BUSINESS STUDIES (Class 11) Chapter 1 and 2

16. What is the purpose of entrepot trader?

Entrepot trade means importing of goods for the purpose of exporting them to other countries. In other words, it means importing (buying) goods from one country for the purpose of exporting (selling) them to another country. This type of trade is also known as re-export trade or entrepot. 

17. How does company put its signature on document?

The company being an artificial person acts through its Board of Directors. The Board of Directors enters into an agreement with others by indicating the company’s approval through a common seal. The common seal is the engraved equivalent of an official signature. Any agreement which does not have the company seal put on it is not legally binding on the company. 

18. How does transport creates place utility?

If goods are produced in one place, they may not have demand at that place only. Transport carries them to another place where they are demanded and create place utility. Thus, we can say that transport creates place utility. 

19.Name any two services which can be outsourced by business firms from specialized agencies.

Some common outsourcing activities include: human resource management, facilities management, supply chain management, accounting, customer support and service, marketing, computer aided design, research, design, content writing, engineering, diagnostic services, and legal documentation. 

20.How would you differentiate between Tiny and Ancillary Industries? 

A tiny unit is the business enterprise whose investment in plant and machinery is not more than 25 lakhs. Investment limit is 25 lakhs in this type of unit.
While an ancillary unit is the unit which supplies not less than 50% of its production to the parent unit. Investment limit in such unit is Rs 1 crore. Parent unit assist the ancillary unit by providing financial help.
21. Define “Partnership”.
The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”
22. Which two preferential rights are enjoyed by preference shares over equity shares?

The following preferential rights are enjoyed by preference shareholders 

Receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders 

Preference over equity shareholders in receiving their capital after the claims of the company's creditors have been settled, at the time of liquidation. In case of dissolution or winding up of the company preference share capital is refunded prior to the refund of equity share capital.

23. Distinguish between international trade and international business.

International trade is the exchange of capital, goods, and services across international borders or territories. It is the exchange of goods and services among nations of the world. All countries need goods and services to satisfy their people. Production of goods and services requires resources 

International business refers to the trade of goods, services, technology, capital and/or knowledge across national borders and at a global or transnational scale. To conduct business overseas, multinational companies need to bridge separate national markets into one global marketplace. 

24. Explain any three services rendered by retailers to the manufacturers.
Functions performed by retailers:
Buying and Assembling: A retailer deals in different variety of goods which he purchases from different wholesalers for selling to the consumers. He tries to locate best and economical source of the supply of goods.
Warehousing or Storing: After assembly of goods from different suppliers, the retailers preserve them in stores and supply these goods to the consumers as and when required by them. The goods are kept as reserve stocks in order to ensure uninterrupted supply to the consumers.
Selling: The end objective of the retailer is to sell the goods to consumers. He undertakes various methods to sell goods to the ultimate consumers.
Credit Facilities: He caters to the needs of the customers even by supplying them goods on credit. He bears the risk of bad debts on account of non-payment of amount by the customers.

Risk Bearing: A retailer has to bear different type of risks in relation to goods. While in stores, goods are exposed to various risks like deterioration in quality, spoilage and perishability etc. The products are confronted to natural risks viz; fire, flood, earthquake and other natural calamities. Other type of risks like change in customer’s tastes also adversely affects the sales.

Grading and Packing: The retailer grades the goods which are left ungraded by the manufacturers and the wholesalers. He packs the goods in small packages and containers for the convenience of the customers.

Collection and Supply of Market Information: The retailers are in direct touch with the consumers. They gather invaluable information with regard to likes dislikes tastes and demands of the consumers and pass on this information to the wholesalers and the producers which are very helpful to them.

Helps In Introducing New Products: Without the services of retailers, new products cannot be introduced properly in the market. This is so because a retailer has a direct link with the consumer. He can explain nicely about the utility and the characteristics of a new product to the customer.

Window Display and Advertising: The retailer displays the products in show windows in order to attract the customers. This leads to immense publicity for the product.

25.Define business risk. Explain any two causes of business risk.

Business risks: The term ‘risk’ refers to the possibility of inadequate profits or even loss due to uncertainties or unexpected events. Its nature can be explained with the help of its peculiar characteristics which are: 

Risk is an essential part of every business, degree of risk depends mainly upon the nature and size of business, and profit is the reward for risk taking. Business risks arise due to a variety of causes including natural, human, economic and other causes. Business risks arise due to uncertainties.

Natural causes. Natural causes of risk include flooding, earthquakes, cyclones, and other natural disasters that can lead to the loss of lives and property.

Human causes. Human causes of risk refer to negligence at work, strikes, work stoppages, and mismanagement.

Economic causes. Recession in the industry. Economic causes involve things such as rising prices of raw materials or labour costs, increase in interest for borrowing, and competition.

26. “Equity share is the best source of finance for companies”. Do you agree? Give reasons.

There are two types of financing available to a company when it needs to raise capital: equity financing and debt financing. Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company. The main advantage of equity financing is that there is no obligation to repay the money acquired through it. 

Equity financing places no additional financial burden on the company, however, the downside is quite large. In order to gain funding, you will have to give the investor a percentage of your company. You will have to share your profits and consult with your new partners any time you make decisions affecting the company. The only way to remove investors is to buy them out, but that will likely be more expensive than the money they originally gave you. If the company is over-relying on equity to finance then the business can be costly and inefficient 

The main advantage of debt financing is that a business owner does not give up any control of the business as they do with equity financing. Creditors look favorably upon a relatively low debt-to-equity ratio, which benefits the company if it needs to access additional debt financing in the future. The advantages of debt financing are numerous. First, the lender has no control over your business. Once you pay the loan back, your relationship with the financier ends. Next, the interest you pay is tax deductible. Finally, it is easy to forecast expenses because loan payments do not fluctuate. 

27. Explain the essential features of business ethics.
The fundamental principles relating to ethics may be summarized as under:
The Principle of Integrity: It calls upon all accounting and finance professionals to adhere to honesty and straightforwardness while discharging their respective professional duties.
The Principle of Objectivity: This principle requires accounting and finance professionals to stick to their professional and financial judgment.
The Principle of Confidentiality: This principle requires practitioners of accounting and financial management to refrain from disclosing confidential information related to their work.
The Principle of Professional Competence and due care: Finance and accounting professionals need to update their professional skills from time to time in order to provide competent professional services to their clients.
The Principle of Professional Behavior: This principle requires accounting and finance professionals to comply with relevant laws and regulations and avoid such actions which may result in discrediting the profession.
28. “Earning profit is the main objective of business.” Explain the underlying principle.

Although the main objective of business is to earn profit but it is not the sole objective of business. Business has many other objectives to accomplish. Objectives to be fulfilled by business other that profits are:

Quality goods and Services at Reasonable Prices:- A business has to provide quality goods and services at reasonable price. The price of goods and services should not be too high. A business should add reasonable profit to the cost of goods and services.

Generation of Employment and providing good working condition:- It must be the prime objective of business to create employment opportunities and good working condition to be provided to the employees in the organisation which help in accomplishment of business goal in efficient manner.

Avoid Unfair Trade Practices:- A business must avoid unfair trade practices. It include adulteration, making false claim in advertisement and many others. It should be the objective of business to earn profit with fair trade practices.

Swachh Bharat:- Business objective include contribution of business towards Swachh Bharat. A business should take every care in making the country pollution free.

Payment of Taxes:- A business organisation should pay tax honestly. 

29. Why trade credit is considered as an important source of short-term financing? ( from the point of view of buyers )

Trade credit is the loan extended by one trader to another when the goods and services are bought on credit. Trade credit facilitates the purchase of supplies without immediate payment. Trade credit is commonly used by business organisations as a source of short-term financing. Advantage – Minimal Cash Outlay. 

Trade credit financing provides a way for you to keep the shelves of your business stocked or build a product without a huge outlay of cash up front. 

Trade credit can be useful for new businesses unable to raise funding or secure business loans, yet need stock quickly.

Trade credit allows your business to be more flexible, adapting to market demands and seasonal variations so that you have a constant supply of goods even when your finances aren’t stable.

Think of trade credit as an interest-free loan. It’s one of the best ways to keep cash in your business, effectively providing access to working capital at no cost. A good trade credit history can mean suppliers treat you as a preferred buyer.

Companies with a good trade credit history may be offered discounts, especially for bulk purchases, or exclusive access to goods and service.

30. Explain any three agency functions of commercial banks.

Commercial banks are the most common and important type of banking institutions. A commercial bank is a monetary institution which serves the interests of its depositors by providing security to the deposits of money and on the other hand, makes profits by investing such deposits in the protective measures by extending loans. Agency Functions of Commercial Bank -

Bank perform agency functions for their customers as given below -

1. Collection of cheques, Bills etc -Bank collect the cheques, bills, Drafts and other Negotiable Instruments deposited by their customers.
2. Making and collecting payments -Banks make payments of the premium of insurance policies, house rent etc. On behalf of their customers. Similarly, they accept/recover rents and other deposits on behalf of their customers.
3. Accepting Bills -Banks accept bills of exchange as per orders of their customers. They make also the payment of cheque, bills and hundis of their customers.
4. Remittance facilities-Bank remits money from one place to another for the facility of their customers.
5. Purchase and Sale of Shares and Securities -Bank purchase and sell shares and securities etc. As per order of their customers.
6. Reference Letter-Bank sends the information of the financial condition of their customers to the Businessman of the country and abroad. Similarly, they give the information of the financial condition of other Businessman to their customers.
7. Acting as Trustees-Banks take the liability for management of the properties of their customers and act as trustees.

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