After subscribing the securities, and receiving the minimum subscription, the company applies to the registrar to issue the issue the certificate of commencement of business.

Promoter

All the steps in the promotion stage are performed by the promoter himself. The promoter takes the initiative of starting a business and brings a business enterprise into existence.

Types of promoters

Professional promoters: Profession promoters are specialists and expert promoter. Promotion is thus a full time occupation.

Entrepreneur promoter: When the owner of the business himself conceives the idea of starting a company and performs preliminary activities himself and gives a practical shape to his idea, then he is known as Entrepreneur promoter.

Occasional promoter: A person who promotes a company once in a while is known as Occasional promoter

24

Important documents used in the formation of a company

Memorandum of association

The Memorandum of association is the principle document of a company. It is considered as the charter of the company. It contains the powers and objectives of the company.

Contents of Memorandum of association

Name clause:

This clause contain the complete name of the company

Alteration of name clause:

A company can change its name by passing a special resolution and by obtaining a written approval of the central government

Situation/domicile clause:

This clause contains the name of the state in which the registered office of the company is to be situated. It is necessary because a company gets the registration from that state only.

Alteration of situation clause:

The situation clause can be altered bypassing a special resolution and by obtaining sanction of the registrars of both the states if the office is to be shifted from one states to another.

Objects clause:

It contains the main objects of the company and other secondary objectives which the company may pursue.

Alteration in objects clause:

In order to alter its objects clause, a company must pass a special resolution and obtain the permission of the company law board.

Liability clause:

25

TYPES OF PROMOTERS

Entrepreneur promoter

Professional promoter

Government promoter

Financier promoters

Occasional promoters

This clause defines the liability of the members of the company.

Alteration of liability clause:

If a company wants to make an alternation in its liability clause then it must pass a unanimous resolution in a meeting of its member.

Capital clause

The capital with which a company is registered is called registered/authorized or nominal capital. A company can issue only that number of share which is authorized by its memorandum.

Alteration of capital clause:

A company can alter its capital clause by passing a special resolution and by obtaining the approval of company law board.

Association/subscription clause

This clause contains the declaration by the directors stating that they agree to become the directors of the company and they want to form a company and are ready to take the ‘’qualification shares’’.

Alteration of association Clause:

This clause cannot be altered.

Article of association (AOA)

Article of association contain rules and regulation regarding the management of a company’s internal affairs. It defines the power, duties and rights of managers, officers and the board of directors.

The main contents of articles of association are:

1. The amount of share capital and different classes of share2. Rights of each type of shareholders3. Procedure for making allotment of share4. Procedure for issuing share certificate5. Procedure for transfer of shares

Alteration of article of association:A company may change its article of association by passing a special resolution, subject to the following conditions:

1. It must not result in breach of contract with outsider2. It must be in the interest of the company3. It must not result in increasing the liability of its members

Prospectus

“A prospectus is any document (including any notice, circular, advertisement or other documents) that invites deposits or offers from public for the subscription or purchase of any share and debentures of a body corporate.

Importance of prospectus

i. It identifies the person who can be held responsible for any untrue or incorrect statement made in it

26

ii. It informs the general public regarding the business policies and programmes of the company.

iii. It is an invitation to the public to subscribe to the shares and debentures of the company.

CONTENTS OF THE PROSPECTS

The common contents of the prospects are:

(I) The name and address of the company registration.(II) The nature of business of the company.(III) The number of classes of shares of the company etc.

Choice of form of business enterprises

(I)Nature of business- the type of business activities is the most important factor for selecting the form of business. If the business requires personal attention and direct contact, sole proprietorship and partnership is preferred.

(ii) Capital consideration- another important factor which helps in deciding the form of business is amount of finance required. Business require less amount of finance prefer sole proprietorship and partnership form, whereas business requiring huge financial resources prefer company form.

(iii) degree of control- if the businessman desires complete and independent control over the business, then he has to prefer sole proprietorship firm.

(iv) Legal formalities-In sole proprietor ship and partnership less legal formalities whereas in company there are more legal formalities.

(V)Continuity- Sole proprietorship and partnership have less continuity whereas company has longer life.

Short answer type questions

Q1. Swati is the only owner of a restaurant. Name this form of a business organization.

ANS- Sole proprietorship.

Q2. Is a sole proprietor bound to publish his/her business accounts?

Ans- No

Q3. Name the form of business organization only in India?

Ans- Joint Hindu family

Q4. Name the person who manages a Joint Hindu family business?

Ans- Karta

27

Q5. Name the partner who shares in profits only?

Ans- Minor partner

Q6. Name the law which governs the company form of organization in India?

Ans- The Indian Companies Act, 1956

Q7. Name the document containing the rules and bye-laws of the company?

Ans- Articles of Association

Q8. How many members must be there in a joint family to carry on joint Hindu family business?

Ans- Minimum two members.

Q9. What is the liability of Karta in joint Hindu family business?

Ans – Unlimited

Q10. Name the basic document prepared in partnership firm?

Ans- Partnership deed

LONG ANSWER TYPE QUESTIONS

Q1. What do you understand by a sole proprietorship firm? Explain its suitability and features?

Ans- Definition. 3 suitability & features.

Q2. Explain briefly any 3 merits and 3 limitations of a joint Hindu family business?

Q3. Explain any 3 advantages and 3 disadvantages of partnership?

Q4. Give 3 differences between a private company and public company?

Q5. Explain the important documents used in the formation of a company?

Ans- Memorandum of association, Articles of association and prospectus.

Q6. Explain any 6 factors that are important to be considered while starting a business?

Hint- Selecting the line of business

Scale or size of business

Location of business unit

Financial requirement

Physical facilities

Plant layout

28

Q7. What is a company? What are its characteristics?

Q8. Discuss the characteristics, merits and limitations of cooperative form of organization?

Q9. What is Memorandum of association? Briefly explain its clauses?

Q10. Can a minor can be admitted as a partner in a firm? Explain the status of minor in a partnership firm?

HOTS QUESTIONS

Q1. One man control is best in the world if that one man is big enough to manage everything. Explain the statement?

Ans- Advantages of sole proprietorship.

Q2. Compare the status of a minor in a joint Hindu family business with that in a partnership firm?

Q3. Briefly explain three activities which can be suitably undertaken by cooperative societies?

Ans- Cooperative housing societies

Credit cooperative societies

Marketing cooperative societies

VALUE-BASED QUESTIONS

Q1. X, Y and Z are partners of a business of manufacturing shoes. The profit for year ending March 31st, 2013 was Rs 720000. Before distributing profits they donated 10% of profits to a ‘non-govt. organization’ as charity for welfare of educationally backward section of the society. They also decided to allow a discount of 30% on shoes for school going children. Identify the values involve by the partnership firm of X, Y and Z.

Value points:-

Social responsibilities

Help to weaker section of the society

Motivation to school going children

Help to increase the literacy rate

Q2. What values are involved in the formation of a partnership firm?

Value points:-

Unity

Pooling of resources

Efficient use of resources29

Q3. What are the values disclosed by a partnership deed?

Value points:-

Transparency

Evidence

Awareness

Q4. An industrial unit working in a backward area opens schools for education at nominal cost for the children of its employees and local people. By this act which values promoted here?

Value points- -

increasing literacy rate

development of society

more employment opportunities in backward areas

30

CHAPTER -3

PRIVATE, PUBLIC AND GLOBAL ENTERPRISES

1. ROLE OF PRIVATE SECTOR VS. PUBLIC SECTOR SINCE INDEPENDENCE Immediately after independence govt. allotted a dominant role to public sector enterprises but these enterprises could do very little for economic development of the country. That is why in 1991 the govt. of India adopted a new industrial policy of globalization and liberalization. Under this new policy the dominant position of public sector was restricted and many doors were opened for private and foreign companies.

\

2. FORMS/TYPES OF PUBLIC SECTOR ENTERPRISES Public sector organisations are formed in three different forms:

I. Departmental undertakingsII. Public corporations/Statutory corporations

III. Government company1. Departmental undertakings :-

This is the oldest form of public sector enterprises. The departmental undertakings are considered as one of the departments of government. it has no separate existence than government. It functions under the overall control of one ministry or departments of government.

For ex. Railways, Defense, post and telegraphs, etc.

Features of departmental undertakings :-1. They operate under the overall control of one of the ministries of central or state govt.2. They are a part of department only, there is no separate entity.3. They are financed from the annual budgets of the govt.

31

Forms of business enterprises

Private sector

Public sector

Sole trader

Partnership

Joint Hindu family

Joint stock company

Cooperative society

Departmental undertaking

Statutory Corporation

Government Company

MERITS OF DEPARTMENTAL UNDERTAKINGS 1. Easy formation:-it is very to form a departmental undertaking as no registration is compulsory.2. Effective control:-the control on departmental undertakings is very effective as it is direct and centralized.3. Optimum utilization of funds:-There is proper utilisation of funds as financial matters are subjects to ministerial sanction, budget, accounting and audit control.

DEMERITS OF DEPARTMENTAL UNDERTAKINGS 1. Flexibility: -The departmental undertakings work under parliamentary control. There is too

much interference of ministers and top officials.2. Lack of motivation :- The departmental undertakings have no power to utilize their revenue

as these are deposited in the treasury. There is no incentive to maximize the profit.3. Lack of financial autonomy :-The departmental undertakings cannot plan long-term

investment projects. As they are subjects to budgetary control of govt., they are not allowed to use their own revenue freely as these have to be deposited in the treasury.

SUITABILITY1. Where utmost secrecy is required e.g., defense.2. Where govt. control is necessary e.g., broadcasting.3. Undertaking is a source of revenue e.g., railways.

2. Public corporation/ statuary corporation:-

A statutory corporation is a body corporate formed by a special act of parliament or by the central or state legislature. It is fully financed by the govt. Its powers, objects, limitations etc. are also decided by the act of legislature.

For ex., Indian Airlines, Air Indian, State Bank Of India, etc.

FEATURES OF PUBLIC CORPORATIONS 1. It is created by an Act of Parliament or Central or state legislature.2. It operates under total control of central or state govt.3. The main motive corporation is service to general public.

MERITS OF PUBLIC CORPORATION 1. Administrative Autonomy: - A public corporation is able to manage its affairs with independence and flexibility.2. Quick Decision:- A public corporation is relatively free from red tapes , as there is less file work and less formalities to be completed before taking decision.3. Service Motive: - The activities of public corporation are discussed in parliament. This ensures protection of public interest.

32

DEMERITS OF PUBLIC CORPORATION 1. Autonomy on paper only:- The autonomy and flexibility of public corporation is only for name’s sake . Practically ministers, government officials and political parties often interfere with the working of this corporation.2. Lack of initiative:- Public corporation do not have to face any competition and are not guided by profit motive.3. Unfair practices:- The governing board of a public corporation may indulge in unfair practices . it may charge unduly high price to cover inefficiency.

SUITABILITY 1. Where undertaking require monopoly powers.2. Where undertakings require special power, define by the Act or statute.

GOVERNMENT COMPANIES :- Government Company means any company in which at least 51 of the paid – up share capital is held by the central or state government or partly by central or state govt. The govt. companies are governed and ruled by the provisions of companies Act, 1956 like any other registered companies.For e.g., steel authority of India, Hindustan machine tools, etc.

FEATURES OF GOVERNMENT COMPANY 1. Registration: - The govt. company gets incorporated under the companies Act, 1956. All the provisions of companies Act are applicable on a govt. company.2. Ownership:- The govt. company is wholly or partly owned by the govt. The share capital of these companies is owned by the govt. of India in the name of the president.3. Separate legal entity:- The govt. company has a separate legal existence. It can buy and sell property in its own name. It can either into a contract in its own name.

MERITS OF GOVERNMENT COMPANY 1. Administrative Autonomy: - The govt. company is relatively free from govt. and political interference. It can function freely and smoothly under the general vigilance of the govt.2. Greater flexibility: - The govt. company is managed, financed and audited just as any other private sector company. It can therefore secure greater flexibility, freedom of operations and quickness of action in running the enterprise.3. Collaborations: - The govt. companies can avail and accommodate managerial skill, technical know-how or expertise of the private enterprise by conveniently collaborating with it.

DEMERITS OF GOVERNMENT COMPANY 1. Autonomy on paper only: - The freedom and flexibility offered to Govt. Company is true theoretically only. In actual practice the govt., being the major shareholder, dictates the terms and get the things done in its own way.2. Political Interference: - The govt. companies are treated as the personal property of ministers. The interference of ministers is frequent.

33

3. Board packed with govt. representatives: - The board of directors in govt. companies is appointed by the govt. So these directors always try to please the govt. rather than improving efficiency of the govt. company.

CHANGING ROLE OF PUBLIC SECTOR

Government Policy towards the Public Sector since 1991. Government of India has introduced four major reforms in public sector in its new economic policy of 1991. These are:1. Restructure and revive potentially viable PSUs.2. Close down the PSUs which cannot be revived.3. Bring down the govt., equity in all non-strategic PSUs to 26% or lower if necessary.

Reduction in the number of industries reserved for public sector from 17 to 8 :- In industrial policy of 1956 there were 17 industries reserved exclusively for public sector. In 1991 industrial policy the no. was reduced to 8 & in 2001 it was brought down to 3.1. Atomic energy2. Arms3. Rail transport

Disinvestment of shares of a select set of public sector enterprises: - Disinvestment refers to sale of equity shares of public sector units to private sector and public. The govt. decided to withdraw its holdings from PSUs and encourage more participation of private sector in managing public sector units.

The primary objectives of privatization are:1. Reducing debt and interest burden2. Reducing govt. control3. Discouraging govt. monopoly for e.g., telecom industries.

Policy regarding sick units to be the same as that for the private sector: - All the loss making public sector enterprises were handed over to BIFR (Board of industrial and Financial Reconstruction). The BIFR decided to wind up some very sick units and to revive and rehabilitate some other sick units where there is scope to convert them into healthy units. There are many enterprises which are very sick and the government is not in a position to feed the workers any more or to compensate them.

Memorandum of understanding: - under MOC the public sector is given greater autonomy .They is given the target and to achieve these targets these units are granted operational freedom but they are accountable for not achieving the results on time.

MULTINATIONAL COMPANIES OR GLOBAL COMPANIESMultinational consists of two different words ‘multi’ and ‘national’. Multi means many and national means countries or nations. So multinational means a company which operates in many companies.For E.g. Coca Cola, Hyundai, Nike, Reebok, L’Oreal, Sony, LG, Samsung, etc.

34

Features of multinational companies 1. Giant size. The assets and sales of multinational companies are quite large. These companies operate on large scale. Their operations are so huge that sometimes their sales turn over exceeds the Gross National Product of a developing country.2. International operations. A multinational corporation operates in more than one country. It has its branches, factories, offices in several countries.3. International market. Due to its vast resources and excellent marketing skill, a multinational cooperation has access to international market.

Advantages of multinational companies 1. Standard of living. By providing superior products and services, the MNCs help to improve living standards in host countries.2. Growth of domestic firms. The multinational companies stimulate the growth of local enterprises. These local enterprises can act as suppliers and ancillary units of multinational firms.3. World economy. MNCs help to integrate national economy into world economy. The encourage international brotherhood and cultural exchange through international business.

Disadvantages of multinational companies 1. Disregard of national objective. The priorities of developing countries are strategic

control and development of backward regions, whereas multinational companies do not give any importance to these objectives.

2. Obsolete Technology : - The multinational companies generally transfer outdated technology to their collaborators in host countries. Repetitive imports of similar technology lead to excessive royalty payment without adding to technical knowledge

3. Depletion of national resources : - MNCs cause rapid depletion of some of the non-renewable natural resources in host countries.

35

Public sector reforms under new industrial policy, 1991As a part of the liberalization process the central government has started the following reforms in the public sector:

(A) To bring down govt. equity in all non- strategic public enterprise to 26% or lower if necessary.

(B) To restructure and revive potentially viable public undertakings.(C) To close down the sick public undertaking which cannot be revived.(D)To protect the interest of the workers of the public undertakings.

JOINT VENTUREWhen two or more firms join together to establish a new enterprise then it is known as joint venture. The two firms contribute capital and partnership in management of enterprise. For ex., Tata Iron and Steel Co. joined hand with IPCOL to promote IPITATA Sponge Iron Ltd. Tungabhadra Industry Ltd. Of India and Yamuna Motor Company Ltd. Of Japan joined together to form Birla Yamaha Ltd.

BENEFITS OF JOINT VENTURE1. Reduces Competition: - When two companies join together it results in reducing the competition as instead of wasting resources in competition they will strengthen their organisations.2. Reduces Risk: - High risk involves in new and innovative ventures can be reduced when two companies join together to share the risks.3. Large Capital: - In joint venture two companies together contribute capital; as a result large capital can be arranged without much difficulty.4. Advanced Technology: - By joining hands with foreign company Indian companies can get the benefits of advanced technology.

DRAWBACKS OF JOINT VENTURE1. Problem in Sharing Capital: - When two companies join together then both want to have bigger share in equity capital as bigger share gives majority participation and more stakes in the joint venture.2. Legal Restriction: - Often there are legal restrictions on foreign investment. FERA (Foreign Exchange Regulation Act) and FEMA (Foreign Exchange Management Act) have laid restriction on foreign participation in equity capital of an Indian company.3. Conflicts: - Sometimes there can be conflict among different parties involve in joint venture because in culture and economic development of two countries.4. Lack of Coordination: - There can be lack of coordination among partners which may effects the efficient functioning of the joint venture.

PUBLIC PRIVATE PARTNERSHIP

Public Private Partnership describes a government service or private business venture, which is funded and operated through a partnership of govt. and one or more private sector companies. These schemes are also referred as PPP.

FEATURES OF PPP

1. Contract between Public Sector and Private Party:- PPP is a contract between public sector authority and private party, in which the private party provides a public service and bears financial, technical and operating risk.

36

2. Cost of Using Service:-In some types of PPP the cost of using service is borne by users of services and only by taxpayers and in some the cost of providing services is borne wholly or partly by the government.

3. Provision of capital subsidy: projects that aim at creating public goods in infrastructure sector, the government may provide a capital subsidy in the form of a one grant to make it more attractive to the private sector.

CHAPTER-3

SHORT ANSWER TYPE QUESTIONS

Q1. Name the organization which is considered as a part of government only?

Ans- Departmental undertaking

Q2. In whose name the shares of a govt. company are purchased?

Ans- The president of India

Q3. Name the company found as a result of partnership between 2 companies?

Ans- Joint Venture

Q4. What term is used for sale of shares to private/public sector?

Ans- Disinvestment

Q5. Give example of an enterprise operating as departmental undertaking?

Ans- Defence, railway

Q6. What is the enterprise called in which a project or service is finaced and operated through a partnership of govt. and private enterprises?

Ans- PPP (public, private, partnership)

Q7. Mention any 2 examples of statutory corporation?

Ans- Food Corporation of India, Life Insurance Corporation

Long answer type questions

Q1. Differentiate between public enterprises and private enterprises on any 6 basis?

Q2. Explain the meaning and 5 features of statutory corporation?

Q3. What is public private partnership? Explain its features.

Q4. Why global enterprises are considered superior to other business organization?

Q5. Explain the meaning and 5 features of a govt. Company?

37

Q6. Distinguish between departmental undertakings and a govt. Company?

Q7. Explain the features of joint venture?

Q8. Describe briefly the changing role of public sector?

Hint- i) Development of infrastructure

ii) Regional balance

iii)Generation of employment

iv) Check over concentration of economic power

v)Defences requirements

vi) Public utilities

HOTS QUESTIONS

Q1. List the fields of business fit for state ownership and control?

Hint- Defence goods and equipments

Basic and heavy industries

Public utility services like water supply, electricity gas

Q2. What motivates a company to go global?

Hint- Desire to expand its business motivates a company to go global. If a company wants to join the fruits of large scale production that is increased profits and reduced costs. It needs a bigger market spread over to many countries.

Q3. ‘Multinational corporations are mixed blessing to the developing countries’. Comment on this statement?

Hint- MNCs are considered a mixed blessing because of their benefits and evils. Give any 2 merits and 2 evils of MNCs.

Q4. “Global corporations are giant both in terms of assets and operations”. Explain this statement.

Hint- Give the features of global corporations

Q5. Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.

Hint- NO it can’t be due to following reasons:-

i) Motive

ii) Autonomy

iii) Management. Explain

38

Value Based Questions

Q1. In recent times the government has increased the price of diesel and LPG. Which value is being overlooked here?

Value points- Fall in standard of living

Increase in domestic expenditure

Increase in the cost of agricultural

Product.

Q2. Government is planning to construct a warehouse in remote area to store necessary goods to as to make them available even at the time of bad weather regularly. Which values are being considered here to be achieved by the govt.?

Value points- Stability in prices

Regular supply of goods

Fulfillment of social responsibilities

Control on hoarding and black marketing

Q3. Recently there was news that a MNC has bribed the government official in some countries to set up its branches in those countries. Is the company act justified?

Hint- NO, the act of the company in offering bribe to govt. officials and corrupting them for its own and is not justified. The company has violated the value of honesty. In this case, the company has chosen both unethical and illegal path to achieve its objectives of offering its branch network in different countries.

Q4. A company is paying hush money to purchase officers of various companies to increase the volume of its sales. It is a good practice from ethical point of view?

Hint- No, it’s not a good practice. Bribing is both unethical and illegal. This practice must be discouraged.

Q5. A company installs machinery knowing well that it will create excessive pollution. Is it ethical?

Hint- No, it’s not ethical as it is against the health of society.

39

Chapter 4

Business services

Meaning

The service sector constitutes the basic infrastructure which is a must for smooth flow of business activities.

Characteristics/ features of services

Intangible

Services are intangible i.e. these cannot be seen or touched.

Lack of homogeneity or inconsistency

Services have to be performed each time according to the demands and expectation of each customer. Some services may be provided differently by different service providers.

Inventory (loss)

Services are consumed at the same time when produced; therefore there is no need to maintain inventory or stock of services.

Difference between goods and services:

s.no. Basis goods services1. Intangible Goods are tangible Services are intangible2. Inventory Inventory must be

maintainedNot required

3. Nature It is a physical object It is an activity4. Type homogeneous heterogeneous5. Transfer of ownership Is possible Is not possible

Categories of business services

Banking services

A bank is buyer and seller of money. It provides depository facilities and loan services.

40

Functions of bank

Borr

Lending:Cash credits,Overdrafts,Loans.

Discounting of bills

Collection of cheques

Remittance of funds

Personal services

Miscellaneous services:Safe custody,Locker facility,Remittance facility,Letter of

Borrowing: Current a/c,Savings a/c,Fixed deposits.

Types of accounts

Saving deposit account

A person can open a savings deposit account by depositing a small sum of money. He can deposit money and withdraw money from his account whenever required.

Current deposit account

The account holder can deposit and withdraw money whenever desired. This account is generally opened by the businessman.

Fixed deposit account

A fixed deposit is repayable after the expiry of the specified period of time. The period may vary from 6 months to 5 years.

Important services provided by bank

Bank draft

It is a financial instrument through which money can be remitted from one person another.

Banker’s cheque (pay order)

This is a document which instructs a bank to pay a certain sum to a third party.

Rtgs (real time gross settlement)

RTGS are funds transfer system where transfer of money or securities takes place from one bank to another on a “real time” and on “gross” basis.

Insurance services

Insurance is a contract between the insurer and insured in which insurer agrees to make good the loss of insured on happening of an event in consideration of a regular payment called premium.

41

Terms used in insurance contracts

Insurer: the one who compensates the loss. Ex- insurance company

Insured: the one who gets compensation of loss.

Happening of the event: kinds of losses covered. Ex-

Premium: amount paid by insured to insurer on a regular basis.

Principles of insurance

Principle of utmost good faithThe insured and insurer must disclose all the material facts to each other and both the parties should not hide any fact related to insurance policy from each other.Principle of insurable interestInsured must have an insurable interest in the subject matter of insurance policy.Principle of indemnityThe purpose of insurance is to bring back the insured in the same financial position as he was before the loss.Principle of contributionIf a person has taken more than one insurance policy for the same subject matter then he cannot claim total loss from each insurer.Principle of causa-proximaThe cause or reason of the loss must be related to the subject matter of the insurance contract. If loss is due to some other reason, the insurer will not pay the compensation. Principle of subrogation When the insured is compensated for the loss or damage to the property insured by her / him the right of ownership of such property passes on to the insurer.

Principle of mitigation of lossThe insured must take care of his property or subject matter of insurance in the same way as he would take care without taking the insurance policy. The insured should try his level best to minimize the loss.

Insurance and assuranceAssurance refers to a contract in which the sum assured is bound to be paid sooner or later. In case of insurance the same amount assured is paid only when insured suffers a peculiar loss.

Difference between insurance and assurance

Sno. Insurance Assurance1. The insured must suffer a damage or

loss, to claim the compensation.The sum assured is bound to pay whether insured suffers a loss or not.

2. Used when risk is uncertain. Used when risk is certain.3. Ex- fire insurance, marine insurance. Ex – life insurance

42

Insurance principles

Utmost good faith

Insurable interest

Indemnity Subrogation Causa proxima

Mitigation of loss

Types of insuranceInsurance are of following types:

Life insurance General insurance

1. Fire insurance2. Marine insurance3. Other types of insurance

Life insurance

In life insurance, the insured has to pay a fixed amount of premium and in return the compensation is assured at his death or at the maturity period whichever comes earlier.eg. whole life endowment policy.

General insurance

1. Fire insurance

Fire insurance provides protection against the loss or damage by fire, lightning and explosion.

2. Marine insurance

Marine insurance is a contract between the insured and the insurer. The insured may be cargo owner or freight receiver. in this insurer undertakes to indemnify the insured against marine losses.

3. Other types of insurance

Types of other insurance

1. Fidelity insurance : it is used to protect an employer from dishonesty of his job.2. Motor vehicle insurance : this type is insurance is used for personal or commercial vehicles. 3. Health insurance : it provides for payment of medical expenses in case of illness of the insured

person or family.

S no. Life insurance General insurance1. Risk involved is certain. Risk involved is uncertain.2. Contract of guarantee. Contract of indemnity.3. Contains elements of protection as

well as element of investment.Contains element of protection only.

43

Types of insurance

Life insuranceGeneral insurance

Fire insurance

Marine insurance

Miscellaneous insurance

Postal and telecom services The government at national and international levels provides postal services.Features of postal services

a) Controlled by government.b) Are highly reliable.c) Started speed post to compete with courier services.

Services offered by post office

a) UPC (under postal services): in UPC the sender will deliver the parcel or letter ordinary post at specified counter of post office.

b) Registered post: sender affixes more postal stamps on envelope and delivers at the counter of post office and obtains receipt.

c) Speed post: it is a service to send the mail as fast as possible.

Telecom services

They are the back bone of very business activity.

Types of telecom services:

Cellular mobile services: it includes all mobile telecom services including voice, non-voice, messages and PCO etc.

Radio paging services: it transmits information to persons even when they are mobile Fixed line services: these are primarily connected through fiber optic cables laid across the

country.

Short answer type questions

Q1. Which institute is called a debtor as well as creditor?

Ans- Bank

Q2. Why is communication called circular or 2 way process?

Ans- Communication is considered as a 2 way process because it starts and ends with sender.

Q3. To which insurance principle of indemnity is not applicable?

Ans- Life Insurance

Q4. A company has undertaken a fire insurance policy for Rs 5lakh. After 2 months due to fire it incurred a loss of 2 lakh. How much amount will the company get as compensation?

Ans- 2lakh due to principle of indemnity.

Q5. At what time the interest must be present in case of Life Insurance?

Ans- At the time of taking the policy.

44

Q6. Give the full form of ATM?

Ans- Automated teller machine.

Q7. What are the recent modes of communication?

Ans- i) fax

ii) Internet

iii) E-mail

iv) World wide web

Q8. Which service provides protection from risk?

Ans- Insurance

Q8. What are services?

Ans- All those economic activities that are intangible and imply an interaction between the service provider and the consumer.

Q9. Mention any 2 features of services?

Ans- i) intangibility

ii) Inseparability

Q10. What is a bank?

Ans- A bank is an institution that collects money from those who have it to spare or who are saving it out of their incomes and it lends this money to those who require it.

Long answer type questions

Q1. Explain the characteristics of services?

Hint- i) intangible

ii) Lack of inconsistency

iii) Inventory

Q2. Explain the meaning and types of Life insurance?

Hint- Whole Life Assurance Policy

Endowment Life Assurance Policy

45

Q3. Explain the functions of bank?

Hint- i) acceptance of deposits

ii)lending

iii) Remittance of funds

iv) Miscellaneous services

v) Rendering of personal services

vi) Collection of cheques, draft, bills etc

Q4. Explain any 3 principles of Insurance with examples?

Hints- Principle of utmost good faith

Principle of indemnity

Principle of subrogation

Q5. Explain the difference between Life Insurance and Marine Insurance?

Hint- basis:-

i) Subject matter

ii)Element

iii) Duration

iv) Risk

v) Surrender value

Q6. Explain the important services provided by the bank?

Hint- i) bank draft

ii) Bankers cheque

iii) Real time Gross Settlement

iv) National electronic fund transfer

Q7. What type of services are required by the business houses? Discuss.

Hint- Banking Insurance Transportation Warehousing Communication

46

Hots questions

Q1. Who can get an overdraft from bank?

Hint- A holder of current account, i.e. businessman.

Q2. “ It is binding on both the parties of insurance to disclose all material facts about the subject matter of proposed insurance”.which principle of insurance is associated with it?

Hint- Principle of good faith.

Q3. What is hull Insurance?

Hint- It is an Insurance policy for indemnifying the insured for losses caused damaged to the ship.

Q3. The cause for loss must be related to the purpose of Insurance. Which principle of Insurance is related to this statement?

Hint- Principle of cause proxima.

Q4. “A contract of insurance is an uberrimae fidei contract”? Comment.

Q5. Describe the meaning and uses of fax?

Hint- Meaning

Uses- i) graphs

ii) Drawings

iii) Pictures etc

47

CHAPTER-5

EMERGING MODES OF BUSINESS

Meaning and scope of e-business

E-business refers to “carrying on business activities through internet.’ business activities comprise of industries, commerce and trade.

Scope of e-business

The e-business includes carrying on planning, organizing, marketing, production, etc.electronically through internet. There are various people and parties involve in electronic transaction.

1. B2B COMMERCE : Transaction taking places between business units are known as B2B transaction. these transaction may involve :(a) Creation of utilizes(b) Collaboration (c) Commercial negotiations

2. B2C COMMERCE : Transaction taking place between business units and customers are known as b2c commerce. B2C transaction may involve: (a) Selling and distribution(b) After sale service(c) Promotion and other marketing activities.

3. C2C COMMERCE : The transactions taking place between customers and customers are known as c2c commerce. C2C transaction may involve :(a) Selling used books, cloths etc.(b) Selling antique items(c) Warning customers about fraudulent suppliers

4. INTRA B-COMMERCE : This refers to transactions between the parties or persons who are the part of one firm only. It may involve:(a) Interaction between any two departments of one firm(b) Placing orders and giving instructions to suppliers(c) Communication of important information in the whole organization.

48

Top management

Purchase

Finance

Human resources

Legal

Production

Marketing

E-business vs. E-commerce

E-business is a wider term. It includes e-commerce. As e-commerce is one of the branches or one of the activities of business, similarly e-commerce is one branch e-business. E-commerce deals exclusively in the distribution of goods and services whereas e-business involves production, sale, distribution, after sale service, etc.

OPPORTUNITIES OR BENEFITS OF E-BUSINESS

E-business made it possible to work round the clock and there is no geographical limit for market. The e-commerce trading has offered the following benefits:

(i)EASY TO FORM AND LOWER INVESTMENT IS REQUIRED: It is very easy to start e-business. The benefits of internet technology are that with little investment and more contact one can do better in the business.

(ii)CONVENIENCE: With the help of e-business shopping can be done conveniently sitting in home. Millions of peoples exchange information in the world through e-commerce.

(iii)SPEED: Through e-business information can be exchanged and buying and selling can be done just with the click of mouse. This benefit is more in case of products like software, movies, music, books etc.

(iv)GLOBAL REACH: Through e-business the businessmen can reach each and every human being on this planet who has access to internet. There is no limitation of geographical area.

LIMITATIONS OF E-BUSINESS

The major drawbacks of e-business are :

(i)LOW PERSONAL TOUCH: e-business is not suitable for sale or purchase of commodities which require personal touch such as garments etc.

(ii)DELAY IN DELIVERY: in e-business order is placed with the click of a mouse, but it takes time for vendor to process the orders and deliver the goods.

(iii)REQIREMENT OF HARDWARE: A proper hardware set up of computer networks is necessary for e-business and even the seller and the buyer both know the operation

Of internet.

(iv) RISK: In e-business transaction, there is no direct relation between the two parties so there are more chances of frauds. There are also problems of virus, brand hijacking, hacking etc.

(V) LOW ETHICS: in e-business, there is less ethics behavior followed by business. The important information can be leaked out or read by anyone reading e-mail.

49

DESPITE LIMITATIONS,E-BUSINESS IS THE WAY

Most of the limitations discussed can be overcome with due care and diligence. Some of the ways to overcome problems are taken up, which are discussed below:

(i)Websites are becoming more and more interactive to overcome the problems of low personal touch.

(ii)India has undertaken 150 such projects to diffuse e-commerce in all nooks and corners.

So we can conclude that inspite of limitations, e-business is going to stay. So we must familiarize our selves as to how e-business is conducted.

ONLINE TRANSACTIONS

E-business refers to shopping through internet or online. Online opens up the whole world as one shop. With a simple click of a computer mouse you can order any commodity from any part of the world. There are four phases of doing business in e-business or online:

(I) Registration : Before online shopping one has to register with the online vendor by filling up a registration form.

(II) Placing an order : In online transactions the order can be placed by picking and dropping the items in the shopping card.

(III) Payment mechanism ; In an online purchase payment is through;(A) Cash on delivery: It means the buyer makes payment in cash when goods are

delivered to him.(B) Through cheque: The online seller may send his representative to pick up

cheque from the buyer.(C) Net banking transfer: Modern banks provide facility of electronic fund transfer

over the net.(D) Credit or debit card: These cards are most commonly used medium of online

payment.(E) Digital cash: This is cash which exists only in cyberspace.

50

Search for seller’s websiteSelection of desired product

Placing the order

Making payment

Delivery of product

Online transactions

SECURITY PROBLEMS RELATED TO E-BUSINESS

The security problems of e-commerce can be broadly discussed in following categories:

(I)TRANSACTIONAL RISKS: The common transaction risk of online are:

(a)Default on order taking/giving: Seller may deny that customer ever placed the orders.

(b)Default on delivery: Sometimes may be goods may be delivered at wrong address or goods other than order may also be delivered.

(c)Default on payment: Sometimes the seller does not get the payment for the goods supplied whereas the customer claims that the payment was made. To overcome these problems the seller must confirm the customer has entered the correct information from the cookies. To protect payment followings steps can be taken

(i)Credit card Authentication: This process insures that the credit number provided by the customer is a valid one.

(ii)Credit card authorization: This system checks weather funds are available in the credit card account of the customer or not.

(iii)Settlement: Ones the product is dispatched or delivered the bank will release the funds and transfer them to businessman’s bank account.

(2)DATA STORAGE RISK: The common storage risks are:

(a)Virus (vital information under seize): Some of the computer viruses are deadly. They clean up all the information stored in the computer memory. The viruses can enter the computer through e-mail; disc or floppies viruses hamper the functioning of business.

(b)hacking: Hacking refers to unauthorized entry into a website. Hackers often destroy the data and formation which causes huge losses to the owner because it would interrupt the business transaction. This problem can be solve by :

(i)Setting up special crime cell: The government has a set up a special crime cell to look into the crimes committed by the hackers and take necessary action against the criminals.

(ii)Encryption: It refers to converting the message into a code so then an unauthorized person may not understand it.

(iii)Digital signature: Under this method a coded digital certificate is issued by certification authority. This will help in checking the identity of the sender.

3.RISK OF THREAT TO INTELLECTUAL PROPERTY AND PRIVACY: Internet is an open space. it becomes very difficult to keep the information secret. Data can be supplied to others who may misuse the information.

51

Resources required for successful implementation of e-business

E-business is becoming a very popular way of trading among various business firms. However, before conducting business electronically the business firms must have necessary resources. the resources required for the successful implementation of e-commerce are:

1. COMPUTER HARDWARE: The business enterprise must get a computer with proper speed and technology before starting e-commerce trading. The computer must have the capacity to handle a big volume of business.

2. TECHNICALLY QUALIFIED STAFF: Under e-commerce all the business transactions are carried through internet. To carry out trading the businessmen must have well qualified and capable workforce who are able to handle internet easily .They must be trained to handle sales order, handle inquiries etc.

3. COMPUTERISED SYSTEM OF RECIVING PAYMENT: For the success of e-commerce the business enterprise needs to develop an efficient system of receiving payment for the goods sold. For this, the businessmen have to make arrangement with commercial banks and credit card agencies. Sufficient information should be given on the system so that customers can calculate amount should be paid.

4. WELL DESIGNED WEBSITE: the firms must develop a comprehensive website to communicate effectively with the customers and business partner. the website should be designed beautifully by using hyperlinks, graphs, other attractive pictures.

OUTSOURCING CONCEPT

Over the last decade, a new type of business within service sector has become popular in the words. It is called the business process outsourcing (BPO).

BPO refers to getting a business task accomplished through an outside agency. Initially only a few companies in United States adopted the practice of outsourcing by assigning the routine jobs to outside agencies so that company could concentrate on critical issues without wasting time on routine work.

ADVANTAGES OF BUSINESS PROCESS OUTSOURCING (BPO)

1. CONCENTRATION ON CORE COMPENTENCE: by outsourcing the routine task the companies can concentrate on more crucial matters.

2. REDUCTION IN COST: the outsourcing agencies perform the task for different companies. So client companies get benefit of economics of scale ; generally they save 10 to 20% cost.

3. HELP TO AVOID LABOUR PROBLEM: The outsourcing services reduce the need for employing more numbers of employees as the outsourcing agencies take up the responsibilities of performing routine jobs.

4. BENEFITS OF LATEST DEVELOPMENT: The outsourcer maintains world class information technology infrastructure. The outsourcer acts as a consultant for that particular function and performs that function in a specialized way or in a better way.

52

SCOPE OF BPO

1. BPO is more popularly known as call centers which provides customer oriented voice based services on 24 hours x 7days. About 70% of the BPO industries revenue comes from call centers.

2. BPO comprises of four the segments. These are the common areas where BPO is operating.

(i) Contract manufacturing

(ii) Contract research

(iii) Contract sales

(iv) Informatics.

LIMITATIONS OF OUTSOURCING

Outsourcing suffers from following problems:

1.confidentially: It the outsourcing , the parent company shares its secret with the outsourcing company does not maintain confidential information then there can be a problem for the parent company.

2. Sweat shopping: The firms which outsource their work prefer to outsource the work which requires doing skill and it does not require thinking skill. It means by working in the outsourcing companies employees, competence and intelligence level does not increases.

3. Protect in home country: When companies outsource their activities along with the work they are indirectly outsourcing even the employment opportunities to another country.

4. Ethical concerns: Generally companies outsource their activities because in the outsourcing country labor is cheap. By doing so indirectly they are encouraging unethical behavior of low wage payment, child labor etc.

Knowledge process outsourcing (kpo)

In KPO business, firms get knowledge related and information related work done an outside firm. This involves high value work carried by highly skilled staff. KPO firms, in addition to providing expertise and consultancy service, often take many low level decisions also.

FEATURE OF KPO

1. Main difference between KPO and BPO is that KPO usually focused on knowledge intensive processes that require significant expertise.

2. The main aim of kpo is to create value for client by

providing business expertise rather than process expertise

3. KPO involves advanced analytical thinking, technical skills and decisive judgment based on experience

53

4. KPO increases efficiency and results in cost saving.

5. Common services included in KPO are:

(b) Legal process

(c) Patent services

(d) Data analytics

(e) Editorial process

(f) Valuation etc.

Short answer types questions

Q1. What does ‘e’ stand for in e-commerce?

Ans- ‘e’ stands for electronic.

Q2. What is the basic difference between e-commerce and e business?

Q3. Name any two risks involved in e-commerce?

Ans- Virus

Hacking

Q4. Give full form of BPO?

Ans- Business Process Outsourcing

Q5. State any one difference b/w e- business& traditional business?

Ans-

E- business Traditional business

Low operating cost High operating cost

Q6. Which two parties interact in B2B transactions?

Ans- Business and customers interact with each other in B2B transactions.

Q7. Which is the common mode of payment under

E-commerce?

Ans- Credit cards

Q8. Name any 2 ways and means to restrict e-commerce crime?

Ans- i) special crime cell

ii) Digital signature

54

Q9. What is the basic difference between credit card authentication and credit card authorization?

Ans- Credit card authentication insures that the credit card number provided by customer is correct.

Credit card authorization insures availability of funds in the account of the credit card holder.

Long answer types questions

Q1. Explain the steps involved in online transaction?

Hint- i) registration

ii) Placing an order

iii) Payment mechanism

Q2. Describe the drawbacks of outsourcing?

Hint- i) confidentiality

ii) Sweat shopping

iii) Protest in home country

iv) Ethical concern

Q3. Explain the scope of e-business?

Hint- i) B2B Commerce ii)B2C Commerce iii)C2C Commerce iv)Intra B-Commerce

Q4. Explain the security problems of e-commerce?

Hint-

i) Transactional risksii) Data storage risksiii) Risk of threat to intellectual property and privacy

Q5. Explain KPO and its features?

Hint- Meaning of KPO and features

Q6. Explain the concept and benefits of e-commerce?

Hint- meaning of e-commerce

Benefits:- i)speed ii) Global reach iii) Cost saving. Explain

Q7. Give a comparative study between e-business and traditional business?

55

Hint- Difference between e-business and traditional business.

Q1. Give the full form of VIRUS?

Hint- Vital information under seize

Q2. Why is India a preferred destination for manufacturing etc?

Hint- It is because of availability of large-scale manpower at lower cost.

Q3. What is meant by mode of business?

Hint- Mode of business means manner of conducting business.

Q4. Name the electronic currency that exists only in cyberspace?

Hint- Digital cash

Q5. What is the popular name for debit card or credit card?

Hint- Plastic money.

Q6. What is meant by encryption?

Hint- It means converting the message into a code so that unauthorized person may not understand it.

Q7. Name the services in which a firm gets its tasks done by another firm?

Hint- BPO

Value based questions

Q1. A company is paying hush money to purchase officers of various companies to increase the volume of its sales. Is it a good practice from ethical point of view?

Hint- No, it’s not a good practice from the ethical point of view. Bribing is both unethical and illegal. This practice must be discouraged.

Q2. A manufacturer of children toys paints them with colours containing lead which might result in harming of children who put these toys in their mouth. How would you react in this case?

Hint- it is not ethical because-:

i) Use of prohibited substance in painting the toys.

ii) Playing with the health of small children.

iii) Engaging in socially irresponsible behavior.

Q3. A company installs machinery knowing well that it will create excessive pollution. Is it ethical or not?

Hint- No, it’s not ethical as it is against the health of the society. Pollution will violate the right of the public to breathe in clean air.

56

CHAPTER – 6

SOCIAL RESPONSIBILITIE OF BUSINESS & BUSINESS ETHICS

LEARNING OBJECTIVE INTRODUCTION CONCEPT OF SOCIAL RESPONSIBILTY ARGUMENTS FOR SOCAIL RESPONSIBILITY ARGUMENTS AGAINST SOCIAL RESPONSIBILITY REALITY OF SOCIAL RESPONSIBILITY KINDS OF SOCIAL RESPONSIBILITY SOCIAL RESPONSIBILTY TOWARDS INTEREST

GROUPS BUSINESS AND ENVIORMENTAL PROTECTION CAUSE OF POLLUTION

*Need for pollution Control* Role of Business in Environmental Protection

BUSNIESS ETHICS *Elements of Business Ethics

INTRODUCTION

A business is a part of the society. It should follow the ethical norms of the society. In others words, it should be guided by the principles and practices which are considered right by the society. Since a business operates in the society, it comes in contact with various groups of the society such as owner, workers, customers, suppliers and government. It should fulfill its obligations towards each of these groups or stakeholders. In the chapter, we shall examine the concept of social responsibility and the business responsibility towards owners/investors, employees, customers, government, community and public general.

Key Terms

Social ResponsibilitySocial Responsibility of business refers of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of objectives and values of our society.

EnvironmentThe environment is defined as totality of Natural & Man- Made things existing around us. It is from the environment that the business draws its resources.

Business EnvironmentIt is totality of all external forces with which the business interacts constantly but over which it does not have any control. The environment influences the business directly to a great extent.

Environmental Protection

57

It is the deliberate process of protecting the environment form existing or potential threats of any nature.

PollutionIt is the process of emission or release of harmful substances into the environment which harms human life. The life of other species and wasting or depleting scare resources.

EthicsEthics is concerned with what is wrong & what is right in a social based on its moral values & beliefs.

Business EthicsIt refers to the socially determined moral principles which should govern the business activities.

Legal ResponsibilityIt is the obligation of the business to abide the laws governing the place at which it exists.

Code of EthicsEnterprises with effective ethics programs do define their principles of conduct for the whole organization which is called the ‘Code of Ethics’.

CONCEPT OF SOCIAL RESPONSIBILITYSocial responsibility of business to its obligation to take those decisions and perform those action which are desirable in terms of the objectives and values of our society.

EXAMPLE SOF CORPORATE SOCIAL RESPONSIBILITY

Several corporations have been engaged in discharging their social responsibility. A few important examples are given below:

1. TISCO set up Tata Steel Rural Development Society (TSRDS) which has launched community development project in 600 villages spread over Bihar, Orissa and M.P.

2. Usha Martin set up Krishi Gram Vikas Kendra in Ranchi to reduce the disparity in living standards between their workers and other rural families.

3. Hindustan Ciba- Geigy started an ambitious project in 1990 to eliminate leprosy from Goa.

4. Luipin Laboratories launched ‘lite for Life’ Programme in 1993 to control and eventually eliminate tuberculosis from India.

5. Finolex Industries started the Hope Foundation in 1979 for the detection and treatment of cancer.

6. Microsoft Corporation donated more than 450 crore for the containment of AIDS in Indai.

ARGUMENTS FOR SOCIAL RESPONSIBILITY

58

The arguments advanced in favor of business assuming social responsibility are as follows:

1. Justification for Existence and Growth: As business is the creation of Society, it is expected to satisfy human needs by providing goods and services. Although, Profit is an important objective of any business activity, but it should be looked upon as outcome of service to the people. A business with a good public image enjoys the support of Society and it can proper and grow only when it continuously assumes social responsibility.

2. Long Term Interest of the Firm: It is the Long term self-interest of the business to fulfill its social responsibility towards various group of society like workers, consumers, shareholders, government official, etc. A better social set improves its public image and prospects of growth in the long run.

3. Avoidance of Government regulation: If the businessman fail to meet their social responsibilities voluntarily, then the government may intervene and enact suitable legislations to force them to assume social responsibility.

4. Maintenance of society: If a business does not meet its social responsibilities, then people related to the business my resort to anti-social activities, if they feel that they are not getting their dues from the business. This may be harmful for the business. So, business enterprises must fulfill social responsibility.

5.Availability of resources with business: Business enterprises have considerable financial and human resources, which can be effectively used for solving social problems. For example, managerial talent, technical expertise and capital resources of the business can help the society to tackle its problems better.

6. Converting Problems into Opportunities: It is a common saying that ‘risk is the reward of profit bearing’. Business is capable of converting risky situations into profitable deals. It is not only helps in solving social problems but can also be used effectively as an opportunity for growth.

7. Better Environment for doing business: When the society is confronted with diverse and complicated problems, then there are little chances for the success of the business. So, in order to have better environment for doing business, the business should assume social responsibility to solve problems of the society.

ARGUMENTS AGAINST SOCIAL RESPONSIBILTY

There are some arguments against the concept of social responsibility by the business organization. They are as follows:

1. Violation of Profit Maximization objective: Business is an economic institution, which exist with the basic aim of profit maximization. Profit is necessary for survival and growth of business. So, assuming social responsibility is against the objective.

59

2. Burden on Consumers: Social responsibility like pollution control and environmental protection are very costly and often require huge financial investments without proper returns. In such circumstances, businessmen would like to pass the burden of social responsibility to consumers in the form of higher prices.

3. Lack of Social skills: Social problems are not solved in the way business problems are solved. So, businessmen, who are good at managing business, may not have the required skills to solve the complex social problems. Therefore, Social Problems should be solved by other specialized agencies.

4. Lack of Public support: Generally, Public does not like involvement or interferences of business is social programmes. As a result, business is unable to social problems due to lack of confidence and cooperation of the people.

REALITY OF SOCIAL RESPONSIBILITYAfter examining the various arguments for and against the assumption of social responsibility, it can be concluded that the business enterprises should also assume social responsibility in addition to earning profits.

1. Threat of public Regulation: In a democratic like India, government is expected to take care of welfare of all society. If any business enterprises operate in a socially undesirable manner, then appropriate action is taken against such enterprises.

2. Pressure of labour Movement: Today, labour has become far more educated and organized. Labour movements have become very powerful in taking care of interests and welfare of working class. It has forced the business enterprises to give due regard to the welfare of workers.

3. Impact of consumer Consciousness: The consumers to the present day are well informed and educated. The growth of mass media and increasing competition, have made them conscious of their rights and power.

4. Development of Social Standard for Business: Today, Business enterprises are not allowed to operate just for money. According to new social standards, business should also serve social needs in addition to achieving economic objective of profit

5. Development of Business Education: With the development of business education, consumers, investors, employees or owners have become more sensitive towards issues. Educated businessmen have become more sensitive towards social issues. Educated businessman have now become more aware of the social purpose of business.

6. Relationship between Social Interest and Business Interest: Business enterprises have started realizing that social business interests are complementary and not contradictory to each other. They have also realized that long term benefit of business lies in serving the society well. Similarly, business is now being recoganized as an essential element of a modern civilized society.

60

7.Development of professional, Managerial class: In the present scenario, professional manages have altogether different attitude towards social responsibility as compared to the earlier class of ownders. They are more interested in satisfying various groups associated with the business than merely following goals.

KINDS OF SOCIAL RESPONSIBILITYSocial responsibility of business can broadly be divided into following four categories:

1. Economic Responsibility:Business enterprises are basically an economic entity. Therefore, its primary social responsibility is to produce goods and services as per needs of the society and to sell them at a profit. There is a little discretion in performing this responsibility.

2. Legal Responsibility: Every business enterprises has a responsibility to operate within the legal framework of the society. Various laws and regulations have been enacted in the interest of the business and society. The businessmen are expected to abide by the rules and regulations and to behave in a socially responsible manner.

3. Ethical Responsibility: Ethical responsibility refers to moral obligations of a business enterprise. It is not compulsory for the business to assume ethical responsibility. There is an element of Voluntary action in performing this responsibility.

4. Discretionary Responsibility: This is a purely voluntary obligation that an enterprises assumes. A business enterprises assumes this responsibility to show its concern towards problems faced by the society. For example, Contribution to charity or helping people affected by natural calamities like floods or earthquakes.

SOCIAL RESPONSIBILITY TOWARDS DIFFERENT INTEREST GROUPS

SOCIAL RESPONSIBILITY OF BUSINESS TOWARDS DIFFERNET GROUPS

1. Responsibility Towards the shareholders or Owners:The Responsibility of business enterprise to shareholder or owner may be summed up as follows:

(i) To provide fair return on their capital investment.(ii) To ensure safety of such investment(iii) To provide regular, accurate and complete information about the working of the company(iv) To provide information regarding schemes of future growth.(v) To offer reasonable appreciation of capital through optimum use of resources.

61

Shareholders

Workers Consumers Government Community

2. Responsibility Towards the WorkersThe management has following social responsibilities towards workers:(i) To create and provide proper and safe working conditions.(ii)To ensure fair wages and a fair deal form the management.(iii) To provide opportunities to the workers for meaningful work.(iv) To respect the democratic rights of the workers to form unions.(v) To provide opportunities for personal growth and development.

3. Responsibility towards the consumersBusiness enterprises should perform following responsibilities towards the consumers:(i) To supply right quality and quantity of goods and service at reasonable prices.To follow trade practices and take proper precautions against malpractices like adulteration, poor quality, misleading advertising. Etc.(iii) To provide full information about the product and the company to the consumers.(iv) To ensure regularly supply of goods and services.

4. Responsibility towards the Government:The Social responsibilities of business towards the government are:(i) To abide by rules and regulations of the country(ii) To pay taxers regularly and honestly(iii) To adopt fair trade policies and practices.(iv) To assist the government in achieving their economic and social objectives.

5. Responsibility towards the Community or Society(1) To behave as a good citizen and act according to the well accepted values of the society.(ii) To protect the natural environment and avoid any type of pollution.(iii) To develop a good image in the society through continuous interaction with various groups of people.(iv) To take adequate safety measures in production of hazardous or unsafe products.

BUSINESS AND ENVIORMENTAL PROTECTION

Environment is the sum total of external forces which should us. The quantity of environment is deteriorating at a very fast rate, especially due to industrial activities. As a result, its protection is of prime concern for the business managers and decision makers. ‘Environmental Protection’ is Possible through control of pollution.

CAUSE OF POLLUTIONPollution may be defined as introduction of contaminant into an environment, which causes instability, disorder, harm or discomfort to the ecosystem.

CAUSES OF ENVIORNMENTAL POLLUTION

62

1. Air Pollution: Air Pollution is the contamination of air by the discharge of harmful substances. It is mainly due to carbon monoxide emitted by Automobiles and smoke and other chemicals from manufacturing plants. It has resulted in ozone depletion, which is leading to climate change and Dangerous warming of the earth.

2. Water Pollution: When toxic substances enter river, streams and other waterBodies and get dissolved or lie suspended in water, it leads to water pollution.Water pollution degrades the quality of water and has led to the death of severalAnimals and posed a serious threat to human life.

3. Land Pollution:Land pollution is caused due to dumping of toxic wastes on land. For example, use of synthetic fertilizers, pesticides or polluted water in agricultureLeads to land pollution. It degrades the quality of land and makes it unfit forAgriculture for plantation.

4. Noise Pollution: Noise made by machines, vehicles, firecrackers, etc. Leads to noise pollution. It not only cause irritation or annoyance,But is also a serious health hazard. Noise pollution can be responsiblefor many diseases like loss of hearing, mental disorder, increase inCholesterol level, rise in chances of heart attacks, etc.

NEEDS FOR POLLUTION CONTROL

Pollution adversely affect the quality of environment and make it unfit for normal life. There is a strong need to control and prevent pollution in order to preserve precious environmental resources and to improve its quality.

The main reasons, which justify the need for pollution control, are as follows:

63

Air Pollution

Water Pution

Land Pollution Noise pollution

1. Reduction of Health Hazards: Increasing level of pollution is the major reason for much disease like cancer, heart attacks and lung complications. So, pollution control is needed to reduce such health hazards and to improve the quality of life.2. Reduce Risk of liability: Business enterprise is often held liable to pay compensation to the individuals affected toxic gases chemical and other wastes released into the environment. Business can reduce this risk of liability by installing pollution control devices.

3. Costs saving: Pollution control also help to save cost of operating business. For example, if the production process releases wastes in heavy quantity, then an effective pollution control programme will prevent high cost of waste disposal and cost of cleaning the plants.

4. Improved Public Image: The society is becoming more and more conscious about the quality of environment. As a result, it has become necessary for the business enterprise to implement pollution control measures in order to improve its public image.

5. Other Social Benefits: Pollution control result in many other benefits like better visibility, cleaner buildings, better quality of life and availability of natural products in purer form.

ROLE OF BUSINESS IN ENVIORNMENTAL PROTECTION

Business Enterprise can take following steps for environmental protection:

(i) Top Management of the enterprise should be committed to create, maintain and develop work culture for environmental protection and pollution prevention.

(ii) Such commitment should be communicated throughout the enterprise to all divisions and employees.

(iii) Formulating policies to control pollution, such as purchasing good quality raw material, using scientific methods for treatment of waste, etc.

(iv) It should abide by the laws and regulations enacted by Government for prevention of pollution.

(v) Participation in government programmes of prevention of pollution, such as clearing up of polluted rivers, plantation of trees, etc.

(vi) Periodical appraisal of pollution control programmes in order to increase progress with respect of environmental protection.

(vii) Arranging workshops and training materials with suppliers, dealers and customers to get them actively involved in pollution control programmes.

64

BUSINESS ETHICS

Business Ethics refers to the moral principles or rules of behavior which should govern moral conduct of businessmen.

Examples of Business Ethics(i) Selling genuine goods and reasonable prices.(ii) Paying taxes with honesty.(iii) Giving fair treatment to workers.(iv) Using fair weights for measurement of commodities.In the modern competitive world, It has been widely recognized that ethics are essential for every business and for the progress of nay society. Ethical business behavior improves public image, earns people’s confidence and trust and leads to greater success.

ELEMENTS OF BUSINESS ETHICSEthical business behavior is beneficial for both the business enterprises and society. Business enterprises and society. Business can promote ethics in its day-to-day working. The essential elements of business ethics are as under:

1. Top Management Commitment: Top Management plays a crucial role in executive (CEO, Directors, etc.) must be strongly committed towards ethical conduct. They should guide and encourage employees to follow ethical behavior.

2. Publication of a Code: Ethical enterprise often defines the principles of conduct to be followed by entire organization. They are in the form of written documents and are termed as ‘code’. The ‘code’ generally covers areas like honesty, adherence to laws, product safety, healthy working environment, fair business practices, etc.

3. Establishment of Compliance Mechanism: The business enterprises should establish suitable mechanism to ensure that actual actions of organizational members comply with firm’s ethical standards. For example, enterprise must ensure that values and ethics are followed in recruitment, selection and training. Similarly, there should be efficient communication system so that employees can freely report incidents of enethical behavior.

4. Involving Employees at all Levels: Employees must be involved in the process of developing ethical programmers as ethical policies have to be implemented by them only. For example, small groups of employees can be formed to discuss the important ethics policies of firms and to examine their attitude towards such polices.

5. Measuring results: Although. It is very difficult to accurately measure the results of ethics programmers, the firms should periodically verify and audit the extent to which the ethical practices have been followed . Top management should also discuss the result with employees in order to decide the further course of action.

65

Multiple Choice Questions 1 Marks

1. Social responsibility is:(a) Some as legal responsibility(b) Broader than legal responsibility(c) Narrower than legal responsibility(d) None of themAns: b2. Environmental protection can best be done by the efforts of :(a) Business people(b) Government(c) Scientists(d) All of the peopleAns: d

3. Carbon Monoxide emitted by automobile directly contributes to:(a) Water pollution(b) Noise Pollution(c) Air Pollution(d) Land PollutionAns. c

4. Ethics is important for:(a) Top Management(b) Middle level managers(c) Non-managerial Employees(d) All of themAns.d

5. Which of the following can explain the need for pollution control?(a) Cost saving(b) Reduction of health hazards(c) Reduced risk of Liability(d) All of themAns.d

Very Short Answer Type Question 1 Marks

Ques.1 what do you mean by social responsibility of business?Ans: It refers to obligation of the business to take those decisions and perform those actions which are desirable in terms of the objectives and values of society.

Ques2. How can business enterprises avoid the problem of government regulation?Ans: By voluntarily assuming Social responsibility.

66

Ques3: Mention any one social responsibility of business towards consumers?Ans. To supply right quality and quantity of goods and services at reasonable prices.

Ques: 4. what leads to land pollution?Ans. Land Pollution is caused due to dumping of toxics wastes (like syntheticfertilizers, pesticides, etc.) on land.

Ques: 5. Give any two examples of business ethics.(i) Selling genuine goods at reasonable prices(ii) Paying taxes with honesty

Ques: 6. what do you mean by pollution?Ans: Pollution is the injection of harmful substances into the environment.

Ques: 7. How can efficient communication system, system ensure compliance of ethical standards?Ans. Through efficient communication system, employees can freely report incidents of unethical behavior

LONG ANSWER TYPE QUESTION 5/6 Marks

Ques1. Briefly discuss the major causes of environmental Pollution.Ans: Refer to causes of Environmental pollution.

Ques2. Discuss the various steps which should be taken by business enterprises for environmental protection?Ans: Refer to Role of Business in Environmental Protection.

Ques3. Explain the various elements of business ethics.Ans. Refer to elements of business ethics.

Ques4. Briefly explain any five points in favor of Social Responsibility of Business?Ans. Refer to arguments for Social Responsibility of Business.

Ques5. What is meant by social Responsibility? Briefly explain the responsibility of business towardsi. Shareholdersii. Employees iii. Consumers andiv. GovernmentAns. Refer to key terms of Social responsibility & concept explanation towards different interest groups.

HIGHER ORDER THINKING SKILLS QUESTION 4/5 Marks67

Ques1. You are appointed as a CEO of a leading manufacturing company having many branches across the country. Explain the steps which you can take to ensure ethics in your organization?Ans. Refer to Concept Explanation – ‘Elements of Business Ethics’.

Ques.2. “It is the Interest of business to fulfill its social responsibilities towards different interest groups”. Why?Hint: Give arguments for assumption of social responsibilities by the business.

Ques.3. “A business owes certain obligations towards different groups”. Identify those groups and explain the obligations of business towards those groups.Hint:

Ques.4 “Like an individual , a business enterprise should also be a loyal citizen of the state .” Explain.[Hint :: Give responsibilities of business towards the government.

VALUE BASED QUESTION ¾ MarksQues1. While selecting employees, X Ltd.is ignoring applicants from women and weaker section in the society. (i) What is wrong with the selection process of X Ltd?(ii) What should be the possible remedy?Ans (i) The selection policy of X Ltd. is not good. It is ignoring the values of “Equality”. The company is also gender biased. (ii) Company should give equal opportunity to all the prospective candidates.

Ques 2. An industrial unit, working in a backward area, opens school for education at nominal cost for the children of its employees and local peoples. Highlight the social value involved in this decision. Ans . The social values involved in this decision are: (i) Helpful in increasing literacy rate . (ii) Community Development. (iii) Increase in Employment opportunity in backward areas

Ques 3. A factory is established in a residential colony. The factory uses machines, which create heavy noise while running. Due to noise pollution, students are unable to study properly and residents can’t sleep properly . Which values do you find disturbing?Ans. The disturbing values are (i) Noise pollution (ii) Bad effect on the health of the employees of the factory; (iii) Bad effect on the studies of children and health of nearby residents.

C

68

CHAPTER-7

SOURCE OF BUSSINESS FINANCE

69

* INTRODUCTION * NATURE AND SIGNIFICANCE OF BUSINESS FINANCE * CLASSIFICATION OF SOURCES OF FUNDS * Periods basis * Ownerships basis * source of generation basis * OWNER’S FUNDS * Equity shares * Preference Shares * Retained Earnings * Global depository receipts * American depository receipts * Indian depository receipts * BORROWED FUNDS * Debentures and bonds * Loan from commercial banks * Public Deposits *Trade credit * Inter corporate deposits * OTHER SOURCES OF FINANCE * Factoring * Lease financing * Commercial paper* FACTORING AFFECTIN CHOICE OF SOURCE OF FUNDS

INTRODUCTIONEvery business enterprise, weather big or small, needs financed carry on its operations. The importance of finance increased tremendously these days because of mass production

and use of capital intensive techniques. As a result finance is considered as the life – blood of any business.

NATURE AND SIGNIFIANCE OF BUSSINESS FINANCE Business FINANCE REFERS TO THE MONEY REQUIRED FOR CARRYING OUT BUSSINESS ACTIVITIES

NEED FOR BUSINESS FINANCE Almost all business activities require some finance. Finance is needed: To start and establish a business

To run day to day activities of business like payment for raw materials, salaries etc. To modernize, expand and diversify the business Hence the availability of adequate finance is very crucial for the survival and growth of a business.

The finical needs of a business can be classified into two categories : 1. FIXED CAPITAL REQURINMENT

2. WORKING CAPITAL REQUIRNMENTS:

*Classification on the basis of the sources of fund

Sources of fund:

70

1. On the basis of the period

Medium termLong term equity Short term

Equity shares Retained shares Preferences shares Debentures Loan from finical institutions

Loans from banks Public deposits Loan from finical institutions

Trade credit Factoring Banks Commercial paper

2. On the basis of ownership

OWNERS FUND BORROWED FUNDS

Debenture Loans from banks Loan from finical

institutions Public deposits Lease financing

Equity shares Retained earnings

1. On the basis of source of generation

INTERNAL SOURCES

Equity share capital Retained earnings

*OWNER’S FUND SHARES: The amount of capital to be raised from public is divided into units of equal values. These units are known as SHARES.

Equity shares are those which do not carry any special or preferential rights.

EQUITY SHARES

MERITS DERMITS1. Convince 1. Low dividend2. No charge on assets 2. Uncertain 3. No obligation 3.Unblanced growth 4. Dependable 4.Misuse and speculation5. Growth and expansion

Debenture: It constitutes the borrowed funds of the company. It is an acknowledgement of debt. Debenture capital may be called DEBT CAPITAL.

Types of debentures

71

EXTERNAL SOURCES

Finical institutions Loans from banks Preference shares Public deposits Debenture Lease financing Commercial papers Trade credit Factoring

SECURED * UNSECURED REDEEMABLE * IRREDEEMABLE CONVERTIBLE * NON-CONVERTIBLE REGISTERED * BEARER

DISTINCTION B\W DEBENTURE AND SHARE

Ploughing back of profits/retained profits Ordinarily, company does not distribute all its profits among the shareholders as dividend. Rather a part of it is retained to form general reserves. This general reserve is used by the company to develop and expand its business. Use of the undisturbed profit in this manner is called Ploughing back of profits. It is also called self-financing. Company needs development and expansion for its large amount of finance. It is quite expensive to obtain this finance from external resources.

*Advantages of Ploughing back of profits/retained profits The following advantages accrue from the Ploughing back of profits:

1. Cheapest source of the finance: It is the cheapest source of finance because the company does not have to spend any amount obtaining it. The profit transferred to the general reserves belongs to the shareholders. As a reward they expect a little more dividend, but they cannot pressurize the company for it.2. Safety from the trade cycle: There are many ups and downs in business. The amount lying in the general reserves protect the company from the bed effects of the ups and downs.3. Stable dividend policy: a company can adopt the policy of the dividend on the strength of general reserves.4. Easy expansion of the company: Expansions plans of the company can be executed easily5. Increases in the value of the shares: As the general reserves grows in the size, the company finanical strength goes on improving. Consequently the market price of the shares appreciates.

72

Basis of difference DEBENTURE SHARE1. Relation with

companyDebenture holders are creditors of the company

Shareholders are the owners of the company

2. Consideration Interest is paid on their investment

Dividend is paid on their investment

3. Participation in the management

Debenture holder have no right to participate in management

Share holder have a right to participate in management

4. Refund of capital Except irredeemable debentures capital is refunded in respect to fall other debentures during the lifetime of the company

Except irredeemable preference shares, company does not refund capital in respect of all other shares during the lifetime

5. Tax advantage Company enjoys tax advantage on debentures.

No tax advantage to the company on the shares

6. Sequence of refund Payment is made to debentures holders before share holders

Payment is made to last of all to equity shareholders

*Limitations of Ploughing back of profits/retained profits1. Danger of monopoly: A company finical positions gets strength’s when it acclimates large amount of undisturbed profits in the forms of the general reserves. Such company develops quickly and after some time assumes the form of monopoly.2. Danger of the overcapitalization: Large size of the general reserves lead to the excessive capital with the company and if profits do not grow in the same proportion it may give rise for the situation of overcapitalization.3. Possibility of loss to shareholders: The general reserved fund is built by paying a low rate of dividend to the shareholders. If the reserves so accumulated are not used properly, the shareholder stand to lose.

*Special financial institutionsThe following are the main financial institutions functioning in the country at present:

1. The Industrial Finance Corporation of India (IFCI)2. The State Finance Corporation (SFCs)3. The Industrial Credit And investments Corporation of India (ICICI)4. The National Industrial Development Corporation (NIDC)5. The Unit Trust Of India (UTI)6. Industrial Development Bank of India (IDBI).

All these institutions provide long-term and medium-term loans for the setting up of business, its expansions and modernization.

Public deposits: Refers to the unsecured deposits invited by the companies from the public. It can invite from a period of 6 months to 3 years. Public deposits cannot be exceeding 25% of its shares capital & resources.

Public deposits

MERITS DEMERITS1. Simplicity 1. Uncertainty2. Economical 2. Temporary finance3. No change on assets 3. Unsuitable for new company4. No loss on education.

*Lease financing: A lease in a contractual agreement whereby the owner of an asset .grants rights to use the assets grants rights to use the assets to other party for rent.

*Short term funds: 1. TRADE CREDIT: refers to the credit extended by the one trader to another for purchasing goods of service. Small and new firms are usually more dependent on trade credit.2. FACTORING: It is emerged as a popular source of short term finance. It is a financial service where by the factor responsible for all credit control and debt collection from the buyers and provides protection against any bad debt losses to the firm.

73

TWO TYPES OF FACTORING

Resources factoring Non- Resources factoring 3 COMMEICAL PAPER (C.P): It is an unsecured promissory note issued by the firm to raise funds for a short periods says 90 days to 364 days. Only firms having good credit rating can issue the C.P.

*LOANS FROM COMMERICAL BANKS:

Business can raise finance from the commercial banks rom following ways:

LOANS FROM FINANICAL INSTITUTIONS:

Institutional finance means arranged from the financial institutions other than commercial banks like IFCE, ICICI, IDBI, SFI etc.

*INTERNATIONAL SOURCE OF FINANCE:Financial institutions and investors in foreign countries can invest in the shares and debentures

of Indian companies. Two main instruments used by the Indian companies to tap international source of finance are:

ADR GDR (American depository receipt) (Global depository receipt)1. Rose from equity markets in USA. 1. Trade on stoke exchange in 2. Funds from ADR are available in rope or US or bothUS dollars3. No broker is needed. Issued only to 2. No voting right. American citizens.

FACTORS AFFECTING CHOICE OF SOURCE OF FUNDS:The various factors which affect the choice of source of finance are discussed as follows:

74

Term Loan:For medium term.

Discount of Bill:Bank provide short term

finance in exchange for bill

Overdraft:Current Account holder is allowed to overdraw his A.c.

Cash credit:Interest in chargedon the amountActually withdrawn.

International source of finance

1. COST: While deciding the source of finance, the business should consider the cost involved in procurement of funds as well as cost of utilizing the funds.

2. FINANICAL STRENGTH AND STABILITY OF OPERATIONS: If the firm is financial strong with stable earnings, then it may prefer borrowed funds as it will be able to repay the principal amount and interest on the borrowed amount. However, if the firm is not financially sounds or its earning are highly unstable, then it must prefer owner’s fund securities

3. PURPOSE AND TIME PERIOD: While deciding the source of finance, the business should also consider the time period, for which funds are required. Similarly, business must also consider the purpose for which funds are needed.4. EFFECT ON CREDIT WORTHINESS: A particular source of finance may affect the credit worthiness of the company in the market. 5. TAX BENEFITS: Different sources have different tax implications. Interest on debentures is tax deductible. Dividend in not tax deductible.

6. RISK : There is at least risk on equity shares as the capital needed to be repaid. But in the case of loans interest have to be repaid.

Very short type question [ 1 marks ]

Q1. What do you mean by business finance?

ANS: Business finance refers to the money required for carrying out business business activities.

Q2. Out of long-term and short-term sources of finance, which source should br preffered to finance

fixed assets?

ANS: Long-terms sources.

Q3. How can you classify sources of funds on the basis of ownership?

ANS: (i) Owner funds (ii) Borrowed funds.

Q4. Out of owner’s fund and borrowed funds, which one is permanent source of finance?

ANS: Owner’s funds.

Q5. What do you mean by equity shares?

ANS: Equity shares are those shares which do not carry any special or preferential rights in respect of

payment of annual dividend and repayment of capital.

Q6. What are retained earnings?

ANS: Retained earnings refer to the part of profits which is kept as reserves for the use in the future.

Q7. Give any one limitations of retained earnings as a source of finance?75

ANS: Use of retained earnings may cause dissatisfaction among shareholders as retention of profits

reduces the rate of dividends.

Q8. What do you mean by trade credit?

ANS: Trade credit is the credit extended by one trader to another trader for the purchase of goods and

services.

Q9. What do you mean by recourse factoring?

ANS: It refers to a factoring, in which clients is not protected against the risk of bad debts.

Q10. Why the lessee does not bear the risk of obsolescence under lease financing?

ANS. As the lesse can replace the assets as and when required.

LONG ANSWER TYPE QUESTION 5/6 MARKS

Q1. Briefly discuss the merits and demerits of equity shares as a source of finance.

Hint. Refer to the merits & demerits of equity shares.

Q2. Explain ‘Global Depository Receipts’ and ‘American Depository Receipts’ as Source of finance.

Hint. Refer to the internal source of finance

Q3. Explain any five differences between shares and debentures.

Hint. Refers to differentiate between shares & Debentures.

Q4. What are the advantages and disadvantages of ‘Trade Credit’ as a source of finance.

Hint. Refer to advantages and disadvantages of trade Credit.

Q5. What do you mean by ‘Commercial paper’? Discuss merits demerits of issuing commercial paper.

Hint: Refer to the concept of commercial paper.

Q6. Discuss the various factors which affect the choice of source of finance.

Ans. Refer to factors affecting the choice of source of finance.

VALUE BASED QUESTION ¾ Marks

Q1. The Branch Manager of finance company have been given the authority to frant loan to an eligible borrower upto Rs. 50 lac without referring the loan application to the Head office. One

76

of the branch mnanagers extends a loan to a borrower whose project is not commercially feasible after accepting a bribe of Rs. 2 lac. Is his act ethical?Ans. Accepting bribe for extending loan to a borrower for a project which is not commercially feasible is unethical. The action of the branch manager is not justified.

The top management of the company can take both disciplinary and legal actions against the branch manager.

Q2. In order to reduce the cost, an organization is planning to reduce the charities given to the social and

religious institutions. Which value will be discarded by the decision?

Ans. Social responsibility.

CHAPTER 8

SMALL BUSINESS

LEARNING OBJECTIVE

MEANINGFEATURES OF THE SMALL SCALE ENTERPRISES

SCOPE OF SMALL SCA;LE BUSINESSES ROLE OF SMALL BUSINESSES IN RURAL INDIA PROBLEMS OF SMALL BUSINESSES GOVERNMENT ASSISTANCE AND SPECIAL SCHEMES FINANCIAL INTITUTIONS SET UP FOR SMALL

BUSINESSES IN RURAL ,BACKWARD AND HILLY AREAS

1. INRODUCTION

Small scale enterprises exist in every country of the world, but in developing countries like India, small scale enterprises occupy a special space as there is scarcity of capital and abundance of labour and small scale enterprises use labour intensive or capital saving techniques.

77

2. MEANING OF SMALL BUSINESSES

a) Small industries having investment upto 1 crore

b) Ancillary industry undertaking

c) Tiny units

d) Cottage industry

e) Small scale industries owned by women

f) Khadi and village industries

g) Agro based industries

New Nomenclature and Classification of MSME

Manufacturing Enterprises

Ceiling on investment in plant and machinery ceiling on investment in equipments

Rs 25 Lakh

78

ENTERPRISES

Services Enterprises

Micro Rs 10 Lakh

Small Rs 5 CroreRs 2 Crore

MediumRs 10 Crore

Rs 5 Crore

3. CHARACTERISTICS/FEATURES OF SMALL-SCALE INDUSTRY

1. Personnel character. A small-scale unit is generally owned by a single entrepreneur or partnership, so personal character is the main feature of this enterprise.

2. Independent management. Small-scale enterprises are generally managed by the owners only so there is the advantage of direct motivation, personal care, secrecy, flexibility etc.

3. Dominance of labour. Small scale enterprises generally use labour-intensive techniques. These units do not prefer mechanized methods of production.

4. Limited investment. A small scale enterprise requires less capital investment because it does not employ highly mechanised means of production.

5. Limited area of ownership. A small-scale enterprises generally operates in a compact area however products are exported all over the world.

6. Located in rural and semi-urban areas. Most of the small scale enterprises are located in rural or semi-urban areas due to easy availability of labour.

7. Engaged in light consumer goods. The small-scale industries are mostly engaged in production of light consumer goods and processing activities.

4. ROLE OF SMALL BUSINESS IN RURAL INDIA1. Employment2. Improvement of economic conditions3. Promotion of artisitic and creative sense4. Rural development5. Mobilisation of local resources6. Problems of small business in India1. Shortage of funds2. Shortage of raw material and power3. Old techniques of production and lack of latest technical knowledge4. marketing problems5. Personel problemsImperfect organisational set-up.

Government Assistance and special schemes for Industries in Rural Backward and Hilly areas: Keeping in view the contribution of SSI to employment generation, balanced regional growth and promotion of export, the government of India has formed various policies and offered various incentives and benefits for growth and promotion of small-scale business at central level as well as state level. The Government assistance are translated into action through various agencies, departments and corporations etc.

Some of the support measures and programmes meant for the promotion of small and rural industries are grouped in following two categories;* Institutional Support* Incentives offered ny the Government to SSI

Institutional Support1. National small Industries Corporation (NSIC). This was setup in 1955 with a view to promoting and fostering the growth of SSI in the Country.Its Main focus was on:

79

(i) To supply indigenous and imported machines in easy installments(ii) To Procure and supply imported raw material(iii) To export products of SSI(iv) To provide advisory and mentoring services(v) To provide technological assistance(vi) To develop software technology part and technology transfer.

2. The District Industries Centers (DICs): The DIC programme was started on May 1, 1978 to provide assistance to small–scale industries at the district level.These centers provide all the promotional activities such as identification of suitable scheme, preparation of feasibility report, arranging for credit etc.These centers promote entrepreneur attitude in rural areas. DIC is the institution at the district level which provides all services and support to entrepreneur for setting up small-scale business, such as identification of suitable scheme, preparation of feasibility report, arranging for credit etc.

Incentives offered by Government for Industries in Rural Area(i) Land at concessional rate(ii) Location of Public sector in backward area(iii) Establishment of Industrial estate(iv) Development of Infrastructure(v) Tax concession(vi) Providing finance at concessional rate(vii) Providing subsidies such as transport subsidy, capital subsidy and infrastructure subsidy(viii) Development of backward areas

OBJECTIVE QUESTIONS 1 MarksQ1. Name any two institutions specially set up promote small scale enterprises.Ans. (i) NSIC (ii) DIC

Q2. Give full forms of NSIC.Ans. National small Industries Corporation

Q3. Give Full form of DIC.Ans. District Industrial Centre

Q4. Give one feature of cottage industries.Ans. (i) Artisans produce goods with the help of family members, e.g., Handloom weaving.

Q5. Give any two incentives offered by the government to small scale industries.Ans. (i) About 800 items are reserved exclusively for SSI. (ii) Exemption from excise duty upto Rs. 1 crore.

80

Q6. What is the investment Limit for SSI?Ans. Rs. 10 crore.

Q7. Give any two problems faced by SSI.Ans. (i) Lck of adequate funds (ii) Outdated technology

Q8. Name any two units include in SSI category.Ans. (i) SSI (ii) Ancillary Units (iii) Tiny units (iv) Cottage industries

HOTS (HIGHER ORDER THINKING SKILLS) 4/5 Marks

Q1. Since small scale industires (SSI) can be widely spread and the benefits of industrialisastion can be repeated by every region. How does this feature of SSI contribute to the country?Ans. It contribute to balanced regional development of our Country.

Q2. Do you think that small –scale business can survive in a competitive market? Give reasons to support your answer.Ans. Yes, the small scale business can survive in a competitive market. The following points of SSI make way for their scope and survival in a competitive market.(i) Personal attention(ii) Limited resoureces(iii) Flexibility of operation(iv) Individual attitude(v) Suppliers of large-scale business(vi) Social utility

Q2. State few forms of support SSI by the government.Ans. Refer to topic Incentives offered by the Government to SSI.

LONG ANSWER QUESTIONSQ1. Explain the role of small industries in rural areas.Ans. Refer to the role of small industries in rural areas.

Q2. Explain the five major problems of small scale sector in India?Ans. Refer to the Problem of small business in India.

Q3. Describe the role of any two institutions working for the small enterprises in India?Hint: NSIC & DICs further Refer to the incentives offered by Govt. to the Institute.

Q4. What measure have been taken by the Govt. To tackle the problems of small industries.

81

Ans. Refer to the incentives offered by the Govt.

VALUE BASED QUESTIONS 3 Marks

Q1. “ Protection of small- scale industries by Govt. is essential for equality of Oppurtunity. Comment.Ans. The given statement is correct. Small scale industries occupy a very important place in the industrial structure of the country. However, they cannot complete with the big industrial firms. They can flourish only when they are protected from the large firms. Govt. reserved production of a number of products for the small scale industry. The criterion for reserving the products depended on the ability of these units to manufacture of goods.

Q2. A company has decided to donate 1% of its sales to an NGO, Serving mentally disabled people. The initiative by company was highly appreciated by the public and their sales increased by 10%.(i) Identify the objective depicted in the given case. (ii) Highlight the value which the company desires to emphasize through this activity.Ans. (i) Social Objective (ii) Responsibility towards Society.

82

CHAPTER - 9

INTERNAL TRADE

LEARNING OBJECTIVE

INTRODUCTION INTERNAL TRADE WHOLESALE TRADE

*SERVICE OF WHOLESALERS RETAIL TRADE

* Service of Retailers TYPES OF RETAIL TRADE

* Itinerant Retailers* Fixed Shop Retailers

FIXED SHOP RETAILERS* General Stores* Single Line stores* Specialty Shops* Street stall Holders* Second – hand Goods shop

FIXED SHOP LARGE RETAILERS* Departmental Stores* Chain stores or Multiple Shops* Mail Order Houses

VENDING MACHINES CHAMBERS OF COMMERCE AND INDUSTRY

* Role of chambers of commerce and Industry MAIN DOCUMENT IN INTERNAL TRADE TRERMS OF TRADE

INTRODUCTION

Internal trade means buying and selling of goods and services within the geographical boundaries of a country.

Important Trades

Meaning of Internal Trade: Buying and selling of goods and services within the boundaries of a nation are referred as internal trade. Internal trade can be classified into two (i) Wholesale trade (ii) Retail Trade.

WholeSale Trade: Whole sale trade refers to buying and selling of goods and services in large quantities for the purpose of resale or intermediate use. The traders who deal in wholesale trade are known as wholesale traders.

83

Services of Wholesaler

Services of Wholesaler

Services to Manufacture Service to Retailers1. Facilitating large scale production 1. Availability of goods2. Bearing risk 2. Marketing Support3. Financial Assistance 3. Credit facilities4. Expert advice 4. More Knowledge about product5. Help in marketing function 5. Sharing of risk.6. Facilitate production continuity7. storage

RETAIL TRADERetail Trade refers to buying of goods and services in relatively small quantities from

wholesalers and selling them to the ultimate consumers. The traders who deal in retail trade are known as retailers.

Services of Retailer

Services to Manufacturers/ Wholesaler Service to Consumers1. Helps in distribution of goods 1. Regular Availability of Products.

Personal selling 2. New Product Information3. Helping carrying large scale production 3. Convenience in buying4. Collecting market information 4. After sale services5. Help in promotion 5. Giving credit facilities

TYPES OF RETAILERS

ITINERANT REATILERS

1. HAWKERS AND PEDDLERS.

2. MAKET TRADERS3. STREET TRADERS.

4. CHEAP JACKS

FIXED SHOP

RETAILERS

FIXED SHOP SMALL RETAILERS.

1. GERNERAL STORES2. SINGLE LINE STORES3. SPECIALITY SHOPS4. STREET STALL HOLDRES.5. SECOND HAND GOOD SHOP

FIXED SHOP LARGE RETAILERS1. DEPARTMENTAL STORES2. MULTIPLS SHOPS3. MAIL ORDER HOUSES4. CONSUMER COOPERATIVE STORES.5 SUPER MARKETS6. MALLS

84

Types of Retail Trade1. Itinerant Retailers2. Fixed Shop Retailers

1. Itinerant Retailers (Meaning):- Itinerant retailers are those traders who keep on moving from place to place to sell their goods.

a) Hawkers and peddlers: they are small producers who carry the products on a bicycle or head. They deal in low value products.

b) Market traders: These are small retailers who open their shops on fixed days example on Saturday, Friday etc.,

c) Street Traders: These are traders found where there are huge crowds.d) Cheap Jacks: They keep on changing their places frequently as they deal with repair of watches

etc.,

2. Fixed Shops Retailers (Meaning): They have permanent shops they do not move from one place to another.a) They have more money when compared to itinerant retailers.b) These retailers may be dealing in different type of products.c) These retailers provide greater services to the customers.

Departmental Stores (Meaning): A Departmental store is a large establishment, which sells a wide variety of products and aim to satisfy all needs of the customers under one roof.

Features of Departmental stores:-1. It is a large store with different types of products.2. There will be separate departments like medicines, furniture, clothing etc.,3. These stores are located at the heart of the city.4. These stores are managed by the board of directors.5. These stores have storing facilities also.

Chain Stores or Multiple shops (Meaning): Chain stores or multiple shops are networks of retail shops, which are owned by the single business enterprise.

Departmental Stores

Advantages

1. Attract large no. of customers.2. Convenience in buying .3. More services are provided4. Benefits of large scale operations5. Sales get increased by advertising.

Disadvantages

1. Lack of personal Attention.2. More cost of operating th store.3. More chances for loss.4. Far away from home.

85

Features of Chain Store:1) These shops are located in popular localities.2) Goods are dispatched from the head office.3) Each shops in under the supervision of a branch manager.4) All the branches are controlled by the head office.5) All sales are made on cash basis.6) The head office appoints the inspectors who do supervision.

Mail order houses (Meaning): Mail order houses represents that form of relating in which business transactions are conducted through postal communications, without any personal contract with the buyers.

Procedure for Mail order houses:

1. Preparation of the mailing list.2. Approach to customers.3. Receiving of orders.4. Dispatch of goods5. Payments for goods

Chain stores/Multiple shops

Advantages

1. Large scale production takes place.2. Middlemen are avoided3. Cash Basis4. Risk is reduced5. Low cost due to avoidance of middlemen6. Place can be changed if there are no profits.

Disadvantages

1. Limited varities are available.2. No personal touch3. Losses in cae of change in demand4. Dealy in decision.

86

Vending Machines (Meaning): A vending machines is a new form of retailing, in which goods are sold with the help of slot machine operated by coins or tokens.

Vending machines are widely used as Automated Teller Machines (ATMs) in the banking services. With the help of these machines, money can be withdrawn at any time without visiting any branch of a bank.

Features of Vending Machines:

1. Self-service system2. Need of coins and tokens3. 24/7 shopping4. Suitable products

Mail order houses

Advantages

1. Less capital2. Middlemen are avoided3. No bad debt4. More customers are reached5. Goods are delivered at the door step.

Disadvantages

1. No personal contact2. Heavy expenditure on advertisements3. No after sales services.4. No credit facility5. Delivery is delayed6. Dependence on postal services

Vending Machines

Advantages

1. Anytime shopping2. Self-service3. Fast service4. More satisfaction to customers

Disadvantages

1. Costly2. No prior Inspection3. Customised products

87

Chambers of Commerce and Industry (Meaning): The chamber of commerce and industry was formed as an association of business and industrial houses in order to promote and protect their common interest and goals.

Role of Chamber of Commerce and Industry

1. Transportation or Interstate of goods2. Octroi and other local levies3. Harmonization of sales tax structure and VAT4. Marketing of agro products and related issues5. Weights and measures and preventing of duplication brands6. Excise duty7. Promoting sound infrastructure8. Labour legislation

Main Documents in Internal Trade

1. Performa Invoice: Performa invoice is a statement sent by a seller containing detailed information regarding price, quality, grade, size, weight and all other relevant details about the product.

2. Invoice: An invoice is a statement sent in case of credit purchase by the seller to the buyer stating therein the particulars of goods purchased.

3. Debit Note: Debit note is a note sent by one party to another informing the other party that his account is debited in the sender’s book.

4. Credit note: Credit note is a note sent by one party to another informing the other party that his account is credited in the sender’s book

5. Lorry Receipt (LR): It is a receipt issued by the transport company to the consigntor of goods, undertaking to carry the goods on lorry to the place of destination and deliver the same as per instruction of the consignor.

6. Railway Receipt (RR): It is a receipt issued by the railway authorities to the consignor of goods, undertaking to carry the goods from the booking station to the destination and deliver the same as per instructions of the consignor.

Terms of Trade

1. Cash on Delivery (COD): it is a type of transaction in which payment for a product is made at the time of delivery

2. Free on Board (FOB): It is a contract between the buyer and seller of goods in which seller undertakes to bear all the expenses of shipment and loading up to the point of delivery.

3. Cost, Insurance and Freight (CIF): It is a contract between the seller and the buyer in which the seller has to bear the cost of shipment up to the ship, insurance cost of cargo and freight cost up to destination port.

4. Error and Omission Expected (E&OE): This term is used in trade documents with the intention of reducing legal liability for incorrect or incomplete information supplied in a document such as price list, invoice, cash memo, quotation, etc.

88

QUESTIONS:

VERY SHORT ANSWER TYPE QUESTIONS (1MARK)

1. What do you mean by internal trade?Internal trade refers to buying and selling of goods and services within the geographical boundaries of a country.

2. Which trade involves buying and selling of goods and services in large quantities for the purpose of resale or intermediate use.Wholesale trade

3. State any two services provided by the wholesaler to the retaileri) Marketing Supportii) Risk Sharing

4. Which trade involves buying of goods in small quantities for the purpose of selling them to the consumers?Retail Trade

5. State any two services offered by a retailer to manufacturer and wholesaler.i) Help in Distribution of goodsii)Personal selling

6. Which type of itinerant retailer sell their goods in periodical markets such as weekly or monthly?Market trader

7. State any two limitations of departmental store.i) Lack of personal attentionii) High operating cost

8. Distinguish between departmental store and chain store on the basis of pricing of the product.Departmental stores do not have uniform pricing policy, whereas, chain stores have uniform pricing policy for all the shops.

9. Why does Mail order House require limited capital?Because no investment is needed in land, building, furniture and stock of goods

10. What do you mean by Vending Machines?Vending machines is a form of retailing, in which goods are sold with the help of slot machine operated by coins or tokens.

HOTS-HIGHER ORDER THINKING SKILLS QUESTIONS 4-5MARKS1. Identify the type of fixed shop large retailers in the following cases:

i) Business transactions are conducted through postal communications.ii) Bata and Nirula’s are the examples of this type of retailer.iii) Pin to Plane is the motto of this retail store.iv) This Retailer provides various facilities and services to their consumers such as restaurants, travel and information bureau, telephone booth, rest rooms, etc.v) This form of retailer has network of various retail shops with centralized management and all the shops deal in similar line of standardized and branded consumer products.

Ans. (i) Mail order houses; (ii)Chain stores or multiple shops;(iii)Departmental store; (iv)Departmental store;(v)Chain stores or multiple stores; (vi)Mail order houses.

89

2. ‘A retailer does not render any useful service to manufacturer and wholesaler’. Defend or refute.Hint: The given statement is refuted. Retailer provides useful services to manufacturer and wholesaler.

LONG ANSWER TYPE QUESTIONS 5-6 MARKS1. Itinerant traders have been an integral part of internal trade in India. Analyse the

reasons for their survival in spite of competition from large scale retailers.Hint: The various reasons for survival of itinerant traders are:i) Itinerant traders need less amount of capitalii) They provide greater service to the customers by making the products available to their doorstep.iii) They generally sell goods at prices lower than charged by fixed shop retail traders because of minimum establishment expenses.iv) They Deal in consumer products of daily use such as toiletry products, fruits, vegetables, etc. which helps to maintain personal contact with the customers.v) There is no risk of bad debts as goods are mostly sold as cash basis.

2. Why are consumer cooperative stores considered to be less expensive? What are its relative advantages over other large scale retailers?Hint: Consumer cooperative stores are less expensive because they eliminate the middlemen by purchasing goods in bulk directly from the manufacturers or wholesalers and selling them to members at reasonable prices.

3. Imagine life without your local market. What difficulties would a consumer face if there is no retail shop?Hint: Refer to services to consumer.

4. Explain the usefulness of Mail order houses. What type of products is generally handle by them? Specify Hint: Refer to advantages of Mail Order houses.

VALUE BASED QUESTIONS 3-4 MARKS1. Richa enterprise limited is the producer of Tasty Pan Masala. In order to promote the

sale of its product, the company is using the slogan “Come alive with tasty pan masala” and its advertisements are not showing the statutory warning “Tabaco chewing is injurious to health”.i) What values are being violated by Richa Enterprises?ii) What are the ethical and legal objections against the advertisements?Ans: i) The company is overlooking social values to promote the tobacco based product. It is promoting the product at the cost of health of the consumers.ii) The ethical and legal objections against its advertisements are as follows:-a) The company is encouraging the sale of the product which is harmful to the health of

the people.b) The slogan “come alive with tasty pan masala” for a Tabaco based product would

encourage people to consume tobacco. This undermines social values of the society.c) The company is violating the legal provisions by not depicting the statutory warning on

the product package.

90

2. A company imports edible oils and sells in the domestic markets. But in order to maximize its profit, it indulges the adulteration of edible oils which are used for cooking foods for human consumption. The management of the company justifies this act because of rising prices of imported edible oils and govt. pressure for not increasing prices in the domestic market. What do you feel about it?Ans: The act of the company is not ethical as it is not offering to the consumer what it is promising to sell. It is cheating them and also playing with their health.The company’s sole concern for “profit maximization” is not justified.The company is not fulfilling its social responsibility towards consumers by not offering genuine goods at reasonable prices.

3. A bank customer encountered a problem while withdrawing an amount from the ATM of his bank. The ATM showed the message again and again that Transaction is denied, but the bank has debited the customer’s account to signify withdrawal of money. After complain by the customer, the bank officials are not taking any step to rectify the wrong.i) Which value of the customer is violated?ii) Can the above customer file a complaint against the bank?Ans: i) The economic value of the customer has been violated in the above case.The bank has debited the account of the customer though he has not actually withdrawn said amount.ii) Yes, the bank customer can file a complaint as he is being cheated by the bank. The complaint could be filed with the head office of the bank or the ombudsman of the bank.

91

CHAPTER - 10

INTERNATIONAL BUSINESS

NATURE AND IMPORTANCE OF INTERNATIONAL TRADE

International Trade is also known as ‘foreign trade’ or ‘eternal trade’. It refers to the exchange of goods and services between two or more countries or their nationals. It involves the use of foreign currency (called foreign exchange )for receiving the payment of the price of the imported goods.

International trade means trade with foreign countries. It implies buying & selling of good by one country from and to other countries beyond its national frontiers. In the other words , International trade is the external trade of a country and consists of the exchange of commodities between the citizens of different countries.

NATURE OF INTERANTIONAL TRADE

The salient features of international or foreign trade are as follows:

(i) Exchange of goods: International trade involves purchase of goods from other countries and sales of goods to other countries. Purchase of goods from a foreign country is known as foreign trade as ‘Import Trade’ and sales of goods to another country is known as ‘export trade’. But when goods are imported from a country with the objectives of exporting them to some other country, it is known as ‘entrepot trade’.

(ii) Parties in external trade: international trade is carried on mostly in large quantities both on government to government account on private account involving individual and business houses.

(iii) Foreign currency: payment for imported goods is made in foreign currency. Similarly, payment for export of goods is received in foreign currency. Conversion of foreign currency into rupee or vice -versa is regulated by the reserve bank of India.

(iv) Restrictions: international trade is not as free as internal trade. Many restrictions have been imposed by the central government on nth e import and export of goods. In case of several items, license is also required for import and export.

(v) Risk: international trade is exposed to several risks as fluctuations in the relative prices of two currencies, perils of sea, fear of obsolescence, etc.

(vi) Language barrier: each country has its own language. Because of differences in language of two countries, there may be problem in entering into import and export transaction.

DIFFERENCE BETWEEN HOME TRADE AND INTERANATIONAL TRADE

Basis Internal trade International tradeMeaning It means trade between

traders within the boundaries of a country.

It means trade between traders of two different countries.

Transport It uses rail and road transport

It uses sea and other modes of transport.

92

Risk Less risk Several risk in transit. Sea transport carries more risk

currency Currency of the country Currency of two countries are involved

Laws National laws , rules and regulations govern the internal Trade.

Laws of the respective countries, international law and customs govern the external trade.

Payments Made in cash or cheque. Made through banks.

TYPES OF INTERNATIONAL TREADE : international trade may be classified into :

(a) Import trade: it involves purchase of goods from foreign markets for use in the domestic market.

(b) Export trade: it involves supply of domestic goods to foreign buyers and markets.(c) Entrepot or re-export trade: it involves the import of foreign goods with a view to re-

exporting them and making the profit in the process. For ex – an Indian trader import goods from Singapore an exports the same to Australia.

IMPORTANCE OF INTERNATIONAL TREADE : It is known fact that no country is capable of producing everything efficiently for the consumption of its people. This Is due to unequal distribution of natural resources and skills among different countries of the world. Foreign trade enables every country to specialize in the production of those gods for which it has relatively more resources, facilities and skills as compared with the other country. It may do be in a position to export it surplus production of such goods. It can import other goods from the countries which possess comparative advantages of production. In this way every country can derived the benefits of geographical specialization from external trade.

International trade makes available the goods to the consumers of countries where they are not produced. Thus, it improves the standards of living of the people. Foreign trade is also important for economic development of a nation. Capital equipment and scare raw materials can be imported from other countries. Similarly surplus commodities can be exported to other countries and foreign exchange may be earned.

The advantages of international or foreign are discussed below:

1. Optimum use of resources: foreign trade leads to international division of labour and specialization. It reduces wastages of resources resulting from the production of uneconomic goods.

2. Standard of living: foreign trade increases the standard of living of the people living in different countries. It provides commodities to the people of a country which cannot be produced economically in that country.

3. Internationals relations: foreign trade makes different countries dependent upon each other. A country can sell its surplus stock of goods to the deficient countries and country having deficiency of a product can important it from another country.

4. Stabilization of prices: Foreign trade leads to stabilization of prices of commodities throughout the world by adjusting demand and supply. This would not have been possible in the absence of foreign trade.

93

5. Generation of prices: Foreign trade helps in increasing employment opportunities in the exports-oriented industries.

6. Growth of economy: foreign trade facilitates speculation of a country in production of certain goods. This will help to carry on production of some commodities not only for home consumption but also for external consumption.

Disadvantages of International Trade:

The Disadvantages of International Trade are as follow:

1) Dependence on Foreign Goods. Dependence on foreign goods. May create a crises in the event of war or unhealthy relations.

2) Collapse of Home Industries. Unrestricted imports may lead to collapse of infant industries at home. There may be lopsided and partial development of the economy because of excessive dependence on imports.

3) Misutilisation of natural resources4) Unhealthy competition.

PROBLEM OF INTERNATION TRADE

International trade is not as easy as inland trade of a country. There are a large number of complexities, hindrances, or problems in the foreign trade dealings. The more frequent problems which restrict the volume of foreign trade are described below:

1. Currency. Each country has its own currency system and the currency of one country is not the legal tender in another. Hence, foreign trade involves the determination of the exchange rate of currencies first and transaction in goods or services afterwards.

2. Restrictions. Foreign trade is subject to a large number of restrictions or barriers. Tariffs, quotas and exchange regulation imposed by different countries limit the volume of trade between countries.

3. Transport. Because of geographical distance and physical barriers, transport of goods constitutes a problem. Goods are also exposed to greater risks during the process of transport.

4. Time Lag. Generally, there is a wide gap between the time when the goods are dispatched by the exporter and the time when they are received and paid for by the importer.

5. Language. Each country has its own language and also often its own script. This creates problem of communication between the traders of different countries.

6. Lack of Direct Contact. In the absence of direct contact between the seller and the buyer, it becomes a difficult task for the seller to inquire into the credit worthiness of the buyer and for the buyer to inquire into the reliability of the seller.

PRICE QUOTATIONS IN INTERNATIONAL TRADEBesides the cost of goods, the importer has also to pay the overhead costs such as freight, insurance, etc. for shipment of goods from the exporter’s place to the importer’s place. The price to be paid by the importer will be determined by the type of price quotations made by the exporter. In external trade, the following types of quotations are often used:

94

1. F.A.S. (Free Alongside Ship). This includes cost of goods plus all expenses of placing the goods near the ship. Loading charges, freight, etc., are to be paid by the buyer.

2. F.O.B. (Free on board). This includes all charges at the port of shipment upto the loading of goods on board the ship and export duty, if any. It is the aggregate of F.A.S. price, ship loading charges and export duty.

3. C & F (Cost and Freight). This includes the cost of goods and all expenses incurred for taking the goods the port of destination. It excludes insurance charges. Such a quotation must include the name of the port at which delivery will take place, e.g., C & F Mumbai

4. C.I.F. (Cost, Insurance, Freight). It adds the cost of marine insurance to the C & F price (Port of Destination).Thus, C.I.F.= C & F + Insurance Premium.

IMPORTANT PROCEDURE

Trade Enquiry

Obtaining foreign exchange

Place order or Indent

Obtaining Letter of Credit

Arranging for Finance

Receipt of Shipment Advice

Retirement of Import Documents

Customs clearance and release of goods

EXPORT PROCEDURE

Receipt of Enquiry and sending Quotations

Receipt of Order or Indent

Assessing Importer’s Credit worthiness and securing a guarantee for payments.

Obtaining Export License

Obtaining pre shipment Finance

Production of Procurement of Goods

Pre Shipment Inspection

Excise Clearance

Obtaining Certificate of Origin

95

Reservation of Shipping spaces

Packing and forwarding

Insurance of Goods

Customs clearance

Obtaining Mate’s Receipt

Payment of Freight and issuance of Bill of Landing

Preparation of Invoice Securing Payment

Document Used in Export Transactions

S.no Documents Related to Goods

Documents Related to shipment

Documents related to Payment

1 EXPORT INVOICE It is issued by the

exporter It provides

information like quantity of goods sent, total value of goods etc.

MATE’S RECIEPT It is issued by the

commanding officer of the ship to the exporter after the cargo is loaded on the ship.

It contains details like name of the vessel, birth, date of shipment, description of packages, marks and number etc.

It is very important receipt as shipping company issues the bill of landing only after getting this receipt.

LETTER OF CREDIT It is guarantee issued

by the importer’s Bank that it will honor payment up to a certain amount of export bill to the exporter.

2 PACKING LIST It indicates the

number of cases of packs and the details of the goods contained in these packs

SHIPPING BILLS It is the main

document on the basis of which customs office grants permission for the export.

It contains details regarding goods to be exported, exporter’s name and address, etc.

BILL OF EXCHHANGE It is drawn by the

exporter on the importer.

It contains instruction to the importer to pay a specified amount to a certain person or the bearer of the instruments.

3 CERTIFICTE OF ORIGIN BILL OF LADING BANK CERTIFICATE OF

96

It specifies the country in which the goods are being produced

It helps to get tariff concessions.

It is also a ban on imports of certain goods from selected countries.

It is prepared by shipping company acknowledgement the receipt of goods on board the ship

It is a document of title of goods and is freely transferable by endorsement and delivery.

It contains an undertaking to carry them to the port of destination.

PAYMENTS It certifies that

necessary documents relating to the particulars export have been presented to the importer for payments.

4 CERTIFICATE OF INSPECTION

It ensures that only good quality products are exported

Export Inspection Council of India is one such agency

AIRWAY BILL It is prepared by

the airline company to acknowledgement the receipt goods on board its aircraft.

It is also a document of title to the goods and is freely transferable by the endorsement and delivery.

5 MARINE INSURANCE POLICY

It is an insurance contract

It is an agreement to indemnify the insured against any loss caused due perils of the sea in consideration of payment called premium.

6 CART TICKETIt is prepared by the exporter, which provides details regarding export cargo, like shipper’s name, number of packages shipping bill number etc.It is also known as a cart chit, vehicle pass or gates pass.

97

Document used in Import Transaction

Trade Enquiry

1. It is a written request by the importer to the exporter to provide Information regarding price, terms and conditions etc.2. Proforma invoiceA proforma invoice is a document that contains detailed information regarding price quality, grade, size etc.3. Shipment AdviceShipment advice is a document that the exporter sends to the importer. It informs that the shipment of goods has been made and details regarding it.4. Bill of EntryIt is a document prepared by the importer,It shows the details of goods imported and is used by custom authorities for determining import duty.5. Sight DraftIt is a type of bill of exchangeThrough this the exporter instructs the bank to hand over the relevant documents to the importer only against payment.6. Usance DraftIt is a type of bill of exchange.It is a type of bill of exchange.Through this the exporter instructs the bank to hand over the relevant documents to the importer only against Acceptance of Bill of Exchange.7. Import General ManifiestIt contains details regarding imported goods.On the basis of this foods are unloaded from the carrier.8. Dock ChallanIt is prepared by the importer or his C & F (Clearing and Forwarding agent) It specifies the amount of dock dues.

WORLD TRADE ORGANISASTION (WTO)

It was established on 1st Jan 1995. It was established to have a permanent institution to promote free and fair trade amongst

nations.

Role of WTO

Encouraging member countries to come forward to WTO for mitigating their grievances Laying down a commonly accepted code of conduct in order to reduce trade barriers Acting as a dispute settlements body. Ensuring that all the rules and regulations prescribed in the act are duly followed by the

member countries for the settlement of their disputes. Holding consultations with IMF and IBRD and its affiliated agencies to bring better

understanding and cooperation in global economic policy making

98

Regularly supervising the operations for the revised agreements and Ministerial declarations relating to goods, services, and Trade Related Intellectual Property

Short Answer Type Questions: (1 Mark)

Q1. This certificate specifies the origin of goods exported. Name the document.

Ans. Certificate of Origin

Q2. This document is prepared by the importer and it shows the details of goods imported and is used by custom authorities to determine import duty. State the name of the document.

Ans. Bill of Entry

Q3. List any two items of India’s Export?

Hint. Major items of Indi’s export include agriculture products, minerals and ores, textiles, gems and jewellery, engineering goods, chemicals and related products and leather items.

Q4. What is IEC number?

Hint: IEC is the import export export code number which is required to be filled in various export import documents.

Q5. Why is the necessary for an export firm to go for pre-shipment inspection?

Hint: To ensure that only good quality products are exported

Q6. What is bill of lading? How does it differ from bill of entry?

Hint: Bill of Lading is a document prepared by the shipping company to acknowledge the receipt of goods on board the ship and gives an undertaking to carry them to the port of destination.

On the other hand, bill of entry is a document prepared by the importer to show the details of goods imported and is used by custom authorities determine import duty.

Very Short Question 1 Mark Question

Multiple Choice Questions

1. Which one of the following is not amongst India’s major export items?(a) Textiles and garments(b) Gems and jewellery(c) Basmati Rice(d) Oil and petroleum products

Ans: Basmati Rice

99

2. Which of the following documents are not required for obtaining an export lisence?(a) IEC number(b) Letter of Credit(c) Registration of Origin(d) Shipment AdviceAns: Letter of Credit

3. Which one of the following is not a document related to fulfill the customs formalities:(a) Shipping bill(b) Letter of Insurance(c) Export license(d) Proforma invoice

Ans: Proforma invoice

Long Answer Type question and AnswersQ1. Describe the role of WTO.Ans Role of WTO (Refer to WTO given earlier)

Q2. Discuss the briefly the factors that govern the choice of mode of entry into international business.Hint: Refer ‘Modes of Entry into International Business: given in power Booster section.

HOTS – HIGHER ORDER THINKING SKILLS QUESTIONS 4/5 MarksQ1. Mars Infotech wishes to buy 400 computers from china for its software development businesss. Discuss the procedure to be adopted to import the computers.Ans.

Q2. “ Through, WTO is a successor to GATT, it is a much more powerful body than GATT”. Comment.Ans. Refer to GATT vs WTO.

Q3. Trendz Industries has received an export order of Rs. 5000 kids jeans from Walmart store. USA. What export procedure you will follow to execute this export order?Ans. Refer to export Procedure

VALUE BASED QUESTIONS ¾ Marks

Q3. Rekha garments has received an order to export 2000 men’s trosuer to Swift Imports Ltd. Located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order& identity which value have been considered here.Ans: Refer to export Procedure.

Q4. Discuss the principal documents used in exporting.Ans: Refer to documetns used in Export Transaction.

100

MODEL SAMPLE QUESTION PAPER

(FOR STUDENTS’ GUIDELINES)

1. Why business is considered an economic activity? (1)2. Identify any two Businesses from the following types of Business for which a sole

proprietorship form of organization would be more suitable? (1)a) Grocery store d) Medical storeb) Legal Consultancy e) Craft Centrec) Internet café f) Chartered accountancy firm

3. Mention any two examples of Statutory Corporations. (1)4. What is a Virtual Private Network? (1)5. Which of the following is not applicable in life insurance contract? (1)

a) Conditional contract c)Unilateral contractb) Indemnity contract d)None of the above

6. Give full form of NSIC. (1)7. Name the Quotation which an Exporter sends to the importer in response to a trade enquiry.

(1)8. What is IEC number? (1)9. If a person sells his/her domestic T.V. set at a profit, will it be considered as a business? Also,

explain the characteristics of business which is being stressed upon in the above said example. (1)

10. State, giving reasons, whether the following statements are true or false: (1)i) Public sector enterprise is run for the profit motive.ii) No Indian company carries on any operations outside India.

11. A factory owner gets his stock of goods insured, but he hides the fact that the electricity board has issued him a statutory warning letter to get his factory’s wiring changed. Later on, the factory catches fire due to short circuit of wring. Can he claim compensation? (3)

12. Priya Plastic Pvt. Ltd. Is manufacturing plastic toys for children and earning a huge profit. However, a research conducted on the toys shows that colours used in manufacturing toys are harmful for the children. When asked, managing director admitted that they are using sub-standard colours because they are cheap and economical. However, managing director assured that the company will use standard colours only after certification from research laboratory. The company will expand its production capacity by employing labour from underprivileged section of the society.Highlight the social values ignored by the company and social values taken into account by the company. (3)

13. Explain the following terms in brief: (3)i) Seconds shopsii) Vending machinesiii) Cheap jacks

14. Explain GDR, ADR and IDR. (3)15. Explain the following terms used in the trade: (3)

i) Cash on Delivery (COD)ii) Free on Board (FOB)

101

iii) Cost, Insurance and Freight (CIF)16. “No business is risk free.” In the light of this statement, explain the concept of business risk

and it’s any three causes. (4)17. What technical name is given to an Organisation which controls production and marketing

facilities in more than one country? Explain any three features of such an organisations.(4)18. Differentiate between equity shares and preference shares on the basis given below: (4)

a) Nominal valueb) Right to dividendc) Refund of capitald) Rate of dividend

19. Imagine life without your local market. What difficulties would a consumer face if there is no retail shop? (4)

20. Explain the role of Indian Chambers of Commerce and Industry in promotion of Internal Trade. (4)

21. The Business assets of an organisations amount of Rs 50,000 but the debts that remain unpaid are Rs 80,000. What course of action can the creditor take if (5)a) The organisations is a sole proprietorship firmb) The organisations are a partnership firm with Anthony and Akbar as partners, who share

profit and losses equally. Which of the two partners can the creditors approach for repayment of debt? Explain giving reasons.

22. You are a businessman. You want to implement ‘e-business’. What is e-business? What are the resources required for its successful implementation? (5)

23. Describe the role of small business in rural India. (5)24. Mr. Aryan Awasthi in interested in floating a private limited company. Discuss the steps he

should undertake. (6)OR

A company is said to be an artificial person created by law having a separate entity with perpetual succession and a common seal . discuss the features of a company in the light of the above statement.

25. Define banking. Explain the types of bank accounts. (6)OR

Explain the following banking services: (1)Real Time Gross Settlement (RTGS) (2) National Electronic Funds Transfer (NEFT) (3)Bank Overdraft (4) Cash Credits.

26. “Business is essentially a social institution and not a merely and not merely a profit making activity.” Explain. (6)

ORExplain the role of business in environmental protection.

27. As a source of finance retained profit is better than other sources. Do you agree with this view? Give reasons for your answer. Can a company grow indefinitely by reinvesting surplus profits?

(6)

OR

102

Explain the following sources of business finance: (i)public deposits (ii) trade credit (iii) InterCorporate deposits.

28. Rekha Garments has received an order to export 2000 men’s trousers to swift Imports Ltd. Located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order. (6)

ORWhat is WTO? Discuss its role.

(ANSWERS)1. Business is considered to be an economic activity because it is undertaken with the

object of earning money or livelihood. There is no place for love, affection, sympathy or patriotism.

2. Grocery Store d) Medical store.3. i) Food Corporation of India.

ii) Life Insurance Corporation.4. Under Virtual Private Network (VPN) system, meetings with the employees can be held

online via tele/video conferencing.5. b) Indemnity contract6. National Small Industries Corporation.7. Performa Invoice8. IEC number is the number issued by the Directorate General for Foreign Trade or

Regional Trade Export Licensing Authority for Foreign Trade.9. No, selling a domestic T.V. set at a profit will not be considered a business activity

because business involves dealings in goods or services on a regular or daily baisi. One single transactions of sale or purchase does not constitute business.The characteristic of business which is being stressed upon in this example is- Dealings in Goods and services on a regular basis.

10. i) False: they are run to promote public welfare by providing public utility services like water supply,electricity,transportation,etc.ii) False: Many Indian companies like Tata group, Birla group carry on operations outside India.

11. No, the factory owner cannot claim compensation from the insurance company since he has hidden the fact of statutory warning from the electricity board. He has violated the principle of ‘utmost good faith’. According to this principle, the insured must voluntarily make full, accurate disclosure of all the facts, material to the risk being proposed. The insurer must also make clear all the terms and conditions in the insurance contract.

12. The company used sub-standards colors without getting it certified. The company should have received ‘O.K.’ certificate from recognized research laboratory for the colors used by it. In its zeal to earn huge profit, the company ignored social responsibility towards consumers.However, the managing director admitted its negligence. The company will meet its social obligation to use standard colors. Further the company decided to employ people

103

from underprivileged sections of the society which will definitely help them to earn their livelihood and to improve their standard of living.

13. i) Seconds shops- Shops selling goods which have some minor defect in them, not quite visible.ii) Vending Machines- a machines operated by coins or tokens, e.g., ATM.iii)Cheap Jacks- petty retailers who have independent shops of a temporary nature in a business locality.

14. Global Depository Receipts (GRDs): GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency.American Depository Receipts (ADRs): The depository receipts issued by a company in the USA are known as ADRs.Indian Depository Receipts (IDR): An IDR is an instrument denominated in Indian Rupees in the form of a Depository receipt created by an Indian Depository against the underlying equity of issuing company to enable foreign company to raise funds from the Indian securities market.

15. i)Cash on Delivery (COD): Cod is a financial transaction where the payment of products and/ or services received is done at the time of actual delivery rather than paid-for in advance.ii) Free on Board (FOB): it is a contract between the seller and the buyer of goods in which all the expenses (shipment and loading costs etc.) up to the point of delivery to a carrier (who acts as an agent of the buyer) are to be borne by the seller.iii) Cost, Insurance and Freight (CIF): it is a contract between the seller and buyer in which the seller must pay not only the costs and freight to bring the goods to the port of destination but he/she must also pay for insurance.

16. The term ‘Business Risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. For example, demand for a firm’s product may decline due to change in taste and fashion of customers due to change in taste and fashion of customers or due to increased competition. Decrease in demand will result in low sales and hence low profits or even lossesCauses of Business Risks1) Natural causes2) Human causes3) Economic causes

17. Multi-National corporations or Global Enterprise.Features-i) Huge Capital Resourcesii) Centralised controliii) Advanced technology

18.

BASIS EQUITY SHARES PREFERECE SHARES1. NOMINAL/FACE

VALUEGENERALLY LOW GENERALLY HIGH

2. RIGHT TO DIVIDEND AFTER PREFERENCE DIVIDEND IS PAID

PRIORITY OVER EQUITY SHARE

3. REFUND OF CAPITAL AFTER PREFERECE PRIORITY OVER EQUITY

104

SHARES ARE PAID SHARES19. A consumer would face following difficulties if there is no retail shop:

i) A retail shop holds stock of a variety of goods to be used for final consumption by consumers. In the absence of a retail shop, consumer will have to store the goodsii) In the absence of a retail shop, a consumer will not be able to make a good selection. A retail shop keeps a large variety of goods manufactured by various manufacturers.

iii) A retail shop supplies goods in the quantities which suit the pocket and needs of different consumers. In the absence of a retail shop, a consumer will have to approach a wholesaler or a manufacturer for a small quantity of goods.

iv) Retail shops are situated in residential areas. In the absence of a retail shop, there will be lot of inconvenience to the consumers. They will have to approach the wholesaler or manufacturer who will not be near to consumer’s residence.

20. In India, the following associations or chambers act as the national guardians of trade, commerce and industry. They have been playing a catalytic role in strengthening and promoting internal trade.

Federation of Indian Chambers of Commerce and Industry (FICCI) Confederation of Indian Industry (CII)

Role/Functions

1) Interstate movement of goods2) Octroi and other local taxes3) Harmonisation of sales tax structure and value added tax (VAT)4) Excise duty

21. Business assets= RS. 50,000; Liabilities= RS.80,000Therefore, Creditor’s claim= RS.30, 000a) If the organization is a sole proprietorship firm, the creditors can sue the sole proprietor for RS.30, 000, because a sole proprietor has unlimited liabilities. In the case of business losses, if the business assets are not sufficient to meet all business liabilities, the proprietor may have to sell his personal property to pay off the liabilities.

b) If the Organisation is a partnership firm with Anthony and Akbar as partners, the creditors can sue both the partners and a single partner for their claim. The reason is that partners have unlimited liability. They are jointly and individually liable for payment of firm’s debts. Jointly, all the partners are responsible for the payment of the firm’s debts in their profit sharing ratio. So, Anthony and Akbar will have to pay RS.15,000 each. Individually, a single partner (suppose Anthony) can be held responsible to repay the debts of the business RS.30, 000, if Akbar becomes insolvent and cannot bring anything from his private assets.

105

22. E-Business (Electronic business) means conducting industry, trade and business using the computer network. If offers the convenience of 24 hours x 7 days a week x 365 days a year business.

Resources Required for Successful e-Business Implementation1) Well Designed website2) Adequate computer hardware3) Technically qualified and responsive work force4) Effective telecommunication system.

23.Role of Small Business in Rural India1) Generation of employment2) Rural industrialization and balanced regional development3) Reduction in income inequalities4) Mobilisation of local resources5) Prevent migration.

24.Stages in formation of a private limited company:1) PromotionSteps in Promotioni) Identification of business opportunityii) Feasibility studiesiii) Name approvaliv) Fixing up signatories to the Memorandum of Associationv) Appointment of professionalsvi) Preparation of necessary documents

2) Incorporation:Steps in Incorporation:i) Application for incorporationii) Fixing of necessary documents-Memorandum of Association, Articles of Associations, etc.iii) Payment of feesiv) Registrationv) Certificate of Incorporation

A private company can start its business immediately after obtaining the ‘Certificate of Incorporation’.

ORA company is said to be an artificial person created by law having a separate entity with perpetual succession and a common seal.i) Incorporated associationii) Separate legal entityiii) Artificial person

106

iv) Perpetual successionv) Common sealvi) Transferability of shares

25. Banking means accepting deposits of money from the public (for the purpose of lending and investment), repayable on demand and withdrawable by cheques or otherwise.

Types of bank Accounts

1) Savings and Deposit account

2) Current Deposit account

3) Recurring Deposit account

4) Fixed Deposit Account

5) Multiple options Deposit Account

OR

1) Real Time Gross Settlement (RTGS)2) National Electronic Funds Transfer (NEFT)3) Cash Credits4) Bank Overdraft

26.Business is not merely a profit making activity; it is essentially a social institution because it is the creation of the society. Business activities cannot be pursued in isolation from the society. If a business fails to pursue social responsibility, the society will either force to do so or may no longer permit it to survive. Thus, a business is a socio-economic institution. It has to fulfill the following social responsibilities:

i) To pay a fair refund on investment to the shareholders/owners and to ensure the safety of their investment.

ii) To pay fair wages and salaries to the workers and employees and to provide them good working conditions.

iii) To produce and sell on a regular basis desirable goods and services at reasonable prices.iv) To avoid unfair trade practices such as adulteration, hoarding, black marketing, under weighing, poor quality of goods and services, misleading advertising, etc.

v) To respect the laws of the country and to pay taxes regularly and honestly.

vi) To cooperate with the government voluntarily in solving national problems such as poverty, unemployment, illiteracy, etc.

107

ORIt is the social responsibility of every business to take steps not only to check all sorts of pollution but also to protect environment resources. A business enterprise can take following steps to protect the environment from the dangers of pollution:

1) Top management of the enterprise should be committed to create, maintain and develop work culture for environmental protection and pollution prevention. This commitment should be shared throughout the enterprise by all divisions and employees.

2) Clear-cut policies/programmes should be framed/developed for purchasing good quality raw materials, employing superior technology, using scientific techniques of disposal of wastes, etc.

3) The enterprise must comply with the laws and regulations enacted by the government for prevention of pollution.

4) The enterprise should participate in government programmes relating to management of hazardous substances, plantation of trees, checking deforestation, etc.

5) A suitable mechanism should be established for periodical assessment of pollution control programmes in terms of costs and benefits.

6) The enterprises should arrange educational workshops and training in pollution control for its employees.

27. Yes, I agree with the view that as source of finance retained profit is better than other sources.Following points justify this:i) Retained earnings are a permanent source of funds available to a company.ii) No costs in the form of interest, dividend or flotation costs, i.e., cost of issuing prospectus and advertisements.iii) It increases the capacity of a company to absorb unexpected losses.vi) The market price of the company’s equity shares will increase, if retained profits are reinvested in profitable projects.v) Growth and expansion of business is possible by reinvesting the retained profits.

No, a company cannot grow indefinitely by reinvesting surplus profits. Excessive retained profits cause dissatisfactions amongst equity shareholders because they would get lower dividends. Moreover, it is an uncertain source of funds because it is available only when profits are high.

108

ORPublic DepositsMerits:i) Low costii) No dilution of controliii) No charge on assetsiv) Tax savingsLimitations:i) Difficult to raise funds for a new companyii) Unreliable source of financeiii) Limited Funds can be raisediv) Low maturity periodTrade CreditInter Corporate Deposits (ICD)

28. Rekha Garments would need to go through the following steps/stages for executing the export order of 2000 men’s trousers:i) Assessing Importer’s Creditworthinessii) Obtaining Export Licenseiii) Obtaining Pre-shipment Finance and Production or Procuringiv) Pre-shipment Inspection, Excise Clearance and Obtaining Certificate of Originv) Reservation of Shipping Space, Packing, Forwarding and Insurancevi) Customs Clearance and Port Formalitiesvii) Preparation of Invoice and Securing Payment.

ORWorld Trade Organisation (WTO) was set up on 1st January, 1995 to promote international trade. The headquarters of WTO is at the Centre William Rappard, Geneva, Switzerland. The WTO has 153 member countries at present, representing more than 97% of total world trade.India is a founding member of WTO.ROLE OF WTOi) It supervises and liberalizes international trade by reducing trade barriers including tariffs and eliminating discriminations in international trade relations.ii)It helps promote international peace by solving trade problems between countries.iii) WTO rules and agreements are permanent, which make international trade and relations very smooth and predictable.iv) Free trade improves the living standard of the people by increasing the income level.

109

MODEL QUESTION PAPER SET – V

SAMPLE PAPER 1

BUSINESS STUDIES XI

TIME ALLOWED: 3 HOURS MAXIMUM MARKS: 90------------------------------------------------------------------------------------------------------------------------------------------

General Instructions:

(i) Answers to questions carrying 1 mark may be one word to one sentence.(ii) Answers to questions carrying 3 marks may be 50 to 70 words.(iii) Answers to questions carrying4-5 marks may be of about 150 words.(iv) Answers to questions carrying 6 marks may be of about 200 words.(v) Attempt all parts of a question together.

1. What is a cooperative society? 12. What is a statutory cooperation?13. Mention any two functions of commercial bank. 14. Give any two examples of services which could be outsourced. 15. By what clause in the Memorandum of association is a company identified? 16. What are borrowed funds? 17. What does SIDBI stand for? 18. Give the two types of internal trade. 19. Explain any three privileges of a PVT.LTD. CO. 310.Briefly explain any two objectives of business. 311.Define sole proprietorship and state any two demerits of this organization? 312.Explain the difference among life insurance, fire insurance and Marine insurance

on the basis of subject-matter and insurable interest. 313.What is a departmental store? Give any two merits of departmental stores. 314.Differentiate between business and profession. 315.The management of a company has decided to set up its new plant in a rural area

to provide employment to local people there and also contribute to the development of that area. From commercial points of view, the consultants have advised against the setting of this plant in the rural area. How would you justify management decision?4

16.Explain any four features of global enterprises. 417.Briefly explain any four services of a wholesaler to manufactures. 418.Explain any two merits and any two limitations of preference shares. 419.Discuss the merits and limitations of partnerships. 420.Explain the merits of joint venture. 521.Define e- business and its four benefits. 5

110

22.Explain the merits if issuing equity share. 523.Define consumers cooperative society and give its features 524.Examine the arguments for assumptions of social responsibility of business. 6

OR Explain the elements of business ethics.

25.What are the problems of small business in India? 6

OR

Explain the incentives

provided by the

Government for the industrialization of backward areas.

26.What is certificate of incorporation? Explain the procedure for incorporation of a company. 6

OR

Explain the reasons of popularity of a public limited company.

27.Explain any three documents used in import trade. 6 ORWrite notes on the following:(a) Role of WTO.

(b)Problems of international trade.

A cooperatives society is a voluntary association of persons, who join together with the motive of welfare of the members.

1. A statutory corporations is a public enterprises brought into existence by a special Act of the parliament.

2. Functions of a commercial bank (Any Two)I) Acceptance of depositsII) Lending of fundsIII) Cheque facilityIV) Remittance of funds

4. Two Examples of services which are outsourced:

i) Courier Services

ii) Financial services

5. Name clause

111

SUGGESTED ANSWERS

6. Borrowed funds refer to funds raised through loans and borrowings.

7. SIDBI stands for Small Industries Development Bank of India.

8. Retail Trade and Wholesale Trade.

9. Privileges of a Private Limited Company (Any Three)

i) Only two members are required.

ii) No need to issue a prospectus.

iii) No minimum subscription requirements.

iv) No need of Certificate of Commencement of Business.

v) Only two directors are needed,

vi) No need of index of members,

vii) No restrictions on the amount of loans to directors.

10. a) Market Standing: It refers to the position of an enterprise in relation to its competitors.

b) Manager Performance and Development: Managers must be motivated to perform better.

11. Sole Proprietorship refers to form of business organization which is owned, managed and controlled by an individual who is recipient of all profits and bear of all risks.

Demerits of sole proprietorship (any two)

(i) Limited resources.

(Ii) limited life of a business concern.

(iii) Unlimited liability.

(iv) Limited managerial ability

(Briefly explanation of each point required)

12. Difference among life insurance, fire insurance and Marine insurance on the basis of

(a) subject-matter:

(i) The subject matter of life insurance is human life.

(ii) The subject matter of fire insurance is a physical property or asset.

(iii) The subject matter of marine insurance is a ship, cargo or freight.

(b) Insurable interest:

(i) In case of life insurance, insurable interest must be present at the time of affecting the policy but need not be necessary at the time when claim fall due.

112

(ii) in case of fire insurance , insurable interest on the subject matter must be present both at the time of effecting policy as well as when the claim falls due.

(iii) In the case of marine insurance, insurable interest must be present at the time when the claim fall due or at the time of loss only.

13. Definition of departmental store.

Merits of departmental store: (any two)

(i) Attracts large number of customers.

(ii) Convenience in buying

(iii) Economy of large scale operations

(iv) Promotion of sales.

(Briefly explanation of each point required)

14. Differentiate between business and profession

Basis Business profession(i)mode of establishment Entrepreneur’s decision and

other legal formalities necessary

M e m b e r s h i p of aProfessional body and certificate of practice.

(ii)reward or return Profits Professional fee(iii)risk Profits are uncertain and

irregular, risk is presentFe is generally regular.There may be some risk

(iv)transfer of interest Transfer possible with formalities

Not possible

15. The management of a company wants to fulfill its social obligation towards the society.

This decision is justified on the following grounds.

(a) The local people will get employment.

(b) There will be overall development of rural areas concerned.

(c) Other business units might also be started over there,.

(d) The image of company will go up as a socially responsible company.

16. Feature of a global enterprises

(a) Huge capital resources: these enterprises are characterized by possessing huge financial resources and ability to raise fund from different sources.

113

(b) Foreign collaboration: global enterprises usually enter into agreements with Indian companies pertaining to the sale of the technology, production of goods, use of brand names for the final products, etc.

(c) Expansion of market territory: their operations and activities extend beyond the physical boundaries of their own countries.

(d) Centralized control: they have their headquarters in their home countries through which they exercise control over all branches and subsidiaries in different countries.

17. Services of a wholesaler to manufacturers

(a) Distribution of goods (b) providing market information

(c) Transport and warehousing (d) financing

(Briefly explanation of each point required)

18. merits of preference shares (any two)

(i) Provide reasonable stud income in the form of fixed rate of return and safely of investment.

(Ii) Useful of investors who want fixed rate of return with comparatively low risk.

(iii) Do not affect the control of equity shareholder’s as preference shareholders do not have voting rights.

(iv) In good time, equity shareholders can be rewarded with higher rates of dividend due to fixed rate of dividends on preference dividend.

Limitations of preference shares (any two)

(1) Preference share are not suitable for those investors those who are willing to take risk and are interested in higher returns.

(2) Preference capital dilutes the claim of equity shareholder’s over assets of the company.

(3) Rate of dividend on preference shares is higher than the rate of interest on debentures.

(4) These shares may not be attractive to the investors as dividend is paid only when the company earns profits.

(5) No tax saving as dividend paid is not deductible from profits as expense.

19. merits of partnership (any two)

(i) Ease of formation and closure (ii) Balanced decision marking

(iii) More funds (IV) sharing of risks

(v) Secrecy

114

Limitations of partnership (any two)

(i) Unlimited liability (ii) limited resources

(Iii) Possibility of conflicts (iv) lack of continuity

(v) Lack of public confidence

20. Benefits of joint ventures (any five)

(i)increased resources and capacity(ii)access to new markets and distributions networks(iii)access to technology(iv)innovation(v)low cost of production(vi)established branded name

(Briefly explanation of each point required)

21. e-business

It may be defined as the conduct of industry, trade and commerce using the computer networks, most popular network is internet.

(Briefly explanation of each point required)

22. Merits of issuing equity shares (any five)

(i) Suitable for investors who are willing to assume higher risk for returns.

(ii) Payment of dividend on equity shares in not compulsory so any additional burden on the company.

(iii) Equity is a form of permanent capital and so is a cushion for creditors.

(iv) Provide credit worthiness to the company.

(v) No charge on asset of the company.

(vi) Democratic control over the management of the company.

(Briefly explanation of each point required)

23. Consumer cooperative society:

It is store which is owned, managed and controlled by consumers themselves.

At least 10 people have to come together to form it under the cooperative societies Act.

115

Features of cooperative societies (any four)

(1) Ease in formation

(2) Limited liability

(3) Democratic management

(4) Lower prices

(5) Cash sales

(6) Convenient location

(Briefly explanation of each point required)

24. Arguments for social responsibilities of business (any six)

(i) Justification for existence and growth.

(ii)long term interest of the firm.

(iii)fear of government regulations

(iv)maintenance of society .

(v)availability of resources its business.

(vi)converting problems into opportunities.

(vii)better environment for doing business .

(viii) holding business responsible for social problems.

(briefly explanation of each point required)

Or

Elements of business ethics (any four)

(i) Top management commitment.

(ii) Publication of a code.

(iii) Establishment of a compliance mechanism.

(iv) Involving employees at all levels.

(v) Measuring results.

(Briefly explanation of each point required)

25. Problems of small business in India :

116

(i) Finance: Non – availability of cheaper capital.

(ii) Raw materials: compromise of quality.

(iii) Managerial skills: limited

(iv) Labor: low productivity

(v) limited marketing skills:

(vi) Quality: Non adherence to standards of quality.

Or

Intensive for industrialization of backward areas

(i) Land and concessional rates

(ii) Concessional power

(iii) Subsidized water

(iv) Exemption from Value Added Tax (VAT)

(v) Abolition of control.

(vi) Preference in allotments.

(Briefly explanation of each point required)

26. Certificate of incorporation

Certificate of incorporation is a conclusive evidence of the legal existence of the company. It is issued by the registrar of companies after the registration of company.

Procedure for incorporation of a company

Following documents have to be submitted to the registrar of companies along with application for registration .

(i) Memorandum of association.

(ii) Articles of association.

(iii) Written consent of directors.

(iv) Agreement with directors.

(v) Letter of name approval.

(vi) Statutory declaration.

(vii) Notice about exact address of the registration office.

(viii) Documentary evidence of payment of registration fees.

117

Or

Reasons for the popularity of joint stock companies

(i) Vast financial resources.

(ii) Limited liability.

(iii) Perpetual existence.

(iv) Transferability’s of shares.

(v) Professional management.

(vi) Scope of expansion.

27 documents used in import trades

(i) Indent

(ii) Letter of credit

(iii) Bill of entry

(Briefly explanation of each point required)

Or

Short notes

(a) Role of WTO:(i) Reduction of traffic and other trade barriers.(ii) Involvement in activities for all round economic improvement.(iii) Optimal use of resources of world.(iv) Promotion of durable and integrated system.

(b) Problems of international trade :(i) Currency.(ii) Restrictions.

(iii) Transport.(iv) Time lag.(v) Language.(vi) Lack of direct contact.

118

BLUE PRINT SUBJECT : BUSINESS STUDIES

Name of Chapters VSA(1 Marks)

SA-I(3 Marks)

SA-II(4 Marks)

LA(5Marks)

Essay type(6 Marks)

TotalQuestions

Total Marks

• Nature and Purpose of Business

1 1 1 - - 03 08

• Forms of Business Organisation

1 - - 1 1 03 12

3. Public, Private and Global Enterprises

1 1 1 - - 03 08

4. Business Services - - 1 - 1 02 105. Emerging Modes of Business

1 - - 1 - 02 06

6. Social Responsibility of Businessand Business Ethics

1 - - 1 - 02 06

7. Sources of Business Finance

1 1 1 - 1 04 14

8. Small Business 1 - - 1 - 02 069. Internal Trade - 2 - - 1 03 1210. International Business

1 - 1 - - 03 08

Total Questions 8 6 5 4 4 27 90Total Marks 8 18 20 20 24 = 90marks

119

BUSINESS STUDIES

SAMPLE PAPER-1

TIME-3HOURS CLASS-XI MAX.MARKS-90

General Instructions• Answer to questions carrying 1 mark may be from one word to one sentence. • Answer to questions carrying 3 marks may be from 50 to 75 words. • Answer to questions carrying 4-5 marks may be about 150 words. • Answer to questions carrying 6 marks may be about 200 words. • Attempt all parts of a question together.

Q1. Define insurable risk. (1)Q2. What is the maximum limit of members in partnership? (1)Q3. How much percentage of shares must be held by government to call a company as government company? (1)Q4. What is meant by encryption ? (1)Q5. Give any two reason supporting social responsibility . (1)Q6. State the meaning of finance. (1)Q7. Give the full form of ATM . (1)Q8. Define Entrepot. (1)Q9. Explain any three function of commerce . (3)Q10. What motivates a host country to give entry to multinational companies? (3)Q11. What are equity shares? Explain any two features of it. (3)Q12. What is a super market ? Explain any two advantages of it. (3)Q13. Should the wholesaler be eliminated? Comment in favour of elimination . (3)Q14. Discuss any three advantages of international business. (3)Q15. Explain the Aids or Auxiliaries to trade ? (4)Q16. Distinguish between public sector and private sector enterprises. (4)Q17. Explain the process of communication. With diagram. (4)Q18. As a source of finance , retained profits is better than any other sources. Do you agree with this view? Give reasons to support your answer. (4)Q19. An exporter expots goods to a foreign country and deposits the money so recieved from the importer in a foreign bank without the permission of the appropriate government authorities . later he brings that amount of foreign debt to avoid income tax . is it justified? (4)Q20. Which form of business suitable for following types of business and why? (5)

• Beauty parlour • Small retail outlet • Hotels

(iv) Shopping malls • Medium size trading concern

Q21. Differentiate between e-business & Traditional business. (5)Q22. Explain briefly the social responsibility of business towards different interest groups. (5)

120

Q23. What steps have been taken by the government to provide financial aid to industries set-up in rural backward & hilly areas? (5)Q24. Despite limitations of size and resources , many people continue to prefer sole proprietorship over other forms of organization . why ? Give merits of sole proprietorship. (6)

ORWhat is a ‘Memorandum of Association’ ? Briefly explain its clauses.Q25. Explain the functions of commercial banks with an example of each. (6)

OR Explain any three principles of insurance with suitable example.Q26. An established company has decided to expand its production capacity. It does not have adequate reserves to finance the expansion . Suggest with reason any two other sources of finance for the company . (6)

ORExplain the factors kept in mind before selecting a source of finance.Q27. What do you understand by internal trade ? Discuss its types in brief. (6)

OR Write a note on shopping malls. (give any two features of it).

121

BLUE PRINT SUBJECT : BUSINESS STUDIES

Name of Chapters VSA(1 Marks)

SA-I(3 Marks)

SA-II(4 Marks)

LA(5Marks)

Essay type(6 Marks)

TotalQuestions

Total Marks

• Nature and Purpose of Business

1 1 1 - - 03 08

• Forms of Business Organisation

1 - - 1 1 03 12

3. Public, Private and Global Enterprises

1 1 1 - - 03 08

4. Business Services - - 1 - 1 02 105. Emerging Modes of Business

1 - - 1 - 02 06

6. Social Responsibility of Businessand Business Ethics

1 - - 1 - 02 06

7. Sources of Business Finance

1 1 1 - 1 04 14

8. Small Business 1 - - 1 - 02 069. Internal Trade - 2 - - 1 03 1210. International Business

1 - 1 - - 03 08

Total Questions 8 6 5 4 4 27 90Total Marks 8 18 20 20 24 = 90marks

122

BUSINESS STUDIES

SAMPLE PAPER-2

TIME-3HOURS CLASS-XI MAX.MARKS-90

General Instructions• Answer to questions carrying 1 mark may be from one word to one sentence. • Answer to questions carrying 3 marks may be from 50 to 75 words. • Answer to questions carrying 4-5 marks may be about 150 words. • Answer to questions carrying 6 marks may be about 200 words. • Attempt all parts of a question together.

Q1. Define risk? (1)Q2. Is the liability of a sole proprietor limited, or unlimited? (1)Q3. What term is used for sale of share to private/public sector (1)Q4. Name two emerging modes of business. (1)Q5. Give any two reasons supporting social responsibility. (1)Q6. Name the first bank which is issued IDR. (1)Q7. Give the full form of NABARD? (1)Q8. Define mate’s receipts? (1)Q9. Define services. Name the services which is related to the following

• The service which helps in removing hindrance of knowledge • The service which helps in removing hindrance of place• The service which helps in removing hindrance of time• The service which helps in removing hindrance of risk. (3)

Q10. Can the public sector companies compete with the private sector in terms of profits effeciency give reasons for your answers. (3)Q11. Manish has Rs. 50,000 for investment purpose. Should he invest in equity shares, preference shares, public deposits or debentures? Justify your answer. (3) Q12. Mention the factors responsible for lack of popularity of mail order retaining in India. (3)Q13. Why are departmental stores not popular in India? (3)Q14. What is a letter of credit? Why does an exporter need this document? (3)Q15. What is international business? How is it different from domestic business? (4)Q16. State for advantages of debentures from the view point of debenture holders. (4)Q17. Explain any four types of insurance. (4)Q18. What is private sector ? State the various types of organisation in the private sector. (4) Q19. Explain the primary, secondary & tertiary industries? With one example of each. (4) Q20. Define partnership. Explain any four characterstics . (5)Q21. How can a business firm ensures safety & security of e-transactions ? Explain any four methods. (5) Q22. ‘Installation of effective pollution control system will reduce the cost and risk of liability and improve public image’. Explain. (5)

123

Q23. Do you think that small business units can survive in a competitive market ?Explain the factors which make way for the scope of small business enterprises. (5)Q24. Compare between wholesalers and retailers. (any six basis) (6)

OR Compare between departmental stores & multiple shops. Q25. The director of Jyoti ltd. Have decided to modernise the plant & machinery at an estimated cost of rupees one crore , but are in a fix whether to issue equity shares or debentures for the purpose . As a finance manager of the company, advise the directors whether to issue equity share or debenture in the interest of the company. (6)

Or Difference between public deposits & and loans from commercial banks as a source of finance

Q26. Explain the services provided by the postal and telecom communication ? (6)

Or Explain the services provided by banks to public? Q27. Discuss different types of partners? (6)

Or“A promoters is called parent of a company”. Do you agree? Explain the steps taken by promotrs in the promotion of a company .

124

BLUE PRINT SUBJECT : BUSINESS STUDIES

Name of Chapters VSA(1 Marks)

SA-I(3 Marks)

SA-II(4 Marks)

LA(5Marks)

Essay type(6 Marks)

TotalQuestions

Total Marks

• Nature and Purpose of Business

1 1 1 - - 03 08

• Forms of Business Organisation

1 - - 1 1 03 12

3. Public, Private and Global Enterprises

1 1 1 - - 03 08

4. Business Services - - 1 - 1 02 105. Emerging Modes of Business

1 - - 1 - 02 06

6. Social Responsibility of Businessand Business Ethics

1 - - 1 - 02 06

7. Sources of Business Finance

1 1 1 - 1 04 14

8. Small Business 1 - - 1 - 02 069. Internal Trade - 2 - - 1 03 1210. International Business

1 - 1 - - 03 08

Total Questions 8 6 5 4 4 27 90Total Marks 8 18 20 20 24 = 90marks

125

Business Studies Sample Paper-1Time-3hours Class-XI Max.Marks-90General Instructions

• Answer to questions carrying 1 mark may be from one word to one sentence. • Answer to questions carrying 3 marks may be from 50 to 75 words. • Answer to questions carrying 4-5 marks may be about 150 words. • Answer to questions carrying 6 marks may be about 200 words. • Attempt all parts of a question together.

Q1. Define business? (1)

Q2. Name the head of a Joint Hindu Family business? (1)Q3. What are Global enterprises? (1)Q4. What does ‘e’ stand for in e-commerce (1)Q5. Define social responsibilities of business? (1) Q6. Give the full form of GDR? (1)Q7. Mention any two problems of small business. (1)Q8. Who announces the exim policy or foreign trade policy? (1) Q9. Define different types of economic activity? (3)Q10. Explain any three significant features of MNCs? (3) Q11. Explain any three types of preference shares. (3)Q12. What is a shopping mall? Name any two malls in your location. (3) Q13. Justify any three functions of chamber of commerce. (3)Q14. Compare between internal & external trade on the basis of:- (3) (i)Meaning (ii) Risk (iii)Cost involvedQ15. “No business is risk free”. In the light of this statement explain the concept of business risk and its causes. (4)Q16. “Multinational corporation is a mixed blessing to the developing countries”. Explain this statement. (4)Q17. Explain the following principles of insurance:- (4)(a)Principle of indemnity(b)Principle of subrogation.(c)Principle of causa proxima(d)Principle of mitigation of loss. Or Explain any four types of telecom services.Q18. Define owner’s fund and give any three features. (4)

Q19. The manager of a petrol pump sells adulterated petrol & diesel to the customers. This has led to defects in the working of engines of the vehicles of the customers also created excessive pollution in the air. Is the manager’s conduct ethical? Why? (4)Q20. What are the benefits of private company over public company? (5)Q21. Explain outsourcing concept? Describe the benefits’ of outsourcing. (5)Q22. What is business ethics? Mention the basic elements of business ethics (5)Q23. Give any five problems faced by small business in India. (5)Q24. Compare the status of a minor in a Joint Hindu family business with that in a partnership firm. Or Discuss the important documents used in the formation of company. (6)

126

Q25. Briefly explain the communication process.(with diagram) (6)Or

Explain different types of insurance. With their main elements. Q26. State the merits & demerits of retained earnings, public deposits & debentures as a source of finance. (6)Or Briefly explain GDR, ADR & IDR.Q27. Explain:- (6)• Peddlers & hawkers • Market traders• General stores• Specialty stores• Street stall holders• Secondhand goods shop

OrWrite short notes on: - (with their advantages):

• ATMBB H-0• Shopping malls• Super market.

127