Class 12 – Page 20 – Maharashtra Board Solutions

Maharashtra Board OCM 12th Commerce Solutions Chapter 4 Business Services

July 9, 2024July 8, 2024 by Bhagya

Balbharti Maharashtra State Board Organisation of Commerce and Management 12th Textbook Solutions Chapter 4 Business Services Textbook Exercise Questions and Answers.

Maharashtra State Board 12th Organisation of Commerce and Management Solutions Chapter 4 Business Services

1. (A) Select the correct option and rewrite the sentence.

Question 1.
Door to door service is provided by …………….. transport.
(a) railway
(b) road
(c) air
Answer:
(b) road

Question 2.
…………….. creates time utility.
(a) Warehouse
(b) Transport
(c) Communication
Answer:
(a) Warehouse

Question 3.
…………….. warehouses provide facilities for perishable commodities.
(a) Bonded
(b) Cold storage
(c) Government
Answer:
(b) Cold storage

Question 4.
……………. policy covers all types of risks of a vessel while it is anchored at the port for a particular period of time.
(a) Port risk
(b) Voyage
(c) Floating
Answer:
(a) Port risk

Question 5.
Principle of …………….. is not applicable to life insurance.
(a) insurable interest
(b) utmost good faith
(c) indemnity
Answer:
(c) indemnity

1. (B) Match the pairs.

Question 1.

Group A	Group B
(A) Air Transport	(1) Time utility
(B) Warehousing	(2) Intangible in nature
(C) Money remittance	(3) Fastest mode of transport
(D) Pipeline Transport	(4) April,2019
(E) Business Service	(5) Western Union Money Transfer
	(6) Fixed deposit account
	(7) Petroleum and gas
	(8) Tangible
	(9) Place utility
	(10) Savings account

Answer:

Group A	Group B
(A) Air Transport	(3) Fastest mode of transport
(B) Warehousing	(1) Time utility
(C) Money remittance	(5) Western Union Money Transfer
(D) Pipeline Transport	(7) Petroleum and gas
(E) Business Service	(2) Intangible in nature

1. (C) Give one word/phrase/term for the following sentence.

Question 1.
These warehouses are owned, managed and controlled by central and state governments or public authorities.
Answer:
government warehouse

Question 2.
An art of exchanging ideas, facts, information etc. from one person or entity to another.
Answer:
Communication

Question 3.
A rail system in which the track consists of a single rail or a beam.
Answer:
monorail

Question 4.
A transport system used to carry petroleum and gases.
Answer:
pipeline transport

Question 5.
A ministry who looks after development of surface transport throughout country.
Answer:
Ministry of Road Transport and Highways

1. (D) State whether following statements are true or false.

Question 1.
Business services are important for the growth of business.
Answer:
True

Question 2.
Current Account is opened by salaried persons.
Answer:
False

Question 3.
NEFT stands for National Electric Fund Transfer.
Answer:
False

Question 4.
Air transport is cheapest mode of transport.
Answer:
False

Question 5.
The Internet is the global system of interconnected computer networks that use the internet protocol suite to link devices worldwide.
Answer:
True

1. (E) Find the odd one.

Question 1.
Primary credit co-operative society, state co-operative bank, district co-operative bank, exchange bank.
Answer:
exchange bank

Question 2.
NABARD, RBI, SIDBI, EXIM.
Answer:
RBI

Question 3.
Direct mail, Logistics post, Business post, Parcel
Answer:
Parcel

Question 4.
Endowment policy, Whole life policy, Money back policy, Blanket policy.
Answer:
Blanket policy.

1. (F) Complete the sentence.

Question 1.
The term bank comes from the French word …………….. .
Answer:
Banco

Question 2.
…………….. warehouses provide facilities for perishable commodities
Answer:
Cold storage

Question 3.
In ……………… policy, several ships belonging to one owner are insured under the same policy.
Answer:
fleet

Question 4.
…………….. banking refers to the use of banking services with the help of mobile phones.
Answer:
Mobile

1. (G) Select the correct option and complete the following table.

(RTGS, SIDBI, apex financial institution in banking industry of country, recurring deposit, long term loans)

	Group A	Group B
A.	……………	fund transfer on real time and gross basis
B.	loans to meet long term capital requirements	……………
C.	……………	Account operated by salaried and businessmen both.
D.	Central bank	……………
E.	……………	Principal financial institution for MSMEs

Answer:

	Group A	Group B
A.	RTGS	fund transfer on real time and gross basis
B.	loans to meet long term capital requirements	long term loans
C.	Recurring Deposit	Account operated by salaried and businessmen both.
D.	Central bank	apex financial institution in banking industry of country
E.	SIDBI	Principal financial institution for MSMEs

1. (H) Answer in one sentence

Question 1.
What is debit card?
Answer:
A debit card is a card which is used by the cardholders to make purchases and avail of services at different places without making cash payment but payment is deducted from or debited to the account of the debit cardholders immediately.

Question 2.
What is ‘subject matter’ In insurance?
Answer:
‘Subject matter’ In Insurance refers to life, property, cargo or ship, etc. which is Insured against whose insurance policy Is taken.

Question 3.
What is government warehouse?
Answer:
The warehouses which are owned. managed and controlled by the Central and State Governments or public authorities to assist small farmers, businessmen, traders in storing goods at nominal charges are called government Warehouses.

Question 4.
What is air transport?
Answer:
The mode of transport which is operated above the surface of the earth and carries goods and passengers through airways by using different aircrafts Is called air transport.

Question 5.
What is communication?
Answer:
The term ‘communication’ means any exchange of Ideas, facts, information, messages. feelings and emotions among two or more persons in a way that they share common understanding about it.

1. (I) Correct the underlined word and rewrite the following sentences.

Question 1.
Overdraft facility is available for savings bank account holder.
Answer:
Current

Question 2.
Services are tangible in nature.
Answer:
Intangible

Question 3.
Insurance helps to maximize the risks in the business.
Answer:
Minimise

Question 4.
The foreign bank is the apex financial institution in banking industry in the country.
Answer:
Centrals

Question 5.
RTGS stands for Reasonable Time Gross Settlement.
Answer:
real

1. (J) Arrange in proper order.

Question 1.
Claim, Accident, Taking the policy, Compensation.
Answer:
Taking the policy, Accident, Claim, Compensation

Question 2.
Email, Inland letter, Courier
Answer:
Inland letter, Courier, E-mail

2. Explain the following terms/concepts.

Question 1.
Transport
Answer:
(1) Service or facility which creates physical movement of men, materials, goods. animals. etc. from one place (location) to another is called transport. Transportation can be defined as a means of carrying or transferring goods. people, animals, material. etc. from one place to another.

(2) Usually transportation is carried through various modes like land transport (i.e Railways and Roadways), water transport and air transport. It brings mobility both to human resources and physical resources. Transport plays key role in nations economy and economic development. After 1991, in India. development of infrastructure within the country has made progress at rapid rate and today there are different modes of transport operated in India. Transport helps in production. expands market, create place utility in goods and services, brings stability to prices, creates employment opportunities, improves standard of living of the people, provides help during emergency and facilitates economic development.

Question 2.
Communication
Answer:
(1) The term ‘communication’ means any interchange of ideas, messages, facts, information, feelings and emotions among two or more persons In a way that they share common understanding about it. It Is a process of giving away or passing on any information by any person to some other person with the help of some medium. Thus, receiver after receiving the message understands it in the desired form and acts accordingly.

(2) Means of communication consist of magazines, newspaper, post and telegraphs. telephone. Internet, e-mail, television, etc. Communication facilitates transmit business Information more quickly among the businessmen. The difficulty of distance is effectively solved by various means of communication. Effective communication facilitates the development and growth of domestic and international markets which bring prosperity to the country.

Question 3.
Banking
Answer:
(1) The term ‘Bank’ Is derived from the French word ‘Banco’ which means a ‘bench’. In olden days, moneylenders used to display coins and currencies on the tables or benches for the purpose of lending or exchanging. An organisation which is dealing with money is called bank. An institution offering certain financial services such as the safe keeping of money and lending money to needy people is called Bank.

(2) According to the Indian Banking Regulation Act, 1949, bankIng company means “any company which transacts the business of banking in India.” The word banking has defined further as “acceptingfor the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdrawable by cheques. drafts, order or otherwise.” Bank accepts deposits repayable on demand by cheques or drafts and lends or invests the surplus money as a part of normal business. It makes a profit by accepting deposits at a lower rate of Interest and lending money at a higher rate of Interest.

Question 4.
Insurance
Answer:
(1) Business involves various risks like accident, fire, theft, flood, cyclone, etc. It is very difficult for a trader to bear risks of loss. Similarly, human life is subject to various risks such as death by accident, premature death, etc. The specialised agency called insurance company has emerged to provide financial protection against the possible loss due to the happening of such events. Insurance company gives financial protection by charging certain amount as a premium. It. is a risk management, primarily meant to hedge or for compensating against the risk of a contingent or uncertain loss.

(2) Insurance is a contract between two parties whereby one of them (the insurer) agrees in return for a premium to indemnify the other (the insured) against a monetary loss that may be suffered by the other on the happening of some specified event. According to Insurance Act of 1938, “Insurance Is defined as, “A provision which a prudent man makes against inevitable contingencies”.

Question 5.
Warehousing
Answer:
(1) Warehousing means storing of goods in a godown to hold them in stock from the time of production or purchase till the time of their sale. It is generally used to denote all those activities which are concerned with the storage of goods in a godown or warehouse. One of the marketing processes or a group activity is to hold the goods in stock from the time of production till the time of consumption. When storage of goods is required to be arranged on a large scale In a specified manner, it is called warchousing’. Warehouse means a building in which especially retail goods are stored.

(2) Warehousing is defined as “an establishment for the storage of or accumulation of goocis.’ Warehousing gives protection to goods and helps businessmen to raise finance. It facilitates and provides space for grading. branding and processing. It creates time utility and help in price stabilisation of goods. Thus, warehousing implies a group of activities connected with the storing and preserving of stored goods from the time of their production or purchase till the Urne of their sale or consumption.

3. Study the following case/situation and express your opinion.

Question 1.
Ms. Harshali has started new business two years ago. Her customers are located in different parts of the country and hence they are directly depositing bill amount in her business account. At the same time she used to pay various payments from this account only.

(i) Identify Type of account maintained by Ms. Harshali.
(ii) Suggest any one modern way of money transfer to Ms.Harshali.
(iii) State any one facility she gets on her bank account?
Answer:
(i) Ms. Harshali is a businesswoman and hence she has maintained current account to suit the needs of her business.

(ii) NEFT which stands for National Electronic Funds Transfer is the one of the modern ways of transferring fund (money) from one branch to another branch or from one bank to another bank safely can be suggested to Ms. Harshall to transfer money.

(iii) Ms. Harshali gets overdraft facility on her current account.

Question 2.
Mr. Jagan is a salaried person. He wants to take policy for his two children which assures them protection as well as completes their financial needs once they become major by age.

(i) Suggest him a policy which can satisfy requirements of his children.
(ii) Who are beneficiaries of policy?
(iii) In above case which principle is involved?
Answer:
(i) Mr. Jagan. a salaried person should take “Child Insurance Policy” to satisfy the financial requirements of his children.
(ii) In child insurance policy, children of the insured person are the beneficiaries.
(iii) In the above case, principle of Insurable interest is involved.

Question 3.
Mr. Sharan is successful manufacturer. He is having production units at various locations. He is having multiple production units, he has large stock of raw material and finished goods. He is worried about safeguarding goods from any unwanted financial loss. He also requires to transfer raw material and finished goods from one unit to other but does not have any facility for that. He also requires funds for expansion.

(i) Name the service which will help him to safeguard goods from any damage?
(ii) Which service will help him to remove difficulty of place?
(iii) From which service sector will he get financial support?
Answer:
(i) Warehousing’ is the service that helps Mr. Sharan to safeguard his goods from any damage.
(ii) Transport service will help Mr. Sharan to remove the difficulty of place.
(iii) Mr. Sharan will get financial support from Banking sector.

Question 4.
Mr. Amit is a businessman. He has his own factories in Pune and Nashik. He lives in Pune with his wife and 2 daughters aged 5 and 8 years.

(i) Can Mr. Amit take a life insurance policy for his wife and 2 children?
(ii) Can Mr. Amit take a marine insurance policy for his factories?
(iii) Which type of insurance should Mr. Amit take for protecting his factories from loss due to fire?
Answer:
(i) Mr. Amit can take whole life policy or term insurance policy for his wife and child insurance policy or money back policy for his daughters.
(ii) Mr. Amit cannot take marine insurance policy for his factories.
(iii) Mr. Amit can take Floating Fire Insurance Policy for protecting his factories at Pune and Nashik.

4. Distinguish between.

Question 1.
Duty Paid Warehouse and Bonded Warehouse
Answer:

	Duty Paid Warehouse	Bonded Warehouse
1. Meaning	Duty-paid warehouse is a warehouse which stocks on which duty is already paid.	Bonded warehouse is the warehouse which stocks goods the goods on which duty is yet to be paid.
2. Location	These warehouses are situated near dock area or port.	These warehouses are situated within the dock area.
3. Markets	Goods stored in duty-paid warehouses are meant mostly for the domestic markets.	Goods stored in bonded warehouses are meant mostly for re-export.
4. Supervision	These warehouses are free from the supervision of customs authority. However, they are controlled by port authority	These warehouses are under the close supervision of customs authority.
5. Delivery	Delivery of goods is given only after the payment of rent and service charges of the warehouse.	Goods are held in bond and its delivery is given only after the payment of import duty.
6. Ownership	This warehouse is owned and managed by the dock (public) authorities.	This warehouse is owned by the dock or private authorities.

Question 2.
Central Bank and Commercial Bank
Answer:

	Central Bank	Commercial Bank
1. Meaning	The central bank regulates money supply in the country by exercising control over the commercial banks.	A commercial bank accepts deposits from the public, grant loans to businessmen and public.
2. PrInting and Currency	The central bank is authorised to print currency notes.	The commercial bank is not authorlsed to print currency notes.
3. Acceptance of deposits	The central bank does not accept deposit from the public.	The commercial bank accepts deposit from general public.
4. Loans	The central bank provides loans and advances to banks and other financial institutions.	The commercial bank grants loans and advances to businessmen, industry and people.
5. Ownership	The central bank is owned and controlled by the Central government of the concerned country.	The commercial banks can be owned and controlled by the government as well as private sector organisations.
6. Number	There can be only one central bank for the whole country.	There is a large network of different commercial banks in the country.

Question 3.
Road Transport and Air Transport
Answer:

	Road Transport	Air Transport
1. Speed	Road Transport vehicles have limited speed particularly over long distances due to rough roads, hilly areas, traffic jams, observation of signaling system, road accidents, etc.	Air transport has very high speed. It is fastest mode of transport. It is due to aerial route, no signaling system to observe, straight route, no disturbance in speed, etc.
2. Suitability	It is suitable for short distances and for carrying perishable goods such as fruits, fish, vegetables, foodgrains and other consumer goods.	Air transport is suitable to carry light, perishable and valuable goods to any part of the world.
3. Door-to-door service	It provides door-to-door service. It reaches the goods at the doorsteps of the buyer.	It cannot provide door to door services. It carries goods and passengers from one airport to other air port.
4. Cost	It requires limited capital investment for construction of roads and their maintenance.	It requires relatively huge capital investment in terms of construction of airport, aircraft, runways, air control towers and their maintenance.
5. Means of transport	Road transport uses bullock carts, cycles, motor- cycles, autorickshaws, cars, tempos, trucks, buses, etc.	Air transport uses aircraft, cargo planes, jets, helicopters, etc.
6. Accidents	Chances of accidents are more due to poor road conditions and negligent drivers.	Changes of accident are very less because maintenance and appointment of expert and trained pilots.

Question 4.
Life Insurance and Marine Insurance
Answer:

	Life Insurance	Marine Insurance
1. Meaning	Life insurance is a contract whereby the insurance company in consideration of a premium, undertakes to pay a certain sum of money either on death of assured person or on maturity of policy whichever is earlier.	Marine insurance is a contract of indemnity against loss or damage to cargo (goods) or ships arising due to perils of sea.
2. Who takes it?	Life insurance policy is usually taken by an individual for his own life or for the benefit of his family members.	Marine insurance policy is taken by importers, exporters and shipping companies.
3. Subject-matter	In life insurance, the life of the insured person is a subject-matter.	In marine insurance, goods lying in the ship, cargo and freight are the subject-matter.
4. Period	Life insurance is usually a long term contract, usually more than ten years or even death.	Marine insurance is usually for a short period which may range from one month to a year.
5. Principle of Indemnity	The principle of indemnity is not applicable to life insurance contract because life of human being cannot be valued in terms of money for calculating actual loss.	The principle of indemnity is applicable to marine insurance as insurance company indemnifies the financial loss to bring back insured in the same financial condition that he was before the event.
6. Insurable Interest	In life insurance contract, insurable interest must exist at the time of contract.	The insurable interest must exist at the time of the contract and also at the time of happening of the event.

Question 5.
Savings Account and Current Account
Answer:

	Savings Account	Current Account
1. Meaning	A savings account is a type of bank account meant for any individual for safe keeping of his money and for making savings.	A current account is a type of bank account meant for a businessman or a firm or commercial organisations for facilitating regular trading operations.
2. Facilities	The facilities of overdraft and cash credit Eire not given to the saving accountholders.	Overdraft and cash credit facilities are given to the current accountholders only.
3. Suitability	Saving account is suitable for regular income earners and salaried or wage earners.	Current account is suitable for traders, businessmen, commercial organisations and institutions.
4. Restrictions on withdrawal	There are certain restrictions on the number of withdrawals and the amount to be withdrawn at a time.	There are no restrictions on withdrawal of money from this account as long as there is balance in the account.
5. Interest	Interest at low rate is credited monthly, quarterly, half-yearly and yearly basis in this account.	No interest is paid in this account.
6. Documents	The documents like passbook, balance on SMS, account statement, etc. are provide in this account.	Banks provide monthly statement of account every month in this account.

Question 6.
Life Insurance and Fire Insurance
Answer:

	Life Insurance	Fire Insurance
1. Meaning	Life insurance is a contract whereby the insurance company in consideration of a premium, undertakes to pay a certain sum of money either on death of assured person or on maturity of policy whichever is earlier.	Fire insurance is a contract of indemnity against loss or damage to goods or property arising from fire or related events.
2. Who takes it?	Life insurance policy is usually taken by an individual for his own life or for the benefit of his family members.	Fire insurance policy is taken by individuals, property owners or businessmen for their goods and business properties.
3. Subject-matter	In life insurance, the life of the insured person is a subject-matter.	In fire insurance, the property, assets or goods of the insured is the subject-matter.
4. Period	Life insurance is usually a long term contract, usually more than ten years or even death.	Fire insurance contract is generally for one year or even for a lesser period.
5. Principle of indemnity	The principle of indemnity is not applicable to life insurance contract because life of human being cannot be valued in terms of money for calculating actual loss.	The principle of indemnity is applicable to fire insurance contract because the amount of loss of property can be calculated easily. The-amount of loss or the policy amount whichever is less is paid to the insured.
6. Insurable interest	In life insurance contract, insurable interest must exist at the time of contract.	In fire insurance contract, insurable interest must exist both at the time of taking policy and also at the time of event.

Question 7.
Road Transport and Rail Transport
Answer:

	Road Transport	Rail Transport
1. Meaning	Road Transport vehicles have limited speed particularly over long distances due to rough roads, hilly areas, traffic jams, observation of signaling system, road accidents, etc.	Rail transport operates at a high speed due to mechanical devices, straight railway tracks and absence of obstructions on the railway tracks.
2. Suitability	It is suitable for short distances and for carrying perishable goods such as fruits, fish, vegetables, foodgrains and other consumer goods.	It is suitable for carrying heavy and bulky goods such as machinery, cotton, coal, etc. for long distances.
3. Door to Door services	It provides door-to-door services. It reaches the goods at the doorsteps of the buyer.	It cannot provide door-to-door services. It carries goods and passengers from one railway station to another.
4. Carrying Capacity	It has limited carrying capacity.	It has large carrying capacity.
5. Cost of construction and maintenance	It requires relatively less capital investment in terms of construction of roads and their maintenance.	The cost of construction and maintenance of trains, railway tracks and stations is very high.
6. Transport charges	Transport charges are not fixed but they are usually high due to increase in fuel charges.	Transport charges are fixed according to the distance and they are relatively low.

Question 8.
Rail Transport and Air Transport
Answer:

	Rail Transport	Air Transport
1. Speed	Railway transport has comparatively low speed.	Air transport has very high speed. It is the fastest mode of transport.
2. Carrying capacity	Its carrying capacity is very high.	Its carrying capacity is comparatively limited.
3. Suitability	It is more suitable to carry bulky and heavy goods over long distance.	It is suitable to carry light, perishable and valuable goods to any part of the world.
4. Transport charges	Transport charges are relatively low.	Transport charges are very high.
5. Ownership	It is owned only by public sector i.e. the government.	It is owned by both public sector as well as private sector.
6. Means of transport	It uses passenger trains and goods trains.	It uses aircraft, jets, cargo planes, helicopters, etc.

Question 9.
Current Account and Fixed Deposit Account
Answer:

	Current Account	Fixed Deposit Account
1. Meaning	A Current Account is a type of bank account under which there are no restrictions on depositing and withdrawing money.	A Fixed Deposit Account is a type of bank account under which fixed amount is deposited for a fixed period of time.
2. Withdrawals	There are no restrictions on withdrawal of money from this account as long as there is balance in the account.	No withdrawal is permitted before the date of maturity. However, a certain amount by way of loan can be granted against the FDR.
3. Facilities	Overdraft and cash credit facilities are given to the current account holders only.	Overdraft and Cash credit facilities are not given to the fixed deposit account holders.
4. Rate of interest	Generally no interest is paid on the balance standing in this account.	Banks offer higher rates of interest. Longer the period, higher will be the rate of interest and vice versa.
5. Duration	This account has no fixed duration. It may run as long as the accountholder desires.	This account is run for a fixed period after which the amount is repaid along with interest thereon.
6. Receipt	Bank provide statement of account at the end of every month to the current accountholders.	A Fixed Deposit Receipt (FDR) is issued by the bank to the accountholder.

5. Answer in brief.

Question 1.
State four types of deposits.
Answer:
The different types of deposits are explained below:
(1) Fixed Deposits : Fixed deposit is a type bank account in which certain fixed amount is deposited and kept in the bank for certain fixed period of time bearing fixed interest rate. The rate of interest paid on fixed deposit is higher than the rate of interest paid on other types of deposits. This rate of interest varies with the deposit period. Interest may also be paid periodically or annually. On Premature withdrawal of deposit before maturity date lower rate of interest is given. The deposit holder gets Fixed Deposit Receipt (FDR) issued by the bank. Loan can be obtained against this FDR.

(2) Recurring deposit : Recurring deposit is an account where depositor is required to deposit certain fixed amount at regular interval say monthly for certain fixed period. On the date of maturity, depositor gets the total amount deposited and interest accrued on such deposit amount. Rate of interest paid is higher and varies according to period of time. The depositor is given pass j book to record the entries of deposits, ft is taken by salaried people and businessmen who have regular income.

(3) Demand deposit: The demand deposit is one in which deposited amount is repaid to the accountholder as and when demanded. The amount of money can be withdrawn by the accountholder from the bank by using withdrawal slips, cheques, ATM cards, online transfer, etc.

(4) Savings deposit : A bank account designed for the personal savings is called savings account. The main aim of this deposit account is to inculcate the regular habit of savings among the common people. This account is suitable for those people who have fixed and regular income like salaries, wages, etc. Although there is no restriction on the depositing of money but frequent withdrawals are not permitted by the bank. Interest on balance amount is credited in this account quarterly or half yearly. Pass book, cheque book, balance on SMS, account statement, etc. are provided to the accountholders to know the position of account.

Some banks provide to their accountholders flexi deposit facility which combines the advantages of savings account and fixed deposit account. In case of multiple option deposit account, the excess amount above certain predetermined limit gets automatically transferred from Savings Account to fixed deposit account. Under this type of account, if adequate fund is not available in savings account to honour the cheques, then the funds get transferred automatically from fixed deposit account to savings deposit account.

Question 2.
State four modes of transport.
Answer:
The four modes of transport are explained as follows:
(1) Road transport : Road transport is the oldest mode of transport. It means and includes various means of transport which move on the surface of the earth without the use of railway tracks. Roads are the means which connect people and places on the surface of the land. It provides connectivity on any terrain (land) in comparison to other modes of transport. The different types of vehicles plying on the road include bullock carts, cycles, motor-cycles, autorickshaws, cars, tempos, trucks, buses, etc. They are called means of road transport.

(2) Rail transport : The mode of transport which moves on the surface of the earth with the help of parallel railway tracks is called rail transport. In other words, transportation of goods and passengers over long distances on rail lines through trains is called rail transport. It is an important land transport system of our country. The services of railways are provided by Ministry of Railways. Indian Railways operate different types of trains such as passenger trains, mails, express and cargo or goods trains. Some popular trains run by Indian Railways are Rajdhani Express, Duronto Express, Shatabdi Express, Intercity Express, Vande Bharat Express, holiday special trains, etc. Some luxury trains like Palace on Wheels, Deccan Odyssey, Ramayana Express, Maharaja Express, etc. are run to promote domestic tourism business.

(3) Air transport: The mode of transport which is operated above the surface of the earth i.e., in the sky through airways is called air transport. It has recent origin. Air transport uses different air crafts such as passenger air crafts, cargo aircraft, helicopters, etc. to carry the goods and passengers through airways at distant places. As compared to other modes of transport, air transport has fastest speed. It does not provide door to door services. Air transport is convenient mode in hilly or mountainous areas where other modes of transport cannot reach. It is also suitable mode of transport in emergency situations like war, natural calamities, etc. Air transport is classified into domestic and international air transport. The different national and international private and public sector airways companies are giving services.

(4) Water transport: The mode of transport which is carried out on the surface of water is called water transport. It represents transport facilities in water. It is the cheapest mode of transport. Water transport carries passengers and goods to different places on water ways by using various means like boats, steamers, launches, ships, etc. Water transport can be sub-divided into two categories viz. inland water transport which carries goods and passengers within the country and ocean transport which carries goods and passengers on ocean, sea route. In India, the Ministry of Shipping takes care of development of ocean transport.

Question 3.
State four life insurance policies.
Answer:
The different types of life insurance policies are explained as follows:
(1) Whole Life Policy : Under this policy, whole life of a person is insured and that he is required to pay premium up to his death. The policy holder (assured) cannot get any benefits i.e. money from insurance policy till he is alive. After his death, the amount of the policy is paid to his nominee or to the legal heir. Such a policy is meant for making a provision for the dependents of the assured. The rate of premium is usually low.

(2) Endowment Insurance Policy : An endowment insurance policy is for a specific period and the amount of such a policy along with bonus is paid after the maturity to the assured himself or on the death of the assured to the nominee or his dependents whichever is earlier.

(3) Term Insurance Policy : This type of policy is issued for a specific period. Premium is very low, fixed and remains unchanged during the term of the policy. In case of untimely death of assured, the nominee or dependents are paid the benefit amount mentioned in the insurance policy.

(4) Annuity Policy : Under this policy, insured has to pay the premium in lump sum or in instalments over certain number of years. After that, a certain amount is paid to the assured ; regularly on monthly basis for fix period or up to his death. It is similar to pension payment scheme.

(5) Money back Policy : Under this policy, the policyholder is paid regular or pre-determined percentage of the sum assured after every 10 years or 5 years during life time of policy and also provided the benefit of full sum assured to the nominee or dependents in the event of untimely death of the assured. Usually money back policy is available for 12 years, 15 years, 20 years, 25 years, etc.

Question 4.
State any four features of business services.
Answer:
The features of business services are explained as follows:
(1) Intangibility : Business services are intangible in nature. This is because business services cannot be seen, touched and smelt. They are not physical or material product. For instance, the building of the insurance company can be seen but insurance services offered by such company cannot be seen. People can avail of the benefits of insurance services although they are intangible in nature. On account of intangibility, services cannot be demonstrated as like goods. Hence services providers have to provide quality services to create good impression on the customers.

(2) Inseparability: One of the important features of business service is that the service and service provider cannot be separated from each other. At the time of rendering the services to the customers, the presence of service provider is must, e.g. medical treatment given by doctor to patient. In the case of services, production and its use (consumption) take place simultaneously.

(3) Inconsistency : Business services are heterogeneous i.e. they are not identical or exactly similar in all cases. They may differ from one person to another and from one place to another although service provider remains same. In fact, business services are heterogeneous, e.g. the services of a salesman in a Mall may have good impact on one customer and may not be liked by another customer.

(4) Perishability : Business services are perishable in nature. Hence, they cannot be stocked. The production and consumption (use) of services cannot be separated because services cannot be stored for future consumption. Since business services are intangible and perishable, there can never be inventory of services. Unlike products services cannot be stored for future sale, e.g. vacant seats of a morning bus from Mumbai to Pune cannot be utilised for evening trip of the same bus.

(5) Non-transferability : Business services are non-transferable in nature. The ownership of business services cannot be exchanged. We can exchange the ownership of products but not of services. A lady goes to a beauty parlour and hires services of the beautician by paying the fees. The lady cannot buy the ownership as its ownership remains with the beautician. If she needs such services again, she has to go to the beauty parlour and pay the beautician again for her services.

(6) Consumer participation : The participation of consumer is important for services. The seller or service provider will not be able to provide its services in absence of a consumer and vice versa. So, the presence or participation of both is necessary.

Question 5.
State money remittance services of postal department.
Answer:
Money remittance services : The money remittance services are explained as follows:
(i) Electronic Money Transfer (eMO) : A money order is the most convenient method of remitting money to distant places. It is an order issued by one post office to another to pay a certain amount of money to a person specified therein. The person to whom money is to be paid is called ‘Payee’. Under this service of the post office, money is delivered at the house or the place of stay of the receiver.

(ii) Instant Money Order (iMO) : Instant Money Order (iMO) is an instant web based money transfer service by which minimum Rs 1000 and maximum Rs 50,000 can be transferred to distant places from designated iMO post offices. It is the instant on-line money transfer service which is safe, convenient, reliable and affordable. The money can be sent to close relative residing at distant place in India. It is simple, quick and economical to send and receive money.

(iii) International Money Transfer : International Money Transfer is the most convenient, quick and easy way of transferring personal remittances from foreign country to family members or other beneficiaries in India. Now this service is made available in all post offices in India by Department of Post, Government of India with the help of Western Union Financial Services. The remittances of money are permitted from around 195 countries to India.

6. Justify the following statements.

Question 1.
Air transport is fastest mode of transport.
Answer:
(1) The mode of transport which is operated above the surface of the earth i.e. in the sky through airways is called air transport. For carrying passengers and goods, air transport uses different aircrafts such as passengers aircrafts, cargo aircraft, helicopters, etc.

(2) Among the means of transport available at present, air transport is the fastest and the quickest means of transport. It uses natural ways and no separate construction of routes is required. It is also due to use of modern and advanced technology and highly qualified and professional technicians. Thick forests, high mountains, vast deserts and oceans cannot obstruct its speed and air routes.

(3) Air transport adopt shortest route to reach destination. It has faster speed without any disturbance of observing signal system speed. Air transport is useful to provide valuable services in hilly and mountainous areas, in situations like war and areas affected by natural calamities such as floods, cyclones, earthquakes, etc.

Question 2.
Communication is essential for growth of business.
Answer:
(1) Exchange of ideas, facts, information etc. from one person to another is called communication. It is a process of transfer of information from one place to another or from one person to another with the help of some medium. Means of communication comprise magazines, newspapers, post and telegraphs, radio and television, telephone, internet, e-mail, etc. Communication is essential for growth of business, which include industry, commerce, trade, etc.

(2) The difficulty of distance is effectively solved by various means of communication. Communication helps to transmit business information more quickly among the businessmen. Effective communication facilitates carrying required raw materials and other requirements from the place of their origin or market to the place of their production to facilitate large scale production. The communication also helps to carry finished products from the place of production to the places of consumption as well as market.

(3) Communication helps to make goods and services available wherever they are demanded. It helps to widen the market. Effective communications facilitates the development and growth of domestic and international market and bring prosperity to the country.

(4) Effective communication facilitates the reduction in the cost of production and distribution of goods at low prices which increase their demand and widen market. Increase in demand in turn leads to large scale production and supply. Thus, communication is essential for growth of business.

Question 3.
Principle of subrogation is applicable to all contracts of indemnity.
Answer:
(1) The principle of subrogation is a colliery to the principle of indemnity. According to the principle of subrogation, after the insured is fully compensated for the total loss of the property or goods insured by him, all the rights in such property or goods pass on to the insurer.

(2) Insured person cannot claim any right in the property saved from the damage or loss, once he is fully compensated by the insurer. This is necessary because, if part of the goods or property saved from the fire, accident, damage, floods or cyclone, etc. could fetch any price, the same cannot be retained by the policyholder or insured. In that case he would realise more than the actual loss, which is against the principle of indemnity.

(3) As like the principle of indemnity, the principle of subrogation is applicable to all insurance policies except life insurance policies. In life insurance contracts, the question of indemnity and subrogation does not arise. The insurer cannot indemnify the insured because the loss due to death cannot be determined exactly in terms of money.

(4) In all insurance contracts, except life insurance contract, principle of indemnity and principle of subrogation are applicable. On indemnifying the insured, the insurer can sell the remains of the property damaged and reduce his loss. However, this principle is applicable only if the damaged property has any value after the happening of the event.

Question 4.
Warehousing is important.
Answer:
(1) The term ‘warehousing’ is generally used to denote all those activities which are concerned with the storage of goods in a godown or warehouse. In modern days, these is a time gap between production of goods and their distribution. Warehousing is essential to hold the stock of goods till they have suitable demand.

(2) Agricultural goods such as rice, wheat, sugar, spices, etc. are produced seasonally but consumed throughout the year. It is necessary to store them in large quantity. Some goods may be required to be stored for conditioning, canning or processing, e.g. oil seeds, fish, fruits, etc. Some perishable goods such as eggs, meat, butter, fruits, vegetables, medicines, etc. are preserved in cold storage so that their quality remains as it is.

(3) Warehousing plays an important role in price stabilisation. It helps to protect the goods from theft, deterioration, i.e. future risks. Warehouses nowadays provide facilities like packing, processing, grading, etc. Warehousing is necessary to facilitate dispersion of goods from production centres to different markets.

Question 5.
Cash can be withdrawn from ATM at any time.
Answer:
(1) ATM is the abbreviation of Automated Teller Machine. It is popularly known as All Time Money or Any Time Money. ATM is an electronic cash dispensing machine. It is free standing self service terminal. There is no specific time limit for withdrawals of cash from ATM.

(2) ATM is one of important facilities provided by the bank to its savings accountholder. To avail of this facility, bank installs ATM terminals at the places of public utility such as railway stations, shopping malls, airports, post offices, busy streets, etc.

(3) For withdrawal of cash from ATM, every accountholder is given specific code number. By operating this system, the accountholder can withdraw the cash up to a specific limit or the quantum of amount available in the account whichever is less. ATM also provides other information like cash deposits, withdrawals, balance in the account, etc.

(4) Under this system, the accountholder has cent per cent liquidity of banking funds. ATM avails twenty four hours service. Hence, the accountholder can withdraw cash any time, i.e. even after banking hours, on holidays, Sundays or in the case of emergency by operating ATM. This facility is available in different parts of the country as well as outside the country.

7. Attempt the following.

Question 1.
Explain money remittance services of post department.
Answer:
Money remittance services : The money remittance services are explained as follows:
(i) Electronic Money Transfer (eMO) : A money order is the most convenient method of remitting money to distant places. It is an order issued by one post office to another to pay a certain amount of money to a person specified therein. The person to whom money is to be paid is called ‘Payee’. Under this service of the post office, money is delivered at the house or the place of stay of the receiver.

Question 2.
Explain marine insurance policies.
Answer:
The different types of marine policies are:
(1) Voyage Policy : Under the Voyage Policy, the cargo is insured for a specified voyage, from one port to another, irrespective of the time taken. For instance, the voyage may be from Mumbai to Tokyo. In this type of policy, risk begins as soon as ship starts from Mumbai and ends when it reaches Tokyo.

(2) Time Policy : Under the Time Policy, the subject-matter is insured for a specific period of time. It covers risks of the voyage undertaken during the specified period. Time policy cannot be issued for a period more than 1 year but may contain continuation clause which explains that if voyage is not completed within the specified time, the risk shall be covered until voyage is completed.

(3) Mixed Policy : This policy is the combination of the two policies, viz. time policy and voyage policy. It insures the cargo (i.e. goods loaded on a ship, etc.) on a particular voyage for a specific period of time. For instance, the policy may contain the clause ‘Mumbai to Singapore, for one month starting from 25th February, 2020 to 25th March, 2020’.

(4) Valued Policy : The valued policy is a policy in which the value of the subject-matter is agreed upon between the insurer and the insured at the time of taking out the insurance policy. Agreed amount of policy becomes payable by the insurance company to the insured i.e. policyholder in the event of loss. It facilitates easy settlement of claim, where it is difficult to find out real market value S of the cargo.

(5) Blanket Policy: Under this policy, the maximum limit of the needed amount of protection is estimated and premium is paid in advance. This policy gives information of nature of goods insured, ports and places of voyages, specific route and risks covered. This policy covers multiple 1 risks on one property or it may cover different properties under one policy.

(6) Port Risk Policy : This policy is taken by the shipowner. It undertakes to indemnify the shipowner for any loss that may occur to the ship while it is anchored at a port. This policy is held applicable till the departure of the vessel from the port.

(7) Composite Policy : This policy is purchased from many insurance companies when the amount of insurance is very high. However, the liability of each insurance company to pay the amount of j claim is separate and distinct.

(8) Single vessel policy : The small shipowner having only one ship in different fleets, usually purchases single vessel policy to cover the risk of loss. This policy covers the risk of one vessel of the insured.

(9) Fleet policy and Block policy : The marine policy which insures several ships belonging to one owner is called Fleet Policy. The Block Policy is another marine policy under which the cargo owner is given protection against the loss or damage of cargo in all modes of transport i.e. rail, road and sea.

Question 3.
Explain types of warehouses.
Answer:
The different types of warehouses are:
(1) Private warehouses : The warehouses owned and operated by the big manufacturers and wholesalers for storing their own goods are called private warehouses. Big companies which need large storage capacity on a regular basis, can afford to construct and maintain their own warehouses. Many public sector organisations also have their own private warehouses, e.g. the Food Corporation of India (FCI) has constructed warehouses in different parts of the country for its own use. Usually these warehouses are constructed near to ones business factory or industry for convenience. They have network of warehouses in different parts of the country.

(2) Public warehouses : Warehouses which are established to provide storage facilities to the general public, small manufacturers and traders on rental basis are called public warehouses. These warehouses are owned and managed by an individual or co-operative societies. These warehouses are located near railway junctions, highways, waterways, airport, seaport, etc. They are well guarded and specially designed to protect goods from several types of risks. These warehouses have to obtain licence from the government. They provide warehousing facilities at low cost. Many marketing facilities such as standardisation, grading, labelling, packing, branding, etc. are provided in these warehouses.

(3) Bonded warehouses : Warehouses which are licensed by the government to accept and store imported goods till the customs duties are not paid on such goods are called bonded warehouses. These warehouses are managed and controlled by customs authorities. These warehouses are located near the ports. The importers cannot take possession of goods from such warehouses unless and until the duty on the goods is paid. The warehouse-keeper is required to give undertaking or ‘Bond’ that without the consent of the customs authorities goods will not be removed from the warehouse. Hence, such warehouses are called ‘Bonded Warehouses’. If an importer is unwilling or unable to pay customs duty immediately, he can withdraw them in instalments and pay customs duty proportionately.

(4) Duty-paid warehouses : The duty-paid warehouses provide the facility of storing the imported goods but not yet sold or transported to importers’ place or godown. These warehouses are owned and managed by the dock authorities only and hence they are also known as public warehouses. These warehouses are located near port and dock areas. They are more useful to importers who re-export the imported goods. The concerned authorities take all the due and reasonable care to ensure their safety. Processing of imported goods such as sorting, re-packing is done in these warehouses.

(5) Government warehouses : Warehouses which are owned, managed and controlled by the Central and State Governments or public authorities are called Government warehouses. These warehouses offer storage facilities to small traders, farmers, businessmen, etc. who are in need of the same on payment of reasonable rent. Central Warehousing Corporation of India (CWC), State Warehousing Corporation (SWC) and Food Corporation of India (FCI) own warehouses for keeping stock of foodgrains and other goods In different states and countries.

(6) Co-operative warehouses : These are warehouses owned, run, managed and controlled by co-operative societies to provide warehousing facilities to the members who are farmers in rural areas. These warehouses are similar to private warehouses but they run on the principle of co-operation. They are used for storing agricultural commodities, consumer goods, raw materials, etc. Farmers, small producers and traders are benefited by such warehouses as they charge at economical rates.

(7) Cold storage warehouses : Cold storage warehouses are largely used to store and preserve perishable goods such as flowers, fish, eggs, meat, vegetables, fruits, medicines, dairy products, etc. These products are kept in cold storage warehouses at very low temperature so that their quality and freshness would remain intact. These warehouses ensure continuous supply of seasonal and perishable products throughout the year. International trade for seasonal and perishable goods such as green peas, mangoes, etc., becomes possible only because of cold storage facilities.

Question 4.
Explain utility function of banks.
Answer:
The utility functions of the commercial bank are explained as follows:
(1) Issue of drafts and cheques : The Bank draft/cheque is an order issued by the bank upon the other branch of the same bank or other bank to pay money to the person whose name is specified thereon. The bank issues bank drafts to its accountholders or non-account holders. However, cheque are issued by the bank only to its account holders. For issuing the bank draft, bank charges some commission.

(2) Locker facility: The bank provides safe deposit vaults to the customers for keeping their valuables like gold ornaments, jewels, securities, valuables, documents, etc. in safe custody. Safe deposit vaults/lockers are made available to the customers on rental basis.

(3) Project reports : As per the request of the clients, bank prepare project report and feasibility study (i.e. a study designed to determine practicability of a system or plan) on their behalf. This helps the business organisation to get funds from the market and clearance from the government authorities.

(4) Gift cheques : The commercial banks also issue gift cheques and gold coins to the customers as well as to the general public by charging nominal charges. It is more popular and has wider acceptance in India. Instead of giving gifts in cash, one can give gift cheques as a present on various occasions such as birthdays, weddings, marriage anniversaries, etc.

(5) Underwriting Services : Underwriting services are given by the banks to the companies in which the bank gives guarantee to the issuing company to purchase unsubscribed portion of the shares, debentures, bonds and other securities if the public demand is not enough to fulfil the minimum subscription amount. For this services bank charges underwriting commission.

(6) Gold related services : Nowadays, many commercial banks offer gold related services to its customers. The banks on commercial basis buy and sell gold and gold ornaments to the customers on large scale basis. Some banks even gives advisory services to its customers in regard to gold funds, gold Exchange Traded Fund (ETF) etc.

Question 5.
Explain modes of traditional communication.
Answer:
(I) Postal Services : The postal services in India are provided by the Department of Post which comes under Ministry of Communication and Information Technology. India has the largest postal network in the world with 1,54,965 post offices of which 1,49,067 are in the rural areas. The different types of postal services are explained below:
(1) Mail Services : The different types of mail services are described below:
(i) Inland letters : The inland letter is one of the cheapest means of conveying written message. It contains a blank sheet of paper of prescribed size and folding for writing messages. It is folded and sealed. Only names and addresses of the receiver and sender can be seen from outside. So, it ensures complete secrecy. Inland letters are used for transmission of messages within India only.

(ii) Envelopes : A postal envelope is a small size paper cover with postage stamps affixed on it having one side open to put in papers, written messages and enclosures like cheques, photos, resumes, etc. It ensures maximum secrecy. On the front outside space name and address of receiver are written and on the backside space name and address of sender are written.

(iii) Parcel : Parcels help to send small articles from one place to the other by post. Parcel post provides economical and reliable parcel delivery service. Parcels of specified weight and size can be sent at different places within the country as well as outside the country Anything except those items which are banned can be sent. Parcel can be insured by paying extra charges for insurance. In case of insured parcel is lost in transit post office pays insured amount.

(iv) Book post : Printed materials such as publications, newspapers, printed books, wedding, cards, greeting cards, periodicals, legal documents, etc. can be mailed as book post. The book post packets should simply be closed and should not be sealed. The words ‘Book Post’ should be written on the face of the cover.

(2) Specialised Postal Services : The following specialised postal services are provided by the post offices:
(i) Business Post : Business post arranges complete mailing services right from preparation of mail to delivery of mail. It is most suitable for small business and large companies. As per requirement, customers can select from a range of cost effective and professional mailing services which include printing, collating (comparing or examining), inserting, sealing and addressing. Indian post has established Business Post centres in major cities to handle business post consignment.

(ii) Logistics Post : Logistics post provides its business customers a cost-effective and timely solution that manages the entire value chain from collection to storage to transmission to distribution throughout the country.

(iii) Bill Mail Service : Communications in the nature of financial statements, bills, monthly account statements or any such other items of similar nature are sent by service providers to the customers by using bill mail service of post office. This service is used at least once in 90 days. Under this service, at a time minimum 5000 articles can be posted. The bill mail service does not include communication in the nature of letter mail or having personal communication or exclusive commercial publicity material. The mail is to be received at specified location provided. Bill mail is to be sorted pin code wide and bundled delivery post office wise.

(3) Money remittance services : The money remittance services are explained as follows:
(i) Electronic Money Transfer (eMO) : A money order is the most convenient method of remitting money to distant places. It is an order issued by one post office to another to pay a certain amount of money to a person specified therein. The person to whom money is to be paid is called ‘Payee’. Under this service of the post office, money is delivered at the house or the place of stay of the receiver.

(4) Retail services : The retail services are explained as follows:
(i) Retail post : Under retail post service, the department of post offers services to general public by making available some products and services of third party available in their areas through selected post offices. Under this, post offices offer a range of services including the collection of electricity bills, telephone bills, insurance premia, collection of taxes and fee for the government, etc. The post office also sells application form.

(ii) e-post : Recently, the department of posts has introduced e-post services, e-post service is service under which printed messages of customers are scanned and transmissed as email through internet. At the destination place or offices, these messages are printed, enveloped and delivered at the postal address. Thus, it is the combination of electronic transmission and physical delivery. Through e-post customers can send their messages to any address in India through network of more than 1,55,000 post offices. Corporate customers get special e-post rates and value additions.

Question 6.
Explain disadvantages of air transport.
Answer:
The disadvantages of air transport are as below:

Costliest mode : In comparison to all other modes of transport air transport is most expensive.
Affected by adverse weather conditions : It is exposed to the vagaries of weather changes, heavy rains, snow, storm, etc.
Unsuitability : Air transport is not suitable for short distances. It is also not suitable for carriage of bulky and heavy goods.
Huge capital investments : As compared to other modes of transport, air transport requires huge capital investment costs like construction of airports, aircrafts, runways, air traffic control tower, etc. Huge capital investment increases freight and fare charges.
International restrictions : Air transport is required to observe international restrictions such as aeroplane of some nations are not permitted to fly over other countries.
Limited carrying capacity : In comparison to other means of transport, the carrying capacity of air transport is very limited. It is not suitable to carry heavy and bulky goods.

Question 7.
Describe the role of transport.
Answer:
The role of transport are explained as follows:
(1) Helps in production : Transport carries raw materials and other requirements from the place of their origin or market to the place of their production to facilitate large scale production. It also carries labour from their residence to place of factory. It carries finished products from the place of production to the places of consumption or markets.

(2) Expanding markets : Producers and consumers are separated by geographical distance. Transport bridges this gap and facilitates distribution. It makes goods available wherever they are demanded. This helps to widen the market. With the development and growth of transport, the domestic and international markets for both agricultural and industrial products expand, bringing the prosperity to the country.

(3) Creates place utility : Transport is a public utility service which creates time and place utilities. Transport mainly creates place utility by carrying goods from the place of plenty to places where they are in more demand but not available, e.g. Apples which are produced on large quantity in Himachal Pradesh are brought over to Mumbai and other places throughout the country by transport to get high prices.

(4) Stability of prices : Transport carries goods from the areas of plenty to the areas of scarcity. It helps to regulate and balance the supply of goods and services in relation to demand and thereby helps to stabilise the prices of goods. The shortage of goods at any place can be easily removed by efficient transport system.

(5) Creates employment : Transport creates job opportunities directly for transport owners, drivers, conductors, cleaners, mechanics, helpers, etc. It helps to move labour and goods from the place of abundance to the place of scarcity. This movement of goods and labour creates indirect employment. Transport an industry by itself has provided job opportunities to millions of people all over the world.

(6) Improves standard of living : By generating employment, transport leads to increase purchasing power with people. Further, it makes products of their choice from different regions available in local markets. This results in higher standard of living.

(7) Cost reduction : Efficient, cheap and quick means of transport facilitate the reduction in the cost of production and distribution of goods. On account of low cost of production, the goods can be sold at low prices which increase their demand and widen market. Increase in demand again leads to large scale production of goods and supply.

(8) Provides help during emergency : The life of the people is badly affected during natural calamities such as floods, earthquakes, landslides, droughts, etc. and also during man-made disasters such as bomb blasts, riots, accidents, etc. In such circumstances, urgent and timely help in the form of food, water, medicines, clothes and other provisions, etc. can be provided quickly with the help of transport to save the lives of affected people. Rescue operations are possible only with the help of helicopters, fire brigades, railways, etc.

(9) Economic development : An efficient transportation system contributes to the rapid development of commerce and industry. Transport also helps to develop agriculture of a country. New industries are established and rapidly developed due to efficient network of transport. Further, a country can make progress in international trade and thereby earn foreign exchange only through efficient transport services.

Question 8.
What are the functions of warehouses?
Answer:
Functions : The functions of warehouses are explained as follows:
Function of Warehouses

Storage
Price Stabilisation
Risk-Bearing
Financing
Grading and Packing
Transportation
Time and Place Utility
Processing

1. Storage : Storage of goods is the basic function of warehousing. Warehouses provide space for storage of goods in large quantity and in good condition. The commodities which are not required immediately are stored in the warehouses. Stored goods are supplied as and when they are required by the customers.

2. Price stabilisation : Warehousing facilitates price stabilisation by maintaining proper balance between demand for and supply of commodities. It is achieved by creation of time utility by warehousing. Usually, large stock of goods is kept in the warehouse. Wherever, there is shortage of goods in the market, goods are released from the warehouse which increases supply and facilitates price stabilisation. Thus, it helps to avoid any rise in prices.

3. Risk-bearing : While the goods are stored in the warehouse, the warehouse-keeper takes reasonable care to protect the goods from risks of loss or damage due to heat, cold, moisture, dryness, insects, fire and thefts. This is because he has to return the goods in the same condition. For any loss or damage of goods during storage, warehouse-keeper will be held liable to the owner of the goods. Thus, the risk is transferred from the owner to the warehouse-keeper.

4. Financing : On the basis of goods stored in the warehouse, loans can be raised from the financial institutions or warehouse-keeper. The goods act as a security for financial institution. This loan can be used to meet other operations of business by the owners of goods.

5. Grading and Packing : Warehousing provides enough space for undertaking various marketing functions like grading, processing and packing of goods. Goods can be packed in suitable sizes as per the instructions of the owner. Thus, services of warehousing are very useful to manufacturers, wholesalers and the importers of goods.

6. Transportation : Some warehouses also provide transport facility to the traders who store large quantity of goods in the warehouse. It brings the goods from the places of production and also sends them to the places of delivery on behalf of depositors.

7. Time and Place Utility: Warehousing creates time utility by storing goods and releasing the same at the time when they are demanded. It also creates place utility by transporting goods at the far away places, where they are required.

8. Processing : For certain commodities processing is necessary to make them consumable or useable. This is because those commodities cannot be consumed in the form they are produced in the nature, e.g. paddy, raw fruits, etc. The activities such as polishing the paddy, ripening the fruits, etc. are undertaken by the warehouses on behalf of the owners.

8. Answer the following.

Question 1.
What is insurance ? Explain principles of insurance.
Answer:
[A] Meaning : The term insurance refers to the method (means) of protection from financial loss which may occur due to happening of specific uncertain events. It is a type of risk management primarily used to compensate against the risk of a contingent loss. Insurance is a contract between two parties whereby one of them (the insurer) agrees in return for a consideration (premium) to indemnify (compensate) the other (the insured) against a monetary loss that may be suffered by the other on the happening of some specified event.

According to Insurance Act of 1938, Insurance is defined as, “A provision which a prudent man makes against inevitable contingencies”.

[B] Principles of insurance : The different principles of insurance are:

Principle of Utmost Good Faith
Principle of Insurable Interest
Principle of Indemnity
Principle of Subrogation
Principle of Contribution
Principle of Mitigation of Loss
Principle of Causa-Proxima

1. Principle of Utmost Good Faith : The principle of utmost good faith is applicable to all types of insurance. According to this principle, both the parties in an insurance contract are under am obligation to make the fullest disclosure of all material facts relating to the insurance contract clearly, correctly and completely. Insured must provide correct and complete information of the subject-matter of the insurance whereas insurer must provide correct and complete information about the terms and conditions of the insurance contract. Failure to provide correct, complete information on the part of insured may lead to non-settlement of claim by the insurer.

For example, Mr. Hari has not given information about his kidney ailment to the insurance company while taking policy. So, if the insurance company discovers it after his death, then his family will not get compensation.

2. Principle of Insurable Interest : No person can enter into a valid insurance contract unless he has insurable interest in the object insured. Insurable interest of an insured is said to have in the subject matter if the existence of it provides financial benefit to the insured and non-existence of that subject matter put the insured to financial loss. Principle of insurable interest is applicable to all contracts of insurance. In the case of life insurance it is enough if the insurable interest s exists at the time of entering into the contract. In the case of marine and fire insurance interest the insurable must exist both at the time of the contract as well as at the time of the happening of the event.

A person has insurable interest in his own life and his property. A businessman has insurable interest in the goods he trades and in his property. Similarly, a wife has insurable interest in the life of her husband and vice versa.

3. Principle of Indemnity : Indemnity refers to a guarantee or assurance given by the insurer to place the insured in same financial position in which he was before the happening of the uncertain event. Principle of indemnity is applicable to marine, fire and general insurance as in such cases actual loss can be measured in terms of 1 money. Under this principle, the insurer undertakes to indemnify the policyholder or insured to the extent of the policy amount or the actual monetary loss suffered, whichever is lower, e.g. if a property owner has insured his property for Rs 5 lakh and it is destroyed by fire and incurred a loss of Rs 2 lakh, then the property owner will be paid only Rs 2 lakh i.e. the actual loss. This principle prevents a policyholder from making a profit out of his actual loss. However, in case of death of the insured, insurance company pays the actual sum assured to the nominee of the insured.

4. Principle of Subrogation : The principle of subrogation is a corollary to the principle of indemnity and is applicable to all contracts of j indemnity. According to it, after the insured is fully compensated for the total loss of the property or goods insured by him, all the remaining rights in such property or goods pass on to the insurer. Suppose a car owner has insured his car for Rs 2,00,000 against risk of loss due to accidents. If his car meets with an accident and is completely damaged, the insurance company pays Rs 2,00,000, the policy amount, to the car owner. On indemnifying the insured, the insurer can sell the remains of the car in scrap and reduce his loss.

5. Principle of Contribution : The principle of contribution is applicable to all contracts of indemnity. A person can insure his property with two or more insurance companies. It is done mainly to have better security, i.e. if one insurer fails to pay the claim, it can be recovered from another insurer. In the case of loss, the insured cannot recover compensation from both the insurance companies. All the insurers will jointly compensate the total amount of loss. According to the principle of contribution, each insurance company will contribute to the loss in proportion to the amount of policy undertaken from each company. If the insured chooses to collect the amount of compensation from one particular insurer, the insurer can in turn recover proportionate amount from the other insurers.

For instance, Dr, Ashok has insured his property of Rs 2,00,000 with two insurance companies viz. with X insurance company for Rs 1,20,000 (i.e. 60% of property value) and with Y insurance company for Rs 80,000 (i.e. 40% of property value).

If Dr. Ashok’s property is destroyed and he incurred a loss of Rs 1,50,000, then both the insurance companies will contribute towards actual loss of Rs 1,50,000. Here X insurance company will pay Rs 90,000 (i.e. 60% of Rs 1,50,000) and Y insurance company will pay Rs 60,000 (i.e. 40% of Rs 1,50,000).

6. Principle of Mitigation of Loss : Under this principle, the insured is required to take all possible steps to minimise the loss to the insured property on the happening of the event. He should not remain indifferent merely because the property which is getting damaged is insured. For example, Mr. Kishor’s house is on fire due to short circuit. In this case Mr. Kishor, must take necessary steps to put off the fire and to save the insured property as much as possible.

7. Principle of Causa-Proxima : The term ‘Causa-Proxima’ means a proximate, i.e. nearest or immediate cause or reason. Accordingly, when loss is occurred due to more than one cause, then proximate or nearest cause of loss is taken into consideration to fix the liability of insurer. If proximate cause is one of the causes from list of insured causes, then insurer is liable to pay compensation. In other words, the insurance company will indemnify the insured only if it is definitely established that the said loss is caused directly by the occurrence of the event covered by the policy.

Question 2.
Define bank. Explain. Different types of banks.
Answer:
[A] Definition : Bank is a dealer in money and credit. It is a financial institution whose basic activities are to accept deposits and advance, lend money and provide other related services, According to The Indian Banking Regulation Act, 1949, “any company which transacts the business of banking in India.” The term banking is further defined as, “accepting for the purpose of lending or investment of deposits from the public, repayable on demand or otherwise and withdrawable by cheque, draft and order or otherwise.”

Types of Bank:

Central Bank
Commercial Bank
Co-operative Bank
Industrial Development Bank
Exchange Bank
Regional Rural Bank
Savings Bank
Investment Bank
Specialised Bank

The different types of banks are explained below:
1. Central Bank: The central bank in a country is the financial institution at the top (apex) of all the banking institutions operating in the country. In India, The Reserve Bank of India was established in 1945 under a special statute called the Reserve Bank of India Act, 1944. It performs the functions like framing monetary policy, issuing currency notes, acting as a banker to the Government and acting as the banker’s bank to commercial and other banks in India.

2. Commercial Bank : The Commercial bank plays key role in the economic, industrial and social development of a country. It performs broadly two functions such as (i) Primary functions which include accepting deposits and lending money in different forms and (ii) Secondary function which include agency functions and utility functions. The different types of commercial banks in India are as follows:
(i) Public Sector Banks : The banks in which majority of the share capital or stake (interest) is held by the Government of India are called Public Sector Bank, e.g. State Bank of India, Bank of India, etc.

(ii) Private Sector Banks : The banks in which majority of the share capital or stake is held by private individuals are called Private Sector Banks, e.g. Axis Bank, HDFC Bank, etc.

(iii) Foreign Banks : The banks which are registered and have their headquarters in foreign country but operate in different countries including India through their branches established there, are called Foreign banks e.g. Standard Chartered Bank, American Express Bank, HSBC, etc.

3. Co-operative Banks : Co-operative banks are formed, registered and organised under the Indian Co-operative Societies Act and regulated under Banking Regulation Act. These banks are more popular in rural and semi-urban areas. These banks are primarily meant for catering to the financial needs of economically backward people, farmers and small scale units. They operate at three different levels:
(a) Primary Credit Societies : The primary credit societies work at village level. These credit societies collect the savings and surplus money in the form of deposits from members and common people. They are also financed by the State Co¬operative Banks and District Co-operative Banks for the purpose of lending to needy people for productive purpose.

(b) District Central Co-operative Banks : The District Central Co-operative Banks operating at district level and financed by the State Co-operative Bank for the purpose of providing finance to primary credit societies.

(c) State Co-operative Banks : The State Co-, operative Banks Eire working at state level. These banks provide funds to District Central Co-operative Banks and Primary Credit Societies to enable them to provide finance to rural and semi urban areas. Apart from this, they also supervise the working of district banks and credit co-operative societies.

4. Industrial Development Banks : The banks which provide medium and long term equipment, latest technology, expansion and modernisation of business, etc. are called Industrial Development Banks. Industrial Finance Corporation of India (IFCI), State Financial Corporations (SFCs), Maharashtra State Finance Corporation (MSFC), etc. are the examples of Industrial Development Banks. These banks perform the following functions:

Provide medium and long term finance to business organisations for expansion and modernisation.
Underwriting i.e. giving guarantee to buy shares issued by public limited companies.
Purchase debentures and bonds.

5. Exchange Banks : An exchange bank specialises in financing import and export trade and in foreign exchange transactions. The American Express Bank, Bank of Tokyo, Barclays Bank, etc. are the examples of Exchange Banks functioning in India. The Exchange Banks perform the following functions:

Finance foreign trade transactions,
Issue letter of credit on behalf of importer,
Discount foreign bills of exchange,
Remit dividend, interests and profits.

6. Regional Rural Banks : These banks were constituted (established) in 1975 and are sponsored by large public sector banks. 50%, 35% and 15% of the capital of these banks are provided by the Central Government, sponsored banks and State Government respectively. These banks collect (mobilise) funds in the form of deposits from rural and semi-urban areas. They provide loans and advances to small and marginal farmers, agricultural workers, rural artisans for productive purpose.

7. Savings Bank : A savings bank is one which has the main object of inculcating the habit of saving among the community. It collects scattered savings of the community especially from rural areas and invests the same in good securities. In India, Postal Savings Bank is an example of such a bank. Commercial Banks and Co-operative Banks act as savings banks as they have separate savings accounts departments.

8. Investment Bank : Investment banks offer financial and advisory assistance to their customers which usually include business firms and government organisations. These banks provide advice on investment decisions and facilitate mergers and acquisitions by undertaking research. These Banks do not directly deal with the common people.

9. Specialised Banks: The banks which make available to the requirements of the business and provide possible support to set up business activities in specific area are called Specialised Banks. The different types of specialised banks are:
(a) Export Import Bank of India (EXIM Bank) : These banks provide the needed financial assistance and support to the exporters and importers in setting up business for exporting and importing products respectively. They work to expand and promote country’s international trade.

(b) Small Industries Development Bank of India (SIDBI) : SIDBI was established on 2nd April, 1990 under the Act of Parliament of India. Its main function is to act as the main institution for financing, promoting and developing the Micro, Small and Medium Enterprises (MSMEs) as well as co-ordinator of the institutions engaged in similar activities.

(c) National Bank for Agricultural and Rural Development (NABARD) : NABARD has been established to work as an apex institution to finance agricultural and rural sector. It provides long term and short term loans through regional rural banks. It provides loans to financial institutions and not individuals. It is also concerned with the function of policy planning and operations relating to agricultural credit and credit for other activities in rural areas.

Question 3.
What is warehouse? Explain its different functions.
Answer:
[A] Meaning : A warehouse can be defined as, “an establishment for the storage or accumulation of goods.” The term ‘warehousing’ is generally used to denote storage of goods and consists of all those activities which are connected with the storage and preservation of goods in a godown or warehouse. One of the group activity or functions is to hold the goods in stock from the time of production till the time of consumption is called storage of goods. When storage of goods is required to be arranged on a large scale in a specified manner, it is called ‘warehousing’.

[B] Functions : The functions of warehouses are explained as follows :
Function of Warehouses

Storage
Price Stabilisation
Risk-Bearing
Financing
Grading and Packing
Transportation
Time and Place Utility
Processing

Question 4.
What is Services? Explain in detail different business services.
Answer:
[A] Meaning : A service is an act of performance that one party offer to another for certain consideration. Service is essentially intangible i.e. cannot be touched, seen and felt. Services are neither manufactured nor stocked or transported. They are produced and consumed simultaneously. So, Services are intangible, heterogeneous, inseparable, inconsistent, instantly perishable in nature, not transferable and require consumer participation. Services which help in successful running of a business are called business services.

Business cannot be run without business services. These services are provided to the customers which fulfil their needs. Banking, insurance, transport, warehousing, communication, etc. are the examples of business services. According to American Marketing Association, services implies, “Activities, benefits or satisfaction which are offered for sale or provided in connection with the sale of goods.”

[B] Types : The different types of services are shown:

Banking
Insurance services
Transport services
Warehousing
Communication

The different types of business services are explained as follows:
1. Banking : As the production has to take place on a large scale, adequate finance is required. Further, there must be facilities for the exchange of goods. Banks provide necessary finance and to facilitate exchange issue different types of facilities such as cheques, drafts, debit card, credit card, net banking, mobile banking, etc. The banks also provide loans to the business and industry to buy properties and to pay for routine expenses.

2. Insurance services : There are several business risks involved during the period from the stage of production to the stage of consumption. Insurance company in consideration of a definite fees called premium, undertakes all such risks through fire, marine, life and other insurance contracts. Insurance is a service contract in which insurance company in consideration of specific premium amount promises to pay a fixed amount to insured person either on the expiry of pre-determined fixed period or in case of happening of any unlucky accident whichever is earlier. Thus, by protecting the traders against the risks, an
insurance company enables the traders to concentrate on their day-to-day business activities.

3. Transport services : Transport is a service or facility which creates place utility by carrying essential products, raw materials and human resources from one place to another. It plays an important role in the development of all sectors of the economy. Transport helps to widen the market for agriculture and manufactured goods. The efficient transport network facilitates development of commercial activities. It facilitates movement of labour and capital assets from different areas to developed areas.

4. Warehousing : Warehouse is a place or a room or a building where goods are stored prior to their use, distribution or sale. Warehousing creates time utility. It solves the problem of holding the stock of goods during the time-gap between production and consumption. It also provides enough place to perform certain marketing services like grading, weighing, packing, branding, labelling, etc. Warehousing also equalises demand for and supply of goods in the market and helps to stabilise the prices of goods.

5. Communication : George Terry defines communication as, ‘the process of transmitting and interchanging ideas, facts and actions’. It is a main aid to trade. Communication services such as post, telegraph, telephone, cell phones, telex, fax, courier, e-mail, internet, etc. help to transmit and communicate business information quickly among the businessmen

Question 5.
What is communication? Explain in detail various types of communication.
Answer:
[A] Meaning : The term ‘communication’ means any interchange of ideas, messages, facts, information, feelings and emotions among two or more persons In a way that they share common understanding about it. It Is a process of giving away or passing on any information by any person to some other person with the help of some medium. Thus, receiver after receiving the message understands it in the desired form and acts accordingly.

[B] Types of Communication : The different types of communication are shown in the following diagram:
Maharashtra Board OCM 12th Commerce Solutions Chapter 4 Business Services 1
The different types of communication are explained below:
(I) Postal Services : The postal services in India are provided by the Department of Post which comes under Ministry of Communication and Information Technology. India has the largest postal network in the world with 1,54,965 post offices of which 1,49,067 are in the rural areas. The different types of postal services are explained below:
(1) Mail Services : The different types of mail services are described below:
(i) Inland letters : The inland letter is one of the cheapest means of conveying written message. It contains a blank sheet of paper of prescribed size and folding for writing messages. It is folded and sealed. Only names and addresses of the receiver and sender can be seen from outside. So, it ensures complete secrecy. Inland letters are used for transmission of messages within India only.

(2) Specialised Postal Services : The following specialised postal services are provided by the post offices:
(i) Business Post : Business post arranges complete mailing services right from preparation of mail to delivery of mail. It is most suitable for small business and large companies. As per requirement, customers can select from a range of cost effective and professional mailing services ! which include printing, collating (comparing or examining), inserting, sealing and addressing. Indian post has established Business Post centres in major cities to handle business post consignment.

(II) Modern means of communications : The modern means of communication are explained as follows:
(i) Courier Service : A courier service is a service that allows someone to send a parcel or consignment from one place to some other distant place. Usually, courier services are provided by a company and charge flat rates to the parties using the courier service regularly. Courier services differ from ordinary mail services in respect to speed, security, tracking, signature, delivery time, etc. Usually, premium courier services are more expensive as compared to ordinary mail services. DHL, DTDC, etc. are the examples of courier services.

(ii) Internet : The internet is one, in which users at one computer can, if it has permission, get information from other computer. It is a networking infrastructure. It connects millions of computers together globally, framing a network in which any computer can communicate with any other computer as long as they are both connected to internet. It is a network of networks that include of private, public, academic, business and government networks of local to global scope linked by a broad array of electronic, wireless and services such as world wide web, etc.

(iii) E-mail : E-mail stands for Electronic mail. E-mail refers to the transmission of information, from one computer terminal to another. It is a method of exchanging mail between the users of electronic devices. E-mail servers accept, forward, deliver and store messages. Users are not required to be online simultaneously. They are required to connect to a mail server briefly for as long as it takes to send or receive messages.

Question 6.
What is road transport. Explain its advantages and disadvantages.
Answer:
[A] Meaning : Road transport is the oldest mode of transport. It means and includes various means of transport which move on the surface of the earth without the use of railway tracks. Roads are the means which connect people and places on the surface of the land. It provides connectivity on any terrain (land) in comparison to other modes of transport. The different types of vehicles plying on the road include bullock carts, cycles, motor-cycles, autorickshaws, cars, tempos, trucks, buses, etc. They are called means of road transport.

[B] Advantages : The advantages of road transport are explained as follows:
(1) Cheaper mode of transport : As compared to other modes of transport, road transport is relatively cheaper mode of transport. Its operational cost is relatively low.

(2) Useful for perishable goods : Road transport is suitable and more useful to carry and deliver perishable goods such as milk, vegetable, fish, mutton, fruits, flowers, eggs, etc., over a short distance and that too at a faster speed.

(3) Flexible mode of transport : Road transport is flexible mode of transport because loading and unloading of goods are possible at any destination. Similarly, it is more flexible because of the choice of different routes, timings and types of vehicles.

(4) Door-to-Door service : Road transport facilitates door-to-door delivery of goods. It carries the goods and passengers directly to the godowns, factories and places of residence, i.e. user.

(5) Good reach : Roads constructed in plain areas and also in hilly areas can be used by different road vehicles such as trucks, tempos, motor cars and even carts driven by animals for carrying goods and passengers from one place to another. Wherever any other mode of transport cannot reach, road vehicles can easily reach and thus cover even hilly areas.

(6) Less capital investment : The cost of construction and maintenance of a road system is relatively less than that of railways.

[C] Disadvantages : The disadvantages of road transport are explained as follows:
(1) Not economical for long distance : In comparison to other modes of transport carrying capacity of road transport is very limited. High cost of fuel, tolls, etc. make the road transport uneconomical for long distance transportation.

(2) Not suitable for heavy and bulky goods : Road transport is not suitable for carrying heavy and bulky goods for any distance and involves high cost.

(3) Affected by adverse weather conditions : Road transport is affected more by adverse weather conditions such as fogs often greatly reducing visibility, heavy rain, floods, landslides, storm, etc.

(4) Accidents : The possibility of road accidents is frequent due to poor condition of roads and negligent drivers.

(5) Causes pollution : The vehicles plying on the road release smokes and gases. So, it creates air pollution which affect the health of the people.

Maharashtra Board OCM 12th Commerce Solutions Chapter 3 Entrepreneurship Development

July 9, 2024July 8, 2024 by Bhagya

Balbharti Maharashtra State Board Organisation of Commerce and Management 12th Textbook Solutions Chapter 3 Entrepreneurship Development Textbook Exercise Questions and Answers.

Maharashtra State Board 12th Organisation of Commerce and Management Solutions Chapter 3 Entrepreneurship Development

1. (A) Select the correct options and rewrite the sentences

Question 1.
The word ‘entrepreneur’ is derived from the ……………… word ‘entreprende’.
(a) Japanese
(b) English
(c) French
Answer:
(c) French

Question 2.
‘Entreprende’ means to ………………..
(a) Undertake
(b) Enterprise
(c) Businessman
Answer:
(a) Undertake

Question 3.
Start Up India is an initiative of the ………………
(a) RBI
(b) Government of India
(c) World Bank
Answer:
(b) Government of India

Question 4.
………………. is the idea of bringing urban residents to rural areas, by empowering to local communities, both socially and economically.
(a) Agro tourism
(b) Medical tourism
(c) Entertainment
Answer:
(a) Agro tourism

1. (B) Match the pairs

Group A	Group B
(A) Gap filling function	(1) 2016
(B) Entrepreneur	(2) Employment
(C) Agro tourism	(3) Old methods of production
(D) Technology	(4) 2019
(E) Start up India	(5) Self motivated
	(6) Rural tourism
	(7) Entrepreneurship
	(8) Latest knowledge
	(9) Necessity Based
	(10) Medical tourism

Answer:

Group A	Group B
(A) Gap filling function	(7) Entrepreneurship
(B) Entrepreneur	(5) Self motivated
(C) Agro tourism	(6) Rural tourism
(D) Technology	(8) Latest knowledge
(E) Start up India	(1) 2016

1. (C) Give one word/phrase/term which can substitute each one of the following

Question 1.
An undertaking or adventure involving uncertainty and risk and requiring innovation.
Answer:
Enterprise

Question 2.
A function of creating something new for an economic activity.
Answer:
Innovation

Question 3.
A person who is an innovator who introduces new combinations of means of production.
Answer:
Entrepreneur

Question 4.
The process of enhancing entrepreneurial skills and knowledge through structured training and institution building programmes.
Answer:
Entrepreneur development

Question 5.
The process that motivates a person into action and induces him to continue the course of action for the achievement of goals.
Answer:
Motivation

Question 6.
An employee who has an authority and support of the organisation to implement his creative ideas.
Answer:
Intrapreneur

1. (D) State true or false

Question 1.
An entrepreneur should not be ready to work hard.
Answer:
False

Question 2.
Agritourism can support agricultural economy.
Answer:
True

Question 3.
Successful businessman takes calculated risk.
Answer:
True

Question 4.
Entrepreneurship is a full time job which requires dedication and hard work.
Answer:
True

Question 5.
Startup India is an initiative of the Government of France.
Answer:
False.

1. (E) Find the odd one

Question 1.
Communicator, Innovator, Self-starter, Inactive.
Answer:
Inactive

Question 2.
Trekking, Wildlife study, Horseback riding, Indoor games.
Answer:
Indoor games

Question 3.
Innovation, Lack of communication, Development of market, Determining the objectives.
Answer:
Lack of communication.

1. (F) Complete the sentences

Question 1.
An entrepreneur is a person who starts a …………………
Answer:
Business / Enterprise

Question 2.
‘Start-up’ India initiative was launched in ……………….
Answer:
2016.

1. (G) Select the correct option

(Innovation, Niche tourism, Agro tourism, Entrepreneurship)

	Group A	Group B
1.	The idea of bringing Urban resident to agricultural farm	—————
2.	Agro tourism is a form of	————–
3.	——————	To introduce new combination of products and features
4.	—————–	A full time job which requires, dedication and hard-work.

Answer:

	Group A	Group B
1.	The idea of bringing Urban resident to agricultural farm	Agro tourism
2.	Agro tourism is a form of	Niche tourism
3.	Innovation	To introduce new combination of products and features
4.	Entrepreneurship.	A full time job which requires, dedication and hard-work.

1. (H) Answer in one sentence

Question 1.
What is Agro tourism?
Answer:
Agro tourism is the idea to bring urban residents to rural areas for leisure travel and spending.

Question 2.
Who is ‘Entrepreneur’?
Answer:
Entrepreneur is a person who organises and operates a business or businesses, taking on greater than normal financial risks in order to do so.

Question 3.
Who described ‘Entrepreneurship’ as the founding of a private enterprise?
Answer:
John Sturt Mill, a famous economist, described ‘Entrepreneurship’ as founding of a private enterprise in 1948.

1. (I) Correct the underlined word and rewrite the sentences

Question 1.
The word ‘Entrepreneur’ comes from the German verb entreprendre, it means ‘to undertake’.
Answer:
French

Question 2.
Entrepreneurs try to make home a better place where the needs of consumers can be satisfied.
Answer:
market

Question 3.
The loan taken under stand-up India scheme is repayable in ten years.
Answer:
seven.

2. Explain the following term/concept

Question 1.
Entrepreneur.
Answer:
An entrepreneur is a person who starts a business and is willing to risk loss in order to make money. The entrepreneurs are passionate to invent, innovate, lead or pioneers with a disruptive product or technology. Entrepreneurs try to make market a better place where the needs of consumers can be satisfied. They have the courage to offer and share an idea or a product or a service with the world. A small businessman, founder of multi-billion company, freelancing carpenter are examples of entrepreneurs.

Question 2.
Agro tourism.
Answer:
Agro tourism is the idea of bringing urban residents to rural areas for leisure travel and spending. Agro tourism is a commercial enterprise at a working farm, ranch or agricultural plant conducted for the enjoyment of visitors that generates supplement income for the owner. Agrotourism activities include picking fruits, tending bees, milking cows and other educational pursuits. In short, Agro tourism provides the tourists a chance to reconnect with the land and provides a ‘hand on experience’ with local foods. Agro tourism can support agricultural economy when local producers can no longer complete economically.

Question 3.
Start-ups.
Answer:
A start-up is defined as an entity having its headquarter in India, which was opened less than 10 years ago and has an annual turnover of less than Rs 100 crores. It is an initiative of the Government of India, launched in 2016. It aims at building an ecosystem which will nurture start¬ups in the country. So that, sustainable economic growth and large scale employment opportunities can be generated. One of the objectives of the Indian Government is to make India a nation of job creator instead of job seekers.

Question 4.
Stand-ups.
Answer:
Stand-up India scheme is for financing SC/ST and/or women entrepreneurs. The objective of the stand-up India scheme is to facilitate bank loans between Rs 10 lakh and Rs 1 crore to at least one SC or ST borrower and at least one woman borrower per branch for setting up a greenfield enterprise. This enterprise maybe in manufacturing, services or the trading sector. In case of non-individual enterprise at least 51% of the share-holding and controlling stake should be held by either an SC/ST or woman, above 18 years of age.

Question 5.
Intrapreneur.
Answer:
Intrapreneurship is the entrepreneurship within an existing organisation. An intrapreneur is an employee who has the authority and support of his company/employer to implement his own innovative and creative ideas. His idea or products may or may not earn immediate revenue for the company. But the employee keeps receiving his salary. The company provides the infrastructure. Many large organisations have dedicated Research and Development Departments where employees are encouraged to use their creative abilities. These ideas or innovations may earn handsome profit to an organisation. So Intrapreneur is the entrepreneurship within an organisation.

3. Study the following case /situation and express your opinion

Mr. Soham is a young MBA degree holder, Mr. Navin is B.Com graduate. Mr. Soham is willing to start dairy farm at his village, Mr. Navin is willing to work as cashier in Private Company.

(i) Find out dream of Soham and Navin.
(ii) State anyone feature of Entrepreneur.
(iii) To become successful entrepreneur, which qualities Mr. Soham should have?
Answer:
(i) Dream of Soham is to become ; entrepreneur and dream of Navin is to take up job in a private company and get a fixed income as salary.
(ii) Entrepreneur is a person who is willing to take risk in order to earn money and start a business.
(iii) To become a successful entrepreneur Mr. Soham should have qualities like innovator, creator, reactive and risk bearer.

4. Answer in brief

Question 1.
Define Entrepreneur. Explain functions of entrepreneur.
Answer:
[A] Definition : According to Webster dictionary, “An entrepreneur is a person who starts a business and is willing to risk loss in order to make money.” The entrepreneurs are passionate to innovate, lend, invent or pioneer with a disruptive product or technology. A small businessman, a plumber or a founder of huge company are entrepreneurs.

[B] Functions : The functions of an entrepreneur are:
(1) Innovation : Usually, an entrepreneur has an innovative mind. He introduces new combination of means of production. He introduces something new or something different that would give his business a competitive advantage. Innovation sometimes involves problem solving and entrepreneur gets pleasure by using his talents to solve those problems.

(2) Determination of objectives : An entrepreneur is required to decide the aims and objectives of the business enterprise he intends to establish. He has to change those aims and ; objectives as per changing conditions or accept those which are beneficial to the enterprise as per the market situation.

(3) Development of market: An entrepreneur has to find new, different and innovative ways to market his products and services. As the markets are developing constantly, he has to conduct surveys, research to understand customer’s demand.

(4) New technology : Entrepreneur has to install new, advanced and efficient technology, new machinery, new and scientific methods of production to save overall cost and to improve the methods of production.

(5) Good relations : Prosperity, growth and development of enterprise mostly depend on the cordial and efficient relations of the superiors, subordinates and all employees. In this respect, co-ordination among the employees plays a significant role to make business enterprise successful.

(6) Organising funds : Finance is required to meet working capital and fixed capital needs of business. The entrepreneur has to raise adequate financial resources to keep enterprise in living condition. For this purpose, he has to keep good relation with the existing as well as potential investors.

(7) Taking decisions : Timely, correct and wise decisions are most important to run a successful business. An entrepreneur has to evaluate pros and cons of every business decision.

Question 2.
Define entrepreneur. Explain the qualities of successful entrepreneur.
Answer:
[A] Definition : According to Webster dictionary, “An entrepreneur is a person who starts a business and is willing to risk loss in order to make money.” The entrepreneurs are passionate to innovate, lend, invent or pioneer with a disruptive product or technology. A small businessman, a plumber or a founder of huge company are entrepreneurs.

[B] The qualities of a successful entrepreneur:
(1) Discipline : An entrepreneur has comprehensive strategies and tactics to accomplish the organisational goal. Successful entrepreneur is disciplined enough to take steps every day towards the attainment of his objectives. They eliminate any hindrance or distractions.

(2) Confidence : An entrepreneur is confident with the knowledge that he will make his businesses succeed. He shows the confidence in everything he does.

(3) Open-minded : An entrepreneur has the ability to look at everything around him and realises that every event and situation is a business opportunity. New ideas are constantly being generated about potential new business.

(4) Self starter : An entrepreneur is proactive, not waiting for someone to give him permission. Everything which needs to be done, he should start in himself. So, he sets parameters for the project.

(5) Competitive : An entrepreneur knows that he can do a job better than others. He needs to be competitive to win every game of the business.

(6) Creativity : An entrepreneur often comes up with solutions which are the synthesis of other item. He makes connections between two unrelated events or situations.

(7) Determination : An entrepreneur is determined to make all of their endeavours succeed, so will try again until it does. He sees opportunity for success in defeat.

(8) Strong communication skills : The entrepreneur has strong communication skill to sell the product and to motivate employees. He has to highlight benefits of situation and coach others to be successful.

(9) Strong work ethics : An entrepreneur mind is constantly on his work place to ensure that an outcome meets his expectations.

(10) Passion : Passion is the most important that of a successful entrepreneur. He genuinely loves his work because there is a joy that his business gives which goes beyond the money. He should always research and read to make his business grow and be better.

5. Justify the following statements

Question 1.
Entrepreneurship is the best source for self-employment.
Answer:
(1) Innovation : Entrepreneur need to be innovative. The essence of entrepreneurship is innovation. Innovation may take place in the following forms viz., the introduction of a new product in the market, the installation of new production technology, entry of specific product, the discovery of a new source of raw material, etc. In view of changing taste, preferences, etc., of the consumers, from time to time, entrepreneur undertakes research and development to manufacture products to satisfy the consumers’ needs.

(2) Economic activity: In order to satisfy human wants and as well as in exchange earn a better livelihood, an entrepreneur manufactures new products or modify the existing products as per the needs, preferences and demands of the consumers. For this purpose, he undertakes a systematic plan activity by using his skills, knowledge and experience. For this reason, entrepreneurship is considered as an economic activity.

(3) Creative activity : Innovation is a process of creating something new and creativity is most important for innovation. Therefore, innovation should be strongly supported by creativity, Innovation and creativity are supplement to each other. Introducing creativity in the production process is a challenging task before the entrepreneur. Hence, creativity is an essential element of entrepreneurship.

(4) Risk-bearing : An entrepreneur has to undertake many risks including fall in prices, changes in fashions, earthquake, etc. All these risks cannot be insured with insurance companies. A risk which cannot be insured against and measured is called uncertainty. Entrepreneur buys factors of production at certain prices to combine their contributions into the products and then sells those products at uncertain prices in future. Thus, entrepreneur is a risk-bearing agent of production.

Question 2.
Successful businessman takes calculated risk.
Answer:
[A] Definition : According to Webster dictionary, “An entrepreneur is a person who starts a business and is willing to risk loss in order to make money.” The entrepreneurs are passionate to innovate, lend, invent or pioneer with a disruptive product or technology. A small businessman, a plumber or a founder of huge company are entrepreneurs.

(7) Taking decisions : Timely, correct and wise decisions are most important to run a successful business. An entrepreneur has to evaluate pros and cons of every business decision.

Question 3.
Entrepreneur must be a good communicator.
Answer:
The following are the characteristics of entrepreneurship development:
(1) Innovation : Entrepreneur need to be innovative. The essence of entrepreneurship is innovation. Innovation may take place in the following forms viz., the introduction of a new product in the market, the installation of new production technology, entry of specific product, the discovery of a new source of raw material, etc. In view of changing taste, preferences, etc., of the consumers, from time to time, entrepreneur undertakes research and development to manufacture products to satisfy the consumers’ needs.

(3) Organisation building : Entrepreneurship is an activity of organising various factors of production and various resources such as financial, physical and human resources. By considering place utility, time utility, form utility, etc., entrepreneur has to assemble different factors j of production and resources under one roof for producing new products.

(4) Creative activity : Innovation is a process of creating something new and creativity is most important for innovation. Therefore, innovation should be strongly supported by creativity, Innovation and creativity are supplement to each other. Introducing creativity in the production process is a challenging task before the entrepreneur. Hence, creativity is an essential element of entrepreneurship.

(5) Managerial skill and leadership : The entrepreneur who has strong passion of doing or creating something new rather than just to earn profit will become a successful entrepreneur. Managerial skills and leadership are the most important features of successful entrepreneur. Other skills are not considered so important. Entrepreneur must be a good leader and manager of the groups working under him.

(6) Skilful management : The efficient and skilful management of the organisation is an important quality of entrepreneurship. With the help of professional management and skilled managers, entrepreneurship becomes easy and successful activity. The success of any entrepreneurship depends on its skilful management.

(7) Risk-bearing : An entrepreneur has to undertake many risks including fall in prices, changes in fashions, earthquake, etc. All these risks cannot be insured with insurance companies. A risk which cannot be insured against and measured is called uncertainty. Entrepreneur buys factors of production at certain prices to combine their contributions into the products and then sells those products at uncertain prices in future. Thus, entrepreneur is a risk-bearing agent of production.

(8) Gap filling function : Gap filling is considered as the most important feature of entrepreneur. It is the job of entrepreneur to find the gap and fill it or make up the deficiencies which always exist in the knowledge about the production function. Entrepreneur must have all the solutions of the problems.

Question 4.
An entrepreneur must be an innovator.
Answer:
Innovation is a dynamic change brought by entrepreneur by bringing new combinations of factors of production. Innovation by entrepreneur is must for development of an organisation. Entrepreneur can be an innovator in many ways. They are:
(1) Introduction of a new product: Entrepreneur through his dynamic skill and intelligence create new products by fulfilling innovation to commercialisation by embedding it in an environment where it did not exist previously.

(2) Introduction of a new method of production : By introducing new and latest technology an entrepreneur brings new life and energy in methods of production. Introduction of new technology, new machinery, scientific methods of production will save money and time of the organisation.

(3) Opening of a new market : An innovative idea with new products. It opens a new market which are not existing previously.

(4) Carrying out new forms of organisation for industry : An innovative entrepreneur is the one who discovers new methods and new materials. He utilises invention and discoveries in order to make new combinations. Thus, entrepreneur must be an innovator.

Question 5.
With creativity, farmers can expand their Agro tourism Business.
Answer:
With creativity, farmers can expand their Agro tourism business through recreation, fun, entertaining activities. The valuable activities which farmer can do creatively are:
(1) Outdoor recreation : Farmer can add value and can expand their agro tourism business by outdoor recreation like trekking, fishing, hunting, wild life study, horse back riding, etc. All such activities are the point of attraction for a tourist and this can be enjoyed with family and friends too.

(2) Educational experiences : Farmers can also be more creative in farming tours, rice plantation, cooking classes on chulha. All such activities help customer to get hands on experience which they enjoy with adding educational values.

(3) Entertainment : Entertainment through harvest festivals like Hurda Party’ in Maharashtra, local dances, folk songs are recreation also main attraction for a customer for agro tourism. Entertaining activities such as contest, adult and children classes, games, etc. can be arranged. This innovative touch helps farmer to expand his business.

(4) Hospitality services : Hospitality services like farm stays, guided forms makes customer more happy. Farmer can add value to guest experience by offering them refreshment, fresh fruits, juice, fresh food, etc.

Happy customer will definitely returns and also spread good word of mouth to their family and friends. Thus, with creativity, farmers can expand their agro tourism business.

6. Attempt the following

Question 1.
Explain the characteristics Entrepreneurship Development.
Answer:
The following are the characteristics of entrepreneurship development:
(1) Innovation : Entrepreneur need to be innovative. The essence of entrepreneurship is innovation. Innovation may take place in the following forms viz., the introduction of a new product in the market, the installation of new production technology, entry of specific product, the discovery of a new source of raw material, etc. In view of changing taste, preferences, etc., of the consumers, from time to time, entrepreneur undertakes research and development to manufacture products to satisfy the consumers’ needs.

(3) Organisation building : Entrepreneurship is an activity of organising various factors of production and various resources such as financial, physical and human resources. By considering place utility, time utility, form utility,etc., entrepreneur has to assemble different factors j of production and resources under one roof for producing new products.

Question 2.
What is Entrepreneurship Development Programmes (EDP)?
Answer:
An entrepreneurship development
programme has been defined as “a programme designed to help a person in strengthening his entrepreneurial motive and in acquiring skills and capabilities necessary for playing his entrepreneurial role efficiently”.

EDP was first introduced in Gujarat in 1970 and was sponsored by the Gujarat Industrial Investment Corporation. EDP is basically a device through which people with entrepreneurial talents are identified, motivated to take up new industrial venture and guided in all aspects of starting a venture or an enterprise.

The following are the main objectives of EDP:
(1) Paster entreprenurial growth : The main objective is to increase the rate of all round entrepreneurial growth through training and educating them to develop the capability, talent and skills of existing entrepreneur.

(2) Optimum use of available resources : Another important objective is to use available resources to optimum level which result into minimisation of wastages and reduction in the overall cost of production. It also saves the invaluable resources for the future generation.

(3) Development of backward regions and improve economic status of socially disadvantage group : Its main objective is to establish different types of industries and business enterprise in the backward regions of the country. This leads to more employment opportunities and more income and savings of the people in backward group. By providing employment and other benefits to socially disadvantaged groups, EDP helps to improve their economic status.

(4) Generation of Employment opportunities : One of the important objectives of EDP is to generate employment opportunities for jobless people in the country by developing industries and business for them.

(5) Widening base for small and medium industries : The EDP helps to create, develop and widen the base for small and medium industries by strengthening them and create more and more entrepreneurs in the country. It helps in making country a job creator and not job seeker.

7. Answer the following

Question 1.
Define entrepreneur. Explain characteristics of entrepreneur.
Answer:
[A] Definition : According to Webster dictionary, “An entrepreneur is a person who starts a business and is willing to risk loss in order to make money.” The entrepreneurs are passionate to innovate, lend, invent or pioneer with a disruptive product or technology. A small businessman, a plumber or a founder of huge company are entrepreneurs.

[B] Characteristics : The characteristics of entrepreneur are as follows:
(1) Intellectual capabilities : An entrepreneur is a creative thinker. He always thinks more creatively and better than others. He always give innovative ideas which is the sign of his intellectual capabilities. He has ability to analyse any situation and take proper decision.

(2) Future vision : The entrepreneurs have the ability of foreseeing the future market conditions. He can take appropriate decision by considering recent market situations and changes in market conditions. He must have knowledge of external business environment. This enables them to take timely actions.

(3) Hard work : An entrepreneur is ready to work hard. Hard work is necessary in any type of venture or business activity to make it more successful. He is required to work more tediously, sincerely and seriously for long terms.

(4) Technical knowledge : The entrepreneur should have advance technical knowledge about the products and service, plans of production, etc. Entrepreneur should also update his technical knowledge from time to time to understand latest changes take place in technology.

(5) Communication skills : An entrepreneur needs to communicate effectively with different people like customers, suppliers, creditors, employees, etc. from time to time. He should have good communication skill and command over language he speaks, to be able to express his ideas and strategies effectively. Good communication skills mean proper understanding between sender and the receiver of the message.

(6) Highly optimistic : He should have positive thinking and positive approach in all the activities he undertakes. He is always hopeful and confident about the market situations even in failure or difficult times. It helps him to take the business out of difficulties and make it successful.

(7) Risk-bearing capacity : This is one of the main characteristics of an entrepreneur. He should be calculative in taking risk. He should be prepared to face challenges and look for opportunities in every adverse situation of business.

(8) Self confidence : He should be self confident to achieve his organisational goals. He I should always keep himself confident and motivated to face various obstacles and come out victorious every time in every challenge he faces.

Question 2.
Define entrepreneur. Explain its functions.
Answer:
[A] Definition : According to Webster dictionary, “An entrepreneur is a person who starts a business and is willing to risk loss in order to make money.” The entrepreneurs are passionate to innovate, lend, invent or pioneer with a disruptive product or technology. A small businessman, a plumber or a founder of huge company are entrepreneurs.

(7) Taking decisions : Timely, correct and wise decisions are most important to run a successful business. An entrepreneur has to evaluate pros and cons of every business decision.

Maharashtra Board OCM 12th Commerce Solutions Chapter 2 Functions of Management

July 9, 2024July 8, 2024 by Bhagya

Balbharti Maharashtra State Board Organisation of Commerce and Management 12th Textbook Solutions Chapter 2 Functions of Management Textbook Exercise Questions and Answers.

Maharashtra State Board 12th Organisation of Commerce and Management Solutions Chapter 2 Functions of Management

1. (A) Select the correct options and rewrite the sentences

Question 1.
The functions of management start with ……………… function.
(a) organising
(b) planning
(c) co-ordinating
Answer:
planning

Question 2.
The functions of management end with ………………
(a) directing
(b) staffing
(c) controlling
Answer:
controlling

Question 3.
……………. sets out standards for controlling.
(a) Staffing
(b) Planning
(c) Co-ordinating
Answer:
Planning

Question 4.
Organizational function is important for execution of the plans which have been prepared by ……………. management.
(a) top level
(b) middle level
(c) lower level
Answer:
top level

Question 5.
……………… is the function which supports to activate the plans with the help of employees.
(a) Staffing
(b) Directing
(c) Co-ordinating
Answer:
Directing

Question 6.
………………. is the function of execution according to the plan and the organisational structure.
(a) Controlling
(b) Directing
(c) Staffing
Answer:
Directing

Question 7.
………………. arranges the work in such a way that minimum conflicts are raised.
(a) Co-ordinating
(b) Organizing
(c) Controlling
Answer:
Co-ordination.

1. (B) Match the pairs

Question 1.

Group A	Group B
(A) Planning	(1) It Is the process of instructing, guiding, communicating and motivating.
(B) Organizing	(2) It is an integration and synchronization of the efforts of group.
(C) Staffing	(3) Deciding In advance what to do, how to do, when to do and who Is to do it.
(D) Directing	(4) Management is what manager does.
(E) Co-ordlnating	(5) To focus on the role of manager.
	(6) Decides the ways and means to achieve what has been planned.
	(7) It Is the process of comparing the actual performance with the pre-determined standard performance.
	(8) It Is a set of principles.
	(9) It is the process of recruiting, selecting, placing and remunerating.
	(10) To manage is to forecast and plan.

Answer:

Group A	Group B
(A) Planning	(3) Deciding In advance what to do, how to do, when to do and who Is to do it.
(B) Organizing	(6) Decides the ways and means to achieve what has been planned.
(C) Staffing	(9) It is the process of recruiting, selecting, placing and remunerating.
(D) Directing	(1) It Is the process of instructing, guiding, communicating and motivating.
(E) Co-ordlnating	(2) It is an integration and synchronization of the efforts of group.

1. (C) Give one word/phrase/term for the following statements

Question 1.
The right person at the job with right pay.
Answer:
Staffing

Question 2.
A person who shows the correct path as well as guides employees in solving the problems.
Answer:
Director

Question 3.
First function of management.
Answer:
Planning

Question 4.
Last function of management.
Answer:
Controlling

Question 5.
It is an intellectual process of logical thinking and rational decision-making.
Answer:
Planning

Question 6.
The term that is used to denote the structure.
Answer:
Organisation

Question 7.
It is the process of attracting, recruiting, selecting, placing, appraising and remunerating the people.
Answer:
Staffing

Question 8.
The process that leads the employees towards the accomplishment of organisational goals.
Answer:
Directing

Question 9.
It increases the team spirit of work place.
Answer:
Co-ordinating

Question 10.
It is the process of comparing the actual performance with the predetermined standard performance.
Answer:
Controlling.

1. (D) State whether the following statements are True or False

Question 1.
Every function of management is not based on planning.
Answer:
False

Question 2.
Specialization in activities leads to increase in organisational efficiency.
Answer:
True

Question 3.
Qualified, efficient and skilled work force is always an asset of the organization.
Answer:
True

Question 4.
Cooperation is not necessary for smooth flow of organisational activities.
Answer:
False

Question 5.
Co-ordination motivates the employees to take initiative while completing their assigned task.
Answer:
True

Question 6.
Standards are not set for every performance in controlling function.
Answer:
False

1. (E) Find the odd one

Question 1.
Planning, Organizing, Staffing, Writing.
Answer:
Writing

Question 2.
Selecting, Training, Co-ordinating, Placing
Answer:
Co-ordinating.

1. (F) Complete the sentences

Question 1.
The tasks of getting the things done by others is known as ……………..
Answer:
Management

Question 2.
The functions of manager start with …………………
Answer:
Planning

Question 3.
The …………….. function of management initiates action
Answer:
Directing

Question 4.
Recruitments are done under ……………….. function.
Answer:
Staffing

Question 5.
………………. is the fundamental function of management.
Answer:
Planning

Question 6.
………………. integrates departmental activities for achieving common goal of the organisation.
Answer:
Co-ordinating

Question 7.
……………… is the last function of management.
Answer:
Controlling

1. (G) Select the correct option from the bracket

Question 1.
Planning is a detailed programme of (present/ future/past) course of action.
Answer:
future

Question 2.
Directing is a responsibility of (manager/ workers/people) at all levels.
Answer:
manager

Question 3.
Qualified, efficient and skilled workforce is always an (liabilities/assets/expenses) of the organization.
Answer:
assets.

1. (H) Answer in one sentence

Question 1.
What is management?
Answer:
The tasks of getting the things done by others to achieve organisational goal is called management.

Question 2.
What is planning?
Answer:
Planning means deciding in advance what to do when to do, how to do, where to do it and who is to do it.

Question 3.
What is staffing?
Answer:
The process of attracting, recruiting, selecting, placing, appraising, remunerating, developing and retaining the best workforce is called staffing.

Question 4.
What is directing?
Answer:
Directing is the process of instructing, guiding, communicating, inspiring, motivating and supervising the employees to achieve the pre-determined goals of the organisation.

Question 5.
What is controlling ?
Answer:
Controlling is a function of comparing the actual performance with the predetermined standard performance to measure deviation if any, identifying causes of deviation and suggest corrective measures.

1. (I) Correct the underlined word and rewrite the following sentences

Question 1.
Factors of business environment are always fixed.
Answer:
Factors of business environment are always changing.

Question 2.
Staffing is concerned with machines.
Answer:
Staffing is concerned with humans.

Question 3.
Directing is a function of comparing the actual performance with the pre-determined performance.
Answer:
Controlling is a function of comparing the actual performance with the pre-determined performance.

Question 4.
Co-ordination helps to maximise the wastage of resources and controls the cost of work.
Answer:
Co-ordination helps to minimise the wastage of resources and controls the cost of work.

Question 5.
Controlling measures are rigid to some extent.
Answer:
Controlling measures are flexible to some extent.

1. (J) Arrange in proper order

Question 1.
Controlling, Organizing, Planning.
Answer:
Planning, Organising, Controlling.

Question 2.
Directing, Co-ordinating, Staffing.
Answer:
Staffing, Directing, Co-ordinating.

2. Explain the following terms/concepts

Question 1.
Management
Answer:
The task of getting the work done by others to achieve organisational goal is called management. According to L. A. Allen, ‘Management is what manager does. Management is a set of principles which relate to the various functions such as planning, organising, staffing, directing, co-ordinating, controlling, etc. which are helpful in achieving organisational goals.

Question 2.
Planning
Answer:
Planning is the basic function of management. Planning is an intellectual process of logical thinking and rational decision-making. It includes deciding the things to be done in advance. In short, planning is a detailed programme of future course of action. Proper planning and its implementation is key to achieve the objectives of an organisation.

Question 3.
Organising
Answer:
Organising is the process of identifying, bringing the required resources together such as men, money, material, machines and method and arranging them in proper manner to achieve the goals of an organisation. It is prepared by the top level management. Organising function decides the ways and means to achieve what has been planned. Organising is more important in executing the plan.

Question 4.
Staffing
Answer:
Staffing is the function of execution according to plan and organisational structure. It is the process of attracting, recruiting, training, developing, appraising, remunerating, developing and retaining the best workforce. Right person at right job with right pay is the basic principle of staffing. This function is concerned with managing humans and not material.

Question 5.
Directing
Answer:
Directing is the process of instructing, guiding, communicating, inspiring, motivating and supervising the employees to achieve pre-determined goals of an organisation. Director shows correct path as well as guides the employees in solving the problems wherever necessary. Directing is the soul of management function.

3. Study the following case/situation and express your opinion

Question 1.
Mr. Ram, an emerging entrepreneur has designed a structure of his business organization by taking into consideration the required resources such as land, money, machinery, workforce, etc. for his new business. He appointed Mr. Shyam as a manager. Mr. Ram has assigned the responsibilities such as recruitment, selection, training and development and to determine the remuneration of the employees to Mr. Shyam. Mr, Ram. has also appointed Mr. Shubham to supervise the work done by the employees according to the standards given to the employees, Mr. Shubham has also to suggest the remedies to the employees wherever necessary. On this context, find out the management functions performed by
(i) Mr. Ram
(ii) Mr. Shyam
(iii) Mr. Shubham
Answer:
(i) Mr. Ram performs the function of planning and organising. He is an emerging entrepreneur and plans the business structure and organises different resources.

(ii) Mr Shyam is performing the function of staffing as his main duty is to recruit, select, train and develop the employees and to decide their remuneration accordingly.

(iii) Mr. Subham is performing the function of controlling. He compares actual performances of employees with standard performance given. He discovers causes of deviations and suggests remedies to overcome deviations.

Question 2.
In XYZ Company, Mr. Lele gives instructions to the employees working under him, provide guidance and motivates them for their best performance. On the other hand, Mr. Sawed takes effort to harmonize the work done by the employees of different departments while achieving organisational goal. Mr. Desai is looking after the arrangement of required resources the business organization.
Mention the name of employee engaged in following functions :
(i) Organisation
(ii) Direction
(iii) Coordination
Answer:
(i) Mr Desai is engaged in the organising function as he is looking after arrangement of required resources for the business organisation.
(ii) Mr. Lele is engaged in the function of directing as he gives instructions to the employees working under him, provides guidance and motivates them for their best performance.
(iii) Mr. Sayyed is engaged in the function of co-ordination as he takes effort to harmonize the work done by the employees of different departments.

4. Distinguish between

Question 1.
Planning and Organising
Answer:

	Planning	Organising
1. Meaning	Planning is a management function that decides in advance what to do, how to do, when to do, where to do and who is to do it.	Organising refers to the process of putting together various resources and activities of the organisation into a system.
2. Objective	The objective of planning is to set the goals and choose the means to achieve those goals.	The main objective of organising is to identity and bring together all the resources.
3. Area of function	Planning involves setting objectives, identifying alternative courses of actions and selecting the best plan for the organisation.	Organising involves identifying the activities and grouping of relative activities of the organisation.
4. Order	Planning is the first and foremost function of management. It precedes every other function.	In organising function, internal as well as external factors are considered to make arrangement of resources.
5. Nature	Planning is continuous in nature. It is related with those resources which are required for achieving the targets.	Organising is related with all the available resources as they need to be properly arranged.
6. Levels of management	Top management is responsible for preparing planning for the activities of the entire organisation.	Usually, the function of organising is undertaken by the top level management and middle level management.

Question 2.
Organising and Staffing
Answer:

	Organising	Staffing
1. Meaning	Organising refers to the process of putting together various resources and activities of the organisation into a system.	Staffing is a process of recruitment through which competent employees are selected, properly trained, effectively developed and suitably rewarded.
2. Objective	The main objective of organising is to identify and bring together all the resources.	The main objective of the staffing is to obtain the most competent and efficient staff to improve the overall performance.
3. Area of function	Organising involves identifying the activities and grouping of relative activities of the organisation.	Staffing involves selection, recruitment, training, developing, promotion, transfer, etc. of employees.
4. Factors	In organising function, internal as well as external factors are considered to make arrangement of resources.	In staffing function, mostly internal factors such as human factor, finance, work load, etc. are considered.
5. Resources	Organising is related with all the available resources as they need to be properly arranged.	Staffing is related with human resources only.
6. Levels of management	Usually, the function of organising is undertaken by the top level management and middle level management.	Usually, the function of staffing is undertaken by the middle level management.

Question 3.
Staffing and Directing
Answer:

	Staffing	Directing
1. Meaning	Staffing is a process of recruitment through which competent employees are selected, properly placed and trained, effectively developed and suitably rewarded.	Directing means instructing, guiding, inspiring and motivating the subordinate employees so that their efforts result in the achievement of goals.
2. Objective	The main objective of the staffing is to obtain the most competent and efficient people to improve the overall performance.	The main objective of directing is to ensure that the employees at different levels accomplish their tasks according to plans.
3. Area of function	Staffing involves recruitment, selection, training, promotion, development, transfer, etc. of employees.	Directing involves guiding, instructing, inspiring, motivating and communicating with the subordinates.
4. Order	Staffing function follows organising as human resources are required in an organisation.	Directing function follows organising and staffing as direction is needed to guide and inspire the employees.
5. Targets	Targets of staffing include allocation of human resources to achieve better results.	Targets of direction include giving guidance and inspiration to employees to achieve better results.
6. Outcome	Staffing function helps to select right persons for right jobs at right time.	Directing function helps to maintain discipline among the staff.

Question 4.
Directing and Controlling

Question 5.
Co-ordination and Controlling
Answer:

	Co-ordination	Controlling
1. Meaning	Co-ordination refers to the process of developing harmony and integration of different activities to achieve common organisational goals.	Controlling is a managerial function that measures deviation of actual results from the standards set and takes necessary corrective actions.
2. Objective	The main objective of co-ordination is to ensure unify of efforts of the employees and smooth functioning of the organisation.	The main objective of controlling is to ensure that goals or targets must be accomplished as per plan.
3. Area of function	Co-ordination involves efforts of top level, middle level and lower level management.	Controlling involves fixation of standard, measurement of actual performance and finding deviations taking corrective actions to improve performance.
4. Factors	In co-ordinating function only internal factors are considered to create unity of action.	In controlling function internal as well as external factors are taken care for taking corrective actions.
5. Resources	Co-ordination is related with human resources only.	Controlling is related with all the resources as it helps to achieve the given targets.
6. Levels of management	All levels of management are responsible for the co-ordination function to achieve given targets.	Top level management and middle level managements are responsible for controlling of organisational activities.

Question 6.
Planning and Controlling
Answer:

	Planning	Controlling
1. Meaning	Planning is a management function that decides in advance what to do, how to do, when to do, where to do and who is to do it.	Controlling is a managerial function that measures deviation of actual performance from the standards set and takes corrective actions.
2. Objective	The main objective of planning is to set the goals and choose the means to achieve those goals.	The main objective of controlling is to ensure that goals or targets must be accomplished as per plan.
3. Area of function	Planning involves setting objectives, identifying alternative courses of actions and selecting the best plan for the organisation.	Controlling involves fixation of standard, measurement of actual performance and finding deviations taking corrective actions to improve performance.
4. Order	In the sequence of managerial functions, planning is the first and foremost function.	In the sequence of managerial functions, controlling is the last function of the management.
5. Resources	Planning is related with those resources which are required for achieving the targets.	Controlling is related with all the resources as it helps to achieve the given targets.
6. Levels of management	Top management is responsible for preparing planning for the activities of the entire organisation.	Top level management and middle level managements are responsible for controlling of organisational activities.

Question 7.
Organising and Directing

Question 8.
Organising and Co-ordinating
Answer:

	Organising	Co-ordinating
1. Meaning	Organising refers to the process of putting together various resources and activities of the organisation into a system.	Co-ordination refers to the process of developing harmony and integration of different activities to achieve common organisational goals.
2. Objective	The main aim of organising is to identify and bring together all the required resources.	The main aim of co-ordination is to ensure unity of efforts of employees and smooth functioning of the organisation.
3. Area of function	Organising involves identifying the activities and grouping of relative activities of the organisation.	Co-ordination involves deliberate or consistent efforts by the management to create harmony and unity of action.
4. Factors	In organising function, internal as well as external factors are considered to make arrangement of available resources.	In co-ordinating function, only internal factors are considered to create unity of action.
5. Resources	Organising is related with all the resources which are required to be arranged in proper order.	Co-ordination is related with human resources only.
6. Levels of management	Top level management and middle level managements are responsible for the organising of resources to achieve desired objectives.	All levels of management are responsible for the co-ordination to achieve the given targets.

5. Answer in brief

Question 1.
Explain any five points of importance of planning.
Answer:
Importance : The importance of planning is explained as follows:
(1) Helps to set clear objectives : Planning is the process of setting objectives, targets and formulating plans to achieve these objectives. With the help of proper planning, management can analyse the present condition of the organisation and can identify the ways of attaining the desired position in future.

(2) Provides path of action : Planning ensures that the goals or objectives are clearly set. It acts as a guide and provides direction for doing the right things at the right time and in a right way. It helps the employees to understand the organisational goals and what they must do to achieve the same.

(3) Planning improves performance : It helps manager to improve future performances of employees by setting clear objectives and selecting a right course of action. It leads to efficiency in working of the employees. Due to proper planning the employees can work according to guidelines which helps them to improve performance. This results into higher profitability of the organisation.

(4) Minimizes the risk : Planning is the process of looking into the future and anticipating the future changes. By deciding in advance the task to be performed, planning helps to deal with future changes and unforeseen events. Planning helps in anticipation of risk and decide preventive measures accordingly. Though changes or risks cannot be eliminated but proper planning minimizes them.

(5) Planning leads to optimum utilization of resources: Plans are made on the basis of availability of resources with proper allocation for various activities. Proper allocation of resources brings higher efficiency and desired results with minimum wastages.

Question 2.
Explain any five points of importance of organizing.
Answer:
Importance : The importance of organising is explained as follows:
(1) Facilitates administration as well as operation : Organising is the process of identifying, grouping and assigning the activities of administration and proceeding according to its operational activity. Due to proper grouping of the task and employees, there is a reduction in duplication of work results in effective delegation.

(2) Brings specialisation : Organising starts from dividing the total work into smaller units and assigning them to different individuals according to their qualification, capabilities and experience. It leads to increase in overall productivity.

(3) Defines job properly : In the organising function the employees are assigned different jobs according to their qualification, skill and experience and the managers clearly define the details of each job. It clearly spells out what exactly has to be done in every job by each employee.

(4) Clarifies authority and responsibility : The organising function clearly defines authority, power, position of every manager and responsibility, accountability of every employee. This enables proper execution of work and at the same time eliminates confusion, duplication, misunderstanding. It also helps to bring efficiency in working of managers.

(5) Establishes Co-ordination : Organising function helps in establishing co-ordination among different activities of different department. Organising defines clear cut relationship among various positions and ensures mutual co-operation amongst them. Organising helps in co-ordination between different levels of managers of different departments for smooth functioning of an organisation.

Question 3.
Describe any five points of importance of staffing.
Answer:
Importance : The importance of staffing is given as follows:
(1) Effective management function : Staffing is considered an effective managerial function as it deals with human resource. Employees appointed in the organisation through staffing function perform various activities in different areas of the organisation such as production, marketing, finance, etc.

(2) Effective utilization of Human Resources : A well organised staffing department discovers the talented, skilful, experienced and qualified staff. Proper care is taken at every stage of recruitment, selection, placement, etc. It ensures smooth functioning of all the managerial areas of the organisation.

(3) Builds relationship : A sound staffing policy creates a team spirit among the employees. Due to team spirit, a sense of belongingness among the employees is developed. This in turn leads to better communication and co-ordination of managerial efforts in an organisation. A smooth human relation is the key to better flow of co-ordination in an organisation.

(4) Helps Human Resource Development: Skilled and experienced employee is an asset of a business organisation. Staffing function of management is mainly concerned with human factor of production. Efforts are made to utilise the human resources more efficiently.

(5) Helps in effective use of technology and other resources : Staffing function trains employees to use latest technology, capital, material, and method of work more effectively. This brings competitive strength to the organisation. It also helps in improving standard of work and productively in terms of quality and quantity.

(6) Improve efficiency : Regular training and development programmes provide to employees to improve their performance levels. Through proper selection the organisation gets talented and quality employees.

Question 4.
Explain any five points of importance of directing.
Answer:
Importance : The importance of Directing is as follows:
(1) Initiates action : Direction initiates action. It activates employees to put in their best efforts, to achieve the goals. Without effective direction, other managerial functions like planning, organising, staffing, co-ordinating and controlling become ineffective. Managers have to stimulate action by issuing instructions like what to do, how to do, etc. to the subordinates and by supervising them from time to time.

(2) Integrates efforts: At every level of the management there are subordinates under managers. The work assigned to these subordinates is interrelated. The directing function integrates the activities of the subordinates by guidance, supervision and counselling. It results in achievement of organisational goals.

(3) Means of motivation: Objectives of an organisation can be achieved only if the people working in it are properly motivated through monetary and non-monetary incentives. It boosts the morale of employees, contribute their maximum efforts and motivates them to give their best.

(4) Provides stability: Effective direction through supervision, motivation, leadership and communication provides stability and maintains balance in the organisation. This in turn results in the growth of the enterprise at faster rate. For long term survival of the organisation, stability in the organisation are necessary.

(5) Coping up with the changes : Effective direction facilitates changes in the organisation. It enables the enterprise to adopt advance technology, new methods of production, modern techniques of management, etc. It is a direction function which helps the superiors to motivate the subordinates to adapt to the new changes, new challenges, etc. Adapting to the environmental changes is necessary for the growth of the organisation.

Question 5.
Describe any five points of importance of ! coordinating.
Answer:
Importance : The importance of Co-ordinating is explained as follows:
(1) Encourages Team Spirit : Co-ordination is concerned with integrated group efforts. Team work under the direction of the manager encourages the subordinates to work sincerely and give better performance to achieve organisational goals. Co-ordination helps to reduce the conflicts between the employees and departments regarding policies, roles, etc. and increase their team spirit.

(2) Gives Proper Direction : Group or combined efforts of all the employees in an organisation helps to co-ordinate with each other and achieve the desired goals. Thus, combined efforts of all the employees always help an organisation to remove its limitations and achieve organisational objectives. The interdependence of departments gives proper direction to the employees.

(3) Facilitates motivation : In the process of co-ordination the superiors motivate their subordinates by providing them with monetary and other incentives. An effective co-ordination increases efficiency and results in growth and prosperity of the organisation which encourages job security, high income, promotion and incentives.

(4) Optimum utilisation of resources : Proper and effective co-ordination helps to bring together all the resources of the organisation. This in turn helps to make the optimum possible use of available resources to achieve organisational goals. Co-ordination also helps to avoid wastage of resources and control the cost.

(5) Achieve organisational objectives : Proper coordination helps to reduce wastages, delays in completion of targets, departmental disputes, etc. of the organisation to a great extent. This ensures smooth working of the organisation in the process of achievement of objectives.

6. Justify the following statements

Question 1.
Planning is the first function of management.
Answer:
(1) Planning is the basic function of management. Every function of management is based on planning. Planning is an intellectual process of logical thinking and rational decision i making.

(2) Designing i.e. doing a proper planning and implementing it accordingly is the key of achieving the objectives of organisation.

(3) Planning means deciding in advance what to do, when to do, how to do, where to do and who is to do it. Thus, it is a detailed programme of future courses of action.

(4) Planning involves setting objectives, identifying alternative courses of action and selecting the best plan. It focuses on organisation’s objective and develop various course of action to achieve those goals.

Question 2.
Controlling is the last function of management.
Answer:
(1) It is important for am organisation to keep a check on whether things are moving as per plan or not. So controlling function comes as the last but indispensable function of management. The effectiveness of planning can be determined with the function of controlling.

(2) Controlling function helps in comparing the actual performance with the pre-determined standard and performance. It is the process of bringing about conformity of performance with planned action.

(3) Controlling function helps in measuring deviation, if any, identifies the course of deviation and suggests corrective measures. The process of controlling helps in formulation of future plans also.

(4) Controlling helps in checking and measuring performance at all the levels of management, as it compares and finds deviation, analyses the causes of deviation and suggests corrective measures. All planning may fail in the absence of proper controlling measures.

Question 3.
Organizing facilitates administration as well as operation of the organization.
Answer:
(1) Organising function is also called as ‘doing function’ i.e. putting the plan into action. Administration and operation both are doing function as organising is the process of putting together various resources and activities of the organisation into a system.

(2) Organising involves identifying the activities and grouping of relative activities of administration and operational department.

(3) Organising function defines, departmentalizes and assigns activities so that they can be most effectively executed for the smooth flow of administration.

(4) Due to proper grouping of the tasks and the employees, there is increase in production and reduction in wastage. The duplication of work can be avoided and effective delegation becomes possible.

Question 4.
Right person at right job with right pay is the basic principle of staffing.
Answer:
(1) The main function of staffing is to select the right person for the right job with right pay. Selecting the right person for the right job brings efficiency and specialisation in the organisation.

(2) It also bring job satisfaction as adequate remuneration increases morale of the employees. Training and development programmes and job security are the factors which are important in providing job satisfaction.

(3) Proper selection of qualified, efficient and skilful work force is always an asset of the organisation. Proper selection of employees contributes in the higher efficiency and leads to long term positive effects in the organisation.

(4) With proper selection process, right persons for right jobs are placed and regularly appraised on merit basis. The criteria of appraised are duly communicated which brings peace and harmony in the organisation.

Question 5.
Co-ordination between different functions and all levels of management is the essence of organisational success,
Answer:
(1) Co-ordination is an integration of different activities which is essential for their smooth flow. It establishes harmony among all the activities of an organisation in achieving desired goals. Co-ordination will not exist unless efforts are taken at all levels of management.

(2) Co-ordination is the synchronization of the efforts of a group so as to provide unity of action for organisational goals. It is a hidden force which binds all other functions at all levels of management.

(3) In an organisation, a number of persons are working together to achieve a common goal. Their work is closely linked with each other. Co-ordination function brings all the group efforts together and harmonise them carefully.

(4) Co-ordination is orderly arrangement of group efforts to provide unity of action to achieve common goals. Co-operation, team work and higher efficiency level lead to attainment of goals and thus, it is the essence of organisational success.

7. Attempt the following

Question 1.
Explain the importance of planning.
Answer:
Importance : The importance of planning is explained as follows:
(1) Helps to set clear objectives : Planning is the process of setting objectives, targets and formulating plans to achieve these objectives. With the help of proper planning, management can analyse the present condition of the organisation and can identify the ways of attaining the desired position in future.

Question 2.
Describe the importance of organizing.
Answer:
Importance : The importance of organising is explained as follows:
(1) Facilitates administration as well as operation : Organising is the process of identifying, grouping and assigning the activities of administration and proceeding according to its operational activity. Due to proper grouping of the task and employees, there is a reduction in duplication of work results in effective delegation.

Question 3.
Explain the importance of staffing.
Answer:
Importance : The importance of staffing is given as follows:
(1) Effective management function : Staffing is considered an effective managerial function as it deals with human resource. Employees appointed in the organisation through staffing function perform various activities in different areas of the organisation such as production, marketing, finance, etc.

Question 4.
Explain the importance of directing.
Answer:
Importance : The importance of Directing is as follows:
(1) Initiates action : Direction initiates action. It activates employees to put in their best efforts, to achieve the goals. Without effective direction, other managerial functions like planning, organising, staffing, co-ordinating and controlling become ineffective. Managers have to stimulate action by issuing instructions like what to do, how to do, etc. to the subordinates and by supervising them from time to time.

Question 5.
Describe the importance of coordinating.
Answer:
Importance : The importance of Co-ordinating is explained as follows:
(1) Encourages Team Spirit : Co-ordination is concerned with integrated group efforts. Team work under the direction of the manager encourages the subordinates to work sincerely and give better performance to achieve organisational goals. Co-ordination helps to reduce the conflicts between the employees and departments regarding policies, roles, etc. and increase their team spirit.

Question 6.
Explain the importance of controlling.
Answer:
Importance : The importance of controlling function is explained as follows:
(1) Fulfilling goals of organisation : Controlling helps to fulfil and achieve organisational goals. The controlling function ensures that the activities take place according to the plans and if there is any deviation, timely action is taken. When all the activities are conducted successfully, according to plan the organisational goals can be achieved as desired.

(2) Making efficient utilisation of resources : By using various control techniques, managers can keep a close watch over the utilisation of human, physical and financial resources. They can prevent the misuse or wastage of resources and ensure proper utilisation of the same.

(3) Accuracy of standards : Proper and efficient control system help the management to check the standards set are accurate or not. This system also keeps check on the changes taking place in the organisation from time to time. Controlling functions are flexible to some extent. This in turn facilitates the organisation to review the standards by considering such changes.

(4) Motivates Employees : A good control system gives information in advance about the standard performance and discovers efficient and inefficient employees. Efficient employees may be given Financial rewards or incentives to motivate them further. The manager may recommend motivational measures in case it finds that deviations are due to insufficient motivation.

(5) Ensures order and discipline : An efficient and good control system ensures order and discipline in the organisation. It prevents and reduces unnecessary behaviour on the part of employees. Under this system, regular checking is done by the managers or departmental heads and preventive measures are taken against deviation or indiscipline.

8. Answer the following

Question 1.
Define the term Planning and explain the importance of planning.
Answer:
[A] Meaning : Planning is the fundamental and basic function of management. It is a process of setting goals and choosing the means to achieve these goals. Planning means deciding the future course of action which determines what is to be done, how to do it, when to do it, who is to do it and how results are to be evaluated. It is a detailed programme in which all activities to be performed in future are mentioned keeping in mind the objectives. Thus, it is an intellectual process of logical thinking and rational decision-making.

[B] Importance : The importance of planning is explained as follows:
(1) Helps to set clear objectives : Planning is the process of setting objectives, targets and formulating plans to achieve these objectives. With the help of proper planning, management can analyse the present condition of the organisation and can identify the ways of attaining the desired position in future.

(6) Helps in decision-making : Planning helps the management to achieve to take a rational decision and to select best alternatives by considering all positive and negative outcomes of all the alternatives the decisions are taken after selecting the best suitable alternatives a predefined goals.

(7) Useful is setting the standards for controlling: Planning sets the standards of performance to be achieved and which can be measured with the actual performance for find out about any deviation. Such deviation can be taken care by controlling steps. Thus, planning provides basis for maintaining discipline in an organisation.

(8) Facilitates co-ordination of all activities : Proper planning reduces the overlapping among all activities of business which are closely linked with each other. Planning interrelates such activities of all department work as per overall plan and thus management co-ordination is achieved.

(9) Facilitates other functions : Planning is the primary function of all the functions of management. Every organisational function is set to achieve the organisational goals at the planning stage. Other management functions such as organising, staffing, etc. cannot be undertaken till the plan is ready.

(10) Promotes innovative ideas : Planning is the basic function. The process of decision-making involves promotion of innovative ideas after critical
thinking. It is the most challenging activity for the management as it guides all future activities and actions of an organisation. In the end, these innovative plans result in attainment of the organisation goals.

Question 2.
What is Organising? Explain the importance of organising.
Answer:
[A] Meaning: Organising is the process of putting together various activities, resource and people into a system so that people work together for achieving planned objectives. Organising means arranging everything in an orderly manner. It means making arrangements like money, machinery, materials, man-power and other physical resources to achieve the predefined goals. The synchronization and combination of workforce, physical, financial and information resources in the process of organising.

[B] Importance : The importance of organising is explained as follows:
(1) Facilitates administration as well as operation : Organising is the process of identifying, grouping and assigning the activities of administration and proceeding according to its operational activity. Due to proper grouping of the task and employees, there is a reduction in duplication of work results in effective delegation.

(6) Helps for effective administration : A sound organising structure facilitates in defining the right job to the right individual. Similarly, the functions, duties and role of each and every employee are well defined in the organising function. This facilitates effective administration and ultimately leads to efficient administration.

(7) Helpful for growth and diversification : Smooth and efficient functioning, clearly defined authority and responsibilities and smooth co-ordination leads to the growth of the organisation. Use of appropriate techniques of control brings efficiency and reduces wastages which ultimately leads to higher profitability of the organisation. All this is possible when the structure of the organisation is well defined.

(8) Creates sense of security: Organising function defines and clarifies the jobs, functions and roles, powers and authority assigned to every manager and employee. Clarity in job profile eliminates confusion and gives responsibility. It helps a lot in getting mental satisfaction and develops sense of security.

(9) Scope for innovation : The manager can use his talent, knowledge and experience to take decisions on various matters and problems. For instance, decision to adopt new technique of production in the organisation. Thus, his talent flourishes by adopting new changes in the methods of work.

(10) Optimum utilisation of resources : Organising function lays down the best possible uses of resources for a specific job. Thus, it is possible to use the available resources to their optimum level and thereby avoid wastage as well as their excessive use.

Question 3.
What do you mean by Staffing? Describe the importance of staffing.
Answer:
[A] Meaning : Right person at right job with right pay is the basic principle of staffing, Staffing is the process involved in attracting, identifying, assessing, recruiting, placing, evaluating and directing employees. It is recruitment, selection, development, training and compensation of employees. It is very challenging for the organisation to focus on best utilisation of workforce by using their talents and skills, retaining them and arranging training and t development programme.

[B] Importance : The importance of staffing is given as follows:
(1) Effective management function : Staffing is considered an effective managerial function as it deals with human resource. Employees appointed in the organisation through staffing function perform various activities in different areas of the organisation such as production, marketing, finance, etc.

(7) Long term effect : Sub-functions of staffing, namely, proper selection, training, development, motivation, etc. help to achieve long-term benefits such as increase in productivity and efficiency, loyalty of customers and employees, etc.

(8) Essential contribution : The selection of employees should be based on the ability of the prospective candidates to meet the future challenges. Selection is based on the ability of the prospective employee so that organisation can meet the future challenges wisely. Therefore, in staff selection, the selectors should take into account the contribution of the employees in their future roles.

(9) Provides job satisfaction : A good staffing policy creates job satisfaction in the minds of the employees. For instance, proper placement of the individuals according to their knowledge, experience and aptitude, timely promotions, training etc. give job satisfaction. Fair remuneration and job security are the factors which are important in providing job satisfaction.

(10) Maintains harmony: Proper staffing policy helps to develop good labour relations. The performances of employees are regularly appraised and promotions are made on merits. Due to this, employees develop positive attitude towards the management which, in turn, helps to bring about peace and harmony in the organisation.

Question 4.
Give the meaning of Directing and explain the importance of directing.
Answer:
[A] Meaning : Directing is the process of instructing, guiding, inspiring, motivating and supervising the employees to achieve pre-determined organisational goals. It is a continuous function started at top level and flows through the lower level of an organisation. It is continued through out the tenure of an organisation. A few philosophers called it as ‘Life spark of an Enterprise. Director shows the correct path as well as guides the employees in solving the problems.

[B] Importance : The importance of Directing is as follows:
(1) Initiates action : Direction initiates action. It activates employees to put in their best efforts, to achieve the goals. Without effective direction, other managerial functions like planning, organising, staffing, co-ordinating and controlling become ineffective. Managers have to stimulate action by issuing instructions like what to do, how to do, etc. to the subordinates and by supervising them from time to time.

(6) Efficient utilisation of resources : Constant instructions can be given to the subordinates to make the maximum use of the available resources and to make every possible effort to minimize the wastages of resources. Thus, effective direction helps in optimum use of available resources such as men, materials, money and methods which helps to reduce cost and increase profit.

(7) Creates team spirit : The supervisors through proper direction can guide, lead and motivate their subordinates to co-ordinate the activities. Thus, team spirit is created which helps the employees to perform their activities more efficiently and on time. This results in faster achievement of organisational goals.

(9) Increases efficiency level : Effective direction and guidance results in better performance of the employees. It also enables the managers and other superiors to guide the subordinates as the leader while performing their jobs.

(8) Exploring capabilities of individuals: Every employee in the organisation has certain capabilities and potential. Through proper direction, motivation and encouragement manager can utilise them to their optimum level to achieve organisational goals and increases efficiency of organisation.

(10) Co-operation : Co-operation between different departments from top level to the bottom level and among the people within the department is must. Co-operation is essential for the success and achievement of organisational goals and for smooth flow of all organisational activities.

Question 5.
What is Coordinating? Describe the importance of coordinating.
Answer:
[A] Meaning : Co-ordination as a function of management refers to the task of developing harmony between various sections of departments and between various departments of the organisation. Thus, co-ordination is a hidden force which binds all other functions of the management integrating the group activities to accomplish the organisational goal efficiency. As the work of each one is linked in an organisation is necessary in co-ordination.

[B] Importance : The importance of Co-ordinating is explained as follows:
(1) Encourages Team Spirit : Co-ordination is concerned with integrated group efforts. Team work under the direction of the manager encourages the subordinates to work sincerely and give better performance to achieve organisational goals. Co-ordination helps to reduce the conflicts between the employees and departments regarding policies, roles, etc. and increase their team spirit.

(6) Improve relations : Co-ordination brings develops good relations among the employees working at different levels of management. For instance, marketing department depends upon production department, production department : depends upon purchase department and so on. Proper co-ordination always helps employees to improve and build strong relations among the employees working in different departments.

(7) Leads to Higher Efficiency : Co-ordination facilitates the optimum use of physical and human resources. This leads to higher returns at lesser cost, thereby higher efficiency. Co-ordination ultimately leads to the optimum use of the resources, higher efficiency reduction in cost and reduction in wastages.

(8) Improves goodwill : Higher sales and higher profitability can be achieved due to synchronized efforts. It earns a name and goodwill in the corporate world. This leads to better value of shares in the stock exchange (market).

(9) Unity of direction : Co-ordinating function helps to bring together activities of different departments to achieve common goals and objectives of the organisation. Therefore, co¬ordination is needed to give proper direction to all the departments of the organisation.

(10) Specialisation : In every business organisation all departments are headed by qualified and specialised professionals in their respective field. The specialised knowledge of these departmental heads helps in various managerial decisions. Proper and efficient co-ordination among these professionals helps to achieve organisational goals (targets) as planned by the top management.

Question 6.
Define the term Controlling and explain the importance of controlling.
Answer:
[A] Meaning : Controlling is a function of comparing the actual performance with the predetermined standard performance. It measures deviation, if any, identifies the causes and suggest the corrective measures. It is performed by all levels of management. Controlling is an indispensable function at all levels of management.

[B] Importance : The importance of controlling function is explained as follows:
(1) Fulfilling goals of organisation : Controlling helps to fulfil and achieve organisational goals. The controlling function ensures that the activities take place according to the plans and if there is any deviation, timely action is taken. When all the activities are conducted successfully, according to plan the organisational goals can be achieved as desired.

(6) Facilitates co-ordination : Every manager or superior co-ordinates the activities of subordinates towards the process of controlling. Controlling reveals the weak points where co¬ordination falls short, so that the management can take timely action.

(7) Psychological pressure : Efficient control system puts psychological pressure on the employees to perform better. Their performance is measured and compared with standards set from time to time. All the employees know that their performance will be evaluated and hence they put on their best to perform well.

(8) Ensures Organisational Efficiency and Effectiveness : Efficient and proper control system ensures organisational efficiency and ; effectiveness. The factors of controlling such as motivation for better performance, achievement of co-ordination in the performance and managers’ responsibility ensure that the organisation works i more efficiently.

(9) Build good Corporate image : An efficient controlling system helps to improve overall efficiency and quality of work. As a result organisation achieves its goals according set standards. This in turn helps to build a good corporate image and develops reputation of the business.

(10) Acts as a Guide : Controlling function provides set of standard performance. All levels of managers and employees work according to it. They follow these standards to achieve desired results. The steps taken for controlling an activity guide the management while planning any future activity.

Maharashtra Board OCM 12th Commerce Solutions Chapter 1 Principles of Management

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Organisation of Commerce and Management 12th Textbook Solutions Chapter 1 Principles of Management Textbook Exercise Questions and Answers.

Maharashtra State Board 12th Organisation of Commerce and Management Solutions Chapter 1 Principles of Management

1. (A) Select the correct option and rewrite the sentence

Question 1.
………………… was regarded as the Father of Scientific Management.
(a) Henry Fayol
(b) F. W. Taylor
(c) Philip Kotler
Answer:
(b) F. W. Taylor

Question 2.
Principle of ……………… is based on ‘A place for everything and everything in its place.
(a) Discipline
(b) Order
(c) Equity
Answer:
(b) Order

Question 3.
Member of organization should receive orders from ………………..
(a) many superior
(b) one superior
(c) all superiors
Answer:
(b) one superior

Question 4.
Scalar chain means the hierarchy of …………….. from the top level to the lower level for the purpose of communication.
(a) discipline
(b) unity
(c) authority
Answer:
(c) authority

Question 5.
Taylor recommended total ……………….. foremen to control the various aspects of production.
(a) eight
(b) three
(c) two
Answer:
(a) eight

1. (B) Match the pairs

Group A	Group B
A) Henry Fayol	1) Eight Foremen
B) Principle of Unity of Direction	2) F.W. Taylor
C) Principles of Management	3) Proper division of all activities
D) Scientific Management Theory	4) general guidelines
E) Functional Organization	5) A place for everything and everything in its place
	6) One head-one plan
	7) Low wage rate
	8) Harmony between the employees and management
	9) German engineer
	10) Modern Management

Answer:

Group A	Group B
A) Henry Fayol	1) Modern Management
B) Principle of Unity of Direction	2) One head-one plan
C) Principles of Management	3) general guidelines
D) Scientific Management Theory	4) F.W. Taylor
E) Functional Organization	5) Eight Foremen

1. (C) Give one word/phrase/term for the following statements:

Question 1.
The study of movement of an employee as well as machine while completing particular task.
Answer:
Motion Study

Question 2.
The technique of observing and recording the time required by an employee to complete a given task.
Answer:
Time Study

Question 3.
Study consists of an organised, systematic and critical assessment of various activities.
Answer:
Work Study

Question 4.
The principle which deals with ‘to do work with innovative way’.
Answer:
Principle of Initiative

Question 5.
The principle which is based on ‘a place for everything and everything in its place’.
Answer:
Principle of Order.

1. (D) State whether the following statements are True or False

Question 1.
The principles of management are universal in nature.
Answer:
True

Question 2.
Management principles are applied differently under different situations.
Answer:
True

Question 3.
Only some principles of management are important.
Answer:
False

Question 4.
Henry Fayol has given different techniques of management.
Answer:
False

Question 5.
F. W. Taylor has proposed 14 principles of management.
Answer:
False

Question 6.
Each member of organisation should receive orders only from one superior.
Answer:
True

1. (E) Find the odd one.

Question 1.
Principle of Authority and Responsibility, Motion Study, Principle of Division of Work, Principle of Discipline.
Answer:
Motion Study

Question 2.
Fatigue Study, Principle of Unity of Command, Work Study, Motion Study.
Answer:
Principle of unity of Command

1. (F) Answer in one sentence

Question 1.
What is principle of unity of command?
Answer:
Principal of unity of command implies that every employee should receive orders and instructions from one boss only and he should be responsible and accountable to him only.

Question 2.
What is standardization of tools and equipment?
Answer:
Standardisation of tools and equipment refers to providing the standard tools and equipment for production and maintaining standard working conditions and environment at the place of work.

Question 3.
What is differential wage rate?
Answer:
Differential wage rate means offering higher rate of wages to those employees who complete the work more than the standard quantity and lower rate of wages to those employees who perform below the standard fixed.

Question 4.
What is Subordination of Individual Interest into Organisational Interest?
Answer:
Subordination of individual interest into organisational interest means the interest of an individual must be given less importance than the interest of the organisation.

Question 5.
What is the meaning of principle?
Answer:
Principle means a fundamental truth or proposition that serves as the foundation for a system of belief or behaviour or for a chain of reasoning.

1. (G) Correct the underlined word and rewrite the following sentences.

Question 1.
Security in job always affects adversely on the efficiency of employees.
Answer:
Insecurity in job always affects adversely on the efficiency of employees.

Question 2.
Esprit de corps means ‘division is strength’.
Answer:
Esprit de corps means ‘unity is strength’.

Question 3.
Each member of organisation should receive orders from only one subordinate.
Answer:
Each member of organisation should receive orders from only one superior.

Question 4.
Decentralisation means concentration of powers and authorities at a specific position.
Answer:
Centralisation means concentration of powers and authorities at a specific position.

Question 5.
Management techniques are applied differently under different conditions.
Answer:
Management principles are applied differently under different conditions.

2. Explain the following terms/concepts

Question 1.
Motion Study
Answer:
(1) This is one of the important techniques f of scientific management developed by E W. Taylor. Motion study refers to the movements of employees, as well as movement of machine while completing . a particular task. The motion study helps the manager to know the movements required for a person to do a particular job.

(2) This study is useful to manager to eliminate the unnecessary movements or their sequence for doing the job. It also helps the manager to combine some actions or movements in the process. It increases efficiency and productivity of the employees and helps in reducing the wastage of time, raw material and improving the usefulness of resources.

Question 2.
Differential Piece Rate System.
Answer:
(1) According to F. W. Taylor, the differential piece wage rate plan is necessary to motivate the employees to attain higher standard performance and to earn remuneration at a higher rate. Differential piece wage rate plan suggests that remuneration should be fixed and paid in such a way that average worker is motivated to attain standard output.

(2) In differential piece wage rate plan, the. standard is determined for production by the management. The workers who produce more them the standard are to be paid more in the form of incentives and those who produce less than the standard are to be paid less by way of penalty. This technique encourages those who perform well and motivates those who have performed less than the standard required to improve their performance.

(3) Taylor suggested the differential piece wage system and further stated that the discrimination should be made between the efficient and inefficient workers. This technique explains that, efficient workers should be paid more remuneration in comparison to inefficient workers.

(4) Thus, the differential piece-rate wage plan technique motivates the able employees to attain higher performance and earn wages at higher rate.

Question 3.
Fatigue Study
Answer:
The term ‘fatigue’ implies physical or mental exhaustion. Long working hours with insufficient breaks, heavy working tools, target pressure and poor working conditions lead to fatigue. It reduces efficiency of the employees and creates adverse effect on their health. To reduce fatigue it is very important to keep and maintain the operational efficiency of the workers.

Question 4.
Time Study.
Answer:
(1) Time study is one of the important techniques of scientific management developed by E W. Taylor. Time study is useful to the manager to determine and record the time needed to complete a particular job or task. It is based on the speed of average worker.

(2) Under this technique of scientific management, every part of the entire work is considered in detail and the time required to complete each element of job or task is ascertained. On the basis of the time study, the manager determines the standard time required to complete a particular job. This also facilitates the manager to decide the remuneration to be paid and efficiency of the worker and to control the cost of work.

3. Study the following case/situation and express your opinion.

Question 1.
Mr. Harshad is an entrepreneur and engaged in production of eco-friendly utensils. Both male and female workers are working in his factory. All male employees are directly working on machines whereas female employees are working in Packaging Department. Mr. Sharath is working as Finance Manager while Mrs. Naina is working as HR Manager who is responsible for recruiting employees in the factory. On this basis:
(i) Identify any one principle of management in above case.
(ii) What is the designation of Mrs. Naina in this organisations?
(iii) Who is responsible for overall planning of the organisation?
Answer:
(i) In the above case, principle of Division of work is identified.
(ii) The designation of Mrs. Naina is Human Resource Manager.
(iii) Mr. Harshad, an entrepreneur of eco-friendly utensils, is responsible for overall planning ; of the organisation.

Question 2.
In ‘Fine Diamonds Ltd.’ 200 employees are working in three shifts. In first shift 60 employees, in second shift 60 employees and in third shift 80 employees are working without sufficient breaks except lunch break and shift change break. No employee is able to complete the work in designated time due to inappropriate time management which results into delay for next shift employees.
(i) Identify which scientific principle needs to be followed by the company.
(ii) Suggest two scientific techniques which can be used for smooth flow of work in ‘Fine Diamonds Ltd.
(iii) Why the work is not being completed in time?
Answer:
(i) In the above case, Principle of scientific management called Science, Not Rule of Thumb needs to be followed.
(ii) Work study based on the technique of fatigue study and Scientific task setting can be used for smooth flow of work in ‘Fine Diamonds Ltd.’
(iii) Reasons for non-completion of work in time are:

Long working hours without sufficient breaks reduces the efficiency of labour.
Inappropriate time management (planning) done by the departmental head (Functional Manager) result into delay for next shift employees.
Standard required time and standard output are not defined by the manager or management of “Fine Diamonds Ltd.”

4. Answer in brief

Question 1.
Explain any five principles of management of Henry Fayol.
Answer:
(1) Principle of Division of Work : According to this principle, the entire work such as technical, financial, commercial, accounting, management and security operations should be assigned to different employees as per their qualification, qualities, capabilities and experience. It gives benefits of specialisation and improves efficiency and expertise of employees. This in turn helps to attain expected productivity level.

(2) Principle of Authority and Responsibility:
Authority implies right or freedom to take decisions. The manager should be given authority to get the work done systematically from the subordinates. Authority should always go with corresponding responsibility, e.g. if manager is given authority to complete a specific task within a given time, he would be held responsible for the same. Manager should have adequate authority to take managerial decisions on his own to achieve the goal.

(3) Principle of Discipline: Fayol insists that discipline is essential for smooth working of an organisation. It helps to achieve the goals set in the organisation. In relation to organisation, discipline means strictly obeying instructions of the superiors. There should be clear and utmost understanding between management and employees in respect to organisation’s rules. It is necessary to observe basic discipline at all levels of management.

(4) Principle of Unity of Command: According to this principle, every employee should receive orders and instructions from one boss only and he should be accountable to him only. If he receives orders from more them one boss at a time, he will not understand whose orders should be executed first. To avoid this, organisational hierarchy should be well defined and each employee in the organisation should know his immediate boss. He should receive orders and instructions from him only and should report to him only.
Maharashtra Board OCM 12th Commerce Solutions Chapter 1 Principles of Management 1

(5) Principle of Unity of Direction: Fayol advocates “One head for One plan”. It means that a group of employees working on similar activities should have common objectives and must work under one head (senior). All the objectives of the different groups should be in line with the objectives of the organisation. If this principle is followed there will be an effective co-ordination of the individual efforts and energies.

(6) Principle of Subordination of Individual Interest to Organisational Interest: According to this principle, the interest of the organisation must always be given greater importance than the interest of an employee or a group of employees. While taking decision, the manager should always consider the interest of whole group rather than the interest of an individual employee. Similarly, employees should surrender their personal goals or interests before that of an organisation e.g. while playing a game a team players should always play to win the game and not for his individual records.

Question 2.
Describe any four techniques of scientific management.
Answer:
(1) Work Study : Before allocating the work among the workers, systematic work study should be done by the management. Work study includes Em organised systematic and critical assessment of different activities or functions. It is based on the different techniques like time study, method study, motion study and fatigue study.
(i) Time Study : Under this method, the manager observes and record the time an employee takes to complete a particular job or task. This technique is useful to fix standard time needed to complete a specific task under given conditions. It measures the efficiency of an employee and helps to control the cost of work.

(ii) Method Study : In order to get best quality with cost effectiveness, it is important and challenging for a manager to identify the best method from various available methods to complete the specific job. This method is useful to reduce the wastage of time, raw material and to improve usefulness of the resources to achieve defined objectives. It is also useful to determine the methods to handle the raw materials, storage, inspection and transportation.

(iii) Motion Study : Motion study refers to the close study of the movements of employees as well as machines in completing a particular task. This technique is useful to manager to eliminate the unnecessary movements and to find out the best method of completing a specific task. It improves efficiency and productivity of the employees. This method is also useful to understand and decide about the elimination of some elements of a job or changing their sequence for smooth flow of work.

(iv) Fatigue Study : The term ‘fatigue’ implies physical or mental exhaustion. Long working hours with insufficient breaks, heavy working tools, target pressure and poor working conditions lead to fatigue. It reduces efficiency of the employees and creates adverse effect on their health. To reduce fatigue it is very important to keep and maintain the operational efficiency of the workers.

(2) Standardisation of Tools and Equipment:
On the basis of experiments conducted at work place, Taylor insisted to provide standard tools and equipment, standard working environment and standard methods of production. It helps to reduce spoilage and wastage of materials, cost of production, fatigue among the employees on the one hand and improves quality of work on the other hand.

(3) Scientific Task Setting : Taylor laid stress on the need for fixing a fair day’s work. The technique of scientific task setting is useful to restrain the employees from performing the task much below their capacity. As a result, they will complete their task according to the standards given and management will be able to keep proper control on the optimum use of available workforce.

(4) Scientific Selection and Training: By using scientific selection procedures, management easily select right persons for the right jobs. According to this technique, job specifications required to be fixed and employees are selected as per predetermined standards in an impartial way. After their selection, the management should arrange proper training programmes to increase efficiency.

(5) Functional Organisation : Taylor suggested that planning of the work is to be done by different people and actual work is to be supervised by different set of people. Every worker in the factory is to be supervised by two different sets of supervisors. He further suggested total eight foremen to control the various parts of the production. They are categorised as follows:
(A) At planning level:

Route clerk : Explains the movement of work from one machine to other.
Instruction clerk : Gives and records instructions to complete the work.
Time and cost clerk : Decides the time to complete the work and work out the cost.
Discipline : To see to it that workers work as per factory rules.

(B) At implementation level:

Gang Boss : Gets the actual work done from employees.
Speed Boss : Takes care that work is done in specified time.
Repair Boss : Manages security and maintenance of mechanism.
Inspector : Makes sure that work is completed as per specified standards.

5. Justify the following statements

Question 1.
Principles of management are flexible in nature.
Answer:
(1) Principles of management are the statements of fundamental truth which act as guidelines for managerial decision-making and action. They establish cause and effect relationship. They are evolved through observation, analysis and experiments.

(2) Principles of management although fundamental, are not rigid. They are flexible in nature in the sense they can be changed or modified according to the situation and requirements of the organisation. Managers can change these principles to suit the requirements of the organisation.

(3) Principles of management are flexible guidelines providing ample scope for making changes according to the nature of enterprise, its size, competitive situation, etc. For instance, in the context of present business scenario, at many places the ‘family management has been substituted by professional management’.

(4) Modern business world is dynamic. The situations in a business enterprise keep on changing continuously. No two circumstances are identical. Principles of management can be changed, adjusted or modified and used in the enterprise as per its changing needs and requirements. By identifying problems of business changes will be accepted.

Question 2.
Management principles are helpful in optimum utilization of resources.
Answer:
(1) Materials or abstract qualities that a person or organisation uses to perform the work is called resources, e.g. tools, stocks, time, employees, etc. In every organisation, two types of resources are used and they are: (i) Physical resources such as materials, machines, money, etc. and (ii) Human resources i.e. manpower.

(2) The different types of resources are used in the organisation to manufacture or produce different types of goods and services. The resources are scarce in relation to their demand and therefore resources should not be wasted and misused. They should be used carefully and up to their optimum capacity.

(3) The basic aim and function of management are to make and maintain proper balance and allocate these resources by putting them to maximum possible use and control on wastage of resources. Through the use of different techniques and management principles, management maintains discipline and healthy working environment to establish cordial relationship with the employees.

(4) It helps to increase the efficiency level of employees and to manage the administration effectively, e.g. use of modern and standard tools and machineries. It also helps to increase quality, productivity and level of efficiency of human resources.

Question 3.
Principle of equity is important.
Answer:
(1) The principle of equity suggests that employer should give kind, fair, just and equal treatment to the employees. Managers should be kind, impartial and fair to their subordinates.

(2) The principle of equity further states that there should not be any discrimination between the employees while making the payment of wages. The employees working on the same level but in different departments should be paid same wages.

(3) The wages payable to employees should not depend on the departments but the level at which they are working, e.g. Foremen should be paid higher wages than that is paid to employees working under them.

(4) The principle of equity also states that there should not be any discrimination between the employees while distributing work between them. As far as possible, there should be equal distribution of work. Thus, equality in treatment of employees boosts the morale and develops a sense of belongingness among the employees. It helps to develop loyalty of employees towards organisation and avoid conflicts.

Question 4.
Taylor emphasized on standardization of tools and equipment.
Answer:
(1) Fredrick Winslow Taylor published Principles of Scientific Management. His primary objective was to increase efficiency of employees by scientifically designing jobs. According to his views, management problems should be solved through experiments and use of scientific techniques rather than rules of thumb and triad and error approach.

(2) Taylor had conducted many experiments at workplace and as a result of those experiments, he advocated standardisation of tools and equipment. Standard here, means a level of quality or achievement, especially a level that is acceptable.

(3) According to him, standardised working environment and standardised methods of production tools and equipment help to reduce spoilage and wastage of materials. This in turn reduces the overall cost of production.

(4) Similarly use of standardised tools and equipment increases efficiency of employees and also helps to reduce fatigue among the workers. This improves the quality of work.

Question 5.
Differential piece wage rate plan is necessary.
Answer:
(1) According to F. W. Taylor, the differential piece wage rate plan is necessary to motivate the employees to attain higher standard performance and to earn remuneration at a higher rate. Differential piece wage rate plan suggests that remuneration should be fixed and paid in such a way that average worker is motivated to attain standard output.

(4) Thus, the differential piece-rate wage plan technique motivates the able employees to attain higher performance and earn wages at higher rate.

6. Attempt the Following

Question 1.
Explain in detail any five Principles of Management given by Henry Fayol’s?
Answer:
(1) Principle of Division of Work : According to this principle, the entire work such as technical, financial, commercial, accounting, management and security operations should be assigned to different employees as per their qualification, qualities, capabilities and experience. It gives benefits of specialisation and improves efficiency and expertise of employees. This in turn helps to attain expected productivity level.

Question 2.
Describe different techniques of scientific management.
Answer:
(1) Work Study : Before allocating the work among the workers, systematic work study should be done by the management. Work study includes Em organised systematic and critical assessment of different activities or functions. It is based on the different techniques like time study, method study, motion study and fatigue study.
(i) Time Study : Under this method, the manager observes and record the time an employee takes to complete a particular job or task. This technique is useful to fix standard time needed to complete a specific task under given conditions. It measures the efficiency of an employee and helps to control the cost of work.

Route clerk : Explains the movement of work from one machine to other.
Instruction clerk : Gives and records instructions to complete the work.
Time and cost clerk : Decides the time to complete the work and work out the cost.
Discipline : To see to it that workers work as per factory rules.

(B) At implementation level:

Gang Boss : Gets the actual work done from employees.
Speed Boss : Takes care that work is done in specified time.
Repair Boss : Manages security and maintenance of mechanism.
Inspector : Makes sure that work is completed as per specified standards.

Question 3.
Elaborate Principles of Scientific Management.
Answer:
The principles of scientific management are as follows:

Science, Not Rule of Thumb
Harmony, Not Discord
Mental Revolution
Co-operation, Not Individualism
Division of Responsibility
Development of employer and employees for greater efficiency and maximum prosperity

1. Science, Not Rule of Thumb : Rule of thumb method is based on personal judgements of the manager which should be substituted with the methods developed through scientific analysis of work. Taylor emphasised more on the use of scientific method for every small job. This principle related with selecting the best way of doing a work after scientific analysis. Under this method, standard required time and standard output are defined by the manager. This method is useful to save time and human energy, to get expected standard output and to increase organisational efficiency.

2. Harmony, Not Discord : This principle states that, in every organisation these should be proper co-ordination and harmonious relations between the management and employees. This will help in minimising conflicts between them and in achieving the goals of the organisation. The perfect understanding between employees and management is also helpful in creating healthy work environment. Organisation should also think about the maximum prosperity of the employees.

3. Mental Revolution : The concept of ‘mental revolution’ was introduced by Taylor. This principle highlights on the complete change in the attitude of the management and employees toward each other. Both should recognise their equal importance in the organisation. They should co-operate with each other to achieve goals or objectives of the organisation. This in turn will increase productivity and profits.

4. Co-operation, Not Individualism : This principle states that there should be mutual co-operation between employees and management. Co-operation, trust, team spirit, etc. are important to avoid internal competition and to create healthy working environment. Management should always appreciate and consider the suggestions given by the employees in decision-making process. The management should treat the employees as an integral part of the organisation in all respects. Employees should also resist themselves from going on strikes and making unacceptable or unnecessary demands from the management. Thus, they should see each other as two pillars of the organisation.

5. Division of Responsibility : This principle states that while dividing the work there should be’ corresponding division of responsibility between the managers and employees. Major planning should be done by the top and middle level management and employees should concentrate on its execution. The reporting of the jobs should be done by the subordinates as per the instructions given by their superiors. For the best performances, the management should always help, encourage and guide the employees.

6. Development of employer and employees for greater efficiency and maximum prosperity : Profitability and best performance of any organisation mostly depend on the skills, intelligence and capabilities of its employees. Arranging and providing training and development programmes for the employees at regular interval or whenever required are absolutely important. It helps to increase profitability of the organisation. Proper opportunity should be given to each ; employee to attain his highest efficiency and ; maximum prosperity.

Question 4.
Explain nature (characteristics) of principles of management.
Answer:
The nature (characteristics) of principles of management is (are) explained as follows:
(1) Universal application : Management principles are universal in nature. They are applicable to all types of organisations irrespective of the type, size or nature, e.g. government, college, hospital, bank. etc. Their application may have to be modified, but they are suitable for all kinds of organisations, whether in private sector or public sector. Similarly, principles of management are applicable to all levels of management. For instance, the principle of division of labour is applicable to all types of organisations.

(2) General guidelines : Management principles give general guidelines to tackle the organisational situations wisely and to solve the problems systematically. They are not rigid. Application of management principles depend upon the situation, size and nature of organisation, e.g., when we say according to principle of remuneration, the employees must be paid fair remuneration. The term ‘fair’ may vary as per nature, size and financial ability of the organisation.

(3) Principles are formed by practice and experiments : The management principles are developed gradually with thorough research work, experiments and systematic observations. The results of such observations and experiments are developed after their practice in different organisations.

(4) Flexibility : Management principles, although fundamental are not rigid statements. They have to be applied differently under various conditions. It is possible to make suitable changes in their application according to the requirement of the organisation. Thus, Management principles are flexible guidelines providing ample scope for making changes according to the nature of enterprise, its size, competitive situation, etc.

(5) Behavioural in nature : Management is a teamwork or a group activity. Management principles aim at influencing individual efforts and directing them to achieve various objectives of the organisation. They are directed towards regulating human behaviour so that people give their best to the organisation. Thus, principles of management are designed to influence human behaviour.

(6) Cause and effect relationship : Management principles indicate cause and effect relationship. Each principle has a definite effect on the efficiency or working of management. For example, payment of good remuneration and incentives increases output. Similarly, effective advertisement given by the organisation increases the sale of a product.

(7) All principles are of equal importance : All the principles of management have equal importance and they also carry equal weightage with reference to their applicability in the organisation. For example, it cannot be said that the principle of division of labour is more important than the principle of unity of command or vice versa. Management principles are not static in nature. They are not absolute like principles of pure sciences like Chemistry, Mathematics, etc. They are the principles of social science. They are to be modified and applied according to the size and nature of the organisation, keeping in mind the requirements.

7. Answer the following questions

Question 1.
What are the techniques of scientific management? Explain in detail.
Answer:
The techniques of scientific management given by F. W. Taylor are explained as follows:
(1) Work Study : Before allocating the work among the workers, systematic work study should be done by the management. Work study includes Em organised systematic and critical assessment of different activities or functions. It is based on the different techniques like time study, method study, motion study and fatigue study.

(i) Time Study : Under this method, the manager observes and record the time an employee takes to complete a particular job or task. This technique is useful to fix standard time needed to complete a specific task under given conditions. It measures the efficiency of an employee and helps to control the cost of work.

Route clerk : Explains the movement of work from one machine to other.
Instruction clerk : Gives and records instructions to complete the work.
Time and cost clerk : Decides the time to complete the work and work out the cost.
Discipline : To see to it that workers work as per factory rules.

(B) At implementation level:

Gang Boss : Gets the actual work done from employees.
Speed Boss : Takes care that work is done in specified time.
Repair Boss : Manages security and maintenance of mechanism.
Inspector : Makes sure that work is completed as per specified standards.

(6) Differential Piece – Rate Wage Plan : Taylor suggested that discrimination should be made between efficient and less efficient workers. In this technique, the standard is determined (fixed) for production. The workers who produce more than the standard output are to be paid remuneration at higher rates and those who produce less them the standard quantity are to be paid at lower rate of wages. This technique encourages the employees to attain higher standard performance to earn higher wages.

Question 2.
Explain 14 principles of Henry Fayol in detail.
Answer:
Henry Fayol, the Father of Modern Management developed the following 14 principles:
principles of management:

Principle of Division of Work
Principle of Authority and Responsibility
Principle of Discipline
Principle of Unity of Command
Principle of Unity of Direction
Principle of Subordination of Individual Interest to Organisational Interest
Principle of Centralisation
Principle of Remuneration
Principle of Scalar Chain
Principle of Order
Principle of Equity
Principle of Stability of Tenure
Principle of Initiative
Principle of Esprit de corpse (Team Work)

1. Principle of Division of Work: According to this principle, the entire work such as technical, financial, commercial, accounting, management and security operations should be assigned to different employees as per their qualification, qualities, capabilities and experience. It gives benefits of specialisation and improves efficiency and expertise of employees. This in turn helps to attain expected productivity level.

2. Principle of Authority and Responsibility: Authority implies right or freedom to take decisions. The manager should be given authority to get the work done systematically from the subordinates. Authority should always go with corresponding responsibility, e.g. if manager is given authority to complete a specific task w12. Principle of Stability of Tenure:ithin a given time, he would be held responsible for the same. Manager should have adequate authority to take managerial decisions on his own to achieve the goal.

3. Principle of Discipline: Fayol insists that discipline is essential for smooth working of an organisation. It helps to achieve the goals set in the organisation. In relation to organisation, discipline means strictly obeying instructions of the superiors. There should be clear and utmost understanding between management and employees in respect to organisation’s rules. It is necessary to observe basic discipline at all levels of management.

4. Principle of Unity of Command: According to this principle, every employee should receive orders and instructions from one boss only and he should be accountable to him only. If he receives orders from more them one boss at a time, he will not understand whose orders should be executed first. To avoid this, organisational hierarchy should be well defined and each employee in the organisation should know his immediate boss. He should receive orders and instructions from him only and should report to him only.
Maharashtra Board OCM 12th Commerce Solutions Chapter 1 Principles of Management 3

5. Principle of Unity of Direction: Fayol advocates “One head for One plan”. It means that a group of employees working on similar activities should have common objectives and must work under one head (senior). All the objectives of the different groups should be in line with the objectives of the organisation. If this principle is followed there will be an effective co-ordination of the individual efforts and energies.

6. Principle of Subordination of Individual Interest to Organisational Interest: According to this principle, the interest of the organisation must always be given greater importance than the interest of an employee or a group of employees. While taking decision, the manager should always consider the interest of whole group rather than the interest of an individual employee. Similarly, employees should surrender their personal goals or interests before that of an organisation e.g. while playing a game a team players should always play to win the game and not for his individual records.

7. Principle of Centralisation: Centralisation means concentration of authority or power in a few hands at the top level. As number of employees is less in a smaller organisation there is centralisation of authority. Decentralisation means even distribution of authority or power at every level of management. As number of employees and levels of management are more in a larger organisation, there must be decentralisation of some authorities for its smooth functioning. According to Fayol, there must be a proper balance between centralisation and decentralisation, depending upon the nature and size of an organisation.

8. Principle of Remuneration: According to this principle, the employees must be paid fair and appropriate remuneration to keep them satisfied financially and to retain them within the organisation for longer period of time. While fixing remuneration various factors such as the skill, knowledge, expertise, tenure, cost of living, market trend, profitability of organisation, etc. should be considered. It boosts the morale of employees and increases efficiency and productivity.

9. Principle of Scalar Chain: According to Fayol, in the organisation decisions, orders, instructions, messages, etc. must be passed through a chain, i.e. from the general manager to the respective functional manager, then to the supervisor, then to the foreman and then ultimately, to the workers. Similarly, suggestions, information, grievances, etc., must flow from the worker in the upward direction. This is called Scalar Chain. Sometimes, following a scalar chain becomes a lengthy process. In such cases, ‘Gang Plank’ is followed which permits speedy and direct communication between the employees working at the same level of authority. However, for this, permission of the proper authority is necessary.

10. Principle of Order: The principle of order is based on ‘a place for everything and everything in its place’. According to this principle, in every organisation there should be proper, systematic and orderly arrangement of men and materials. There should be a fixed place to keep every material and thing used in the organisation and a fixed place or a seat for every employee. The purpose of this principle is to reduce wastage of time and energy. This principle emphasises more I on the proper and optimum utilisation of physical and human resources.

11. Principle of Equity: This principle states that the management should be fair as well as friendly to the subordinate staff. There should be no discrimination of employees in regard to division of work, delegation of the authorities, deciding the monetary terms, etc. This principle also states that the remuneration should depend not on the department but at the level at which employees are working, It means the employees working on the same level but in separate departments must be paid equal wages. It will also help in avoiding conflicts in an organisation.

12. Principle of Stability of Tenure: According to this principle, at the time of recruitment of employees, the management should assure them about the stability of tenure (i.e. job security). This creates a sense of belonging among the employees. Job security increases efficiency of the employees and minimises employees turnover ratio.

13. Principle of Initiative: Initiative means to do the work in an innovative way in his or her personal capacity. According to this principle, managers should give freedom, opportunity or encourage the subordinates to take initiative while working on given job. Their suggestions and ideas should be invited before framing the plan. This can work as a morale booster for the employees and leads to timely achievement of organisational goals.

14. Principle of Esprit de corpse (Team Work): ‘Esprit de corpse’ means union is strength. This principle integrates and co-ordinates the individual and group efforts. It emphasizes the spirit of teamwork. The manager as a leader should create the feeling of team spirit and understanding among the various groups. When entire group of employees works as a team, their efforts get directed towards realising the goals of the organisation.

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 12 Stock Exchange

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 12 Stock Exchange Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 12 Stock Exchange

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
A stock exchange is where stock brokers and traders can buy and sell ______________
(a) Gold
(b) Securities
(c) Goods
Answer:
(b) Securities

Question 2.
The ______________ is the first Stock Exchange to be recognized by the Indian Government under the Securities Contracts (Regulation) Act.
(a) BSE
(b) NSE
(c) OTCEI
Answer:
(a) BSE

Question 3.
______________ is a dealer in Stock Exchange who carries on trading of securities in his own name.
(a) Jobber
(b) Broker
(c) Bull
Answer:
(a) Jobber

Question 4.
A ______________ who expects fall in price of securities.
(a) bull
(b) bear
(c) Jobber
Answer:
(b) bear

Question 5.
The practice of buying and selling within the same trading day before the close of the market on that day is called ______________
(а) insider trading
(b) day trading
(c) auction
Answer:
(b) day trading

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) SEBI	(1) Expects the price of shares to rise in the future.
(b) Day Trading	(2) Expects the price of shares to fall in the future.
(c) Bull	(3) Buying and selling of securities during the same trading day.
(d) Bear	(4) To protect the interest of investors in the securities market.
(e) BSE	(5) Buying and selling of securities to particular investors.
	(6) One of the oldest stock exchanges in India.
	(7) To protect the interest of companies in the securities market.
	(8) Buying and selling of securities within a week.
	(9) Newest Stock Exchange in India.
	(10) One who invests in new issues of securities.

Answer:

Group ‘A’	Group ‘B’
(a) SEBI	(4) To protect the interest of investors in the securities market.
(b) Day Trading	(3) Buying and selling of securities during the same trading day.
(c) Bull	(1) Expects the price of shares to rise in the future.
(d) Bear	(2) Expects the price of shares to fall in the future.
(e) BSE	(6) One of the oldest stock exchanges in India.

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
A specific place where the trading of securities is arranged in an organized method.
Answer:
Stock Exchange

Question 2.
The first Stock Exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.
Answer:
BSE

Question 3.
A dealer in the Stock Exchange who carries on the trading of securities in his own name.
Answer:
Jobber

Question 4.
A speculator who expects the price of shares rises in the future.
Answer:
Bull

1D. State whether the following statements are True or False.

Question 1.
A Stock Exchange is a reliable barometer to measure the economic condition of a country.
Answer:
True

Question 2.
Bombay Stock Exchange is the oldest Stock Exchange in India.
Answer:
True

Question 3.
A broker is a dealer in the Stock Exchange who carries on the trading securities in his own name.
Answer:
False

Question 4.
A Bear is a speculator who expects the prices of shares to rise in the future.
Answer:
False

1E. Complete the sentences.

Question 1.
The oldest Stock Exchange in India is the ______________
Answer:
BSE

Question 2.
A speculator who expects fall in prices of share ______________
Answer:
Bear

Question 3.
A person who buys or sells shares on behalf of his clients is called as ______________
Answer:
broker

Question 4.
The largest and most modern stock exchange in India is the ______________
Answer:
National Stock Exchange

1F. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(a) Regulator of Capital Market	(1) …………………..
(b) ……………………	(2) Nifty
(c) Jobber	(3) …………………..
(d) …………………..	(4) Oldest Stock Exchange in the world

(London Stock Exchange, Index of NSE, SEBI, Trades in securities in his own name)
Answer:

Group ‘A’	Group ‘B’
(a) Regulator of Capital Market	(1) SEBI
(b) Index of NSE	(2) Nifty
(c) Jobber	(3) Trades securities in his own name
(d) London Stock Exchange	(4) Oldest Stock Exchange in the world

1G. Answer in one sentence.

Question 1.
What is Stock Exchange?
Answer:
A Stock Exchange is a place or a platform where investors-individuals, institutions, or organizations meet to purchase or sell securities.

Question 2.
Who is a Broker?
Answer:
He is a licensed member of a stock exchange who transacts business on the behalf of his clients, being an agent between investors and jobbers.

Question 3.
Who is Jobber?
Answer:
A Jobber is a professional speculator in the stock exchange who carries on the trading securities in his name.

Question 4.
Who is a Bull?
Answer:
Bull (Tejiwala) is an optimistic speculator who expects the price of a share to rise in the future and buys with the hope of selling at a high price to earn profit.

Question 5.
Who is Bear?
Answer:
A bear is a speculator who expects the prices of shares to fall in the future and sells his securities at the prevailing prices to avoid loss.

Question 6.
Who is Lame Duck?
Answer:
A lame-duck is a bear broker whose expectations have gone wrong and makes a loss in his dealings.

Question 7.
What is a trading ring?
Answer:
The trading of shares that takes place during trading hours on the floor of the stock exchange is called the Trade Ring.

Question 8.
What is Sensex?
Answer:
Sensex is the index of the BSE which represents the increase or decrease in prices of stocks of a selected group of companies.

Question 9.
What is Rally?
Answer:
If the Sensex or Nifty moves in an upward direction over a period of 14 to 20 trading sessions, it is called as a rally.

Question 10.
What is Crash?
Answer:
If the Sensex or Nifty moves in a downward direction, it is called a crash.

1H. Correct the underlined word/s and rewrite the following sentences.

Question 1.
One of the functions of SEBI is to protect the interest of issuers of securities in the securities market.
Answer:
One of the functions of SEBI is to protect the interest of investors in securities in the securities market.

Question 2.
A Broker cannot directly deal with investors.
Answer:
A Jobber cannot directly deal with investors.

Question 3.
A Bear expects prices of shares to rise in the future.
Answer:
A Bull expects prices of shares to rise in the future.

Question 4.
A Bull buys new issues of securities from the primary market.
Answer:
A stag buys new issues of securities from the primary market.

Question 5.
A stock market is an important constituent of the money market.
Answer:
A stock market is an important constituent of the capital market.

2. Explain the following terms/concepts.

Question 1.
Stock Exchange
Answer:
Stock Exchange is a specific place where various types of securities are purchased and sold. The term securities include equity shares, preference shares, debentures, government securities, and bonds, etc. including units of mutual funds. They act as intermediaries between investors and borrowers, to provide safety and stability to the investors, stock exchanges in India are regulated by SEBI.

Question 2.
Broker
Answer:
He is a member of the stock exchange and is licensed by the stock exchange to buy or sell shares on his client’s behalf. He is an agent between the investors and Jobber and earns his income in the form of commission or brokerage.

Question 3.
Jobber
Answer:
A Jobber is a professional speculator in the stock exchange who carries on the trading securities in his own name. He buys securities as an owner and sells them at a higher price, and cannot deal with investors directly.

Question 4.
Bull
Answer:
A Bull is a speculator who is optimistic, expects the price of a share to rise in the future, and buys with the hope of selling them at higher prices to earn profit. A bull’s action leads to higher prices for securities as there is an excess purchase over sales.

Question 5.
Bear
Answer:
Bear (Mandiwala) is a pessimistic speculator who expects a fall in the price of a security, so he sells his securities at prevailing prices to avoid loss as he anticipates further fall in prices. His action leads to lowering prices as there is an excess of sales over the purchase.

Question 6.
Contract Note
Answer:
It is a note given by a broker to his client in a specific form, validating the transaction. Its copy comes immediately to both after the transaction within 24 hours.

3. Study the following case/situation and express your opinion.

1. Mr. Y is a practicing Company Secretary offering advisory services to companies, institutions, etc. on corporate laws including the Companies Act. He has received few queries from his clients, please assist Mr. Y in answering them.

Question (a).
BDI bank wants to offer DP services. Whom should they approach for registering as DP?
Answer:
If BDI bank wants to offer DP services, they should approach the concerned Depository for registering themselves.

Question (b).
KM Financial wants to offer Debenture Trustee services. Where should they apply for getting registered?
Answer:
If KM Financial wants to offer Debenture Trustee services then they should be registered with SEBI to act as Debenture Trustee.

Question (c).
TT Ltd. Co. wants to issue an IPO. Should it get itself registered with SEBI?
Answer:
The entire IPO process is regulated by SEBI, TT Ltd. Co should register with The U. S. Securities and Exchange Commission (SEC) which ensures that the company has made disclosures in detail thus TT Ltd will get the green signal to issue IPO.

2. Mr. P has recently got his B.Sc. degree. He has enrolled in a course in the securities market. As a new student of this subject, he has few queries as follows:

Question (a).
Does a company need to be listed on a stock exchange’s ability to sell its securities through the stock exchange?
Answer:
Yes, a company needs to be listed on Stock Exchanges to sell its securities through the Stock Exchange.

Question (b).
What is the term used for referring to a stock exchange’s ability to reflect the economic conditions of a country?
Answer:
A Stock Exchange is the “Economic Barometer” and acts as an economic mirror that reflects the economic conditions of a country, eg. Boom, recession period.

Question (c).
Which term refers to the functions of the stock exchange as a provider of a ready market for sale and purchase of security?
Answer:
The “Liquidity” function is the main function of the Stock Exchange as it provides a ready market for the sale and purchase of securities.

4. Distinguish between the following.

Question 1.
Jobber and Broker
Answer:

Points	Jobber	Broker
1. Meaning	A Jobber is one who buys and sells securities in his own name.	A broker is an agent who deals in buying and selling securities on behalf of his client.
2. Nature of Trading	A jobber carries out trading activities only with the broker.	A broker carries out trading activities with the jobber on behalf of his investors.
3. Restrictions on Dealings	A jobber is prohibited to directly buy or sell securities in the stock exchange. Also, he cannot directly deal with the investors.	A broker acts as a link between the jobber and the investors. He trades i.e. buys and sells securities on behalf of his investors.
4. Agent	A jobber is a special mercantile agent.	A broker is a general mercantile agent.
5. Form of Consideration	A jobber gets consideration in the form of profit. The positive difference between sale and purchase of securities.	A broker gets consideration in the form of commission or brokerage. The rate/amount of brokerage is fixed by stock exchanges.
6. Amount of Consideration	The amount of Consideration payable to Jobber is determined by the competition of jobbers.	The rate or amount of brokerage of a broker is fixed as per stock exchange provisions.

5. Answer in brief.

Question 1.
State the functions of SEBI.
Answer:
The various functions of SEBI are

To protect the interest of investors in the securities stock market.
To promote the development of securities markets.
To regulate the business in stock exchanges and any other securities market.
To register and regulate the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchants bankers, underwriters, and such other intermediaries who may be associated with the securities market.
To register and regulate the working of the Depositories, Depository Participants, Custodians of securities, foreign institutional investors, credit rating agencies.
To register and regulate the working of venture capital funds and collective investment schemes including mutual funds.
- To promote and regulate self-regulatory organizations.
- To prohibit fraudulent and unfair trade practices relating to securities markets.
To promote investors’ education and training of intermediaries of the securities market.
To prohibit insider trading in securities.
To conduct research and carry out publications.

Question 2.
State any four features of the Stock Exchange.
OR
What are the features of the Stock Exchange?
Answer:
According to the Securities Contracts (Regulation) Act 1956, the term stock exchange is defined as, “An association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”

Husband and Dockerary have defined stock exchange as “Stock exchanges are the privately organized market which is used to facilitate trading in securities.”

The important features of a stock exchange are as follows:
(i) Market for Securities:
The stock exchange is a place where all types of corporate securities, as well as securities of government and semi-government bodies, are traded.

(ii) Second Hand Securities:
Securities traded in the Stock exchange are those securities that are already issued by the companies. In other words, second-hand securities are bought and sold among investors in a stock exchange.

(iii) Listed Securities:
Only securities that are listed with the stock exchange can be traded on a stock exchange. Listing of securities helps in protecting the interest of investors as companies have to strictly comply with the rules laid down by the stock exchange.

(iv) Organised and Regulated Market:
All Listed Companies have to comply with the guidelines of SEBI. Companies will also have to function as per the rules and regulations laid down by the Stock exchange.

(v) Specific Location:
The stock exchange is a specific physical place where securities are traded. It is a marketplace where brokers and intermediaries meet to conduct dealings in securities. Today, all trading is done electronically on a stock exchange.

(vi) Trading only through Members:
Securities in a Stock exchange can be traded only by the members of the exchange on their own behalf or through authorized brokers.

6. Justify the following statements.

Question 1.
The Securities and Exchange Board of India SEBI is the regulator for the securities market in India.
Answer:

The Securities and Exchange Board of India was set up on 12th April 1988. The main purpose of setting up SEBI was to develop and regulate stock exchanges in India.
The objectives of SEBI are to protect the interest of the investors and regulate the securities market in India.
To bring professionalism in the working of intermediaries in the capital markets, i.e., brokers, mutual funds, stock exchanges, Demat- depositories, etc. is also a feature of SEBI.
The role of SEBI also includes creating a good financial climate, so that companies can raise long-term funds through the issue of securities – shares and debentures.
The main function of SEBI is to register and regulate the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchant bankers, underwriters, and such other intermediaries who may be associated with securities market.
Thus, it is rightly said that SEBI is the regulator of the securities market in India.

Question 2.
Stock exchanges work for the growth of the Indian economy.
Answer:

The stock exchange is a specific place where the trading of securities is arranged in an organized method.
The stock exchanges help in the process of rapid economic development by speeding up the process of capital formation as well as resource mobilization in India.
It helps in raising medium-term capital as well as long-term capital for the development and expansion of the companies in the Indian economy.
New industries and commercial enterprises can easily acquire capital funds for economic growth.
It reflects a healthy financial and investment conducive atmosphere in the economy. It stimulates investment in the productive sector which accelerates the process of economic development of the nation.
Thus, it is rightly said that the stock exchanges work for the growth of the Indian economy.

7. Answer the following questions.

Question 1.
Explain the functions of the Stock Exchange.
Answer:
Definition Of Stock Exchange: According to the Securities Contracts (Regulation) Act of 1956, the term ‘stock exchange’ is defined as “An association, organization or body of individuals, whether incorporated or not established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”

Husband and Dockerary have defined stock exchange as: “Stock exchanges are privately organized markets which are used to facilitate trading in securities.”

Stock Exchange performs various important functions discussed as follows:
(i) Mobilisation of Savings:
Stock markets are organized and regulated markets that protect the interests of the investors. It obtains surplus funds (savings) from individual households private and public sector units etc. and channelizes them in the proper direction. It thus provides a ready market for buying and selling securities.

(ii) Capital Formation:
Investors in securities are attracted due to good returns on investments and capital appreciation. The stock exchanges encourage investors to invest in the primary and secondary stock markets for investing in stock markets, investors need to save money. Savings lead to investment in shares and other securities. Such investments lead to capital formation.

(iii) Pricing of Securities:
The price of the securities are sold in the stock markets is based on demand and supply forces listed securities get prestige and reputation. When the prices of the shares go up constantly, their security value increases. The valuation of securities is useful to investors, the government, and creditors. The investors thus can gauge their investment worth and the creditors too can estimate the creditworthiness of a company.

(iv) Economic Barometer:
A stock exchange is a reliable barometer to measure the economic condition of a country. They encourage investors to invest and help companies to generate long-term funds thus promoting industrial development. The rise or fall in the share prices indicates the boom or recession cycle of the economy. The stock exchange is the pulse of the economy and the mirror that reflects the country’s economic status.

(v) Protecting Interest of Investors:
In the stock markets, only the listed securities are traded. The stock exchanges protect the interests of the investors through the strict enforcement of their rules and regulations. The securities Control (Regulation) Act 1956, provides rules for the functioning, licensing, and controlling speculations of stock exchanges. The SEBI also plays an important role in monitoring stock exchanges thus protect the interests of the investors by regulating intermediaries, monitoring speculation, and making the investors aware of their rights through IEPF, etc.

(vi) Liquidity:
The stock exchange facilitates liquidity by providing a ready market for the sale and purchase of securities. It provides marketability along with liquidity to investments in corporate enterprises. Because of stock exchange investors can convert a long-term investment into short-term and medium-term as it provides a two-way outlet by transforming money into an investment and vice versa without much delay.

(vii) Better Allocation of Capital:
The stock exchange regulates and controls the flow of investment from unproductive to productive, uneconomic to economic, unprofitable to profitable enterprises. Thus, savings of the people are channelized into industry yielding good returns, and underutilization of capital is avoided.

(viii) Contributes to Economic Growth:
The stock exchange help in the process of rapid economic development by speeding up the process of capital formation as well as resource mobilization. It helps in raising medium as well as long-term capital for the development and expansion of the companies. The resource of the economy flows from one company to another. This leads to capital formation as well as economic growth.

(ix) Providing Scope for Speculation:
Stock Exchanges’ like any other market provides a mechanism for evaluating the prices of securities through the basic law of demand and supply. Stock Exchange prices help to check the real worth of the securities in the market and thus permit healthy speculation of securities.

(x) Promotes the Habit of Savings and Investment: The stock market offers attractive opportunities for investment in various securities by obtaining funds from surplus units such as households, individuals, public sector units, central government, etc, and channelizing these funds for productive purposes.

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 11 Financial Market

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 11 Financial Market Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 11 Financial Market

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
A financial market is a market in which people trade _____________ and derivatives at low transaction costs.
(a) Gold
(b) Financial securities
(c) Commodities
Answer:
(b) Financial securities

Question 2.
When the trade bills are accepted by commercial banks it is known as _____________
(a) Treasury bills
(b) Commercial bills
(c) Commercial papers
Answer:
(b) Commercial bills

Question 3.
Money market is a market for lending and borrowing of funds for _____________ term.
(a) short
(b) medium
(c) long
Answer:
(a) short

Question 4.
Central Government is a borrower in the money market through the issue of _____________
(a) Commercial Papers
(b) Trade Bills
(c) Treasury Bills
Answer:
(c) Treasury Bills

Question 5.
_____________ is the market for borrowing and lending long term capital required by business enterprises.
(a) Money Market
(b) Capital Market
(c) Gold Market
Answer:
(b) Capital Market

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Financial Market	(1) Long term fund
(b) Money Market	(2) New issue market
(c) Primary Market	(3) Trading of commodities
(d) Commercial paper	(4) Short term fund
(e) Capital Market	(5) Trading of financial securities
	(6) Share market
	(7) Unsecured promissory note
	(8) Secured promissory note

Answer:

Group ‘A’	Group ‘B’
(a) Financial Market	(5) Trading of financial securities
(b) Money Market	(4) Short term fund
(c) Primary Market	(2) New issue market
(d) Commercial paper	(7) Unsecured promissory note
(e) Capital Market	(1) Long term fund

1C. Write a word or term or a phrase that can substitute each of the following statements.

Question 1.
A market where people trade financial securities and derivatives at low transaction costs.
Answer:
Financial Market

Question 2.
A market that provides long-term funds.
Answer:
Capital Market

Question 3.
A market that provides short-term funds.
Answer:
Money Market

Question 4.
A money market instrument is used by banks when one bank faces a temporary shortage of cash.
Answer:
Call Money

Question 5.
A bill is issued by the Reserve Bank of India on behalf of the Government of India.
Answer:
Treasury Bill

Question 6.
A market that exclusively deals with the new issue of securities.
Answer:
Primary Market

1D. State whether the following statements are True or False.

Question 1.
A Financial Market is a market in which people trade financial securities and derivatives at high transaction costs.
Answer:
False

Question 2.
The money market is the market for long-term funds.
Answer:
False

Question 3.
The capital market is the market for long-term funds.
Answer:
True

Question 4.
The primary market is also known as the new issue market.
Answer:
True

Question 5.
The secondary market is commonly known as the stock market.
Answer:
True

Question 6.
Commercial paper is a secured promissory note.
Answer:
False

Question 7.
Treasury bills are issued by commercial banks.
Answer:
False

1E. Find the odd one.

Question 1.
Treasury Bills, Shares, Certificate of Deposit.
Answer:
Shares

Question 2.
FPO, Private Placement, Commercial paper.
Answer:
commercial paper

Question 3.
New Issues Market, Call Money Market, Secondary Market.
Answer:
call money market

1F. Complete the sentences.

Question 1.
Funds borrowed and lent in money market are for _____________ term.
Answer:
short

Question 2.
When trade bills are accepted by commercial banks, it is known as _____________
Answer:
Trade Bill

Question 3.
Unsecured negotiable promissory notes issued by a commercial bank is called as _____________
Answer:
certificate of deposit

Question 4.
New shares, debentures, etc. are traded in _____________ market.
Answer:
primary

Question 5.
In capital market the instruments traded have maturity period of more than _____________ year.
Answer:
one

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(a) Money Market	(1) …………………..
(b) Zero risk instrument	(2) …………………..
(c) ………………….	(3) Capital Market
(d) …………………	(4) Secondary Market

(Buying and selling of existing securities, Treasury Bills, Funds for long term, Fund for short term)
Answer:

Group ‘A’	Group ‘B’
(a) Money Market	(1) Fund for short term
(b) Zero risk instrument	(2) Treasury bills
(c) Fund for long terms	(3) Capital Market
(d) Buying and selling of existing securities	(4) Secondary Market

1H. Answer in one sentence.

Question 1.
What is the financial market?
Answer:
A financial market is a market where financial securities are exchanged. It acts as an intermediary between investors and borrowers.

Question 2.
What is call a money market?
Answer:
The call money market is a market where funds are borrowed or lent for a very short period of 2 days to 14 days.

Question 3.
What is a Certificate of deposit?
Answer:
They are the negotiable term deposit certificates issued by commercial banks and financial institutions to build short-term finance.

Question 4.
What is a Trade bill?
Answer:
The seller draws a bill and the buyer accepts it, on acceptance, the bill becomes a marketable instrument called a Trade bill.

Question 5.
What is the new issue market?
Answer:
The market which is utilized to build fresh capital is called as ‘new issue market.’

1I. Correct the underlined word/s and rewrite the following sentences.

Question 1.
In the Primary market, already existing securities are traded.
Answer:
In the Secondary market, already existing securities are traded.

Question 2.
Companies sell fresh shares for the first time to the public in the secondary market.
Answer:
Companies sell fresh shares for the first time to the public in the Primary market.

Question 3.
In the Money market, the instruments traded have a maturity period of more than one year.
Answer:
In the Capital market, the instruments traded have a maturity period of more than one year.

Question 4.
The financial market can be classified as a capital market and call money market.
Answer:
The financial market can be classified as capital market and Money market.

2. Explain the following terms/concepts.

Question 1.
Financial Market
Answer:

Every business unit has to raise short-term as well as long-term funds to meet the working and fixed capital requirements.
In any economy, there are two different groups, one who invests money or lends money and the other who borrows or uses the money.
The financial market acts as a link between these two different groups.
The financial market provides a place or a system through which the transfer of funds by investors to the business units is adequately facilitated.
A financial market consists of two major segments:
- Money Market
- Capital Market
Money market deals in short-term credit and the capital market deals in medium-term and long-term credit.

Question 2.
Capital Market
Answer:

It is a market for borrowing and lending long-term capital required by business enterprises.
The financial assets dealt with in a capital market have a long or indefinite maturity period.
The capital market forms an important core of a country’s financial system.

Definition:
G.H. Peters defines, “Capital Market as being the market or collection of inter-related markets in which potential borrowers are brought into contact with potential lenders.”

Question 3.
Money Market
Answer:

A market where short-term funds are borrowed and lent is called ‘money market7. It is a market for financial assets that are close substitutes for money.
The instruments dealt within the market are liquid and can be converted quickly into cash at a low transaction cost.

Definition:
According to the Reserve Bank of India, “The money market is the center for dealings mainly of short-term characters in money assets; it needs the short-term requirements of borrowers and provides liquidity or cash to the lenders. It is a place where short-term surplus investible funds at the disposal of financial, institutions or individuals are bid by borrower’s agents comprising institutions and individuals and also by the government itself.”

Question 4.
Call Money Market
Answer:

Call money and Notice money market is an important segment of the money market in India. Under Call money, funds are lent or borrowed for very short periods i.e. one day.
Under Notice money, funds are lent or borrowed for periods between 2 days to 14 days. Funds have to be repaid within a specified time on the receipt of the notice given by the lender.
When one bank faces a temporary shortage of cash, then another bank with surplus cash lends money to it. Hence, the Call/Notice money market is also called as interbank Call money market.

Question 5.
Treasury Bills
Answer:

Treasury Bills are short-term securities issued by the Reserve Bank of India on behalf of the Central Government of India to meet the government’s short-term funds requirement.
Treasury Bills have three maturity periods – 91 days, 182 days, and 364 days. These bills are sold to banks and individuals, firms, institutions, etc. These bills are negotiable instruments and are freely transferable.
The minimum value of T-bills is Rs. 25,000 or in multiples of Rs. 25000. These are issued at a discount and repaid at par and hence they are also called Zero-Coupon Bonds.

Question 6.
Commercial Bills
Answer:
Trade Bills/Commercial Bills:

Bill of Exchange also called Trade bills are negotiable instruments or bills drawn by a seller on the buyer for the value of goods sold under credit sales.
These have a short-term maturity period, generally of 90 days, and can be easily transferred.
If the seller wants immediate cash, he can discount the trade bills with Commercial banks.

Question 7.
Repurchase agreement
Answer:
It is an agreement where the seller of security (i.e. one who needs money) agrees to buy it back from the lender at a higher price on a future date. Usually, this agreement is between RBI and commercial banks. RBI uses this agreement to control the money supply in the economy. These agreements are the most liquid of all money market investments having maturity ranging from 24 hours to several months.

Question 8.
Primary Market
Answer:

It is a component of the financial market where short-term borrowing takes place.
In the money market, the instruments are traded for not more than one year.

Question 9.
Secondary Market
Answer:

The securities issued earlier are traded in the secondary market.
It is the market where existing securities are resold or traded.
Only listed securities can be dealt with in the secondary market.

3. Study the following case/situation and express your opinion.

1. Joy Ltd. Company is a newly incorporated company. It wants to raise capital for the first time by issuing equity shares.

Question (a).
Should d go to primary market or secondary market to issue its shares?
Answer:
Joy Ltd. should go to the primary market to issue equity shares in the market. Primary Market is mainly dealing with fresh issues of securities.

Question (b).
Should it offer its shares through public offer or rights issue?
Answer:
Joy Ltd. should offer its shares through public offer (IPO) as Joy Ltd. Company is going to its securities first time.

Question (c).
What will be the issue of Equity shares by Joy Ltd. Company called IPO or FPO?
Answer:
When Joy Ltd. issued its securities first time then it is called as IPO at the same time if Joy Ltd. offered securities for the second, third, or fourth time it is called a follow on public offering (EPO)

2. Mr. X is the CFO (Chief Financial Officer) of PQR Co. Ltd. which is a reputed company in the field of construction business. Often Mr. X has to decide on investing surplus funds of the company for short durations. And at times, he also has to decide the sources from where he can raise funds for short durations.

Question (a).
Assume on behalf of the company Mr. X has Rs. 5 lakhs and wants to invest for a short period. Should he buy Equity shares of Certificate of Deposit?
Answer:
As Mr. X wants to invest for a short period with the amount of Rs. 5 lakhs, then he should buy a certificate of deposit.

Question (b).
The company has surplus funds and wants to invest it. However, he needs the money back in 4 months, so should he invest in Treasury Bills or Government Securities?
Answer:
If he needs money back in 4 months, then he should invest in Treasury bills with the option of 91 days Maturity.

Question (c).
Can the company issue Certificate of Deposit?
Answer:
PQR Company Ltd. is a construction company. Hence it cannot issue a certificate of deposit as it can be issued by commercial banks and financial institutions only.

4. Distinguish between the following.

Question 1.
Primary Market and Secondary Market
Answer:

Points	Primary Market	Secondary Market
1. Meaning	The market is utilized for raising fresh capital in the form of shares and debentures.	It is a market where existing securities are resold or traded.
2. Function	The function is to raise long-term funds through fresh issues of securities.	The function is to provide a continuous and ready market for existing long-term securities.
3. Participants	The participants are financial institutions, mutual funds, underwriters, individual investors.	The participants of the primary market are the stockbrokers and the members of the stock exchange.
4. Listing Requirements	Listing is not required in the case of the primary market.	Only listed securities can be dealt with in the secondary market.
5. Determinants of Prices	The prices are determined by the management of the corporate house with due compliances with the SEBI requirements for the new issues of securities.	In the case of the secondary market, the price is determined by forces of demand and supply of the market and it keeps on fluctuating.
6. Issue of Prospectus	The prospectus is issued to invite the public to subscribe to the issue of shares.	The prospectus is not issued to the public.
7. Relation with investors	Direct contact with the investors at large is established by the companies.	There may not be direct contact with the investors who want to buy or sell the existing securities.

Question 2.
Money Market and Capital Market
Answer:

Points	Money Market	Capital Market
1. Meaning	A market where short-term funds are borrowed and lent.	A market for borrowing and lending long-term capital is required by the business enterprises.
2. Term of Finance	It provides short-term funds in short-term instruments where the maturity is measured in days, weeks, or months.	It is a market for long-term instruments which is measured in years.
3. Instruments	The instruments dealt in the market are bills of exchange, treasury bills, bankers’ acceptance, etc.	The instruments dealt in this market are bonds, debentures, equity shares, and stock.
4. Functions	Money Market exists as a mechanism of liquidity adjustment i.e. a link between depositors and borrowers.	Capital Market functions as a link between investors and entrepreneurs.
5. Risk	The prices of these instruments do not fluctuate and they carry very low market risk.	The instruments are long-term and subject to market fluctuations and so, they carry very high financial and market risk.
6. Institution	Commercial banks are important institutions in the money market.	The stock exchange is an important institution in the capital market.

5. Answer in brief.

Question 1.
State any four functions of the financial market.
Answer:
Functions of financial market:
(i) Capital formation:

Capital is the main part of the functioning of the business.
The capital market provides a channel through which savings flow to organizations in the form of capital.
This leads to capital formation.

(ii) Transfer of Resources:

The financial market is one of the key sources of transfer of resources.
The financial market facilitates the transfer of real economic resources from lenders to ultimate users.

(iii) Mobilization of funds:

Investors that have savings must be linked with corporate that require investment.
The financial market enables the investors to invest their saving according to their choices and risk assessment.
This will utilize funds and the economy will boom.

(iv) Price determination:

The financial instruments traded in a financial market get their prices from the mechanism of demand and supply.
The interaction between demand and supply will help to determine the prices.

Question 2.
State any four features of the money market.
Answer:
The features of the money market are as follows:
(i) No Fixed Place for Trading of Securities/Shares:
In the money market, there is no definite place to carry out lending and borrowing operations of securities or shares.

(ii) Involvement of Brokers:

Dealings in such a market can be conducted with or without the participation of brokers.
Companies, banks, etc. may directly deal in the money market.

(iii) Financial Assets:
The financial assets that are dealt in the money market are close substitutes for money as these assets can be easily converted into cash without any loss in value.

(iv) Organisations Involved:
The main organizations dealing in the money market in India are the Reserve Bank of India (RBI), State governments, banks, corporate investors, etc.

Question 3.
State any four features of the capital market.
Answer:
Following are the main features of the capital market:

The link between investors and borrowers: The capital market links investors with the borrowers of funds. It routes money from savers to entrepreneurial borrowers.
Deals in medium and Long-term investment: A capital market is a market where medium and long-term financial instruments are traded. Through this market corporate, industrial organizations, financial institutions access long-term funds from both, domestic and foreign markets.
Presence of Intermediaries: The capital market operates with the help of intermediaries like brokers, underwriters, merchant bankers, collection bankers, etc. These intermediaries are important elements of a capital market.
Promotes capital formation: The capital market provides a platform for investors and borrowers of long-term funds to trade. This leads to capital formation in an economy as it mobilizes funds.

Question 4.
Explain any 4 types of money market instruments.
Answer:
Instruments of Money Market:
(i) Commercial Paper:

Commercial papers were first issued in the Indian money market in 1990.
They are unsecured debt instruments.
They are issued only by companies with strong credit ratings. They are issued at a discount rate. They are in the form of promissory notes.
They are negotiable instruments i.e. they are freely transferable by endorsement and delivery.
They are issued for a period of 15 days to 1 year.

(ii) Commercial Bills:

When the goods are sold on credit, the buyer becomes liable to make payment on a specific date in the future.
The seller draws a bill and the buyer accepts it. On acceptance, the bill becomes a marketable instrument called a Trade Bill.
When a Trade Bill is accepted by a commercial bank, it is known as a commercial bill.
They are in the form of negotiable instruments.
They are usually issued for a period of 90 days. But this period can vary between 30 to 90 days.
The liquidity of this bill is very high.
It is the most common method to meet the credit needs of trade and industry.

(iii) Certificate of Deposits:

Certificate of Deposits was first introduced to the money market of India in 1989.
They are issued by commercial banks or financial institutions at discount, at par, or at market rate.
They are in the form of promissory notes and stamp duty is applicable on the instrument.
The maturity periods of this instrument are from 15 days to 1 year.
The subscribers for certificates of deposits are individuals, associations, companies, trusts, etc.
They are freely transferable by endorsement and delivery after a lock-in period of a minimum of 15 days.

(iv) Treasury Bills:

Issue/Use of Treasury Bills was started by the Indian government in 1917.
This instrument is issued by the government to institutions or the public to bridge the gap between receipts and expenditure.
It is issued by the government on a discount for a fixed period not exceeding 1 year.
These bills are in the nature of promissory notes containing a promise to pay the amount stated to the bearer of the instrument.
The maturity period of this bill is 182 days.
These bills enjoy a high degree of liquidity.

6. Justify the following statements.

Question 1.
Financial Markets act as a link between investor and borrower.
Answer:

The financial market is the market that brings together borrowers and lenders.
The financial market attracts fund from investors by offering them a variety of schemes and then collected fund is diverted into the business organizations.
People having surplus cash invested into financial market securities, the financial market provides finance than to businesses.
Similarly, when the financial market generates income from investments in business, it shares with the investor.
Thus, it is a valuable link between borrower and lender.

Question 2.
Money Market makes available short-term finance through different instruments.
Answer:

The money market is the market that provides short-term loans to businesses and governments.
The loan period ranging from one day to one year.
Call money and notice money provide finance for periods between 2 days to 14 days.
Treasury Bills offer finance to the government for 91 days, 182 days, 364 days. Trade Bill or commercial bills offer finance up to 90 days.
Commercial paper offers finance to the business organization from 7 days to 1 year. Money Market Mutual Fund offers finance for a maximum period of 1 year.
Hence, the money market makes available short-term finance through different instruments.

Question 3.
Capital Market is useful for the corporate sector.
Answer:

Capital Market is the market that provides loans for long-term periods. It is controlled by SEBI.
It uses shares, debenture bonds, Mutual funds.
The corporate sector issues these securities in the market and attracts saving from investors by offering them a variety of schemes. These savings become capital and get invested in the business.
It is helpful to develop the corporate and industrial sectors.
Thus, the capital market is useful for the corporate sector.

Question 4.
There are many participants in the money market.
Answer:
Some important participants in the money market are:
(i) Reserve Bank of India:
It is the most important participant in the money market. Through the money market, RBI regulates the money supply and implements its monetary policy. It issues government securities on behalf of the government and also underwrites them. It acts as an intermediary and regulator of the market.

(ii) Central and State Government:
Central Government is a borrower in the Money Market, through the issue of Treasury Bills (T-Bills). The T-Bills are issued through the Reserve Bank of India (RBI). The T-Bills represent zero risk instruments. Due to its risk-free nature banks, corporate, etc. buy the T-Bills and lend to the government as a part of its short-term borrowing program. The state government issues bonds called State Development Loans.

(iii) Public Sector Undertakings (PSU):
Many listed government companies can issue commercial paper in order to obtain their working capital.

(iv) Scheduled Commercial Banks:
Scheduled commercial banks are very big borrowers and lenders in the money market. They borrow and lend in the call money market, short notice market, Repo and Reverse Repo market.

(v) Insurance Companies:
Both the general and life insurance companies are usual lenders in the money market. They invest more in capital market instruments. Their role in the money market is limited.

(vi) Mutual Funds:
Mutual Funds offer varieties of schemes for the different investment objectives of the public. Mutual funds schemes are liquid schemes. These schemes have the investment objective of investing in money market instruments.

(vii) Non-Banking Finance Companies (NBFCs): NBFCs use their surplus funds to invest in government securities, bonds, etc. (Example of NBFC – Unit Trust of India)

(viii) Corporates:
Corporates borrow by issuing commercial papers which are nothing but short-term promissory notes. They are the lender to the banks when they buy the certificate of deposit issued by the banks.

(ix) Primary Dealers:
Their main role is to promote transactions in government securities. They buy as well as underwrite the government securities.

7. Answer the following questions.

Question 1.
Explain the functions of the financial market.
Answer:
Financial Market – Meaning:

A financial market is an institution, that facilitates the exchange of financial instruments including deposits, loans, corporate stocks, bonds, etc.
The financial market provides a place through which the transfer of funds by investors to the business is adequately facilitated.
Financial Markets attract funds from investors and channelizes them to corporations.
The financial market consists of money and capital markets. They help to raise short and long-term capital.

Functions of Financial Market:
(i) Capital formation:

Capital is the main part of the functioning of the business.
The capital market provides a channel through which savings flow to organizations in the form of capital.
This leads to capital formation.

(ii) Transfer of Resources:

The financial market is one of the key sources of transfer of resources.
The financial market facilitates the transfer of real economic resources from lenders to ultimate users.

(iii) Mobilization of funds:

Investors that have savings must be linked with corporates that require investment.
The financial market enables investors to invest their savings according to their choices and risk assessment.
This will utilize funds and the economy will boom.

(iv) Price determination:

The financial instruments traded in a financial market get their prices from the mechanism of demand and supply.
The interaction between demand and supply will help to determine the prices.

(v) Productive usage:

Financial Market allow productive use of the fund.
An excess fund of investors is used by the borrowers for productive purposes.

(vi) Enhancing Income:

The financial market allows lenders to earn interest or dividends on their surplus funds.
Thus, it helps in the enhancement of the individual and the national income.

(vii) Liquidity:

The financial market provides a mechanism through which liquidating of financial instruments take place.
Here, the investor can sell their financial instruments and convert them into cash.

(viii) Sale Mechanism:

Financial Market provides a mechanism for selling a financial instrument by investors.
It helps to offer the benefit of marketability and liquidity of such assets.

(ix) Easy access:

Both industries and investors need each other.
The financial market provides a platform where buyers and sellers can find each other easily.

(x) Industrial Development:
The financial market transforms saving into capital. Corporate use of funds of investors to undertakes productive or commercial activities leads to economic development.

Question 2.
State the instruments in the money market.
Answer:

The money market is a market for borrowing and lending of funds for the short term.
RBI is an apex body that controls the money market.
The short period of time varies from one day to one year.

Instruments of Money Market:
(i) Commercial Paper:

Commercial papers were first issued in the Indian money market in 1990.
They are unsecured debt instruments.
They can be, therefore, issued only by companies with strong credit ratings.
They are issued by corporate houses for raising short-term finance mainly to finance their working capital requirements.
They are issued at a discount rate. They are in the form of promissory notes.
They are negotiable instruments i.e. they are freely transferable by endorsement and delivery.
They are issued for a period of 15 days to 1 year.
Face value is in multiples of ‘5 lakhs.
The issuing company has to bear all expenses like dealer’s fees, agency fees, etc. related to the uses of the commercial paper.
The rate of interest varies greatly as it is influenced by various factors such as the economy, the credit rating of the instruments, etc.
The marketability of these instruments is influenced by the rates prevailing in the call market as well as the foreign exchange market.
It used to be 30 days and it is further reduced to 15 days w.e.f 25th May 1998.

(ii) Commercial Bills:

When the goods are sold on credit, the buyer becomes liable to make payment on a specific date in the future.
The seller draws a bill and the buyer accepts it. On acceptance, the bill becomes a marketable instrument called a Trade Bill.
When a Trade Bill is accepted by a commercial bank, it is known as a commercial bill.
The seller draws a bill and the buyer accepts it.
They are in the form of negotiable instruments.
They are usually issued for a period of 90 days. But this period can vary between 30 to 90 days.
The liquidity of this bill is very high.
It is the most common method to meet the credit needs of trade and industry.
The bank can rediscount the bills and are able to meet the short-term liquidity requirements.
The commercial bill lacks development in the money market due to lack of bill culture, high stamp duty, inadequate credit backing, absence of a secondary market, etc.

(iii) Certificate of Deposits:

Certificate of Deposits was first introduced to the money market of India in 1989.
They are negotiable term deposit certificates.
They are issued by commercial banks or financial institutions at discount, at par, or at market rate.
They are in the form of promissory notes and stamp duty is applicable on the instrument.
The maturity periods of this instrument are from 15 days to 1 year.
The subscribers for certificates of deposits are individuals, associations, companies, trusts, etc.
They are freely transferable by endorsement and delivery after a lock-in period of a minimum of 15 days.

(iv) Treasury Bills:

Issue/use of Treasury Bills was started by the Indian government in 1917.
This instrument is issued by the government to institutions or the public for raising short-term funds to bridge the gap between receipts and expenditure.
It is issued by the government on a discount for a fixed period not exceeding 1 year.
These bills are in the nature of promissory notes containing a promise to pay the amount stated to the bearer of the instrument.
The maturity period of this bill is 182 days.
These bills enjoy a high degree of liquidity.

(v) Government Securities:

The marketable debt issued by the government or by semi-government bodies represents a claim on the government in known as government securities.
These securities are issued by agencies such as central government, state government, local government such as municipalities, etc.
These government securities are in the form of stock certificates, promissory notes, and bearer bonds.
The liquidity is high for securities issued by the central government and limited for the state government and the local government.
These securities are safe investments as payment of interest and repayment of the principal amount is guaranteed by the government.
Rebates for investment in these securities are available under the Income Tax and other Acts.

(vi) Money Market Mutual Funds:

It is a mutual fund that invests solely in money market instruments.
These are issued by mutual fund organizations.
They are in the form of debt.
These mature in less than a year.
They are very liquid.
They are the safest and most secure of all mutual funds investments.
The assets in money market funds are invested in safe and stable instruments of investments issued by the government, banks, corporations, etc.
These mutual funds allow retail investors the opportunity of investing in money market instruments and benefit from the price advantage.

(vii) Repo Rate:

It is the repurchase rate which is also known as the official bank rate.
The repo rate is the discounted interest rate at which a central bank repurchases the government securities.
It is the transaction that is carried by the central bank with the commercial bank to reduce some of the short-term liquidity in the system.

Question 3.
State the features of the capital market.
Answer:
Meaning:

Capital markets provide medium and long-term loans to business enterprises.
SEBI is responsible to control the working of the capital market.
It attracts saving from people and form capital to the business.
It is dealing in shares, debentures, bonds, mutual funds, etc.

Features of Capital Market:
Following are the main features of the capital market:
(i) Link between investors and borrowers:
The capital market links investors with the borrowers of funds. It routes money from savers to entrepreneurial borrowers.

(ii) Deals in medium and Long-term investment: A capital market is a market where medium and long-term financial instruments are traded. Through this market corporate, industrial organizations, financial institutions access long-term funds from both, domestic and foreign markets.

(iii) Presence of Intermediaries:
The capital market operates with the help of intermediaries like brokers, underwriters, merchant bankers, collection bankers, etc. These intermediaries are important elements of a capital market.

(iv) Promotes capital formation:
The capital market provides a platform for investors and borrowers of long-term funds to trade. This leads to capital formation in an economy as it mobilizes funds.

(v) Regulated by government rules, regulations, and policies:
The capital market operates freely. However, it is regulated by government rules, regulations, and policies.
For e.g. SEBI is the regulator of Capital markets.

(vi) Deals in marketable and non-marketable securities:
Capital market traders in both, marketable and non-marketable securities. Marketable securities are securities that can be transferred, e.g. Shares, Debentures, etc. and non-marketable securities are those which cannot be transferred, e.g. Term Deposits, Loans, and Advances.

(vii) Variety of Investors:
The capital market has a wide variety of investors. It comprises both, individuals like the general public and institutional investors like Mutual Funds, Insurance companies, Financial Institutions, etc.

(viii) Risk:
Risk is very high here as the instruments have long maturity periods. However, the return on investments is very high.

(ix) Instruments in capital market:

Equity shares
Preference shares
Debentures
Bonds
Government securities
Public Deposits.

(x) Types of Capital Market:
Capital market is mainly classified as-
(i) Government Securities Market or Gilt-edged markets:
In this market, government and semi-government securities are traded.

(ii) Industrial Securities Market:
In this market, industrial securities, i.e. shares and debentures of new or existing corporate are traded. This market is further divided into:

Primary or New issues Market – Here companies sell fresh shares, debentures, etc. for the first time to the public.
Secondary Market – Here already existing shares, debentures, etc. are traded through the Stock Exchanges.

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 10 Dividend and Interest

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 10 Dividend and Interest Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 10 Dividend and Interest

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
Dividend is paid to ____________
(a) Shareholder
(b) Debenture holder
(c) Depositor
Answer:
(a) Shareholder

Question 2.
____________ is profit shared by company with a shareholder.
(a) Interest
(b) Rent
(c) Dividend
Answer:
(c) Dividend

Question 3.
Dividend is recommended by ____________
(a) Managing Director
(b) Secretary
(c) Board of Directors
Answer:
(c) Board of Directors

Question 4.
Interim Dividend is declared by ____________
(a) Board of Directors
(b) Debenture holders
(c) Depositors
Answer:
(a) Board of Directors

Question 5.
Final Dividend is declared by ____________
(a) Board of Directors
(b) Shareholders
(c) Depositors
Answer:
(b) Shareholders

Question 6.
Dividend cannot be declared out of ____________
(a) Capital
(b) Profit
(c) Reserves
Answer:
(a) Capital

Question 7.
Dividend amount should be transferred in a separate Bank Account within ____________ days of its declaration.
(a) 5
(b) 15
(c) 50
Answer:
(a) 5

Question 8.
Dividend should be paid within ____________ days of its declaration.
(a) 3
(b) 13
(c) 30
Answer:
(c) 30

Question 9.
____________ holders get dividend from residual profits.
(a) Equity share
(b) Preference share
(c) Debenture
Answer:
(a) Equity Share

Question 10.
Dividend is paid first to ____________ shareholders.
(a) Equity
(b) Preference
(c) Deferred
Answer:
(b) Preference

Question 11.
____________ warrant is a cheque containing dividend amount sent by company to the shareholders.
(a) Dividend
(b) Share
(c) Interest
Answer:
(a) Dividend

Question 12.
IEPF is created by ____________ where unpaid dividend is transferred by company.
(a) Central Government
(b) Company
(c) Shareholders
Answer:
(a) Central Government

Question 13.
Payment of ____________ Dividend must be authorised by the Articles of Association.
(a) Interim
(b) Final
(c) Bonus
Answer:
(a) Interim

Question 14.
____________ is a return paid to creditors by the company.
(a) Dividend
(b) Interest
(c) Rent
Answer:
(b) Interest

Question 15.
____________ is not linked to profits of the company.
(a) Dividend
(b) Interest
(c) Bonus
Answer:
(b) Interest

1B. Match the pairs.

Question (I).

Group ‘A’	Group ‘B’
(a) Dividend	(1) Equity Shareholders
(b) Interest	(2) Appropriation of Profit
(c) Interim Dividend	(3) Recommendation of Secretary
(d) Final Dividend	(4) Registrar of Company
(e) Fluctuating Rate of Dividend	(5) Obligatory to pay
	(6) Decided and Declared by the Board of Directors
	(7) Decided by Board and Declared by Members
	(8) Decided by President of India
	(9) Company not allowed to pay
	(10) Declared by Government of India

Answer:

Group ‘A’	Group ‘B’
(a) Dividend	(2) Appropriation of Profit
(b) Interest	(5) Obligatory to pay
(c) Interim Dividend	(6) Decided and Declared by the Board of Directors
(d) Final Dividend	(7) Decided by Board and Declared by Members
(e) Fluctuating Rate of Dividend	(1) Equity Shareholders

Question (II).

Group ‘A’	Group ‘B’
(a) Dividend	(1) Inform stock exchange about dividend declaration
(b) Interest	(2) Creditors
(c) IEPF	(3) Registered Shareholders
(d) Unpaid Dividend Account	(4) Balance of Unpaid Dividend Transferred
(e) Listed Company	(5) Unregistered Company
	(6) Non-listed company
	(7) Unpaid/Unclaimed Dividend
	(8) Balance of unpaid bonus transferred here
	(9) Must inform the government about dividend declaration
	(10) General Public

Answer:

Group ‘A’	Group ‘B’
(a) Dividend	(3) Registered Shareholders
(b) Interest	(2) Creditors
(c) IEPF	(4) Balance of Unpaid Dividend Transferred
(d) Unpaid Dividend Account	(7) Unpaid/Unclaimed Dividend
(e) Listed Company	(1) Inform stock exchange about dividend declaration

1C. Write a word or term or a phrase that can substitute each of the following statements.

Question 1.
The return on investment is paid to the shareholders of the company.
Answer:
Dividend

Question 2.
The meeting where the final dividend is declared.
Answer:
AGM (Annual General Meeting)

Question 3.
The company has to intimate the stock exchange about the declaration of dividends.
Answer:
Listed company

Question 4.
The shareholders get dividends at a fixed rate.
Answer:
Preference

Question 5.
The shareholders get dividends at a fluctuating rate.
Answer:
Equity

Question 6.
Request by the shareholder in the prescribed form for payment of dividend into shareholders bank amount.
Answer:
Dividend Mandate

Question 7.
The number of days within which payment of dividend be completed by the company after its declaration.
Answer:
30 days

Question 8.
Dividend declared between two AGMs.
Answer:
Interim Dividend

Question 9.
Dividend decided and declared by the Board.
Answer:
Interim Dividend

Question 10.
The return is paid to the creditors by the company.
Answer:
Interest

1D. State whether the following statements are True or False.

Question 1.
The dividend is paid to registered shareholders of the company.
Answer:
True

Question 2.
The dividend is decided by the Board.
Answer:
True

Question 3.
The dividend is decided by the shareholders.
Answer:
False

Question 4.
Dividend once declared cannot be revoked.
Answer:
True

Question 5.
Dividend cannot be paid out of capital.
Answer:
True

Question 6.
Shareholders decide about the rate and amount of profit to be given as dividends.
Answer:
False

Question 7.
All categories of shareholders get a fixed-rate dividend.
Answer:
False

Question 8.
IEPF is the fund created by the company.
Answer:
False

Question 9.
Interest is a liability for the company.
Answer:
True

Question 10.
Interest is paid to shareholders of the company.
Answer:
False

1E. Find the odd one.

Question 1.
Final Dividend, Interim Dividend, Interest
Answer:
Interest

Question 2.
Out of Capital, Out of free reserve, Out of money given by the government
Answer:
Out of Capital

Question 3.
Dividend Account, Dividend Mandate, Unpaid/ Unclaimed Dividend Account
Answer:
Dividend Mandate

Question 4.
Dividend warrant, Dividend Mandate, Cheque
Answer:
Dividend Mandate

1F. Complete the sentences.

Question 1.
Word dividend is derived from Latin term ____________
Answer:
Dividendum

Question 2.
Dividend is paid to ____________
Answer:
registered shareholders

Question 3.
Dividend can be declared only on recommendation of ____________
Answer:
Board of Directors

Question 4.
Dividend must be paid in ____________
Answer:
cash

Question 5.
The meeting at which final dividend is approved is ____________
Answer:
Annual General Meeting

Question 6.
Dividend cannot be paid out of ____________
Answer:
capital

Question 7.
Interim dividend is decided and declared by ____________
Answer:
Board of Directors

Question 8.
Predecided and a fixed rate of dividend is paid to ____________
Answer:
preference shareholder

Question 9.
Payment of dividend must be completed within ____________
Answer:
30 days

Question 10.
Payment of Interim Dividend needs to be authorized by ____________
Answer:
Articles of Association

Question 11.
The obligatory payment made by company to its creditors is called as ____________
Answer:
Interest

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(a) Dividendum	(1) ………………..
(b) Interest	(2) ………………..
(c) …………………	(3) Final Dividend
(d) ………………..	(4) Interim Dividend
(e) Government Fund	(5) …………………

(Latin term, Creditors, At AGM, At Board Meeting, IEPF)
Answer:

Group ‘A’	Group ‘B’
(a) Dividendum	(1) At Board Meeting
(b) Interest	(2) Latin term
(c) IEPF	(3) Final Dividend
(d) At AGM	(4) Interim Dividend
(e) Government Fund	(5) Creditors

Question 2.

Group ‘A’	Group ‘B’
(a) Preference Shares	(1) ……………………
(b) Equity Shares	(2) ……………………..
(c) Deposit holders	(3) ……………………..
(d) …………………….	(4) Payment of Dividend
(e) …………………….	(5) Dividend Declared but not paid/claimed

(Fixed rate Dividend, Dividend at a Fluctuating Rate, Interest, within 30 days, Unclaimed/Unpaid Dividend)
Answer:

Group ‘A’	Group ‘B’
(a) Preference Shares	(1) Unclaimed/Unpaid Dividend
(b) Equity Shares	(2) Within 30 days
(c) Deposit holders	(3) Interest
(d) Fixed rate of Dividend	(4) Payment of Dividend
(e) Dividend at a Fluctuating Rate	(5) Dividend Declared but not paid/claimed

1H. Answer in one sentence.

Question 1.
What is Dividend?
Answer:
The dividend is a share in distributable profits of the company to which the shareholder in entitled when formally declared by the company.

Question 2.
Who has the right to recommend dividends?
Answer:
The Board of directors has the right to recommend.

Question 3.
What is a Final Dividend?
Answer:
The final dividend is that dividend that is declared and paid after the close of the financial year.

Question 4.
What is an Interim Dividend?
Answer:
The interim dividend is that dividend that is declared and paid between two AGMs of an accounting year.

Question 5.
Who declares Interim Dividend?
Answer:
The Board of directors declares Interim dividends.

Question 6.
Which shares get dividends at a fixed rate?
Answer:
Preference shares get dividends at a fixed rate.

Question 7.
Which shares get dividends at a fluctuating rate?
Answer:
Equity shares get dividends at a fluctuating rate.

Question 8.
At which meeting Interim Dividend is decided and declared?
Answer:
Interim Dividend is decided and declared in Board Meeting.

Question 9.
What is Interest?
Answer:
Interest is the price paid for the productive services rendered by capital

Question 10.
State the time within which unpaid dividends be transferred to the unpaid dividend account.
Answer:
The unpaid dividend should be transferred within 7 days of the end of 30 days within which payment has to be made.

1I. Correct the underlined word and rewrite the following sentences.

Question 1.
The dividend is paid to creditors.
Answer:
The dividend is paid to shareholders.

Question 2.
Interest is paid to shareholders.
Answer:
Interest is paid to creditors.

Question 3.
The final Dividend is paid between two AGM.
Answer:
Interim Dividend is paid between two AGM.

Question 4.
Special Resolution must be passed to declare the Final Dividend.
Answer:
An ordinary resolution must be passed to declare the Final Dividend.

Question 5.
The dividend must be paid within 60 days of its declaration.
Answer:
The dividend must be paid within 30 days of its declaration.

Question 6.
The Dividend to be paid should be transferred to Dividend A/c within 30 days of its declaration.
Answer:
The Dividend to be paid should be transferred to Dividend A/c within 5 days of its declaration

Question 7.
The dividend is an obligation to be paid by a company every year.
Answer:
Interest is an obligation to be paid by a company every year.

Question 8.
Preference shareholders are given the last priority in the payment of dividends.
Answer:
Equity shareholders are given the last priority in the payment of dividends.

Question 9.
Preference shareholders get dividends from residual profits.
Answer:
Equity shareholders get dividends from residual profits.

Question 10.
Dividend is payable every year irrespective of profits made by the company.
Answer:
Interest is payable every year irrespective of profits made by the company.

1J. Arrange in proper order.

Question 1.
(a) Recommendation of Dividend.
(b) Checking sufficiency of profits
(c) Board Meeting
Answer:
(a) Checking sufficiency of profits
(b) Board Meeting
(c) Recommendation of Dividend

Question 2.
(a) Transfer to Dividend Account
(b) Transfer to IEPF
(c) Transfer to Unpaid Dividend Account
Answer:
(a) Transfer to Dividend Account
(b) Transfer to Unpaid Dividend Account
(c) Transfer to IEPF

Question 3.
(a) Closure of Register of Members.
(b) Intimate Stock Exchange of Board Meeting.
(c) Intimate Stock Exchange of declaration of dividend.
Answer:
(a) Intimate Stock Exchange of Board Meeting
(b) Intimate Stock Exchange of declaration of dividend
(c) Closure of Register of Members

Question 4.
(a) Decision on Rate of Dividend
(b) Transfer of IEPF
(c) Payment of Dividend
Answer:
(a) Decision on Rate of Dividend
(b) Payment of Dividend
(c) Transfer to IEPF

Question 5.
(a) Payment of Interim Dividend
(b) Board meeting deciding and declaring Interim Dividend
(c) Authorization of Articles of Association
Answer:
(a) Authorization of Articles of Association
(b) Board meeting deciding and declaring Interim Dividend
(c) Payment of Interim Dividend

2. Explain the following terms/concepts.

Question 1.
Profit
Answer:
Profit is the financial gain from business activity minus expenses. Profit is the income remaining after deducting total costs from total revenue. It is also called financial gain. Profit is the difference between revenues and expenses for a given period. It is the tool for measuring the success of the business. Without profit, the company cannot survive in the market.

Question 2.
Dividend
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors. The dividend is a share in distributable profits of the company Shareholder is entitled to receive the dividend when it is formally declared by the company

Question 3.
Interest
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower, in case of a loan or from the financial institution to the depositor, in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.

Question 4.
Final Dividend
Answer:
The final dividend is declared and paid after the financial year is closed. The final dividend is decided and recommended by the Board of Directors. The final dividend is approved by the shareholder in the AGM. The declaration of the final dividend does not require authorization of Articles of Association. The rate of the final dividend is always higher than the Interim dividend. It is declared from sources like the current year’s profits, money provided by Government for dividends, etc.

Question 5.
Interim Dividend
Answer:
The interim dividend is the dividend that is declared and paid in the middle of an accounting year i.e. before the finalization of accounts for the year. Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend. The interim dividend is paid in the middle of the accounting year.

Question 6.
Unpaid Dividend
Answer:
Dividend declared by the company but neither paid to nor claimed by a shareholder within 30 days of its declaration is termed as Unpaid and Unclaimed Dividend.

Question 7.
Unpaid Dividend Account
Answer:
A dividend declared by the company but neither paid to nor claimed by a shareholder is called an Unpaid/Unclaimed Dividend. This unpaid/unclaimed dividend should be transferred to the Unpaid/Unclaimed Account within 30 days of its declaration. This ‘Unpaid Dividend Account’ is opened in a scheduled Bank by the company.

Question 8.
Dividend Mandate
Answer:
The dividend is paid by different modes of payment like cash, cheque, or warrant or by electronic mode. It can also be paid by using the Dividend Mandate. If the shareholder wishes to get dividend credited directly in the Bank Account he is required to send a request in a prescribed form which is called ‘Dividend Mandate’. The dividend Mandate authorizes the company to pay dividends directly to shareholders’ bankers.

Question 9.
IEPF
Answer:
IEPF means Investors Education and Protection Fund. Any amount in the Unpaid Dividend Account of a company that is unpaid/ unclaimed for a period of 7 (seven years) from the date of such a transfer shall be, transferred to ‘Investors Education and Protection Fund’. The claimant can claim his dividend by filling the prescribed form and submitting the necessary documents. The claimant needs to follow the procedure.

Question 10.
Rate of Dividend
Answer:
The return that a shareholder receives on his investment from the company is called a dividend. The dividend is always declared by the company on the face value of a share irrespective of its market value. The rate of dividend is expressed as a percentage of the face value of a share per annum.

3. Study the following case/situation and express your opinion.

1. LMN Co Limited decides to declare a dividend for the financial year 2018-19 in which it has earned profits less than their expectations.

Question (a).
Is Board right in recommending a dividend of Rs. 5/- per share out of free reserves?
Answer:
Yes, Board is right in recommending a dividend of Rs. 5/- per share out of free reserves, as dividends can be paid out of free reserves.

Question (b).
Can Board declare the dividend though it is not approved by AGM?
Answer:
No Board cannot declare the divided if it is not approved by AGM as dividends should be approved by shareholders by passing an ordinary resolution in AGM.

Question (c).
Can the Board give dividends in the form of gifts?
Answer:
No Board cannot give dividends in the form of gifts. It must be paid in cash, not in kind.

2. ABC Co. Ltd. decides to pay Interim Dividend.

Question (a).
Can it be paid out of free reserves?
Answer:
No. the Interim Dividend cannot be paid out of free reserves.

Question (b).
Is the Board right in declaring the same at the Board Meeting?
Answer:
Yes. Board is right in declaring the same at the Board meeting as it has the power to declare an Interim Dividend.

Question (c).
Can the company distribute the same within 30 days of its declaration?
Answer:
Yes, after the declaration, the Interim dividend should be paid within 30 days of its declaration.

3. RAJ Company limited decides to pay Interim Dividend.

Question (a).
Is the Board justified to decide Interim Dividend of Rs. 5/per share even though profits to date are insufficient?
Answer:
The interim dividend is paid out of profits between two annual general meetings. It cannot be paid out of any reserves. So it is not justified.

Question (b).
Can the Board declare it out of Free Reserves?
Answer:
No Board cannot declare an Interim dividend out of free reserves.

Question (c).
Can the Board declare it out of Capital?
Answer:
No Board cannot declare out of capital.

4. DIAMOND Co. Ltd. is considering declaring an Interim Dividend.

Question (a).
In how many days of the declaration it should transfer the funds to Dividend Account?
Answer:
The interim dividend must be transferred to the Dividend Account within 5 days of its declaration.

Question (b).
In how many days it must pay it to shareholders?
Answer:
The interim dividend should be paid within 30 days of its declaration to shareholders.

Question (c).
In how many days of the declaration it must transfer the funds to the Unpaid Dividend A/c?
Answer:
Unpaid/unclaimed Interim dividend should be transferred to ‘Unpaid Dividend Account’ within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.

5. The Board of Directors of STAR Co. Ltd. which is a listed company recommends a dividend of Rs. 15/- per share to be paid in cash.

Question (a).
Is it justified to pay the dividend firstly to its Preference Shareholders and then after to Equity Shareholders?
Answer:
Yes, because preference shares are entitled to the dividend before it is paid to the equity shareholder. Equity shareholders get dividends from residual profits i.e. after paying to preference shareholders.

Question (b).
Is the AGM required to approve the same?
Answer:
Yes for declaration of final divided Approval of AGM is a must.

Question (c).
Can the company pay dividends in cash?
Answer:
Yes, the company pay a dividend in cash and not in kind.

6. GOLD Co. Ltd. declares a dividend of Rs. 10/- per share for F.Y. 2018-19.

Question (a).
Is the company under default, if the dividend was not paid within 30 days of its declaration?
Answer:
Yes, the company is to default as the time limit within which the company must pay dividends after the declaration is 30 days.

Question (b).
Is the company right in transferring the unpaid dividend to its Debenture Reserve Account?
Answer:
No, the company has to transfer the total amount of dividend which remains unpaid/unclaimed to the ‘Unpaid Dividend Account.

Question (c).
Does the company have to transfer the amount of unpaid dividend to IEPF after 30 days?
Answer:
No, any amount in the unpaid dividend account of a company that remains unpaid/unclaimed for a period of 7 years from the date of such a transfer, should be transferred to (IEPF), ‘Investors Education and Protection Fund’.

4. Distinguish between the following:

Question 1.
Final Dividend and Interim Dividend
Answer:

Points	Interim Dividend	Final Dividend
1. Meaning	Interim Dividend is the dividend that is declared between two Annual General Meetings of a company.	The final Dividend is the dividend that is declared at the Annual General Meeting of a company.
2. When declared?	It is declared between two Annual General Meetings.	It is declared after the completion of the financial year of the company.
3. Who declares?	The interim dividend is declared by the Board of Directors by passing a resolution.	The final dividend is decided and recommended by the Board of Directors. It is declared by the shareholders.
4. Authorization	Authorization of Articles is necessary for the declaration of interim dividends.	Authorization of Articles is not necessary for the declaration of the final dividend.
5. Rate of Dividend	The rate of the Interim dividend is lower than the final dividend.	The rate of the final dividend is always higher than the Interim dividend.
6. Source	It is declared out of profits of the current accounting year.	It is declared from different sources like the current year’s profits, free reserves, capital profits, money provided by Government for dividends, etc.
7. Accounting Aspect	It is declared before the preparation of the final accounts of the company.	It is declared only after the accounts of the year are prepared and finalized.

Question 2.
Dividend and Interest
Answer:

Points	Dividend	Interest
1. Meaning	The dividend is the return payable to the shareholders of the company for their investment in the share capital.	It is the return payable to the creditors of the company. For e.g. Debenture holder, Deposit holders.
2. Intervals	Dividends need not be paid on regular basis and they can vary according to the company’s profits.	Interest has to be paid at regular intervals at a fixed rate.
3. Given to whom	It is paid to the member i.e. the owners of the company.	It is paid to the creditor of the company.
4. Expense	Dividends are not the expense as they are based on the profit made. If no profit, they are not paid for that period.	Interest is the expense to the company.
5. Rate of Dividend	The rate of the Interim dividend is lower than the final dividend.	The rate of the final dividend is always higher than the Interim dividend.
6. Obligation	It has to be paid only when the company made profits.	It is not linked to the Profits of the company. It is an obligation for the company.
7. When payable	It is payable when a company earns sufficient profit.	It is payable every year irrespective of the profits of the company.
8. Rate	It is paid at a fluctuating rate to the equity shareholders.	The rate of Interest is Fixed and pre-determined at the time of issue of the security.

5. Answer in brief.

Question 1.
State any four points to be kept in mind by a listed company with respect to dividends.
Answer:
When a company lists its shares on Stock Exchange, additional listing agreements are to be followed which are as follows:

Stock exchange should be informed if the securities are listed 2 days prior to the Board meeting in which recommendation of final dividend is to be considered.
Stock Exchange should be informed immediately regarding the declaration of dividend as soon as the Board meeting gets over.
Notice of closing book should be informed at least 7 (seven) working days before the closure to the stock exchange.
Transfer Register and Register of Members should be closed.

Question 2.
Discuss any four features of dividend.
Answer:

It is the portion of profits of the company paid to its shareholders.
It is payable out of profits of the company.
It is an unconditional payment made by the company.
If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern the rights of shareholders about receiving the dividend.

Question 3.
Explain the features of interest.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:

Interest is the price paid for the productive services rendered by capital.
Interest has a direct relation with risk. The higher the risk, the higher is the interest.
The rate of interest is expressed as the annual percentage of the principal.
The rate of interest is determined by various factors like money supply, fiscal policy, the volume of borrowings, rate of inflation, etc.
Interest is a charge against the profit of the Company. Even if, the company makes no profit, interest should be paid.
The rate of interest is fixed and pre-determined.

6. Justify the following statements.

Question 1.
The dividend is paid out of the profits of the company.
Answer:

The dividend is the portion of profits of the company paid to its shareholders.
It is payable out of profits of the company.
Dividend can be paid out of capital profits on fulfilling these conditions.
Capital Profits are realized in cash.
Articles of Association of the company permit such a distribution.
It remains as profits after revaluation of all assets and liabilities.
Thus, it is rightly justified that dividend is paid out of profits of the company.

Question 2.
Interim dividends cannot be paid out of free reserves.
Answer:

Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend.
The interim dividend shall not be declared out of free reserves.
In the event of a loss or inadequacy of profits during a financial year, no interim dividend shall be declared.
The declaration of an interim dividend does not create a debt against a company.
The board of directors can cancel an interim dividend after declaring it.
Thus, it is rightly justified that Interim dividends cannot be paid out of reserves.

Question 3.
Annual General Meeting (AGM) is crucial for Final Dividend.
OR
The final Dividend is declared only after the accounts are prepared and finalized.
Answer:

The final dividend is that dividend that is declared and paid after the closing of the financial year.
It is decided and recommended by the Board of Directors.
The rate of final dividend is declared by the shareholders in the AGM.
It is declared only after the account of the year is prepared and finalized.
Thus, it is rightly said that AGM is crucial for the Final Dividend. OR Final Dividend is declared only after the accounts are prepared and finalized.
The final dividend is declared from different sources, and its declaration does not need the authorization of articles.
Thus, it is rightly said that AGM is crucial for the Final Dividend. OR Final Dividend is declared only after the accounts are prepared and finalized.

Question 4.
Listed Company has to follow additional guidelines on dividend matters.
Answer:

Notify stock exchange where company’s securities are listed at least 2 (two) days in advance of the date of the meeting of the Board at which recommendation of final dividend is to be considered.
Intimate Stock Exchange immediately about the declaration of the dividend after the Board Meeting.
Give notice of Book closure to the stock exchange at least 7(seven) working days before the closure.
Close the Register of members and the Transfer Register.
It must use an electronic mode of payment such as Electronic Clearing Services (ECS) or National Electronic Fund Transfer (NEFT); as approved by the Reserve Bank of India (RBI)
The listed company has to express the dividend on a per-share basis only.

Question 5.
Equity shareholders get the last priority in receiving dividends.
Answer:

The dividend is the portion of profits of the company paid to its shareholders.
The dividend is payable only to the registered shareholders of the company.
Preference shareholders are entitled to the dividend before it is paid to the equity shareholders.
The equity shares do not enjoy a preference for dividends.
They do not have priority for the payment of capital at the time of liquidation.
Equity shareholders will get dividends from residual profit i.e. after paying to preference shareholders and arrears of dividend on cumulative preference shares.
The equity shares get the last priority in dividends and thus are the residual claimants.
Thus, it is rightly said that the equity shareholders get the last priority in receiving dividends.

Question 6.
Unpaid dividends cannot be used by the company.
Answer:

The dividend declared by the company but has not been paid to or claimed by a shareholder within 30 days of its declaration is termed as an unpaid dividend.
The total amount of dividend which remains unpaid should be transferred to ‘Unpaid Dividend Account’.
Any amount in the Unpaid Dividend Account of a Company that remains unpaid/unclaimed for a period of 7 years will be transferred to ‘Investors Education and Protection Fund’.
The company cannot use unpaid dividends. The only claimant of money can claim for it by following certain procedures.
Thus, it is rightly said that unpaid dividends cannot be used by the company.

Question 7.
Interest is a liability/obligation of the company.
OR
Interest is paid to the creditor of the company.
Answer:

Interest is a payment made for using another money So it is the cost of renting the money for the borrower and it is the income from lending money for the lender.
The company has to pay interest, if it has borrowed money from creditors like Debenture holders, Depositors, Bondholders, etc.
Interest is the liability of the company as it is a payment made for using money from the lender.
Interest is a charge against the profit of the company.
Even if, the company makes no profit, it has to pay interest to borrowers.
Thus, it is rightly said that interest is a liability/ obligation for the company.

Question 8.
Approval of members is not needed for Interim Dividends.
Answer:

Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend.
It is paid in the middle of the accounting year.
It is declared out of profits of the current account year.
It is declared before the preparation of final accounts of the company.
The Board of Directors has the power to declare Interim Dividend.
Articles of Association’ of the Company must authorize the Board of Directors to declare an interim dividend.
The Board Meeting has to pass a resolution for declaring the Interim dividend.
Thus, it is rightly said that approval of members is not needed for Interim dividends.

7. Answer the following questions.

Question 1.
Define Dividend and explain its features.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided. A dividend is the portion of the company’s earnings distributed to the shareholders decided and managed by the company’s board of directors.
The dividend is a share of distributable profits of the company. A shareholder is entitled to receive the dividend when it is formally declared by the company.
Definitions:

The Institute of Chartered Accountants of India has defined Dividend “as a distribution to shareholders out of profits or reserves available for this purpose”.
The Supreme Court has defined it as “In case of going – concern, it means the portion of profits of a company, which is allotted to the holders of shares in a company”.

Features of Dividend:

It is the portion of profits of the company paid to its shareholders.
It is payable out of profits of the company.
It is an unconditional payment made by the company.
The company pays dividends to the equity shareholders and preference shareholders only.
If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern the rights of shareholders about receiving the dividend.
A dividend cannot be declared out of capital.
Recommendation of the Board of Directors is necessary for the declaration of dividends.
The dividend is recommended and approved by the Board of Directors by passing a resolution at the Annual General Meeting.
The previous year’s dividend cannot be declared if that particular year’s Annual Account has been approved in the AGM.
Dividend once approved and declared by shareholders, creates a debt. It cannot be revoked.
The dividend includes the interim dividend.
The dividend must be paid in cash, cheque or transferred through ECS or NEFT and not in kind.
The dividend is to be paid on the paid-up value of shares.
Dividend cannot be paid on calls paid in advance.

Question 2.
What is Interest? Explain its features.
Answer:
Interest is the cost of borrowing money typically expressed as an annual percentage of a loan. The money people earn on their savings is called Interest. Interest is paid to the lender by the borrower in case of a loan or from the financial institution to the depositor in the case of a savings account. In financial terms, it is a payment made for using the money of another i.e. borrower takes money from the lender. Interest is the cost of renting the money for the borrower and it is the income from lending money for the lender.
Features:

Interest is the price paid for the productive services rendered by capital.
Interest has a direct relation with risk. The higher the risk, the higher is the interest.
The rate of interest is expressed as an annual percentage of the principal.
The rate of Interest is determined by various factors like money supply, fiscal policy, the volume of borrowings, rate of inflation, etc.
Interest is a charge against the profit of the Company. Even if the company makes no profit, interest should be paid.
The rate of interest is fixed and pre-determined.

Question 3.
Discuss legal provisions for declaration of dividend.
Answer:
The term dividend is derived from the Latin word ‘Dividendum’ which means that which is to be divided.
A dividend means the profit of a company that is not retained in Legal Provisions for declaration of Dividend.
(i) Board Meeting:

The Board of Directors has the power and authority to declare the dividend.
The board meeting is called to pass a resolution to discuss the following points.
Rate of Dividend and amount of Dividend to be paid.
Book closure date for dividend.
Date of Annual General Meeting.
Bank with which a separate account should be opened to remit the dividend amount.

(ii) Shareholders’ Approval:

The dividend is approved by shareholders by passing an Ordinary Resolution at the Annual General Meeting.
Shareholders can declare a lower rate of dividend than what is recommended by the Board but not higher than that.
Once the dividend is declared at the General Meeting, it cannot be canceled. Hence, the company cannot declare dividends for the second time in that year.

(iii) Separate Bank Account:
The company must deposit the dividend amount in a separate bank account i.e. “Dividend Account” opened in a scheduled bank. The dividend must be transferred to this account within 5 days of its declaration.

(iv) Prohibition to pay Dividend:

A company cannot declare any dividend on equity shares if the company has failed to repay the deposit or any interest on the deposit.
If the company is found guilty at the time of Payment of Interest to debenture holders, Redemption of Debentures and Preference Shares, Payment of Interest to a financial institution, etc. in that case no dividend can be declared.

Question 4.
Explain Interim Dividend.
Answer:

The interim dividend is the dividend that is declared and paid in the middle of an accounting year i.e. before the finalization of accounts for the year. Dividend declared by the Board of Directors between two Annual General Meetings is called Interim Dividend.
The interim dividend is paid in the middle of the accounting year.
The interim dividend is declared by the Board of directors during any financial year out of surplus in the profit and loss account and out of profits of the financial year.

Features of Interim Dividend:

The Board of Directors has the power to declare an interim dividend.
Interim Dividend is only payment on account of the whole dividend for the year.
The company should provide depreciation for the entire year and not for a part of the year before declaring an interim dividend.
Interim dividends cannot be paid out of any reserves.
The Board of directors can declare interim dividend only when it is mentioned in the Articles of Association of the Company.
A resolution has to be passed in the Board Meeting for declaring the Interim Dividend.
A separate Bank account should be maintained in a scheduled bank to credit the interim dividend within 5 (five) days of its declaration.
Interim Dividend should be paid within 30 days of its declaration.
Unpaid/Unclaimed dividend should be transferred to ‘Unpaid Dividend Account’ within 7 days of the expiry of 30 days of declaration i.e. 37 days of its declaration.
Any amount remaining Unpaid/Unclaimed in the ‘Unpaid Dividend Account’ for 7 (seven) years should be transferred to IEPF.

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 9 Depository System

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 9 Depository System Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 9 Depository System

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
In physical mode, securities are held in ____________ form.
(a) Paper
(b) Dematerialization
(c) Electronic
Answer:
(a) Paper

Question 2.
Risk of losing certificates exist in ____________ mode.
(a) Physical
(b) Dematerialization
(c) Digital
Answer:
(a) Physical

Question 3.
In Depository system, securities are held in ____________ form.
(a) Scrip based
(b) Electronic
(c) Physical
Answer:
(b) Electronic

Question 4.
____________ is the institute which facilitates electronic holding of securities.
(a) Depository Participant
(b) Issuer
(c) Depository
Answer:
(c) Depository

Question 5.
There is no payment of ____________ when securities are demated.
(a) Octroi
(b) Wealth Tax
(c) Stamp Duty
Answer:
(c) Stamp Duty

Question 6.
Depository Act was passed in ____________
(a) 1919
(b) 1996
(c) 1999
Answer:
(b) 1996

Question 7.
India has a ____________ depository system.
(a) Sole
(b) Multi
(c) Single
Answer:
(b) Multi

Question 8.
____________ is a constituent of depository system.
(a) Government
(b) Issuer
(c) Trust
Answer:
(b) Issuer

Question 9.
____________ is the oldest depository in India.
(a) Dow Jones
(b) NSDL
(c) CDSL
Answer:
(b) NSDL

Question 10.
Demat account is opened by ____________
(a) Beneficial owner
(b) CDSL
(c) SEBI
Answer:
(a) Beneficial owner

Question 11.
Demated shares are ____________
(a) Non-transferable
(b) Fungible
(c) Bearer
Answer:
(b) Fungible

Question 12.
____________ is a unique code given to a security.
(a) IBM
(b) BBM
(c) ISIN
Answer:
(c) ISIN

Question 13.
In India ISIN for corporate securities is allotted by ____________
(a) NSDL
(b) Central Government
(c) State Government
Answer:
(a) NSDL

Question 14.
____________ has to apply for ISIN.
(a) Company
(b) Depository Participant
(c) Depositors
Answer:
(a) Company

Question 15.
____________ has to pay charges to maintain Demat Account.
(a) Investor
(b) Issuer
(c) Depositor
Answer:
(a) Investor

Question 16.
NSDL is promoted by ____________
(a) NSE
(b) BSE
(c) FTSE
Answer:
(a) NSE

Question 17.
CDSL is promoted by ____________
(a) NSE
(b) BSE
(c) FTSE
Answer:
(b) BSE

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Bad delivery	(1) 1956
(b) Depository Act	(2) A 12 digits number code
(c) ISIN	(3) Connects Government and Bank
(d) Depository Participant	(4) Second Depository in India
(e) CDSL	(5) The issuer company
(f) Depository	(6) Problem faced in physical mode
(g) Beneficial owner	(7) A 10 digits number/code
	(8) Connect depository and investor
	(9) First depository in the world
	(10) Custodian of securities in electronic form
	(11) Problem faced in electronic mode
	(12) 1996
	(13) Government organization
	(14) The investor

Answer:

Group ‘A’	Group ‘B’
(a) Bad delivery	(6) Problem faced in physical mode
(b) Depository Act	(12) 1996
(c) ISIN	(2) A 12 digits number code
(d) Depository Participant	(8) Connect depository and investor
(e) CDSL	(4) Second Depository in India
(f) Depository	(10) Custodian of securities in electronic form
(g) Beneficial owner	(14) The investor

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
This mode of holding securities may result in loss and theft of certificates.
Answer:
Physical mode of securities

Question 2.
The organization holds the securities in electronic mode.
Answer:
Depository

Question 3.
This system eliminates storing of certificates.
Answer:
Depository system

Question 4.
This system allows faster and easier transfer of securities.
Answer:
Depository system

Question 5.
The oldest Depository of India.
Answer:
NSDL (National Security Depository limited)

Question 6.
The country where the Depository system started for the first time.
Answer:
Germany

Question 7.
The registered owner of securities.
Answer:
Beneficial Owner

Question 8.
The agent of the Depository.
Answer:
Depository Participant

Question 9.
This process converts securities into an electronic form from a physical form.
Answer:
Dematerialization

Question 10.
This process converts securities into physical form from electronic form.
Answer:
Rematerialization

Question 11.
This means securities are without distinctive identity numbers.
Answer:
Fungibility

Question 12.
This is the unique code for security given in the Depository system.
Answer:
International Securities Identification Number

1D. State whether the following statements are true or false.

Question 1.
The physical mode of holding Securities is risky.
Answer:
True

Question 2.
Allotment of Securities takes a longer time when in physical mode.
Answer:
True

Question 3.
Transfer of Securities is easier in electronic mode.
Answer:
True

Question 4.
Bad delivery is likely in the Depository system.
Answer:
False

Question 5.
The depository system began in the USA for the first time in the world.
Answer:
False

Question 6.
India has a multi-depository system.
Answer:
True

Question 7.
The depository system is very similar to the banking system.
Answer:
True

Question 8.
DP is a constituent of the Depository system.
Answer:
True

Question 9.
DP is an Agent of the Depository.
Answer:
True

Question 10.
A bank can work as a DP.
Answer:
True

Question 11.
DRF is required for conversion from physical to electronic.
Answer:
True

Question 12.
ISIN is a unique code given to the specific Securities.
Answer:
True

1E. Find the odd one.

Question 1.
Elimination of storage of certificates, theft of certificates, torn certificates
Answer:
Elimination of storage of certificates

Question 2.
NSDL, CDSL, NBFC
Answer:
NBFC

Question 3.
Depository, DP, RBI
Answer:
RBI

Question 4.
DP, BO, State Government
Answer:
State government

Question 5.
Issuer, BO, Central Government
Answer:
Central government

Question 6.
DRF, RRF, PPF
Answer:
PPF

1F. Complete the sentences.

Question 1.
Central location for keeping Securities in demated form is ____________
Answer:
Depository

Question 2.
Freezing of debit/credit of Securities is possible in ____________
Answer:
Dematerialized Securities

Question 3.
First Depository of the world started in the year ____________
Answer:
1947

Question 4.
The Indian Depository Act was passed in the year ____________
Answer:
1996

Question 5.
Link between Depository and investor is ____________
Answer:
Depository participant

Question 6.
Account of Securities of the investor is maintained by ____________
Answer:
Depository Participant

Question 7.
The process which converts physical Securities in electronic form is ____________
Answer:
Dematerialization

Question 8.
The process which converts digital Securities in physical form is ____________
Answer:
Rematerialization

Question 9.
The issuer company must register with ____________
Answer:
Depository

Question 10.
The unique code identifying a security is ____________
Answer:
(ISIN) International Securities Identification Number

Question 11.
The first Depository of India is ____________
Answer:
NSDL (National Security Depository Limited)

1G. Select the correct option from the bracket.

Question (I).

Group ‘A’	Group ‘B’
(a) Dematerialization	(1) ………………..
(b) ……………………..	(2) DP
(c) First Depository of world	(3) …………………
(d) CDSL	(4) ………………..

(1999, Agent of Depository, Germany, Physical to electronic)
Answer:

Group ‘A’	Group ‘B’
(a) Dematerialization	(1) Physical to Electronic
(b) Agent of Depository	(2) DP
(c) First Depository of world	(3) Germany
(d) CDSL	(4) 1999

Question (II).

Group ‘A’	Group ‘B’
(a) First Depository in India	(1) …………………………
(b) ……………………..	(2) Rematerialisation
(c) Fungibility	(3) …………………………
(d) ……………………	(4) ISIN

(12 digital code, NSDL, Electronic to physical, No distinctive number)
Answer:

Group ‘A’	Group ‘B’
(a) First Depository in India	(1) NSDL
(b) Electronic to Physical	(2) Rematerialisation
(c) Fungibility	(3) No distinctive number
(d) 12 digital code	(4) ISIN

1H. Answer in one sentence.

Question 1.
What is the Depository system?
Answer:
A depository system is a system where Securities are held in electronic form.

Question 2.
Give examples of actions termed as corporate action.
Answer:
Payment of dividend, issue of Bonus Shares, offering of right Shares, Early Redemption of Debentures, Mergers and Acquisitions, etc.

Question 3.
When was Depository Act passed in India?
Answer:
Depository Act was passed in India in the year 1996.

Question 4.
What is a DP?
Answer:
DP means Depository participant, who is an agent of Depository.

Question 5.
What is Dematerialisation?
Answer:
Dematerialization is the process of converting physical Securities into electronic.

Question 6.
What is Rematerialization?
Answer:
Rematerialization is the process of converting electronic Securities into physical.

Question 7.
What is ISIN?
Answer:
ISIN is the unique code given to the specific Securities of the company. ISIN refers to ‘International Securities Identification Number’.

Question 8.
Name the Depositories in India?
Answer:

National Security Depository Limited (NSDL)
Central Depository Services Limited (CDSL)

1I. Correct the underlined words and rewrite the following sentences.

Question 1.
The electronic mode of holding Securities is risky.
Answer:
The physical mode of holding Securities is risky.

Question 2.
Allotment and Transfer of Securities are time-consuming in electronic mode.
Answer:
Allotment and Transfer of Securities are time-consuming in physical mode.

Question 3.
Banking system leads to a script less capital market.
Answer:
Depository system leads to a scriptless capital market.

Question 4.
Storage of certificates is not required in the physical mode of holding.
Answer:
Storage of certificates is not required in the electronic mode of holding.

Question 5.
India has a single Depository system.
Answer:
India has a multi Depository system.

Question 6.
Depository participant in India has to register under the Partnership Act.
Answer:
Depository participant in India has to register under the Depository Act.

Question 7.
Demat accounts are opened and maintained by the Depository.
Answer:
Demat accounts are opened and maintained by the Depository Participant.

Question 8.
Securities are fungible in physical mode.
Answer:
Securities are fungible in electronic mode.

Question 9.
ISIN is a code given to a company.
Answer:
ISIN is a code given to the security of a company.

Question 10.
ISIN of Indian government Securities is issued by NSDL.
Answer:
ISIN of Indian government Securities is issued by RBI.

1J. Arrange in proper order.

Question 1.
(a) Gets statement of Account
(b) Open Demat Account
(c) Submit DRF
Answer:
(a) Submit DRF
(b) Open Demat Account
(c) Gets statement of Account

Question 2.
(a) Investor (BO) submits an application for Securities to the issuer company
(b) Depository intimates the DP about crediting Bo’s Account
(c) Issuer company gives details of allotment to Depository.
Answer:
(a) Investor (BO) submits an application for Securities to the issuer company
(b) Issuer company gives details of allotment to Depository
(c) Issuer company gives details of allotment to Depository

2. Explain the following terms/concepts.

Question 1.
Depository System
Answer:

In the Depository system, securities are held in electronic form.
The transfer and settlement of securities are done electronically.
The Depository System maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder.
This system is also called a scriptless trading system.
It keeps the securities safe. It offers scope for paperless trading by using state-of-art technology.

Question 2.
Dematerialization
Answer:

Dematerialization is a process whereby a client can get physical certificates converted into electronic mode.
For this client has to surrender the certificates along with the Demat Request Form (DRF) to the DP.

Question 3.
Rematerialization

Rematerialization is the process whereby a client can get his electronic holdings of securities converted into physical certificates.
For this client has to give a written request in the form of Remat Request Form (RRF) to the DP.

Question 4.
Fungibility
Answer:

Fungibility means the state of being interchangeable. Securities issued by the same company of the same class have the same value no matter who owns them.
The securities held in electronic form are fungible which means they don’t have distinctive numbers.

Question 5.
ISIN
Answer:

ISIN is a standard numbering system that is accepted globally.
ISIN consists of a 12 (twelve) digit alpha-numeric code which is divided into 3 (Three) parts.
The company has to apply for ISIN for its securities with documents like a prospectus.

3. Study the following case/situation and express your opinion.

1. Mr. Z holds 100 shares of peculiar Co. Ltd. In physical mode and wishes to convert the same in electronic mode:

Question (a).
Mr. Z holds a savings bank account with CFDH Bank Ltd. Can he deposit his shares in this account for Demat?
Answer:
No. He can’t, as it is a savings bank account.

Question (b).
What type of account is needed for the same?
Answer:
For holding electronic securities, he needs to open a Demat A/c with the Depository Participant (DP).

Question (c).
Is it the RBI that will be the custodian of shares of Mr. Z after demating?
Answer:
No. RBI won’t be the custodian. After demating concerned ‘Depository’ (NSDL/CDSL) will be the custodian of the shares of Mr. Z.

2. Mr. R holds 100 shares of Peculiar Co. Ltd. In Demat mode.

Question (a).
He wants to transfer one share each to his wife, daughter, and son. Can he do so?
Answer:
Yes, Mr. R can do so, as under dematerialized securities market lot is of one share.

Question (b).
Does he need to submit DRF or DIS if he wants to transfer his shares?
Answer:
He needs to submit DIS (Delivery Instruction Slip) if he wants to transfer his shares.

Question (c).
Can he nominate his wife in his Demat account?
Answer:
Yes. Mr. R can nominate his wife for the Demat account.

3. Mrs. Z wishes to open a Demat account in her name.

Question (a).
Can she open the account going to the Mumbai office of NSDL?
Answer:
No, Mrs. 2 cannot go directly to the Mumbai office of NSDL.

Question (b).
Is she required to pay for the opening of the account and its maintenance?
Answer:
Yes, she is required to pay for the opening of the account and its maintenance.

Question (c).
Does she have to send the shares to the respective company for demating?
Answer:
Yes, she has to send her original share certificate through Depository Participant to the company.

4. Mr. L wants to demat his 25 shares of Peculiar Co. Ltd bearing certificate no 100 and distinctive no 76-100.

Question (a).
Which form is he required to fill as a written request to the DP?
Answer:
Mr. L is required to fill Demat Request Form (DRF) as a written request to DP.

Question (b).
Does he have to fill instrument of transfer if he wishes to transfer the same after demat?
Answer:
No, he needs to fill instrument of transfer after opening Demat A/c.

Question (c).
Does he have to quote certificate no. and distinctive no. if he wishes to transfer his shares after it is in Demat form?
Answer:
No, Mr. L need not quote certificate no. and distinctive no. if he wishes to transfer his shares after it is in Demat form.

5. Mr. S. holds 50 shares of Peculiar Co. Ltd in Demat form. The company has declared a dividend of Rs 5. Per-share and Bonus of 1 : 1 to its shareholders.

Question (a).
How will Mr. S get his dividend?
Answer:
Mr. S will get his dividend credited directly to his Demat A/c.

Question (b).
Will he get a Bonus share in Physical or Demat?
Answer:
He will get Bonus Share in his Demat A/c.

Question (c).
Who is entitled to dividend and Bonus: Mr. S or the depository? (NSDL in this case).
Answer:
Mr. S is entitled to dividends and Bonuses through the depository services.

4. Distinguish between the following.

Question 1.
Dematerialization and Rematerialization.
Answer:

Points	Dematerialization	Rematerialization
1. Meaning	Conversion of physical securities into electronic form is known as ‘Dematerialization’	Conversion of electronic securities into physical form is known as ‘Rematerialization’
2. Conversion	Securities in physical/paper form are converted into electronic form	The electronic form of securities are converted into physical form
3. Form Used	‘Demat Request Form (DRF) is submitted by the investor to the DP	‘Remat Request Form’ (RRF) is submitted by the investor to the DP
4. Process	It is an initial process	It is a reverse process
5. Function/Sequence	It is a primary and principal function of the depository	It is a secondary and supporting function of the depository
6. Distinctive numbers	Demat securities have no distinctive numbers	Remat securities will have certificates and distinctive numbers issued by the company
7. Securities Maintenance Authority	The depository is the custodian of securities and records	The issuing company keeps the record. The investor also maintains the record
8. Time Consumed	It is an easy and time-saving process	It is a complex and time-consuming process

5. Answer in brief.

Question 1.
Explain the disadvantages of the physical mode of holding securities.
Answer:
Securities mean shares, debentures, bonds, units of mutual funds, securities are held in physical form or paper form. Following are the problems/disadvantages of holding the securities in electronic form:
(i) Risk factor:
Paper certificates can be lost, damaged, torn, stolen, or misplaced during transit, etc.

(ii) Efforts in Duplicating:
If the original certificate is lost it becomes difficult to obtain duplicate certificates. It consumes time, effort, and money.

(iii) Delay in the allotment:
Allotment of new securities in physical form requires a longer time.

(iv) Delay in Transfer and Transmission:
Handling and recording physical certificates take a lot of time in the transfer and transmission of securities.

(v) Risk of Bad Delivery:
Buying and selling securities can create problems if the certificates are torn, forged, etc.

Question 2.
Explain any four advantages of the Depository system to investors.
Answer:
Investor refers to the Beneficial Owner, the one who invests in the company’s securities.
Advantages of Depository System to the Investor are as follows:
(i) No Risk:
Risks related to physical certificates like delays, loss of certificates, theft, mutilation, bad deliveries, etc. are totally eliminated.

(ii) Safety of Investment:
The safest and secure way of holding securities is in the form of DEMAT. It is controlled under Depositories Act and monitored by SEBI. For e.g. If we don’t want to deal in securities, for the time being, we can freeze the account instructing DP to avoid unexpected debit or credit.

(iii) Easy Transfer of Shares:

There is no need of filling transfer form and submitting documents.
Stamp duty is not applicable in this process.
Cash realization and security transfer take place very fast.

(iv) Updated information:
The investor receives updated information about his transactions and holdings from DP and also sometimes from Depository.

(v) Loan against securities:
An investor can raise a loan from the banks against the security of Dematerialized securities.

(vi) No ‘Lots’:
The lot system has been abolished. The market lot is one share for dematerialized securities.

(vii) Nomination Facility:
Nomination Facility is allowed under the Depository system. In the event of the death of the investor, the process becomes simple.

(viii) Automatic Credit:
The investor’s account is automatically credited or debited by the company. This is called ‘Corporate Action.’
For e.g. Payment of dividend, Bonus Issue, Right Issue, Redemption, etc.

Question 3.
Explain any four advantages of the Depository system to the company.
Answer:
Benefits/Advantages of Depository System:
(A) Investors:
(i) Safety:
A safe and secure way of holding securities is in electronic form/mode. The depository system is monitored by SEBI. The Investor can keep his account in a ‘Freeze/Lock’ mode to avoid/prevent unexpected debit or credit or both by giving instructions to the DP.

(ii) Easy Transfer of Shares:
These securities can be easily transferred in electronic mode. Filling out the transfer form and uploading the documents can be easily done online. It is a time and efforts saving process. No stamp duty is levied on the depository system.

(iii) Update and Intimation:
The investor can check his status of holding securities at any time. Depository Participant provides investors with his statement of accounts periodically.

(iv) Automatic Credit:
Under, the depository system the investor’s account is automatically credited/debited. This credit or debit of accounts is usually in case of Payment of Dividend, Issue of Bonus Shares, Offering of Rights Shares, Early Redemption of Debentures, Mergers, and Acquisitions, etc.

(B) Companies:
(i) Up-to-date Information:
The depository system enables the company to maintain the information of the investors holding. It also helps the company to keep updated information about its shareholding pattern. The company is able to know the particulars of beneficial owners and their holdings periodically.

(ii) Reduction in costs and efforts:
Due to the depository system, maintaining the documents physically, the printing of certificates has saved a lot of time and cost.

(iii) Better Relationships:
The transfer process under the depository system is prompt and free from defects. So, complaints against the company by an investor are avoided in this regard. This helps the company build a good corporate image.

(iv) International Investment:
Paperless trading is a boon for the company management as it provides better and quicker services to the investors staying within the country and abroad. This attracts investment from abroad.

Question 4.
Explain Depository as a constituent of Depository System.
Answer:

The depository is a company registered under the Companies Act, to deal in securities.
It holds the securities in electronic form.
It is responsible for safeguarding the investor’s securities and preventing any manipulation of records and transactions.
There is no direct access of investors with the Depository.
It works as a link between the company and investors.
Statement of accounts is provided to the investor periodically.

Question 5.
Explain DP as the constituent of the Depository System.
Answer:

Depository Participant acts as a link between the Depository and the Investor. In other words, it is an agent of the depository.
DP is registered under the SEBI Act. It enjoys rights and obligations as specified under SEBI Regulations of 1996.
It is an intermediary appointed by Depository.
DP directly deals with customers and sends a statement of accounts periodically.
The DP has a unique number for identification.
Banks, Financial Institutions, Stock Brokers, etc. can function as Depository Participants.
Thus, it is rightly justified that DP is an important constituent of the Depository system.

6. Justify the following statements.

Question 1.
Electronic holding of securities is safer than physical holding.
Answer:

Electronic holding of securities means holding the securities in dematerialized form.
Conversion of physical certificates into electronic form is known as ‘Dematerialization’.
Holding securities in electronic form eliminates a huge volume of paperwork.
The use of technology facilitates paperless trading which eliminates storage and handling of certificates. It also helps in reducing costs and efforts.
There is no risk of getting lost, damaged, torn, stolen, misplaced during transit, etc.
Delay in transfer and allotment of securities is also avoided.
Thus, it is rightly justified that, electronic holding of securities is safer than physical holding.

Question 2.
Depository provides easy and quicker transfer of shares.
Answer:

Under the Depository system, securities are held in electronic form.
Not only the transfer and settlement of securities are done electronically but it also maintains the accounts of the shareholder, collects dividends, bonus shares, etc. on behalf of the shareholder.
Depository Participant acts as a link between the Depository and the Investor.
No stamp duty is levied on the depository system.
Processing time in the transfer of securities is reduced and neither the securities nor the cash is held up for an unnecessarily long time.
Hence it is also called a “Scripless trading system”. Thus, it is rightly justified that the Depository provides easy and quicker transfer of shares.

Question 3.
Depository System results in reduced time, cost and efforts.
Answer:

The depository System has a very important role to play in the successful functioning of the Capital market.
Under Depository System, securities are held in electronic form.
The transfer and settlement of securities are done electronically.
The Depository system maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder.
It eliminates a huge volume of paperwork, storage, and handling of physical certificates.
Thus, it is rightly justified that, Depository system results in reduced time, cost and efforts.

Question 4.
The depository system is very similar to the Banking system.
Answer:

The depository system is similar to the Banking system in many aspects.
Depository keeps the securities safe, just like the bank keeps the money of the account holder safe.
In banks, funds are held in accounts having unique numbers. Similarly, securities are held in accounts having unique IDs.
There is no physical handling of money in the bank. Similarly, there is no physical handling of securities by the depository.
Bank facilitates the transfer of funds between accounts. Depository facilitates the transfer of securities between accounts.
Thus, it is rightly justified that the Depository system is very similar to the Banking system.

Question 5.
DP is an important constituent of the Depository system.
Answer:

Depository Participant acts as a link between the Depository and the Investor. In other words, it is an agent of the depository.
DP is registered under the SEBI Act. It enjoys rights and obligations as specified under SEBI Regulations of 1996.
It is an intermediary appointed by Depository.
DP directly deals with customers and sends a statement of accounts periodically.
The DP has a unique number for identification.
Banks, Financial Institutions, Stock Brokers, etc. can function as Depository Participants.
Thus, it is rightly justified that DP is an important constituent of the Depository system.

Question 6.
Depository system allows both: Physical to electronic and electronic to physical conversion.
Answer:

Under the Depository system, physical certificates can be converted into electronic ones known as ‘Dematerialization’.
Similarly, the conversion of electronic securities into physical certificates is known as ‘Rematerialization’.
Due to Dematerialization transfer of securities takes place fast and transactions are also settled immediately. Whereas in Rematerialization, settlement of transactions in the physical system takes more time.
In Rematerialization, storing and handling physical certificates is more time-consuming. Whereas in dematerialization, there is no handling of certificates.
There are chances of certificates getting lost, damaged, torn, stolen, misplaced during transit, etc.
In this technological world, Demat securities are more preferred over Rematerialized securities.
Thus, it is rightly justified that the Depository system allows both: Physical to electronic and electronic to physical conversion.

Question 7.
ISIN is a necessary component of Demat.
Answer:

International Securities Identification Number (ISIN) is a code that uniquely identifies a specific securities issue.
ISINs are allotted by that country’s NNA (National Numbering Agency).
ISIN is a standard numbering system that is accepted globally.
The ISIN’s structure is currently defined by the International Organization of Standardization (ISO).
ISIN consists of a 12 (twelve) digit alpha-numeric code which is divided into 3 (three) parts.
The company has to apply for ISIN for its securities with documents like a prospectus.
In India, issuing ISIN to securities is assigned by SEBI to NSDL (for Demat shares). SEBI works as NNA in India.
Thus, from the above points, it is rightly justified that ISIN is a necessary component of Demat.

7. Answer the following.

Question 1.
What is Depository System? Explain its advantages?
Answer:
The depository system came into existence in the year 1996. It is a system where securities are held in electronic form. It also maintains accounts of the shareholder, enables transfer, collects dividends, bonus shares, etc. on behalf of the shareholder. In other words, it is also called a scriptless trading system.

Benefits/Advantages of Depository System:
(A) Investors:
(i) Safety:
A safe and secure way of holding securities is in electronic form/mode. The depository system is monitored by SEBI. The Investor can keep his account in a ‘Freeze/Lock’ mode to avoid/ prevent unexpected debit or credit or both by giving instructions to the DP.

(ii) Easy Transfer of Shares:
These securities can be easily transferred in electronic mode. Filling out transfer forms and uploading the documents can be easily done online. It is a time and efforts saving process. No stamp duty is levied on the depository system.

(iii) Update and Intimation:
The investor can check his status of holding securities at any time. Depository Participant provides investors with his statement of accounts periodically.

(ii) Reduction in costs and efforts:
Due to the depository system, maintaining the documents physically, the printing of certificates has saved a lot of time and cost.

(iii) Better Relationships:
The transfer process under the depository system is prompt and free from defects. So, complaints against the company by an investor is avoided in this regard. This helps the company build a good corporate image.

Question 2.
Explain the constituents of the depository system.
Answer:
Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 9 Depository System 7 Q2

(i) Depository:

Depository is an organization or a system where securities/shares are held in electric form.
Depository transfers securities/shares between accounts on the instruction of the account holders.
Depository contacts the customer through a depository participant.
Transfer of shares is made through mere computerized book-entry in the depository.
This becomes possible because shares are dematerialized.
Only those securities which are held in the form of the share certificate are one’s names can be dematerialized.
At present, there are two depositories. They are:
- National Securities Depository Limited (NSDL)
- Central Depository Services Limited (CDSL).

(ii) Depository Participant:

The depository participant is the representative of the depository.
Depository participant acts as an intermediary between investors and depositories.
The depository participants have an identity number for identification.
It has to maintain accounts of securities of each investor.
Depository participant gives intimation about holdings from time to time by sending a statement of holding.
According to SEBI guidelines financial institutions, banks, stockbrokers can act as depository participants.

(iii) Beneficial Owner:

An investor is known as ‘Beneficial Owner’ on whose name Demat account is opened.
He enjoys the rights and benefits of members such as getting dividends, getting bonus shares, to vote at meetings.
He is allotted an account number where securities are held.

(iv) Issuer Company:

It is a company that makes an issue of securities.
It must get registered with the depository.

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 8 Correspondence with Depositors

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 8 Correspondence with Depositors Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 8 Correspondence with Depositors

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
Depositors are ____________ of a company.
(a) members
(b) creditors
(c) debtors
Answer:
(b) creditors

Question 2.
Depositors provide ____________ capital to the company.
(a) short term
(b) long term
(c) medium-term
Answer:
(a) short term

Question 3.
A company cannot accept deposit for more than ____________ months.
(a) 24
(b) 36
(c) 45
Answer:
(b) 36

Question 4.
A company cannot accept deposit for less than ____________ months.
(a) 6
(b) 3
(c) 5
Answer:
(a) 6

Question 5.
Deposits are ____________ loans of the company.
(a) fixed
(b) short term
(c) long term
Answer:
(b) short term

Question 6.
Public deposits are accepted to meet the requirement of ____________ capital.
(a) fixed
(b) working
(c) owned
Answer:
(b) working

Question 7.
____________ has the power to invite deposits from public.
(a) Shareholders
(b) Auditors
(c) Board of Directors
Answer:
(c) Board of Directors

Question 8.
Rate of interest on deposits is ____________
(a) fixed
(b) fluctuating
(c) moderate
Answer:
(a) fixed

Question 9.
The return or income for the investment of money on deposits is called ____________
(a) dividend
(b) interest
(c) discount
Answer:
(b) interest

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
1. Depositors	(a) Fixed
2. Rate of Interest on deposits	(b) Evidence of Ownership
3. Deposit receipt	(c) Debtors
	(d) Creditors
	(e) Evidence of deposit
	(f) Fluctuating

Answer:

Group ‘A’	Group ‘B’
1. Depositors	(d) Creditors
2. Rate of Interest on deposits	(a) Fixed
3. Deposit receipt	(e) Evidence of deposit

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
Return on investment on deposit.
Answer:
Interest

Question 2.
The instrument for payment of interest on the deposit.
Answer:
Interest Warrant

Question 3.
An acknowledgment of the fixed deposit accepted by a company.
Answer:
Fixed Deposit Receipt

Question 4.
Return of deposits on the maturity date.
Answer:
Repayment of deposit

Question 5.
The maximum period of deposits.
Answer:
36 months

1D. State whether the following statements are true or false.

Question 1.
Fixed deposit is a short-term source of finance for the company.
Answer:
True

Question 2.
Fixed deposit holder is a creditor of the company.
Answer:
True

Question 3.
Deposits are invited by the company without issuing statutory advertisement.
Answer:
False

Question 4.
Fixed deposit holders are entitled to receive dividends.
Answer:
False

Question 5.
A private company cannot accept deposits from the general public.
Answer:
True

Question 6.
Depositors are given voting rights.
Answer:
False

1E. Find the odd one.

Question 1.
Dividend, Depositor, Deposit Receipt
Answer:
Dividend

Question 2.
Trust Deed, Depository, Deposit Receipt
Answer:
Depository

1F. Complete the Sentences.

Question 1.
Depositors are the ____________ of the company.
Answer:
Creditors

Question 2.
The ____________ must be cautious and careful while writing letters to the depositors.
Answer:
Secretary

Question 3.
Deposit is a ____________ term source of finance of the company.
Answer:
Short

Question 4.
A company can accept deposits for the minimum period of ____________ months.
Answer:
6 months

Question 5.
Depositors are entitled to receive ____________ at fixed rate.
Answer:
Interest

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(1) Depositor	(a) …………………….
(2) Return on Deposits	(b) …………………….
(3) …………………….	(c) Maximum period of Deposits
(4) Minimum Period of Deposits	(d) ………………………

(Interest, Creditors of the company, 36 months, 6 months)
Answer:

Group ‘A’	Group ‘B’
(1) Depositor	(a) creditors of the company
(2) Return on Deposits	(b) interest
(3) 36 months	(c) Maximum period of Deposits
(4) Minimum Period of Deposits	(d) 6 months

1H. Answer in one sentence.

Question 1.
Who is the depositor?
Answer:
The person who keeps his/her money for a fixed period of time with the company is known as ‘Depositor’.

Question 2.
What is the return on deposit?
Answer:
Fixed-rate of interest is provided as the return on a deposit.

Question 3.
What is Interest Warrant?
Answer:
An interest warrant is an instrument of payment of interest.

Question 4.
What is a renewal of deposit?
Answer:
A process of continuing the deposit for an additional time period after maturity of investment (deposit) is called “Renewal of Deposit”.

Question 5.
Which document is enclosed along with the Renewal Letter?
Answer:
Renewal Deposit Receipt is enclosed along with the Renewal Letter.

Question 6.
When will the company return the deposits?
Answer:
The company will return the deposit amount at the time of maturity (after the expiry of the fixed period).

Question 7.
What is the minimum and maximum period of deposit?
Answer:
The deposit can be accepted for a minimum period of 6 months and a maximum period of 36 months.

1I. Correct the underlined words and rewrite the following sentence.

Question 1.
Depositors are owners of the company.
Answer:
Depositors are creditors of the company.

Question 2.
Deposits are the internal source of financing.
Answer:
Deposits are the external source of financing.

Question 3.
Deposit is a long-term source of capital.
Answer:
Deposit is a short-term source of capital.

Question 4.
Depositors are entitled to receive dividends.
Answer:
Depositors are entitled to receive interest.

1J. Arrange in proper order.

Question 1.
(a) Renewal of deposit
(b) Acceptance of deposit
(c) Deposit Receipt
Answer:
(a) Acceptance of deposit
(b) Deposit Receipt
(c) Renewal of deposit

Question 2.
(a) Payment of interest
(b) Deposit Receipt
(c) Acceptance of deposits
Answer:
(a) Acceptance of deposits
(b) Deposit Receipt
(c) Payment of interest

2. Explain the following terms/concepts.

Question 1.
Depositor
Answer:
The person who keeps deposits with the company for a fixed period of time is known as ‘Depositor’.

Question 2.
Deposit
Answer:
Deposit is a short-term source of finance of the company and it is used in order to satisfy the short-term working capital needs of the company.

Question 3.
Interest on deposit
Answer:
Interest on deposit refers to the return on the investment of money in deposits.

Question 4.
Deposit Receipt
Answer:
A deposit Receipt is an acknowledgment of deposit money accepted by the company.

Question 5.
Renewal of deposit
Answer:
Renewal of Deposit means accepting the same deposit for an additional period of time after its maturity.

Question 6.
Repayment of Deposit
Answer:
Refunding the amount of deposit on the maturity of tenure of deposits is known as ‘Repayment of Deposit’.

3. Answer in brief.

Question 1.
Which precautions are to be taken by the secretary while corresponding with depositors?
Answer:
Following precautions should be undertaken while drafting letters to the depositors:
(i) Courtesy:
While writing letters to the depositors, polite replies are essential. Rude and harsh words should be strictly avoided.

(ii) Quick response:
Being the creditors of the company, due respect should be given to the depositors of the company. Immediate replies to be given to the queries and complaints of the depositors without any delay.

(iii) Accuracy:
Letters written to the depositors should be accurate and precise. True and correct information should be provided to them.

(iv) Conciseness:
The letters to the depositors must be concise i.e. short, brief, and to the point. Unnecessary and irrelevant information should be avoided.

(v) Your Attitude:
The letters to the depositors must be written after taking into consideration the requirements of the depositors.

(vi) Secrecy:
As a confidential officer, the secretary has to maintain secrecy regarding correspondence with the depositors. Any secret information regarding the company must not be disclosed through correspondence.

(vii) Image and Goodwill:
Correspondence plays a very important role in maintaining the goodwill of the company. While corresponding, the secretary should take all necessary steps so that the goodwill of the company will not get affected.

(viii) Legal Provision:
The secretary should see to it that all provisions relating to invitation, acceptance, renewal, and repayment of deposits are duly followed by the company while corresponding with depositors.

Question 2.
What are the circumstances under which the Secretary makes correspondence with depositors?
Answer:

A company secretary has to conduct correspondence with depositors on different occasions.
This correspondence is limited as they are creditors and not the owners of the company.
Deposits are accepted for a short period.
The relationship of depositors also comes to an end immediately after deposits are repaid.

Following are the circumstances under which correspondence is done with the depositors:

Letter to express thanks to the depositor for showing faith in the company and depositing the amount
Intimation about payment of interest
- Interest warrant
- Electronic payment of Interest
Letter informing about the renewal of deposit
Informing the depositor about the maturity of deposits.

4. Justify the following statements.

Question 1.
The Company Secretary should take certain precautions while corresponding with depositors.
Answer:

The deposit represents the short-term borrowed capital of the company.
Depositors are the creditors of the company.
The company secretary should correspond properly with the depositors in order to ensure the continuous flow of investments.
The reply to queries and complaints of depositors should be prompt and courteous.
The letter should be written from the depositors’ point of view and accurate information must be supplied to them.
All the legal provisions must be followed and the goodwill of the company has to be maintained.
Thus, it is rightly justified that the company secretary should take every precaution while corresponding with depositors.

Question 2.
There are certain circumstances when a secretary has to correspond with depositors.
Answer:

Depositors are the creditors of the company and not the owners.
Frequent correspondence with depositors is not required as they do not participate in the management of the company.
The company secretary has to conduct correspondence with depositors regarding the acceptance of deposits, payment of interest on deposits, renewal of deposits, repayment of deposits, and so on.
Secretary conducts such correspondence on behalf of the company and also as per the instructions of the Board of Directors.
The secretary should be very cautious and careful while corresponding with depositors of the company.
Thus, it is rightly justified that the secretary has to correspond with depositors on certain circumstances.

5. Attempt the following.

Question 1.
Draft a letter of thanks to depositors of a company.
Answer:

RADHIKA INDUSTRIES LIMITED
501A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH2002 PLC 503433

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DEP/05/2018-19

Website: www.radhikalimited.com
Email: radhika4@gmail.com
Date: 15th May 2019

Mr. Deepak Ved
C/25, LIC Colony
L.J. Road, Mahim,
Mumbai – 400 096

Sub: Thanking Depositor For Fixed Deposit.

Dear Sir,
As per your application received for a fixed deposit of ₹ 1,00,000/- for a period of 1 year, dated 10th May 2019, we are thankful to you for showing faith and confidence in the company.

The details of deposits accepted are given in the following schedule:

1	2	3	4	5
Fixed Deposit Receipt No.	Amount of Deposit	Period of Deposit (years)	Rate of Interest (%)	Bank Details
				Name of the Bank	Bank Account No.
412	₹ 1,00,000	1 year	10%	Bank of Baroda	613234

The Board of Directors of our company expresses their gratitude for depositing money in our company. The fixed deposit receipt is enclosed along with this letter.

We assure you the best of our services all the time.
Thanking you,

Yours faithfully
For Radhika Industries Limited,

Sign
Mr. Harshad Sagwekar

Encl: Fixed Deposit Receipt No. 412

Question 2.
Draft a letter to a depositor informing him about payment of interest through interest warrant.
Answer:

RADHIKA INDUSTRIES LIMITED
501A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH 2002 PLC 503433

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DEP/25/2019-20

Email: radhika4@gmail.com
Website: www.radhikalimited.com
Date: 18th April 2019

Mrs Ruchika Korgaonkar
A/23, BPT Colony,
N.K.Road, Mahim,
Mumbai:-400 096.

Sub: Payment of Interest on Fixed Deposits.

Dear Madam,
As per the board resolution passed in the Board Meeting held on 16th April 2019, this is to inform you that the interest @ 10% on your Fixed Deposit is due for payment.

Your company has complied with all the provisions relating to the payment of interest on deposits and the interest warrant drawn on ICICI Bank, Prabhadevi branch is enclosed herewith.

The details of your Fixed Deposit and interest payable on the deposit are given in the following schedule:

1	2	3	4	5	6	7
Interest Warrant No.	Fixed Deposit Receipt No.	Deposit amount	Rate of Interest (%)	Gross amount of interest	TDS @(10%)	The net amount of Interest Payable (₹)
3325	1242	₹ 1,00,000	10%	₹ 10,000	₹ 1,000	₹ 9,000

TDS certificate is enclosed for income tax purposes along with the interest warrant.
Thanking you,

Yours faithfully,
For Radhika Industries Limited

Sign
Mr. Fazal Shahzman

Encl:

Interest Warrant No. 3325
TDS certificate

Question 3.
Write a letter to the depositor for the renewal of his deposit.
OR
Draft a letter to the depositor for renewal of his deposit.
Answer:

SUNRISE INDUSTRIES LIMITED
50/A, Swami Narayan Road, Tunga Village, Mumbai: 400 072
CIN: L42105 MH2005 PLC 402512

Tel. No.: 022-23731242
Fax No.: 022-23738656
Ref. No.: S/DEP/51/2019-20

Website: www.sunriselimited.com
Email: sunrise5@gmail.com
Date: 17th Feb 2019

Mr. Rajesh Joshi
20, Hilton Complex,
Laxmi Road,
Solapur – 413 018

Sub: Renewal on Fixed Deposits.

Dear Sir,
We, hereby, acknowledge receipt of your application for the renewal of a deposit of ₹ 50,000/- for a further period
of one year. We have also received duly discharged deposit receipt No. 1242 and the same has been placed before the Board for consideration and approval.

As per the resolution passed at the Board meeting held on 15th Feb 2019, the Board has decided to renew the deposits for a further period of 1 year on the same terms and conditions.

A deposit receipt No 4424 is enclosed along with this letter.
Thanking you,

Yours faithfully,
For Sunrise Industries Ltd,

Sign
Miss Shalakha Suvarna
Company Secretary

Encl: Fixed Deposit receipt No 4424

Question 4.
Draft a letter to the depositor regarding redemption or repayment of his deposit.
Answer:

SWARG MARBLE LIMITED
40/B, C – Ramchandra Road, Khar (East), Mumbai: 400 053
CIN: L24308 MH2006 PLC 211388

Tel. No.: 022-4133242
Fax No.: 022-4215212
Ref. No.: S/DEP/15/19-20

Email: swarglimitedl2@gmail.com
Website: www.swarglimited.com
Date: 21st April 2019

Mr. Santosh Vichare
A/21, Swastik Colony,
Bhadkamkar Marg,
Fort, Mumbai:-400 020

Sub: Repayment of Fixed Deposits.

Dear Sir,
This is to inform you that your Fixed Deposit Receipt No. 3225 dated 1st May 2018 for ₹ 1,00,000/- will be due for repayment on 30th April 2019.

We have received original Deposit Receipt No. 3225 duly discharged along with instruction for repayment. The Board of Directors in the meeting held on 20th April 2019 has passed a resolution for the redemption of the deposits.

The details of repayment of deposit are as under:

1	2	3	4	5	6	7	8
Tenure of Deposit	Fixed Deposit Receipt No.	Deposit amount (₹)	Rate of Interest (10%)	Maturity amount (₹)	TDS (10%)	Net amount	Due Date of Deposit
1 year	3225	₹ 1,00,000	₹ 10,000	₹ 1,10,000	₹ 1,000	₹ 1,09,000	30th April 2019

Please find enclosed herewith a crossed cheque of ₹ 1,09,000, bearing No. 126224 dated 30th April 2019 drawn on Bank of India, Tardeo, Mumbai:- 400 034.
Thanking you,

Yours faithfully,
For Sward Industries Ltd,

Sign
Mr. Sandesh Virkar
Company Secretary

Encl: Crossed Cheque No. 126224

Question 5.
Draft a letter to a depositor informing him about payment of interest through electronic mode.
Answer:

RADHIKA INDUSTRIES LIMITED
501 A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH2002 PLC 503433

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DEP/25/2019-20

Email: radhika4@gmail.com
Website: www.radhikalimited.com
Date: 18th April 2019

Mrs Anushka Khanvilkar
A/21, Mahindra Tower,
Tardeo Road, Mumbai Central,
Mumbai – 400 034

Sub: Payment of Interest on Fixed Deposits through ECS or NEFT.

Dear Madam,
As per the board resolution passed in the Board Meeting held on 16th April 2019, this is to inform you that the interest @ 10% on your Fixed Deposit is due for payment.

Your company has complied with all the provisions relating to the payment of interest on the deposits.

The details of your Fixed Deposit and interest payable on the deposit are given in the following schedule:

1	2	3	4	5	6
Fixed Deposit Receipt No.	Deposit amount	Rate of Interest (%)	Gross amount of interest	TDS @ (10%)	The net amount of Interest Payable (₹)
1242	₹ 1,00,000	10%	₹ 10,000/-	₹ 1,000	₹ 9,000

Interest will be payable by electronic transfer (ECS/NEFT), i.e. by crediting said interest to your bank account as per details provided by you to the company.
Thanking you,

Yours faithfully,
For Radhika Industries Limited,

Sign
Mr. Deepak Ved

Maharashtra Board Class 12 Secretarial Practice Solutions Chapter 7 Correspondence with Debentureholders

July 8, 2024July 7, 2024 by Bhagya

Balbharti Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 7 Correspondence with Debentureholders Textbook Exercise Questions and Answers.

Maharashtra State Board Class 12 Secretarial Practice Solutions Chapter 7 Correspondence with Debentureholders

1A. Select the correct answer from the options given below and rewrite the statements.

Question 1.
Debenture Capital is a ______________ capital of a company.
(a) borrowed
(b) owned
(c) permanent
Answer:
(a) borrowed

Question 2.
Debenture holders are ______________ of the company.
(a) Owner
(b) Creditors
(c) Debtors
Answer:
(b) Creditors

Question 3.
Borrowed capital is provided to the company by ______________
(a) Equity shareholder
(b) Debenture holders
(c) Reference Shareholders
Answer:
(b) Debenture holders

Question 4.
Interest on Registered Debentures is given through ______________
(a) Interest Coupons
(b) Interest Warrant
(c) Refund order
Answer:
(b) Interest Warrant

Question 5.
______________ are the creditors of the company.
(a) Shareholders
(b) Debenture holders
(c) Directors
Answer:
(b) Debenture holders

Question 6
Bearer Debenture holders get interest though ______________
(a) Interest Warrants
(b) Refund Orders
(c) Interest Coupons
Answer:
(c) Interest Coupons

Question 7.
Return of income on debentures is ______________ at fixed rate.
(a) Dividend
(b) Loan
(c) Interest
Answer:
(c) Interest

Question 8.
______________ is an acknowledgement of debt issued by the company under common seal.
(a) Debentures
(b) Shares
(c) Reserve
Answer:
(a) Debentures

Question 9.
Debentures repayable after a certain period are ______________ debentures.
(a) Convertible
(b) Registered
(c) Redeemable
Answer:
(c) Redeemable

Question 10.
The rate of interest payable on Debentures is ______________
(a) uncertain
(b) Floating
(c) Fixed
Answer:
(c) Fixed

Question 11.
Debenture holders receive ______________ Certificate from the company.
(a) Share
(b) Bond
(c) Debenture
Answer:
(c) Debenture

Question 12.
Interest Warrants are sent to ______________ of the company.
(a) Shareholders
(b) Debenture holders
(c) Owners
Answer:
(b) Debenture holders

1B. Match the pairs.

Question 1.

Group ‘A’	Group ‘B’
(a) Debenture holder	(1) Borrowed Capital
(b) Interest on Debentures	(2) Interest Coupons
(c) Convertible Debentures	(3) Evidence of Loan
(d) Debenture Certificate	(4) Safe and secure investment
(e) Investment in Debentures	(5) Interest Warrant
(f) Redeemable Debentures	(6) Conversion into Debentures
(g) Debentures	(7) Risky investment
	(8) Evidence of shares
	(9) Creditors
	(10) Conversion into equity shares
	(11) Redeemed after a fixed period
	(12) Redeemed at winding up of the company
	(13) Owner
	(14) Owned Capital

Answer:

Group ‘A’	Group ‘B’
(a) Debenture holder	(9) Creditors
(b) Interest on Debentures	(5) Interest Warrant
(c) Convertible Debentures	(10) Conversion into equity shares
(d) Debenture Certificate	(3) Evidence of Loan
(e) Investment in Debentures	(4) Safe and secure investment
(f) Redeemable Debentures	(11) Redeemed after a fixed period
(g) Debentures	(1) Borrowed Capital

1C. Write a word or a term or a phrase that can substitute each of the following statements.

Question 1.
Return on investment in debentures.
Answer:
Interest

Question 2.
Documentary evidence of holding the debentures.
Answer:
Debenture Certificate

Question 3.
Status of Debenture holders.
Answer:
Creditor

Question 4.
Debentures can be converted into equity shares.
Answer:
Convertible Debentures

Question 5.
The person who purchases debentures of the company.
Answer:
Debenture holders

Question 6.
An acknowledgment of debt issued by the company under its common seal.
Answer:
Debenture

Question 7.
Debentures whose name is mentioned in the Register of Debentures holders.
Answer:
Registered Debentures

1D. State whether the following statements are true or false.

Question 1.
Debenture holders get regular dividends.
Answer:
False

Question 2.
The debenture is the loan capital of the company.
Answer:
True

Question 3.
Convertible Debentures can be converted into equity shares.
Answer:
True

Question 4.
Interest on Debentures is paid notwithstanding the volume of profit.
Answer:
True

Question 5.
Debenture holders enjoy full membership rights of the company.
Answer:
False

Question 6.
Dividend warrants are used to pay interest to the debenture holders.
Answer:
False

Question 7.
All types of debentures are eligible for conversion into equity shares.
Answer:
False

Question 8.
Debentures are never redeemed by the company.
Answer:
False

Question 9.
Debenture holders are the owners of the company.
Answer:
False

Question 10.
Debentures are always fully paid up.
Answer:
True

1E. Find the odd one.

Question 1.
Depository Interest, Dividend.
Answer:
Depository

Question 2.
Interest Warrant, Dividend Warrant, Demat.
Answer:
Demat

Question 3.
Debenture holders, Shareholders, Dematerialisation.
Answer:
Dematerialization

Question 4.
Debenture holders, Shareholders, SEBI.
Answer:
SEBI

1F. Complete the Sentences.

Question 1.
Debenture holder is a ______________ of a company.
Answer:
Creditor

Question 2.
Company issues ______________ certificate to the Debenture holder after allotment of Debentures.
Answer:
Debenture

Question 3.
Debenture holder gets ______________ at fixed rate as a return or income.
Answer:
Interest

Question 4.
In case of Registered Debentures, Interest ______________ are used to pay interest.
Answer:
Warrants

Question 5.
The ______________ has to correspond with Debenture holders on important occasions.
Answer:
Secretary

Question 6.
The person who purchases the Debentures of a company is called ______________
Answer:
Debenture holder

Question 7.
Interest does not depend upon ______________ of the company.
Answer:
Profit

Question 8.
Company cannot issue Debentures with ______________ rights.
Answer:
Voting

Question 9.
Debenture Certificate should be issued within a period of ______________ months, from the date of allotment of Debentures.
Answer:
6

Question 10.
A company cannot issue Debentures to more than 500 people without appointing a ______________
Answer:
Debenture trustee

Question 11.
The power to issue Debentures has been vested with the ______________
Answer:
Board of Directors

1G. Select the correct option from the bracket.

Question 1.

Group ‘A’	Group ‘B’
(a) Return on Debentures	(1) ………………………….
(b) Debenture Certificate	(2) …………………………
(c) …………………………	(3) Debenture holders
(d) ………………………..	(4) Debenture
(e) ………………………..	(5) Power to issue Debentures

(Debt capital, Board of Directors, Creditors, Issued within 6 months, Interest)
Answer:

Group ‘A’	Group ‘B’
(a) Return on Debentures	(1) Interest
(b) Debenture Certificate	(2) Issued within 6 months
(c) Creditors	(3) Debenture holders
(d) Debt capital	(4) Debenture
(e) Board of Directors	(5) Power to issue Debentures

1H. Answer in one sentence.

Question 1.
Who is the Debenture holder?
Answer:
The person who purchases Debentures of the company is known as a Debenture holder.

Question 2.
What is the income of Debentures holder?
Answer:
The income received by the Debenture holder is the fixed rate of interest.

Question 3.
What is Debenture?
Answer:
A debenture is an acknowledgment of debt received by the company.

Question 4.
What are Convertible Debentures?
Answer:
Convertible Debentures are the Debentures that are converted into equity shares.

Question 5.
Who takes the decision to allot the debentures?
Answer:
The Board of Directors takes the decision to allot the Debentures.

Question 6.
Which form is enclosed along with the letter of redemption of debentures?
Answer:
The debenture Redemption form is enclosed along with the letter of redemption of Debentures.

Question 7.
Which certificate will be issued after the Allotment of debenture?
Answer:
A debenture Certificate will be issued after the allotment of the debenture.

1I. Correct the underlined words and rewrite the following sentence.

Question 1.
The person who purchases debentures of the company is called Shareholders.
Answer:
The person who purchases Debentures of the company is called a Debenture holder.

Question 2.
Debenture holders get regular dividends at a fixed rate.
Answer:
Debenture holders get regular interest at a fixed rate.

Question 3.
A Share Certificate must be issued after the allotment of debentures.
Answer:
A Debenture Certificate must be issued after allotment of debentures.

Question 4.
A Debenture Redemption Reserve Fund is created by the company for the redemption of shares.
Answer:
A Debenture Redemption Reserve Fund is created by the company for the redemption of debentures.

Question 5.
A Demat Request Form is sent along with the letter of redemption of debentures.
Answer:
A Debenture Redemption Form is sent along with the Letter of Redemption of Debentures.

Question 6.
A company must issue a Debenture Certificate within 8 months of allotment of debentures.
Answer:
A company must issue a Debentures certificate within 6 months of allotment of debentures.

1J. Arrange in proper order.

Question 1.
(a) Board Resolution
(b) Allotment of Debentures
(c) Board Meeting.
Answer:
(a) Board Meeting
(b) Board Resolution
(c) Allotment of Debentures

Question 2.
(a) Interest Warrant
(b) Allotment of debentures
(c) Board meeting.
Answer:
(a) Board Meeting
(b) Allotment of Debentures
(c) Interest Warrant

2. Explain the following terms/concepts.

Question 1.
Debentures
Answer:

Debentures represent the borrowed capital of the company.
A debenture is an acknowledgment of debt given to the company.
Debenture Capital is also known as the ‘Supporting Capital’ of the company.

Question 2.
Debenture holder
Answer:

The person who buys Debentures of the company is known as ‘Debenture holders’.
The debenture holder is the creditor of the company and has no right to participate in the management of the company.
They get a fixed rate of interest as a return on their investment.

Question 3.
Interest on Debentures
Answer:

The returns paid on investment in Debentures are known as ‘Interest’.
The Rate of interest on Debentures is decided at the time of issue of Debentures.
Debenture holders get a fixed rate of interest which does not depend upon the profit of the company.

Question 4.
Redemption of Debentures
Answer:

Redemption means repayment.
Debenture represents borrowed capital of the company and hence, it has to be repaid.
Redeemable Debentures are repaid at the time of maturity. It is medium-term capital.

Question 5.
Conversion of Debentures
Answer:

Conversion of Debentures means converting Debentures into equity shares.
Convertible Debentures are those Debentures that are not repaid on maturity but converted into equity shares.
Before conversion, they enjoy all rights of creditors whereas after conversion they get all benefits of the owner.

Question 6.
Interest Warrant
Answer:

An interest Warrant is an instrument or payment of interest to the Debenture holders.
It is like a crossed cheque that can be encashed through the Debenture holder’s bank account.

Question 7.
Conciseness
Answer:

Conciseness refers to avoiding irrelevant and unnecessary information.
As far as possible the letter should be brief, short, and to the point so that, the reader should develop an interest in reading it.

Question 8.
Precise Information
Answer:

Precise information refers to providing timely and up-to-date information.
The data given in the letter must be accurate and based on factual information.

Question 9.
Courtesy
Answer:

Courtesy means politeness.
The secretary has to be polite while corresponding with debenture holders. Due respect should be given to them being the Creditors of the company.
The language in the letter should be courteous. Rude and harsh words should be avoided.

Question 10.
Debenture Certificate
Answer:

A debenture Certificate is an acknowledgment of debt given to the company.
It is issued under the common seal and signature of two directors of the company as a witness.
It contains the name of the Debenture holder, number of Debentures, type of Debenture, rate of interest, maturity, etc.

3. Answer in brief.

Question 1.
Which are the precautions to be taken by the Secretary while corresponding with debenture holders?
Answer:
The following precautions are to be kept in mind by the secretary while corresponding with the debentures.
(i) Transparency:
Transparency means disclosing the correct and accurate information of the company. Including the credit rating of the company, true and real facts of companies’ affairs, etc. in correspondence.

(ii) Quick Response:
Secretary should promptly respond to the queries and complaints of debenture holders without any delay.

(iii) Courtesy:

As debenture holders are the creditors of the company, proper respect should be given to them in correspondence.
The wordings in the letter should be courteous. Rude and harsh words should be strictly avoided.

(iv) Conciseness:
Letters to the debenture holders should be brief and to the point avoiding unnecessary information.

(v) Accuracy:
The secretary should provide precise and up-to-date information to debenture holders. The information must be true and correct.

(vi) Confidentiality:
As a confidential officer of the company, the secretary must take due care and should not disclose any secret information about the company while writing letters.

(vii) Reputation of the company:
While corresponding with debenture holders, the secretary should try to maintain goodwill and create a good image of the company in the mind of debentures.

(viii) Legal Provisions:
The secretary should follow the statutory provisions of the Companies Act, 2013 and other related laws while corresponding with debenture holders. Secretary must be very careful in corresponding as it can cause legal consequences.

Question 2.
What are the circumstances under which correspondence can be made with debenture holders?
Answer:
Debenture holders are the creditors of the company. They have the right to know about the decisions taken by the management of the company and other information. The secretary corresponds with the debenture holders under various circumstances. The following are the few circumstances under which the secretary enters into correspondence with the debenture holders:

Informing the applicant about the allotment of debentures.
Informing about payment of interest through:
- Interest Warrant
- Electronic Mode
Letter for the conversion of debentures into equity shares.
Informing the debenture holders about the redemption of their debentures.

4. Justify the following statements.

Question 1.
The company secretary should take certain precautions while corresponding with debenture holders.
Answer:

Secretary has to be more careful while drafting the letters. The languages used in the letter should be courteous, i.e. showing due respect to the shareholders.
A prompt reply should be given to the queries raised by the debenture holder.
The letter should be short and precise containing important information. The data provided in the letter should be up to date.
It is also necessary for the secretary to keep in mind the goodwill of the company. Simultaneously, it is also necessary to be aware that the company follows all the legal provisions of the Companies Act, 2013.
Thus, it is rightly justified that, the company secretary should take certain precautions while corresponding with debenture holders.

Question 2.
There are certain circumstances when a secretary has to correspond with debenture holders.
Answer:

(i) Debenture holders are the creditors of the company and are entitled to receive the interest.
(ii) Secretary being the link between the company and debenture holders has to draft various letters:
- Allotment letter has to be sent to Debenture holders when the Debentures are allotted.
- Letter for payment of interest has to be written to Debenture holders to inform them.
- Payment can be done either through an interest warrant or ECS/ NEFT.
- Letter informing the Debenture holders about conversion of debentures into equity shares.
- Letter informing the Debenture holders about the redemption (repayment) of Debentures.
- Thus, it is rightly justified that, there are different circumstances when a secretary has to correspond with Debenture holders.

5. Attempt the following.

Question 1.
Draft a ‘Letter of Allotment’ to debenture holders.
Answer:

RADHIKA INDUSTRIES LIMITED
50/A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH 2002 PLC 503433

Website: www.radhikalimited.com
Email: radhika4@gmail.com
Date: 14th May 2019

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DH/2018-19

Mr. Amit Desai,
C/23, LIC colony,
L.J Road, Mahim,
Mumbai – 400 096

Sub.: Public issue of 10,00,000 @ 12.5% non-convertible debentures of ₹ 100 each at par.

Dear Sir,
In response to your application AD- 1884 dated 19th April 2019, I am directed by the Board of Directors to inform you that, you have been allotted 100,12.5% non-convertible debentures of ₹ 100 each. The period of debentures is for 7 years.

These debentures are allotted to you as per the resolution passed at the Board Meeting held on 8th May 2019 and as per the terms and conditions of Debenture Trust Deed and Articles of Association of the company.

Details of allotment are as follows:

1	2		3		4
Folio No.	No. of Debentures		Distinctive Nos.		Amount received
	Applied	Allotted	From	To
B-520	100	100	101	200	₹ 10,000

The debenture Certificate will be sent to you within the stipulated period.
Thanking you,

Yours faithfully,
For, Radhika Industries Limited.

Sign
Company Secretary

Question 2.
Write a letter to debenture holders regarding payment of interest through an Interest Warrant.
Answer:

RADHIKA INDUSTRIES LIMITED
50/A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH 2002 PLC 503433

Website: www.radhikalimited.com
Email: radhika4@gmail.com
Date: 10th Jan 2019

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DH/2018-19

Mrs. Bharati Nikumbh,
A/22, BPT colony,
N.K Road, Mahim,
Mumbai – 400 096

Sub.: Payment of interest on debentures.

Dear Madam,
As per the board resolution passed in the Board Meeting held on 20th Jan 2019, this is to inform you that, the payment on your 10% non-convertible debentures of ₹ 100 each is due.

The details of the amount of interest payable to you are as follows:

1	2	3		4	5	6	7
Folio No.	No. of Debentures	Distinctive Nos.		Gross Amount of Interest	T.D.S (10% on interest)	Net Amount of interest	Interest Warrant No.
		From	To
B-110	100	101	200	₹ 1,000	NIL	₹ 1,000	TW-1242

The interest warrant is enclosed herewith. Please acknowledge the receipt.
Thanking you,

Yours faithfully,
For, Radhika Industries Limited.

Sign
Company Secretary

Encl: Interest Warrant No. IW-1242.

Question 3.
Draft a letter to the debenture holder informing him about the redemption of debentures.
Answer:

SWARG MARBLE LIMITED
40/B, C-Ramchandra Road, Khar (East), Mumbai: 400 053
CIN: L24308 MH2006 PLC211388

Website: www.swarglimited.com
Email: swarglimitedl2@gmail.com
Date: 16th March 2019

Tel. No.: 022-4133242
Fax No.: 022-4215212
Ref. No.: R/DH/14/18-19

Mr. Amit Berde
A/21, Swastik Colony,
Bhadkamkar Marg,
Fort, Mumbai 400 020

Sub: Redemption of debentures.

Dear Sir,
In accordance with the terms decided at the time of issue of 1,00,000, 10% Non-convertible debentures, this is to inform you that, the said debentures are due for redemption on 30th April 2019.

According to Board Resolution No. 4432 passed at the Board meeting held on 15th March 2019, said debentures shall be redeemed out of the Debentures Redemption Reserve of the company.

Please arrange to submit a duly filled up Debentures Redemption Form along with a duly discharged debenture certificate at the Registered Office of the company on or before 7th April 2019.

On completion of the above formalities, the redemption amount will be credited to your bank account. You are requested to provide us your bank account details.
Thanking you,

Yours faithfully,
For, Swarg Marble Limited.

Sign
Company Secretary

Encl: Debenture Redemption Form.

Question 4.
Draft a letter to debenture holder informing him about conversion of debentures into equity shares.
Answer:

SUNRISE INDUSTRIES LIMITED
50/A, Swami Narayan Road, Tunga Village, Mumbai: 400 072
CIN: L42105 MR 2005 PLC: 402512

Tel. No.: 022-23731242
Fax No.: 022-23738656
Ref. No.: D/DH/2018-19

Email: sunrise5@gmail.com
Website: www.sunriselimited.com
Date: 2nd May 2019

Mr. Uddhav Ansurkar
20, Hilton Complex,
Laxmi Road,
Solapur- 413018

Sub: Conversion of Debentures into Equity shares.

Dear Sir,
In accordance with the terms decided at the time of issue of 1,00,000, 10% fully Convertible debentures, this is to inform you that, the said debentures are due for conversion.

Accordingly, a special resolution was passed at the Extra Ordinary General Meeting held on 20th April 2019 for approval of the conversion of debentures into equity shares in the ratio of 5: 1. As per your letter of option, you have been allotted 10 equity shares in lieu of your 50 debentures.

Details of your holding after conversion are as follows:

1	2	3	4		5
Folio No.	No. of Debentures held	No. of Equity Shares issued	Distinctive Nos.		Share certificate No.
			From	To
225	50	10	201	210	1210

A duly signed and executed shares Certificate is enclosed.
Debenture Certificate will be null and void w.e.f. 30th April 2019.
Thanking you,

Yours faithfully
For, Sunrise Industries Limited.

Sign
Company Secretary

Encl: Share Certificate No. 1210

Question 5.
Write a letter to debenture holders regarding payment of interest electronically.
Answer:

RADHIKA INDUSTRIES LIMITED
50/A, Bandra-Kurla Complex, Bandra (East), Mumbai: 400 051
CIN: L46001 MH 2002 PLC 503433.

Tel. No.: 022-24761524
Fax No.: 022-24881242
Ref. No.: D/DH/2018-19

Email: radhika4@gmail.com
Website: www.radhikalimited.com
Date: 10th March 2019

Mrs. Shweta Gawde.
B/20 Mahindra Tower,
Tardeo Road, Mumbai Central,
Mumbai – 400 034

Sub.: Payment of interest on debenture through ECS or NEFT.

Dear Madam,
As per the Board resolution passed in the Board Meeting held on 8th March 2019, this is to inform you that, the board is finalizing to pay interest @10% on Redeemable Debentures of ₹ 100 each for the year ending 31st March 2019.

We have complied with all the provisions relating to the payment of interest on debentures.

Details of your interest payment are as follows:

1	2	3		4	5	6
Register No.	No. of Debentures	Distinctive Nos.		Gross Amount of Interest	T.D.S (10% on interest)	Net Amount of interest
		From	To
E-340	100	201	300	₹ 1,000	NIL	₹ 1,000

Interest will be paid through ECS or NEFT transfer by crediting your bank account as per details provided by you to the company.
Thanking you,

Yours faithfully,
For, Radhika Industries Limited.

Sign
Company Secretary