I. Fill in the blanks with appropriate words in the following statements.
1. Financial institutions require two types of finance they are _____ and _____
2. ‘The supplies of goods raise credit from the buyers' is called __________
3. The business concerns raise credit to carryout day to day affairs IS called _____
4. For immediate needs the business institutions get credit from _____
5. The capital of joint stock companies is divided into small units They are called ________
6. The bank that supplies credit to import are export goods is called _____
7. The IFCl was started in the year _____
8. The first share market of India was started at _______
Ans. (1) short term: long term; (2) Trade credit; (3) Bank credit/ loan; (4) indigenous bankers/ money lenders; (5) shares; (6) EXIM Bank; (7) 1948; (8) London.
II. Answer the following questions in two to three sentences each.
1. What is the meaning of financial management in business management?
Ans. Finance is the acquisition of funds and their effective utilization, keeping mind the overall objectives of the concern. It is a process of rising, providing and managing of the funds.
2. Which are the two types of finance required by the business concerns? Give example.
Ans. There are two types of finance on the basis of the term for repayment. They are
(i) Short tern finance. Example - trade credit, bank credit, etc.
(ii) Long term finance. Example -issue of shares, debentures, financial institutions etc.
3. Mention any four sources of short term credit required by business concerns?
Ans. Sources of short term credit are:
(i) Trade credit,
(ii) Bank credit or Bank loan,
(iii) Advance from customers,
(iv) Short term public deposit or instalment credit.
4.For what purpose the short term finance is required by business concerns?
Ans. The short term finance is required for the purpose of following
(i) it is required to meet the working capital needs, that is, to purchase raw materials, to pay wages and salaries, etc.
(ii) There is always a time gap between sales and receipt of sale proceeds. To fill the financial gap between these two processes namely sales and receipt of sale proceeds sufficient funds are required.
5. What do you mean by long term finance?
Ans. Long term finance refers to finance required for the development programmes such as expansion of the level of production, modernization of production methods etc.
6. Give any three organizations in the field of Mutual funds'.
Ans. The organizations in the field of Mutual funds are - Unit Trust of India (UTI), Magnum equity fund, LIC growth fund, UTI Market plan, prudential lCICI balance fund, etc.
III. Answer the following questions, each in about eight to ten sentences.
1. What is the role and importance of finance to business concerns?
Ans. Role and importance of finance in business organizations are as follows:
(i) Finance is the life blood of any business. Without finance no business activity is possible.
(ii) Finance helps to obtain resources that are required in the process of production and marketing of goods and services.
(iii) Finance integrates the various segments of business enterprise for the smooth running of the business in the direction 0 f attaining the organizational goals.
(iv) Finance guides and regulates the incisions and expenditure.
(v) Finance helps for modernization, diversification, expansion and development of an enterprise.
(vi) Finance is essential to undertake research, market survey, advertisement and publicity for effective marketing of the products.
2. Explain briefly the purposes for which long term finance is required by business concerns?
Ans. Long Term finance is required for -
(i) The development programmes such as expansion of the level of production, modernization of production methods etc.
(ii) It is required for financing the fixed capital of an undertaking, example, to procure fixed assets, establishing new undertaking.
(iii) To issue shares to start a joint stock company, the companies raise the funds through issue of shares.
(iv) Joint-stock companies are empowered to borrow finance for meeting long term financial requirements through the issue of debentures.
3. "Issue of shares and debentures play a very important role in long term credit" what are they? How do they help?
Ans- Issue of shares: The capital of a joint stock company is divided into small units called Shares. To start a joint stock company, the promoters issue shares. Also whenever they need additional capital for long term purpose, the companies raise the funds through issue of shares to the public. Debentures: Joint-stock companies are empowered to borrow finance for meeting long term financial requirements through the issue of debentures. Debentures are the debts or loans borrowed by the companies. A company under its common seal acknowledges a debt to some persons containing and undertaking to repay the debt after a specified period. A fixed rate of interest is paid to the debenture holders at regular intervals.
4. What is the part played by Industrial Finance Corporation (IFC) and State Finance Corporations (SFC) in financing the business?
Ans. Industrial Finance Corporation of India (IFCI): It was set up in 1948 under the act of Parliament to provide long term financial assistance to industry. The Corporation grants loans to public limited companies and to co-operative societies. State owned public limited companies can also borrow funds from the corporation.
State Finance Corporations (SFCs): State Finance Corporation Act was passed in 1951 by the Parliament to enable the State Governments to establish State Finance Corporations. The Act applies to all the states except to Jammu and Kashmir. The main objective of SFC is to provide long term finance to small and medium scale industries in their respective states.
5. What are long term public deposits and what are their advantages to public?
Ans. Long term public deposits: A company can accept public deposits to meet long term financial needs. The procedures to get these deposits are simple and do not involve many formalities. A company can accept these deposits for a period not exceeding 5 year (60 months). The deposits are unsecured and 8 to 10 of interest is allowed. The maximum amount that can be raised under public deposit shall not exceed 25 of the paid up capital of the company.
6. What do you mean by Money market and how is it different from capital market?
Ans. Money Market: The term money market is used in a sense to mean financial institution which deals with short term funds in the economy. Money market arranges funds for working capital. Rate of interest is high, compared to the institution of capital market. The funds can be borrowed under money market for a short period varying from a day, a week, a month or 3 to 6 months against the different types of instruments such as trade hills, bank acceptances, bonds, treasury bills etc.
Capital market: It refers to the institutional arrangements for facilitating the borrowing and lending of long term funds for fixed capital. The rate of interest is low when compared to money market. The financial institutions, finance corporations, investment trusts, mutual funds etc., are the leading financial institutions in capital market.
7. Explain in brief the part played by stock exchange in financial matters of business.
Ans. The stock exchange is one of the constituents of the capital market. A specialized market place that facilitates the exchange of securities those are already in existence. The stock exchange regulates and control business in buying, selling and dealing in securities. They are regulated by the government. They do not engage only in the purchase and sale of securitises but provide a place where members can carry out their business on their own account under codes, rules and regulations.